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When a law firm and litigation funder were entitled to end their retainers due to breaches in contract

Escalate Law Ltd (1) and Bermans (2012) Ltd (2) v Michael Kennedy (1) and Vanessa Dawn Kennedy (2) [2021] EWHC 2232 (Ch)

When a law firm and litigation funder were entitled to end their retainers due to breaches in contract.

Background – This was a trial regarding the contractual arrangements between the Claimants and the Defendants over a professional negligence claim to be advanced by the Defendants against a firm of solicitors, Peter W Marsh & Co.

The Defendants had purchased a plot of land from the Leicester Diocesan Board of Finance (the Diocese) which was subject to an overage agreement.  The Defendants had instructed solicitors (Peter W Marsh & Co) around March 2013, to act for them in relation to the purchase of that land.

Concerns came to light that there were at least two serious flaws in the overage agreement, as to which the solicitors, Peter W Marsh & Co, had allegedly failed to advise upon. Consequently, the Defendants engaged solicitors, Bermans, in February 2018 to pursue a professional negligence claim against Peter W Marsh & Co.  Bermans Solicitors were retained under a Conditional Fee Agreement (CFA), with Bermans arranging funding through Escalate Law.

A letter of claim dated 9th July 2018 was served on Peter W Marsh & Co, and in January 2019 parties engaged in mediation, which proved to be unsuccessful.

On 4th May 2020, the Claimants served a termination notice of the CFA on the Defendants, on the grounds of various alleged breaches made by the Defendants to the CFA. The Claimants sought payment of their fees and disbursements in the sum of £75,148.02, or alternatively for damages to be assessed, which was defended by the Defendants and a counterclaim brought.

The Argument

The CFA that had been agreed required the Defendants to provide clear instructions to allow the Claimants to do their work properly. However, the Claimants claimed that the Defendants had not satisfied these requirements and alleged that the Defendants had (i) failed to provide clear instructions whether the planning permission had been preserved; (ii) had failed to provide clear instructions as to whether they were able to pay the sum due under the overage agreement; (iii) had deliberately misled the Claimants as to whether they would have built 5 houses on the land but for the solicitors negligence, or had the means to do so; (iv) had sought to have the Claimants work in an inappropriate or unreasonable way.

The Court was therefore asked to determine whether the Claimants were entitled to terminate their contractual arrangements with the Defendants, on the basis that the Defendants were in breach of contract. 

The Defendants denied that there had been any breach of contract which allowed the termination of the CFA and counter-claimed for damages. The Defendants counter-claimed on the basis that Bermans Solicitors had allowed a limitation period to lapse and failed to advise them to accept an offer made at mediation. The Claimants denied any negligence.

The decision

  • The Defendants’ submission that the CFA had been varied, so as to turn it into an unenforceable damages based agreement (DBA) was not accepted. HHJ Cadwallader determined that Bermans Solicitors were bound by the CFA which had been originally made and accepted by the Defendants’ execution of the Acceptance. He concluded that there had not been any agreement to a variation. The original agreement provided for two pathways, the second pathway (Path B) was a suggestion about how to operate the original contract, not as a variation to or amendment of the original contract. 
  • The CFA required the Defendants “to give us clear instructions which allow us to do our work properly”. Upon consideration of the correspondence relied upon, and further in cross-examination, Mr Kennedy’s suggestion that a passage in his witness statement was simply an error, was determined not to be credible. Consequently, HHJ Cadwallder concluded that Mr Kennedy’s evidence had been self-contradictory and therefore clear instructions had not been provided. He went on to say that due to the nature and circumstances of the contradiction, this gave rise to concern and that it would be difficult thereafter to place any reliance on any instructions given on the topic. Accordingly, he found that the Defendants were in breach of their obligation to provide clear instructions so as to allow the Claimants to do the work. 
  • The Defendants’ ability to pay was questioned and their obligation under the CFA not to deliberately mislead the Claimants was considered. The Defendants had instructed the Claimants to send a letter of claim in July 2018 claiming that the Defendants had lost the opportunity to build 5 houses on the land. The Claimants’ alleged that Mr Kennedy had deliberately misled them in that regard.
  • Consideration was given to the correspondence, the cross examination of Mr Kennedy and a contradictive text (omitted from the bundle) dated 16 April 2020 which said: “the £70k isn’t available, deal with it and get on with the claim. Also, no one knows that we have made a material start, and it is not a public document so I don’t see the issue and we will not be serving any notice on the council”.  HHJ Cadwallder concluded, that the Defendants were never in a position to carry out such a development, not least because they did not have the money or the means of obtaining the money. If the text of 16 April 2020 was not true, then it was misleading about the Defendants’ means. 
  • The CFA obliged the Defendants not to ask the Claimants to work in an improper or unreasonable way. The aforementioned text dated 16 April 2020 amounted to a request to formalise the agreement with the Diocese in the knowledge that the Defendants would not be able to perform it. HHJ Cadwallder concluded that the proposals made by Mr Kennedy lacked commercial probity (complete honesty), and that instructing the Claimants to proceed in that knowledge involved instructing them to be complicit in that lack of probity. The instructions were therefore to work in a way which was both improper and unreasonable amounting to a breach of the CFA. 
  • Due to the findings in relation to the various obligations in the CFA, HHJ Cadwallder determined that the Claimants, or at least Barmans, were entitled to end the CFA, with the Defendants being liable to pay the charges incurred up to that date on a full indemnity basis. 
  • Further argument had been submitted by the Defendants in relation to the scope of the CFA, by way of defining the ambit of the claim. The argument was rejected by the court, as the scope of a claim may often change over time, while remaining identifiably the same claim. 

Decision:

The Claimants were entitled to terminate the contract due to breaches and thereby were entitled to payment of their fees, disbursements and interest.

 The Defendants Set Off and Counterclaim, submitted on the basis that the Claimants breached their contractual and tortious duties to the Defendants by failure to advise the Defendants to accept an offer made at mediation, was dismissed.  HHJ Cadwallder also rejected the claim that the Claimants work for the Defendants was worthless.

For further information, please do get in touch with the team regarding any queries you may have in relation to any of your legal costs requirements on 01733 350 880, or by email mail@aandmbacon.co.uk. For more information please do visit our website www.aandmbacon.co.uk.

Published 30 September 2021

Author – Kellie Barnes

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