Retrospective CFA

A retrospective success fee in a retrospective conditional fee agreement was not contrary to public policy.

BIRMINGHAM CITY COUNCIL v ROSE FORDE [2009] EWHC 12 (QB)

Background

The appellant local authority appealed against a decision on preliminary issues about costs in litigation with one its tenants, Ms Forde, the Respondent ("R").  R had entered into a CFA with her solicitors in relation to proceedings against the local authority for failure to repair her property.  A short time before settlement of the proceedings the local authority had challenged the validity of similar CFAs.  R's solicitors therefore wrote to her asking her to sign a second CFA.  The letter explained that the legal costs up to that date would be dealt with under the second CFA unless the court ruled it invalid, in which case they would revert to the first CFA; also, it explained, the second CFA contained a success fee, whereas the first did not.  The consideration expressed in and for the second CFA was that the solicitors would continue to act for R.  

Detailed Assessment

On 30^th April 2008 Master Campbell decided that:

•  The letter formed part of the second CFA
•  The solicitors' agreement to act was adequate consideration
•  The presumption of undue influence did not arise; and
•  A retrospective success fee was not permissible but that that did not invalidate the second CFA and, accordingly, it was enforceable.

The local authority appealed to the High Court. 

Appeal

 The local authority submitted on appeal that:

• The letter did not form part of the retainer agreement
• There was no consideration for the second CFA because the solicitors were already bound to continue acting for R under the first CFA, which was never terminated in accordance with its terms
• The second CFA had to be presumed to have been procured by undue influence and it was manifestly to R's disadvantage because of the success fee and because it imposed a retrospective liability whereas, if the first CFA was invalid, she was not liable for the solicitors' fees under it; and
• A retrospective success fee was abhorrent and a retrospective CFA, with or without a success fee, was unenforceable, particularly when the CFA was made after the Conditional Fee Agreements (Revocation) Regulations 2005 but related to a period before those Regulations came into force when the solicitor would have had to comply with the notice requirements in the Conditional Fee Agreements Regulations 2000 reg.4.

Held

 Christopher Clarke J held on 13th January 2009 that:

• The letter had been part of the retainer.  It did not only invite acceptance of the second CFA, but also contained two provisions that the parties must have intended to be part of their agreement.  As the second CFA had been entered into under the 2005 Regulations it had not been necessary for R to sign the letter in order for it to have contractual effect, nor did a CFA have to be contained in one document, Jones v Wrexham BC (2007) EWCA Civ 1356, (2008) 1 WLR 1590 applied.
• The consideration consisted of continuing to act, in circumstances where, if the local authority had been right in its challenge to the validity of the first CFA, the solicitors had no obligation to continue acting, and the right not to do so, Williams v Roffey Bros & Nicholls (Contractors) Ltd (1991) 1 QB 1 CA (Civ Div) and Arrale v Costain Civil Engineer (1976) 1 Lloyd's Rep 98 CA (Civ Div) considered.  The provision of an enforceable obligation to provide services in place of one which the local authority asserted to be unenforceable was consideration for a fresh promise to pay.  Further, the second CFA provided a benefit to R that the first had not because it extended the scope of work covered by the retainer.
• R's willingness to sign the second CFA was readily accounted for by "the ordinary motives of ordinary persons" in that she had been prepared to assist her solicitors recover their fees despite the challenge made by the Council to the validity of CFA 1.  Thus, no presumption of undue influence arose Royal Bank of Scotland Plc v Etridge (No2) (2001) UKHL 44, (2002) 2 AC 773 applied.  Although the success fee was an additional liability it was subject to assessment as to reasonableness by the Costs Judge, and if and to the extent that R was liable to pay it, it would be recoverable from the local authority, whose ability to pay was not in doubt.  So the disadvantage was more apparent than real.
• There was no prohibition on CFA's being retrospective and no reason per se why a retrospective success fee was contrary to public policy.  At para 150 Clarke J found...

"In respectful disagreement with Master Campbell and Master Hurst [in Adam Musa King v Telegraph Group Ltd, unreported], I do not regard it as necessary to hold that a retrospective success fee is per se contrary to public policy. There is, in my view, insufficient warrant for effectively precluding solicitor and client from making such an agreement.  In some, perhaps many, circumstances a retrospective success fee, or its amount, may be unreasonable, either as between the parties or as between solicitor and client. But this will not always be so. The Court has, in my opinion, enough weapons in its armoury, in the form of the criteria applicable on a detailed assessment and the provisions of the Costs Practice Direction and the Practice Direction on Protocols, to disallow or reduce retrospective fees that are unreasonable, as in this case."