CFA was not a contentious business agreement, costs judge rules

A conditional fee agreement (CFA) to defend a company in the high-profile SKAT litigation was not a contentious business agreement (CBA), a costs judge has ruled.

Even if it was, said Master Leonard, it was neither unfair nor unreasonable and it would not have been appropriate to set it aside, as the claimant, Acupay System, had argued.

In essence, it was because the CFA expressly said that it was not a CBA. He said: “In my view, the parties were free to choose whether the provisions of the CFA should be governed by the provisions of section 59(1) of the Solicitors Act 1974, or the separate statutory regime provided for by section 70. I regard both parties as bound by their agreement in that respect.”

The SKAT litigation saw Denmark’s tax agency sue more than 100 defendants to recover approximately £1.5bn it mistakenly paid based on allegedly fraudulent dividend withholding tax reclaims. The High Court dismissed the claim in April.

Acupay was one of the defendants – in the group against which no fraud was alleged – and engaged City firm Stephenson Harwood under a discounted CFA to act for it. Success was defined as not having to pay damages of more than £3.95m.

In Acupay System LLC v Stephenson Harwood LLP [2021] EWHC B11 (Costs), Master Leonard began by considering whether the terms were fair and reasonable, first rejecting the argument that the claimant gained no benefit from the CFA whereas the law firm stood to gain a pecuniary advantage.

The benefit to the claimant upon entering into the CFA was “quite plainly” that it continued to receive a 30% discount on the firm’s standard hourly rates. “The hourly rates charged under the CFA offer no basis for any conclusion to the effect that it was unfair (or, for that matter, unreasonable).”

The claimant complained that the CFA’s definition of ‘success’ and entitlement to an uplift was an amount that it could not afford and would force it out of business.

Master Leonard the success fee was “part of a larger document which has advantages and disadvantages for both parties”. He noted that Acupay’s president, Stef Lambersy – who told the court it was a “ludicrous” definition of success – had said at the time that it made sense.

He said Mr Lambersy had either considered that the claimant could raise £3.95m or was prepared to commit it to pay to Stephenson Harwood fees which he now said it could not possibly afford.

“Neither of these propositions offers any basis for concluding either that the conduct of the defendant in proposing and agreeing the CFA was unfair, or that the success provisions of the CFA were themselves unreasonable.”

In any case, he found Mr Lambersy’s evidence on what Acupay could afford was “patently incomplete” and that Stephenson Harwood would reasonably have believed that its client would have said if it could not have paid £3.95m.

Master Leonard rejected the complaints that the solicitors did not do enough to ensure the claimant had the opportunity to obtain independent legal advice – the partner at Stephenson Harwood raised it and did not, as the claimant alleged, do so in a way actually to discourage Acupay from seeking it – and that it failed to give a full and fair exposition of the CFA.

“It seems to me that if one is realistic, the defendant could not have done more to ensure that the claimant was properly informed as to the CFA’s terms… In fact, the defendant acted at all times consistently with the position it had put to the claimant both before the signing of the retainer letter and when the retainer letter was signed…

“This takes me back to the question of independent advice. [The partner] did her reasonable best to ensure that the claimant was given a full and fair exposition of the CFA’s terms.

“She also pointed out (properly, in my view) that the claimant had the option of taking independent advice and (rightly, in my view) that that was a matter for the claimant. I do not believe that it was incumbent on the defendant to do more.”

As a result, the CFA was neither unfair nor unreasonable. If it were a CBA, the defendant could hold the claimant to its terms by charging its standard hourly rates, Master Leonard said, but the law firm’s case was that it was not a CBA and it did not intend to charge more than the discounted rates.

Thus, the ruling on whether it was a CBA might have been academic, but the master went on to find in any case that it was not one. The terms were consistent with being a CBA, “with the notable exception of an express provision to the effect that it is not”.

He said: “It seems to me that the provisions of section 59(1) of the 1974 Act are permissive, rather than prescriptive. A solicitor is at liberty to make an agreement in writing with a client which will qualify as a CBA. Section 59(1) provides that it may take many forms; in fact, just about any renumeration arrangement seems to be covered, subject to certain exceptions of policy provided for in section 59(2) and elsewhere.

“It does not seem to me necessarily to follow that any written agreement providing for remuneration within the wide range of options provided for by section 59(1) must be a CBA, even if the agreement says that it is not. Section 59(1) does not say that, and I see no basis for importing those words into it…

“The characteristics that may make a solicitor’s contract of retainer a CBA can also be characteristics of a non-CBA retainer. A clear statement of the party’s intentions may be the only sensible basis on which one can distinguish one from the other. For those reasons, my conclusion is that the CFA is not a CBA.”

Robert Marven QC for the claimant. Jamie Carpenter QC for the defendant

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Costs News
Published date
08 Jul 2021

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