Law firm’s action to seek payment under CFA should have used part 8, not part 7

A law firm using the Solicitors Act to seek payment from its former clients under a conditional fee agreement (CFA) should have brought the proceedings under part 8 and not part 7, the High Court has ruled.

It found the CFA was a contentious business agreement.

Healys LLP v Partridge and Anr [2019] EWHC 2471 (Ch) concerned the payment of the London law firm’s fees under a CFA after it acted for the married defendants in pursuing a professional negligence claim against two barristers and a firm of solicitors in Gibraltar following failed litigation in 2017. The CFA provided that only disbursements were payable on the claim failing.

After the Partridges refused offers to settle the 2017 claim, Healys terminated the CFA and came off the court record. The Partridges then instructed BLM and, two days later, settled their claim against one of the barristers for a substantial sum.

Unaware of this, Healys agreed to a request from BLM to release its papers on condition that its disbursements were paid in full and subject to various undertakings, including an undertaking that BLM would use best endeavours to recover Healys’ costs as part of any settlement and would keep Healys fully informed of those endeavours.

The outstanding disbursements were paid to Healys on the same day and the papers then released. When Healys became aware of the settlement a week later, it issued the Patridges with an invoice and, concerned that they were trying to avoid paying, obtained a without-notice freezing injunction.

This required Healys to issue and serve its claim against the Partridges within four days, which the firm did, seeking unpaid professional fees of £810,273 or, alternatively, damages for breach of the CFA.

On the return date, Kelyn Bacon QC, sitting as a deputy High Court judge, accepted the defendants’ submission that the effect of section 61 of the Solicitors Act 1974 was that, where fees are said to be due under a contentious business agreement, a solicitor cannot sue for them by bringing a part 7 claim. Instead, the court has jurisdiction under an application brought under part 8 or (if made in existing proceedings) part 23, to determine whether the agreement is fair and reasonable.

The judge said: “The opening words of section 61(1) are quite specific: ‘No action shall be brought on any contentious business agreement…’ It is necessary to give some meaning to those words. The correct interpretation, I consider, is that a contentious business agreement does not, in itself, give rise to a cause of action on the basis of which a claim for costs may be brought.

“Rather, the agreement must first be submitted for the determination of whether it is fair and reasonable. Only once that determination has been made can the court enforce the agreement (if it is found to be fair and reasonable) or simply proceed to an assessment of costs (if the agreement is not found to be fair and reasonable).”

This was not, she added, merely “an arcane procedural technicality”. Section 61 provided for a specific layer of protection for the client in relation to a contentious business agreement, in that no cause of action arises under the agreement unless and until the court has determined that the agreement is fair and reasonable.

The question was then whether the CFA was a contentious business agreement, with Healys saying a “pure” CFA, where no fees were recoverable in the event of losing, could not be.

But Ms Bacon QC decided: “On the plain and natural reading of section 59(1) [of the 1974 Act], a CFA is an agreement as to the solicitor’s remuneration, and an agreement such as the present CFA which sets out an hourly rate is an agreement where the remuneration is set by reference to an hourly rate.

“It matters not, in that regard, whether the CFA provides that the remuneration is to be reduced or extinguished altogether in the event of failure.” The proviso in section 59(2)(b) – which means that section 59(1) and other provisions of the Act do not, themselves, render a CFA valid – “reinforces that interpretation”, she added. “If the definition of a contentious business agreement in section 59(1) completely excluded a conditional fee agreement, then the proviso in section 59(2)(b) would have been unnecessary.”

Ms Bacon QC said: “That does not, of course, necessarily mean that every CFA will be a contentious business agreement for the purposes of part III of the 1974 Act. I note, for example, that the Law Society’s model form CFA for personal injury and clinical negligence cases contains a specific clause providing that the agreement is not a contentious business agreement within the terms of the 1974 Act.

“Without expressing any view on the construction and effect of agreements containing a clause of that nature, I note that the present CFA contained no such clause, nor anything else to suggest that it should fall outside the scope of the section 59 definition.”

She directed that the claim continue as if it had been commenced as a part 8 claim.

The judge then acceded to Healys’ request to replace the freezing injunction with a proprietary injunction over proceeds of the settlement agreement. The firm argued that it was entitled to exercise an equitable lien over that settlement sum, given that it had a lien over its papers in the 2017 claim which was compromised by their release to BLM. Healys said that, had it known a settlement had been reached, it would not have released its papers until its fees had been paid.

The solicitors accepted that the order should permit the Partridges to use the settlement monies to make payments to BLM to satisfy invoices raised for fees reasonably incurred in connection with both the 2017 claim and the present proceedings. The judge said that dealt with the Partridges’ objections to the grant of a proprietary injunction.

Ms Bacon QC said Healys should also be given a copy of leading counsel’s advice on pursuing the 2017 claim against the other defendants to ensure that the settlement fund was not depleted by “unreasonable expenditure”.

She further allowed withdrawals of up to £500 per week for each of Mr and Mrs Partridge for their ordinary living expenses.

John Virgo and Oliver Manley (instructed by Healys) for the claimant, and William Edwards (instructed by Berryman Lace Mawer) for the defendants.

 

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Costs News
Published date
26 Sep 2019

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