On 25th June 2021 Costs Judge Leonard handed down Judgement in Acupay System LLC v. Stephenson Harwood LLP SC-2020 APP-00377 on the issue of whether the CFA between the parties was in fact a CFA.
The dispute concerned a Conditional Fee Agreement (CFA) entered into between the parties on 12th August 2019.
It was the Claimant’s case that the CFA was a Contentious Business Agreement (CBA), that it was void for lack of consideration and that its terms were unfair and unreasonable. The Claimant argued that the definition of “success” within the CFA included payment by the Claimant of a sum that it could not afford to pay, that the Claimant gained no benefit from the CFA whereas the Defendant stood to gain a pecuniary advantage, and that the Defendant was obliged to advise the Claimant to seek independent legal advice before entering into the CFA which it had not done.
The CFA provided for three different levels of costs that may be payable by the Claimant for the fees of the Defendant dependent on different outcomes of the litigation namely a successful outcome, an early success, or an unsuccessful outcome. The Defendant billed the Claimant monthly at a discounted rate as provided for in the CFA.
The Claimant did make payment to the Defendant for the invoices raised until January 2020 when the international health crisis began to affect the Claimant’s business. More on this below. In the end the CFA was terminated by the Claimant. The terms of the CFA providing that in the event the Claimant terminated the CFA, the Defendant would be liable to their work at non-discounted hourly rates. The Defendant however never sought to recover their full standard rates.
On the issue of whether there was consideration and whether the Claimant gained any benefit from the CFA, Costs Judge Leonard found that the benefit to the Claimant was that it received a 30% discounted hourly rate on the Defendant’s standard terms and at paragraph 111 that:
“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)”.
On the issue of the definition of success, Costs Judge Leonard found no basis for finding the success fee to be unreasonable by reference to the success fee provisions.
On the issue of independent advice, Costs Judge Leonard found once again in the Defendant’s favor that the Defendant did in fact remind the Claimant that they could take independent advice, but the Claimant chose not to. At paragraph 50 Costs Judge Leonard goes even further:
“the Defendant could not have done more to ensure that the Claimant was properly informed as the CFA’s terms”.
In terms of the hourly rates themselves, which as specified within the CFA included a rate of £755 per hour, these were found to be appropriate to the nature of the work. In fact, Costs Judge Leonard went further at paragraph 149 expressing that he felt that the Claimant’s belated outrage at the rates was artificial:
“I bear in mind that on the evidence, the Claimant stopped paying the Defendant’s bills not because it was dissatisfied with either the Defendant’s work or its charges, but because, following the impact of the pandemic on its business in early 2020, it was having difficulty in doing so”.
CFA or CBA?
Finally, on the subject of whether the CFA was a CBA. Section 59 (1) of The Solicitors Act 1974 provides that: “…a solicitor may make an agreement in writing with his client as to his renumeration in respect of any contentious business done, or to be done, by him (in this act referred to as a “contentious business agreement”) providing that he shall be renumerated by a gross sum or by reference to an hourly rate, or by a salary, or otherwise, and whether at a higher or lower rate than that at which he would otherwise have been entitled to be renumerated”
Sections 60 and 61 of the 1974 Act make general provision for the effect and enforcement of CBAs including at 60 (1) that the costs of a Solicitor in any case where a CBA has been made shall not be subject to assessment. Section 61 also gives the Court the power to enforce the CFA if they are of the opinion that it is fair and reasonable, or, set it aside and order the costs covered by it to be assessed as if it had never been made, if deemed unfair or unreasonable.
It was the Claimant’s case here that the CFA fulfilled the requirements for a CBA as set out within section 59 of the Act. The Claimant argued that all costs under the CFA should be assessed as if the CFA had never been made.
However, and importantly, at clause 20.4 of the CFA specifically states that it is not a CBA.
Costs Judge Leonard first considered the provisions of section 59 (1) of the Act and found them to be permissive rather than prescriptive; a Solicitor is at liberty to make an agreement in writing with a client which will qualify as a CBA and that it may take many forms. He found that it did not follow that any written agreement providing for renumeration 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. That is not what section 59 (1) provides, and as the CFA specifically said that it was not a CBA, Costs Judge Leonard found that the CFA was not a CBA.
What can we learn from this?
Well, the Judgement contains many interesting snippets about the reasonableness of the hourly rates in cases of this type, as well as advice on the form that a CFA should take (in particular paragraph 173 – “it is plainly desirable to ensure first that retainers are in writing, and second that the terms of those retainers are as clear and certain as possible”), but the decision reached on whether the CFA was a CBA was the most important lessons to learn here.
A written agreement, in whatever form, which provides for renumeration as per 59 (1) of the Act, is not automatically a Contentious Business Agreement.
If your Conditional Fee Agreement states that the agreement is not a Contentious Business Agreement then it is just that. Not a Contentious Business Agreement. So, now is the time to check and ensure that your Conditional Fee Agreements do specify that the agreement is not a Contentious Business Agreement.
For any further advice on this, or other costs matters, please don’t hesitate to get in touch with Sarah on 01480 220813 or firstname.lastname@example.org