Costs: Successful challenge to late terminated Conditional Fee Agreement

Background 

The claimant brought an action for personal injury following a road traffic accident in February 2013 with the benefit of a pre-LASPO Conditional Fee Agreement (CFA) entered into in March 2013. In the course of the proceedings, the defendant made two offers: an offer of £15,000 for damages and a Calderbank offer of £25,000 inclusive of costs.

In March 2017 the claimant's solicitors terminated the CFA and the claimant proceeded as a litigant in person. The claim settled in July 2017 when the claimant accepted a Part 36 offer of £25,000 out of time.

After the claim had settled, the claimant's solicitors came back on record to seek recovery of the costs of the action, and they instructed a costs draftsman who served a formal bill of costs amounting to over £34,000. 

The defendant's arguments on detailed assessment

The defendant had serious concerns about how the CFA had been terminated and questioned the claimant's solicitors about it. 

They advised that they had terminated the CFA under a clause in the agreement that said, "We can end this agreement if you reject our opinion about making a settlement with your opponent. You must then: pay the basic charges and our disbursements, including barrister's fees, pay the success fee if you go on to win your claim for damages. If you ask us to get a second opinion from a specialist solicitor outside our firm, we will do so. You pay the cost of a second opinion."

The reason they gave for the termination of the CFA was that the claimant had rejected their advice to make a counter offer of £35,000 inclusive of costs. 

The defendant queried the advice provided to the claimant when terminating the CFA. It appeared that the solicitors had attempted to exert undue influence on the claimant to settle the claim at an undervaluation given the eventual settlement at £25,000 for damages alone. They had then terminated the CFA, only to go back on record to recover their costs whilst at the same time excluding the additional costs that the claimant may have been entitled to as a litigant in person. 

The detailed assessment hearing

The hearing took place at Manchester County Court before District Judge Iyer. Counsel for the claimant contended that the defendant's point - that no costs were recoverable following the termination of the CFA by the claimant's solicitor - was misconceived and that the liability for costs stemmed from the termination and the terms of the CFA governing termination. The claimant had rejected the solicitors' opinion, the CFA allowed the solicitors to terminate the CFA in these circumstances, and the claimant would be liable for the basic charges, the disbursements and the success fee if the claim were subsequently successful. The claimant's solicitors maintained that, based on correspondence they sent to the claimant, the CFA was properly and lawfully terminated.

The defendant argued that the termination clause relied upon by the claimant's solicitors must import a term of reasonableness and that where an offer did not put the claimant at risk, the claimant's solicitors' opinion about settlement was not a reasonable one. Accordingly, the claimant's solicitors had terminated the CFA without proper justification and were not entitled to rely upon the clauses they did to enforce costs. The defendant relied on Murray & Anor v Richard Slade and Company Ltd [2021] EWHC B3 (Costs), where Master Haworth disallowed a claim for costs in a Solicitors Act 1974 assessment on the basis of the CFA being terminated by a solicitor without good reason or on reasonable notice. In the present case, and relying on Murray, the defendant argued that no costs were recoverable inter partes by virtue of the operation of the indemnity principle.

The claimant's solicitors' letter to the claimant had provided three options: to accept the solicitors' advice to make an all-inclusive costs offer, to choose to instruct another firm of solicitors whereupon the file would be transferred or to continue to instruct the current solicitors on a private basis and provide payment on account of costs.

The options did not include an offer to obtain a second opinion from an independent specialist solicitor at the claimant's own cost - an option which was included within the specific clause of the CFA which the claimant's solicitors sought to rely upon regarding valid termination. Given the solicitor was taking such a draconian step in terminating the CFA so close to trial and knowing that the claimant would find it virtually impossible to retain the services of another solicitor on a CFA basis in those circumstances, the claimant's solicitors should have provided that option especially as it was included in the clause they sought to rely upon. 

In terminating the CFA without providing that option, and relying on the principle in Murray, the defendant argued that the CFA had been terminated without just cause and no costs were recoverable from the client. Therefore, by operation of the indemnity principle, the defendant was not liable to pay costs. The claimant's solicitors maintained that they were entitled to recover disbursements. However, the defendant argued that where the CFA was found to be unenforceable and where the client had not personally paid for disbursements, disbursements were not recoverable inter partes in line with Hollins v Russell [2003] EWCA Civ 718. 

DJ Iyer agreed. The net result was that the claimant's Bill of Costs was assessed at nil. In addition, the defendant was awarded costs of the Detailed Assessment procedure in the sum of £28,800.

Comment

It is noteworthy that the court found that where a claimant's solicitor terminates a retainer and such termination is found to have been done without just cause, the retainer may be found to be unenforceable between solicitor and client. By operation of the indemnity principle, the paying party will therefore not be liable for any costs incurred, and costs will be assessed at nil.

It is hoped that this outcome will mean that solicitors who cut clients off late in proceedings without just cause should lose their entitlement to recover any costs for acting for the client, thus resulting in their costs being assessed at nil. Insurers will therefore have no liability for costs of the substantive action nor of the detailed assessment proceedings.

The additional takeaway point is that it is still possible for the court to find that retainers are unenforceable inter partes, based on solicitor-own client assessment principles. 

DWF has a strong solicitor-own client costs team who are able to import that specific knowledge into inter partes work to achieve a good outcome.

DWF's Annabelle Browne, Senior Costs Advisor, and Andrew Lyons of Ropewalk Chambers were instructed to act on behalf of the defendant. For further information, please contact Annabelle on 0151 907 3240 or at annabelle.browne@dwf.law.