TERMINATING A CFA WITH GOOD REASON: SOLICITORS ARE ENTITLED TO THEIR COSTS FROM THE CLIENT: DECISION UPHELD BY THE COURT OF APPEAL

The claimant firm of solicitors represented the defendant in an action that the defendant had against Nikon. Nikon made an offer of settlement which was not accepted. The claimant solicitors advised the defendant to make an offer of settlement of the matter. The defendant rejected that advice. The retainer was terminated by the solicitor after the defendant rejected their advice. The defendant went on to pursue the action but achieved a Pyrrhic victory in that she was awarded considerably less than the offer and did not recover all her costs.

THE TERMS OF THE CONDITIONAL FEE AGREEMENT

The CFA incorporated the pro forma conditions of The Law Society publication: “Conditional Fee Agreements: what you need to know” (“the standard terms”).

Clause 7 of the standard terms provides, in so far as is relevant:

What happens when this agreement ends before your claim for damages ends?

“(b) Paying us if we end this agreement

…(iii) 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.”

THE JUDGMENT

The Master granted the claimant’s application for summary judgment of their costs in the sum of £238,527.59. On appeal Turner J rejected the defendant’s appeal. The post where that decision is considered is available here.

The defendant subsequently appealed to the Court of Appeal

THE JUDGMENT IN THE COURT OF APPEAL: EARLIER DECISIONS UPHELD

The Court of Appeal upheld the earlier decisions, rejecting the defendant’s argument that these terms only applied to offers made by the opponent.

Mr Benson, on Mrs Butler’s behalf, advances essentially the same arguments that he advanced before the judge. The process of contractual interpretation is an iterative process which entails both textual and contextual consideration of the contract. In some cases greater weight is given to the text; in other cases to the context. For these propositions he relies on the decision of the Supreme Court in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173.

Here, he says, the textual interpretation favours the narrow interpretation. Making a settlement means causing a settlement to be made. It does not refer to the making of an offer which might or might not lead to a settlement.

Contextual considerations point in the same direction. First, at common law, solicitors’ retainer is an entire contract. If solicitors do not complete the task for which they are retained, they are not entitled to be paid at all. That is also the philosophy applicable to a CFA. Solicitor and client have agreed that whether the solicitor will be paid (and if so how much) will depend on the outcome of the case. Second, the broad interpretation would allow solicitors to drop out of a case simply because they and the client disagree about whether to make an opening offer, or when to make it, or how much to offer; yet still retain their entitlement to a success fee if the client goes on to win the case. The narrow interpretation would mean that the client cannot snatch a win from the grasp of the solicitor by turning down an acceptable offer. But if the client simply disagrees with the solicitors’ advice about making an offer, the solicitors remain “locked in” until the conclusion of the case. If money is on the table, the solicitors should be entitled to their fee, but not otherwise. Third, the benefits to a client who retains solicitors under a CFA in not making their own offer are small in comparison to the risk to such a client in refusing to accept an offer made by their opponent. So there is no reason for the CFA to enable solicitors, in effect, to compel the client to make an offer. Fourth, the broad interpretation sits ill with the circumstances that apply if the client decides to terminate the retainer. In that event the solicitors must elect between unconditional payment of basic charges and disbursements; or conditional payment of basic charges, disbursement and the success fee, but only if the client wins the case. If the client ultimately loses the case, the solicitors are not paid (although they will be entitled to disbursements). Clause (b) (iii) by contrast gives the solicitors an unconditional right to basic charges and disbursements plus the success fee in the event of a win. The solicitors, in that scenario, take no risk; and the potential entitlement to the success fee is pure upside. Fifth, if there is any doubt about the correct interpretation the doubt should be resolved in the client’s favour because (a) the broader interpretation is onerous and draconian and (b) the solicitors (or what amounts to their trade union) were responsible for its drafting, and ambiguities should be resolved in favour of the consumer.

In my judgment, there are a number of difficulties with Mr Benson’s argument. First, if (b) (iii) were limited to the acceptance of an offer already made, the clause would have said so. Although this point does not always carry weight, the fact is that both the CFA itself and the Law Society document do deal with the refusal of a Part 36 offer in terms. It cannot be said that the drafter was unaware of the possibility of accepting an offer already made. The phrase “advice about making a settlement” is a much looser expression. Second, although it is possible to point to a contrast between (a) and (b) (iii), an earlier provision in the Law Society document already (quoted above) contemplates payment of both basic charges and success fee in the event that the client terminates the retainer. The only possible reading of clause (b) (iii) is that the solicitors are entitled to their basic charges and disbursements irrespective of the eventual outcome of the case. That is a major breach in the underlying principle of “no win no fee” upon which Mr Benson relies. Third, as the judge pointed out at [22] “one would not expect the level of protection which they are afforded against the whims of the unreasonably optimistic client to turn upon the random happenstance of whether or not the other side has made an approach which can be categorised as a contractual offer capable of acceptance.” That protection is, in essence, protection against the risk that if the client only makes a small recovery they will not be able to pay the additional costs incurred by the solicitors in pursuing the case to the bitter end. Fourth, the outcome is not entirely surprising. The CFA provided for the payment of the solicitors’ costs and disbursements, and the success fee, if the client won. She did. So the outcome respects the underlying bargain. Fifth, there is no ambiguity in the words of the contract. The clause is not confined to “making” a settlement. It extends to advice “about” making a settlement. That is wider than Mr Benson’s argument would allow. As a matter of ordinary English, advice “about” making a settlement includes advice to the client about making an offer of their own calculated to lead to a settlement. The words are clear, even though the result may expose the client to a greater liability than they might have expected. It is not necessary for the purposes of this appeal to attempt to delineate the outer reaches of that expression.

The judge summarised the position at [18]:

“On the facts of this case:

(i) the letters sent by the claimant clearly and unambiguously set out its opinion;

(ii) that opinion was about making a settlement with her opponent; and

(iii) the defendant rejected that opinion.”

I agree.

In Re Portsmouth City Football Club Ltd, Neumans LLP (a firm) v Andronikou [2013] EWCA Civ 916, [2013] Bus LR 1152, Mummery LJ said at [38]:

“If the judgment in the court below is correct, this court can legitimately adopt and affirm it without any obligation to say the same things over again in different words. The losing party will be told exactly why the appeal was dismissed: there was nothing wrong with the decision appealed or the reasons for it.”

I do just that. In my judgment the judge was right for the reasons that he gave. I would dismiss the appeal.