A determination of unreasonable CFA terms and failure to provide a proper and accurate explanation of the same results in the agreement being set aside – a case summary
Vilvarajah –v- West London Law Limited  EWHC B23 (Costs)
The Claimant instructed the Defendant in relation to a claim against him for professional fees of about £20,000 by other solicitors, Hodders Law Limited, in the County Court at Willesden (the Hodders Law claim). The Defendant acted for the Claimant in the Hodders Law claim from September 2012 to August 2014. On 2nd June 2014 the County Court transferred the Hodders Law claim to the Senior Courts Costs Office for a non-statutory assessment of the fees claimed by Hodders Law.
On 12th April 2016 the Defendant delivered a bill to the Claimant in the sum of £31,945.48. This was 50% higher than the original Bill they had been instructed to act for the Claimant to dispute. The Detailed Assessment Hearing of the Bill submitted by the Defendant was heard on 9th February 2017. At that hearing Master Saker noted that it was apparent that there were significant discrepancies between the breakdown of the Defendant’s costs, the Defendant’s file and attendance notes and the Defendant’s time recording ledger. The majority of those discrepancies where left unexplained by the Defendant’s Costs Lawyer and as such the assessment was adjourned to enable the Defendant to serve evidence explaining the inconsistencies and to enable the Claimant’s costs draftsman to inspect the Defendant’s files It also became apparent at the hearing that the Claimant wished to challenge the fairness of the conditional fee agreement entered into between the parties.
Solicitors Act 1974, s.61(1)
The conditional fee agreement
In relation to the Hodders Law claim the Claimant initially instructed the Defendant in September 2012 on a conventional basis. The letter of retainer provided that the hourly rates of the fee earners were to be applied at £350, £200 and £135 plus value added tax.
On 7th January 2013 the Claimant and Defendant entered into a conditional fee agreement which was expressed to have retrospective effect from 5th December 2012. The agreement provided for a discounted hourly rate of £150 in respect of “all fee earners including solicitors, trainee solicitors and paralegals” which was payable whether or not the Claimant succeeded and a “primary” rate of £420 for all fee earners in the event that the Claimant succeeded. “Success” was defined as “reducing the amount of costs claimed” in the Hodders Law claim. If the Claimant succeeded in that claim and an award of costs was made against Hodders Law he would also be liable to pay a success fee of 64 per cent of the primary rate.
The calculation of the success fee was explained in paragraph 4(h) of the agreement:
In exchange for us accepting the risk of payment at only 64.29% (approx) of our agreed primary hourly rate if you are unsuccessful, we are entitled to a risk success fee if you achieve success, amounting to a £270 (64%) increase on the primary rate, ie £690 per hour plus VAT.
Paragraph 7(a) provided that if the agreement was terminated the Claimant would be liable to pay the Defendant’s “normal charges for all work done until termination date at £420 per hour plus VAT”.
The possibilities in relation to the Claimant’s liabilities therefore were:
i) The Claimant failed to achieve success (ie nothing was disallowed in the Hodders Law claim) in which event the Claimant would be liable to pay the discounted rate of £150 for all fee earners.
ii) The Claimant succeeded in having some sum disallowed in the Hodders Law claim in which event he would be liable to pay the primary rate of £420 for all fee earners.
iii) The Claimant succeeded in having some sum disallowed in the Hodders Law claim and was awarded costs against Hodders Law in which event he would be liable to pay the primary rate of £420 plus a success fee of 64 per cent for all fee earners (£690 per hour).
iv) The agreement was terminated in which event the Claimant would be liable to pay the primary rate of £420 for all fee earners.
The parties’ submissions
Issues were raised by the Claimant in relation to the brevity of the attendance note for the meeting to discuss and explain the CFA and raised issue with the fact no letter had been sent to the Claimant explaining the agreement, and no client care letter had followed either to confirm the change in the basis of the retainer.
The Defendant countered here by submitting that the different hourly rates were set out clearly in the agreement and that there was no evidence or suggestion from the Claimant that they were not aware of the basis of the agreement.
The Claimant maintained that there was no evidence or suggestion that he was particularly sophisticated in legal matters or in the construction of documents, although he had been involved in litigation previously.
Master Yoxall, on conclusion, took the Claimant to be of average sophistication in relation to legal matters but requiring particular care when matters are explained to him in English. On that basis it had to be determined whether it could be confirmed that the Defendant made an agreement with a client who fully understood and appreciated that agreement.
On review of the evidence Master Yoxall came to the decision that the answer here was ‘no’. There is no correspondence between the Defendant and the Claimant about the conditional fee agreement. The Master advised that he would expect to see a letter from the Defendant to the Claimant in advance of the meeting explaining the options clearly. Further correspondence would also be expected to enclose a draft of the proposed conditional fee agreement and to explain its terms so that the Claimant would have an opportunity to consider it before the meeting and think about whether there was anything which required explanation. The Defendant was unable to provide an attendance note of the meeting at which the agreement was signed recording precisely what explanation they gave of it to the Claimant. This evidence was not present within the files available.
Concern was also raised by Master Yoxall regarding the complexity of the agreement – on review he noted that he did not in fact put up on the distinction between success (no uplift payable) and success plus an award of costs (when a success fee would be payable). No risk assessment was available from the point the agreement was entered into and it was felt by the Master than a 30 minute appointment was insufficient alone to provide the full information/explanation to the Claimant as to the terms and implications of the agreement. On the basis of these conclusions the agreement was noted to be unfair and was set aside.
In addition to the agreement being considered unfair, Mast Yoxall also concluded that the document was unreasonable. It was noted that the hourly rates contained therein, in particular the rate of £420.00 was considered excessive for a case of this nature and based in this area of the country. It was also considered very unlikely that there would ever be a situation where the definition of success was not achieved – Master Yoxall noted here that: “In my experience it is very rare for no sum to be disallowed on a solicitor and own client assessment, whether the assessment is under the 1974 Act or not. A failure to achieve “success” (as defined in the agreement) in the Hodders Law Claim would be highly unlikely..”
Crucially there is nothing to suggest that the Defendant gave the Claimant any advice that the primary rate was unusual or that there was no prospect at all that he would recover these rates from his opponent in the Hodders Law claim in the event that he was awarded costs in that claim. There would have been no prospect at all that the Claimant would recover £420 for any of the three grades of fee earners however there was no evidence to suggest he had ever been advised on this. On the basis of the above, again Master Yoxall concluded that the conditional fee agreement was unreasonable and should be set aside.