Looking Back: are costs incurred prior to the date of a CFA recoverable?

For retainers entered into on and after 1 April 2013, success fees have been, in the vast majority of cases, unrecoverable inter partes. For this reason, it is easy to think that there is less need to be rigorous in compliance with the letter of the rules relating to CFAs as, the thinking goes, they will never be tested. Unfortunately such an attitude can have dire consequences, and could even lead to all of the costs claimed being disallowed.

I was recently instructed to advise in relation to a matter in which the solicitor had entered into a CFA some 6 months after beginning work for the client. Upon review of the CFA, it was clear that there was no retrospectivity clause, i.e. a clause stating that the CFA covered all work done since the date of initial instruction. It is important to note that the Law Society model CFA (the 2014 version of which can be viewed here) is not expressly retrospective[i].

In Fladgate LLP -v- Harrison [2012] EWHC 67 (QB) it was held that a retainer between a solicitor and a client does not need to be in writing, and that the general principles of contract law apply to solicitor’s retainers. In general terms, this means that a retainer between a solicitor and a client can be concluded orally, subject to there being sufficient certainty at the terms agreed[ii].

Accordingly where there is a non-retrospective CFA it is in principle open for the solicitor to argue that during the period prior to the date of the CFA, there was an oral retainer in place, or in the alternative that they are entitled to payment on the basis of quantum meruit. In practice, however, whether or not a retainer can be implied prior to the date of the CFA will depend on the facts of the individual case.

Section 58(2) of the Access to Justice Act 1999 defines a CFA as any agreement ‘which provides for [the legal representative’s] fees and expenses, or any part of them, to be payable only in specified circumstances’. It is worth noting that this is the only definition of a CFA, and that the existence or absence of a ‘success fee’ is not relevant.

Of critical importance, however, is Section 58(3), which states that a CFA must be in writing.

Accordingly where the agreement between the solicitor and the client is that the client will only pay, for example, where they have been successful, then the agreement must be in writing. I would comment that the application of section 58(2) appears to be quite wide, and not just restricted to whether or not the client is successful. As an example, in an insolvency case there could be an agreement that the solicitors’ costs would only become payable upon the sale of a part of the business, or the distribution to shareholders. In these circumstances the agreement would fall within the definition of section 58(2) and would therefore be a CFA, and would therefore need to comply with all of the requirements of the CFA.

In my view, by far the most likely circumstances which will arise are that a solicitor tells his client at the outset (i.e. at or shortly after the initial conversation with the client) that the claim will be funded under the terms of a CFA, and that, assuming the CFA is a typical ‘no win, no fee’ agreement, that the client will never have to pay anything if he loses. In these circumstances both the client and solicitor intend, from the outset, that the client will never be liable to pay anything to the solicitor unless the claim is successful. Therefore if the CFA is not expressly retrospective, fees incurred prior to the date of the CFA have clearly been incurred under the terms of an oral CFA, which is unenforceable by virtue of section 58(3).

The other, likely far less common, situation will be where the solicitor conducts work for part of the claim under a genuine oral retainer, and subsequently agrees with the client to enter into a CFA. An example of this might be where a client instructs a solicitor to conduct work in relation to a claim and CFAs/funding are not discussed at all (or, if they are, the client does not agree to enter into a CFA). The claim proceeds towards issue and, before the claim is issued, the solicitor advises the client that there are reasonable prospects of success, and offers to act on a CFA (which is subsequently agreed). In these circumstances I think that it is possible to argue that the costs incurred prior to the date of the CFA were conducted under the terms of an oral retainer and are therefore recoverable pursuant to Fladgate.

Fundamentally, the difference between the scenarios is intention; in the first scenario the client always believes that he will not have to pay his solicitor if he is unsuccessful, whereas in the second scenario up until the CFA is entered into, the client believe that he will pay his solicitor in any event. Thus where a solicitor client wishes to argue that there was an oral retainer prior to a CFA, it will be necessary to demonstrate that there was no understanding or belief that the client would never pay unless they were successful.

It should also be noted that in my view, in circumstances where the client wishes to argue that there was an enforceable oral private retainer in force prior to the date of the CFA, the burden of proof will be on the receiving party to prove that this is the case, and that the starting point for any assessment will be that such costs are not recoverable.

In summary, in my opinion a CFA should always include a clause confirming that the CFA is retrospective and the date from which it runs, or should a background and explanation to support the proposition that costs incurred prior to the date of the CFA were incurred under the terms of a privater retainer.

Matthew Rose is a Solicitor in the Costs and Litigation Funding department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com, or the Clarion Costs Team on 0113 2460622.

[i] It may be possible to argue that the first bullet point under the heading ‘what is covered by this agreement’ may be read as related to all work done in relation to the claim, whether before or after the date of the CFA.

[ii] It is also possible to raise an argument of quantum meruit, for example where there is no certainty as to the terms agreed in respect of payment. Of course, any such argument will present its own risks as to what is a ‘reasonable sum of money’ to be paid for the services rendered.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s