Introduction
Mr Justice Fancourt, Vice-Chancellor of the County Palatine of Lancaster, in the Business and Property Court in Leeds held that Reynolds Porter Chamberlain LLP (RPC) owed a duty of care to its client, Deborah Forster (‘the Claimant’). Specifically it had a duty to keep her informed of the ‘staggeringly high level of costs’ that were accruing throughout the retainer, with the commensurate risk of a shortfall in costs recovery that would erode any judgment she obtained.
By the time the case settled, the costs had reached £5m. The Claimant had agreed to pay these costs under the terms of a conditional fee agreement (CFA), however, she argued that RPC had been negligent in failing to keep her informed of the costs of litigation, and in failing to advise her on the risks of incurring high costs.
This case is significant for practitioners in the field of commercial litigation, as it clarifies the duties that solicitors owe to their clients under a CFA. The court’s decision in this case makes it clear that solicitors must keep their clients informed of the costs of litigation, and that they must advise their clients on the risks of incurring high costs, even if the client has agreed to pay those costs on a ‘no win, no fee’ basis.
As a separate point, the case highlights the importance of choosing the right expert in commercial litigation. The court’s decision in this case suggests that solicitors should advise their clients to use experts who are likely to be cost-effective, in addition to providing reliable and accurate evidence.
What are the practical implications?
The case has a number of practical implications for practitioners in the field of commercial litigation. First, it clarifies the duties that solicitors owe to their clients. Under a CFA, a solicitor agrees to represent a client on a ‘no win, no fee’ basis. This means that the client does not have to pay their solicitor’s fees unless the client wins the case. However, the client is still liable for the other party’s costs if they lose the case.
The court’s decision makes it clear that solicitors must keep their clients informed of the costs of litigation. The court also held that solicitors must advise their clients on the risks of incurring high costs, including the risk that the client may be unable to recover their costs from the other party if they lose the case.
Second, the case highlights the importance of choosing the right experts in commercial litigation. The court’s decision suggests that solicitors should advise their clients to use experts who are likely to be cost-effective, and who are likely to provide reliable and accurate evidence. Practitioners will need to be more mindful of the risks of incurring high costs, and they will need to advise their clients on how to mitigate those risks.
Overall, the decision is a reminder to all practitioners of the importance of managing costs in litigation and keeping their clients informed of the costs of litigation and risks of incurring high costs.
What was the background?
The Claimant, Deborah Forster, was a director of a company called Stayput Solutions Ltd. In 2008, two other directors, Kate Bleasdale and John Cariss (the Opponents) acquired overall majority control of the company and then caused it to sack the Claimant. The Claimant brought a claim against the Opponents for fraudulent misrepresentation, and for relief under section 994 of the Companies Act 2006.
In October 2011 the parties agreed, by way of Tomlin Order, that the Claimant would receive £350,000 compensation and 80% of her costs of the claim and the petition. However, only £50,000 of this was paid by the Opponents, who were eventually made bankrupt on the Claimant’s petition in 2015. Nothing more was recovered from them.
The Claimant’s subsequent claim for damages from RPC was essentially for loss of the opportunity to enforce the Tomlin Order promptly and thereby recover more of the agreed sums. The Tomlin order should have been converted to a judgment debt and then enforced against the Opponents’ assets in late 2011 and 2012. The issue of the solicitor’s breach of duty also then arose as part of this claim.
The main issues before the court were therefore:
- whether the Claimant suffered loss as a result of RPC’s negligence
- whether RPC owed a duty of care to the Claimant to keep her informed of the costs of litigation
- whether RPC was negligent in failing to advise the Claimant on the risks of incurring high costs
- if so, what damages should the Claimant be awarded?
What did the court decide?
The court held that RPC owed a duty of care to the Claimant to keep her informed of the costs of litigation. The court also held that RPC was negligent in failing to advise the Claimant on the risks of incurring high costs. The fact that the claim was funded under a CFA did not mean costs were not a matter for the client. There remained a risk to the Claimant of being liable to pay the shortfall between chargeable fees and disbursements and the costs recovered from the Opponents.
Whilst that was a breach of duty, it had caused no loss. However, the Claimant had suffered a loss of chance regarding enforcement of the settlement due to a conflict between the solicitors and funders who had made a loan to the Claimant. Judgment was entered for £192,500.
Analysis
The court’s decision in Forster v RPC is significant for solicitors, as it clarifies their duties to their clients when acting under a CFA:
- solicitors have a duty to keep their clients properly informed of the costs of litigation
- this duty is not limited to cases where the client is paying the costs of litigation themselves
- solicitors must keep their clients informed of the costs of litigation, even if the client is being funded by a third party
- solicitors must take reasonable steps to ensure that their clients understand the costs of litigation
- solicitors must warn their clients of the potential for significant costs in litigation
- solicitors must take steps to mitigate the risk of their clients incurring significant costs
The court’s decision is therefore likely to have implications for the way that CFAs are drafted and used. Solicitors will need to be more mindful of the risks of incurring high costs, and they will need to advise their clients on how to mitigate those risks. Solicitors will also need to be more transparent about the costs of litigation, and they will need to ensure that their clients are fully aware of the risks before they agree to a CFA.
Andrew Crisp is a Costs Lawyer in the Costs and Litigation Funding Department at Clarion Solicitors.
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