High Value fixed fee agreements
The matter of Achara Tripipatkul v WH Lawrence Limited [2021] EWHC B13 (Costs) concerned a contentious business agreement which provided for a fixed fee of £250,000 plus VAT and disbursements. This was to cover ongoing work relating to an appeal and also work that had already been undertaken and was the subject of a number of outstanding invoices.
The Claimant was a property investor and instructed the Defendant firm to act on her behalf in an action relating to a claim for service charges against a leaseholder of one of her properties. The leaseholder made a claim by way of set off for alleged failures on the part of the Claimant, in breach of a repairing covenant. The Trial was held in the FTT and the Tribunal made a decision in principle however the sums resulting from these findings would be subject to calculation by the experts. Consequently, it was likely that the set off amount would exceed the original claim. The Claimant sought to appeal this decision.
The original retainer was entered into in December 2017 and was specified as relating to an ongoing dispute with the leaseholder in respect of service charges at the property. The private retainer allowed the Defendant to raise statutory invoices periodically. Due to the Claimant’s cash-flow issues some of these invoices went unpaid.
By February 2020 the issues relating to payment had still not resolved and on 11 February 2020, a meeting took place to discuss the payment issues and agree a course of action moving forwards. It was agreed that the Claimant would pay the Defendant a fixed fee in the sum of £250,000 plus VAT and this was to be payable in addition to any further disbursements incurred. It was stated that the fixed fee would cover work carried out already as per the unpaid fees under a number of invoices and all work going forward in relation to the appeal.
The Court referred to the relevant provisions under the Solicitors Act 1974, Section 59(1) which defines contentions business agreements as “an agreement in writing with his client as to his remuneration in respect of any contentious business done, or to be done, by him providing that he shall be remunerated by a gross sum or by reference to an hourly rate, or by a salary, or otherwise, and whether at a higher or lower rate than that at which he would otherwise have been entitled to be remunerated”.
Section 61 of 1974 Act outlines the Court’s jurisdiction to enforce contentious business agreements and states that if the Court considers that an agreement is either unfair or unreasonable, the Court may either set it aside, order the costs covered by it to be assessed, or it may make any other suitable order.
The Court then considered the fairness and reasonableness of the agreement at hand using the above statutory provisions.
Looking first at fairness, the Court was satisfied that the Defendant had informed and explained the Claimant fully. They were also satisfied that the Claimant understood she would be entering a fixed fee agreement, which meant she would not have the usual rights of challenge as delivery of a solicitor’s bill ordinarily would.
However, the Court noted that the Claimant was experienced in litigation to some extent, but she was unlikely to have had the knowledge or experience to consider the reasonableness of the proposals that were put to her by way of fixed fee agreement. The Court also noted that the fee proposal created an incentive for the Defendant in that it would benefit if permission were refused, which it subsequently was in this this matter.
The Court noted that the fixed fee agreement was intended to cover all unpaid invoices and all future work relating to the appeal. The work involved during this period was considered and the Court concluded that the fixed fee agreed, when broken down into a time and hourly rate basis, was far in excess of the level of work that was likely to be required.
The Defendant argued that any uplift in fees was to offset risk of further failure by the Claimant to pay, however the Court noted that the Defendant was content payment would be received eventually. Therefore, it was simply a matter of when these fees would be paid and not if they wouldn’t be paid.
The Court concluded that, having considered all of the applicable factors, the terms of the agreement were unreasonable, and the justification provided by the Defendant was not sufficient. The £250k fixed fee agreement was set aside by the costs judge.
With regards to fairness, the Court concluded that the Claimant was not provided with sufficient information to be able to consider the reasonableness of the terms and there was also no realistic opportunity to obtain legal advice due to time constraints. The Defendant also provided no advice as to the effect of the fixed agreement on the recovery of costs. Consequently, no informed consent had been obtained and the agreement was unfair.
The Court also stated that, due to the format of the agreement and the lack of any costs having been presented in which to assess, the only option was to set aside the agreement in the entirety.
The outcome simply continues to illustrate the principle that informed consent is a crucial factor when formulating and agreeing a retainer. However, the comments of Costs Judge Brown suggest that, even if informed consent had been obtained, the agreement would have failed on the basis of the reasonableness of the fixed fee. This decision, if not appealed, may provide a platform for further challenges to the reasonableness of high-level fixed fee agreements.
Arshad Chaudry
Costs Consultant
20.01.22