Terminating the retainer?
Can Solicitors and Litigation Funders Receive Payment for Work Done Under a Conditional Fee Agreement if they Terminate it?
(1) Escalate Law Ltd (2) Bermans (2012) Ltd and (1) Michael Kennedy (2) Vanessa Dawn Kennedy [2021] EWHC 2232 (Ch).
The Defendants, Mr and Mrs Kennedy, had brought a professional negligence claim against a firm of Solicitors, Peter W Marsh & Co, who had been instructed to advise them in relation to the purchase of a plot of land. It was alleged that Peter W Marsh & Co had failed to properly advise the Kennedys in relation to two aspects of an overage agreement required by the vendor.
The Case against Peter W Marsh & Co was advanced on the basis that their negligence prevented the Kennedys from building houses on the land which ultimately caused them loss.
Bermans (2012) Ltd agreed to act for the Kennedys in relation to the claim against their former solicitor and Escalate Law Ltd agreed to act as the funder. The work was to be carried out under a CFA and Bermans began carrying out the necessary work in pursuance of the claim against Peter W Marsh & Co.
The CFA provided that Bermans and Escalate Law were entitled to terminate the agreement in the event that the Kennedys committed any of the specified breaches contained within it. In the event of termination, Bermans and Escalate Law were entitled to claim their fees (at their stated hourly rate) plus any disbursements incurred between the date of acting and the date of termination.
The Claimants then negotiated a variation of the overage agreement to cure one of the problems with it and fix the overage sum at £70,000 payable on development or sale.
The Kennedys had obtained planning permission in April 2017 to build a house on the land, but it was to expire on its third anniversary unless by then a material start had been made.
A week after the third anniversary on 4th May 2020, a termination notice was served on the Kennedys, by Bermans and Escalate Law, together with a demand for payment in the sum of £75,148.02, in which it was alleged that the Kennedys had committed a number of the specified breaches.
The issues that were to be determined at trial were whether the Kennedys were in breach of contract and thus whether the right to terminate existed because the Kennedys had:
- Failed to provide clear instructions in respect of a number of points that would prove pivotal to the success of their case
- Deliberately misled Bermans and Escalate Law as to the causation element of the claim
- Sought to have Bermans and Escalate Law work in an inappropriate and/or unreasonable manner
The Kennedys argued that the CFA was varied into an unenforceable damages-based agreement (DBA) by email, and they denied being in breach of contract.
Outcome
HHJ Cadwallader found the Kennedys in breach of the CFA by failing to give clear instructions on whether there had been a material start to the development – having said there had been, a subsequent email from Mr Kennedy contradicted this. HHJ Cadwallader stated:
“[t]he nature and circumstances of the contradiction must give rise to the concern that it would be difficult thereafter to place any reliance on any instructions which he might give on that topic.”
The Kennedys were also unclear on whether they were in a position to make the overage payment.
HJ Cadwallader went on to find the Kennedys also in breach of the obligation under the CFA not to deliberately mislead the Claimants by saying that they would have built at least five houses on the land if they could have.
HHJ Cadwallader stated that instructing Bermans to mislead the diocese “lacked commercial probity, and that instructing the Claimants to proceed in that knowledge involved instructing them to be complicit in that lack of probity and bad faith. Those instructions were therefore to work in a way which was both improper and unreasonable, and amounted to a breach of the CFA”.
HHJ Cadwallader also rejected the Kennedys’ counterclaim that the Claimants’ failed to advise them to accept an £80,000.00 offer made at the mediation; he found that Mr Kennedy would not have accepted it even if he had been advised to do so.
HHJ Cadwallader concluded: “I therefore reject the claim on behalf of the Defendants that the Claimants’ work for them was worthless. On the contrary, it secured an offer of settlement which the Defendants now say is acceptable (and I have rejected their attempt to blame the Claimants for the Defendants not accepting it), and an agreement in principle for a useful variation of the overage agreement (and I have rejected their attempts to blame the Claimants for it not being formalised), and did so in a way which was effectively risk-free for the Defendants (and I have rejected their attempts to blame the Claimants for finding themselves obliged to pay the Claimants’ fees).”
It is vital that litigants act under the specific terms of the CFA and do not act in an improper and unreasonable way. They should be transparent and honest with their instructions to avoid the possibility of their CFA being terminated.
This should be fully explained to clients, and they should be warned of the costs consequences of failing to act in accordance with the terms of the CFA.
PIC can assist in preparing your bill of costs in those matters where you have to make the difficult decision to terminate your retainer.
18.11.21
Susan Marshall, Costs Lawyer