The Solicitor-Client Retainer is one of the most important documents in a costs assessment. It is vital that the legal representative ensures that the terms of a retainer are suitable and give rise to an enforceable agreement between the Solicitor and Client, which covers the work to be carried out and which will operate in the desired manner whatever the outcome. It is trite law that in the absence of such an enforceable agreement between the Solicitor and Client, no costs may be recovered on behalf of a Client from the losing party in a successful claim.
In terms of seeking to ensure that the terms of the retainer will survive challenge, the legal representative will be well advised to bear in mind that while retainer issues can be resolved while the claim is ongoing, rectification generally cannot be made to the retainer once a costs order has been made or once the claim is otherwise concluded.
As Costs Specialists we routinely make and deal with retainer challenges and with focus in particular on CFAs, we have set out below some of the issues that can arise and to watch out for:
Getting the Retainer Right
Incompatibility between the CFA, Client Care Letter and Terms of Business
Care needs to be taken to ensure that the terms set out within the various retainer documents, which may include the CFA, client care letter and terms of business are consistent. The resolution where the terms are incompatible will ultimately be a question of interpretation by the Court. In Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd [2015] EWCA Civ 1230, the Court of Appeal considered that the client care letter prevailed because it was expressed to be for the avoidance of any doubt. However, on appeal, the Supreme Court held that the client care letter had to be considered with reference to the CFA and the Law Society terms and reached a different outcome on the facts of the case. Accordingly, there is the potential for unnecessary time and expense to be incurred where the retainer terms are contradictory or ambiguous.
Unsigned CFAs
There is no requirement within Section 58 of the Courts and Legal Services Act 1990 (CLSA 1990) or Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO 2012) that a CFA need be signed to be enforceable. With the removal of the CFA Regulations [2000] from 1 November 2005, a CFA needs only to be in writing. However, from an evidential point of view and the proving that the client entered into and has agreed to the terms of the CFA, whether or not the CFA has been signed will be relevant and to the key issue of informed consent. See for example Higgins & Co Lawyers Ltd v Evans [2019] EWHC 2809, where the Court held that the Client’s signature on the CFA “was not therefore included merely as some general statutory requirement, but is instead included specifically to record the client’s assent to the terms of the agreement and his confirmation that he has read, understood and agrees to all of those terms.”
Informed Consent
Even where a CFA has been signed, the requirement for the Client’s informed consent to make costs deductions from damages has been held not to be satisfied merely by the signing of the retainer agreement. In EVX V Smith [2022] EWHC 1607 (SCCO) the Court found on assessment that the hourly rates were unusual and were reduced. The Court held that the recovery of the resulting shortfall of costs from the Client would have required a clear explanation and it being established that the Client had provided their informed consent to meet such a shortfall on this basis, for the unrecovered costs to be properly recoverable from the Client. The issue of informed consent has been a hot topic in costs for some time following Belsner v CAM Legal Services Ltd [2022] EWCA Civ 1387 and is an area worthy of careful consideration, in particular in cases involving protected parties.
Success Fees, scope for the recovery of a shortfall of costs recovered between the parties from the Client and CFA-Lites
There is an important distinction to be drawn on the one hand between the success fee that may be charged to a Client by the Solicitor and the costs that may be additionally recovered from the Client to make up the shortfall of costs recovered from a losing party and the retainer agreement will need to be clear and compliant with the legislation and procedural rules to ensure that the desired outcome is achieved.
Section 44 of LASPO 2012 ended the recovery of success fees between the parties, with some limited exceptions. Success fees are now recoverable under the current statutory regime by the legal representative from the Client. A success fee is an additional amount payable for legal services, over and above the amount that would normally be payable if there was no CFA, in specified circumstances (usually if the client wins the case). The maximum uplift is 100%, however in a claim for personal injury, the success fee is subject to a cap of 25% of damages recovered at first instance (where damages exclude future pecuniary loss and are net of any sums recoverable by the Compensation Recovery Unit). See Global Energy Horizons Corporation v The Winros Partnership [2020] EWHC B27 (Costs) and Diag Human SE & Anor v Volterra Fietta [2023] EWCA Civ 1107, as examples of a CFA retainer being held to be unenforceable for providing for a success fee in excess of the statutory maximum.
A legal representative may also provide within the retainer that separately from the success fee, any shortfall of costs not recovered from the losing party may without limit be payable by the Client and deducted from the Client’s damages. There is a distinction to be drawn in this respect between a CFA and a CFA-lite. A CFA- lite provides that the costs payable by the Client to the Solicitor are limited to the costs that can be recovered from the losing party (and thus no shortfall of costs may be recovered from the Client). While there is no longer any statutory basis for CFA-lites, it is clear from CPR 44.1(3) that costs under this type of CFA remain recoverable.
The extent to which a Solicitor will in practice seek to recover a shortfall of costs from the Client will depend upon the commercial realities of competing with other firms in the marketplace and the circumstances of the individual case. What is essential is that appropriate consideration is given to the form of the CFA retainer and that the CFA provides for the desired outcome.
Incorrect Parties and Scope of the Retainer
Careful consideration should be given to who is named as a party in your retainer. In Drew Malone v Birmingham Community NHS Trust [2018] EWCA Civ 1376, the Court of Appeal overturned an earlier judgment, where the retainer had been held to be unenforceable where the named Defendant was not ultimately the party found liable in the case. The CFA signed by the Claimant contained the following wording:
“All work conducted on your behalf following your instructions provided on [sic] regarding your claim against Home Office for damages for personal injury suffered in 2010.”
There had been initial uncertainty over the correct tortfeasor and eventually the Birmingham Community NHS Trust acknowledged that it was the responsible party, rather than the Home Office. On appeal the Court found that “both textual and contextual considerations lead to the conclusion that the CFA is properly to be construed as not being limited to a claim against the Home Office/Ministry of Justice.”
However, the Court was critical of the care taken in drafting the CFA and this was a narrow escape for the Solicitors. Nonetheless, it is rare that Courts will go out of their way to interpret a documents in favour of a party who is clearly at fault.
Similar issues can arise in terms of enforceability of a CFA where work is carried out outside the expressed scope of the retainer, e.g. where the description of the event giving rise to the claim is incorrect. A legal representative will be well advised to avoid overly prescriptive descriptions in this respect.
Retrospective Effect
A CFA may be drafted so as to have retrospective effect from a date preceding the date of the agreement (see Birmingham City Council v Rose Forde [2009] EWHC 13 (QB)). Usually the agreement will be intended to cover the period from the date of the very first instruction of the Solicitor, however in our experience this will often not be what is provided for by the terms of the CFA. This is a common mistake that we see and which arises in part from the fact that the Law Society Model CFA defines the “basic charges” which may be charged by the Solicitor to the Client as “costs incurred from now until this agreement ends.” Care accordingly needs to be given to ensure that the retainer terms are clear if it is intended to provide for the recovery of charges from an earlier date.
Consumer Protection
Most CFAs are entered into at the solicitor’s offices, however consumer protection legislation has been held to apply to Solicitor/ Client retainers entered into elsewhere. The Cancellation of Contracts Made in a Consumer’s Home or Place of Work etc Regulations 2008 (SI 2008/1816) applies to contracts entered into before 13 June 2014, whereas for such contracts entered into on or after this date, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) has replaced SI 2008/1816. The 2013 Regulations provide for a statutory cancellation period of 14 calendar days and another common mistake we see with CFAs is a failure to provide for the same, which can potentially render the CFA unenforceable (see Gavin Edmondson Solicitors Ltd v Haven Insurance Company Ltd [2015] EWCA Civ 1230 as an example of where such an issue can arise in practice).
Termination
Death and Lack of Capacity
Issues can arise where a CFA is terminated for either of the above reasons and care should be taken to ensure that the retainer provisions in these respects are suitable and comprehensive. Most CFAs will terminate automatically upon death. Where this happens, it is important that the CFA provides for the recovery of charges from the Estate and you may wish to consider whether provision should be made for the same to be adopted by the person dealing with the Estate to allow you to continue to act. The circumstances in which a client may be found to lack litigation capacity are varied and it may not result in an automatic termination of your retainer. Usually a litigation friend needs to be appointed and consideration needs to be given to who is the correct party to the retainer.
Insolvency and the Solicitor’s inability to Practise
These are areas which are not covered by the Law Society Model CFA, which is at the time of writing under review. Where a client becomes bankrupt during the course of your retainer, this will usually give rise to termination. Likewise, where a firm goes insolvent or is otherwise unable to practise, this will result in the retainer being terminated, however in respect of the latter, that is termination by the Solicitor and if found to have been a wrongful termination in the context of the terms of the retainer could result in the Solicitor being unable to recover their fees.
The above summary is not comprehensive but rather is an illustration of some of the things to be borne in mind by the legal representative, when considering the potential issues that can arise where the terms of the Solicitor/ Client retainer have not been properly thought out or where the retainer documentation has not been competently drafted.
Where a client has decided to terminate the retainer, what next?
Ultimately, the answer to this question depends on the terms of your CFA. Often CFAs provide that the Solicitor has the right to decide whether the client must pay their basic charges and disbursements when we ask for them or the basic charges, disbursements and success fee if you go on to win the claim, as these are the standard terms in the Law Society’s Model Agreement.
The recent case of Sellers v Simpkins [2023] EWHC 3296 (SCCO) required the Senior Costs Judge, Master Gordon-Saker, to consider whether the Solicitor had requested immediate payment upon termination or had decided to wait it out to see if the case succeeded.
The issue of which option had been chosen by the Solicitor was important as the case was settled by the Claimant’s newly instructed solicitors on an “all inclusive” basis, i.e. inclusive of costs. The Defendant had been invited to submit details of his costs prior to the settlement meeting at which the underlying claim was concluded, however the Defendant did not ultimately deliver his bill until after settlement had taken place. The Claimant’s position was that the CFA-lite provision continued to apply even when the client terminates the retainer.
The Claimant attempted to differentiate between situations where the Solicitor’s entitlement crystallized on termination of the retainer and where the entitlement awaited the outcome, arguing that the effect of the termination of the CFA by the client was to present a choice to the Defendant to either ask for an immediate payment of their basic charges or they could wait to see if the client won and, if so, seek their basic charges and success fee. An analogy was drawn with the option to “stick” or “twist” in a card game. If the Solicitor “twisted”, it was argued that the provisions consequent on a “win”, including the overall cap, would apply.
Importantly, it was further argued on behalf of the Claimant, that in order to trigger the clause in the CFA that meant the Defendant had sought an immediate payment (or that meant the Defendant had chosen to “stick”), there had to be a demand for payment which, in the context of a Solicitor, would have to be a bill which complied with s.69 Solicitors Act 1974.
The Defendant’s argument was that the overall cap could not apply where the client terminates the agreement before the case is won. In the alternative, it did not apply where there was no express costs recovery or ascertainable sum recovered in respect of costs, as in the present case.
In his decision, Master Gordon-Saker agreed that where the CFA had been terminated by the client, the Solicitor could either ask for immediate payment of their basic charges or they could wait to see if the client won and, if so, seek their basic charges and success fee. The Senior Costs Judge did not agree however, that it was necessary for a bill to have been submitted by the Defendant for payment, to find that the Defendant had exercised his entitlement to immediate payment. Rather it was relevant to consider the surrounding correspondence between the parties:
“I think that ignores the factual matrix. There was no advantage to elect to await the outcome of the case, or in Ms Bedford’s words to “twist,” because no success fee would be payable in the event of a win. It seems to me that while the Defendant did not “ask” for payment until he delivered a bill, in March 2021 he had exercised his right to decide that the Claimant must pay his basic charges, expenses etc without waiting for the conclusion of the claim. Effectively, he had said “I’ll stick”.”
The finding of the Court was accordingly that the overall cap did not apply, because the agreement had been terminated and the Defendant had confirmed his election to claim his basic charges before the case was won. The costs sought were not therefore limited to the sum recovered from the Opponent.
The case is accordingly an important one for Solicitors whose clients have terminated a conditional fee agreement and are deciding whether to await the outcome of the case before seeking payment of their fees. When considering whether to “stick” or “twist” one may wish to consider whether there is any benefit in awaiting the outcome of the case, particularly if, as in this matter, your CFA does not include a success fee. Equally, it is important for those advising a client who has terminated a CFA and who now wants to instruct them, particularly in respect of any settlement on an all-inclusive basis, as in this matter.