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The curse of the defective retainer

Court of Appeal addresses arguments relating to defective, co-existing and implied retainers, as well as deed of rectifications relating to conditional fee agreements.

Radford & Anor v Frade & Ors [2018] EWCA Civ 119 (07 February 2018)

Key Points

  • An earlier retainer cannot coexist with a later, limited, CFA  in order for costs to be recovered outside of the scope of the limited CFA’s terms.
  • A CFA, retrospectively corrected after a costs order has been made, cannot be relied on by a successful party in order to increase the financial liability of the paying party

Link to Judgment

This Court of Appeal decision followed a protracted and complex dispute between two claimants (respondents on the appeal) -  a film maker and his trading partnership - and multiple defendants (appellants on the appeal).

The appellants, a mixture of individuals and corporate entities, financed the respondents’ project to make a Spanish film, La Mula. The two sides fell out, and the respondents were replaced on the project [8(1)].

In the ensuing dispute, which included claims for defamation and unlawful means conspiracy, the appellants instructed Taylor Hampton (TH). As set out in their retainer letter of 4 July 2011, TH were initially instructed by the appellants on an hourly rate basis. This rendered them liable for TH’s costs, win or lose [9 & 13] 

Later, during August 2011, all of the appellants entered into a CFA with TH. The CFA was limited in its scope. The CFA identified what was and what was not covered by it [17]. Principally, it provided that it covered (inter alia):

"Your claims against [the Respondents]…to have the proceedings against you dismissed, to set aside the interim injunction, any assessment of damages under the cross undertaking and any ancillary applications such as seeking an anti-suit order…".

It did not cover:

"Any claim against you by your opponent or counterclaim by you to the claim as opposed to a claim for damages under the cross undertaking…".

Separately, but in relation to the same dispute, in early July 2011, TH entered into its own CFA, this time with Augustus Ullstein QC ("AUQC") [8(4)]. However, as originally signed, while the TH-AUQC CFA included the names of the individual appellants it inadvertently omitted the names of the corporate appellants [3]. This omission was only noticed and fixed at a far later date, on 30 July 2015, when a “deed of rectification” between TH and AUQC was entered into as follows:

"The parties to this Deed have agreed that the CFA does not accurately set forth the true bargain between them so far as regards the particulars mentioned below, and wish to rectify it so that it accurately sets forth the true bargain between them, inter alia so as to avoid contested rectification proceedings between them."

After providing for the addition of the companies, it was stated further as follows:

"And the parties agree that the CFA shall be so read, construed and performed as if the CFA so provided from the commencement date.

And as so varied the CFA and every clause of it is to continue of full effect and be binding on the parties."

Importantly, this was after the date at which a costs order in the appellants’ favour had been made following entry of summary judgment by Deputy Master Eyre on 14 January 2014.

Salient events in the substantive proceedings

In February 2012 TH filed an application on behalf of the defendants to set aside injunctions, disputing the validity of service and the jurisdiction of the court. The initial objective was substantially achieved by a consent order made by Tugendhat J on 23 May 2012. By that order the Judge declared that the claim form had not been served on the individual defendants; but that it had been served on the corporate defendants within the period of its validity; the injunctions were discharged; and the individual and corporate defendants all agreed to make no claim on the cross-undertaking as to damages which the claimants had given.

By this point the substantive proceedings against the individual defendants were over. But they continued against the corporate defendants. A Defence and Counterclaim was served, and default judgment entered on the counterclaim. Then, in March 2013, TH applied for summary judgment. In February 2014, Master Eyre granted that application, having concluded that the claims were hopeless. An application for permission to appeal against that decision was dismissed by Sir David Eady on 28 July 2014. The defendants became entitled to recover their costs of the claim.

The Costs Proceedings

The appellants submitted for assessment a bill of costs in the sum of £805,500, made up on the basis that all the work carried out by their solicitors and by leading counsel on the case was done pursuant to the two CFAs. The bill included success fees payable under the terms of the CFAs [2].

In two costs rulings, delivered on 5 November 2015 and 20 January 2016, Master Haworth had decided that neither the appellants’ solicitors nor counsel could recover fees charged for the work they had undertaken on behalf of the appellants after 23 May 2012, the date at which the work specified in the appellants’ CFAs had come to an end. This was because, Master Haworth decided, there was no enforceable retainer in place that entitled them to recover such fees. And, because the appellants were not liable to pay these fees, their legal costs not be recovered from the respondents under the indemnity principle [3-4].

In relation to the work undertaken by AUQC on behalf of TH, Master Haworth also decided that there was no obligation on the appellant to pay this amount because the CFA only existed between TH and AUQC. Further, AUQCs’ fees could not be recovered from the corporate appellants because they had not been initially named as the counsel’s clients in the CFA between AUQC and TH [3].

The appellants appealed to Warby J who dismissed their appeal. A second appeal was brought with the permission of Lewison LJ and Hickinbottom LJ on the grounds that:

  • The judges below were wrong to find that no payment was due to the appellants’ solicitors for work done after 23 May 2012, that being work which (on the judges' now unappealable findings) was work conducted outside the auspices of the defendants' solicitors' CFA. The judges should have found that the work was subject to an enforceable retainer, either the prior written retainer dated 4 July 2011, or an implied quantum meruit retainer resulting from the appellants instructing their solicitors to perform work which was outside the agreed terms of the CFA. The judges should therefore have allowed the recovery of reasonable costs after 23 May 2012 in any event.
  • In particular, Warby J was wrong to find that work done outside the scope of the CFA was subject to a further, implied, CFA retainer, which was unenforceable because it was not in writing:
    • There was no such finding by the costs judge at first instance, and there was no respondent's notice.
    • The finding was wrong. In circumstances where the solicitors had (i) stated their conventional terms of business; (ii) but then subsequently agreed to act on a CFA of expressly limited scope, the only logical finding was that work the solicitors were subsequently instructed to perform outside the agreed scope of the CFA was not subject to a CFA, but subject either to the solicitors' conventional terms of business, or alternatively to an implied quantum meruit payment obligation.

Ben Williams QC for the appellants advanced two primary submissions in support of these grounds:

“27. First, he argues that “the terms of business stated in the initial retainer letter enured [sic] in respect of work conducted outside the CFA” (skeleton argument, paragraph 11). Secondly, “Even if the retainer letter was revoked by the CFA, the question remains as to the effect of [the solicitors] being instructed to perform work outside the CFA…In these circumstances, the ordinary rule of law should apply, stated in the Adams case [viz. Adams v Improved Motor Coach Builders Ltd. [1921] 1 KB 495 (CA)]… A client who instructs a solicitor to perform work comes under an obligation to pay for it…” (Loc. Cit. paragraphs 14 and 15).

“28. Mr Williams has also referred us to a number of cases in which the courts have shown no inclination to uphold technical arguments raised to avoid payment of costs on the basis of an over-rigid application of the indemnity principle: see Thornley v Lang [2004] 1 WLR 378 at [5] – [9] per Lord Phillips of Worth Matravers MR (as he then was) and R (McCormick) v Liverpool Justices [2001] 2 All ER 705. It is submitted that it is wrong to find, by mere implication, that if work after 23 May 2012 was not covered by the CFA, these solicitors and clients continued their relationship on terms that the contract so implied would be unenforceable.”

In relation to the work undertaken by AUQC, it was claimed that these fees should also be recoverable after 23 May 2012. One basis for this claim was that the deed of rectification had rendered the appellants’ liable to pay the counsel’s fees under the terms of his CFA. Alternatively, it was argued that his fees should be recoverable, either under the standard terms that were agreed between the Law Society and Bar Council, or on quantum meruit basis [6-7].

In support of this ground Mr Williams submitted:

“43. Turning to ground 6, which is based upon the "Deed of Rectification", the Appellants argue that this document corrected ab initio the error of the omission from the CFA of the names of the corporate defendants from the list of clients. It is submitted that this document rendered those defendants liable for counsel's fees which are, therefore, recoverable from the Respondents.”

Delivering the sole Court of Appeal judgment, Lord Justice McCombe addressed the right of the appellants’ solicitors and barrister to recover their fees individually.

Solicitors - Co-existing retainers

"29. For my part, like the judges below, I find it impossible to accept Mr Williams' first point. I just do not see the facts of this case as spelling out the coexistence of the initial conventional retainer continuing throughout so as to pick up such items of work by the solicitors as were not covered by the subsequent CFA. As I see it, the judges below were correct in their factual analysis of the documents entered into, in the context of the known facts.

"30. This was a complicated, multi-jurisdictional dispute in which the solicitors were instructed in circumstances of urgency when the clients had been made the subject of highly inconvenient interim injunctions. The overall merits were far from clear, but there seemed to be "the makings" (as Mr Daulby put it in his evidence) of an application to contest service, the renewals of the claim form and the continuation of the injunctions in view of the claimants' failures to comply with their own obligations under the orders. The costs were likely to be high and the clients' ability to meet them was at best doubtful.

"31. The obvious solution was some form of CFA (although perhaps unusual in the case of defendants to an action), but limited to initial procedural steps without commitment to a full defence of the action. One can well understand why a dispute arose as to whether or not all the steps which followed and which led to the successful disposal of the English proceedings, before trial, by way of interim/summary judgment applications were or were not covered by the wording of the CFA with the solicitors. However, once a CFA was decided upon, at least for some ill-defined preliminary stages of the action, it seems to me to be unrealistic to suppose that the parties were envisaging the continuation of the original retainer on the "off-chance" (which they did not contemplate) that the terms of the CFA might not cover all the work that was actually being done. In my judgment, it only makes sense that the solicitors and clients understood that the CFA superseded the original conventional retainer which had been entered into in circumstances of urgency and before the viability of a CFA could be assessed.

"32. In short, I simply can find no room, on the facts of this case, for the two types of express retainer to have subsisted side by side or for the original retainer to spring back into life, when, contrary to all expectations, the CFA did not cover all the steps taken." 

Solicitors - Implied Retainer

"33. More realistic, to my mind, is Mr Williams' second point based upon the type of implied retainer which can arise such as in the circumstances of the Adams case. That case is the keystone of the Appellants' argument on this point.

"34. In the Adams case, Mr Adams' trade union instructed solicitors to act for him in a claim for wrongful dismissal. He made no express agreement to retain the solicitors, but permitted them to act for him and gave them instructions where necessary. His claim succeeded at the trial and a costs order was made in his favour. The losing defendant resisted the costs claim on the basis that it was the union, and not Mr Adams, that was liable to the solicitors and he could not therefore recover the fees under the costs order.

"35. That argument was rejected by Sankey J and by this court. Bankes LJ said,

'When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union also undertook to pay the costs. It is necessary to go a step further and prove that there was a bargain, either between the Union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs. In my opinion the evidence falls short of establishing that necessary fact, without which the defendants are not entitled to succeed. On these grounds I think that the learned judge's decision was right.'

Atkin LJ, in agreement, said:

'It appears to me therefore that the learned judge was perfectly correct in saying that the solicitors were in fact acting as solicitors for the plaintiff. If they were so acting, they did so upon the ordinary terms applicable to a person who employs a professional man to do professional work on his behalf—namely, that he shall remunerate him. That is the prima facia obligation which at once emerges when the employment is proved. It is perfectly possible for the agreement of employment to contain a term by which the agent agrees that he will not claim remuneration from his employer, but will either do the work for nothing or claim remuneration from some third party. But in the absence of such a term—which would have to be proved by the party setting it up—the ordinary deduction from the employment of a professional man accepted in this way is that the person accepting the agent's services is bound to remunerate the agent.'

Younger LJ would, it seems, have had more doubt as to the result, but for the decision of this court in R v Archbishop of Canterbury [1903] 1 KB 289, a case in which the Treasury Solicitor had intervened to act on the Archbishop's behalf in proceedings against him for mandamus, but without any express retainer by him. It was held that the Archbishop was potentially liable to the Treasury Solicitor for costs and could therefore recover from the Plaintiff the costs of his successful defence of the proceedings, even though he might never have been called upon by the Treasury Solicitor to make the liability good in reality. For Younger LJ, the Archbishop's case was decisive in favour of Mr Adams.

"36. The decision in Adams is clearly determinative of a large number of cases where solicitors may be instructed on a litigant's behalf, without formal retainer by the litigant, by the likes of a trade union, an insurer or a motoring organisation. For the reasons given by Bankes and Atkin LJJ in that case, the facts indicate that, absent any other retainer during the course of the solicitor/client relationship, "the ordinary deduction from the employment of a professional man…is that the person accepting the agent's services is bound to remunerate the agent" (per Atkin LJ [1921] KB at 503, supra). But, as Atkin LJ is recorded as observing, on the same page of the report, it is possible for agreement to be reached that the professional person will not look to the client for his remuneration; that depends upon the facts.

"37. The facts in the present case are rather different. It is not a case in which there was no express retainer. There were two such retainers. There was initially an express retainer on a conventional basis requiring payment by the client, win or lose. This was superseded by a CFA in writing which, to my mind, the solicitors and client intended should cover all work undertaken thereafter, but short of commitment to work for a full trial. Unfortunately, as has been held, the CFA did not cover all that work, but there was never any renegotiation of the underlying understanding of all concerned that the work was being done on a conditional fee basis. I think Mr Hutton QC for the Respondents is correct in his submission that, if the interim applications had been lost, neither the solicitors nor the clients would have expected that the solicitors could recover their fees.

"38. In my judgment, the facts of this case militate against a solution such as was reached, on the different circumstances of the retainer, in Adams' case. The facts of this case prevent that solution.

"39. Mr Hutton deployed a further argument by analogy to cases where parties to an express contract for a fixed term continue to act after expiry of the term as though the original contract subsisted: in such circumstances, courts may infer a renewal of the express contract on some or all of the old terms. He referred us to the following passage in Chitty on Contracts, 32nd Edition, Vol. 1 at 1-104 as follows:

'Contracts may be either express or implied. The difference is not of legal effect but simply of the way in which the consent of the parties is manifested. Contracts are express when their terms are stated in words by the parties. They are often said to be implied when their terms are not so stated, as, for example, when a passenger is permitted to board a bus: from the conduct of the parties the law implies a promise by the passenger to pay the fare, and a promise by the operator of the bus to carry him safely to his destination. There may also be an implied contract when the parties make an express contract to last for a fixed term, and continue to act as though the contract still bound them after the term has expired. In such a case the court may infer that the parties have agreed to renew the express contract for another term or the court may infer an implied contract drawing on some of the terms of the earlier contract, but omitting others. Express and implied contracts are both contracts in the true sense of the term, for they both arise from the agreement of the parties, though in one case the agreement is manifested in words and in the other case by conduct.'

"40. I consider that there is force in this analogy. Here, in blissful ignorance of the doubtful ambit of the CFA, the solicitors carried on their work (no doubt with instructions from time to time from the clients) on the basis that they were working on a "no win, no fee" basis. Their conduct never changed. They never reverted to submitting interim bills, as had been envisaged by the original conventional retainer. As my Lord, the Chancellor, pointed out in the course of argument, even after the dispute as to the ambit of the CFA had arisen, the solicitors sought to "rectify" their arrangements with counsel to record a continuing CFA throughout; it is hardly likely that they were conducting themselves on a different basis with regard to their own charges. All their conduct indicated that they were "carrying on as usual" after 23 May 2012 and nothing had changed. The misfortune was that the continuing willingness to work on a conditional basis only was not fully recorded in writing."

Counsel - Deed of Rectification

"42. As Mr Williams' helpful skeleton argument indicates, ground 7 is merely a repetition of grounds 3 and 4 as advanced in the appeal in respect of the solicitors' fees. I consider that that ground must fail for the same reasons as I have, with regret, rejected grounds 3 and 4. I agree with Mr Hutton's submission to that effect in paragraph 35 of his skeleton argument.

"43. Turning to ground 6, which is based upon the "Deed of Rectification", the Appellants argue that this document corrected ab initio the error of the omission from the CFA of the names of the corporate defendants from the list of clients. It is submitted that this document rendered those defendants liable for counsel's fees which are, therefore, recoverable from the Respondents.

"44. For the Respondents it is submitted that there is no evidence that the relevant Appellants ever agreed to this course, so as to render themselves liable, in retrospect, for these fees. Further, it is submitted that it is, in any event, not open to the Appellants to add to the liabilities of the paying parties, the Respondents, after the making of the costs order which it is sought to enforce. Reliance is placed upon the Privy Council decision in Kellar v Williams (supra).

"45. The Privy Council decision was made in the context of proceedings in the Turks & Caicos Islands. The respondent to the appeal, Mr Williams, had been successful in protracted litigation against the appellants in the case; costs orders had been made in Mr Williams' favour and a number of issues as to the extent of his entitlement under the orders were decided sequentially by the Registrar, the Chief Justice and in the Court of Appeal. The problems arose largely because the bills submitted for taxation were prepared on the basis of some of the fees on hourly rates, plus in addition a "brief fee" of $40,000. While the taxation was pending, the Chief Justice had decided (in another case) that such bills were not permissible if the result was to produce double-charging for the same work. Following this decision, Mr Williams and his solicitors agreed a varying method of charging (recorded in a letter of 6 October 2000), stripping out the brief fees and charging the entire bill on the basis of revised hourly charges. It seems that this alternative method of preparing the bills might have produced a larger costs bill than that original presented on the old basis. 

"46. On this aspect of the case, the opinion of the Privy Council (delivered by Lord Carswell) was this:

'20. Their Lordships are not satisfied that the arrangement proposed in the letter of 6 October 2000 between the attorneys, if it had been accepted by the respondent and the firm acting for him, constituted any change of substance in the fee paying agreement between them. They consider that it was at most the substitution of one method of calculating fees for preparation for and appearance in court for that which had thitherto been understood to apply, and as such it was quite a rational method of calculation of the respondent's liability for fees. It was quite open to the respondent and his attorneys to vary the fee agreement to an hourly charging arrangement if they so wished and their Lordships consider that there was clearly good consideration for such a variation. When the bills are taxed, they could be prepared, if the respondent's attorneys choose, on the hourly charging basis and then be subject to the normal process of ascertainment of the hours properly to be charged and of the applicable rates or rates to be applied to the work done. If, however, it were likely to produce a larger costs bill than the original framework, an amalgam of hourly rates and brief fees (which appears to be unlikely from the terms of the letter), the appellants' attorneys would be entitled simply to refuse to accept the amended basis and require the respondent to revert to the original framework. They could do so on the ground, as the Chief Justice correctly held, that that amendment had come into existence subsequent to the making of the costs basis and so could be disregarded by the paying party if he wished.'

(It seems clear that the word "basis" in the penultimate line must be erroneous and the word "order" should be understood and substituted).

"47. In my judgment, this is clear authority in support of Mr Hutton's submission for the Respondents on this point. It is, of course, not binding upon us, but, as with all Privy Council decisions cited in this court, the natural course is to follow it, unless we are persuaded that it is in some way relevantly distinguishable or we are persuaded that it is erroneous. For my part, I am not so persuaded; nor do I find it distinguishable.

"48. I do not accept Mr Williams' submission for the Appellants to us that the timing of the variation agreement is not the controlling factor in such cases, but simply reasonableness: see paragraph 24 of his skeleton argument. I think the passage cited from the opinion of the Privy Council is to the contrary.

"49. I agree, with respect, with what Warby J said on this point, at paragraph 67 of the judgment under appeal, as follows:


'67. I accept of course that the key point about the indemnity principle is to ensure that costs awards are no more than compensatory. I agree that the enforcement of such a retrospective agreement would not of itself offend the principle. The costs claimed would remain costs due from the client to the lawyer. The amount payable could still be controlled through the assessment process. But Mr Williams' argument overlooks the question of what it is that a party is entitled to be compensated for. That, as I see it, is the point that underlies what the Privy Council said in Kellar. The underlying rationale is in my judgment that the effect of a costs order is to create a liability to pay, subject to assessment, those costs which a party has paid or is liable to pay at the time the order is made. The liability to pay costs crystallises at that point and, although its quantum will remain to be worked out, that process must be governed by the liabilities of the receiving party as they stand at that time. To allow enforcement of a retrospective agreement which increases those liabilities would be to alter retrospectively the effect of the court's order.'

"50. Mr Williams also cited to us the decision of Christopher Clarke J (as he then was) in Forde v Birmingham City Council [2009] 1 WLR 2732. In that case the validity of a retrospective CFA, made on the eve of a settlement in the knowledge that an existing CFA might be vulnerable to challenge was upheld. I agree with Mr Hutton's submission to Warby J, with which the judge agreed, that the critical distinction between that case and the present is that the second CFA was made before the point in time at which costs became payable.

"51. In my judgment, therefore, I would follow the decision in Kellar and would hold that the making of the retrospective variation of counsel's CFA, after the making of the costs order in favour of the Appellants, cannot be effective to increase the liability of the Respondents as paying parties under that order."

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