£250k Fixed Fee Agreement Found to be Unreasonable & is Set Aside by Costs Judge Brown
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. Costs Judge Brown was required to consider the reasonableness and fairness of the agreement.
Litigation Background
The Claimant was an experienced property investor and instructed the Defendant firm to act for her in an action relating to a claim for service charges against a leaseholder of one of her properties. The Claimant proposed carrying out building works for the entire building and she sought a contribution towards these payments in respect of the leaseholder’s share. 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 of the matter took place on 18 November for 4 days and was heard in the First Tier Tribunal (Property Chamber).
The Tribunal’s decision handed down on 17 January 2020. The Tribunal made determinations in principle however the sums resulting from these findings would be subject to calculation by the experts. It was calculated that the Claimant’s eventual damages were likely to amount to around £150,000 and the leaseholder’s set off may amount to circa £350,000. Consequently, it was likely that the set off amount would exceed the original claim. The Claimant sought to appeal this decision and permission to appeal was refused by Upper Tribunal (Land Chamber) on 15 June 2020.
Fees and Retainer Background
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. From around September 2018 the Claimant had cash-flow issues and various invoices remained unpaid. From October 2018 various requests for payment were made and the Claimant was advised that the Defendant may have to cease to act payment was not made imminently. However the deadline for payment was extended on a number of occasions.
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, by no later than 23 March 2020, 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.
On 9 March 2020, the Defendant sought payment in the sum of £340,902.02, being the fixed fee plus disbursements. The Claimant disputed these fees and requested the Court to determine whether, pursuant to section 61, the terms of this agreement were unfair or unreasonable.
Factors considered by the Court
The Solicitors Act
The Court first referred to the relevant provisions under the Solicitors act. Section 59(1) 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. With these statutory provisions in mind, the Court then considered the fairness and reasonableness of the agreement at hand.
Fairness
The Court was satisfied that the Defendant had explained the proposal to the Claimant, discussed the future work and highlighted the deadline relating to the possible appeal. The Court was also satisfied that the Defendant had set out its proposal on fees and 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, whilst the Court noted that the Claimant was experienced in litigation to some extent, having been involved with a number of recent actions, 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 unusual incentive for the Defendant in that it would benefit significantly if permission were refused.
The Court also considered the timeframes at hand. The agreement was put to the Claimant on 11 February 2020 and the application for permission to appeal had to be filed by 14 February 2020. Therefore the client had very little time to seek independent legal advice and she could not proceed without legal representation. However, as submitted by the Defendant, the limited time was very much the Claimant’s own doing due to continued delays and issues with payments.
Reasonableness
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 x hourly rate basis, was far in excess of the level of work that was likely to be required.
The Defendant submitted that the uplift in fees was intended to offset the risk in terms of payment of fees however the Court noted that the Defendant was content payment would be received, it was simply a matter of when these fees would be paid. It was also noted that section 65 of the Solicitors Act 1974 provided adequate protection in this regard. Therefore the Court did not consider that this was a weighting factor. It was also submitted by the Defendant that the threat of ceasing to act was entirely reasonable due to the payment issues and there was no intention to pressure the Claimant into an agreement.
The Court’s findings
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.
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. Additionally the Defendant 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 concluded 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.
Commentary
This may appear to be a harsh decision on the face of it however the outcome simply continues to illustrate the principle that informed consent is an imperative factor when formulating and agreeing a retainer. That said, 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 does appear to be a little contrary given that the very nature of the fixed fee is that it involves an element of risk on the parts of both the solicitor and the client. Therefore, it is possible that this decision, if not appealed, may provide a platform for further challenges to the reasonableness of high level fixed fee agreements.