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Can a solicitor recover a retrospective success fee?

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Are you still confused or not sure whether a retrospective success fee can be recovered?

The issue of recoverability of the retrospective success fee was first addressed some time ago in the case of King v Telegraph Group Ltd [2005] EWHC 90015 (Costs) (2 December 2005) where Master Hurst considered that although a CFA could be retrospective it would be wrong and contrary to public policy to permit the claimant’s solicitors to recover a retrospective success fee.

Master Hurst’s ruling was later overturned in Birmingham City Council v Forde [2009] EWHC 12 (QB) (13 January 2009). On the assessment of costs Master Campbell determined that the retrospective success fee was not recoverable. His decision unsurprisingly was appealed. On appeal Christopher Clarke J considered that retrospective success fee was not contrary to public policy:

“I do not regard it as necessary to hold that a retrospective success fee is per se contrary to public policy. There is, in my view, insufficient warrant for effectively precluding solicitor and client from making such an agreement.”

In addition Clarke J provided some guidance on the circumstances where a success fee could be retrospectively agreed. He identified three such circumstances the first being when an ordinary retainer later turns into a CFA with a success fee; the second being when the parties agree to proceed on the basis that the solicitor will be remunerated under a CFA on no win, no fee terms and, after the work has proceeded for some time, agree a success fee, applicable to all work done since the start of the retainer; and finally when the parties may agree a CFA with a success fee at x % initially and later change it, retrospectively to y%.

In addition Clarke J dismissed the paying party's submission that retrospective success fees could prejudice the opponent because they might have acted differently if they knew that they would be liable to pay the same. To this end Clarke J confirmed that retrospective success fee would be only permitted subject to the claimant not being in breach of any obligation to give notice. Furthermore he considered that the paying party was protected by the fact that the Court would assess the reasonableness of the success fee having regard to the circumstances and facts as they were known at the time when the success fee was agreed.

Further guidance on the issue of recoverability of retrospective success fee was considered in the case of JN Dairies Ltd v Johal Dairies Ltd & Anor [2011] EWHC 90211 (Costs) (23 August 2011). The claimant entered into a retrospective CFA approximately a month before the Appeal Hearing commenced. Consequently a success fee of £60,000 was sought on work done before the CFA was entered into. In addition counsel sought a retrospective success fee in the sum of £234,000. The defendant contended that the retrospective success fee should be disallowed on the basis that no notice was given by way of Notice of Funding that the success fees related to work done rather than to prospective liabilities which prejudiced the defendant’s position. The claimant argued that there was no indication that the defendant would have acted differently had the notice of the retrospective additional liabilities been given. Before giving his decision Master Gordon- Saker turned to the judgment in Birmingham City Council v Forde [2009] EWHC 12 (QB) (13 January 2009). Accordingly he disallowed the success fees on work done before the conditional fee agreements were entered into as the same was unreasonably incurred and/or were unreasonable in amount.

In the most recent case of John Joseph O’Brien v Michael Shorrock and other [2015] EWHC 1630 (QB) (which is not binding) Mr Justice Edis made some interesting comments in relation to the retrospective CFA and the success fee. Mr Justice Edis’ comments might seem harsh but given the background to the issue of the date of the CFA and the length of the retrospective period, in my opinion, the same are reasonable and justified. 

In this case the CFA by the claimant was signed on 21 October 2009. The Notice of Funding, which was sealed on 1 April 2010, stated that the case was funded by way of a CFA dated 6 November 2008. This of course created an argument about whether the Notice of Funding required the claimant to provide the date of when the CFA came into effect rather than the date of when the CFA was actually made. The claimant submitted that the Notice of Funding required confirmation of the date on which the CFA came into effect; the defendant argued that this was simply wrong and that it was clear pursuant to CPD 19.4(2) that the claimant was under obligation to provide the date when the CFA was made. In light of the same the defendant disputed that the claimant was in the breach of their obligations for which they failed to seek the Court's permission for relief from sanctions. The defendant also submitted that the retrospective success fee for the period between 6 November 2008 and 21 October 2009 was too high in any event and should be lowered. In light of the submissions made District Judge Harris at first instance allowed the claimant a retrospective success fee of 40%.

The matter proceeded to the appeal before Mr Justice Edis who was of the opinion that the paying party must know not only the existence of any additional liability but also its extent to include knowledge of any matters which might be relevant to any arguments available to limit that liability and in particular whether any part of the costs claimed attracted a success fee before the date of the CFA. He further considered that if the date of the CFA provided within the Notice of Funding was not accurate there was a danger that the Court might award, or the defendant might agree a success fee on pre- CFA costs where that was not justified or was at the incorrect level. In light of the above Mr Justice Edis suggested that anything less than strict compliance with the Practice Directions should be regarded as significant.

Mr Justice Edis was also concerned with the period for which the retrospective success fee was claimed which was almost a year. He said that:

“If solicitors want the benefit of risk taking, then they should actually take the risk by committing to the conduct of the action. <...> To conduct litigation without committing to risk but to claim a fee as if one had, is having the cake and eating it. <…> Retrospective CFAs should attract a degree of scepticism <...> They produce reward for the risk which was only being run to an extent which could be fully controlled by the solicitor."

Ultimately Mr Justice Edis granted the claimant relief from sanctions arising from their alleged failure to provide the correct information within the Notice of Funding and allowed the claimant a retrospective success fee of 20%. In support of the same he said that:

“I have been tempted to disallow in its entirety, but I consider that this would be disproportionate if the 40% level is right. I also would not wish to inhibit the access to justice of gravely injured and vulnerable people by imposing a sanction at too great a level."

In summary the solicitor is allowed to recover a retrospective success fee as long as it is reasonable and justifiable. Furthermore the information to be provided within the Notice of Funding relates to the date of the CFA and not the date when the same became effective; this breach of the rules will be considered as significant and therefore if the breach occurs an application seeking relief from sanctions should be made.