Diag Human Se and another v Volterra Fietta (a firm)  EWCA Civ 1107
This is a court of appeal decision, dismissing the appeal of a firm of solicitors who had been instructed under an unenforceable CFA.
The appellants were a firm of Solicitors, Volterra Fietta, who the respondents engaged to advise in relation to an investment treaty arbitration claim.
The parties entered into a CFA in September 2017 which provided for payment on an hourly rate basis at a discounted rate, in consideration of which they would be entitled to a success fee.
By 2019 the respondents were in arrears of fee payments to the appellants and on 20 August 2019 the respondents issued these proceedings seeking an assessment of the various invoices and that all sums paid in relation to the period after the September 2017 CFA should be returned to them.
At the initial assessment of the Solicitors’ bill, Costs Judge Rowley found against them on each of their preliminary points. The CFA was found to be unenforceable because it included a success fee that could exceed 100% and because it did not state the success fee percentage.
Costs Judge Rowley found that the consequence of the CFA being unenforceable was that the solicitors could recover nothing under their bill, which he assessed at nil, and that they were required to repay to the respondents sums that they had paid on account. The solicitors appealed to the High Court, however the decision of the initial costs judge was upheld.
The solicitors proceeded to the court of appeal, essentially repeating the submissions that they had made before the Courts below.
Submissions to the Court of Appeal
The solicitors submitted that they were entitled to sever the offending success fee provisions within the CFA and recover fees at the discounted rate; alternatively, that they were entitled to recover fees assessed on a quantum meruit basis; and, in any event, that they were entitled to retain sums that the clients had paid on account of their costs.
Severance of the offending provisions in the CFA was not available because the agreement that would have resulted would have been of a different character to that which had been entered, furthermore where a CFA fails to comply with the relevant legislative scheme the agreement as a whole is unenforceable and it would be offensive to public policy to permit partial enforcement of an unenforceable CFA.
Lord Justice Stuart-Smith said:
“the effect of allowing severance would be that the solicitors would recover precisely the same amount of their fees as if the CFA had been held to be enforceable. That is not, in my view, a tolerable outcome.”
The same policy considerations also defeated the appellants’ argument that they should be entitled to be paid on a quantum meruit basis.
Lady Justice Andrews said:
“… the short answer is that it is not open to the solicitors to claim by the back door any payment for their services which they cannot receive through the front..”
On the third appeal ground relating to restitution, Lord Justice Stuart-Smith commented:
“….there is no room for the solicitors' argument in the present case that sums paid on account by reference to an agreement that is held to be unenforceable shall only be repaid if the client justifies repayment on restitutionary principles.”
The appeal was dismissed.
What is also interesting in this case is that there was an enforceable retainer in place prior to the 2017 CFA. Had the appellants not amended this retainer the outcome could have been entirely more favourable for the appelant.
This decision again highlights the importance of ensuring the validity of retainers, the level fees lost by the appellants were in the millions in a matter which could have been avoided had compliant retainers been in place from the outset.