Defective CFA

Spencer v Wood [2004] EWCA Civ 352

Regulation 3(l)(b) of the CFA Regulations provides that: (1) a conditional fee agreement which provides for a success fee … (b) ‘must specify how much of the percentage increase, if any, relates to the cost to the legal representative of the postponement of the payment of his fees and expenses’. The claimant entered into a CFA with his solicitors which stated that the success fee was 75% of the firm’s basic charges and set out the reasons for calculating the success fee at this level in a schedule to the agreement. The CFA stated that the claimant was not able to recover from his opponent that part of the success fee which related to the cost to his solicitors of postponing receipt of their charges and disbursements. The CFA in its schedule made no reference at all to what proportion of the 75%, if any, related to the cost to the solicitors of the postponement of the payment of their fees and expenses. However, their risk assessment included an item ‘deferment of costs until conclusion of case – 50%’. The judge had understandably commented in his judgment: ‘50% of what? Of the success fee? Of the profit cost? How is the postponement charge reflected in the overall success fee of 75%? The risk assessment is silent as to that, as are the agreement and the schedule.’ He held that in these circumstances there had been a breach of regulation 3(1) (b) which had materially adversely affected the client, because he did not know what part of the 75% success fee would be recoverable from the defendant and what part he would be obliged to pay himself. In those circumstances the judge held that the CFA generally was unenforceable pursuant to s58(l) of the Courts and Legal Services Act 1990. The Court of Appeal rejected the claimant’s argument that the extent to which the CFA was unenforceable should be determined by reference to the extent to which the breach of the CFA Regulations had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice. It was contended that the punishment imposed by s58(l) on its natural construction was disproportionate to the solicitor’s crime, and that it was wholly unjust to deprive a solicitor of the ability to recover any fees at all for the services he has rendered for his client simply because there had been a material breach of one of the Regulations. Section 58(1) would have to be amended to achieve such a result by inserting words such as ‘to the extent that it does not satisfy all the arrangements’. That course was not open to the Court. The words ‘shall be unenforceable’ mean what they say. The law is well used to the concept that certain types of agreement are unenforceable and the words of the statute are completely clear.