Sidhu v Sandhu & Anor [2008] EWHC 90108 (Costs)

Case No SCCO 0700245

BAILII Citation Number: [2008] EWHC 90108 (Costs)

IN THE HIGH COURT OF JUSTICE

SUPREME COURT COSTS OFFICE

Venue Clifford’s Inn, Fetter Lane

London, EC4A 1DQ

Date 24/07/2008

Before

MASTER SIMONS

Between

KANWALJIT SINGH SIDHUClaimant

KEWAL SINGH SANDHU1 st Defendant

KALVINDER SINGH SANDHU2 nd Defendant

Mr Mark Friston (instructed by Thompson & Lilley, Solicitors) for Claimant

Mr Richard Wilkinson (instructed by Masseys LLP, Solicitors) for 2 nd Defendant

Hearing Hearing dates: 6 June 2008

Judgment

Master Simons :

[1]On 6 June 2008 McDuff J set aside an order dated 23 January 2008 made by Deputy Costs Judge Kings and remitted the issue of enforceability of a Conditional Fee Agreement (“the CFA”) dated 26 October 2005 made between the 2nd Defendant and his solicitors, Masseys LLP to another Costs Judge. As I was sitting with McDuff J as one of his assessors his Lordship decided that it would be proportionate for this issue to be dealt with by me immediately following the appeal.

The CFA

[2]The CFA was based on the standard form of CFA but incorporating a number of changes. Rather than set out the whole of the CFA, I set out below only those clauses of the CFA which I consider to be relevant or were clauses which were referred to me by the parties. “CONDITIONAL FEE AGREEMENT Agreement date: 26 October 2005 Between: We, the solicitors, Masseys LLP of 10 Old Bailey, London EC4M 7NG You, the client, Kalvinder Singh Sandhu (b) Paying us If you win the case you pay our basic charges, our disbursements and a success fee (see below). The amount of these is not based on or limited by the damages. You are entitled to seek recovery from your opponent of part or all of our basic charges, our disbursements, the success fee and insurance premium (subject to them being assessed). Please also see Conditions 4 and 6 below. To the extent that there is a shortfall between our basic charges and disbursements and the amount you recover from your opponent, you will be liable to pay the shortfall. To the extent that there is a shortfall between the success fee and the amount of the success fee you recover from your opponent we will not ask you for that shortfall. It may be that you make a Part 36 offer or payment which the claimant rejects and at trial the claimant fails to recover damages that are more than that offer or payment. You will pay the success fee for the work done 21 days after we received notice of the offer or payment. To the extent that there is a shortfall between the success fee and the amount of the success fee you recover from your opponent, we will not ask you for that shortfall. If on the way to winning or losing the case you win an interim hearing and costs are awarded in your favour, then you will pay our basic charges and disbursements related to that hearing together with a success fee on those charges. To the extent that there is a shortfall between the success fee and the amount of the success fee you recover from your opponent, we will not ask you for that shortfall. If you end this Agreement before you win or lose the case, you pay our basic charges and disbursements. Such fees and expenses are payable pursuant to the terms of our letter of engagement 3 June 2005 (“the Retainer”). If you go on to win the Case you pay the success fee. To the extent that there is a shortfall between the success fee and the amount of the success fee you recover from your opponent, we will not ask you for that shortfall. Please see Condition 7(a). (b) Basic charges These are for work done by us until this Agreement ends. They are calculated as set out below. Such fees and our disbursements are payable pursuant to the terms of the Retainer. 5. How we calculate our basic charges ……Our basic charges above do not include any charges relating to delayed payment of our basic charges and/or disbursements. No charges will be made in this regard. 6 Success fee This is 14.5% of our basic charges. The reasons for calculating the success fee at this level are set out in Schedule 1 to this Agreement. You cannot recover from your opponent any part of the success fee that relates to the cost to us of postponing receipt of our charges and disbursements. This part of the success fee remains payable by you. Schedule 1 The Success Fee The success fee is set at 14.5% of basic charges and cannot be more than 100 % of the basic charges. The percentage takes into account:(a) the risks inherent in litigation;

(b) the risks in your particular Case;

(d) that we have agreed to accept that we may not recover the success fee;

(e) the additional risk that we have identified.] The matters set out in paragraphs (a) and (b) above together make up 60% of the increase on the basic charges. The matters at paragraphs (c), [and (d)] make up 40% of the increase on the basic charges. So that the total success fee is 14.5% as stated above.] Schedule 2 Law Society conditions 3. Explanation of words used. Agreement date: Between: We, the solicitors, Masseys LLP of 10 Old Bailey, London EC4M 7NG You, the client, Kalvinder Singh Sandhu Schedule 1 The Success Fee The percentage takes into account: Schedule 2 Law Society conditions 3. ……….. (b) Basic charges Our charges for the legal work we do on your Case. ………. (m) Success fee The percentage of basic charges that we add to your bill if you win and that we will seek to recover from your opponent. (b) What happens if you win? If you win: You are then liable to pay all our basic charges, our disbursements and success fee – please see Condition 3(n). Normally you will be entitled to recover part or all of our basic charges, our disbursements and success fee from your opponent. You will not be entitled to recover from your opponent the part of the success fee that relates to the cost to us of postponing receipt of our charges and our disbursements. This remains payable by you.” If you win:

Law Society conditions

[3]“The Regulations The Conditional Fee Agreements Regulations 2000 Requirements for contents of Conditional Fee Agreements providing for success fees “3(1) A Conditional Fee Agreement which provides for a success fee –(a) must briefly specify the reasons for setting the percentage increase at the level stated in the agreement, and

(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 Conditional Fee Agreements Regulations 2000 Requirements for contents of Conditional Fee Agreements providing for success fees

The Claimant’s submissions

[4]The Claimant’s submission is that the CFA is unenforceable as it does not comply with Regulation 3(1)(b) of the Conditional Fee Agreements Regulations 2000, in that it fails to 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. Furthermore, Mr Friston on behalf of the Claimant submits that such a breach is material.

[5]Mr Friston’s first submission was that this CFA was unusual as it was linked to a retainer letter made between the 2nd Defendant and his solicitors dated 3 June 2005. This retainer letter was followed by the CFA which provided that the solicitors’ basic fees were payable regardless of the outcome of the litigation. The letter of retainer gave the solicitors a right to submit interim invoices. Conditions 3 and 4 of the CFA specifically refer to the terms of the letter of retainer. Consequently, the basic costs and the success fee are dealt with as separate entities. Mr Friston referred me to the provision in paragraph 5 of the CFA to the effect that the basic charges did not include any charges relating to the delayed payments of basic charges and/or disbursements and that no charges would be made in this regard. This must be looked at together with the provisions of the letter of retainer which permitted the solicitors to submit interim invoices, which meant that there would be no additional charges for any delays in payment of the basic fees.

[6]Mr Friston referred me to paragraph 6 of the CFA and the definition of “Success fee” which states:

“You cannot recover from your opponent any part of the success fee that relates to the cost to us of postponing receipt of our charges and disbursements. This part of the success fee remains payable to you.”

This shows that there is an element relating to postponement of charges in the CFA but that there is nothing in the CFA that quantifies such postponement.

[7]Mr Friston then took me to Schedule 1 of the agreement and to the five factors that were set out showing what the percentage (i.e. the success fee) was to take into account. None of those factors mentioned the question of postponement. He submitted that all these factors were in fact so general that they could have included elements for postponement but none were so specified. Paragraph 6 of the CFA, he submitted, clearly stated that there was an element of postponement but there was none identified in Schedule 1.

[8]In his skeleton argument Mr Friston stated that Deputy Master Kings had relied on the paragraph in Clause 5 of the CFA to the effect that the solicitors’ basic charges would not include any charges relating to delayed payments of basic charges and disbursements, and that no charges would be made in this regard. Mr Friston submitted that the Master’s, and indeed the 2nd Defendant’s reliance on this passage was misplaced, as firstly the words related solely to basic charges which are distinct from the success fee, and secondly, that even if those words did relate to a success fee they were nothing more than an indication that the Defendant would not be charged for the delay in making payment of the basic charges. There was nothing to say that the Claimant had not been charged for the delay in payment of the success fee. As such, the solicitors could easily have included an uplift to take into account the fact that they would have to wait until the conclusion of the claim to be paid their success fee.

[9]Mr Friston referred me to the Regulations which stated that the CFA must specify and that what that meant was what it said, in other words it was not capable of any contractual interpretation.

[10]Mr Friston referred me to the case of Tichband v Hurdman which was heard by the Court of Appeal as part of Hollins v Russell

[2003] 1 WLR 2487

. Tichband was a similar challenge to the enforceability of a CFA for breach of Regulation 3(1)(b) but Mr Friston submitted that Tichband was distinguishable from the present case in that in Tichband the court was being asked to interpret an inconsistent contract where there was an inconsistency and ambiguity within the CFA and was an exercise of anterior construction. In Tichband there was specific mention within the CFA that none of the success fee was attributable to the postponement in paying the solicitors’ fees, where there was no such statement in this case.

[11]The second case that Mr Friston referred me to was that of Utting v McBain

[2007] EWHC 3293 (QB)

which was a decision of Blake J, handed down on 28 November 2007. Mr Friston submitted that whilst the facts were slightly different, the logic of the judge’s decision did apply. He submitted that Blake J rejected the anterior construction point which distinguished Utting v McBain from Tichband v Hurdman and that the failure to specify what the percentage increase was represented by the deferral of, or the postponement of costs, breached the duty in Regulation 3(1)(b) to spell those matters out. The judge had also decided that the breach was material.

[12]Mr Friston submitted that not only had the CFA breached Regulation 3(1)(b) but that such a breach was material. It affected the protection to be afforded to the client and as an example of this he stated that in the real world most issues with regard to costs are settled between the parties by way of a global sum. Consequently, within such global sum there was no quantifiable postponed element and consequently there was no element of certainty as to how much of the costs recovered included any element of success fee or what the element of postponement was.

[13]The breach was also contrary to the administration of justice, as at any detailed assessment when looking at the success fee a paying party is entitled to ask what element of the success fee claimed related to the postponement of the solicitors’ charges. The court would not be in a position to make any decision as it would not know, even though reference had been made in the CFA to an element of postponement of charges.

The 2nd Defendant’s submissions

[14]Mr Wilkinson’s submission was that there had been no breach of the Regulations, but even if there had been a breach of the Regulations the breach was immaterial.

[15]Mr Wilkinson reminded me that the purpose of the Regulation, 3(1)(b) was that the client would know if any of the success fee related to the postponement of the payment of his solicitors’ fees and expenses. This meant that the document had to be looked at as a whole. Mr Wilkinson referred me to paragraph 222 in Hollins & Russell and the requirement stated by Lord Brooke:

“The judge conducting the assessment should first consider the position as between solicitor and client. If the judge had done so in Titchband v Hurdman, for instance, he would immediately have seen that the client could not possibly have avoided his liability under the CFA by relying on the discrepancy ….”

[16]In this particular case the retainer between the solicitor and the client was contained both in the retainer letter of 3 June 2005 and in the Conditional Fee Agreement. Paragraph 9 of the retainer letter stated:

“9. We will bill you monthly in arrears for our charges and expenses. Payment to our account referred to below is due strictly within 14 days of the despatch of our bills unless we agree otherwise. We reserve the right to charge interest on any amounts outstanding after 28 days at the rate of 2 per cent above the Natwest Bank plc base rate from time to time. In the event of non-payment we reserve the right to decline to act any further.”

[17]It was therefore clear that there was going to be no postponement with regard to the basic charge under the retainer letter and it must have been clear that that was so with regard to the success fee, in view of the fact that the success fee was relatively modest.

[18]Mr Wilkinson stated that there are five separate and distinct statements within the CFA informing the client that if there was a shortfall between the success fee and the amount of the success fee that was recoverable from the opponent, the solicitors would not request the shortfall. The postponement element can only be a shortfall and therefore the client must know that he is not being asked to pay any postponement element.

[19]Mr Wilkinson also referred me to Schedule 1 of the CFA which sets out the five factors which the percentage success fee takes into account. There is no reference to delayed payment and all the factors set out are fully accounted for and therefore there is no source for any ambiguity. Furthermore, in Schedule 2 sub-paragraph (m) defines the success fee as being the percentage of basic charges that the solicitors add to the bill which recovery would be sought from the opponent. As the postponement element cannot be recovered from the opponent it must be clear that the success fee cannot include any postponement element.

[20]In his skeleton argument Mr Wilkinson relies on paragraphs 5 to 7 of the skeleton argument lodged by Nicholas Bacon of counsel for consideration by Deputy Master Kings. In it reference is made to the paragraph in clause 5 of the CFA which states:

“Our basic charges above do not include any charges relating to delayed payments of our basic charges and/or disbursements. No charge is made in this regard.”

[21]In his submission it is clear from this paragraph that the 2nd Defendant was specifically advised in accordance with the requirements of 3(1)(b) that no charge would be made for any postponement costs. The words “no charge” could not be clearer.

[22]Mr Wilkinson submitted that it could not have left the 2nd Defendant in any doubt that any postponement charge was nil and he would have been in no doubt that there was no postponement charge. Mr Wilkinson referred me to the Regulation and submitted that the words “if any” would be otiose if it was necessary to specify the postponement element, if such an element was nil. Where in reality it was clear there was no postponement element in the percentage increase it was not necessary for it to be specified and it was only necessary to be specified if there was an identifiable percentage relating to the postponement. The rationale behind this, Mr Wilkinson submitted, was there was nothing to protect the client from if there was no postponement element.

[23]Mr Wilkinson referred me to Spencer v Wood

[2004] EWCA Civ 352

which was a Court of Appeal decision that was distinguishable from the present case in that in that case there was no doubt that a deferment charge was included but it was impossible to work out what proportion of the success fee related to the postponement.

[24]Similarly, Utting v McBain is distinguishable from the present case in that in that case there was confirmation of an element of postponement but it was not quantified.

[25]Mr Wilkinson submitted that the decision in Tichband v Hurdman supported his case. In paragraph 134 of that judgment the court stated:

“Mr McLaren (on behalf of the paying party) was compelled to admit that as between solicitor and client no court would dream of allowing the solicitor to recover this 5 per cent from his client when he was necessarily unable to recover it from the paying party … The reality is therefore that, despite what is said in the risk assessment calculation, none of the recoverable success fee is attributable to the postponement in payment of the solicitors’ fees. Taken together clauses 32 and 33 prevail over the risk assessment schedule and thus on its true construction the CFA in this case complies with the Regulations.”

[26]Mr Wilkinson said that in this case the court must do a similar exercise by asking whether the court would allow the solicitors to recover from their client an element of postponement where the CFA as a whole shows no postponement element.

[27]Mr Wilkinson summarised his submissions with regard to the breach of the Regulation by submitting that the Regulation has been complied with as it was not necessary to specify a nil postponement charge when it is quite clear from looking through the body of the agreement that no such charge was being claimed.

[28]Even if there had been a breach of the Regulations Mr Wilkinson submitted that such a breach was immaterial, as it is clear from the form of agreement that if the solicitor wished to make a charge to his client in respect of a postponement element of the success fee, he could not do so. Consequently the client was not exposed to any risk to be required to make payment of any shortfall.

Claimant’s further submissions

[29]Mr Friston submitted that it was irrelevant the CFA was in fact a discounted CFA (because part of the retainer was covered by the letter of retainer of 3 June 2005 and the other part by the CFA) or whether the success fee was a modest one. The Regulations had to be complied with.

[30]Mr Friston submitted that it was illogical to suggest that the postponement could only be the shortfall. If a party agreed not to enforce an entitlement it did not mean that the entitlement did not exist.

[31]Mr Friston reminded me of the sentence in Clause 5 of the CFA that “Our basic charges above do not include any charges relating to delayed payments of our basic charges and/or disbursements. No charges will be made in this regard”. That, Mr Friston submitted, can only relate to basic charges and cannot possibly be given a wider interpretation to incorporate the success fee. The basic costs and the success fee must be mutually exclusive.

[32]Mr Friston referred to Mr Wilkinson’s submission that it must have been clear from Schedule 1 of the CFA that none of the percentage takes into account any element of postponement. He said that there was room in all the elements set out for a postponement charge.

[33]Mr Friston submitted that Clause 3(1)(b) required that the CFA must specify how much of the percentage increase related to postponement. There was reference in the CFA to postponement and that the client was being informed that he would not be entitled to recover from his opponent that part of the success fee that relates to the cost of the solicitors’ postponing receipt of their charge and disbursements. If there was mention of postponement of the charge within the CFA then its percentage had to be mentioned, even if it was nil.

[34]Mr Friston submitted that I was bound by the decision in Utting v McBain which was a case that was on the same point being a failure to specify what the percentage increase was. Mr Wilkinson had attempted to distinguish Utting from this case by reference to paragraph 10 which read:

“10. It is perfectly true that Regulation 3(1)(b) does not first say that the agreement must spell out whether a success fee includes part of deferment of costs and in addition what proportion the deferment of costs represents in the success fee. It may be that if there was an agreement that was completely silent on the question of whether the success fee included an element of deferral of costs there may be no express statutory duty to identify a proportion of the deferral of costs represented towards the success fee. Of course it would be zero.”

[35]Mr Friston submitted that there was no difference between Utting v McBain and this case as there was reference in this CFA to the postponement of charge and it could not be said that the CFA “was completely silent on the question of whether the success fee included an element of deferral of costs”. Mr Friston said that paragraph 10 of the judgment had to be read together with paragraph 11, which required the CFA, in pursuance of the statutory obligation, to specifically mention deferral costs that would not be recoverable from the paying party.

[36]On the other hand, Mr Friston submitted that Tichband clearly is distinguishable from this case in that in Tichband the Court of Appeal made its comments in the context of anterior construction of the agreement.

My conclusions

[37]I am satisfied that this CFA breaches Regulation 3(1)(b). That Regulation makes clear that the agreement 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. This agreement does not do so.

[38]One of the purposes of the Regulations is to ensure that the client is aware of his financial obligations and requirements. This agreement (in Clause 6) informs the client that he cannot recover from his opponent that part of the success fee that relates to the cost of the solicitors postponing receipt of their charges and disbursements and informs him that such cost remains payable by him. Whilst the CFA also informs him that the solicitors’ basic charges do not include any charges relating to delayed payment of their basic charges and disbursements and that no charges will be made in this regard, it does not state whether there is any deferral element in relation to the success fee. If there is to be no percentage increase relating to deferral of both basic fees and success fees, the client must be told and, in accordance with the Regulations, it must be specified within the CFA.

[39]Whilst it may be possible to find five separate references within the agreement that informs the client that the solicitors will not be looking for any shortfall between the success fee and the amount which is recovered from the opponent, these clauses can appear confusing when set against the statement that the client is not entitled to recover from the opponent part of the success fee that relates to the cost of postponing receipt of charges and disbursements. The client does not know whether the shortfall arises as a result of the success fee that has been set unreasonably high or whether it contains a deferral element.

[40]I reject Mr Wilkinson’s submission that the decision in Tichband v Hurdman supports his case. I accept Mr Friston’s submission that the decision in that case was an exercise, in his words, “of anterior construction”.

[41]I do not consider that this case is distinguishable from Utting v McBain. In paragraph 10 of that judgment Blake J speculated as to what the position would be if the CFA was completely silent on the question of whether the success fee included an element of deferral of costs. It cannot be said that the CFA in this case is completely silent on deferral of costs.

[42]I also reject Mr Wilkinson’s submission that by inclusion of the words “if any” in the Regulation it is not necessary to specify whether there is a percentage increase if there is in fact none. In my judgment, there is a specific requirement to state what the percentage increase is, even if it is nil. In my judgment, the words “if any” relate to the words “how much” and if the figure is nil then that figure should be so stated within the body of the CFA. The requirement is made more important in a case such as this where there is reference to the cost of postponement within the body of the agreement.

[43]Having decided that there is a breach of the Regulation I have to consider as to whether or not the breach is material.

[44]In my judgment there has been a material breach, firstly in the protection afforded to the client and secondly that it is contrary to the administration of justice. Furthermore, I have found that this case is indistinguishable from Utting v McBain and that case is binding upon me.

[45]In my judgment the client does not know or, at the very least, must be uncertain, as to whether or not in view of the contradictory statements made in the CFA, whether he will have to bear any part of the success fee. Such confusion could have been avoided by the simple statement, as required by the Regulation, of the solicitor simply specifying in the agreement how much of the percentage increase relates to the cost of the postponement. Where the Regulations have not been complied with and there is even the smallest possibility of confusion by the client, then it must be the case that the client has not been afforded full protection. It cannot be said that these defects were incapable of causing prejudice to the client.

[46]I also accept Mr Friston’s submission that this defect is contrary to the administration of justice in that at any detailed assessment the Claimant is not in a position to know, and indeed nor is the court in a position to adjudicate, as to whether there is any proportion of the success fee that is attributable to postponement.

[47]For the above reasons the CFA dated 26 October 2005 is, in my judgment, unenforceable.

[48]I propose handing this judgment down on Thursday 24 July 2008 at 2.15 p.m.

[49]When allowing the Claimant’s appeal on 6 June 2008 McNair J reserved the costs of and incidental to the appeal and of the costs below to me. I invite the parties to submit written submissions on costs. As I have already indicated to the parties I consider that the schedules that have been submitted hitherto have been unhelpful in that they do not apportion the costs between the costs of the detailed assessment since 16 May 2007 and the costs of the appeal. When submitting their costs representations counsel are requested to submit schedules of the costs they are seeking pursuant to this judgment.

[50]I would make two further comments with regard to the question of costs. Firstly, I will be taking judicial notice of the comments of McNair J concerning the quantum of costs and proportionality. Secondly, in the interests of proportionality and of saving of costs I would prefer to make my decision on costs on paper, in which case it would not be necessary for anyone to attend when I hand down this judgment. However, if the parties wish to attend before me they are requested to inform my clerk not less than 24 hours before I hand this judgment down.