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Appeal judges reject law firm’s claim for fees under insolvency CFA

Court of Appeal: “shared common understanding” over fees

The Court of Appeal has rejected a law firm’s claim to its legal fees in a battle with a liquidator over a conditional fee agreement (CFA).

Lord Justice Hamblen said this was a case of estoppel by convention, because of a “shared common understanding” that Stevensdrake Solicitors’ fees would be paid from recoveries and the liquidator would not be personally liable for any shortfall.

This was even though CFA itself clearly imposed a responsibility for payment regardless of recoveries.

The court heard in Stevensdrake v Hunt [2017] EWCA Civ 1173 [1] that Stephen Hunt, liquidator of Sunbow Limited, was a licensed insolvency practitioner and former client of Stevensdrake Ltd (SL), a law firm based in Crawley, Sussex.

On the first appeal, HHJ Barker QC held that the CFA was subject to and overridden by a term that SL’s right to payment of its basic charges and success fee was conditional or contingent upon there being funds available from realisations or recoveries.

This was on the basis of an exchange nearly two years before the CFA was signed in which Mr Hunt said he could only pay the firm’s fees out of realisations, a position accepted by an SL partner.

Lord Justice Hamblen overturned this part of the ruling, referring to the words of Lord Neuberger in the leading case of Marks and Spencer v BNP Paribas Securities Services Trust (Jersey) [2015] UKSC 72, who said that “it is a cardinal rule that no term can be implied into a contract if it contradicts an express term”.

Hamblen LJ went on: “It is also not necessary to give business efficacy to the CFA. The CFA is a coherent and comprehensive agreement that works perfectly well without the need for any implied term.

“The judge recognised that his conclusion may ‘seem at odds with the principles governing construction of and implication of terms’ but he considered that ‘the volume, quality and sheer weight of the contemporaneous evidence does not admit of any other conclusion’.

“That evidence, however strong, cannot allow for the implication of a term where to do so would be contrary to principle and authority, as is the case here.”

But he went on to uphold HHJ Barker’s decision on estoppel. Hamblem LJ said Mr Hunt, “relied on the common understanding by continuing to instruct” the law firm.

“Had he understood otherwise, he would immediately have instructed replacement solicitors who were prepared to act on a recoveries-only basis and thereby avoided liability for fees regardless of recovery.”

Hamblen LJ said there was “ample evidence” to support the findings of Judge Barker QC, sitting as a judge of the High Court, that there was a shared common understanding which had been “communicated, shared and acted upon” by both parties after the CFA.

“It needs to be stressed that what matters is the overall effect of the conduct and communications rather than the finer points of interpretation of any particular document.

“That overall effect was a matter which the judge was better placed to evaluate than this court could ever be.

“Having been taken through the documents in detail, with the benefit of submissions from both sides, my conclusion is that there was ample evidential material to support the finding made by the judge.”

Hamblen LJ concluded: “In my judgment no grounds have been shown which would justify this court to go behind the judge’s finding that it would be unjust to allow SL to depart from the shared common understanding.”

As a result, the other grounds put forward by Stevensdrake did not arise.

Lord Justice Briggs agreed, adding that he found the question of estoppel by convention “more difficult than my Lord, so much so that, if it had been necessary to resolve it purely upon the documents before this court, I would have found it to be a very finely balanced question indeed”.

Briggs LJ went on: “But where the trial judge has, as in this case, made no error of law in his approach and made clear, well-reasoned findings of fact after hearing extensive cross-examination of the witnesses, an appellate court both can and should give real weight to the judge’s conclusion on a mixed question of fact and law such as this.”