The Senior Costs Judge has ruled a law firm’s conditional fee agreement (CFA) unfair because it failed to ensure that its client – whose English was poor – fully understood what he was signing.
Setting aside the agreement, Master Gordon-Saker said the CFA was also unreasonable because of the high hourly rates it sought.
Having awarded costs the firm – West London Law (WLL) – of £20,000 arising from the assessment, the net result was that the firm lost £5,000, as it was only paid £15,000 for the work it did.
In Vilvarajah v West London Law Ltd  EWHC B23 (Costs) , the Ealing-based firm was instructed by the claimant to handle a claim for £20,000 in unpaid fees brought by another firm, Hodders Law.
The case was eventually transferred to the Senior Courts Costs Office, shortly after which the retainer was terminated. WLL billed the claimant £31,945.
The claimant sought a detailed assessment under section 70 of the Solicitors Act 1974 and also challenged the fairness of the CFA under section 61(1).
Master Gordon-Saker assessed the bill at £15,323, and set aside the CFA. He summarily assessed the claimant’s costs at £20,000.
This week he published his full reasons for setting aside the CFA, noting that there was “little recent judicial guidance on the application of section 61(1)”.
The CFA provided for a discounted hourly rate of £150 in respect of all fee-earners – payable whether or not the claimant succeeded – and a “primary” rate of £420 in the event of success, which was defined as reducing the amount of costs claimed in the Hodders Law claim.
If an award of costs was made against Hodders, the claimant would also be liable to pay a success fee of 64% of the primary rate – which would mean an hourly rate of £690.
If the agreement was terminated, the claimant was liable to pay WLL’s “normal charges for all work done until termination date at £420 per hour plus VAT”.
WLL provided a brief attendance note of a 30-minute meeting with the claimant to explained the CFA, and the fee-earner who took the meeting said in her evidence that it was “relatively obvious” that English was not the claimant’s first language and so she took particular care to explain it thoroughly.
Master Gordon-Saker ruled that it could not be said that WLL made an agreement with a client who fully understood and appreciated that agreement.
He was very critical of the lack of correspondence about the CFA, saying he would have expected to see a letter from WLL in advance of the meeting explaining the options clearly, and enclosing a copy of the CFA with an explanation of its terms.
“I would expect the solicitor to be able to produce an attendance note of the meeting at which the agreement was signed recording precisely what explanation she gave of it to the claimant. I would then expect to see a letter sent to the claimant after the agreement was signed enclosing a copy of the agreement and explaining the key points.
“I see many conditional fee agreements and by comparison with most this is a complicated agreement…
“There is no suggestion that any risk assessment was carried out before the agreement was entered into and nothing to suggest that the claimant was given any advice as to the prospects of success and thereby the likelihood that he would be liable to pay a substantial success fee on top of the primary rate.
“I cannot conclude that an explanation given in a 30-minute appointment, with no attempt at communication before or after, enabled the claimant fully to understand and appreciate the terms of the agreement and in particular the liabilities that he was assuming.”
Master Gordon-Saker continued that he had “no hesitation” in concluding that the CFA was unreasonable.
The Hodders case was straightforward and £420 was “an unreasonable rate for any of the fee-earners involved in this case… That is the sort of rate I would expect to see for a grade A fee-earner based in the City or Central London doing complex, high-value work. Obviously it is even more unreasonable for the junior fee-earners.”
Nor could the primary rate be justified by reference to the discounted rate payable in the event that success is not achieved. The broad definition of success meant it was “highly unlikely” that the claim would not succeed.
“It was therefore highly unlikely that the discounted rate would ever be payable.”
Further, the calculation of the success fee was “peculiar”. The master said: “It is based not on any assessment of risk, but on the proportion of the discounted rate to the primary rate. As these are arbitrary figures, neither of them reflecting the market rate, so the success fee is also arbitrary.”
There was also nothing to suggest that WLL advised the claimant that the primary rate was “unusual” or that “there was no prospect at all” that he would recover that rate even if he succeeded.