Legal Cost Specialists

Unlawful and grotesque funding arrangement?

My latest Update: Costs for Solicitors Journal is now available to view online.  The “apportionment” subject is fraught with complexity and I won’t pretend this is meant to be a definitive analysis of the issue or that the two first instance decisions mentioned, where I was acting for the defendants, would necessarily be decided the same way by different judges.  This is an issue that many law costs draftsmen don’t appear to even recognise as a potential problem when drafting bills.

Also available is a further book review for Civil Costs: Law and Practice.

For non-subscribers, I think access is for only a limited period.

Jackson LJ’s attack on “grotesque” funding arrangements (see link) raises an issue I have been meaning to comment on for some time.  I am not at all sure that the funding arrangement in that case was even lawful.  This is based on the fact the CFA had been entered into where there was “no risk” of non-payment of ordinary fees.  There was no “conditional” event. 

In Arkin v Borchard Lines Ltd [2001] NLJR 970 Coleman J held:

“26. It is further argued that, if the February 2001 Agreement effected a variation of the CFA with retrospective effect, that variation would be unenforceable as being contrary to public policy. This submission is based on the foundation that, unless permitted by statute, conditional fee agreements are unenforceable on public policy grounds. That proposition is firmly founded on the unreported decision of the Court of Appeal in Awwad v Geraghty & Co 25 November 1999 (Lord Binghal LCJ, Schiemann and May LJJ). The relevant statutory provision is section 58 of the Courts and Legal Services Act 1990 in its unamended form. On the proper construction of that section the only permissible conditional fee agreements are those entered into before it is known whether the condition of success has been satisfied. The provision in section 58(1) that:

“In this section a ‘conditional fee agreement’ means an agreement in writing between a person providing advocacy or litigation services and his client which – (b) provides for that person’s fees and expenses, or any part of them, to be payable only in specified circumstances”.

clearly referred to circumstances which have not eventuated at the time when the agreement is entered into. The legislative purpose of the legalisation of such agreements was to enable those who could not afford to employ the legal profession to present their case on the basis that their obligation for fees and legal charges by their solicitors and counsel would arise only if the proceedings which were yet to be heard had been successfully prosecuted. It was no part of the purpose of the legislation to provide for agreements to pay fees and expenses which were entered into after the successful conduct of the proceedings.”

I did run a challenge, unsuccessfully, along these lines a while ago in the unreported case of Priest v CMT Engineering Insulation Ltd (SCCO, 13 July 2009) (see transcript).  Master Gordon-Saker was almost certainly correct on the facts of the case (judgment in default and a disease claim where causation might not be made out).  However, a “proper” judgment in a catastrophic injury claim is quite different.  I intend to write more fully on this topic in due course but I wonder what Jackson LJ would have made of this line of attack if the MIB had not already agreed to pay a 35% success fee. 

2 thoughts on “Unlawful and grotesque funding arrangement?”

  1. I don’t think the arrangement is illegal, in the sense of being bilaterally void and unenforceable. But I agree that the arrangement was not, on analysis, a CFA. As you say, there was no uncertainty as to whether the circumstances specified for payment would eventuate. This is the essence of a CFA, and absent this element a contract is not a CFA even if it is labelled as such. As Lord Templeman said when holding that a document labelled a licence was in fact a lease, ‘the manufacture of a five pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists he intended to make, and has made, a spade.’ (Street v Mountford)

    In other words, like an insurance contract, a CFA is an ‘aleatory bargain’ – one whose performance must depend on chance. You can no more have a CFA which provides for payment in circumstances which have already happened than you can insure a ship against loss when you know she has already sunk.

    Not being a CFA, there was no jurisdiction to allow the claimant to recover a success fee. In any event, the success fee should obviously have been disallowed as a matter of discretion, had MIB not agreed to pay it.

    Merry Christmas all!

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