Stevensdrake Ltd v Hunt & Ors

This is an appeal from the decision of Chief Master Marsh given on 15th October 2014. The matter has been fully argued before me and logically I should first decide whether permission to appeal should be granted, as this is a rolled-up hearing where both permission to appeal is to be considered, with the appeal to follow if permission is granted. As the matter has been fully argued before me in just the same way as if there had been an appeal, and as at least by the time Mr. Davies sat down I was persuaded that there were arguable points which ought to be considered, it seems to me that I should give permission to appeal, which may be a very different question to whether or not I should allow the appeal.

Having given permission, I turn to the appeal. There are a number of aspects of the appeal, the first of which, though not the first point taken in the order under appeal, is whether or not it was right for summary judgment to be awarded for counsel’s fees to be paid by the defendants to the claimant.

The claimant is a firm of solicitors. The defendants are described as “Stephen Hunt” as the first defendant, and, as the second defendant, “Stephen Hunt as liquidator of Sunbow Limited”, and then as the third defendant, “Griffins (a firm)”. There are in reality only two defendants: Mr. Hunt personally and Griffins. I say “Mr. Hunt personally”, which in my judgment is an adequate description of him whether he is described simply as “Stephen Hunt” or as “Stephen Hunt as liquidator of Sunbow Limited”, because he in either case is the defendant. Describing him as “liquidator of Sunbow Limited” does not turn him into a different person, or affect or limit his liability, and it certainly would not be right to equate him with Sunbow Limited (“Sunbow”) just because he is liquidator. Sunbow is not a party.

Sunbow is a company in compulsory liquidation, so no proceedings could be brought against it without the court’s permission. Mr. Hunt is Sunbow’s liquidator; Griffins is his firm. It is, however, well known that liquidation is a personal appointment. It is not at all clear, therefore, why Griffins have been joined.

It was alleged in the amended particulars of claim before the Master that all the defendants were clients of the claimant’s predecessor firm, and thereafter the claimant, which used to be The Stevensdrake Partnership and then became Stevensdrake Limited, trading as Stevensdrake Solicitors. I shall call them “the solicitors” as nothing turns upon the various forms in which that practice has from time to time been conducted.

On the defence before the Master it was admitted that the solicitors provided legal services for the defendants. That is no longer admitted. What that means is that there is now an issue as to whether those three defendants should have been sued as one. Again, I do not think that matters very much for the purposes of today because there is no suggestion that Mr. Hunt has in some way fallen out with Griffins; on the contrary, they are making common cause.

The proceedings before the Master were based on an invoice in respect of work done for Mr. Hunt as Sunbow’s liquidator by the solicitors in the pursuit of proceedings under s.212 of the Insolvency Act 1986 against a Mr. Simon and a Mr. Papanicola, who had been administrators of Sunbow or otherwise involved (prior to that) in a voluntary arrangement entered into by Sunbow. The work was undertaken pursuant to a conditional fee agreement (“CFA”) and the proceedings were pursued successfully in the sense that:

Those events constituted success within the terms of the CFA which the solicitors had entered into with Mr. Hunt as liquidator of Sunbow. Accordingly, a sum of just under £1 million is sought pursuant to the solicitors’ bill of costs dated 28^th February 2014 which included the success fee. There are alternative prayers which I need not set out.

The matter came before the Master for summary judgment. The then defence, as I have said, admitted the legal services provided by the solicitors for the defendants without distinguishing between the various defendants, and averred in para.4 that there was an agreement between the defendants on the one part, and the solicitors on the other part, to the effect that “save for disbursements” the solicitors were only entitled to payment from recoveries made by the defendants. There was then set out in the defence a long list of matters such as correspondence ante-dating the CFA, which was eventually entered into, it would appear, around the end of January 2008, though it was dated 10^th April 2008. The defence went on to plead that it was a term of the retainer between the solicitors and the defendants that the solicitors’ entitlement to payment was recoveries-based, and said that remained the case. This was despite the terms of the CFA, which included a 100 per cent success fee, under which success was defined not by reference to recoveries but to either a judgment against or an agreement to pay by the parties sued. It was also alleged that there was an agreement that counsel’s CFA would be on a like basis, that is to say recoveries-based. Again, some antecedent correspondence was pleaded which might be taken to support that intention, at least on the liquidator’s side.

That is the pleading down to para.4(i) inclusive. 4(i) referred to the solicitors’ 23^rd April 2008 email saying that the uplift, i.e. success fee, being in context a reference to counsel’s uplift, would have to be paid from damages. The date of that email was, of course, after the CFA was entered into. In fact, under the terms of the CFA there were detailed provisions which explained that it would be a matter for individual negotiation with counsel as to the terms upon which counsel might be instructed.

Looking ahead, following the successful resolution of the claims, counsel pursued their rights to recovery against the solicitors in an arbitration. The fees in question were not recoveries-based in any agreement with counsel. The solicitors have now satisfied their obligations under what was eventually a compromise of their obligations to counsel, and understandably seek to recover those.

It had been alleged by Mr. Hunt during the course of correspondence prior to the settlement with counsel that he had himself reached a separate agreement with counsel’s clerk on behalf of counsel to the effect that payment would not be pursued except on a recoveries basis, but that line of argument was not supported by evidence in the arbitration and the allegation appears to have been withdrawn by Mr. Hunt so far as concerns the particular litigation against Messrs. Simon and Papanicola. The apparent withdrawal of this allegation seems to have triggered the settlement by the solicitors with counsel.

Para.4(j) went on to deal with what happened to the division of the fruits of success (£125,000) received from Mr. Simon. That was divided amongst the solicitors, Mr. Hunt’s firm and counsel upon a basis which is consistent with the recoveries basis now asserted by the defendants. It was then said that the solicitors are estopped, either by representation or by convention, from contending to the contrary.

Para.4(k) then dealt with the possible retainer of alternative counsel, a Mr. Riley, and reliance is placed upon that and other communications concerning counsel in para.4(l) to demonstrate that there was consistent recognition, so it was said, of the fact that payment would only be from recoveries made by the defendants.

All of those matters in para.4 were said both to support the agreement that there was only to be payment from recoveries, or alternatively the estoppel defence. The Master struck out para.4(j) but no other part of the defence.

There was then a counterclaim under which the defendants repeated their defence and set out allegations of negligence, breach of fiduciary duty and an allegation of undue influence said to arise out of the presumption inherent in the relationship of solicitor and client and said to arise also, as explained to me in argument and in a further proposed revised pleading, from the fact that entering into an agreement which imposed personal liability upon the liquidator, whether he recovered or not, was manifestly to his disadvantage, the more so in the light of :

The CFA entered into between the solicitors and Mr. Hunt is a document to which I should refer. It is only just over a page long but it does say the agreement must be read in conjunction with the attached schedules. It was sent to Mr. Hunt on 29^th January 2008, and was initialled by three members of Griffins, including Mr. Hunt. The covering letter referred not just to the draft CFA but also to “an explanation of the matters on p.3 of Schedule 1 for you to consider”. The agreement recorded a success fee of 100 per cent and said: “If you win your claim, you pay our basic charges, our disbursements and a success fee…”, and also pointed out that the client was also entitled to seek recovery from the other side. The word “win” was not defined as such in the one-and-a-bit page document but Schedule 2(d) defined “success” broadly in the way I have earlier described. “Win” was described in Schedule 1(m) as meaning:

“Your claim is finally decided in your favour at or above success as defined in Schedule 2, whether by a court decision or an agreement with your opponent.”

Within the body of the schedules, the following was stated:

“You are personally responsible for any payments that you may have to make under this agreement. Those payments are not limited by reference to the funds available in the liquidation.”

After dealing at some length with what might happen to the costs (especially the success fee) if the client won, which would of course entitle the client to look to the other side, the point was reinforced: “As with the costs in general, you remain ultimately responsible for paying our success fee.”

Mr. Hunt, through Mr. Davies QC, argues that as this was an agreement entered into by Mr. Hunt as liquidator of Sunbow, he is not personally liable under the principles to which I have referred, as mentioned in Stewart v. Engel and other cases. On the contrary, any liability, which would be a liability of the company, would be payable in the insolvency in the order of priority set out in the Insolvency Rules, and as there are and have been no recoveries from Mr. Papanicola, who became bankrupt, there is no liability, even on the company as things stand, which is, of course, not before the court.

That, however, overlooks the paragraph to which I have referred referring to Mr. Hunt’s personal responsibility. As the proceedings resulted in a “win” as defined, the payments that “you may have to make” included counsel’s fees, as was conceded in the court below (though this is no longer conceded). It seems to me that, certainly on the material before the Master, he was entitled to enter summary judgment, as he did in respect of counsel’s fees, and to order an interim payment of £75,000.

Should I therefore allow the appeal in the light of the plain wording to which I have referred? Mr. Davies says I should. He says the matter was argued on a false basis before the Master. It was argued upon the basis that the liquidator was the client whereas, in fact, the only person who might be said to be the client was the company, and the expression “the solicitor to the liquidator” is meaningless in the sense that it does not refer to any office that the law recognises, and does not result in personal liability. That may be so in general terms, but this case must be decided by reference to the particular contractual provisions in question. Mr. Davies acknowledges that it would have been better if the points now taken by him had been taken in the court below, but that should not prevent him from taking those points now. Even if they had been taken, however, they would have been met by reference to the paragraph in the schedules confirming Mr. Hunt’s personal responsibility, not limited to funds available in the liquidation.

Mr. Davies counters that by saying that “responsible” cannot mean “liable” because the words “liable” and “recover” are used elsewhere to refer to legal obligations. In my judgment that argument is likely to get nowhere, and appears to lack reality. Further, his attempt in argument to draw attention away from the plain import of the words “personally responsible” by reference to the definition of a responsible insolvency practitioner in the Insolvency Rules is, in my judgment, a red herring. The reason the words “personally responsible” are used is quite simply because the liquidator, though acting in one sense as agent for the company, is also assuming personal responsibility and contracting personally, even though the starting point and assumption is that a liquidator does not contract personally. Whatever the starting point, the plain words of the schedules to this CFA cannot be ignored. Correspondence from two years previously, or subsequently, cannot override those words.

Mr. Hunt’s responsibility under the CFA and its schedules was to pay the disbursements as well, as was conceded below. It seems to me that Mr. Davies’s attempts to guide me away from the plain words of the CFA and its schedules cannot succeed.

Further, the concession below that disbursements were recoverable was plainly correct. Disbursements were described elsewhere in the schedules as “payments we make on your behalf, such as”, and then a number of separate items were mentioned. Counsel’s fees were not mentioned expressly. Having said that, elsewhere, such as in the section “What happens when this agreement ends before your claim for damages ends?” there were said to be a number of circumstances in which the liquidator had to pay “our basic charges and our disbursements including barristers’ fees”.

Somewhat curiously, it was also provided that if the opponent did not pay any damages or charges owed, the solicitors had the right to take recovery action in the name of the liquidator, in which case the charges became part of the basic charges under the CFA. It might be said that this was unnecessary if Mr. Hunt was personally liable, and that this provision recognised that there was no personal liability. I doubt very much whether that can prevail against the plain words that had already gone before. It seems to me that that provision, under the heading “If your opponent fails to pay”, was merely another string to the solicitors’ bow which gave them the option of bringing recovery proceedings, the costs of which were added to their charges, without antagonising the client by insisting at that stage upon their strict legal rights against the client.

It seems to me to follow from this that the Master was right to give summary judgment and that there is no basis now upon which I should set aside the order granting summary judgment for an indemnity in respect of counsel’s fees. That was the only respect in which the Master gave summary judgment. On other issues concerning the remaining fees, therefore, the action will continue to trial. There is an issue, however, as to whether the parts struck out by the Master should remain struck out.

The Master, though he was plainly unimpressed by the defences advanced, allowed most of them to proceed upon condition of a payment into court of £100,000. It seems to me that he was plainly entitled, for the reasons I have given, to be unimpressed by the defences, and to proceed in that way. Moreover, for reasons I come to, he was entitled to strike out the parts of the pleading he struck out, as formulated before him. Nothing I have heard from Mr. Davies persuades me that I should alter the condition. Accordingly, the condition for continuing the defence and counterclaim by payment into court of £100,000 will remain.

There remains the question of the various paragraphs which were struck out, namely paras.4(j), 14 and 15. It seems to me that it may well be that at trial the defendants will establish a course of conduct sufficient to give rise to some sort of estoppel, which was the plea raised by para.4(j). The Master thought the plea looked thin, but it may not be so thin as to be unarguable with no realistic prospect of success. I should mention also that the estoppel plea has been reformulated in a more focused manner in the proposed revised defence put forward by Mr. Davies.

The Master’s criticisms in his judgment related to the way in which the matter was pleaded. For example, he said in para.29: “I have already observed that the two species of estoppel are poorly pleaded.” In para.30 he said: “I do not consider that the claim there was an estoppel by convention is adequately made out in the defence.” I have not heard full argument on the proposed revised pleading, and there is no formal application to amend before me, but it seems to me that if a case of estoppel can be advanced, and my present inclination is that it probably can, it is a matter that should be advanced upon a formal application being made to amend the pleadings. A draft amended defence has been put before me today, but it was only provided to the other side earlier this week. This is despite the fact that an application to adjourn, or stay the order, was made on15^th October 2014, when judgment was handed down, at which time an amended defence, it was said, would be available within 14 days. That was over 7 months ago.

It seems to me that this is an aspect where I should not re-hear the matter upon the basis of a pleading that has been put in very recently but should treat this as a review of the Master’s decision on the material before him, which I do. Reviewing that decision on that material, it seems to me that his decision to strike out para.4(j) was faultless, and it is for the defendants now, if they wish to rely on an estoppel plea, to advance another claim to that effect, properly pleaded.

The same applies to the parts of the counterclaim which were struck out. There are two aspects of the counterclaim which were struck out, one by reference to breach of fiduciary duty and one by reference to undue influence (paras.14 and 15 respectively).

The Master was clearly not impressed with the pleading in those respects. Nonetheless, his judgment, with respect to him, is in this regard a little muddled. He said in para.31 onwards:

“…Mr. Hunt was a sophisticated client and the CFA does not anywhere contain a reference to payment being made only in the event of a recovery being made. Nevertheless, there is the possibility that the Defendants may be able to establish a breach of duty upon a fuller examination of the evidence about the circumstances in which the CFA came to be executed. It is by no means clear that this would amount to a complete defence to the claim as the counterclaim does not explain what steps the defence would have taken had they been properly advised. I do not consider it possible to say there is an absence of reality about the Defendants’ case in this respect although I consider that the threshold test is only just surmounted. Furthermore, even if the Defendant is successful at a trial it is doubtful that their claim would extinguish the amount of fees due to the Solicitors. I will assume in favour of the Defendants that the defence will be amended to include a set off.

32.

I have already indicated that I do not consider the claim for breach of fiduciary duty is one which can survive a strike out application. The same observation applies to the claim for undue influence. Reasonable grounds for such claims have not been pleaded.”

He had earlier said in relation to the allegations of breach of duty in para.14 and undue influence in para.15 that the allegation that the solicitors placed themselves in breach of fiduciary duty did not take the case very much further as, for short, there are always conflicts of interest in CFA funding arrangements, and it cannot simply be that by entering into a CFA solicitors act in breach of their fiduciary duties. He was also dismissive of the undue influence claim, largely on pleading points alone.

The muddle is that the Master appeared on the one hand to say that the counterclaim for breach of fiduciary duty crossed the threshold (but only just) and then (by apparent contradiction) that neither it, nor the undue influence claim, could survive a strike out application. The likely explanation is that he recognised that summary judgment could not be granted, but struck out the 2 pleaded paragraphs on pleading grounds, as the pleading was inadequate. The latter point is effectively recognised by Mr. Davies, who now relies on a revised proposed pleading.

It seems to me that the Master was justified in taking that approach to the counterclaim as pleaded before him, but matters might look different if the matter is now pleaded properly. Mr. Davies does seek to plead the matter properly, and my present view, not having heard full argument on it from both sides, is that he has put forward a sustainable claim for breach of fiduciary duty and/or for undue influence, given the presumption of influence that prevails between solicitor and client. Undue influence one thinks of as being there to protect the vulnerable and weak, but it is also there to protect those to whom fiduciary duties are owed, and the consequence may be, if the complaint is made good, that the CFA will be set aside, or compensation will be ordered. Someone will still be liable as between the parties for counsel’s fees, which can be dealt with, if appropriate, by the terms upon which rescission is granted, or adjustment of the level of compensation.

In my judgment, the appropriate course is for Mr. Davies’s pleading, once he has reconsidered it, to the extent he needs to in the light of the fact that I am not allowing the appeal on the summary judgment aspect, to be considered at a hearing in which both sides have a proper opportunity to argue it.

So far as the present appeal is concerned, it will be dismissed in its entirety.