Birmingham City Council v Forde

This is an appeal from the judgment of Master Campbell, the Costs Judge, of 30^th April 2008 on certain preliminary issues about costs in litigation between Birmingham City Council (“the Council”) and one of its tenants, Miss Rose Forde (“Miss Forde”). As Master Campbell rightly observed, it is in reality a further round in a dispute between the Council and Miss Forde’s solicitors, McGrath (Footnote: ¹ ) , an established legal practice specialising in housing repair litigation.

The dispute arises in this way. The Council has a very large housing stock and, historically, a poor record in housing disrepair. Many tenants bring claims against the Council. Of those many have instructed McGrath. The Council is concerned at the very large sums that it has had to pay out, year by year, in costs, to McGrath and others, and seeks to limit its exposure. The dispute between the parties has a substantial history. In order to address the points at issue it is necessary to examine the chronology of events, including the legislative background and its changes. I have been much assisted in my consideration of the validity of those points by Master Hurst, the Senior Costs Judge, and Mr Clive Heaton, QC, who have sat with me as assessors.

A council tenant who complains that his house or flat has not been repaired has a number of remedies open to him. Section 11 of the Landlord and Tenant Act 1985, which is applicable to periodic Council tenancies, provides for certain covenants to be implied into such a tenancy, including covenants (a) to keep in repair the structure and exterior of the dwelling-house, and (b) to keep in proper working order the installations in the dwelling-house for the supply of water, gas, and electricity. The obligation to repair is an obligation to effect repairs within a reasonable time of receiving notice (or having knowledge) of the defect: Makin v Watkinson [1870] L 6 Ex 25; O’Brien v Robinson [1973] AC 912; Morris v Liverpool CC [1987] 20 HLR 498. The tenant can, and often does, sue the Council in the County Court for breach of those covenants, and, if necessary, for an order for specific performance of the obligation to repair. The tenant will also rely on the express terms as to repair contained in the tenancy agreement.

In addition the tenant can bring a claim under section 82 of the Environmental Protection Act 1990. That section enables a person aggrieved by the existence of a statutory nuisance to complain to the magistrates. A statutory nuisance includes “ any premises in such a state as to be prejudicial to health or a nuisance” : section 79 (1) (a). Proceedings may be brought against the person responsible for the nuisance: section 82 (4) (a); and the section gives the magistrates power to order the person responsible to abate it: section 82 (2) (a). But the magistrates cannot make such an order unless the tenant has given the Council 21 days notice of his intention to bring the proceedings specifying the matters complained of: sections 82 (6) and (7).

The magistrates also have power to order costs in the circumstances set out in section 82 (12), which provides:

“(12)

Where on the hearing of proceedings for an order under subsection (2) above it is proved that the alleged nuisance existed at the date of the making of the complaint, then, whether or not at the date of the hearing it still exists or is likely to recur, the court shall order the defendant (or defendants in such proportions as appears fair and reasonable) to pay to the person bringing the proceedings such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings ”.

The County Court also has the power to order the Council to pay the successful tenant his costs. Whether and to what extent it will do so depends, amongst other things, on whether the case is allocated to the Small Claims Track or the Fast Track. If the claim is allocated to the Small Claims Track, the successful tenant will, in most cases, only recover (a) fixed costs of commencement under CPR 45 (under £ 100); (b) Court fees; (c) an expert’s fee, generally fixed at a maximum of £ 200; and (d) out of pocket expenses,

The criteria for allocation of a case to the Small Claims Track in a claim which includes a claim by a tenant of residential premises against his landlord are as follows. Where (a) the tenant is seeking an order requiring the landlord to carry out repairs or other work to the premises and (b) the cost of repairs or other work is not more than £ 1,000 and (c) the financial value of any other claim for damages is not more that £ 1,000, the claim will normally be allocated to the Small Claims Track: CPR 26.6. Accordingly, if at the time of allocation the tenant is seeking an order to carry out repairs and either there is over £ 1,000 outstanding work or a damages claim for over £ 1,000 the case will go into the fast track (assuming it is not more than £ 15,000). If the tenant is not seeking such an order the claim will be allocated to the Fast Track if it is for more than £ 5,000. In the present case the Particulars of Claim contained no claim for specific performance.

Under the Funding Code public funding cannot be refused in housing disrepair cases on the ground that a CFA is available. But Paragraph 5.4.6 of the Code provides that:

“An application will be refused if a case has been or is likely to be allocated to the small claims track”.

Where the likely damages are small an application is liable to be refused on the ground that the cost benefit ratio is too low. The evidence of Mr Cox, a Senior Legal Advisor to the Legal Services Commission, was that caseworkers were more likely to reject on that ground rather than on the ground that the case was likely to go to the Small Claims Track (where public funding is not available) because determining whether the case would go to the Small Claims Track involved a degree of prediction e.g. as to whether repairs would be completed. The evidence of Mr Heathcock (see para 48 below) was that a refusal on the latter ground was very rare (Footnote: ² ) .

The provisions of section 82 and the costs regime in respect of the Small Claims Track were no doubt intended to provide an incentive for Councils, and other landlords, to complete any outstanding repairs timeously (Footnote: ³ ) . These rules as to costs have also led tenants and the Council to use the system to their best advantage.

Because costs cannot be recovered in the Magistrates Court if the alleged nuisance no longer exists at the date of the complaint it is in the interests of tenants, or their solicitors, that any repairs should not be completed within the 21 days notice period. This has led to bulk notices being served just before public holidays, so as to increase the prospect of recovering costs because all the repairs are not carried out by the time of the complaint (Footnote: ⁴ ) . If that default occurs, the tenant may be able to recover (i) her costs of instructing a surveyor to produce a report on whether there is a statutory nuisance and, if so, what is needed to abate it; and (ii) her solicitors’ costs. That report will then be available to be used for the purpose of any subsequent civil action. Further the finding of the magistrates, which has to be to the criminal standard, will be binding.

On the other hand, because the claim will come within the Small Claims Track if (a) any outstanding repairs are worth not more than £ 1,000 and (b) any claim to damages is also not more than that sum, it is in the interests of Councils to complete those repairs prior to allocation of a case to a track. (It is, of course, also in the interests of the tenant that repairs should be swiftly carried out). If the Council has done so (the likelihood of which is increased if there has been a previous order under section 82), the claim may only attract very limited costs because the case is allocated to the Small Claims Track. In his judgment in BCC v Crook [2007] EWHC 1415 Irwin, J, recorded that, in the course of the hearing before him “Birmingham acknowledged that it was the deliberate policy of their legal department to press cases away from the allocation as fast track cases. We were told “this is litigation””. We were told that what was being referred to was very low claims, and that there was no policy of inappropriate pushing of claims into the Small Claims Track.

In Birmingham City Council v Avril Lee, [2008] EWCA Civ 891, the Court of Appeal considered a case where the tenant complied with the Housing Repairs Pre-action Protocol, as a result of which repairs were completed before proceedings were issued. The proceedings were then allocated to the Small Claims Track. The court upheld, with a variation, an order of the designated civil judge in Birmingham, who had allowed an appeal from the District Judge. The effect of the order made was that the claimant was awarded her costs in the cause (Footnote: ⁵ ) on the scale applicable to the fast track up to the date when the repairs were completed.

Council tenants whose premises are in disrepair are not likely to be well off. Miss Forde, herself, is a disabled lady with two children in receipt of benefits, including the higher rate of mobility allowance (Footnote: ⁶ ) . Such tenants are likely to be entitled to funding from the Legal Services Commission (hereafter “public funding”). Alternatively a solicitor may be prepared to act under a conditional fee agreement, with or without a success fee. It is in the interests of justice that persons in Miss Forde’s predicament have access to justice, i.e. the ability to compel the Council to remedy breaches of its obligations towards them, including those imposed by statute, and to obtain compensation for the Council’s failure to comply with them.

In order to recover damages for discomfort, injury to property etc the tenant will need to show that he or she had given notice to the Council of the disrepair (save in respect of any matter of which the Council had knowledge). In ordinary course a surveyor’s report will have been sent to the Council in order to start the 21 day period under the 1990 Act running. But the tenant may well have a claim in respect of the period prior to the service of the report and will give evidence as to complaints made to the Council at an earlier stage.

By the time the case comes to the County Court any dispute is likely to be as to quantum, and, in particular, as to when notice of disrepair was given, as well as the extent of any discomfort, damage to belongings, etc. Damages for breach of an obligation to repair are to represent the sum which, so far as money can, will put the tenant in the position he would have been in if the landlord had performed its obligations. They are prima facie to be assessed by reference to the rent payable: Wallace v Manchester City Council [1998] 30 H.L.R. 111. Thus, if the want of repair has continued for several years damages may be awarded by taking a percentage of the rent for the years in question. In some cases the level of distress and inconvenience may justify an award above the level of the rent payable, but the basic rule is that the rental value of the premises is the maximum: English Churches Housing Association v Shine (Avrom) [2004] EWC Civ 434. Reported cases show Courts awarding sums between £ 1,000 and £ 4,000 per annum (depending on the rent) for serious items of disrepair (lack – intermittent or continuous - of heating and hot water, rat infestation, dampness etc)

In practice the Birmingham City Council invariably settles housing repair cases brought in the County Court. There was at the time when Miss Forde’s action against the Council was settled no recent example of a case coming to trial, let alone appeal.

On or about 25^th March 1996 Miss Forde became the tenant of 120, Quinton Road, Birmingham. On 14^th May 1998 a surveyor inspected her premises at the request of a firm of solicitors other than McGrath and produced a schedule of defects and an abatement schedule. The report concluded that the premises were prejudicial to health and a statutory nuisance and that the landlord might be in breach of the covenants implied under section 11 of the 1985 Act.

At some stage Miss Forde instructed McGrath. On 28^th August 2003 another surveyor produced a report which contained a schedule of defects and an abatement schedule and reached the same conclusions. On 3^rd September 2003 this report was sent to the Council with a 21 day notice. On 27^th January 2004 a firm of Environmental Health and Housing Consultants inspected the premises. The ensuing report referred to the fact that the shower room had been inadequately adapted for a disabled person, that leaks had occurred and there was disrepair, that dampness was present; and that rat droppings had been noted externally particularly within the external WC compartment. The report proposed a number of amendments to a draft Nuisance Order which was then in existence.

Proceedings were initiated in the Magistrates Court. On 29^th June 2004 an order was made against the Council under section 82 to abate the statutory nuisance.

On 16^th March 2005 Miss Forde signed two documents. One was a conditional fee agreement (“CFA 1”). That agreement had a number of features.

Firstly, it covered proceedings brought against the Council arising from the tenancy and based on breach of contract, or a tortious act, or under the 1985 Act or the Defective Premises Act 1972, but not including a claim based on personal injury. It is common ground that the agreement covered the costs of the assessment process: see the judgment of Master Campbell in Crook v Birmingham City Council. It did not, however, cover any appeal by the Council or Miss Forde against an order made in the County Court, except “an interim appeal where we advise in our absolute discretion in writing that it should be opposed/pursued because you have a reasonable chance of success”.

Secondly, Miss Forde was only to be liable to McGrath for any costs and expenses if she won, in which case, as she was warned, the expenses and charges would not be limited by reference to the compensation recovered, save in the circumstances set out in the next paragraph. If she lost she would have to pay the Council’s costs and expenses. If she rejected a Part 36 offer or payment in accordance with McGrath’s written advice and she then recovered less McGrath would not charge her for any charges and expenses which McGrath had incurred after the notice of the offer or payment.

Thirdly, the agreement provided for McGrath to charge at specified rates per hour. The agreement also provided for a reduced scale of charges if no agreement could be reached with the opponent for him to pay legal costs and expenses or the Court did not make an order that he should do so. In that event, if the compensation recovered was £ 3,000 or less the limit of costs would be £ 1,000 + Vat + expenses. If the recovery exceeded £ 3,000 there was a limit on McGrath’s charges of one-third of the total compensation recovered, to which VAT would be added. This “ring-fencing” of damages, as it has been called, was of benefit to Miss Forde in that that it would ensure that, if she won but got no costs, she would be able to retain a substantial proportion of the compensation.

Fourthly, the agreement was terminable by Miss Forde on 14 days written notice. It was terminable by McGrath (on reasonable notice) if Miss Forde did not keep to her responsibilities under it, or if McGrath believed that she was likely to lose, or if she rejected their opinion in relation to the conduct of the case, including an opinion that the landlord had done sufficient work to comply with its legal obligations (or that proposals to carry out that work would so comply), or an opinion that the amount of compensation offered was a reasonable offer of settlement. In the latter circumstance Miss Forde was bound to pay McGrath’s charges and expenses whether or not the proceedings were lost. In the absence of termination by either party the Agreement would terminate on the conclusion of any Court proceedings or in the event of an agreement that the case should be pursued no further.

Fifthly, there was no success fee.

In the agreement McGrath’s gave a current estimate of its fees of £ 1,200 - £ 1,500 if the case did not proceed to trial; and between £ 1,800 and £ 2,200 if it did.

The second document was an application for a CLS Funding Certificate. By an oversight this document was never in fact submitted to the LSC. Under the section entitled “Your client’s involvement” there is a question: “What is the main purpose of this application?” The box for an answer entitled “Bringing a money claim” had an “X” inserted in it, signifying that that was one of the purposes. Another purpose was identified as “Also to ensure that any outstanding repairs are completed”. One of the questions in the form in the section dealing with “Applications for Full Representation Only” was “Which of the following best describes the prospects of achieving the outcome your client wants?” Five boxes are available ranging from A - Very good (80% +); to B - Good (60-80%); C - Moderate (50-60%); D - Borderline; and E - Poor. McGrath put an X in both boxes C and D. Beneath the boxes are the words:

“If you have ticked boxes D or E say what factors led you to make this decision and why CLS certificate funding should be given. Note that funding will normally be refused if box D is ticked unless any of the following applies (please tick)”.

There then follow five boxes setting out circumstances which might justify funding even though the prospects were borderline. None of these boxes were ticked (or had crosses in them) so as to indicate that they applied. The reason for this is said to be because McGrath could not say that there was no risk of the claim being allocated to the Small Costs Track or that the costs benefit ratio would justify public funding. The form was filled in so as to indicate that the estimated costs to settlement were £ 2,500. This figure compares with the figure of £ 1,500 given in the CFA on the same day. The answer given to the question “Why do you consider that the case will settle or otherwise be disposed of before trial?” was: “In our experience, our opponent will normally seek to settle a case before trial”. The passage in the form which requires an estimate of the likely value of the claim was left blank.

The statutory provisions relating to conditional fees have undergone some change. Section 58 of the Courts and Legal Services Act 1990 (“CLSA 1990”), which came into force in July 1993, provided:

“(1)

In this section “a conditional fee agreement” means an agreement in writing between a person providing advocacy or litigation services and his client which-

(a)

does not relate to proceedings of a kind mentioned in

subsection (10);

(b)

provides for that person’s fees and expenses, or any part of them, to be payable only in specified circumstances;

(c)

complies with such requirements (if any) as may be prescribed by the Lord Chancellor; and

(d)

is not a contentious business agreement (as defined by section 59 of the Solicitors Act 1974).

(2)

Where a conditional fee agreement provides for the amount of any fees to which it applies to be increased in specified circumstances, above the amount which would be payable if it were not a conditional fee agreement, it shall specify the percentage by which that amount is to be increased.

(3)

Subject to subsection (6), a conditional fee agreement which relates to specified proceedings shall not be unenforceable by reason only of its being a conditional fee agreement.

(4)

In this section “specified proceedings” means proceedings of a description specified by order made by the Lord Chancellor for the purposes of subsection (3).

[No such order was made prior to the Conditional Fee Agreements Order 1995. That order did not cover, inter alia, libel actions. The Conditional Fee Agreements Order 1998 specified all proceedings].

(5)

Any such order shall prescribe the maximum permitted percentage for each description of specified proceedings;

(6)

An agreement which falls within subsection (2) shall be unenforceable if, at the time when it is entered into, the percentage specified in the agreement exceeds the prescribed maximum permitted percentage for the description of proceedings to which it relates;

(7)

Before making any order under this section the Lord Chancellor shall consult the designated judges, the General Council of the Bar, the Law Society, and such other authorised bodies (if any) as he considers appropriate;

(8)

Where a party to any proceedings has entered into a conditional fee agreement and a costs order is made in those proceedings in his favour, the costs payable to him shall not include any element which takes account of any percentage increase payable under the agreement”.

The Solicitors’ Practice Rules 1990 provided, by Rule 8 (1):

“A solicitor who is retained or employed to prosecute any action, suit or other contentious proceeding shall not enter into any arrangement to receive a contingency fee in respect of that proceeding”.

Rule 18 (2) (c) defined “contingency fee” as meaning: “.any sum (whether fixed, or calculated as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution of any action suit, or other contentious proceeding”.

In Geraghty & Co v Awad Awaad [2001] C.A. 25^th November 1999, the solicitor had on 20^th September 1993 reached an oral agreement with her client that she would charge him her normal rate per hour if he won and a lower rate if he lost. The difference between the lower rate and her normal charging rate, which she agreed to receive in the event of success, was held to be “a sum payable only in the event of success” and, thus a contingency fee within the meaning of the Rules. Her agreement was, thus, held to be an “arrangement to receive a contingency fee” prohibited by rule 8 (1). Since the Rules, made under section 31 of the Solicitors’ Act 1974, constitute secondary legislation having the force of statute – see Swain v The Law Society [1983] 1 AC 598 – a contract to break them is unlawful. Accordingly the Court held that the agreement in question was both unlawful and unenforceable.

In January 1999 Rule 8 was amended so as to provide:

“A solicitor who is retained or employed to prosecute any action, suit or other contentious proceeding shall not enter into any arrangement to receive a contingency fee in respect of that proceeding, save one permitted under statute or by the common law”.

Section 58 was amended by the Access to Justice Act 1999. As amended it provides:

“(1)

A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement,; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.

(2)

For the purposes of this section and section 58A-

(a)

a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and

(b)

a conditional agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances.

(3)

The following conditions are applicable to every conditional fee agreement -

(a)

it must be in writing;

(b)

it must not relate to proceedings which cannot be the subject of an enforceable conditional fee agreement; and

(c)

it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor.

(4)

The following further conditions are applicable to a conditional fee agreement which provides for a success fee-

(a)

it must relate to proceedings of a description specified by order made by the Lord Chancellor;

(b)

it must state the percentage by which the amount of the fees which would be payable if it were not a conditional agreement is to be increased; and

(c)

that percentage must not exceed the percentage specified in relation to the description of proceedings to which the agreement relates by order made by the Lord Chancellor.

The Conditional Fee Agreements Regulations 2000 (“the 2000 Regulations”), which came into force on 1^st April 2000 include the following provisions:

“ Information to be given before conditional fee agreements made

4 (1) Before a conditional fee agreement is made the legal representative must –

(a)

inform the client about the following matters, and

(b)

if the client requires any further explanation, advice or other information about any of those matters, provide such further explanation advice or other information about them as the client may reasonably require.

(2)

Those matters are:

……

(d)

whether other methods of financing those costs are available, and, if so, how they apply to the client and the proceedings in question;

(e)

whether the legal representative considers that any particular method or methods of financing any or all of those costs is appropriate and, if he considers that a contract of insurance is appropriate or recommends a particular contract:

(i)

his reasons for doing so, and

(ii)

whether he has an interest in doing so;

(3)

Before a conditional agreement is made the legal representative must explain its effect to the client

………

(5)

Information required to be given under paragraph (1) about the matters in paragraph 2 (a) to (d) must be given orally (whether or not it is also given in writing), but information required to be so given about the matters in paragraph 2 (e) and the explanation required by paragraph (3) must be given both orally and in writing”.

In Hollins v Russell [2003] 1 WLR 2487 the Court of Appeal decided that, in determining whether Regulation 4 has been complied with, the Court must ask itself:

“Has the particular departure from a regulation pursuant to section 58 (3) (c) of the 1990 Act or a requirement in section 58, either on its own or in conjunction with any other departure in this case, had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?”

In Garret v Halton BC [2007] 1 WLR 554 the Court of Appeal held [in para 19] that:

“The “protection afforded to the client” is a reference to the protection afforded by virtue of the 2000 Regulations. If paras 106 and 107 are read as a whole, the court was saying that, if there has been a failure of substantial compliance or a material departure from what is required by the 2000 Regulations, that failure or departure of itself has a material adverse effect on the protection afforded to the client or upon the proper administration of justice”.

The Conditional Fee Agreements Order 2000 (“the 2000 Order”) also came into effect on 1^st April 2000. By Article 3 it provides that all proceedings which under section 58 of the Act can be the subject of an enforceable conditional fee agreement, with one exception, are proceedings specified for the purposes of section 58 (4) (a) of the Act [so that practically all proceedings can be the subject of a success fee] ; and, by Article 4, that in relation to all proceedings specified in Article 3 the percentage specified for the purposes of section 58 (4) (c) of the Act should be 100%.

The combined effect of section 58 of the 1990 Act, the 2000 Regulations and the 2000 Order is that a CFA will be unenforceable if the solicitor has failed to comply with Regulation 4 of the 2000 Regulations or if the success fee exceeds 100%..

CFA 1 contained the following paragraph:

“ 18 Other Points

Immediately before you signed this Agreement we verbally explained to you the effect of this Agreement and in particular the following:

…..

(d)

Other methods of financing these costs including Private Funding, Community Legal Service Funding, Legal Expenses Insurance, Trade Union Funding

(e)

Whether we consider that any particular method or methods of financing any or all of the costs is appropriate. We have advised you that in relation to these proceedings, if they are referred to the Small Claims Track of the County Court, a Court would not normally Order you to pay your opponents costs, unless, for example, it believed, that the proceedings were brought, or carried on, unreasonably, frivolously or vexatiously. We believe the risk of a Court making such an Order is minimal and that therefore we do not believe that a contract of insurance to cover those risks would be appropriate in the circumstances. We have also advised you that we do not consider that it would be appropriate to insure against your costs and disbursements as the premium is likely to be expensive and would not likely to be recoverable if the case is transferred to the Small Claims Track. We have further advised that if the case is allocated to the Fast Track or the multi-Track it will be appropriate at that stage to consider either an application for a Legal Services Commission Public Funding Certificate, or alternatively, After the Expenses (sic) Legal Insurance, depending upon your financial circumstances at that time”.

On 13^th May 2005 McGrath sent the Council a letter before action. The letter informed the Council that McGrath was acting under a CFA. It asked the Council not to rely on any limitation defence that might be available, failing which proceedings would be issued forthwith. On 16^th May the Council declined to waive the limitation period.

On 24^th May 2005 McGrath & Co submitted an application for public funding. The application was submitted under cover of a letter which was in the same form as a number of other such applications by McGrath on behalf of other clients, and which included the following:

“We confirm that this application is being submitted in the light of the decision of Bridgend County Borough Council v Bowen … we refer, specifically to the letter sent by our Senior Partner, Mr McGrath, to Mr Lissett dated the 18 ^th day of May 2004 (Footnote: ⁷ ) .

As far as this particular application is concerned it will be noted that in response to the questions on page 4, as to the prospects of success we have ticked both boxed C and D.

We have done so as explained in previous correspondence, because, although we regard the client’s prospects of recovering compensation in this matter as being good, with a minimum of 60%, given the uncertainties in this type of litigation, in particular in relation to issues such as notice to the Landlord and the possibility that any existing disrepair may have been remedied before allocation to track, it is impossible at this stage for us to certify that this case will be allocated to the fast track.

It will be appreciated in these circumstances, we are not able to certify that a costs recovery is guaranteed.

As far as the costs/damage ratio is concerned the figure that we have given for the likely value of the claim is based on the client’s specific and uncorroborated instructions as to the date of notice and assumes full recovery on that basis.

Given the normal disputes that arise in these cases, however, as to the date of notice, such an approach also presupposes that such a case is more likely to go to trial. The estimated costs to trial figure is therefore calculated on that basis.

It is on these assumptions that we have given the costs and damages ratio.

The costs may be less, if the opponent is able to demonstrate at a relatively early stage that the notice period is considerably less than that contended for.

It obviously, however, follows that if that is the case the amount of damages will similarly reduce so that the ratio is unlikely to be affected.

We confirm, notwithstanding the obvious risks of this case, since we are confident that the client will make a financial recovery, that another firm within the McGrath Group of Companies would be prepared to deal with the case under a Conditional Fee Agreement.

We also confirm that we have carried out the initial risk assessment on this case and there is no further information we are seeking at this stage to assess general merits and that a certificate limited to investigative help would not be appropriate.

We confirm that we are seeking a full representation certificate limited to all steps up to but not including trial but including Counsel’s opinion at that stage”.

In the Bowen case, to which the letter referred, Master O’Hare had decided (see paragraph 166 below) that the solicitors had failed to give adequate advice on the availability of legal aid.

The May application for public funding contained the same answer as to the main purpose of the applications as in the March application. McGrath again put a cross in both the “Moderate” and the “Borderline” box, but not in the following boxes. They estimated the costs to settlement at £ 2,500 and the estimated costs to trial at £ 7,500 (that figure replacing in manuscript a previously typed figure of £ 2,500). The estimated likely value of the claim was put at £ 6,500 to £ 9,950.

The form invites the applicant to specify the “anticipated costs to settlement” in terms of a ratio. McGrath & Co specified the ratio of costs to damages as 1: 1:32. That is the ratio between £ 7,500, the estimated costs to trial, and £ 9,950 the highest figure for damages. The ratio between the costs to settlement and damages is 2.6, (if £ 6,500 is taken as the damages figure) and 3.98 (if £ 9,950 is taken).

The letter of 24^th May was in a standard form. Parts of it appear inapposite. In Miss Forde’s case notice to the Council was not wholly uncorroborated. The surveyors’ reports provided substantial corroboration, although not of any notification prior to the despatch of the August 2003 report. It may have been to such notification that reference was intended. The letter explained that McGrath had taken the value of the claim on the basis of the client’s instructions and that, since there was normally a dispute about notice, such an approach presupposed that the case was more likely to go to trial. But, as McGrath must have known, these cases invariably settle. In those circumstances the presupposition was unnecessary. The form itself repeated the statement in the March form that “In our experience, our opponent will normally seek to settle before trial”. The evidence of Mr Heathcock (see para 48 below) was that the effect of the inconsistency was to suggest that the costs likely to be incurred to trial would be nearer £ 7,500 than £ 2,500.

The letter pointed out that allocation to the fast track and costs recovery could not be guaranteed. But since the claim was put at between £ 6,500 and £ 9,950 it was likely that it would be so allocated, as in the event it was. To fill in both the “Moderate” and the “Borderline” boxes was contradictory, and, in view of the contents of the letter of 24^th May (“we regard the client’s prospects of recovering compensation as being good, with a minimum of 60%”, the “Good” box could have been completed. The accompanying letter indicated that it reflected McGrath’s inability to certify that there would be a costs recovery. This is not, however, an issue which the two boxes are designed to address. Nor are solicitors bound to certify that such recovery will occur.

At a later stage Mr Ian Heathcock, an experienced Senior Case Worker at the Legal Services Commission, described this application as “doomed to fail” a description which appears to me appropriate. The officer who deals with applications for public funding exercises an independent discretion on the basis of the facts and information put forward. In the present case these included an assertion that the claim period was five years; a schedule of disrepair giving details of when the Landlord was notified, and the August 2003 report. However, the submission of a letter expressing the impossibility of guaranteeing cost recovery, without expressing any view as to the likelihood of allocation to the Fast Track, and presupposing a trial because of disputes about notice, together with a form which filled in the “Borderline” box without marking any later box, and which wrongly specified the anticipated costs to settlement ratio at 1:1.32, albeit accompanied by a letter which indicated that the costs and damages ratio assumed that the case would go to trial, was not likely to promote a positive response.

The application did, however, have with it the Claimant’s statement of case which gave details of her tenancy and occupation of the property and which stated that the property had been in disrepair since 1996 which was the start date of a claim the period of which was 9 years. (Since the Council would inevitably plead the Limitation Act, the maximum period would be 6 years). It also annexed a schedule of disrepair which gave details of when the landlord was notified. In several cases this was said to be by the despatch on 3^rd September 2003 of the August 2003 report, which was enclosed with the form, save in respect of (a) the kitchen, where notification was given in 1998 and repairs were carried out in 1999; and (b) the bathroom where notification was in August 2001 in respect of a blocked and overflowing toilet and defective pipe work to the shower and toilet. A defective floor in the bathroom was said to have been notified in September 2003 by the August report. Some of the repairs were said to be ongoing, so that, at that stage, the Claimant could claim that her claim should not be allocated to the Small Claims track (at any rate if £ 1,000 of repairs was outstanding or the claim for damages exceeded £ 1,000).

On 3^rd June 2005 the application for public funding was turned down on the ground that the likely benefit of proceedings to the client and others did not justify the likely costs having regard to the prospect of success and all other circumstances. Mr Heathcock’s evidence was that the refusal was based on the proportionality test in effect referred to in the letter of 3^rd June 2005 and was made on the basis that it had “Moderate” as opposed to “Borderline” prospects.

On 22^nd September 2005, following intervening correspondence, McGrath put forward a Part 36 Offer to the Council to settle for £ 9, 500 plus costs. The letter enclosed draft Particulars of Claim. On 13^th October 2005 a Senior Assistant in the Council’s Legal Department wrote inquiring why the claim was being pursued under a CFA rather than legal aid, pointing out that all the works at the property were complete, making a number of points about when notice was given (or not given) to the Council of various items, and asking for documentation in relation to the section 82 claim. On 10^th January 2006 (the letter of 13^th October 2005 having been overlooked) McGrath told the Council that LSC funding had been refused on 3^rd June 2005 and made various points. On 18^th January 2006 the Council put forward a without prejudice offer in the sum of £ 1,500 including reasonable costs.

On 22^nd January 2006 the Claim Form was issued. The pleading relied on the express and implied terms of the tenancy and the Defective Premises Act. It referred to two periods between October 1998 (wrongly specified as 1999) and 22^nd March 1999, and between 28^th June 2004 and 13^th June 2005 when Miss Forde left the premises in order to allow the Council to carry out repairs. It referred to the 1998 report; the claimant’s return on March 1999, the fact that the gas supply was not reconnected for a couple of days when she returned, the non-operation of the shower unit between August 2001 and February 2002, defects in the WC in the shower room causing frequent blocking from 2001 onwards, and the inspection of August 2003, the report of which was sent to the Council on 3^rd September 2003. It also pleaded the report of 4^th February 2004, which was sent to the council, the nuisance order of 28^th June 2004 and the fact that the Claimant was “decanted” on 28^th June 2004 to allow the work to be carried out. Particulars of notice were given and of the inconvenience, distress and embarrassment said to have resulted from the disrepair. Miss Forde claimed damages in excess of £ 5,000 but less than £ 15,000 including exemplary damages, plus interest and costs on an indemnity basis. A schedule of special damage totalling over £ 3,000 was attached.

McGrath gave notice of funding in the form of the CFA 1. The notice mistakenly failed to delete the words typed in the form: “which provides for a success fee”.

On 15^th March 2006 the Council filed a defence, which, inter alia, pleaded the Limitation Act 1980, and, also, a substantial request for information. On 27^th March the Council filled in an Allocation Questionnaire in which the fast track was selected as the one most suitable for the claim.

On 29^th March 2006 the Council made an offer of £ 4,500 together with reasonable costs.

The Conditional Fee Agreements (Revocation) Regulations 2005 came into force on 1^st November 2005. Regulation 2 revoked the 2000 Regulations, and various allied and amending Regulations, subject to Regulation 3, which provided:

“ 3 Savings and transitional provisions

(1)

The CFA Regulations shall continue to have effect for the purposes of a conditional fee agreement entered into before 1 ^st November 2005”.

The effect of the revocation of the 2000 Regulations was that for all CFAs entered into on or after 1^st November 2005, a solicitor was no longer liable to find his CFA unenforceable on account of his failure to comply with Regulation 4.

On 6^th May 2005 the proceedings instituted by Mr Crook (one of the claimants in BCC v Crook) against the Council were settled. McGrath were the solicitors to each of the claimants in the Crook case. Thereafter the Council took two points which impugned McGrath’s right to recover costs from their clients, and hence from the Council.

Firstly, they submitted that the Crook claimants could have taken advantage of public funding and that their failure to do so was evidence of a breach or Regulations 4 (2) (d) and (e) of the 2000 Regulations. Secondly, it was said that the reduced fees which were payable to McGrath if no costs were awarded against the Council constituted the “fees and expenses” of the “person providing advocacy or litigation services” within the meaning of section 58 (2) (a) and that these fell to be “increased in specified circumstances, above the amount which would be payable” if the specified circumstances arose, and that, if so, McGrath had failed to comply with Regulations 3 (1), 3 (2) or 3 (3).

The latter unattractive argument was rejected both by Master Campbell and by Irwin, J upon the basis that the “fees and expenses” referred to in section 58 (2) (a) were the normal fees and expenses which would be chargeable in the absence of any CFA.

But it would not have been until 21^st May 2006, when Master Campbell gave his decision, that McGrath could have been confident that the challenge would be ruled to be ill-founded; and they could have no security in that respect until the decision of Irwin, J. published on 19^th June 2007, and even then there was the prospect of an appeal.

It was no doubt in the light of the challenges to the validity of their agreements extant in March 2006 that, before settling with the Council following its offer of 29^th March 2006, McGrath decided to regularise its retainer with Miss Forde.

So it was that on 29^th March 2006 McGrath wrote to Miss Forde telling her that the Council was offering to pay her a total of £ 4,500 in compensation and, in addition, her reasonable legal costs. The letter expressed the view that, if she accepted the offer, she would be able to recover most of the £ 4,500 but that there could be a deduction if the Court decided that work had been carried out unreasonably.

The letter went on to arrange an appointment to visit her and went on to say:

“……in order to prevent any arguments about the Council being liable to pay your legal costs, we intend to take advantage of a change in the Regulations governing “No Win No Fee” Agreements, which we explain below.

By way of background we should explain that the Regulations under which you signed [CFA 1] with us sometime ago have changed.

The reason for the change was to make it more difficult for opponents such as your Landlord to challenge in Court the validity of the old style Agreements.

This is particularly important since this firm has been the subject of a serious challenge by your Landlord to the validity of the Agreement of the sort that you have signed with us.

In particular the Landlord has been alleging that we are not allowed to agree with you that we will charge you a reduced amount if we do not succeed in recovering a Cost Order in your favour.

In order, therefore, to take advantage of the new Regulations and to prevent an argument such as this (which has had the effect of causing problems and delay in paying compensation to a number of our other clients) we have prepared an alternative agreement which we would invite you to sign.

A copy of the Agreement is enclosed herewith.

The key features are that you are agreeing that all of the legal costs to date will be dealt with under this Agreement rather than the original one (unless by some chance a Court ruled that this one was not valid – in which case we will rely on the original Agreement).

The most important apparent effect of that is that this Agreement contains a success fee and the old one did not, so on the face of it, you could be worse off.

Because of that theoretical possibility we have to tell you that you should not sign it unless you are entirely happy with it and you are entitled to take independent legal advice if you wish.

In reality, however, you will not be any worse off because the “cap” that we put on your costs in the original Agreement still applies and the only reason that we are inviting you to create a potential further liability is to ensure, as we indicate above, that the City Council pays your legal costs on a proper basis, rather than you.

Javaid Khan will explain all this to you and deal with any questions or concern you may have”.

The agreement which Miss Forde was invited to sign covered the same proceedings as CFA 1 together with “any appeal by your opponent”, “any appeal you make against an interim order” (Footnote: ⁸ ) , together with any proceedings to enforce a judgement, order or agreement, and “negotiations about and/or a court assessment of any costs of this claim”. It contained similar provisions to CFA 1 in the event of success, and no provision for payment to McGrath in the event of loss. It also provided for a success fee of 100% of basic charges where the claim concludes at trial, or 75% where the claim concludes before a trial has commenced, but after proceedings have been issued, or 50% where the claim concludes before proceedings are issued.

Attached to the agreement, and forming part of it was a document entitled “Conditional Fee Agreement: what you need to know”. Under the heading “Basic Charges” the document recorded:

“These are for work done from when you first instructed us until this Agreement ends. You are agreeing to pay us for work done before the signing of this Agreement in consideration of our continuing to act on your behalf in connection with this case…”.

The document repeated the advice that:

“(iv)

If the case is allocated to the Fast Track or the Multi-Track it will be appropriate at that stage to consider, either an application for a Legal Services Public Funding Certificate, or alternatively, After The Event Legal Insurance, depending on your financial circumstances at that time”.

The document also provided that, if the court carried out an assessment and reduced any success fee because the percentage agreed was unreasonable “in view of what we knew or should have known when it was agreed, then the amount reduced ceases to be payable unless the court is satisfied that it should continue to be payable”. The same consequence was to follow if McGrath agreed with the Council that any success fee was to be paid at a lower percentage.

CFA 2 did not provide for the ring-fencing of damages if Miss Forde failed to recover costs from the Council

Mr Khan visited Ms Forde on 5^th April. His attendance note, which in the light of Mr McGrath’s evidence, Master Campbell found likely to be an accurate record, recorded that:

“I first went though with her the new CFA agreement and in particular I advised the client about the success fee. Once the client I [sic] understood I then asked client to sign the same which she kindly did. I also signed the agreement in her presence.

I then discussed with her, her case generally and that we think her case is over the £ 5,000 mark. However advised client about her claim in detail in particular the litigation risks as she has no documents to support her claim in respect of damages and in particular in respect of special damages”.

On 6^th April Mr Khan telephoned Mrs Homfray of the Council and inquired whether the Council could increase its £ 4,500 offer. She indicated that it was almost at the top end of the range that Counsel had suggested and that the most that she could increase it to was £ 5000. Mr Khan said he would take instructions and revert. Having done so, he telephoned back and indicated that his client accepted the offer. By a letter dated 12^th April McGrath sent to the Council a Consent Order, which was signed on behalf of the Council on 9^th May and sealed by the court on 7^th June.

On 21^st September 2006 McGrath on behalf of Miss Forde gave notice of commencement of assessment of a bill of costs. Their claim for costs totalled £ 15,174.41. Of that £ 4,800.49 + VAT was a success fee at 75% on their charges other than those relating to the bill of costs, and £ 630.30 + VAT was a success fee in respect of their work on compiling the bill of costs itself. This was the first that the Council was aware of the possibility of a success fee, which totalled, if the base charges were justifiable, £ 5,430.79 + VAT.

Master Campbell decided that both CFA 2 and the March letter formed part of the retainer agreed in March and April 2006. Miss Bretherton for the Council submits that he was wrong to do so. If, she submits, the March letter had been intended to be part of any agreement it would have said so and it would have been signed by Miss Forde. She draws attention to the fact that Mr Khan’s attendance note makes no mention of the letter, whose contractual status was only asserted in the course of argument before Master Campbell. The letter was not included in what were described as the “CFA documents” in the bundle for the assessment hearing.

I do not agree with this submission. In my judgement Master Campbell was entirely right to treat the March letter as part of the retainer. Not only is it the letter which invites acceptance of CFA 2, it also contains two provisions which the parties must have intended to be part of their agreement. The first is set out in the paragraph that reads:

“The key features are that you are agreeing that all of the legal costs to date will be dealt with under this Agreement rather than the original one (unless by some chance a Court ruled that this one was not valid – in which case we will rely on the original Agreement”) . [Bold added]

This paragraph sets out part of what Miss Forde was being asked to agree to, i.e. that the legal costs would be dealt with under CFA 2 unless the Court ruled that CFA 2 was invalid in which case McGrath would rely on CFA 1. In signing the Agreement upon receipt of that letter she must be taken to have agreed the “key feature” outlined to her in this paragraph.

The second provision is that set out in the paragraph that reads:

“In reality, however, you will not be any worse off because the “cap” that we put on your costs in the original Agreement still applies and the only reason that we are inviting you to create a potential further liability is to ensure, as we indicate above, that the City Council pays your legal costs on a proper basis, rather than you”.

CFA 2 does not contain the “cap”. The March letter stipulates that the cap will still apply. Had it been necessary to resort to the cap, e.g. because the Council successfully argued that the sum agreed (none had been agreed at the time of the March letter) ought not to carry it with it full costs, Ms Forde would have wanted, and would have been entitled, to rely on the term set out in the March letter.

As Master Campbell pointed out, since CFA 2 was entered into under the regime applicable after the Revocation Regulations it was not necessary for Miss Forde to have signed it in order for it to have contractual effect: cp the position in Utting v McBain [2007] EWCA 32093 (QB); nor does a CFA have to be contained in a single document: see Jones v Wrexham Borough Council [2007] EWCA Civ 1356, paragraphs 27 and 86. In the latter case Waller, LJ, said that he could see no reason why the court should not look at the whole package produced by the solicitor, including the CFA and any accompanying letter explaining the effect of the agreement, in order to ascertain what was the understanding as between client and solicitor. Nor can I.

Master Campbell decided that CFA 1 did not survive once CFA 2 was signed. He held that, whilst the firm stated that it would rely on the original agreement if the court “by some chance” ruled that CFA 2 was invalid, that did not, of itself adequately explain that CFA 1 was not being terminated but was to continue alongside CFA 2. He concluded that the only reasonable inference to be drawn from the March letter was that CFA 1 was being replaced. That was consistent with the reference to “an alternative agreement” rather than a “co-existing agreement” or “a concurrent agreement”. He accepted the submission that CFA 1 was terminated and replaced by CFA 2.

McGrath contends that in this limited respect Master Campbell was in error, and, in my judgment, he was. The letter was written in the context of a challenge to CFA 1. But it did not purport to terminate that agreement. It invited Miss Ford to sign an alternative agreement, so as to allow the recovery of costs, on the express footing that McGrath would rely on that agreement unless the Court ruled that it was invalid in which case it would rely on CFA 1. I see no reason why it was not open to McGrath to put forward that proposal, or to Miss Forde to accept it, as she must be regarded as having done when she signed the new Agreement after it had been tendered with the March letter. There was never any question of McGrath recovering its costs twice; nor did the March letter provide for that. But there was every reason for it seeking to recover under the new agreement or, if that failed, the earlier one.

The consideration expressed in and for CFA 2 was that McGrath would continue to act for Miss Forde. Miss Bretherton submits that this was no consideration at all because McGrath was already bound to continue acting for Miss Forde under CFA 1, which was never terminated in accordance with its terms. Master Campbell accepted the submission of Mr Mallalieu for McGrath that its agreement to continue to act was adequate consideration.

I, also, accept that submission. At the date of the March letter and the signing of CFA 2 the validity of McGrath’s retainer under CFA 1 was in doubt because of the Council’s still unresolved challenge in Crook. If the retainer was unenforceable or unlawful, McGrath would not be entitled to recover any costs under it, nor would Miss Forde be able to enforce it. In those circumstances CFA 2 (on the assumption that it was valid) created an enforceable obligation on McGrath to continue acting and on Miss Forde to be responsible for costs. The provision of an enforceable obligation to provide services in place of one which the Council asserted to be (and was seeking to prove was) unenforceable was consideration for a fresh promise to pay.

Further, CFA 2 provided a benefit to Miss Forde which CFA 1 did not. Under CFA 2 she was entitled to be represented under the agreement on an interim appeal by her and on any appeal by the Council without the qualification contained in CFA 1 that McGrath had to have advised in their absolute discretion in writing that the chances of success were reasonable.

If the only benefit had been that she was entitled to be represented on a final appeal by the Council, it would be necessary to decide whether, on the facts of this case, that amounted to any consideration at all. The Court will not judge the adequacy of the consideration but the consideration must be realistic and not entirely without value. Given that the Council invariably settles, that cases against it do not go to trial, let alone appeal, and that the Council had already offered £ 4,500, the prospect of a Council appeal was very remote. In those circumstances the benefit of having CFA 2 apply to such an appeal is arguably illusory.

The matter can be looked at from another angle. In Foakes v Beer [1884] 9 App Cas 605 the House of Lords held that a promise by a judgment debtor to pay part of the judgment debt immediately and the remainder by instalments in return for which the creditor would not take proceedings on the judgment was no consideration since the judgment debtor was bound to pay anyway.

But in Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 the Court accepted that:

“(i)

if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligation under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B’s promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding”.

While that formulation was addressed to the situation where A indicates that he will not perform or cannot perform unless he is paid more, the circumstances bear some analogy to the present case. The Council’s challenge to the validity of CFA 1 gave reason to doubt whether McGrath would be able to perform CFA 1 since, if the Council was right, CFA 1 would contain no enforceable obligation. Miss Forde thereupon promised the same remuneration plus a success fee in return for McGrath’s promise to perform similar, in fact slightly improved, obligations to those that were in CFA 1.

In Williams v Roffey the Court also observed that:

“Consideration there must still be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect (sic) the true intention of the parties”.

In this case, even though the bargaining power of the parties may be regarded as unequal, it was plainly their joint intention that the agreement should take effect in accordance with its terms.

In In re Selectmove Ltd [1995] 1 WLR 474 the Court of Appeal declined to regard a promise to the Revenue by a company to pay its existing liabilities by instalments and future liabilities when they fell due as good consideration for an alleged promise by the Revenue not to put the company into liquidation. It did so on the ground that to extend Williams v Roffey Bros to apply to an agreement to pay an existing debt by instalments would be inconsistent with Foakes v Beer. But it did not cast any doubt on Williams v Roffey Bros itself.

Miss Bretherton submits that, even if there is apparent consideration, the imbalance between the consideration provided by McGrath (i.e. to perform what CFA 1 had obliged them to do) and that provided by Miss Forde (i.e. to pay fees including a success fee) was such that, in truth, there was no real consideration at all. She referred to Chitty on Contracts para 3.18 which suggests that, if it appears on the face of the agreement that the consideration must as a matter of arithmetic be worth less than the performance of the counter-promise, as where A promises to pay B £100 in return for £ 1, there would seem to be no contract. So here, she submits, a promise to provide services which were (or, if CFA 2 completely replaced CFA 1, would have been) already covered by CFA 1 in return for not only costs but also a success fee was a promise which can be seen to be worthless in comparison with the counter promise. The argument fails on two counts. Firstly, in the example given in Chitty the apparent contract is in reality a gift of £ 99. Secondly, there was doubt whether CFA 1 was an invalid retainer. The Council cannot contend that those doubts were fanciful or unrealistic since it was at that stage challenging agreements such as CFA 1 and subsequently maintained that challenge on appeal. So the consideration provided was an enforceable promise, as to the adequacy of which the Court will not enquire.

Miss Bretherton also submitted that there was no consideration because McGrath would have continued acting for Miss Forde even if she did not sign CFA 2.

No argument on these lines is recorded in Master Campbell’s summary of Miss Bretherton’s submission, although a submission was made to him that there was no consideration because “continuing to act” was a “failure of consideration, if CFA 1 had ended” and no consideration at all if McGrath & Co were, as a matter of contract, obliged to act: see para 35 of the Council’s supplementary skeleton, of 4^th January 2008. This was an alternative to another submission made by Miss Bretherton to Master Campbell and recorded at para 117 of his judgment (but rejected at para 119) that it was “fair to infer from the March letter that had Miss Forde refused to sign CFA 2 McGrath would have parted company with her before the firm’s obligation to conclude the litigation had been fulfilled”.

Miss Bretherton relied on Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd’s Rep 98. In that case a receipt was signed by an Arab labourer in Dubai for workmen’s compensation for loss of an arm, to which he was entitled under the law of Dubai. The terms of the receipt were said to amount to a discharge of any common law claim. The question arose as to whether, on that hypothesis, the discharge was supported by any consideration.

Article 1 (c) of the relevant Ordinance provided that the worker should not be entitled to benefit

“… if it is proved by the employer to the satisfaction of the Court that the worker deliberately contravened instructions issued to safeguard his health and person or displayed serious negligence in executing those instructions”.

The defendants suggested that by virtue of the receipt they had forfeited their right to raise the provisions of Article 1 (c) in answer to the plaintiff’s claim under the Ordinance, and the judge agreed with them. Lane, LJ, as he then was, observed that this:

“…… overlooked the fact that the defendants clearly as a matter of policy never intended to invoke art. 11(c). Mr Jepson (senior administrator for Costain) put it plainly when he said that the defendants had to disregard the article in the particular circumstances, those circumstances being that the plaintiff had sustained the accident in Dubai, and

“… whatever the reasons, whatever the circumstances, we ought to pay him the compensation according to the Act.”

It is no consideration to refrain from a course of action which it was never intended to pursue: see Cook v Wright (1861) 1 B & S 559.589”.

Miss Bretherton also drew attention to her solicitor’s note of her cross-examination of Mr McGrath which is as follows:

“Q: …If Ms Forde had not signed, would you have continued to act?

A That is a hypothetical question

Q If Ms Forde had not signed, would you have continued to act?

A I could have, as she would have been unreasonable and had not been taking my advice

Q You would have ceased to act for her?

A I had the right

Q Was your continuing to act contingent on her signing CFA2?

A She was happy to sign it, had I received a call from Mr Khan when he had visited her then I would have had to consider the position

Q Surely as a firm you had a policy?

A Only 1 refused.

Q What happened?

A It was against a Housing Association client and we were confident of success so we carried out [sic]. Against BCC I would have withdrawn. Maybe would have considered the position. The position of Rose Forde is that she is a severely disabled lady, there was an offer of settlement on the table – we probably would have continued”.

Master Campbell found that McGrath’s continuing to represent Miss Forde under CFA 2 was adequate consideration. He did not find that the consideration was illusory on the ground that there was never any prospect that McGrath would not continue to act under CFA 1.

I am not persuaded that he was wrong on either count. In the present case the consideration does not consist of not doing something, but of continuing to act, in circumstances where, if the Council was right in its challenge, McGrath had no obligation, and the right not, to do so: cp Arrale where at the time the defendant regarded itself as having no option other than not to rely on the relevant article. The fact that many months after the event Mr McGrath expressed the view that McGrath would probably, as a matter of decision, have continued to represent Miss Forde if CFA 2 had not been signed did not mean that there was no benefit in having certainty as to that and no delay in the progress of the claim to settlement, at the time

The Council contends that CFA 2 must be presumed to have been procured by undue influence. It is common ground that there was between Miss Forde and McGrath a relationship of trust and confidence. CFA 2 was, Miss Bretherton submits, manifestly to Miss Forde’s disadvantage because of the success fee and because it imposed a retrospective liability when, if CFA 1 was invalid, she was not responsible for McGrath’s fees under it. The making of the agreement calls for an explanation and the presumption of undue influence applies. In the absence of evidence that Miss Forde received independent advice on CFA 2 it must be treated as invalid. The fact that McGrath told Miss Forde that she had the right to seek independent advice cannot save it. The fact that it did so only served to increase the trust that she reposed in them without providing the advice necessary to rebut the presumption.

In Royal Bank of Scotland plc v Ettridge (No 2) [2002] 2 AC 773 the House of Lords held that whether a transaction was brought about by the exercise of undue influence was a question of fact which fell to be established by the person asserting it. The evidence required to discharge that burden “depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship and all the circumstances of the case”: per Lord Nicholls at para 13, as cited by Master Campbell in his judgment. Thus the Court will look particularly askance at the receipt by persons such as solicitors or doctors of large and apparently unwarranted gifts and will be “sternly protective” of their interests (para 18): see Clare v Joseph [1907] 2 K.B. 369, 376.

In Allcard v Skinner [1887] 36 Ch D 145 Lindley LJ observed that:

“…if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift”.

In Ettridge the Lord Nicholls drew attention to the fact that in Bank of Montreal v Stuart [1911] AC 120,137 Lord Macnaghten used the phrase “immoderate and irrational” to describe this concept.

In a case where the complainant placed trust and confidence in the other party in relation to his or her affairs (as here) and a transaction is entered into which calls for explanation, the complainant will normally discharge the onus of proving undue influence if there is no satisfactory evidence to the contrary establishing the independence of will of the counterparty in entering into the transaction. The Court is likely in those circumstances to infer that the defendant has abused his position. Proof of outside advice may well (but does not necessarily) rebut the inference.

The shift in the evidential onus arises where the transaction is inexplicable by ordinary motives; where, as Lord Scarman put it in National Westminster Bank plc v Morgan [1985] AC 686, 704, approved in Ettridge:

“the transaction itself was wrongful in that it constituted an advantage taken of the person subjected to the influence which, falling proof to the contrary, was explicable only on the basis that undue influence had been exercised to procure it”.

In order for the Court to set aside a transaction because of undue influence it is not necessary to shows that the other party has been guilty of any wrongful or dishonest act: Willis v Barron [1902] 1 AC 271, 278; Hammand v Osborn [2002] EWCA 885; Allcard v Skinner [1887] 36 Ch D 145; Niersmans v Pesticcio [2004] EWCA Civ 372.

In the present case CFA 2 was, Miss Bretherton submits, disadvantageous to Miss Forde in the sense that (a) it deprived her of the ability to rely on any invalidity of CFA 1 and, on that account, to decline responsibility for any of McGrath’s charges for acting under it; and (b) it imposed upon her an entirely new liability for a success fee.

As to the former, it is plain that McGrath, by the March letter and by Mr Khan, explained to Miss Forde (a) that there was a challenge to the validity of CFA 1, which CFA 2 was intended to render moot; (b) that CFA 2 was intended to cover McGrath’s fees from the time that they started acting for her and (c) that there was to be a success fee. However, the fact that she understood the transaction that she was entering into would not, of itself, rebut a presumption of undue influence, if it otherwise arose. As Snell’s Equity, 30^th Edition, p 617, paragraph 38 – 020 puts it:

“In order to rebut the presumption it is not sufficient that the complainant understood what he was doing and intended to do it. The problem is not lack of understanding but lack of independence”.

See Huguenin v Basely [1807] 14 Ves 273, 299; Hammond v Osborn [2002] EWCA Civ 885.

It is apparent that Miss Forde was prepared to assist her solicitors recover their fees despite the challenge made by the Council to the validity of CFA 1. A willingness to do so appears to me to be readily accounted for “by the ordinary motives of ordinary persons” if they were in the relationship that Miss Forde had with McGrath and in the circumstances in which she was asked to sign CFA 2. McGrath had acted for Miss Forde, obtained a section 82 order, and secured an offer of £ 4,500. In those circumstances it would be entirely understandable for her not to seek to rely on the unattractive contention that McGrath should get nothing at all for what they had done - a contention that she would not have the resources to mount and the advancement of which would probably have to await at least the resolution of Crook. It was also understandable that she would not wish to be placed in a position where, if her solicitors had no valid retainer, they had no subsisting obligation to act for her. It made sense for her to enter into an arrangement which would ensure that there was a valid retainer under which McGrath would be bound to continue acting and pursuant to which it would be entitled to be paid. Many people would regard it as unacceptable that McGrath should get nothing for their work. The ordinary motives of ordinary persons do not exclude doing the decent thing, even if some persons would not be minded to do so.

As to the latter, the success fee did constitute an additional liability. But the success fee was subject to assessment, as between solicitor and client, as to reasonableness by the costs judge. If the court reduced the success fee recoverable from the Council because the percentage agreed was unreasonable the amount reduced would cease to be payable unless the court was satisfied that it should continue to be payable. If and to the extent that Miss Forde was liable to pay it, it would be recoverable from the Council, whose ability to pay was never in doubt. In those circumstances, the disadvantage to her of the success fee was more apparent than real. She was never going to have to pay it, save in the highly unlikely event that the Court thought that she should do so even though it was irrecoverable from the Council. The introduction of a success fee was disadvantageous - but predominantly to the Council. Whilst that may understandably be a cause of complaint by the Council it does not mean that the transaction calls out for an explanation, without which the Court should infer that CFA 2 was the result of undue influence, because, absent explanation, it is only explicable on that ground.

Master Campbell was satisfied that CFA 2 was “explicable by ordinary motives, namely her wish that McGrath should continue to act on her behalf on terms that would ensure, so far as possible, that the firm would be paid.” In my judgment there was nothing wrong with that conclusion.

Even I am wrong on that, the Council faces a further difficulty. Master Campbell indicated that it was by no means clear to him that the Council had locus standi to advance an argument founded upon undue influence. Having expressed that reservation, he thought that he should address the matter from the point of view that the Council did have locus where it was being called upon to discharge a burden for which Miss Forde bore the primary liability.

I see no impediment in the Council seeking to prove that CFA 2 could not be relied upon on account of undue influence. If, for instance, they had adduced evidence (or were entitled to rely on a presumption) that Miss Forde had been unduly influenced to enter into CFA 2 and proved that she had avoided it, the Court would, subject to any defences of affirmation or laches, treat CFA 2 as void and Miss Forde as not liable to pay costs under it.

But an agreement obtained by the exercise of undue influence is voidable, not void. It remains in effect unless the person influenced seeks to set aside the contract and the Court allows her to do so; such relief may be given on terms e.g. as to payment of a reasonable sum for services actually rendered: Johnson v EBS Pensioner Trustees Ltd [2002] EWCA Civ 164, paras 76 – 80; O’Sullivan v Management Agency & Music Ltd [1985] 1 QB 429. There is no evidence that Miss Forde has done anything to avoid CFA 2. On the contrary she has consented to these proceedings being brought by McGrath on her behalf. What the Council cannot do is to purport to avoid CFA 2, to which it is not a party, on her behalf and in defiance of her wishes; nor is the Court required to proceed on the basis that she has avoided it when she has not.

Miss Bretherton submitted that it could not be right that the Council, which will be responsible for paying costs, should have no remedy because it is not a party to the contract between client and solicitor. She prayed in aid the case of Mohammed v Alaga & Co [2000] 1 WLR 1815. In that case the plaintiff claimed commission from a firm of solicitors for introducing Somali refugees to them. He alleged that he agreed with them that he would get half of the fees received by the defendants by way of legal aid for acting for those he introduced. The claim was struck out on the ground that the contract in question contravened rule 7 of the Solicitors’ Practice Rules and was therefore void and enforceable. In the present case, Miss Bretherton submits, McGrath was under an obligation under the Rule 1 of the Solicitors’ Practice Rules not to do anything which compromised or impaired or was likely to compromise or impair the solicitor’s duty to act in the best interests of the client. In procuring an agreement by undue influence it breached that rule. CFA 2 was, accordingly not a proper agreement, and the Council was not bound to pay for any fees purportedly due under it.

Mohammed v Alaga was, however, a different type of case. Rule 7 prohibited solicitors from sharing fees or agreeing to do so. As Lord Bingham of Cornhill, CJ (as he then was) put it :

“(5)

Thus there is a prohibition on the making by solicitors of agreements of the kind assumed to have been made in this case; (6) Although it is true that the prohibition is only imposed in terms on solicitors, and they alone are liable to imposition of a professional penalty for breach, a contract requires the concurrence of at least two parties and the effect of the prohibition, if observed, is to outlaw the making of such agreements”.

He held that rule 7 prohibited not only the act of sharing commissions but also any contract to perform that act.

I decline to hold that a failure by a solicitor to put his client’s interests first has the effect that any contract which results from such failure is to be regarded as a prohibited contract. Such a conclusion is not justified by the rule which says nothing about agreements. It would have an effect of which Draco would have approved, since, save perhaps where the failure was trifling, the whole contract would be unlawful regardless of the seriousness of the breach, even though a contract procured by undue influence is not unlawful, nor, until avoided, unenforceable; and it would give rise to a myriad of disputes. An argument of a similar kind was rejected in Garbutt v Edwards [2006] 1 WLR 2907, where the solicitors had failed, in breach of rule 15, to give information about the likely overall costs. The court declined to hold that the effect of such failure was to render the contract of retainer unlawful and unenforceable.

Master Campbell also held that since Miss Forde had, in order to assist McGrath, consented to these proceedings, she had affirmed CFA 2. Miss Bretherton submitted that, if CFA 2 was procured by undue influence, any consent to these proceedings must also be presumed to be the result of undue influence, since McGrath continued to be retained by her. I do not regard it as necessary to decide whether, if the presumption applied to the making of CFA 2, it also applied to Miss Forde’s consent to these proceedings.

The March letter did not state in terms that, if the Council’s points on CFA 1 were valid, Miss Forde would have no liability to pay McGrath (McGrath would also have had no liability to continue acting). It did, however, states that the Council had mounted a serious challenge as to the validity of CFA 1. Further the statement:

“and the only reason that we are inviting you to create a potential further liability is to ensure, as we indicate above, that the City Council pays your legal costs on a proper basis, rather than you”.

does not mention the fact that one reason for asking her to sign was to obtain a success fee. Mr Mallalieu accepted that that was “perhaps too blunt” a statement. At the same time it was apparent from the letter that the Council was contending that CFA 1 was invalid and from the letter and the agreement that CFA 2 contained a success fee, which had not been there before.

I do not regard either of these omissions as affecting the position so far as undue influence is concerned.

The next question is whether or not a CFA can be made retrospective i.e. so as to apply to work carried out prior to the date when it was made.

Miss Bretherton submitted that a retrospective success fee was “abhorrent”. The whole ethos of CFAs is that they are forward looking. The solicitor agrees to do work on the basis that he will recover no costs if the client loses. If there is a success fee he does work in return for an uplift on his costs if the client wins. If a solicitor agrees on 1^st January 2005 to take on a case on terms that he will receive a 25% success fee if the client wins and nothing if he loses, he ought not to be allowed on 1^st January 2006 to agree that he shall receive a success fee of 50% not only for work as from 1^st January 2006 but also for the whole of 2005. When he did the work in 2005 he was content to do so on the basis that his reward for taking the risk of non-payment in respect of that work would be an extra 10%. To allow him to receive an additional 40% in respect of the same work “flies in the face” - to quote the expression used by Master Hurst in Adam Musa King v Telegraph Group Ltd SCCO Ref-PTH 0408205/6 - of the CFA Regulations and the CPR. If a solicitor is allowed to agree a retrospective success fee he will, in respect of the period over which such an agreement is retrospective, end up not taking the risk on the terms he agreed. Even if circumstances permit the solicitor to enter into a new agreement for the future, he should not be allowed to alter the premium for taking the risk in respect of work done in the past.

In King Master Hurst decided that it was contrary to public policy to permit the claimant’s solicitors to recover a success fee in respect of the period prior to the signing of a CFA. Miss Bretherton submitted that he was right to do so and that a retrospective conditional fee agreement, whether with or without a success fee, was contrary to public policy and, therefore, unenforceable. This was particularly so when an agreement was made on or after 1^st November 2005 but related back to a period before 1^st November 2005. The 2005 Revocation Regulations provided for the 2000 Regulations to continue to apply to agreements made prior to 1^st November 2005. To allow agreements made after 1^st November 2005 to be retrospective would be a way of circumventing the operation of both sets of Regulations.

These submissions raise a number of separate but related issues, namely:

It is material to note that the occasions when a retrospective CFA will be entered into after a CFA without a success fee has already been signed are likely to be limited. If such a CFA already exists the solicitor will be bound by it and is unlikely to need, or be able, to enter into a new retrospective CFA. In the present case it is the fact that the Council challenged the validity of CFA 1 that provided both the incentive for a new agreement and its justification. It should not, however, be thought that CFA 2 is an isolated occurrence. We were told that there were 54 further cases affecting the Council in which agreements such as CFA 1 and CFA 2 had been entered into.

Generally speaking parties are entitled to make, and often do make, an agreement which applies to the period before they made it. Section 59 of the Solicitors’ Act 1974, which permits a solicitor to make an agreement for remuneration in respect of contentious business “done, or to be done, by him”, contemplates a retrospective agreement. CFA 2 is not, however, a contentious business agreement (Footnote: ⁹ ) .

In King there was an oral agreement that there should be a CFA followed by a backdated CFA (with a success fee). In agreement with Master Hurst, I see no reason why a CFA, at any rate if it does not have a success fee, cannot be retrospective.

As he put it:

“88.

There is no doubt that, as between the Claimant’s solicitors and their client, the CFA may be backdated. This would, in my judgment, be sufficient to satisfy the court that there was a proper retainer between the client and his solicitors before the signing of the CFA, i.e. the client by signing the CFA is ratifying what has gone before. There seems no doubt that the Claimant is entitled to recover base costs from the date when he instructed his solicitors until the signing of the CFA”.

Although Master Hurst referred to the CFA as being backdated, the agreement before him was not backdated, as opposed to retrospective. It was to its retrospectivity that he was referring.

In Holmes v Alfred McAlpine Homes (Yorkshire) Ltd [2006] EWHC 110 (QB) Burnton J, as he then was, deprecated the practice of backdating an agreement, i.e. giving it a date other than the one upon which it was in fact executed. He found that the agreement before him was not, on its proper construction, retrospective. Even if it was, he did not regard the retrospectivity of an agreement as objectionable even though it contained a 25% success fee. It does not appear to have been submitted that it was.

Section 58 of the Act requires that a CFA should be in writing, that it should not apply to certain proceedings and that a success fee should not exceed 100%. It provides no prohibition against retrospectivity and I do not accept that one should be implied.

Before examining this question it is material to note the variety of circumstances in which a success fee may be retrospectively agreed.

Firstly, a solicitor may – as in Holmes v McAlpine - begin work under an ordinary retainer and then at some later stage agree that all of his work shall be treated as carried out under a CFA with a success fee. This could be because the client is unable to afford to continue an ordinary retainer (or to pay even in respect of work carried out) or because the parties have judged it in their interests to change the basis of remuneration.

Secondly, parties may proceed on the basis that the solicitor will be remunerated under a CFA on no win, no fee terms and, after the work has proceeded for some time, agree a success fee, applicable to all work done since the start of the retainer.

Thirdly, the parties may agree a CFA with a success fee at x % initially and later change it, retrospectively to y %. For instance, a defendant may have agreed a success fee of x % if the damages recovered are less than a specified sum. The chances of beating that figure may get markedly worse and the solicitor may, in accordance with the CFA, be entitled to terminate it (e.g. because his advice is rejected). The solicitor might then agree to continue, but only on terms that a higher success fee is agreed to be applicable to all his work.

One might expect that y would exceed x if the chances of success worsened, and to be less than x if they improved, and that a success fee would not be introduced at a later stage if the chances of success improved. But, as the facts of this case show, agreements can be made increasing, or introducing for the first time, success fees when the prospects have improved. In the present case what was in effect a 75% success fee was agreed a week after a nearly acceptable offer had been made. The fact that the parties may agree such a fee does not, of course, mean it will be allowed on a detailed assessment.

Mr Mallalieu submits that the parties are free to change the terms upon which the solicitor is to be remunerated in any manner they wish. That being so they can, absent undue influence or misrepresentation, validly introduce or increase a success fee which is to apply retrospectively.

In this context, however, the interests of the parties are not the only ones to be considered. The interests of the paying party, who is potentially affected by an agreement on a success fee which he has no ability to influence, have to be considered. That may be of particular significance in a case such as the present where the claimant enjoys a good prospect of winning and where there is no realistic likelihood of her having to pay any part of a success fee which she cannot recover from her opponent.

One of the reasons put forward in support of the contention that a retrospective success fee is contrary to public policy is that a litigant is entitled to know whether he is facing an opponent who has agreed a success fee and that a retrospective success fee would be inconsistent with that right. Had the paying party known from the beginning that there was a success fee he might have acted differently. It is, therefore, material to consider the extent to which the CPR provides for an opponent to be informed that he faces someone who has agreed a success fee.

CPR 44.3B provides:

“(1)

A party may not recover as an additional liability:

……

(c)

any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order; ”

CPR 43.2 (1) (o) provides that “additional liability” means, inter alia, the “percentage increase” and the “percentage increase” means the percentage by which the amount of a legal representative’s fee can be increased in accordance with a conditional fee agreement which provides for a success fee.

CPR 44.15 provides:

“(1)

A party who seeks to recover an additional liability must provide information about the funding arrangement to the court and to the other party as required by a rule, practice direction or court order.

(2)

Where the funding arrangement had changed and the information a party has previously provided in accordance with paragraph (1) is no longer accurate, that party must file notice of change within 7 days”.

The Part 44 Practice Direction makes clear that there is no obligation to state how any additional liability is calculated until it falls to be assessed. Under paragraph 19.2 (1) notice of funding must contain the information set out in Form N 251. A claimant who has entered into a funding arrangement before starting the proceedings to which it relates must provide information to the court by filing the notice when he issues the claim form and must, if he serves the claim form, provide information to every other party. If the court serves the claim form it will also serve the notice if the claimant provides sufficient copies. There are also provisions for service of a notice by a defendant. Where a funding arrangement has changed, the obligation under CPR 44.15 (2) is to give notice of the change where the information previously provided about a funding arrangement has changed. If a success fee is agreed at a later stage notice must be filed and served within 7 days of entering into the funding arrangement. The information to be provided must state that the relevant party has entered into a conditional fee agreement which provides for a success fee, the date of that agreement, and the claim or claims to which it relates. There is no obligation to state the amount of the success fee, nor the fact that it is retrospective.

The effect of the above is that, if a claim form is never issued, the opponent of a client who has agreed a success fee is not entitled to any notice that such a fee has been agreed. It follows that a case may be settled without the paying party having to be put on notice of the existence of a success fee (or any change to that fee). If, however, proceedings are issued and the claimant has agreed a success fee, notice must be served when proceedings are begun or, if the success fee is only agreed later, notice must be given within seven days of the agreement.

The Housing Disrepair Protocol came into force on 8^th December 2003. The Practice Direction on Protocols provides, in paragraphs 4.1 and 2 that where a person enters into a funding arrangement (a term which includes a CFA with a success fee) he should inform other potential parties to the claim that he has done so. Paragraph 2.3. of that Protocol provides that:

“If, in the opinion of the court, non-compliance has led to the commencement of proceedings which might otherwise not have needed to be commenced, or has led to costs being incurred in the proceedings that might otherwise not have been incurred, the orders the court may make include:

(1)

an order that the party at fault pay the costs of the proceedings, or part of those costs, of the other party or parties;

(2)

an order that the party at fault pay those costs on an indemnity basis;

(3)

if the party at fault is a claimant in whose favour an order for the payment of damages or some specified sum is subsequently made, an order depriving that party of interest on such sum and in respect of such period as may be specified, and/or awarding interest at a lower rate than that at which interest would otherwise have been awarded”.

In the present case Master Campbell decided, in relation to the period post issue of proceedings, that no notice had been served when proceedings had begun in February 2006. The notice of 15^th February 2006, although referring by mistake to a success fee (which CFA 1 did not contain) could not be relied on to claim a retrospective success fee under CFA 2. In any event when CFA 2 was signed the funding arrangement changed and a new notice was necessary. None was given and the success fee was irrecoverable on that account. But, even if a notice had been served in respect of CFA 2, a success fee would have been irrecoverable for the retrospective period from 16^th March 2005 until the date of the notice, for the reasons stated by Master Hurst in King.

Master Campbell thought that, if the case had been settled after CFA 2 was signed but before the issue of the proceedings, a retrospective success fee would have been recoverable. But, even if that was so, the right to it would have been lost if proceedings were issued and no notice under CPR 44.15 was then given.

I am not completely in agreement with this reasoning. In the present case there was no agreement to a success fee until 5^th April 2006. So no obligation arose to give a notice until 7 days after that i.e. 12^th April – the day of settlement. On that basis Miss Forde was not in breach of any obligation to give a notice prior to the settlement. The fact that a retrospective success fee may prejudice an opponent because he might have acted differently if he had known that there was one in existence at the time, may be a ground for treating an agreement for such fees as invalid. But, if a retrospective success fee is permissible, it cannot be the case that it becomes invalid because, had the agreement existed during the retrospective period, a notice would have been necessary.

It is, also, not wholly clear to me why Master Campbell thought, as he appears to have done, that a retrospective success fee was wholly recoverable if there were no proceedings but wholly irrecoverable (even in relation to the costs incurred before proceedings) if proceedings were issued and the required notice was not then given. CPR 44.15 operates so as to render irrecoverable “any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a … practice direction”. It cannot, as it seems to me, mean that a failure to provide the requisite information on the issue of proceedings renders retrospectively irrecoverable any additional liability for any period during which there was no obligation to provide information at all.

As is apparent from the foregoing the protection for the paying party provided by CPR 44.3B and 44.15 may be limited if the retrospective agreement is entered into late in the day and relates back to the time when the solicitor started to act.

What, however, the paying party is safeguarded by is the fact that the Court will assess the reasonableness of any success fee having regard to the circumstances as they prevailed at the time when the success fee was agreed. In the present case Master Campbell, if he had thought that a retrospective success fee was permissible, would have reduced it from 75% to 22%. McGrath, whilst not accepting that a retrospective success fee cannot be agreed, no longer seeks to claim one in this case. As a result we did not hear argument on the 22% figure, which appears to me on the facts to be too high. Even discounting hindsight, the reality was that, when the plainly excessive 75% success fee was agreed, the case was practically settled; and it did in fact settle a week later at only £ 500 more than what had previously been offered.

In deciding that no retrospective success fee was valid Master Campbell followed Master Hirst’s decision in Musa King, in which he said:

“89.

Although there is no prohibition in the legislation against backdating a success fee, such backdating seems to me to fly in the face of the CFA Regulations and the CPR. As Mr Morgan has pointed out the solicitors are placed under a strict duty to explain the position to their client, which they did not do until shortly before the CFA was signed. The solicitors do not assume any risks under the CFA until it is signed (although they may well have been at the normal commercial risk of not being paid prior to that point). The solicitors are under no duty to give notice of funding until the CFA has been signed. It is of great importance that an opposing party should be aware of any additional liability as early as possible. The Claimant is, to an extent , protected in that the level of the success fee does not have to be disclosed, but, unless and until the Defendants are made aware that they are potentially liable for a success fee this may fundamentally affect the way in which they choose to conduct litigation.

90.

It seems to me therefore to be quite wrong, and contrary to public policy, to permit the Claimant’s solicitors to recover a success fee prior to the signing of the CFA”.

Mr Mallalieu submitted that the reasons relied on by Master Hurst for contending that a retrospective success fee was contrary to public policy did not support his conclusion. The obligation to explain the position about a success fee continued to exist, but now under the Code. Mr Khan did explain it. The fact that the solicitors assumed no risk until a CFA was signed did not justify outlawing retrospective success fees. If a solicitor agrees to put his claim for costs at risk for the entire period there is no reason why he should not get a success fee for the entire period. The need for notice could not justify invalidating any retrospective success fee, especially when the rules contemplate that, if litigation is never initiated, an opposing party may never get notice of a CFA. He accepted that a paying party might be able to argue that it would be unreasonable to allow a retrospective success fee to apply in relation to a period when the action had been commenced but no notice of funding had been given (since no success fee had then been agreed).

Mr Mallalieu also draw attention to paragraphs 11.7 and 11.8 of the Costs Practice Direction which provide:

“11.7

Subject to paragraph 17.8 (2), when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.

11.8

(1) In deciding whether a percentage increase is reasonable relevant factors to be taken into account may include:

(a)

the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;

(b)

the legal representative’s liability for any disbursements;

(c)

what other methods of financing the costs were available to the receiving party”.

That guide, he submitted, enabled a court to say, in a proper case, that a retrospective success fee was unjustifiable or excessive.

In respectful disagreement with Master Campbell and Master Hurst, I do not regard it as necessary to hold that a retrospective success fee is per se contrary to public policy. There is, in my view, insufficient warrant for effectively precluding solicitor and client from making such an agreement. In some, perhaps many, circumstances a retrospective success fee, or its amount, may be unreasonable, either as between the parties or as between solicitor and client. But this will not always be so. The Court has, in my opinion, enough weapons in its armoury, in the form of the criteria applicable on a detailed assessment and the provisions of the Costs Practice Direction and the Practice Direction on Protocols, to disallow or reduce retrospective fees that are unreasonable, as in this case.

If am wrong on that, and a retrospective success fee is contrary to public policy, it does not follow that CFA 2 is vitiated. I see no reason why the Court cannot place its blue pencil through the success fee provision, leaving the obligation to pay the basic charges unaffected. CFA 2 cannot be regarded as having been entered into under a mistake as to the validity of the retrospective success fee so fundamental that it vitiated CFA 2 completely. The irrecoverability of such a fee as a matter of law would not render contractual performance impossible nor was its recoverability a vital attribute of the consideration to be provided if performance of the contractual adventure was to be possible: see The Great Peace [2002] EWCA Civ 14; Brennan v Bolt Burdon [2004] EWCA Civ 1017, para 10.

Miss Bretherton relied on Jones v Caradon Catnic Ltd [2005] EWCA Civ 182 as showing that an illegitimate success fee can render a CFA wholly defective. In that case a collective conditional fee agreement of 1^st June 2001 provided for a 120% fee. The agreement was held unlawful on that account for non-compliance with section 58 (4) (c), which requires that the percentage success fee must not exceed the percentage specified in the order made by the Lord Chancellor. That, however, is not this case. Although section 58 (1) refers to an agreement which does not satisfy the relevant conditions as unenforceable, Brooke, LJ (wrongly Mr Mallalieu submits) treated the agreement as unlawful (para 32).

The next question is whether CFA 2 is unenforceable because, being entered into after 1^st November 2005, it related to a period prior to that date when, if it had been entered into before that date, the solicitor would have to have complied with Regulation 4 of the 2000 Regulations.

I do not regard this circumstance as invalidating CFA 2.

Firstly, as I have already held there is nothing in the statutory provisions which invalidates a retrospective CFA. Nor is there any provision that requires a retrospective CFA made on or after 1^st November 2005, but covering a period prior to then, to comply with Regulation 4.

Secondly, the protections previously provided by Regulation 4 have not disappeared. The CFA 2000 Regulations have been revoked on the basis that the client’s protection would be afforded by the provisions of the Solicitors Costs Information and Client Care Code, which incorporated substantial parts of what was previously in the Regulations, and which has been superseded by the Solicitors Code of Conduct 2007. That being so, there is no reason to conclude that a CFA is invalid because the retrospection extends back to before 1^st November 2005. Part of the reason for the revocation of the Regulations was that their application was potentially unfair, in that solicitors would lose their inability to recover costs completely, even though the client had not in fact lost out. There is no reason to bring back that regime by a side wind.

Thirdly, the Council’s argument was that CFA 2 could not be retrospective per se; alternatively could not be retrospective to a period before November 2005. Insofar as reliance is placed on the latter argument it would be material to consider whether CFA 2 was invalid even if Regulation 4 was complied with in respect of CFA 2. If it would only be outlawed in the event of material non compliance, it is to be observed that Master Campbell was not invited to consider whether McGrath complied with the 2000 Regulations in relation to CFA 2, and, therefore, made no finding on the question.

These Regulations (which were not relied on before Master Campbell) include the following provisions:

“Unfair Terms

5.

- (1) A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.
………

(5)

Schedule 2 to these Regulations contains an indicative and non-exhaustive list of the terms which may be regarded as unfair.

Assessment of unfair terms

6.

- (1) Without prejudice to regulation 12, the unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances attending the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.

    (2) In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate-

(a)

to the definition of the main subject matter of the contract, or

(b) to the adequacy of the price or remuneration, as against the goods or services supplied in exchange”.

McGrath accepts that the impugned terms were not individually negotiated.

I am not persuaded that there was “a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer”. Under CFA 2 Miss Forde was bound to pay reasonable remuneration including a success fee (subject to assessment by the costs judge) in return for services rendered in the past and the future. Miss Bretherton submitted that there was a plain imbalance because Miss Forde was undertaking to pay for past services for which she would not otherwise have been liable to pay. That submission assumes that CFA 1 was invalid, which, as appears hereafter, I do not accept. At the time CFA 2 was entered into CFA 1 was said, by the Council, to be invalid and might have been held to be so. I do not regard that circumstance as creating, contrary to the requirement of good faith, a significant imbalance in the parties’ rights and obligations. If anything, the obligation under CFA 2 redresses the possibility of a significant imbalance against the solicitors.

Further the agreement for a success fee to cover past and future services was set out in plain intelligible language. Insofar as it covers past service it appears to me to be part of the definition of the main subject matter of the contract and insofar as it provides for a success fee it relates to the adequacy of the remuneration as against the legal services supplied in exchange.

In any event, there is nothing unfair in the obligation to pay the basic charges.

Accordingly, in my judgement, CFA 2 was and is a valid agreement, and McGrath is entitled to recover its basic charges (and disbursements) thereunder.

That decision makes it unnecessary to determine whether, if CFA 2 was invalid, the solicitors could rely on CFA 1. Since, however, the parties have made extensive submissions on the question; I propose to deal with it. Master Campbell held that this question did not arise, because CFA 2 replaced CFA 1. But, if it did, he held that CFA 1 was not invalid because of a breach of Regulation 4.

BCC contends that McGrath breached Regulation 4 because they failed to give Miss Forde reasonable advice in relation to the availability of legal funding.

In Bowen v Bridgend County Borough Council SCCCO Ref 0309853 (Match 2004) Master O’Hare was concerned with bills of costs in eleven housing repair cases, all of which were funded by way of a CFA agreement, heavily based on the Law Society model, with a 100% success fee.

Bridgend argued that there had been a breach of Regulation 4 because the solicitors’ decision not to apply for legal aid, for which each claimant was eligible, was unreasonable. Reliance was placed on Solicitors’ Practice Rule 15 (“solicitors shall … give information about costs and other matters ,,, in accordance with [the] Solicitor’s Costs Information and Client Care Code …”) and paragraph 4 (j) of that Code:

“The solicitor should discuss with the client how and when any costs are to be met and consider:

(i)

whether the client may be eligible and should apply for legal aid (including advice and assistance)”.

Master O’Hare decided that the solicitors and their agents had failed, inter alia, to comply with their obligations under Regulation 4 (2) (d) because he had no reason to think that a tolerable explanation had been given of the availability of legal aid. None of the claimants had chosen to rely on the legal aid scheme when all of them should have been told to seek it. That indicated that the solicitors were unlikely to have provided the information required. The failure to comply with Regulation 4 (2) (d) had had a materially adverse effect upon the protection afforded to the claimants because it had brought them into the “Fastrack” scheme of which the solicitors were part and exposed them to unreasonably high and disproportionate expenses the costs of which were not covered by the insurance obtained. The cost of the insurance premium, and, it would seem, disbursements, had been financed by means of a loan account charging 13.9% per annum. The unrecovered expenses and interest payable were likely to consume most if not all of the monetary compensation which the claimants obtained.

He also held that the failure had had a materially adverse effect upon the proper administration of justice because it had steered the claimants in to litigation which had caused them and the Defendant to incur unnecessary and unreasonable expense. The solicitors either knew or should have known that the scheme would be disadvantageous to their client and that litigation under the scheme was run in a disproportionate way. In consequence the CFAs were unenforceable and the Defendant’s maximum liability for costs was for paid disbursements and any cost of assessment allowed.

In Hughes & Ors v London Borough of Newham [2004] EWHC 20050 (Costs) the defendants also claimed that the solicitors had not given adequate advice as to the availability of legal aid. Again Master O’Hare was not satisfied that the solicitors or their agents had properly discharged their duties under paragraph 40 of the Solicitors Costs Information and Client Care Code. He concluded that they had failed to give the claimants proper advice as to the availability of legal aid. The advice given that legal aid was not available was bad advice because, as he held, the prospects of success were neither unclear, borderline nor poor (being the three circumstances in which the LSC Manual indicated that full representation will be refused). Accordingly the solicitors were in breach of Regulation 4 (2) (d). That departure from what was required of them had had a materially adverse effect upon the protection afforded to the clients because it had led to them adopting a funding system under which they had incurred substantial irrecoverable costs, namely the cost of insurance, interest on a loan taken out, and, but for the Regulations, the contractual obligation to pay success fees. In consequence the CFAs were unenforceable.

It will be recalled that in the present case the advice given, as recorded, was as follows:

“…we verbally explained to you the effect of this Agreement and in particular the following:

.....

(f)

Other methods of financing these costs including Private Funding, Community Legal Service Funding, Legal Expenses Insurance, Trade Union Funding

(g)

Whether we consider that any particular method or methods of financing any or all of the costs is appropriate……… We have further advised that if the case is allocated to the Fast Track or the multi-Track it will be appropriate at that stage to consider either an application for a Legal Services Commission Public Funding Certificate, or alternatively, After the Expenses (sic) Legal Insurance, depending upon your financial circumstances at that time ”.

In Crook the Council had alleged a breach of Regulation 4. The first breach alleged was that a letter written by the solicitors erroneously advised that fees incurred under the Legal Help scheme would be recouped from damages by means of a legal aid charge if the case proceeded with public funding. As to that Irwin, J held that it could never be “reasonable” to give wrong advice on the law, however understandable it may be for a solicitor to be baffled or misled by a regulation. But he concluded that the erroneous advice was immaterial. Miss Bretherton submits that the advice about public funding given in this case was, or was equivalent to, wrong advice on the law.

The second breach relied on was that inadequate advice had been given on the existence and importance of the costs protection provided by the grant of a funding certificate. As to that Irwin J agreed with the approach of Master Campbell that the advice given should be looked at in the round. He upheld the Master’s decision on the following basis. Public funding, he said:

“is extremely unlikely to have been available to any claimant until the case was allocated to the Fast Track. Save in very exceptional circumstances, as I understand it and on the evidence before Master Campbell, public funding would not be granted otherwise. The direct advice in the letter was that, if and when a case was allocated to the Fast Track, the Claimant could try for public funding”.

Against that background Counsel then acting for the Council had argued that costs might accumulate at a pace in the time lag between an application being made just after allocation and the actual grant of a certificate and that costs incurred before allocation might become a liability for a claimant and that, had public funding been granted before allocation that liability would have been avoided.

Irwin J decided that the risks identified were ones which could hardly be avoided in practical terms. If in practical terms it was not possible to achieve a public funding certificate before allocation, advice that it should be sought before that point might be theoretically correct but was confusing and even misleading. As it was the letter had referred to the fact that a certificate provided some protection and that once allocation had occurred consideration should be given to seeking public funding. That was reasonable enough.

The Council sought permission to appeal Irwin J’s judgment on the basis, inter alia, that the proposition that public funding was extremely unlikely to have been available to any claimant prior to allocation was simply wrong. The Court of Appeal refused permission upon the footing that, if the Council had wanted to establish that, they should have adduced the necessary evidence.

In the present case the evidence before Master Campbell repaired that omission and established that, contrary to what Irwin, J was led to believe, it is normal practice for LSC funding to be granted (if it is granted) prior to the issue of proceedings. How exactly Irwin, J was led to believe the contrary is not clear.

Legal Funding in the case of Housing Disrepair is governed by section 19.8 of section 3C – 163 of the Funding Code which provides, inter alia:

“4.

Provided that there is clear evidence of prior notice having been given to the landlord of the relevant defects by or on behalf of the tenant, the prospects of success are clear and quantum of damage can be estimated, Legal Representation is likely to be granted to a client to pursue [the Disrepair Pre Action Protocol].

8

Legal Representation will not be granted if the main purpose of the proceedings is to obtain damages where the relevant cost benefit criterion is not met. As explained in section 4.9. of this guidance whilst the cost benefit ratios in the General Funding Code do not apply directly to cases concerning disrepair to the client’s own home they may be taken into account as guidelines as to whether a case is cost effective”.

Section 3A-054 of the Code includes the following:

Under section 3A-030 paragraph 5.7.3 (which is not directly applicable) it is provided that if the claim is primarily a claim for damages by the client and does not have significant wider public interest, Full Representation will be refused unless the following cost benefit criteria are satisfied :

It was submitted to Master Campbell (and to us (Footnote: ¹⁰ ) ) that McGrath advised Miss Forde that public funding would not be, or would not be likely to be, available until allocation (paras 62 and 147). He held that McGrath did not so advise (para 147). I agree. There is nothing in CFA 1 which says that, and the completion and submission of an application for public funding well before allocation is inconsistent with it.

Master Campbell also decided that, if McGrath had told Miss Forde that public funding would not be available before allocation and that, therefore, the appropriate stage at which to apply was on allocation, that advice would have been wrong. Such erroneous advice would have been incapable of being saved by the materiality test because Miss Forde might well have been denied costs protection for the period before allocation with potentially adverse cost consequences for her.

He went on to hold that the words complained of i.e. those highlighted in paragraph 171 above were insufficient to constitute incorrect advice for the purposes of the Regulation. He held that, when paragraph 18 (d) was read, as it should be, with paragraph 18 (e) it was evident that the client was given advice that public funding might be a method of paying for the case and that ATE might also be a candidate. It was apparent from the evidence of Mr Heathcock and Mr Cox that if public funding had been allocated before allocation it would have been withdrawn had the claim been allocated to the Small Claims Track. This would have given Miss Forde the problem that her damages would be subject to the statutory charge, (in circumstances where it might be difficult to justify putting in place alternative funding), whereas under the CFA they would be ring-fenced. In those circumstances, as he held, McGrath’s view that the most suitable funding option was to start the claim under CFA 1 and, if appropriate, review funding options at the allocation stage was “balanced and measured advice”.

Miss Bretherton submits that McGrath’s advice that it was appropriate to consider the question of public funding after allocation necessarily implied that it was inappropriate to consider it in March 2005. That advice was wrong. In March 2005, when CFA 1 was agreed and the first application for public funding was signed (but not sent), not all the works had been completed. So the case was unlikely to be allocated to the Small Claims Track. The same applied when the second application for public funding was made in May. Miss Forde qualified for public funding. On her case the claim was never likely to be allocated to the Small Claims Track, and it never was. Nor was funding likely to be withdrawn. Master Campbell had not found that there was a realistic prospect of the claim being allocated to the Small Claims Track or that any public funding once granted would be withdrawn.

In addition, as she submits, the advice given that it was inappropriate to apply prior to allocation was, in effect, advice that it was not available then and that advice was wrong. Miss Forde should have been advised actively to seek public funding in March. If she had done so the costs that would have been incurred would in all probability have been less and the exposure of the Council correspondingly reduced. What in fact happened was that the forms were completed in a manner which made the advice a self-fulfilling prophecy.

The erroneous advice was material. The most significant benefit for Miss Forde from being publicly funded was that she would enjoy very significant protection against an adverse costs order, by reason of section 11 of the Access to Justice Act 1999. That section, although not affording complete protection, would mean that the likelihood of her having to pay the Council’s costs, unless she won the lottery, was very remote. The erroneous advice was material because it related to the protection that she should have received. For this purposes it is not appropriate to weigh up the likelihood that she might lose; or to take account of the fact that she did not. A breach of Regulation 4 is not immaterial simply because it does not in fact cause actual loss or prejudice to the client: Garret v Halton BC [2007] 1 WLR 554.

On the other hand, the significant advantage for Miss Forde in entering into CFA 1 rather than proceeding with public funding was the ring-fencing of her damages if she recovered no costs. I do not regard those risks, as at March 2005 as nugatory. It was, I think, on the information then available, unlikely, that her case would be allocated to the Small Claims Track. But there was likely to be an interval between the dates of CFA 1 and dates of allocation. (In the event the delay between CFA 1 and the completion of the questionnaire by the Council was between March 2005 and March 2006). During that time the repairs were likely to have been completed, as in the event they were, so that the lower threshold for allocation to the fast track would not apply. Even then the likelihood, but not the certainty, was that the case would be allocated to the fast track. In referring to the fact that allocation to the Small Claims Track would have generated its own problems for Miss Forde and concluding that McGrath’s advice was balanced and measured, Master Campbell must have accepted that there was, at the time of CFA 1, a risk of such a transfer.

Further, in circumstances where the claim was in fact settled for £ 5,000 (with “reasonable” costs), there cannot have been said to have been no prospect at the beginning that it might settle at a figure (e.g. the £ 4,500 offered by the Council in their second offer) which meant that, as a matter of discretion, Miss Forde was only awarded the costs that would be recovered on the Small Claims track. If only Small Claims Track costs were recovered the statutory charge would bite upon any damages.

Master Campbell also had before him the evidence of Mr McGrath, which he records at para 100 of his judgment, and which he must have accepted, to the effect that McGrath had found themselves in the past in a position where public funding was given to pursue a claim, but with a limitation that prevented proceedings being issued. Once the stage had come for proceedings to be issued applications to amend the certificate to allow this were routinely turned down on that basis that the cost benefit ratio did not justify it. His letter of 18^th May 2004 to Mr Lissett of the Legal Service Commission, written to warn him that the Commission was, in the light of Bowen about to receive a large number of applications for public funding, indicates that discharge of an existing limited certificate often occurred when McGrath was unable to certify or persuade the LSC that costs recovery was certain (Footnote: ¹¹ ) . By then, however, considerable work had been done, and that was subject to the statutory charge. The effect of this evidence (see para 101 of the judgment) was that it was not McGrath’s advice that public funding was not available before allocation or was unlikely to be given but that a CFA was a better option.

The likelihood of an adverse costs order being made against Miss Forde strikes me as very remote. Whilst such an order was possible (e.g. if Miss Forde turned down an offer, the Council fought on, she recovered less than the offer, and was ordered to pay costs in consequence) the case was overwhelmingly likely to settle.

It is also to be noted that CFA 1 was not a bad deal for Miss Forde, who would pay nothing to her solicitors if she lost, would be likely to recover her costs if she won, and, even if she was awarded only Small Claims Track costs, would be likely to retain a worthwhile portion of her damages. It was not an agreement which exposed her to liability for disguised referral fees, substantial ATE premiums, large expenses, excessive interest on loans funding disbursements, or other hidden costs. It ring fenced her damages to a substantial extent. It saved her from having to pay McGrath’s costs incurred after turning down an offer on their advice in the event that thereafter she recovered less than the offer.

It was also an agreement which was not markedly prejudicial to the Council. It contained no success fee. The fact that the case was being publicly funded would not reduce the amount of costs recoverable from the Council under an order or agreement to pay costs since Regulation 15 of the Community Legal Service (Costs) Regulations 2000 provides that:

“…the amount of the awarded sum [i.e. the amount of costs to be paid under an order or an agreement that another party to the proceedings shall pay all or part of the client’s costs] shall not be limited to the amount of the funded sum [i.e. the amount of remuneration payable by the LSC for the relevant work] by any rule of law which limits the costs recoverable by a party to proceedings to the amount he is liable to pay his legal representative”.

The Council suggests that the basic amount claimed is unreasonably high and that the costs claimed for may include the costs of administering CFA 1 or CFA 2, which would not normally be recoverable. Those are, however, contentions that can be addressed as part of the detailed assessment. If they are well founded the amount of costs recoverable will reduce.

Master Campbell took into account the fact that Miss Forde applied for public funding and was rejected. He took the view that that limited to a very considerable extent the effectiveness of the Council’s contention that she was badly advised about the availability of legal aid. Miss Bretherton submitted to him, as she did to us, that the way that the May application form was completed doomed it to failure; and that a defective application could not justify incorrect advice. Master Campbell held that no part of Regulation 4 required the application to be carried out to any standard. He recorded (para 148) that no suggestion had been made that the forms had been deliberately completed to make refusal certain; and in any event the relevant caseworker would simply apply the criteria, whether the form was over or under egged.

I agree that Regulation 4 is not concerned with the content of any application for public funding. The potential relevance of the form is that it may cast light on what advice was given to the client.

The argument in this case, before us and before Master Campbell, has not always significantly distinguished between advice as to:

It is no longer necessary to consider (a). Miss Forde was not advised that public funding was in practice unavailable before allocation.

As to (b) the precise advice given at the time of CFA 1 as to the likely availability of public funding is unclear. CFA 1 records no more than that legal service funding had been explained to Miss Forde and appears to have been drafted on the footing that it was unclear what track the case would be allotted to but that it might well be the Small Claims Track. Somewhat inconsistently with that an application was in fact completed in January, although by oversight not submitted. A further application was completed and submitted in May 2005 well before the question of allocation was addressed. Mr Mallalieu suggested that this was a “belt and braces” policy. That may well be so; it is also clear that the decision to complete it was influenced by the decision in Bowen. The manner in which the form was completed in May suggests that the draftsman anticipated failure. It is not, however, established that Miss Forde was given advice in March (or May) that failure was likely.

The form completed in March contains no estimate of likely damages, nor any ratio of costs to settlement to damages. But, as Master Campbell observed sufficient advice must have been given in March to persuade Miss Forde that it was worth applying. In those circumstances there is insufficient basis for concluding, on a review, that, before she entered into CFA 1 in March, Miss Forde was wrongly advised on the likely availability of public funding.

As to (c) I am not persuaded that Master Campbell was wrong in concluding that Miss Forde was adequately advised. He was entitled, and bound, to look at the position in the round. He concluded (i) that Miss Forde was not told that public funding was unavailable prior to allocation, (ii) that she was advised that, although public funding (as well as ATE insurance) might be a method of financing, a CFA represented a better option, and (iii) that that advice was reasonable advice in all the circumstances, having regard to the risk of not recovering costs and being subject to the statutory charge. I do not regard these decisions of Master Campbell as wrong.

That conclusion renders it unnecessary to determine whether, if unreasonable advice was given it was material. I do not propose to extend an already lengthy judgment by determining a question which Master Campbell did not address (save in respect of advice which he found was not given) and which does not arise unless CFA 2 is invalid and reasonable advice was not given in respect of CFA 1.

Mr Mallalieu submitted that, if CFA 1 was invalid, McGrath was entitled to recover costs from Miss Forde on a quantum meruit. In Mohamed v Alaga the solicitors had put forward such a claim in the alternative and it failed. As to that Lord Bingham said:

“Mr McCombe …… claims that, even if the alleged agreement is discarded as illegal and unenforceable, and without making any reference to that agreement at all, the plaintiff is entitled to be paid a reasonable sum for professional services rendered by him to the defendant on behalf of the defendant’s clients, the surrounding circumstances being such as to show that such services were not rendered gratuitously.

Sir Godfray le Quesne, representing the defendant, resisted that argument. It was, he submitted, only because of the unlawful fee-sharing agreement that the introductions were made by the plaintiff to the defendant at all. Accordingly he suggested that the plaintiff was in effect seeking to recover part of the consideration payable under an illegal and unenforceable agreement. That is, I think, a possible view of the case. But the preferable view in my judgment is that the plaintiff is not seeking to recover any part of the consideration payable under the unlawful contract, but simply a reasonable reward for professional services rendered. I accept that as an accurate description of what on this limited basis the plaintiff is, in truth seeking. It is furthermore in my judgment relevant that the parties are not in a situation in which their blameworthiness is equal. The defendant is a solicitors’ firm and bound by the rules. It should reasonably be assumed to know what the rules are and to comply with them. If, in truth, it made the agreement as alleged, then it would seem very probable that it acted in knowing disregard of professional rules binding upon it. By contrast the plaintiff, on the assumption made (which I have no difficulty in accepting) was ignorant that there was any reason why the defendant should not make the agreement which he says he made. In other commercial fields, after all, such agreements are common.

……In any event, however, there is a crucial distinction between a case in which a plaintiff is in effect suing on a contact of loan and a case in which the plaintiff is not suing on any contract but simply for the value of work done. On this limited basis I would for my part allow the appeal and reinstate the action to the extent of permitting the plaintiff to purse a quantum meruit claim for reasonable remuneration for professional services rendered”.

The professional services in question were interpreting and translation services.

In Geraghty v Awaad the Court rejected an attempt made to deploy the decision in Mohammed to support a quantum meruit claim. The attempt failed on the ground that:

“If the court, for reasons of public policy refuses to enforce an agreement that a solicitor should be paid it must follow that he cannot claim on a quantum meruit…In the present case, what public policy seeks to prevent is a solicitor continuing to act for a client under a normal conditional fee arrangement. This is what Miss Geraghty did. This is what she wishes to be paid for. Public policy decrees that she should not be paid”.

Mr Mallalieu submits that, the amendment to Rule 8 made in 1999 has altered the legal landscape. The prohibition against entering into an arrangement to receive a contingency fee does not apply if the contingency fee is “one permitted under statute or by the common law”. Section 58 of the 1990 Act, as amended by the Access to Justice Act 1999 made permissible conditional fee agreements, although not other types of contingency agreement such as agreements to share the proceeds of the action. Any such agreement is not now illegal but merely unenforceable if it does not satisfy all the applicable conditions. The amendment to the Solicitors’ Practice Rules in 1999 followed the debate during 1998 and 1999 about widening access to justice by the introduction of new funding methods, which started with the Lord Chancellor’s Consultation Paper in March 1998 and culminated in the 1999 Act. That Act, by amending section 58, greatly widened the circumstances in which CFAs could be used. The 2000 Regulations were part of the same process.

He also submitted that, in the light of those developments, conditional fee agreements should not now be regarded as impermissible at common law. In those circumstances, there was no bar to a quantum meruit claim. Such a claim, whatever its historical origins, is no longer based upon implied contract but may be made if the defendant would be unjustly enriched by the free receipt of professional services which were not intended to be rendered gratuitously.

I am prepared to accept that the effect of the changes to the Rules and the Act made in 1998 and 1999 means that a conditional fee agreement is no longer illegal, merely unenforceable if certain conditions are not met: section 58 (1). But it seems to me that to give effect to a claim for solicitor’s costs, irrecoverable under CFA 1, but relabelled (to use Lord Bingham’s phrase) as a claim on a quantum meruit, would be contrary to public policy. If the prescribed conditions are not met, the agreement is, by statute unenforceable. Parliament must have intended that, in those circumstances, the solicitor could not recover his costs. There is no question of the solicitor being blameless. He knows, or should know, the rules but has failed to comply with them. To allow him to obtain the same (or a very similar) sum on a quantum meruit would defeat the statutory purpose. Such a claim would be available in every case where there was non compliance with the rules, so that the statutory prohibition on enforcement would be illusory. Further the client is not unjustly enriched nor should the court, as a matter of justice, impose an obligation of payment upon her, in circumstances in which statute has provided that the agreement under which she agreed to pay the courts should not be enforceable against her.

In short I have decided that the Master was right to hold that the March letter formed part of the contract between Miss Forde and the Council; but wrong to hold that CFA 2 completely replaced CFA 1, in the sense that, if CFA 2 failed, CFA 1 could not be resorted to. I also hold that he was right to conclude (i) that CFA 2 was supported by adequate consideration; (ii) that the presumption of undue influence did not arise; (iii) that CFA 2 could be retrospective, and could be so notwithstanding the fact that the retrospective period covered time before 1^st November 2005; (iv) that, if a retrospective success fee was contrary to public policy that did not vitiate CFA 2 as a whole; (v) that, accordingly, CFA 2 was enforceable (no claim being maintained for a success fee); and (vi) that, if CFA 2 was not enforceable, CFA 1 could be relied on, there having been no breach of Regulation 4.

I do not, however, accept that a retrospective success fee is contrary to public policy. It does not follow from that that such a fee can be recovered either inter partes or as between solicitor and client. It is vulnerable to reduction or elimination on assessment, as has happened in the instant case where 75% was reduced by the Master to 22% (on the assumption that any fee was recoverable at all) and no claim for a success fee is any longer pursued.

Accordingly I propose to dismiss the appeal.