DIAG HUMAN SE & Anor v VOLTERRA FIETTA (A FIRM)

Mischaracterised the retainer

Mr Bacon QC argued the Master was wrong on the question of who were the parties to the contract. Although argued by Diag that there were different parties involved in the Engagement Letter and the Side Letter, that was not in truth the case because Mr Stava was already personally involved in around April 2017 and was himself, on his own admission, subject to the same terms as was set out in the First Retainer between the Firm and Diag. He was undisclosed but as much part of the agreement as he was of the Side Letter retainer, which only made explicit what had previously been implicit. Mr Stava is and was at all material times the controlling mind and ultimate beneficial owner of Diag Human SE; Diag Human SE existed purely to pursue the claim against the Czech Republic for the benefit of Mr Stava, said Mr Bacon QC. The Claimants are, in reality, one and the same and it was a relevant error to say that there were in fact two separate retainers with different parties as the Master did.

This was also the “same kind of retainer” as before said Mr Bacon QC, not different. The payment obligation was varied from 100% to 70% and varied as to how the remaining 30% would be payable together with certain uplifts. As he said in oral submissions, a “different thing was not created”, the client was always going to pay the fees. The tone of the Side Letter smacked of a variation to the earlier agreement – although he did accept that all the conditional elements would fail.

He pointed also to the continued meaning of the terms as between the two and that all the terms of the Engagement Letter continued in force; all indicated a variation to an existing retainer. A further feature was that this variation applied he said only prospectively to a new contract; necessarily, but any variation will contain new terms so that cannot be the touchstone for determining whether or not there is a variation. He referred to the findings in Garnat. In that case the court was prepared to sever the offending new terms which dealt with any work relating to the appeal work stream which was unenforceable, but left untouched other work. He relied on paragraph [28] of Garnat:

“28.

Thirdly, the removal of the unenforceable provisions of the 12 April 2011 Agreement does not change the character of the Retainer or cause it to become “not the sort of contract that the parties entered into at all”. It is unenforceable in respect of work carried out by the defendant relating to the appeal, but it continues to apply, without amendment, to work carried out within the scope of the Retainer that does not relate to the appeal. There is independent and unimpeachable consideration for this work, namely, the promise to pay the defendant on the hourly basis set out in the Retainer. The 12 April 2011 Agreement cannot, in my view, be construed as having amended the basis for charging in the Retainer in relation to work other than that relating to the appeal.”

Equally here, he submitted the character of the retainer did not change. This was the same as the Garnat retainer that “continues to apply without amendments to work carried out within the scope of the retainer”.

Misapplied Egon Zehlender and the 3-stage severance test and

Wrongly distinguished Garnat Trading

Mr Bacon QC argued that caselaw, in particular the case of Zuberi v Lexlaw Limited [2021] EWCA Civ 16,supports the proposition that it is possible to sever an obligation to pay hourly rate fees from a contingent retainer, and that such severed agreement does not fall foul of the third test in Egon Zehnder Ltd v Tillman (SC (E)) [2019] UKSC 32 – a conclusion which the Master wrongly reached, concerning the severed contract in this case. He argued that only that part of the agreement between the Firm and their client was to be a DBA/CFA. All the unenforceable bits are excised leaving the other, binding parts, intact.

It had been suggested by Diag that here, the success fee was a function of the hourly rate and therefore was inextricably linked and could not be severed from the main agreement. However properly understood, said Mr Bacon QC, on the agreement as it remained, 70% was still payable because that did not fall foul of section 58. This was the argument wrongly rejected by the Master as inconsistent with Gloucestershire.

Mr Bacon QC submitted that there can be such a thing as a “hybrid CFA” which contains two distinct forms of payment: the fees to be paid win or lose, and those to be paid only in specified circumstances. He suggested it was uncontroversial that you could have a hybrid CFA, the case of Garnat was authority for that proposition.

It was not the case that Garnat referred to work streams - and that is why it allowed severance. What the cases proscribed was acting for a client in circumstances of potential conflict, save in certain very closely circumscribed circumstances; there was no material difference between a work stream split and a “circumstances” split, that is to say 70% in these circumstances and an extra 30% in specified circumstances. Whether it is 70% of the work or 70% of the fees, there is no material difference he submitted. He argued that his clients were in a like position to the solicitors in Garnat.

Zuberi was authority for the proposition that there was nothing objectionable in a part of the contract which was unenforceable as capable of being severed as a matter of public policy. There was no recovery in respect of the conditional component but the other part, which always had to be paid, win or lose, could be recovered. (See paragraph 107 of the Master’s decision).

Garnat was authority that you could sever certain categories of payments/costs, the example of work was just one manifestation of the principle. The vast majority of cases have been “no win no fee” cases and it is unhelpful to look to them for assistance in the submission of the Firm. The law as to contingency fees was becoming more nuanced and a broad brush approach as seen hitherto, he submitted, was no longer appropriate. Garnat was also authority for the proposition that where a retainer provides for two types of payments, conditional payments and conventional payments whether in parallel or as a series, it is possible to sever that part of the retainer providing for conditional payments.

Public policy Mr Bacon QC argued is not offended by such severance, as that case demonstrates. “All of the CFA” was removed in Garnat, and the case is a direct parallel to the current situation. The Master fell into error in failing to accept that in Garnat public policy may be seen to have developed since the earlier cases of Wild v Simpson and Sibthorpe.

Misapplied the other authorities in particular on the issue of public policy, which had moved on so as to encompass severance in the present case.

Zuberi had been determined by the date of permission to appeal. Arguments based upon it were advanced to the Master who dealt with it in the following way in his determination on permission:

“3.

In particular I have considered the paragraphs [he] referred to in the case of Zuberi v Lexlaw Limited [2021] EWCA Civ 16 which was pronounced by the Court of Appeal after I had handed down my decision.

“4.

I refuse permission to appeal my decision in respect of these two preliminary issues on the ground that there are no reasonable prospects of success. The grounds of appeal are essentially a repeat of the arguments which did not find favour originally. In my view, the brief dicta in Zuberi additionally relied upon demonstrates no more than, on the facts of that case, severance was possible. So too was severance possible in the case of Garnat which, for the reasons that I gave, I distinguished from this case.”

Mr Bacon QC submitted the case was analogous. In Zuberi a solicitor appeared to be disentitled from any remuneration in the event that the client terminated before the conditional events had arisen. The essence of the point he submitted was that where a lawful basis for payment is included, the law should not unravel the whole of the agreement; where only part of the agreement is champertous, the court should sever it. Although a new point, it was, he said, in effect what was reflected in paragraph 106 of the Master’s decision, although Zuberi was decided after the judgment. Paragraph 106 (with paragraph 107) reflecting the submission of Diag, were in the following terms:

“106.

Mr Carpenter described the examples given by Mr Bacon regarding a building claim being paid on private payment terms and a PI case being dealt with on a CFA – first as separate claims and then separately under one retainer as being baby steps towards the end proposition. The same was true regarding examples concerning the period in which the different agreements were involved. However, the final step of agreeing that a proportion of the fees could be conditional and the other proportion be unconditional was described by Mr Carpenter as being a huge logical leap which had not been foreshadowed in the pleading of Volterra Fietta’s case.

“107.

Mr Carpenter did not accept that Garnat was authority for the proposition of one retainer containing two different fee arrangements as described by Mr Bacon. The agreement simply reflected two different work streams that were paid for on different pieces of work and as such were the same as the building claim and PI claim example given by Mr Bacon as one of his baby steps. If Mr Bacon’s argument was correct then it would amount to partial unenforceability wherever there was a discounted CFA since the discounted rates could still be claimed. If, however, a full CFA were used, then no fees would be payable by the client because there was no proportion which the client was bound to pay, win or lose. No one had made such an argument in any of the leading cases and it was unlikely, in Mr Carpenter’s submission, that the advocates or the courts in those cases would have missed such an argument.”

The Master concluded (as set out above) that the agreement in the present case was not separable into two parts of work, like Garnat, in fact the agreement related to all of the fees and then discounted them – it did not specify parts of the work, or isolate work streams, and so was different in type from that in Garnat.

In Gloucestershire v Evans solicitors for the claimant were retained under a collective CFA which provided that they would be paid a basic fee of £145 per hour which would be discounted to £95 per hour if the client lost, but if the client won they would be paid the basic fee plus a success fee of 100% of the basic fee, bringing the total to £290 per hour. This was challenged as not falling within the section whereby the maximum success fee which could be provided for under a CFA was 100% of the fee which would be payable if it were not a CFA.

However Lord Dyson held that the percentage increase was to be measured not by reference to the costs at risk, which was not a concept referred to in section 58 of the 1990 Act, but by reference to the fees which would have been payable if the agreement had not been a CFA, which meant the fees payable under the agreement with all its conditional elements removed; those fees were £145 per hour; and that, accordingly, the success fee did not exceed the permitted limit of 100% and the agreement was enforceable (see paragraphs [27] and [28]).

Mr Bacon QC submitted that it was incorrect to say, as was suggested against him, that the issue has been determined authoritatively by reference to Gloucestershire v Evans. He was there referring to the Master’s observations as follows in paragraph 111:

“If, by way of example, the solicitors were to receive 100% of their base fees in the event of success and 60% if unsuccessful, it would be easy to describe the 40% between the two outcomes as being the costs at risk. However, that would be a faulty analysis as the Court of Appeal concluded in the case of Gloucestershire County Council v Evans and Others [2008] EWCA Civ 21. It seems to me that Mr Bacon is treading a similar path in his submissions in this case regarding the 70% being payable win or lose and only the remaining 30% being at stake.”

The Master had said that it would be theoretically possible to agree that a proportion of the fees were to be paid in any event and that the remaining proportion were contingent on outcome – but that was not what had happened here, where the agreement shorn of paragraph 3 to 21 of the Side Letter did not set out any such thing. It related to the whole of the fees, but simply discounted them.

Gloucestershire, said Mr Bacon QC, was all about measuring the success fee that is a 100% maximum; it had nothing to do with the points developed concerning section 58 in the context of a wider retainer, nor with severance, and it is not a case on public policy. He submitted it was supportive of the argument section 58 polices only the conditional element of the agreement, and had been misapplied by the learned Master.

Master Brown challenged Mr Bacon QC during the hearing on the submission as to two separate agreements, and that there was in law no requirement for those parts that were not the CFA to be reduced into writing. Master Brown suggested that it was difficult to see how such an agreement would work, and difficult to see how the public could be protected if the standard terms and conditions were not in writing. Mr Bacon QC accepted they would have to be written, in order to “show how it works”.

Mr Carpenter QC observed that this argument as to two independent retainers, one enforceable, one not, one caught by section 58 and one not, was quite at odds with the agreed basis before the Master where it was expressly agreed (see the Master’s paragraph [14] and paragraph [4] above) thatsince the terms in paragraph [5] onwards were contingent upon the outcome of the arbitration, it wascommon ground that the agreement did not comply with the terms of section 58, plainly the passage referred to the whole of the terms agreed. As set out above (Master’s judgment paragraph [107]), he submitted the effect would be partial unenforceability wherever there was a discounted CFA since the discounted rates could still be claimed.

In Gloucestershire at paragraph 28 the court set out what a CFA was but Mr Bacon QC argued that the conditional fees only in the present case fell within section 58. The Respondents said that such an analysis left open the opportunity for misuse and manipulation. Mr Bacon QC said that solicitors will not manipulate the system. The statutory wording refers to “all or part” of fees; a proportion of hours, or of work. They are all he argued manifestations of the same thing, the commonality is that some parts are conditional and some unconditional so there are two forms of payment: it is not a question of “streams of work”. The issue here is costs and there are two different sorts of costs.

Mr Bacon QC accepted that the stringency of the arguments against both severance and quantum meruit were founded in public policy. His broad submission was that the case law which appeared to suggest he was wrong, had been based upon 19^th century cases at a time (pre-1967) when champerty was a criminal offence. Since that time policy had developed and did not proscribe recovery in the present circumstances.

Failed to follow Aratra Potato which was binding upon him

As to quantum meruit, Volterra argue here as below that the claimants have been unjustly enriched in the sense that they have received legal services but have not been required to pay for them. It was agreed below that in answering the four questions arising in the case of Lowick Rose LLP (in liquidation) v Swynson Ltd [2018] AC concerning a quantum meruit namely: (i) Has the ‘defendant’ been enriched by the receipt of the benefit? (ii) Has that enrichment come at the expense of the ‘claimant’? (iii) Is the retention of that enrichment unjust? (iv) Is there any defence or bar to the claim? The issue in the present case was as to (iii) and (iv).

The Respondents relied on public policy arguments illustrated by Neuberger LJ’s characterisation in Sibthorpe of legal services providers and upon Schiemann LJ’s specific comment in Awwad at page 596 (see above) to defeat the Claimant’s argument that a quantum meruit could arise.

Volterra argued the Master was wrong to order that sums already paid to Appellant for work from 6 September 2017 had to be repaid. In support of this argument, Mr Bacon QC relied again upon Aratra Potato Co Ltd v Taylor Joynson Garrett (a firm) [1995] 4 All ER 695. This case he argued was authority that where restitution is established, for example where a total failure of consideration is demonstrated, then a repayment may be ordered by the court.

Below, he submitted, the Master had wrongly rejected reliance upon Aratra Potato, but on different grounds, which Mr Bacon QC says, unfairly, were not canvassed in submissions. In any event, the cases mentioned by the Master did not derogate from what he submitted was the proper interpretation of Aratra Potato. He relied upon the case for the proposition that sums paid under an unenforceable retainer are not automatically repayable – a party must establish a case in restitution as, for example showing why the work done did not amount to sufficient consideration for the solicitors to be entitled to retain those sums.

He also pointed to the passage in Chitty on Contracts (33^rd edition) supporting Aratra Potato as good law:

And at [29-085]:

“The mere fact that one party has paid money to another under a contract which he cannot enforce against the latter, either because of non-compliance with a statute requiring written evidence or on grounds of public policy, will not entitle the payer to recover the money automatically, for such a contract is not void, but merely unenforceable. A total failure of basis must be proved before restitution can be claimed in these circumstances and restitution will not, in any event, be given if it would run counter to the policy of the statute in question.”

Similarly, he argued, public policy with respect to quantum meruit had developed in the Applicants’ favour since the cases of Giles v Thompson, and Awwad v Geraghty and Co. The Master was wrong to hold that public policy prevented payment even of an unconditional part of solicitors’ fees, and public policy was not undermined as long as the conditional element of fees remained irrecoverable.

ANALYSIS AND CONCLUSIONS

I have reached the clear conclusion that the Master was correct in the conclusions that he reached. Save for one aspect, by reference to the Solicitors Act 1974, I also agree entirely with the process of reasoning that led to them. Additionally, I am therefore able to state reasonably concisely, the reasons that support my conclusions.

Mischaracterised the retainer and

Misapplied Egon Zehlender and the 3-stage severance test

In my judgement it is clear, whatever the involvement behind the scenes of Mr Stava, the parties in the second agreement, (and in my judgement it was a second agreement rather than a variation), were different from those in the first agreement. Even if there was an implied relationship before the Side Letter between Mr Stava and Volterra, he was not a party to the written contract contained within the Engagement Letter.

Further, and importantly, the nature of the agreement between the parties evidenced by the Side Letter was materially different from that evidenced by the Engagement Letter: the central features of the second, Side Letter agreement between the parties were the conditional elements. In my judgement the nature and character of the second agreement is wholly different from the nature and character of the terms that were agreed under the Engagement Letter. These differences feed into the severance question. As to severance, the intrinsic nature of the clauses sought to be severed is wholly different from what is left after severance, and as Mr Carpenter QC phrased it “[t]he provisions which Volterra seeks to remove formed the very essence of the contract which the parties actually entered into”.

Further, and crucially, in this case, the work was to be governed up until 6 September 2017 by the old payment agreement which was not conditional, and that same work was to be governed by the new, conditional, agreement thereafter.

Accordingly, Diag were correct to say that under the new agreement, in consideration for discounted fees being charged as the case progressed, the Appellant stood to gain much more by way of base fees and success fees if either of the arbitrations bore fruit. Severing the provisions giving effect to this, removed the chance of that acquisition leaving them only with a liability upon Diag to meet the (now discounted) fees. It was not irrelevant that the Master noted at [64] that in evidence Mr Volterra indicated that he would not have agreed simply to have discounted the firm’s fees by 30% - on that basis there would have been nothing in return to Volterra. This underlines in my judgement that it was not the same sort of agreement that Volterra had entered into. The third test set out in Egon Zehnder is not met here, and the Master correctly applied that authority to the facts of this case.

I agree that properly analysed, the Side Letter represented a quite different type of agreement from that encapsulated in the Engagement Letter, albeit that there was overlap, albeit that similar language may have been used and albeit, that there was a terminus at which one stopped and one started. None of those features in my judgement override the overwhelmingly different character of the second agreement. The second cannot possibly be described as the sort of contract the parties had entered into at all.

Wrongly distinguished Garnat Trading and

Misapplied the other authorities in particular on the issue of public policy, which had moved on so as to encompass severance in the present case

In my judgement the Master was correct in noting (at paragraph [85]) that the factual situation in the present case was different from that in Garnat. There a broad private retainer had been agreed but for one specific element of work, a CFA was agreed to deal with an appeal. The present case involved only the BIT arbitration work. This had been charged on a monthly basis until the Side Letter; thereafter, the work was to be done under the CFA. The Master correctly held (at [88]) there was “no scope for the infected CFA to be removed so as to save the body of the agreement”. As he said, the whole arrangement had been converted into a CFA. The Garnat case involved two separable work streams, one was charged on one basis and the other charged on the other, hence, severance was possible. Here, the part sought to be severed, was the whole of the work, the totality of which it had been agreed would be subject to the new conditional basis. That is a different scenario, the Master was correct to distinguish Garnat. In Garnat the appeal CFA terms had no connection at all with the terms existing for paying for the other work.

I have set out above the Master’s careful consideration of the development of policy in the common law from before to after the inception of the 1990 Act and its amendments. Mr Bacon QC before me emphasised what he said was a change through time, evidenced by the approach taken in Garnat. I disagree. That case was not decided on the basis of public policy, it was factually different. However, there seems to be a broader reason for refusing severance, aside from the factual differences. This situation cannot be saved by severance since, given the facts of this case, in the light of Giles v Thompson and Awwad v Geraghty, it would be contrary to public policy to permit severance. I cannot read Garnat as a case that seeks to recognise, or to propound a shift in public policy as it was expressed to be, it was merely a case where severance was appropriate and permissible. If correct, Mr Bacon QC’s submission would, as Mr Carpenter QC suggested, allow virtually all defective CFAs or DBAs to be put right late in the day. This is not the effect of the statute read in the light of the earlier and subsequent caselaw. Further, it would undermine consumer protection and the administration of justice.

A somewhat broader challenge was contained in Mr Bacon QC’s Notice of Appeal based upon Zuberi v Lexlaw Ltd [2021] EWCA Civ 16, and what he argued was its relevance to a deeper question of “what a CFA was”, and the true scope and focus of section 58 of the Courts and Legal Services Act 1990. The Master did not accept that this later case affected the soundness of his decision which was reached before the Court of Appeal delivered judgment.

In Zuberi, a DBA had been entered to finance a claim against a bank. Under one clause the solicitors were entitled to 12% of any sum recovered plus expenses. If the claim was lost, only expenses were payable. Under the agreement a clause also permitted the client to terminate at any time but, if they did so, the client became obliged to pay costs and expenses to the solicitors to the date of termination. It was argued that this last clause vitiated the whole agreement because it offended section 58AA of the 1990 Act as amended.

Lewison LJ described the issue in these terms:

“1.

A client enters into a contract of retainer with solicitors to prosecute a claim. The contract provides that in the event of success the solicitors will be entitled to a share of the recoveries. The client achieves success by means of a settlement of the claim; and the solicitors claim their share. But the contract also contains a clause which says that if the client terminates the retainer prematurely (which she did not), she must pay the solicitors’ normal fees and disbursements. Does the existence of that clause invalidate the whole contract? HH Judge Parfitt held that it did not. His judgment is at [2020] EWHC 1855(Ch).”

The offending clause was 6.2 of the agreement which provided:

“With the exception of the circumstances set out in clause 6.3 … you may terminate this Agreement at any time. However, you are liable to pay the Costs and the Expenses incurred up to the date of termination of this Agreement within one month of delivery of our bill to you.”

The costs were called “time charges” and were calculated at an hourly rate for time spent working on the claim. The Damages-Based Agreements Regulations 2013 by regulation 4 (1) prohibited the requirement to pay any amount other than the payment of costs that had been paid or were payable by another party to the proceedings by agreement or order – so any payment net of these costs on termination, which did not meet that description, arguably fell foul of the Regulations as part of a proscribed DBA and vitiated the whole agreement.

All three members of the Court of Appeal dismissed an appeal from the High Court in which the judge had held that the agreement which gave the solicitors their time costs on early termination did not fall foul of the DBA Regulations. He had held as a matter of construction that Regulation 4 was only concerned with cases where a recovery had been made and did not apply to a clause where fees were recovered on a time basis where the client terminated early. The Court did not hear argument on the issue of severance and declined to decide it formally (paragraph [48]), although Lewison LJ observed that in his view the conditions for severing 6.2 from the remainder of the contract were “amply fulfilled” (paragraph [8]).

At paragraph [42] Lewison LJ said that it was clear that the regulation of circumstances in which lawyers could recover their costs and expenses on the termination of a DBA was not intended to be comprehended within the Regulations. By reference to the explanatory materials and legislative history of the Regulations, that matter was to be left to professional regulators to police. As a result, the time costs in question were outside the scope of the Regulations except where they were brought in as a requirement of a DBA under the statute.

Mr Bacon QC relies upon a passage in the judgment of Lewison LJ where he said at paragraph [33] there were two possible views of what the DBA consisted of: one was that if a contract of retainer contained any provision which entitled the lawyer to a share of recoveries then the whole contract was a DBA. He also said:

“But another view is that if a contract of retainer contains a provision which entitles a lawyer to a share of recoveries; but also contains other provisions which provide for payment on a different basis, or other terms which do not deal with payment at all, only those provisions in the contract of retainer which deal with payment out of recoveries amount to the DBA.

“34.

In my judgement there are good reasons for preferring the later view.”

The judge then gave a series of reasons, namely the object of the legislation was to permit renumeration, the only part of the common law needing to be changed was the rule against champerty, and without the offending clause, the contract of retainer would have been enforceable anyway. Parliament, he suggested, intended to change the common law only expressly or by necessary implication and no express provision displaced the common law, other than the champerty rules. Further, he said, and Mr Bacon QC relies particularly on this phrase, “the legislation cannot be said to be undermined by the co-existence of the common law”. Lastly, he said the legislative scheme was far from comprehensive.

Lewison LJ decided (paragraph [42]) that the statutory intention of the scheme reflected in the Regulations showed that:

“It is clear, then, from para 7.5 that the regulation of the circumstances in which lawyers could recover their costs and expenses on termination of a DBA was not intended to be covered by the Regulations, and was to be left to their professional regulators. In addition, if there is a dispute about a solicitor’s “costs”, the client is entitled to have those costs assessed by the court under s70 of the Solicitors Act 1974. There were, therefore, consumer protection measures already in place.”

In the event, Lewison LJ expressly declined to consider the issue of severance which was raised by the Intervener (coincidentally represented by Mr Bacon QC), the Bar Council. The Bar Council did not challenge the judges’ finding that the whole contract of retainer was not invalidated if clause 6.2 fell foul of Regulation 4.

Newey LJ, as stated, whilst agreeing upon the result took express issue with Lewison LJ as to the meaning of a DBA. He referred to the definition of a DBA in section 58AA of the 1990 Act as follows:

“An agreement…which provides that (i) the recipient is to make a payment to the person providing the services if the recipient obtains a specified financial benefit in connection with the matter in relation to which the services are provided, and (ii) the amount of that payment is to be determined by reference to the amount of the financial benefit obtained.”

He disagreed with Lewison LJ’s wider reasoning. In his view “…Lewison LJ’s construction of “damages-based agreement” would leave a solicitor or other representative free to stipulate for payment even where the claim failed” which he said was not the statutory intention. Newey LJ agreed however that clause 6.2 of the particular agreement did not fall foul of the 2013 Regulations, since Regulation 4 properly construed had no application to the termination provisions.

Coulson LJ in a separate judgment observed that the term “damages based agreement” should be given a narrow reading, consistent with Lord Justice Lewison. It meant the agreement between the parties relating to the payment as defined in the Regulations. Other elements of the agreement such as the solicitor’s offices, the work etc or the termination provisions have nothing to do with the payment as defined in the Regulations and therefore are not part of the DBA itself. In any event even if wrong, neither the Act nor the Regulation in question affected the operation of the early termination provisions – they did not address termination at all and in that respect he agreed with Lord Justice Newey. He indicated his understanding that Parliament had deliberately shied away from imposing any restrictions on termination provisions. It was recognised in that case that the issue of costs on a termination was an important point and seen as one of the key uncertainties preventing the wider use of DBAs at the time.

In my judgement the facts of that case were, as the Master indicated, in refusing leave, significantly different from the present facts so as to make the case unhelpful when construing the effect of the agreements here in issue. Furthermore, the actual issue before the court was the discrete, limited question of whether Parliament intended by Regulation 4 to make the agreement in that case unenforceable because it included an obligation to pay incurred time costs and expenses if the client exercised a contractual right to terminate. If it did, it was agreed that there was no legitimate mechanism for the solicitor to be remunerated for work done before termination. In other words, the public policy aspect of this case was all one way.

There was no separate “termination” aspect to the offending conditional provisions in the present case, nor any persuasive parliamentary intention militating in favour of construing the Regulation as had been the case in Zuberi. Further, as the Master set out, the facts there supported severance, and they do not, for the reasons he explained and I accept, do so here. As Mr Carpenter QC expressed it “there is a considerable difference between excising termination provisions from a DBA (still leaving a DBA) and excising all the terms from a CFA which make it a CFA.” It seems to me that it was the statutory context that led the court in Zuberi to conclude that termination had been deliberately omitted from the relevant regulation; that context does not exist here, nor its equivalent and I do not take it to be laying down a general principle concerning the approach to CFAs and DBAs as was sought to be said by Mr Bacon QC.

For these reasons, whilst that part of Mr Bacon QC’s argument that concerned a narrow interpretation of the meaning of a conditional fee agreement or damages based agreement might see some reflection in the observations of Lewison LJ, it does not affect the resolution of this case.

That there may be hybrid agreements where an element survives is clear from both Zuberi and from Garnat but in neither was it a case of a “mere” split between two forms of payment. The public policy proscription is against “continuing to act for a client under a conditional fee arrangement” (see Schiemann LJ in Awwad) i.e. what policy seeks to prevent is working under a retainer that is champertous. That policy holding is untouched by Zuberi. The underlying work is here common to both “parts” of the agreement and “the work” would still be undertaken under a champertous agreement. In Garnat, by contrast it would not: “the work” there was of two separate types. Again, in my judgement the Master was correct to reject Mr Bacon QC’s arguments on behalf of Volterra.

Minimised the importance of the question concerning an obligation to return monies paid over.

Failed to follow Aratra Potato which was binding upon him.

In fact Garland J in Aratra Potato held against severance in relation to a champertous contract. Garland, J dealt with severance (at 710):

“Mr Spearman submitted that severance could be effected by deleting the words “for any lost cases” from the sentence ending “our bills will be delivered when each matter is finalised in all respects with a 20% reduction from the solicitor/client costs for any lost cases”. To my mind, this is not severance but an attempt at unilateral rectification by removing to TJG’s pecuniary disadvantage, the words creating a differential fee. Severance is not possible.”

However, Mr Bacon QC relied upon the case also for its suggestion as to a remedy in restitution for monies already paid over in circumstances where such a restitutionary claim had been mounted – none of course has been mounted in the present case.

In answer to the first criticism made by Volterra, there is no evidence in my judgement that the Master in any way diminished the importance of the repayment or restitutionary point. He accurately reflected that the burden of argument had centred on other points. He answered the question whether there could be recovery of the sums already paid as a quantum meruit in the negative and also held that monies paid must be repaid. I agree with him that the case in quantum meruit must fail and the sums already over must be repaid.

Garland J held in Aratra Potato:

“To allow the plaintiffs to recover but on terms would in effect be to allow TJG to recover on a quantum meruit if not to enforce the agreement. This cannot be right. Conversely, can it be a correct approach to take the view that the agreement is unenforceable and that the parties must therefore be left in the position in which they find themselves? This would enable TJG to take advantage of the champertous agreement dependent upon the plaintiffs’ discovery of its true nature. Conversely, is justice done by allowing the plaintiffs to take advantage of the services rendered by TJG without having to pay for them?”

The middle course prevailed, and the same was argued for in the present case by Mr Bacon QC, on the reasoning of Garland J. Volterra had provided legal services, it could not be said there was a total failure of consideration accordingly Diag had no restitutionary remedy. Indeed, they had claimed none. The fair outcome, consistent with Aratra Potato was that Volterra retained the monies for the work already done on a quantum meruit basis. Following Aratra Potato, Mr Bacon QC argued it was not possible to order a repayment of the monies absent a restitutionary claim: Diag had made none.

I disagree with Mr Bacon QC’s arguments for a number of reasons. It is not the case, as was suggested, that the Master did not deal with Aratra Potato or properly distinguish it. His conclusion, which I share, is founded on the fact that the judge in Aratra Potato did not have the benefit of a number of later decisions at Court of Appeal level, in particular those of Awwad and Sibthorpe. In my judgement in the light of the reasoning in those cases, and also in light of the reasoning of Dyson LJ in Garratt v Halton Borough Council (supra) public policy has been clearly explained. Dyson LJ stated there was nothing inherently improbable in a statutory scheme which provided that if the applicable conditions were not satisfied the CFA would be unenforceable, and the solicitor would not be entitled to payment for his services. That could be harsh particularly if the client had not suffered any actual loss. It might produce harsh or surprising results but that alone did not condition the construction of the statute. That construction (see paragraph [30] of Garratt) made clear that Parliament had intended that if any of the conditions laid down for CFAs was not satisfied, the CFA (and all of it) would not be enforceable and the solicitor would not be paid. This was tough but not irrational.

Against that policy background, in my judgement, the reasoning in Aratra Potato cannot stand and must be distinguished, as it was by the Master. To order that sums already paid be retained, would undermine this policy. In the same way, as would the reading that Mr Bacon QC sought to argue concerning the scope of what constitutes “the agreement”. Doctrines such as unjust enrichment and quantum meruit have no place, in my judgement.

The agreement in issue here, is unenforceable; it cannot therefore found a claim which allows for payment received under part of it, to be retained. In my judgement no claim for restitution is necessary as a precursor to recovery of sums paid under the unenforceable agreement. I will turn to that aspect below.

I should add, it is impossible in my judgement to construe section 58(2)(a) in the manner advanced by Mr Bacon QC. It provides relevantly:

“a.

A conditional fee agreement is an agreement … which provides for … fees or expenses or any part of them to be payable only in specified circumstances”.

In my judgement the natural reading of this phrase connotes an agreement which contains terms which provide for fees or expenses to be payable, and also contains terms which provide for other matters. The terms governing payment of fees may encompass all payable fees, or only part of the payable fees. The whole agreement falls foul of the legislative regime, unless severance is possible. This construction is the only available construction on the caselaw considered above, in my view.

A further aspect of the case reinforces my clear view that the monies are repayable. This derives from the mechanism underlying the case before the Master and the statutory scheme which governs his jurisdiction. Recovery under a solicitor’s bill depends upon the statutory framework. The Master’s powers arise under the Solicitors Act, as pointed out by Mr Carpenter QC. The Master was charged with carrying out a detailed assessment of the final Statute Bill (see section 69 of the Solicitors Act 1974) in respect of the fees claimed by Volterra, in accordance with section 70 of the 1974 Act. By virtue of section 70(7) the Order for assessment required an assessment of the Bill and the costs of the assessment “and to certify what is due to or by the solicitor in respect of the bill and in respect of the costs of the assessment”. In light of the conclusions I have reached on the effect of the statute, in the context of the public policy as expressed through the caselaw, the position must be that, in truth, nothing is due on the Bill because the underlying retainer which is said to justify the Bill is unlawful. Accordingly nothing is due on a Bill founded on that unlawful retainer.

It is trite, that the basis for charging as between solicitor and client, in this context, is contractual. These provisions arise under Part III of the 1974 Act, under CPR 67.3 the costs judge determines any claim arising under Part III. The Master (or Costs Judge) in any case, therefore, has jurisdiction to order payment of any certified sums due to the client on the Bill: in a case such as the present, the repayment would be achieved, in the usual way by order of the Master or Costs Judge. There can be no doubt (see section 70(3)(c)) that even after payment of a Bill, a detailed assessment may re-assess the position.

The fundamental point must be that where the contract is unenforceable nothing can be said to be due on a Bill so as to found assessment other than an assessment at zero. Accordingly, if sums have been paid under the purported retainer, they fall to be repaid and the Master may so order.

The effect of the 1974 Act was a matter which arose late in the hearing of this case and supplementary submissions on paper were invited by the court. The essential submission of Mr Bacon QC was that whilst he accepted the court had power to order the return of the sums, the client was required to establish a case in restitution. In my judgement, this ignores the inapplicability of that remedy in a case where the public policy is clearly inimical to any recovery in those circumstances.

A further matter which also came late to the court’s attention was a case submitted some time after the hearing. Peter Farrar v David Miller [2022] EWCA Civ 295 was decided after the close of submissions. The issue in the case was whether, as held by Marcus Smith J, it was not possible for a firm of solicitors who had been acting in litigation under a DBA to take a valid assignment as their client’s cause of action. Marcus Smith J had held such an assignment was champertous. He gave permission to appeal. Under the agreement Mr Farrar agreed to pay his solicitors Candey Limited (the Appellants) 50% of the proceeds of his claim against Mr Miller, instead of paying the solicitors fees on an hourly rate basis. The DBA provided that in the event Mr Miller paid Mr Farrar’s costs (by order or by agreement) such sum would reduce Mr Farrar’s liability to make payments out of his proceeds. Some six years after the DBA was entered a new DBA was entered in September 2019 to replace the old one. There was also a Deed of Assignment of Mr Farrar’s claims against Mr Miller. That assignment was separate from the DBA, the judge deduced, although it was not explained, that that course was taken to ensure the claim continued even if Mr Farrar was made bankrupt. In fact he died shortly after the fresh agreement had been entered.

The relevant paragraphs of this case for present circumstances are paragraphs [29]-[43] where Arnold LJ with whom Phillips and Simler LJJ agreed set out the public policy rules in respect of champerty. From paragraph [29] Arnold LJ indicates the history and expression of the rule against champerty citing the caselaw including Sibthorpe, Wallersteiner v Moir, Giles v Thompson, Awwad v Geraghty. Particular attention was paid to the holding in Awwad that there was no scope for the court to hold that the common law permitted CFAs did not confirm to the requirements imposed by section 58, and to the observations of Lord Neuberger in Sibthorpe with respect to the particular relationship of solicitor and client.

Marcus Smith J had held that lawyer/client transactions were assessed according to an altogether different standard: “they are either sanctioned by statute or they are not”.

On the appeal in Farrar v Miller Arnold LJ rejected arguments including one to the effect that public policy had developed since the earlier cases. Arnold LJ held the court was bound by its previous decisions of Awwad and Sibthorpe (together with R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932, [2003] QB 381). Arnold LJ said that Awwad and other authorities cited, were recent decisions of the court and established there had been no recent relevant change of public policy. He also said “even if it was open to this court to depart from the previous authorities, I would not do so. I consider the reasoning in those cases and in Factortame and Sibthorpe v Southwark to be entirely convincing”.

That authority reinforces my conclusion that there is no material policy change to which Mr Bacon QC can point.

Accordingly, for the reasons given I agree with the Master who gave judgment below on the conclusions that he reached in this case, and indeed, the reasoning by which he reached them. This appeal is dismissed.

Master Simon Brown is in full agreement with the reasoning and conclusions contained in this judgment.