The Court of Appeal has held that the severance of terms rendering a CFA unenforceable was not available to solicitors on public policy grounds and that consequently their clients were entitled to the return of sums paid on account. The decision in Diag Human v Volterra Fietta will ring alarm bells for litigation funders who might be contemplating launching similar arguments as a consequence of the
The Facts
The facts can be outlined relatively straightforwardly: in
The solicitors argued that they could sever the success fee so as to be entitled to be paid on the discounted hourly rate basis regardless of outcome. Alternatively, they argued that they were entitled to be paid on a quantum meruit basis.
At first instance and on appeal to the
The Decision
The Court of Appeal dismissed the appeal.
Severance was not available on the basis of the three-stage test set out in Beckett v Hall2 because the agreement that would have resulted would have been of a different character to that which had been entered into by the parties. The
However, the
Against that background it would be offensive to public policy to permit partial enforcement of an unenforceable CFA.6 This could be seen from the decisions in Awwadv Geraghty7 and Garrett v Halton8. Notably, Awwad had also concerned a non-compliant discounted CFA, and the
Stuart-Smith LJ cited the judgment Dyson LJ in Garrett that:
...the [legislative] scheme is designed to protect clients and to encourage solicitors to comply with detailed statutory requirements which are clearly intended to achieve that purpose. The fact that it may produce harsh or surprising results in individual cases is not necessarily a good reason for construing the statutory provisions in such a way as will avoid such results.
...
30 ... To use the words of
Stuart Smith LJ rejected the contention that public policy had moved on from those earlier decisions. In particular, he noted that the principles set out in those cases had been reaffirmed by the
In her concurring judgment, Andrews LJ noted that:
There would be little incentive to solicitors to adhere to the straightforward requirements of the regulations laid down for the protection of their clients, if the worst that could happen if they failed to do so would be that they would be paid the amount that the client had agreed to pay for their services win or lose. It makes no difference to the principle if that amount is based on a discount from the solicitors' usual hourly rate, or subject to a financial cap. If
The same policy considerations also defeated the solicitors' argument that they should be entitled to be paid on a quantum meruit basis. As Andrews LJ pithily put it:
... the short answer is that it is not open to the solicitors to claim by the back door any payment for their services which they cannot receive through the front.13
In addition to referring to Awwad, Andrews LJ also cited noted that the same approach was taken in Orakpo v Manson Investments14and Dimond v Lovell15 which concerned agreements that did not comply with consumer protection legislation.
The Potential Consequences
On one level the
However, the case has further implications when looked at through the prism of the
Clients will likely argue that if parliament intended funding agreements to be caught by the DBA regulations, it must also have intended for the funders to face the full implications of non-compliance. Therefore, they will argue that the same policy considerations should apply to funders as would apply to solicitors, each of whom are acting in a commercial capacity. They will also note the breadth of the authorities referred to in the context of quantum meruit by Andrews LJ.
One would anticipate funders arguing that the position is distinguishable by the fact that a funder will have made loan payments out rather than being in the position of not being paid for the service that they have provided. They will further argue that solicitors are held to a stricter standard than third parties where champerty is concerned because they are officers of the court and because they are conducting the litigation in question. This is reflected in the comments of Lord
Where litigation funders with pre-
Footnotes
1. [2023] UKSC 28
2. [2007] EWCA Civ 613 as approved by the Supreme Court in
3. Judgment, para.40.
4. Judgment, para.62.
5. Judgment, para.6.
6. Judgment, para.62.
7. [2001] QB 570
8. [2006] EWCA Civ 1017
9. Judgment, para.64.
10. Judgment, para.21.
11. [2022] EWCA Civ 295. For further commentary on Farrar, see my article here.
12. Judgment, para.81.
13. Judgment, para.83.
14. [1978] AC 95
15. [2002] 1 AC 384
16. See PJ Kirby KC and
17. [2011] EWCA Civ 25, at paras.35-37.
18. [2019] EWHC 997 (Ch), at para.76.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
Gatehouse Chambers
1 Lady
Gray's Inn
WC1X 8BS
Fax: 0207691 1234
E-mail: ashley.allen@gatehouselaw.co.uk
URL: gatehouselaw.co.uk/
© Mondaq Ltd, 2023 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source