​Inconsistent provisions regarding a fee arrangement could not be fixed by implying terms from a previous agreement into a later, inconsistent one. This Court of Appeal ruling is a good reminder of the stringency of the test for implying terms into a contract, and of the need for parties with long standing business relationships to ensure that their contractual arrangements are coherent and consistent: Stevensdrake Ltd (Trading as Stevensdrake Solicitors) v Stephen Hunt (Liquidator of Sunbow Ltd) [2017] EWCA Civ 1173

Inconsistent contracts between same parties

Mr Hunt and Stevensdrake Solicitors (Stevensdrake) had worked together since 1993. In 2005, Mr Hunt instructed Stevensdrake on the administration of Sunbow Limited, and Stevensdrake sent Mr Hunt a retainer and their standard terms of business. The retainer provided that Stevensdrake would wait for payment of its fees until recovery of any assets in the estate, apart from out of-pocket expenses. In 2006, further retainers were signed, reiterating Stevensdrake’s position that it would wait for payment out of the estate.

Nearly two years later, Stevensdrake and Mr Hunt entered into a Conditional Fee Agreement (CFA), which provided that Mr Hunt was personally responsible for any fees incurred under the CFA, which were not limited by reference to the funds in the liquidation. This was inconsistent with the retainers previously signed.

The Sunbow Limited case settled and Stevensdrake claimed payment of their fees in full. Mr Hunt argued that the 2006 correspondence governed the parties’ relationship alongside the CFA, so that Stevensdrake’s fees were only payable out of realisations received. As no realisations had been received, no fees were due. The court was asked to establish which terms governed the relationship between Mr Hunt and Stevensdrake, in the face of a long-standing relationship and inconsistent contracts.

At first instance, the High Court found that the full terms governing the relationship between Stevensdrake and Mr Hunt could not be ascertained from the CFA alone, and the CFA must implicitly incorporate the terms from the 2006 retainer that (a) Stevensdrake’s fees would only be paid out of realisations, and (b) Mr Hunt had no personal liability for those fees.

No implied term

The Court of Appeal disagreed. A term can only be implied into a contract in very limited circumstances.1 The term must:

  • be reasonable and equitable (however this can be disregarded, if it satisfies the other requirements);
  • be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
  • be so obvious that “it goes without saying”;
  • not contradict any express term of the contract.

The term implied by the High Court contradicted an express term of the CFA, and was neither necessary to give business efficacy to the CFA nor was so obvious that it went without saying (precisely because it contradicted an express term of the CFA). The High Court had recognised that the CFA was a short, yet clear, signed “legally binding contract”. However strong contemporaneous evidence was, it could not result in the implication of a term contrary to principle and authority.

Earlier agreement not an umbrella agreement

The Court of Appeal also pointed out that Mr Hunt’s case had not even been argued as one of implied terms, but as the 2006 correspondence being an “umbrella agreement” which governed all subsequent correspondence and prevailed in the event of inconsistency. This argument too was dismissed. The CFA purported to be a complete and self-contained contract, it worked effectively without need for any further terms, it neither referred nor purported to incorporate any other terms and it represented a markedly different basis for payment than that provided in the 2006 correspondence. This latter reason also went against Mr Hunt’s argument that the two documents could be interpreted consistently.

Accordingly, the Court of Appeal held that there was no contractual justification for going outside the terms of the CFA.

COMMENT

The decision of the High Court in finding that terms of a previous agreement could be incorporated by implication into a later agreement went against precedent established by the Supreme Court and created uncertainty between contracting parties who had a long-standing and multi contractual relationship.

Parties with a long-standing business relationship must ensure that their contractual arrangements are coherent and consistent. Entire agreement clauses can be a useful tool to mitigate risk where there are pre-existing arrangements between the parties which are intended to be superseded. There was no such clause in the Conditional Fee Agreement in this case.