The Facts

Stevensdrake Limited, a law firm, made a claim against a Liquidator for fees owing under a Conditional Fee Agreement (CFA) made between the two on 10 April 2008. The parties had worked together on various insolvency matters for many years.

Prior to the CFA, the parties had agreed a retainer in 2005 on standard terms, save that Stevensdrake agreed to wait for payment of its fees until recovery of any assets in the estate. In April 2006, the Liquidator sent a letter to Stevensdrake stating that their fees could only be paid out of realisations and that, if there were no realisations, they would not be reimbursed. The Liquidator further asserted that he did not accept any personal liability for such fees.

After the CFA had been agreed, the claims were settled and Stevensdrake issued a bill which included a 100% success fee. The Liquidator argued that it was recognised within insolvency litigation that solicitors provided legal services on terms that they would only become entitled to payment out of recoveries made and, where there were minimal assets of value and insufficient recoveries, the entitlement to payment would abate pro rata. The Liquidator asserted that he should not be personally liable for the solicitors' fees - but, if the court were to find otherwise, then the claim should be rejected on the basis of estoppel by convention, as Stevensdrake had previously agreed to work on a recovery basis. He sought to abrogate liability further on the grounds of undue influence, negligence and/or breach of fiduciary duty on the basis that Stevensdrake had not highlighted the more onerous term of the CFA.

The Court found at first instance that the course of conduct of the parties over a long period of time should also be considered rather than just the terms of the CFA alone. The consistent approach over the years had been that Stevensdrake's fees would only be paid out of any realisations and therefore the Liquidator had no personal liability for the fees.

The Decision

The Court of Appeal overturned this ruling and found that there was no reason for going outside of the terms of the CFA.

The Court found that the CFA was a coherent and comprehensive document and there was no need to consider business relationships or previous dealings. However, the Court of Appeal also found that the Liquidator could not be personally liable as there was an estoppel by convention: the parties to the transaction had acted on an assumed state of facts - i.e. that Stevensdrake would be paid out of realisations and the Liquidator would not be personally liable for the fees. The Court held that it would be unjust or conscionable to allow Stevensdrake to go back on that.

The result of the Court of Appeal decision remained that Stevensdrake could not recover their profit costs or success fee from the Liquidator personally.

Our Comment

This long running and widely reported case highlights the need for parties to be clear with their intentions in relation to the recovery of fees, particularly when there is a CFA in place or the recovery is reliant on the realisation of assets. Informal arrangements should be avoided and any fee agreements should be formalised in writing to protect both parties.

In general, though, it will be a welcome decision for office holders to see the court uphold the principle that, unless expressly held otherwise, legal fees can only be paid out of realisations.