| Date | 19 May 2004 |
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| Judgment | Benaim (UK) Limited v Davies Middleton & Davies Limited, TCC 26 March 2004 |
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| The Issue | The operation of conditional fee agreements. |
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| Implication |
Conditional fee agreements are enforceable over a wide range of civil actions. The agreement may only provide for an uplift to the normal solicitor's fee payable, subject to a maximum of 100%. The uplift may be calculated by reference to the amount recovered in the proceedings. |
printIn legal circles, the term 'no win, no fee' is used quite extensively, but it often causes great confusion. It generally refers to an arrangement with a solicitor under what is called a 'conditional fee agreement', whereby if the claimant wins its case the solicitor's fees will become payable, together with any disbursements that the solicitor has met, such as for experts' reports. If the claimant loses the case however, the solicitor's fees will not be payable. Such agreements need to be drawn up very carefully if they are to be enforceable and claimants must understand that 'no win, no fee' does not necessarily mean 'no win, no costs'. Although the losing claimant may avoid payment of his own solicitor's fees, he may in certain circumstances nevertheless find himself obliged to pay for disbursements and for the costs of the opposing party. In the UK, conditional fee agreements have been in place since 1995 for a limited range of cases. This was extended in 1998 to include all civil cases, with the exception of family proceedings. In 1999, the Access to Justice Act further clarified the statutory policies and included, amongst other things, that the success element of a conditional fee agreement and the cost of an insurance policy taken out in respect of the opponent's fees could be recovered from the losing opponent. The operation of conditional fee agreements was examined in the recent case of Benaim (UK) v Davies Middleton & Davies in the Technology and Construction Court. Davies was in administrative receivership and had engaged its solicitors under a conditional fee agreement to conduct proceedings against Benaim for the recovery of damages consequent upon alleged negligent design. The conditional fee agreement provided that the solicitors would get an uplift on their normal fees, depending upon the amount of recovery obtained from Benaim. The uplift would be as much as 100% if the recovery was greater than £1 million, subject to a cap of 25% of the amount recovered. Benaim argued that the conditional fee agreement as drafted was unenforceable by the solicitors, and therefore they in turn had no liability to pay such costs. At this point, some background as to why conditional fee agreements were previously considered unlawful might be helpful. Until 1967, the acts of 'Maintenance' and 'Champerty' amounted to a criminal offence. Maintenance was defined as the giving of assistance or encouragement to one of the parties to litigation by a person who had neither an interest in the litigation or any other motive recognised by the law as justifying his interference. Lord Denning described Champerty as a "species of maintenance, but a particularly obnoxious form of it. It exists when the maintainer seeks to make a profit out of another man's action by taking the proceeds of it, or part of them, for himself". Thus, any agreement to conduct a case on the basis of no win, no fee, was unlawful on the basis that it offended public policy. The Courts and Legal Services Act 1990 and the previously mentioned Access to Justice Act 1999 changed all that. The purpose behind these statutory provisions was to make solicitors' fee agreements, which would otherwise be unenforceable for reasons of public policy, enforceable if they satisfied certain conditions set down by statute. The conditions are complex. Some types of conditional fee agreement are acceptable under the statutory provisions, others not. In the case of Awwad v Geraghty in 2000, the court indicated that there were three categories of conditional fee agreement, (1) where the lawyer will recover some of the client's winnings, (2) where the lawyer will recover his normal fees, plus a percentage uplift and (3) where the lawyer will only recover his normal fees. In what has been described as a triumph of semantics, the first category has been termed "contingency fee", whereas the second and third categories have in recent years been given the name of "conditional fees". The Courts and Legal Services Act makes it clear that its purpose is to validate conditional fee agreements, subject to certain restrictions, but not to permit contingency fees. Any arrangement where the lawyer would recover some of the client's winnings is plainly still seen as something akin to champerty and despite the necessary hair splitting, still regarded as unacceptable practice. The Conditional Fee Agreement Regulations 2000 set out in some considerable detail the conditions which must be met by a conditional fee agreement for it to be enforceable. These include that the agreement must state the percentage uplift on the solicitor's normal fees that will apply, and that the percentage may not exceed 100%. Returning to the present case, the difficulty with the conditional fee agreement which Davies sought to rely upon was that whilst it did not provide that their solicitors would recover some of their winnings, it nevertheless provided that the fees would be increased by reference to the amount of those winnings, rising to a maximum of 100% uplift if these winnings exceeded £1 million. That amounted to champerty according to Benaim and rendered the agreement unenforceable, irrespective of whether it complied with the relevant statutory provisions. Judge Rich was unimpressed with this argument. He was satisfied that the required statutory conditions were met, even if the percentage uplift was calculated by reference to the amount recovered in the proceedings. To use the preferred semantics, this remained a conditional fee, not a contingency fee. A conditional fee agreement, as drafted, was therefore perfectly enforceable.
CJ-0420
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