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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Benaim (UK) Ltd v Middleton & Anor [2004] EWHC 737 (TCC) (26 March 2004) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2004/737.html Cite as: [2004] EWHC 737 (TCC)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice
		Friday, 26th March 2004

 


JUDGE RICH:

1. I shall in this judgment refer to the parties respectively as "Benaim" and "DMD".
2. By a consent award dated 16th January, 2003 the parties settled a dispute in which DMD as contractors for certain works on the A13 road, alleged that Benaim had been negligent in carrying out design work.
3. One of the terms of that consent order was that Benaim should pay DMD's costs. DMD is in administrative receivership and has engaged its solicitors, Burgess Salmon, under a conditional fee agreement dated 31st August, 2000. I shall refer to such agreements as "CFAs". This CFA provided for an uplift of the basic costs in case of success, as defined in the agreement, by a percentage which varied according to the amount recovered in the arbitration.
4. Benaim contend that a CFA in this form is unenforceable by the solicitors. Since they are liable to indemnify DMD only in respect of costs for which DMD is itself liable it would follow, if that contention were right that they would have no liability under their agreement to pay DMD's costs. That claim was referred to the arbitration of Mr. Peter Chapman, who delivered an award dated 19th July 2003 determining that the CFA was legal and valid and could be relied upon in the assessment of costs.
5. In reaching that conclusion the arbitrator used language to describe the test of whether an agreement was unenforceable for champerty, which Benaim claims indicated that he had used the wrong test. They sought permission to appeal. DMD alleged that the application was out of time and that in any case the language of which Benaim complained could be corrected by the arbitrator under s.57 of the Arbitration Act, 1990. In view of those objections, HHJ Toulmin Q.C. on 28th August 2003, ordered that there should be an oral hearing of the application for permission to appeal if any procedural point is taken.
6. Meanwhile, however, DMD themselves applied to the Arbitrator to amend his Award. On 9th October 2003 he issued an amended award in which he arrived at the same conclusion as to the validity of the CFA, but in which he removed the words which had founded Benaim's application for permission to appeal against his July award. Benaim applied for permission to appeal against that award on the ground that the Arbitrator had no power to amend his July award. Permission was given for such appeal by

HHJ Wilcox Q.C on 10th December 2003, I think probably on the basis that it was obviously wrong but at least on the assumption that it was open to serious doubt.

7. It is that appeal and the oral hearing of the application for permission to appeal against the July award which are before me. I suggested, however, that the arbitrator's reasons were not determinative of the outcome. If he reached the right conclusion as to the validity of the agreement I would not interfere with his award even if his reasons were erroneous, and if he reached a wrong conclusion I would not refrain from interfering because by amendment of his award he had purported to do so for correctly stated reasons. The validity of the CFA is a pure matter of law to be determined having regard to the terms of the CFA and the relevant statutory provisions and the common law. The propriety of the purported amendment of the award and the appeal in respect of it could, I suggested, be relevant only as to costs as to which my conclusions as to the validity of the CFA would be, at the least, material.
8. The parties, as it seems to me very sensibly, have agreed that

I should determine the issue of the validity of the CFA and that the cost of both appeals should follow the event of that determination. The appropriate form of orders can be agreed after that issue has been determined.

9. Counsel are agreed:

(i) that an agreement that costs are to be payable only in the event of success, a "no win, no fee" agreement is unenforceable, unless it satisfies the conditions made applicable by s.58 of the Courts and Legal Services Act 1990 as amended by the Access to Justice Act, 1999. This applies to the present CFA which defines win as recovery of more than disbursements, and provides only for no fee, other than disbursements, if no win; and

(ii) that the CFA agreement entered into by DMD does satisfy all such conditions in the Statute and the regulations made under it.

10. Mr. Farber's contention for Benaim is that s.58(1) merely provides that:

"A conditional fee agreement which satisfies all the conditions applicable to it by virtue of [that] section shall not be unenforceable by reason only of its being a conditional fee agreement."

Thus, it may still be unenforceable, because contrary to public policy, if, as he puts it, it did not comply with "the spirit" of the Act. The distinction which Mr. Farber sought to make is between what he called lawful and unlawful champerty. Compliance with the requirements of s.58 he says is not enough. An agreement that so complies will nevertheless be unenforceable if it contains an unlawful champertous element. The Arbitrator accepted this submission, but held that however the CFA did not contain an unlawful champertous element.

11. I think the contention for which Mr. Farber contends is best understood if one starts with a categorisation of CFAs made by Schiemann L.J. in Awwad v Geraghty [2000] 1AE 609, where, at page 670 he said:

"There are three categories of reward for success. (1)where the lawyer will recover the sum of the client's winnings; (2) where the lawyer will recover his normal fees plus a success uplift.(3) where the lawyer will only recover his normal fees. They used all to be described as contingent fees but, in what Judge Cook in his book on Costs (3rd edn 1998) refers to as a triumph of semantics, situations (2) and (3) have in recent years been given the name of conditional fees where situation (1) is still described as a contingent fee.

I shall keep that nomenclature for situation (1).

"The present case is concerned with situation (3), which I shall call a conditional normal fee case, to distinguish it from situation (2), which I shall call the conditional uplift case."

I find that classification useful but it is not, I think, exhaustive, at least if one is willing to build on the "semantic triumph" to which Schiemann LJ had referred.

12. The agreement in the present case is, I would call, a conditional fees agreement with contingent uplift, in that the amount of the uplift is determined in part by the amount of the client's winnings, and to that extent the lawyer does recover some of the client's winnings.
13. Awwad v Geraghty concerned a conditional fee agreement which, because of its timing, was not within the Act. The solicitor contended, unsuccessfully, that the policy of the Act should be used to identify the limits of public policy, so that an agreement not rendered "not unenforceable" by s.58(1) of the Act, is still to be treated as not contrary to public policy if it would not have been unenforceable, if the Act had been in force and had been applied to the particular CFA. The decision is, of course, not directly applicable to the obverse position which arises in this case.
14. The history of the legislation leaves no room for doubt that its purpose was to validate conditional fee agreements, as defined by Schiemann LJ, subject to restrictions to be determined in regulations to be made by the Lord Chancellor, but not to permit contingent fees.
15. Mr. Marrin referred me to a useful account of the Green and White Papers which preceded the Act, which can be found in the judgment of Steyn LJ in Giles v Thompson [1993] 3AER 321 at page 329. The proposals in the Green Paper with which the Government decided to proceed were said to be:

"(a) the introduction in England and Wales of speculative actions on the Scottish model, that is on a "no win, no fee" basis; (b) the validation of agreements for an uplift in percentage terms in the costs, payable to encourage lawyers to undertake speculative actions, such uplift being unrelated to the amount of damages or property recovered."

16. The CFA in the present case includes such an uplift which is, however, related in part to the amount of damages not recovered. It is, I think, convenient at once to identify how it none the less complies with the requirements of s.58 of the Act. S.58, as amended, defines a conditional fee agreement for the purposes of the Section, in subsection 2(a) as follows:

"A conditional fee agreement is an agreement with the person providing advocacy or litigation services which provides for his fees and expenses, or any part of them to be payable only in specified circumstances."

That definition includes any form of "No win, no fee" agreement, in respect of the whole or any part of the solicitor's fees and expenses.

17. Subsection 3 imposes conditions, which have to be satisfied if such an agreement is to have the benefit of subsection 1, which I have already read and to which I will return, as follows:

"The following conditions are applicable to every conditional fee agreement:

"(a) it must be in writing.

"(b) it must not relate to proceedings which cannot be the subject of an enforceable conditional fee agreement; and

"(c) it must comply with such requirements, if any, as may be prescribed by the Lord Chancellor.

The Conditional Fee Agreement Regulations 2000 were in force when the present agreement was made, and contain a number of requirements, to some of which I will return.

18. Subsection (2)(b) defined the category of CFA which Schiemann LJ called "the conditional uplift case" as follows:

    "The Conditional Fee Agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances."

19. To such an agreement additional requirements are applied by subsection (4) as follows:

"The following further conditions are applicable to the Conditional Fee Agreement which provides for a success fee:

"(a) it must relate to proceedings of a description specified by order made by the Lord Chancellor.

"(b) it must state the percentage by which the amount of the fees which would be payable if it were not a conditional fee agreement is to be increased; and

"(c) that percentage must not exceed the percentage specified in relation to the description of proceedings to which the agreement relates by order made by the Lord Chancellor."

The amount of percentage not to be exceeded was fixed at 100 per cent.

20. The regulations add additional requirements in respect of such agreements including Regulation 3(2)(b):

"If the agreement relates to court proceedings it must provide where the percentage increase becomes payable as a result of those proceedings...

"(b) If (i) any such fees are assessed; and (ii) any amount in respect of the percentage increase is disallowed on the assessment on the ground that the level at which the increase was set was unreasonable in view of the facts which were or should have been known to the legal representative at the time it was set that amount ceases to be payable under the agreement unless the court is satisfied that it should continue to be payable".

21. The CFA in the present case sets out a success fee calculated as a percentage of basic costs calculated by reference to hourly rates set out in clause 6.1 of the Agreement. The definition of success fee varies the percentage uplift by stages from 40 per cent., if the recovery is up to £200,000 to 100 per cent. if more than £1 million is recovered. It is however subject to the success fee so calculated not exceeding 25 per cent. of the amount recovered. Such "capping" provision is expressly contemplated by Regulation 2(1)(d), which provides that a conditional fee agreement must specify:

"(d) the amounts which are payable in all the circumstances and cases specified or the method to be used to calculate them and, in particular, whether the amounts are limited by reference to the damages which may be recovered on behalf of the client."

It is therefore a matter of drafting whether the agreement provided for the percentage of uplift to be increased from 40 per cent. in step with the amount of recovery or to be subject to reduction from 100 per cent. by reference to the amount recovered.

22. The amount then claimed in accordance with the agreement is subject to review on assessment, presumably in the light amongst other things of reasons given for fixing the percentage in condition 4 of the Agreement, which reasons have to be given in order to satisfy Regulation 3(1). There is no requirement in the Section itself or in the Regulations that prohibits the determination of the amount of uplift subject to its maximum of 100 per cent. by reference to the amount recovered.
23. Equally, there is no express exclusion from the scope of s.58 of a contingent fee agreement whereby the lawyer will recover some part of his client's winnings. Mr. Farber contends that if what I have called the "conditional fee agreement with contingent uplift" is enforceable, so must a contingency agreement as defined by Schiemann LJ be enforceable.
24. I accept Mr. Marrin's submission that an agreement, which merely provides for fees to be calculated as a fixed percentage of the amount recovered does not fall within the definition of a conditional fee agreement in s.58(2)(a) because if merely so expressed it does not provide for the fee "to be payable only in specified circumstances". It is the amount of fee which is determined by the circumstances of the amount of recovery. It would not, however, be difficult to draft an agreement which was within s.2(a), for example, that only disbursements should be payable unless more than the amount of disbursement was recovered. The agreement could then provide for a fee calculated as a percentage of the recovery, which fee would be payable in that event. Such a CFA, however, would fall within subsection 2(b) as being one which

    "provides for the amount of fees to which it applies to be increased [in the specified circumstances of more than the amount of disbursements being recovered] above the amount which would be payable if it were not only payable in the specified circumstances."

25. Thus a contingency fee agreement, even if drafted so as to be within subsection 2(a) must, to have effect, be caught by subsection 2(b). Thus, any attempt to make the agreement apply only to that part of the fees to be calculated by reference to the amount of recovery takes it out of the definition of CFAs to which s.58 applies; any attempt to use it as a means of increasing some fee which would otherwise be payable fails either or both because of the difficulty of identifying such sum, or because of the cap on percentage increase which arises under subsection 4(b).
26. It is, in my judgment, in this way that the Act avoids validating contingency fee agreements without referring to them specifically. Neither such difficulty prevents the validation of a conditional fee agreement with contingent uplift subject to a cap of 100 per cent. uplift on the basic fee.
27. Once that is understood, one can turn back to subsection (1) of s.58. Its convoluted language leaves room for Mr. Farber's argument that it does not exclude an agreement which satisfied all of the conditions applicable by virtue of s.58, none the less being unenforceable by reason of public policy. It provides only that "it shall not be unenforceable by reason of its being a conditional fee agreement."
28. Mr. Marrin suggests that this allows for its being unenforceable, for example, for misrepresentation, fraud or mistake. There is no doubt that the formulation has plenty of scope for meaning without accepting Mr. Farber's submission that one ground of unenforceability should be public policy.
29. But the purpose of the Act is clearly to make agreements which would otherwise be unenforceable for reasons of public policy, enforceable if they satisfy the relevant conditions. The relief from unenforceability however is that the CFA "Shall not be unenforceable by reason only of its being a conditional fee agreement."
30. Halsbury's Laws (4th Edition Re-issue) volume 9(1) at para. 850, distinguishes champerty from maintenance as follows:

    "Maintenance may be defined as the giving of assistance or encouragement to one of the parties to litigation by a person who has neither an interest in the litigation or any other motive recognised by the law as justified his interference. Champerty is a particular kind of maintenance, namely maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds or subject matter of the action."

31. That formulation would seem to suggest that to enter into a conditional normal fee agreement or, probably, a conditional uplift agreement involved maintenance whilst only a contingent fee agreement involved champerty. I suggested in the course of argument that, if that were the case, s.58(1) might be construed as not excluding unenforceability by reason of champerty although it did exclude non-enforceability by reason of maintenance falling short of champerty. Such construction would identify what it was about the agreement's being a conditional fee agreement which rendered it unenforceable. It would be the fact that fees were not payable in certain events. To that extent the agreement involved "the giving of assistance or encouragement to a party to litigation by the lawyer without any proper interest in the litigation".
32. I am satisfied, however, that the 1990 Act was not based on any such distinction. Mr. Marrin, in extremely helpful supplementary submissions, in which he responded to the suggestion which I made, has drawn my attention to the judgment Lord Denning, Master of the Rolls, in Trendtex Trading v Crédit Suisse [1980] QB 629 at page 654, where he said, under the head "Champerty today as affecting lawyers":

    "So far as champerty is concerned there is need for some updating. Champerty is a species of maintenance, but it is 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. Modern public policy condemns champerty and the lawyer wherever he seeks to recover not only his proper costs but also a portion of the damages for himself: or, where he conducts a case on the basis that he is to be paid if he wins but not if he loses."

    I give emphasis to that additional provision.

    "As I said, in Re Trepca Mines Ltd (No.2) [1963] CH 199 at pages 219 to 220:

    "The reason why the Common Law condemns champerty is because of the abuses to which it may give rise. The Common Law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame damages, to suppress evidence, or even to suborn witnesses."

    This reason is still valid after the Act of 1967."

    which made champerty and maintenance no longer a Tort or a criminal offence.

    "In Wallersteiner v Moir (No.2) [1975] QB 373 at 394

    I said:

    "It was suggested to us that the only reason why 'contingency fees' were not allowed in England is because they offended against the criminal law as to champerty; and that, now the criminal liability is abolished, the courts were free to h old that contingency fees were lawful. I cannot accept this contention. The reason why contingency fees are in general unlawful is that they are contrary to public policy as we understand it in England.

    They are contrary to modern public policy."

    Not only does Lord Denning in this passage refer to champerty as not only seeking to recover a portion of the damages, but also conducting a case on the basis that he is paid if he wins, but not if he loses, but further, reference to the Wallersteiner v Moir decision shows that he used "contingency fee" in the passage which he cited to include both what Schiemann LJ called "contingency fees", and what he called "conditional fees" and indeed, that was the nature of the semantic distinction to which Schiemann LJ made reference.

33. The passage from Lord Denning's judgment in Moir v Wallersteiner is found at page 859. He said:

"English law has never sanctioned an agreement by which a lawyer is remunerated on the basis of a 'continency fee', that is, that he gets paid the fee if he wins, but not if he loses. Such an agreement was illegal on the ground that it was the offence of champerty. In its origin, champerty was a division of the proceeds campi partitio. An agreement by which a lawyer, if he won, was to receive a share of the proceeds was pure champerty. Even if he was not to receive an actual share, but payment of a commission on a sum proportionate to the amount recovered - only if he won - it was also regarded as champerty. . . Even if the sum was not a proportion of the amount recovered, but a specific sum or advantage which was to be received if he won but not if he lost, that, too was unlawful. It mattered not whether the sum to be received was to be his sole remuneration or to be an added remuneration (above his normal fee) in any case it was unlawful if it was to be paid only if he won and not if he lost."

34. Buckley LJ likewise described a contingency fee as an arrangement under which the legal adviser and the litigant should be remunerated only in event of the litigant succeeding in recovering money or other property in the action, even although Buckley LJ used the expression "champerty" more restrictively.
35. I therefore conclude that the mere fact that an arrangement was a conditional fee agreement, as defined in the Act, was accepted by Parliament when the 1990 Act was passed, as enough to make it unenforceable for champerty, whatever the basis of remuneration for which it provided. S.58(1) relieves the party from such unenforceability in respect of such an agreement, which satisfies all the relevant conditions. This agreement is agreed to do so. There is, in my judgment, no room for treating it, nonetheless, as unenforceable for champerty. The requisite conditions remain satisfied, even if the percentage uplift is calculated by reference to the amount recovered, provided only that it does not exceed 100 per cent.
36. I therefore think that the arbitrator was wrong to consider that the CFA could have been rendered unenforceable by reason of some champertous element which was, none the less, compliant with the requirements of the Act. Never the less, I conclude that the Arbitrator reached the right conclusion and, at least subject to argument as to the form of the appropriate order,

I conclude that the appeal should be dismissed.