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The Weekly Roundup: The Costly Edition

Articles | Mon 8th Aug, 2022

This week’s edition features two recent cases on recoverability of costs, each confirming that equity has no place in the consideration of costs recovery, something litigators may feel they already knew or could have intuited. It’s also been a costly (but worth it) week for travel practitioners, with the new edition of Saggerson on Travel Law hitting the bookshelves and desks of the nation’s solicitors, barristers and judges. We always value feedback from our readers, and remain open to suggestions as to how The Book could be made even more exciting and educational, although we consider the indication made by one of our readers that he would use it as a doorstop to be Just Plain Rude, as well as being a waste of all the intellectual firepower the team can muster. To more discerning purchasers we can only say, Enjoy the fruits of our labours (best sampled with a fine vintage or giant shot of caffeine).

Yours unfaithfully: Are CFAs subject to an implied duty of good faith by the client?

On 1st August 2022 the Court of Appeal handed down judgment in Candey Limited v Bosheh & Anor [2022] EWCA Civ 1103, which involved a dispute between a firm of solicitors and their former client over the settlement of his claim. The issues raised by the appeal were identified as follows:

  1. Can a firm of solicitors bring proceedings against their former client on the basis that the client was in breach of a duty of good faith, by settling the underlying litigation on terms which meant that the solicitors had no express entitlement to their costs?
  2. To what extent, if at all, when bringing such a claim, can the solicitors rely on privileged documents?
  3. To what extent, if at all, can the solicitors rely on confidential documents, provided to them after the underlying proceedings have settled?

When granting permission to appeal, Males LJ described the appeal as raising ‘novel issues’; this was said to be ‘something of an understatement’ by Coulson LJ, delivering the lead judgment.

Background

The appellant, Candey Limited (“Candey”), a London-based law firm, had acted for the first respondent, Mr Bosheh, under a conditional fee agreement (CFA) in relation to a civil fraud claim brought in the Chancery division against him and his son by another party, Sheikh Mohamed.

The Chancery action was settled shortly before trial on a ‘drop hands’ basis, with the effect that, under the terms of the CFA, Candey were not entitled to recover any of their costs. Candey subsequently brought a claim against Mr Bosheh, alleging that they had suffered a loss of more than £3 million (reflecting the value of their work) due to him falsely representing that he would act in his own best interests only and in good faith, that the Chancery action against him would not succeed, and that certain central allegations against him in that action were unfounded. Candey brought a further claim against the second respondent, Mr Salfiti, on the basis that he had procured Mr Bosheh’s breach of the retainer and/or was liable in unlawful conspiracy.

The claims against the respondents relied heavily on both privileged and confidential material. Mr Bosheh sought relief against the Candey’s use of the same and sought summary judgment and/or strike out of the claims themselves.

The decision at first instance

It was common ground that privilege will not protect communications made in furtherance of a crime, fraud or similar conduct, the so-called “iniquity exception”. Candey argued that it could rely on the privileged material because of the iniquity exception.

Both parties relied on the decision of Popplewell J (as he then was) in JSC BTA Bank v Ablyazov [2014] EWHC 2788, the leading authority on the interplay between legal professional privilege and the ‘iniquity exception’. In that case, the Court reviewed the authorities and concluded that the iniquity exception cannot be invoked merely because a client has deceived their lawyer and thereby pursued a strategy of lies and perjury. The test is whether the disputed communications are made in the ordinary course of the solicitor’s professional engagement or whether there has been an abuse of the solicitor-client relationship such that privilege over the communications is lost.

The High Court (Clare Ambrose sitting as a deputy High Court judge) held that Candey were not entitled to rely on Mr Bosheh’s privileged material in its particulars of claim, nor in its witness statements or exhibits, and granted an order striking out such material as inadmissible. She also held that Candey were not entitled to rely on Mr Bosheh’s bank statements, but could rely on material disclosed by Mr Bosheh in the Chancery action.

The decision on appeal

In his lead judgment, with which Arnold and Phillips LJJ agreed, Coulson LJ held, in relation to the good faith issue:

‘Candey have not put forward any cogent basis for the implication of such a term. There is no authority that supports the proposition that, when retaining a solicitor to act for him or for her, the client owed that solicitor a duty of good faith. The absence of authority is perhaps unsurprising: it is a startling concept. Many would say that, if a duty of good faith was applicable at all, it would arise the other way round, and be owed by the solicitor to the client.’

He explained further:

‘The CFA was itself contrary to the implied duty. As Candey well knew, the allegations made by Sheikh Mohamed against the Boshehs involved fraud and dishonesty. The CFA assumed that it was quite possible that Sheikh Mohamed would win his claim because the CFA provided that, if that happened, Candey would recover nothing. Thus, the possible truth of the fraud allegations was inherent in the CFA itself. It would therefore be contrary to the CFA to suggest that the Boshehs somehow owed a duty of good faith to Candey.’

Addressing whether the judge was right to exclude the privileged material from consideration, Coulson LJ said:

‘The judge went carefully though the pleaded deception/misrepresentations and she concluded that they arose in the ordinary course of Candey’s professional engagement. That careful analysis shows which side of the line these alleged deceptions/misrepresentations fell. It has not been seriously challenged on this appeal. Nor in my view could it be: it is an unexceptionable analysis. It demonstrated that, even taking Candey’s case at its highest, the alleged false statements related back to the original fraud alleged by Sheikh Mohamed.’

In a concurring judgment, Arnold LJ added:

‘The fact that the information is known to the solicitor does not mean that it does not have the necessary quality of confidence if it is not in the public domain. If the information is not in the public domain, then the solicitor owes the client a duty to keep the information confidential. Secondly, the fact that the solicitor does not need to obtain disclosure of the documents does not mean that privilege has no role to play. On the contrary, the client can rely upon privilege to prevent the solicitor using the information in the documents without the client’s consent.’

The appeal was therefore dismissed.

Comment

The decision is clear that:

  1. A client owes no implied duty of good faith to his/her solicitor by dint of entering into a CFA with them.
  2. A party who has received another party’s confidential material in circumstances where it had no right to do so may be denied permission to retain and rely on it, even if the material would be disclosable in those proceedings.

It is an important reminder to firms who undertake a significant volume of work on a CFA-basis of the risks of clients agreeing a settlement that deprives them of their entitlement to costs. The terms of the retainer are crucial and should set out what the client’s liability for costs is in the event they agree a settlement contrary to advice and/or without the solicitors’ knowledge.

What is less clear however is when (and in what circumstances) a firm may be entitled to rely on privileged material in a claim against their former client. This decision confirms that a client does not necessarily, by making false statements to his/her solicitors or the court, lose the protection of legal advice privilege. In order engage the ‘iniquity exception’, there must be an abuse of the solicitor/client relationship of such magnitude as to put the conduct outside the scope of the professional engagement. Definitive guidance as to what will or will not constitute such an abuse is not possible but this case illustrates that difficulties will inevitably arise when solicitors are aware from the outset that the client’s honesty and integrity is at issue.

About the Author

Called in 2010, Tom Collins is ranked in the Legal 500 as a specialist in Travel Law. He has considerable experience across a wide range of travel and private international law disputes and has advised claimants and defendants in multi-party actions.

 

Costs and Economic Duress: Jones v Richard Slade & Co Limited [2022] 7 WLUK 360

In a recent decision Johnson J has clarified that the Senior Courts Costs Office does not have jurisdiction when assessing costs under s.70 of the Solicitors Act 1974 to set aside an agreement on the grounds of illegitimate pressure or economic duress; that would involve the exercise of a distinct equitable jurisdiction which forms no part of the assessment of costs.

Ms Jones had instructed the Appellant solicitors in respect of a dispute with the executors of her late father’s will. The claim was successfully mediated, but the solicitors’ fees exceeded the amount the executors had agreed to pay in respect of her costs. She accepted the solicitors’ offer of a reduction in fees, but subsequently notified them that she would seek an assessment of their fees. The solicitors agreed to an assessment, but only on the basis that the earlier agreement regarding a reduction in fees was set aside.

Ms Jones issued a Part 8 claim seeking an order for assessment pursuant to s.70 of the Solicitors Act 1974. The solicitors applied to strike out the application on the grounds that it fell outside the s.70 jurisdiction and that a claim for rescission would have to be made in separate proceedings.

The parties agreed that the question of jurisdiction should be determined as a preliminary issue and the case was transferred to the Senior Courts Costs Office for a trial of preliminary issues. The respondent claimed that the agreement on reduction of fees had been reached following illegitimate pressure, or undue influence, and economic duress. The costs judge noted that the parties had agreed to the case being transferred to the SCCO and concluded that the nature of the respondent’s claim, and the remedies sought, fell within the court’s jurisdiction.

The solicitors contended that s.70 provided a unique jurisdiction and that the respondent’s arguments in respect of the agreement raised issues which were outside the scope of s.70 proceedings; they appealed the costs judge’s ruling.

The appeal was allowed. The Judge found that there was nothing within s.70 that permitted the court to embark on what was in effect a freestanding enquiry into whether the agreement should be set aside on grounds of undue influence. That involved the exercise of a distinct equitable jurisdiction which formed no part of an assessment of costs. Section 70 did not explicitly say that a court assessing costs could not set aside a prior agreement between solicitor and client, but that was not particularly informative. Where, as in this case, a judge was exercising a wholly statutory jurisdiction, it was necessary to show what the statute positively permitted. The fact that something was not positively excluded did not mean that it was, by omission, permitted. Further, the fact that Parliament had included a power to set aside non-contentious business agreements under s.57(2) of the Act, and a power to do the same in respect of contentious business agreements under s.61(2)(b), but had not included a more general power to set aside agreements under s.70, was a strong indicator that s.70 was not intended to permit that type of exercise.

Further, the costs judge rightly indicated that the solicitors would have a strong case if the respondent was asking the court to grant an equitable remedy. That was exactly what the respondent was asking the court to do; she had explicitly asked that the agreement be set aside. That did not, however, avoid the fact that the respondent was asking the court to exercise a jurisdiction that it did not have. The SCCO did not therefore have the power to set aside the agreement when assessing costs under s.70.

About the Author

Called to the Bar in 1997, Sarah Prager has been listed in the legal directories as a Band 1 practitioner in travel law for many years. Together with her colleagues at 1 Chancery Lane, Matthew Chapman QC and Jack Harding, she co-writes the leading legal textbook in the area, and has been involved in most of the leading cases in the field in the last decade. Last year she was named Best Lawyers’ Travel Lawyer of the Year 2020/2021 and the Lawyer Monthly Women in Law Awards 2020: Personal Injury, and she was a member of the Consultative Group of Experts to the UNWTO Committee for the Development of an International Code for the Protection of Tourists, and is a member of the Admiralty Court Users’ Committee. She undertakes purely domestic high value personal injury work as well as cross border work and has a wealth of experience of difficult and sensitive cases.

 

…And Finally…

We were interested to read of the tourist who, on 28th July, became the first person to be bitten by a shark off the coast of Cornwall for 175 years. She had been snorkelling with an excursion provider by the name of Blue Shark Snorkel, whose raison d’etre it is to facilitate holidaymakers snorkelling with blue sharks, which hardly ever attack human beings. Needless to say, we were all set to rush down to Cornwall spraying business cards like confetti, when we read the doughty lady’s response to being unexpectedly bitten on the leg:

“I just wanted to say that despite how the trip ended, it was amazing to see such majestic creatures in the wild and I don’t for a second want this freak event to tarnish the reputation of an already persecuted species…Wanted to thank everyone for their amazing actions. What was a very scary incident was made so much easier by the kindness and calmness of the people around me. Thank you to the trip team for getting me back to shore quickly and carefully and making me feel as safe as I possibly could. We all take these risks when we enter the habitat of a predator and we can never completely predict the reactions of a wild animal.”

We’re torn between admiration for her stoic stance, and despair at the complete lack of Compensation Culture on display. Perhaps people who choose to go snorkelling with sharks are intrinsically less likely than your average holidaymaker to reach for lawyers when things go wrong?

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