Bar talk

In the world of the conditional fee agreement (CFA), and in the words of Oliver Hardy (as in Laurel), “another fine mess” has occurred

A recent case funded partly under a CFA has left Allen & Overy (A&O) and its counsel somewhat out of pocket, thanks to an array of errors on the wording of the CFA as well as some unexpected disclosures. This, despite hundreds of hours of work and victory in court. In total, the lawyers’ fees amounted to £190,000; a considerable sum considering that A&O had acted pro bono until about two weeks before the start of the trial when the CFA was entered into. But it has not received a penny.
In December 1998, lead counsel Michael Tugenhat QC and junior Alexandra Marzec, both of 5 Raymond Buildings, entered into a CFA with A&O while acting on behalf of one Bonnie Woods. The client had sought to “deprogramme” some Scientologists, who in revenge made some defamatory remarks against Woods. After a heavy court battle, Sheila Chaleff and her co-respondents lost and were ordered to pay £55,000 to the claimant.
The sorting out of costs ensued. This took a radical turn when, in the words of Chaleff’s lawyers Hodkin & Co, it “smelt a rat”. A&O, which was responsible for paying its counsel’s as well as its own lawyers’ bills, passed the entire damages award of £55,000 paid to it by the respondents, to the client Woods. Normally in a CFA, the winning party will pay their lawyers from payments made by the other side. It is not clear in this instance how A&O, unavailable for comment at the time of going to press, believed its bill was going to be settled.
Furthermore, the costs judge Master Rogers said that Hodkin & Co may also have had its radar alerted by the size of A&O’s bill.
Hodkin & Co managing partner Peter Hodkin then sought the disclosure of details of A&O’s CFA (an unusual step, as it is usually presented to the judge and goes no further). The results were a bombshell for A&O’s pursuit of costs, and CFA experts who have tracked the case are astonished at the magic circle firm’s major failures to properly set up the CFA.
Consider the blunder. Any breach, however small, of the CFA Regulations 1995 will mean that “an agreement shall not be a conditional fee agreement”. However, A&O managed to breach the important regulation 3(d), which requires the CFA to state the amount payable to lawyers and the method used to calculate this. It also managed to contravene most of Regulation 4. This requires lawyers to inform clients whether they are entitled to legal aid (bizarre, given that legal aid no longer exists in this context); to state the circumstances in which the client may be liable to pay fees, expenses and the other side’s costs; and when they may seek taxation of the lawyers’ fees and expenses. Ooops.
Blunders also proliferated in the separate CFA between A&O and counsel. It failed to state to what part of the proceedings the CFA related, when fees were due and whether any payments to lawyers were due if circumstances changed. As a result, Tugenhat was denied any of the tens of thousands of pounds of fees he had racked up.
Undeterred, A&O, having failed to recoup costs under the CFA, tried to do so under common law by resurrecting Thai Trading Co v Taylor. This states that it is not contrary to public policy to allow lawyers to get paid if they win a case, even if a CFA is not or – as in this case – is no longer applicable. However, the costs judge accepted the judgment of a different case, Awaad v Geraghty, which overruled Thai Trading.
The Government is now committed to scrapping the indemnity principle, which means that soon, firms like Hodkin & Co will be unable to seek disclosure of the other side’s CFA. In the words of CFA expert Gordon Wignall of 36 Bedford Row Chambers (who incidentally was one of the few lawyers who really understood this incredibly complex case): “Once the indemnity principle is scrapped, then lawyers and clients will be free to make the agreements they want. People could be making the most extreme agreements no one knows about.”
Oh, how true.