Court of Appeal decision on CFA success fees

May 13, 2011

Sousa v London Borough of Waltham Forest [2010] EWCA Civ 194

The Claimant suffered subsidence damage to his property caused by the roots of a tree which was owned by the Defendant. The Claimant claimed on his house insurance policy for the damage, and his insurer provided him with a full indemnity. The insurer then proceeded to exercise its right of subrogation and instructed a firm of solicitors who were to work under a collective conditional fee agreement.

The claim succeeded but the Defendant objected to the payment of the success fee on the basis that the Claimant was never at any risk of having to pay costs as he had the benefit of an insurance policy. At first instance this argument was upheld. The Claimant appealed the decision and the Court of Appeal has now reinstated the success fee.

In reaching its decision the Court followed the decision of the House of Lords in Campbell v MGN (No.2) [2005] UKHL 61 and allowed recovery of the success fee, holding that “the mere fact that a person is able to fund litigation without resorting to a conditional fee agreement does not make it unreasonable for him to do so”.

The Court also dismissed as without merit any argument that the case was comparable to the ECHR decision in MGN v UK (Application No. 39401/04) on the grounds that (i) the question of whether the success fee interfered with freedom of speech was not applicable; and (ii) as the liability to pay a success fee did not interfere with the Defendant’s rights under the European Convention for Human Rights in this case, questions of proportionality and reasonableness did not arise.

High Court decision on solicitors’ undertakings

Halliwells LLP v NES Solicitors and Quinn Insurance [2011] EWHC 947

NES was approached by a new, apparently wealthy, client and asked to provide an undertaking to pay Halliwells £1.5 million as part of a share purchase agreement. The client provided a “gold delivery certificate” purported to be worth £10 million. The partners of NES, in reliance on the certificate, but knowing the funds had not cleared, provided the undertaking. The certificate was later found to be worthless.

NES failed to honour the undertaking and was sued by Halliwells. Halliwells obtained summary judgment. The professional negligence insurers of NES, Quinn, refused to pay the claim made by NES on the basis that:

i) the partners of NES were dishonest or condoned dishonesty;
ii) that the undertaking was not given in a solicitorial capacity; and
iii) that the undertaking was given for the benefit of NES (ie a £15,000 fee)

It was held that NES had acted dishonestly and as such Quinn was not required to provide an indemnity.

Solicitors should always carry out the requisite money laundering checks and consistently be on the look out for unusual transactions. With regard to undertakings the giving of an undertaking in a ‘solicitorial’ capacity requires substantive legal advice to have been given or a legal service provided. Undertakings have to be given in connection with legitimate legal work and not merely in order to receive remuneration.