Costs: contentious or non-contentious business?

The Court of Appeal case Cam Legal Services Ltd v Belsner [2020] EWHC 2755 (QB) has profound ramifications for solicitors who charge fees to their clients where those fees are greater than the costs recovered between party and party. While the case arose out of a low-value personal injury claim, the issues go to the heart of nearly every retainer every solicitor and their client enters into where the solicitor seeks to charge their client for work done.

Indeed, the Court gave the Law Society permission to intervene to allow its standard Conditional Fee Agreement (CFA) to be considered as part of the broader legal analysis. The final appeal hearing commenced in February 2022 but, part-way through, the Master of the Rolls concluded the matters under review were of “very great significance… not just to this case… but to the development of the civil justice system”. As a result, the court took the unusual step of adjourning the part-heard appeal, gave further directions and relisted it to be heard from scratch over three days in October 2022.

The issues at the heart of the appeal concern the interplay between s74(3) of the Solicitors Act 1974 and CPR.r.46.9(2), which respectively address whether, and to what extent, a solicitor can charge its client costs greater than those that may be recovered between party and party. Section 74(3) limits costs in cases concerning contentious business done in county courts to sums recovered between-the-parties – and CPR.r.46.9(2) releases a solicitor from that limitation where there is an agreement that expressly permits the solicitor to charge sums greater than the amounts that could be recovered between-the-parties. However, the judgment of Lavender J found interplay is nowhere near as simple as it seems. Accordingly, the Court considered whether:

• Section 74(3) (understood to only apply to contentious business in the County Court) applies to claims which use a pre-action protocol where no County Court proceedings are issued;
• A solicitor owes its client a fiduciary duty before the retainer is agreed;
• Those fiduciary duties (if applicable) mean the exemption from s74(3) in CPR.r.46.9(2) only applies if the client gave fully informed consent to paying more costs between solicitor and client than are recovered between party and party;
• If no fiduciary duties were owed and s74(3) was disapplied, the term in the solicitor’s retainer which required the client to pay more costs between solicitor and client than recovered between party and party was unfair (with reference to the Consumer Rights Act 2015);
• The client gave her fully informed consent (if required at all) to the term requiring her to pay more costs to her solicitor than recovered between party and party.

In most situations where a solicitor charges its client costs, and costs are recovered between party and party, the solicitor/client costs are greater than those between-the-parties costs. This is largely a function of the fact that solicitor/client costs are a liability on the indemnity basis (where proportionality does not operate and the benefit of any doubt as to the reasonableness of those costs falls in the solicitor’s favour) whereas between-the-parties costs are on the standard basis (where proportionality does operate and the benefit of any doubt as to reasonableness falls in favour of the client). It was thought the understanding of where the division lies between contentious business and non-contentious business was settled: “All business is now to be regarded as contentious which is done before proceedings are begun provided that the business is done with a view to the proceedings being begun, and they are in fact begun, and also all business done in the course of the proceedings. All other business is non-contentious.” (Re Simpkin Marshall Ltd [1959] Ch 229).

However, the court heard submissions from the respondent that work done under a pre-action protocol was, in fact, to be regarded as contentious business. If this is found correct, CFAs are only lawful when they relate to non-contentious business. If firms have entered into CFAs believing the business being conducted is non-contentious business, but it transpires it is contentious, those CFAs immediately become unlawful with costs being irrecoverable. Solicitors should read the judgment with a keen eye once handed down.

Nick McDonnell is a director at Kain Knight and the costs lawyer on record for the appellant in this case: kain-knight.co.uk