The Court issued a stern reminder for law firms that "A CFA is merely a vehicle by which a party obtains legal services for minimal initial financial outlay... it does not change the services or duties that the solicitor owes the client, or vice versa". The decision re-asserts clients' autonomy to instruct solicitors as they wish. Importantly, it also shines a light on the balancing act that must be undertaken by solicitors when accepting work from clients and considering engagement/funding terms in cases with uncertain prospects or potential proportionality issues. It is a reminder that the economic concerns of a law firm must take a back seat to the integrity of the services provided by the law firm as an advisor.
"Egg on their faces": Solicitors cause loss of chance for client
In Deborah Anne Forster v Reynolds Porter Chamberlain LLP  EWHC 1150 (Ch), Mr Justice Fancourt held that Reynolds Porter Chamberlain LLP (RPC) became "hopelessly conflicted".
Whilst pursuing recovery of a higher proportion of fees under a Conditional Fee Agreement (CFA), RPC:
i. recommended that Ms Forster enter into a loan agreement which detrimentally affected the distribution of any award/settlement achieved without advising her of such consequences; and
ii. continued to act for her whilst both holding an economic interest in the lender entity and advising the controlling individual in the lender entity.
The Court found that RPC had preferred its own interests and acted "in concert"' with the lender to delay enforcement, resulting in Ms Forster's loss of chance to recover up to £350,000 of an agreed settlement. The Court was particularly critical of the irremediable loss of trust between client and solicitor, and the significant personal distress suffered by her as a result of RPC's conduct.
Having entered into the CFA at a late stage in the proceedings, RPC advised Ms Forster to enter into a loan agreement with Giltspur Capital LLP (Giltspur) to cover disbursements (Loan Agreement). RPC regularly engaged Giltspur to fund cases where it was engaged under a CFA. RPC had an economic interest in Giltspur and, on the day that Ms Forster entered into the Loan Agreement, RPC also began to act for Mr Deacon, the individual controlling Giltspur. Neither connection was mentioned to Ms Forster.
The Loan Agreement, an insurance policy (also recommended to Ms Forster by RPC), and the CFA, had the collective effect that any money received by Ms Forster by way of judgment in or settlement of her case would be distributed in the following order:
- Giltspur's capital and interest would be paid first by RPC;
- RPC and Counsel would pay their fees (including the uplifts under their respective CFAs) out of the balance; and
- Ms Forster would only receive payment if there was anything left over, but if there was any shortfall, she would be entitled to nothing.
RPC's litigation costs (including the 100% success fee uplift) exceeded £5,000,000 meaning there would be no surplus to pay Ms Forster. The Court noted that this meant that the extent to which Ms Forster would realise any recovery from settlement would be dependent on the goodwill of RPC's CFA Committee.
The Court found that, despite Ms Forster's clear instructions to RPC to enforce the terms of an agreed settlement for £750,000 in October 2011, RPC repeatedly refused; instead, continuing to negotiate revised terms which would be more lucrative for RPC under the CFA.
The Court noted that, in opposing Ms Forster's instructions, RPC:
- took the position that enforcing immediately was likely to lead to no recovery for Ms Forster and that its suggested enforcement strategy improved her chances of recovery;
- told Ms Forster that she was entitled to disregard RPC's advice but that doing so would breach the CFA and the Loan Agreement, meaning that Mr Deacon (for Giltspur) would proceed to sign revised settlement terms on her behalf under a power of attorney included within the Loan Agreement; and
- acted with Mr Deacon to apply for an injunction to prevent Ms Forster from dis-instructing RPC.
Ms Forster alleged that RPC's failure to enforce the settlement, when instructed, caused a loss of chance for her to recover £350,000. Ms Forster believed that she would receive that sum from the overall £750,000 settlement based on her understanding of the terms of the CFA and Loan Agreement.
Ms Forster was proven correct: activity by her opponents to put assets beyond her reach, as well as market conditions affecting company shares and properties meant that the prospects of recovery deteriorated over time. Despite bankruptcy proceedings against Ms Forster's opponents, no recovery was made. Mr Justice Fancourt commented that the fact that "RPC and Counsel did indeed end up with egg on their faces, proves that lawyers do not have a monopoly on sound judgement on such matters, though they may have valuable advice to give".
RPC was found to have breached its duties in the following key respects:
- Encouraging Ms Forster to enter into the Loan Agreement without explaining its effect on her recovery or RPC's connection with the lender;
- Failing to follow Ms Forster's instructions to enforce the settlement (even though it may have been RPC's genuine belief that its enforcement strategy was wiser than Ms Forster's); and
- Acting in an "intractable conflict of interest and duty", in refusing to follow instructions, injuncting Ms Forster on behalf of Mr Deacon and indemnifying him in respect of the costs of doing so.
The Court assessed that Ms Forster would have had a 55% chance of recovering the £350,000, had steps been taken to enforce the settlement in October 2011, and ordered damages for that loss of chance in the sum of £192,500.
Addleshaw Goddard LLP specialises in advising on and conducting professional negligence claims against solicitors and other professional advisers. If you have a query that you would like to discuss, please get in touch with one of our specialists.
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