The importance of a well-drafted CFA and explaining it in detail to clients

The Senior Courts Costs Office of the High Court has thrown out a conditional fee agreement (CFA) as it was unfair and unreasonable for the client. In Vilvarajah v West London Law Ltd  [2017] EWHC B23 (Costs), the Claimant’s solicitors had charged an hourly rate of £420 for all fee earners in dealing with the assessment of a previous solicitor’s costs. Master Gordon-Saker said that this hourly rate was closer to the rate that would be acceptable for a City firm dealing with high value and complex work. It was therefore unreasonable for the Defendant to charge the Claimant at this rate.

Facts

Shopkeeper, Nadarajah Vilvarajah, was defending a claim brought by his previous solicitors, Hodders Law, for costs of around £20,000. He instructed West London Law Limited (WLL) to act in defending this matter. WLL acted for Mr Vilvarajah on a CFA.
At the end of this matter, West London Law billed Mr Vilvarajah £31,945. Mr Vilvarajah asked the court to assess these costs, and challenged the fairness of the CFA.
The Court heard that the parties entered into the CFA in January 2013 after Mr Vilvarajah could no longer continue to fund the matter privately. The CFA was complex had four different possible charging rates that could apply:

  • If Mr Vilvarajah failed to achieve success (i.e. nothing was disallowed during the assessment of Hodders’ costs) then a discounted hourly rate of £150 for all fee earners would apply.
  • If Mr Vilvarajah succeeded in achieving a reduction on Hodders’ costs, then the hourly rate was £420 for all fee earners.
  • If Mr Vilvarajah succeeded in having the costs reduced and was awarded costs against Hodders, then he was liable for the hourly rate of £420 plus a success fee of 64%. This took the hourly rate to £690 for all fee earners.
  • If Mr Vilvarajah terminated the retainer for any reason he would be liable for the work done at £420.

The decision

Mr Vilvarajah, for whom English was not a first language, argued that the CFA was unfair and unreasonable. This was on the basis that it could not have been explained fully in a 30-minute meeting, and there were no attempts to explain further before or after the meeting. He said he did not understand what he was signing up to. WLL insisted that they fully explained the CFA in the 30-minute meeting.
Master Gordon-Saker found that the Mr Vilvarajah was of “average sophistication” in relation to legal matters, and did not fully understand or appreciate the agreement.
“There is no correspondence between the Defendant and the Claimant about the conditional fee agreement. I would expect to see a letter from the Defendant to the Claimant in advance of the meeting… explaining the options clearly. I would expect that letter or subsequent letters, still in advance of the meeting, to enclose a draft of the proposed conditional fee agreement and explain its terms.”
The Master further stated that he would “expect the solicitor to be able to produce an attendance note of the meeting at which the agreement was signed, recording precisely what explanation” was given to the client.
The firm was further criticised in relation to the CFA itself. The court found that the definition of ‘success’ in the CFA was so broad that Mr Vilvarajah was bound to succeed to some extent. Therefore, the fee earners’ hourly rate was highly likely to be £420, and the discounted rate would never have applied.
The court decided that the hourly rate of £420 was unreasonably high, considering the straightforward nature of the claim. The Master also took into account the lack of advice to Mr Vilvarajah.
The court ordered that the bill be reduced to £15,230 and the CFA set aside entirely. In a further blow to WLL, the Court ordered that they pay Mr Vilvarajah‘s costs of the assessment of £20,000.

Practical implications

This case reiterates to solicitors the importance of:

  • ensuring that CFAs are properly drafted;
  • carrying out risk assessments when considering the terms of the CFA and success fee;
  • explaining the terms of the CFA in detail to clients; and
  • ensuring that clients understand the implications of the agreement.

How can Levi Solicitors help you?

Our specialist legal costs department can assist people who are unhappy with their previous solicitors’ bill. We can help you challenge an unreasonable CFA, ensuring that you are not overcharged by your previous solicitors.
If you are a firm of solicitors, our costs lawyers can help draft CFAs and assist with costs assessments. Call us on 0800 988 7756 to discuss our competitive fee packages.
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