Thai Trading Co v Taylor

A solicitor may agree to waive or reduce all or part of the client’s fee if litigation is unsuccessful, provided that the solicitor seeks no more than ordinary profit costs and disbursements if the client succeeds. Such an arrangement is not contrary to public policy merely because payment depends in practice on success. The vice in champerty lies principally in a reward exceeding proper costs or in incentives capable of corrupting the administration of justice. A professional rule prohibiting contingency fees does not, without more, make the arrangement unlawful. The Court of Appeal therefore rejected the broader approach that treated any success-dependent fee arrangement as champertous and allowed the appeal.

Mrs Taylor rejected a four-poster bed supplied by Thai Trading and succeeded in the county court on the supplier’s claim for the unpaid balance and on her counterclaim. She was awarded costs for specified periods. Her husband’s firm acted for her. The county court inferred that she would pay the firm’s normal profit costs only if she succeeded and recovered costs from the supplier, and held that the arrangement was void as contrary to public policy, following British Waterways Board v Norman and Aratra Potato Co Ltd v Taylor Johnson Garrett. The issue on appeal was whether the arrangement removed her legal liability for costs and thereby limited the supplier’s liability under the indemnity principle.

Appeal allowed. Lord Justice Millett delivered the judgment with which Lord Justices Hutchison and Kennedy agreed.

1. The Solicitors Act 1974 did not itself prohibit contingent fees. Section 59(2) merely withheld validity from specified arrangements; it neither legitimised otherwise unlawful arrangements nor made otherwise lawful arrangements unlawful. The Solicitors Practice Rules 1987 made a contingency fee an instance of unprofessional conduct, subject to the statutory exception for qualifying conditional fee agreements under the Courts and Legal Services Act 1990. A professional rule did not, without more, determine legality.
2. The law of maintenance and champerty had narrowed in the light of modern public policy. Maintenance addressed unjustified interference in another’s litigation. Champerty added a division of the spoils. The concern was the temptation to inflate damages, suppress evidence or suborn witnesses. A solicitor who charged only ordinary profit costs if successful, while agreeing to waive or reduce them if unsuccessful, did not obtain a share of the spoils or an excessive reward.
3. The court rejected the reasoning in British Waterways Board v Norman that legal liability could be inferred merely from the practical expectation that an impecunious client would pay nothing if unsuccessful. A solicitor could retain the legal right to fees while knowing that recovery in practice might be unlikely.
4. Aratra Potato Co Ltd v Taylor Johnson Garrett was wrongly decided. If any illegality lay in waiving or reducing fees on defeat, the client remained liable for proper costs in that event; the retainer and the obligation to pay proper costs on success were not thereby invalidated.
5. On the facts, Mrs Taylor’s legal liability was unaffected. The only legitimate inference was that, save in unforeseen circumstances, the firm would not demand payment or enforce that liability unless she won and recovered costs. It was lawful for a solicitor to act on that basis, provided the successful fee did not exceed ordinary profit costs and disbursements. Appeal allowed with costs.

• Court of Appeal: allowed Mrs Taylor’s appeal from the Reading County Court, with costs.
• Reading County Court: dismissed Thai Trading’s claim, gave judgment for Mrs Taylor on her counterclaim, and made a costs order for specified periods. It held that the fee arrangement was void as contrary to public policy and that the supplier was not liable for the solicitor’s profit costs under the indemnity principle.