Holmes v Alfred McAlpine Homes (Yorkshire) Ltd

A conditional fee agreement is unenforceable only where a breach of the governing regulations has had a material adverse effect on the protection afforded to the client or on the proper administration of justice. Backdating an agreement is improper and may mislead, but it is not necessarily material where the agreement does not in fact operate retrospectively and no impropriety is established. A success fee may be enforceable where the contemporaneous evidence shows that it was discussed with the client, despite inadequate file documentation.

The claimant appealed against the Costs Judge’s decision that a conditional fee agreement was unenforceable. The agreement had been signed on 25 August 2000 but dated 15 July 2000. Earlier correspondence referred to a nil success fee, whereas the signed agreement contained a 25 per cent success fee. The Costs Judge found breaches of regulations 4(2)(a) and 4(3) concerning explanation of the agreement’s backdating and the success fee, and held them materially adverse to the claimant’s protection. The central issues were whether the agreement’s terms had been adequately explained and whether any breach was material.

1. The appeal was allowed. The conditional fee agreement was enforceable.
2. The court applied the materiality approach stated in Hollins v Russell: the relevant question was whether the breach had a material adverse effect on the client’s protection or on the proper administration of justice.
3. The agreement was backdated, rather than properly expressed to operate retrospectively. Backdating was generally wrong because it could mislead third parties and create suspicion of impropriety. However, the agreement’s reference to work done “from now” naturally referred to the date on which it was entered into. It therefore did not apply to work done before 25 August 2000. The failure to explain the backdating was not materially adverse to the claimant’s protection.
4. Even if the agreement had operated retrospectively, that would practically have relieved the claimant of liability for costs incurred before signature if the claim failed. The breach would still not have been material. There was also no basis for finding an adverse effect on the administration of justice, since the defendant disclaimed any allegation of impropriety and the backdating had been detected from the disclosed files.
5. The documentation concerning the 25 per cent uplift was inadequate. Nevertheless, the contemporaneous attendance note recorded a detailed discussion of the agreement, and the uplift was prominent in the signed document. In the absence of any allegation of dishonesty, the court held that the uplift must have been discussed and that no breach of regulation 4 had been established in that respect.

• High Court (Queen’s Bench Division): allowed the claimant’s appeal against the Costs Judge’s decision and held the conditional fee agreement enforceable.
• Costs Judge: held that the agreement was unenforceable because breaches of regulations 4(2)(a) and 4(3) were materially adverse to the claimant’s protection.