Fosberry v HM Revenue & Customs

A conditional fee agreement is not unenforceable merely because it departs literally from prescribed requirements. The question is whether, viewed in light of the requirements’ purposes, the departure has materially harmed client protection or the proper administration of justice. The court must assess the shortcomings globally. Requirements concerning reductions in a success fee, identification of any delay element in an uplift, and payment due on termination serve important protective purposes. Substantial non-compliance in those respects may render the agreement unenforceable, even without proof of client detriment.

The claimant appealed from Master Wright’s costs decision of 6 October 2006. The underlying proceedings concerned an appeal to the VAT Tribunal after HM Customs & Excise refused registration for VAT and later abandoned its opposition, submitting to an order for costs.

The claimant had entered into a conditional fee agreement with BJ Rice & Associates. The Master held the agreement unenforceable because it failed to comply with prescribed requirements. The appeal concerned the construction and materiality of those failures, together with further objections raised by HM Revenue & Customs.

1. Appeal dismissed. The conditional fee agreement was unenforceable because it failed substantially to comply with the Conditional Fee Agreements Regulations 2000.
2. Following Hollins v Russell [2003] 1 WLR 2487, literal non-compliance is not necessarily fatal. The court must ask whether the departure, alone or together with other departures, had a materially adverse effect on client protection or the proper administration of justice. The assessment must consider the shortcomings globally.
3. Regulation 3(2)(c) required protection for the client where the legal representative agreed with the litigation counterparty that a lower success fee or amount would be paid. The relevant counterparty was HMRC, not the client. The agreement did not prevent the reduced amount from being recovered from the client and therefore failed to comply.
4. Regulation 3(1)(b) required the agreement to identify the part of the percentage increase attributable to postponement of payment. The agreement indicated that the uplift reflected delay but did not identify the amount attributable to that element. That was a material failure.
5. Regulation 2(1)(c)(iii) required the agreement to specify payment due on termination. The agreement did not clearly state what the clients would pay if they cancelled before the Tribunal determined the appeal. A result obtainable only by construction, approaching implication, did not satisfy the requirement for specification.
6. The challenge under regulation 4(3), concerning explanation of the agreement’s effect, was rejected because it was a factual issue requiring proper evidence and a fair opportunity to respond. The Master’s separate finding concerning insurance was set aside, but it did not affect the result.
7. The combined shortcomings significantly affected consumer protection and, in relation to delay compensation, the administration of justice. They were not de minimis. The agreement was therefore unenforceable and no costs were recoverable under the indemnity principle.

High Court (Chancery Division): appeal from Master Wright’s judgment delivered on 6 October 2006. The appeal was dismissed.