FPH Law (a firm) v Brown (t/a Integrum Law)

A claim for damages for loss of a chance to compromise a costs claim is assessed by reference to the position when the contractual breach occurred and when the hypothetical compromise would have been made. A later judgment declaring a conditional fee agreement unenforceable does not retrospectively prevent a bona fide compromise made while enforceability remained genuinely disputed. Such a compromise is supported by consideration where the parties compromise an arguable claim. The later finding may affect the value of the lost chance and the assessment of damages, but does not defeat the cause of action. The claimant was therefore entitled to pursue the damages claim, with success left for trial.

A firm of solicitors claimed damages from a former partner for breach of an undertaking given when client files were transferred to him. The alleged breach concerned failure to notify the firm that the paying party was challenging the validity of a conditional fee agreement and its recoverability on detailed assessment.

A District Judge later held that the agreement was unenforceable for non-compliance with regulation 4 of the Conditional Fee Agreements Regulations 2000, and disallowed the claimant’s profit costs. The preliminary issue was whether the claimant could recover damages for loss of a chance to obtain a settlement of the costs claim despite that later decision and the possible illegality of the agreement.

1. The preliminary issue was answered in the claimant’s favour. The claimant could pursue damages for loss of a chance to receive payment from the paying party in respect of costs under the conditional fee agreement. Whether the claim succeeded remained a matter for trial.
2. In a contractual claim, damages aim to put the claimant in the position it would have occupied had the contract been performed. The enforceability of the hypothetical compromise had to be assessed at the date when it would have been entered into if the undertaking had been performed, rather than retrospectively by reference only to the later detailed-assessment judgment.
3. At that date there was a genuine dispute about compliance with regulation 4 of the Conditional Fee Agreements Regulations 2000. Assuming good-faith negotiations and a reasonably arguable claim, a compromise of the costs claim would have been enforceable. The court applied the reasoning in Binder v Alachouzos [1972] 2 QB 151: a bona fide compromise of a disputed claim is binding, subject to ordinary grounds for setting it aside.
4. The indemnity principle remained relevant. There could be no bona fide claim for costs unless the client was obliged to pay the solicitor. Questions concerning disclosure of the agreement, the solicitor’s belief in its enforceability, good faith, and any professional obligation to warn the client could affect the value of the lost chance and quantum.
5. The court declined to decide generally whether non-compliance with the regulations made the agreement illegal as well as unenforceable. The issue was immaterial to the preliminary question. The later decision on enforceability could affect damages, but it did not retrospectively defeat the contractual cause of action, which accrued before that decision.

This was a first-instance determination of a preliminary issue in proceedings brought by the claimant against the defendant. The judgment does not state any prior appellate decision in the same litigation.