Stevensdrake Ltd (t/a Stevensdrake Solicitors) v Hunt

The Court of Appeal considered whether a conditional fee agreement (CFA) signed by the liquidator created a contractual obligation on the liquidator to pay the solicitor's basic charges and success fee irrespective of whether realisations were obtained in the liquidation, and whether an alternative estoppel by convention prevented the solicitor from enforcing such obligations. The court held that the judge below was wrong to imply into the CFA a term making payment contingent on recoveries because that contradicted the express terms of the CFA and the established tests for implying terms (relying on Marks and Spencer v BNP Paribas and BP Refinery principles). However, the court upheld the judge's finding of an estoppel by convention: on the facts there was a shared common understanding, communicated and acted upon, that the solicitors' fees would be recovered only from realisations and that the liquidator would not accept personal liability for any shortfall. As a consequence the solicitor was prevented from enforcing payment in advance of recoveries, although the liquidator remained liable for disbursements and counsel's fees.

This is an appeal by Stevensdrake Limited (SL), a firm of solicitors, against the dismissal of its claim to recover its own basic charges and success fee under a conditional fee agreement executed on 10 April 2008 with Stephen Hunt (SH), the liquidator of Sunbow Limited. SL had acted for SH in pursuing misfeasance and related claims (including under ss 212 and 236 of the Insolvency Act 1986) and sought to recover its fees from SH under the CFA after settlements and recoveries were achieved. HHJ Barker QC at first instance dismissed SL's claim, holding (inter alia) that the CFA was subject to an implied term or, alternatively, to estoppel by convention such that SL's entitlement to fees was conditional on recoveries; he also found undue influence, negligence and breach of fiduciary duty if SH were otherwise personally liable, and rejected contributory negligence by SH.

The Court of Appeal (Briggs LJ and Hamblen LJ) heard SL's grounds of appeal addressing (i) an implied term making payment contingent on recoveries, (ii) estoppel by convention, (iii) undue influence, (iv) negligence and breach of fiduciary duty, and (v) contributory negligence. On the implied-term point the court allowed the appeal: the CFA was a clear, self-contained contract which expressly made the client personally responsible for payment on success and the judge was not entitled to imply a contrary term that directly contradicted the CFA. On estoppel by convention the court rejected SL's challenge and dismissed the appeal on that ground: the trial judge's factual findings that there was a shared, acted-on understanding that fees would be paid only from realisations were well-founded and it would be unconscionable to allow SL to resile from that convention. Because the estoppel remained, the court did not need to determine the remaining grounds, which it left as issues resting on counterfactual factual findings. The practical result was that SL could not recover its own basic costs and uplift from SH in advance of recoveries, but counsel's fees and disbursements were recoverable.

Appeal allowed in part: the Court of Appeal held that the judge erred in implying a term into the CFA that SL's entitlement to fees was conditional on realisations because such a term would contradict the CFA's express provisions and fail the established tests for implication. However, the court upheld the judge's alternative finding of an estoppel by convention: on the facts there was a shared common understanding, acted on by both parties, that SL's fees would be paid only from recoveries and that SH would not accept personal liability for any shortfall, and it would be unconscionable to allow SL to resile from that convention. For that reason SL remained unable to recover its own basic charges and success fee from SH in advance of recoveries, although SH remained liable for disbursements and counsel's fees.

Appeal from the High Court of Justice, Chancery Division (His Honour Judge Barker QC) (Case No HC-2014-002213). Earlier interlocutory/related steps included summary judgment for counsel's fees given by Chief Master Marsh (15 April 2014) and an earlier appeal in relation to counsel's fees dismissed by HHJ Purle QC (20 May 2015). Judgment under appeal dated 26 February 2016.