Healys LLP v Partridge & Anor

A contentious business agreement between a solicitor and client does not itself create a cause of action for recovery of fees. Under section 61 of the Solicitors Act 1974, the agreement must first be submitted to the court for determination of whether it is fair and reasonable. The claim must therefore proceed under CPR Part 8, or by application under CPR Part 23 in existing proceedings.

A conditional fee agreement providing for remuneration by reference to hourly rates may be a contentious business agreement even where payment depends on success. For a proprietary injunction, the American Cyanamid v Ethicon test applies, but proof of risk of dissipation is unnecessary.

Healys LLP acted for the defendants under a conditional fee agreement in professional negligence proceedings. Healys terminated the agreement after mediation and later sought payment of substantial fees after discovering that the defendants had settled part of their claim.

Healys obtained a without-notice freezing injunction. On the return date, the defendants argued that the conditional fee agreement was a contentious business agreement under section 59 of the Solicitors Act 1974, so the claim could not properly have been commenced under CPR Part 7. Healys sought a proprietary injunction over the settlement proceeds, alternatively continuation of the freezing injunction.

The issues were the correct procedure, whether the conditional fee agreement was a contentious business agreement, and the appropriate interim protection for the settlement monies.

1. Procedural route. Section 61(1) of the Solicitors Act 1974 provides that no action may be brought on a contentious business agreement. The agreement does not itself give rise to a cause of action for fees. The court must first determine under section 61 whether it is fair and reasonable. If it is, the court may enforce it; otherwise the agreement is set aside and the costs are assessed as if it had not been made. CPR Part 67.3(2) therefore required the claim to continue as a Part 8 claim.
2. Status of the CFA. A conditional fee agreement setting remuneration by reference to hourly rates falls within section 59(1), even if remuneration is reduced or extinguished on failure. Section 59(2)(b) does not exclude such an agreement from the definition; rather, its proviso indicates that a conditional fee agreement may fall within section 59(1) without being validated by the Act. The court accepted the Court of Appeal’s observation in Hollins v Russell [2003] 1 WLR 2487; [2003] EWCA Civ 718.
3. Proprietary injunction. Applying American Cyanamid v Ethicon [1975] AC 396, Healys showed a serious issue to be tried concerning an equitable lien over the settlement proceeds. The balance of convenience and the just-and-convenient requirement were satisfied by allowing reasonable legal expenditure while preserving the fund. A proprietary injunction does not require proof of risk of dissipation, following the distinction explained in Madoff Securities International v Raven [2011] EWHC 3102 (Comm).
4. Freezing injunction. The freezing injunction was discharged because the proprietary injunction made it unnecessary, not because it had been wrongly granted. The court considered that there was evidence of risk of dissipation, including concealment of the settlement and inadequately explained withdrawals, but this issue did not require determination.
5. Orders. The claim was directed to continue as a Part 8 claim. The freezing injunction was discharged and replaced by a proprietary injunction permitting living expenses of £500 per week for each defendant and reasonable fees incurred in the underlying and present proceedings. The claim was expedited.