DIAG HUMAN SE & Anor v VOLTERRA FIETTA (A FIRM)

A conditional fee agreement which makes the whole retainer conditional cannot generally be converted into an enforceable hourly-rate retainer by severing its success-fee provisions. The crucial question is whether removal would change the character of the contract into something different from the contract made. A CFA which does not satisfy the statutory conditions is unenforceable in its entirety, subject to permissible severance. Public policy prevents recovery by quantum meruit for legal services provided under the unenforceable arrangement. In detailed assessment proceedings, sums paid under such a retainer may be ordered to be repaid without a separate restitutionary claim.

The claimants retained the defendant solicitors for investment treaty arbitration work. A later side letter introduced a discounted hourly fee together with contingent success fees. It also made the second claimant personally, jointly and severally, liable. The parties accepted that the arrangement was a CFA which did not comply with the statutory requirements governing success fees.

The Senior Courts Costs Office held that the retainer was unenforceable, that the offending provisions could not be severed, that no quantum meruit was available, and that sums paid for work under the defective retainer had to be returned. The defendant appealed to the High Court on severance, quantum meruit and repayment.

1. Appeal dismissed. The side letter created a second retainer, rather than merely varying the original engagement. Its central features were the discount and the contingent entitlement to substantial additional fees.
2. The three-stage severance test approved in Egon Zehnder Ltd v Tillman was applied. Although the offending provisions could be removed without altering the remaining wording, and the remainder would be supported by consideration, removal would fundamentally change the character of the agreement. It would leave the solicitors with discounted fees but remove the consideration for granting the discount.
3. Garnat Trading and Shipping (Singapore) Pte Ltd v Thomas Cooper was distinguished. That case concerned two separable work streams, one private-paying and one subject to a CFA. Here the conditional arrangement governed all work after the side letter.
4. The court rejected the argument that public policy had materially changed. Permitting defective CFAs or DBAs to be repaired late by severance would undermine statutory consumer protection and the administration of justice. Zuberi v Lexlaw Ltd concerned materially different termination provisions and did not establish a general principle applicable here.
5. The statutory scheme and authorities including Awwad v Geraghty and Co, Sibthorpe v Southwark LBC and Garrett v Halton Borough Council prevented recovery on a quantum meruit. The unenforceable retainer could not found a claim for payment, including for an alleged unconditional part of the fees.
6. The court also rejected reliance on Aratra Potato Co Ltd v Taylor Joynson Garrett. In light of later authority, retaining sums paid under the unenforceable retainer would undermine the policy that a non-compliant CFA is unenforceable and that the solicitor is not entitled to payment. Under the Solicitors Act 1974, the bill was properly assessed at nil and sums paid were repayable without a separate restitutionary claim.

• High Court (Queen's Bench Division) [2022] EWHC 2054 (QB): appeal from the Senior Courts Costs Office dismissed.
• Senior Courts Costs Office: Master Rowley held that the retainer was unenforceable, severance and quantum meruit were unavailable, and sums paid for work after 6 September 2017 had to be returned.