Diag Human SE & Anor v Volterra Fietta

A conditional fee agreement which fails to satisfy section 58 of the Courts and Legal Services Act 1990 is unenforceable as a whole. A solicitor cannot sever its contingent provisions to recover an unconditional discounted fee where that would convert the bargain into a conventional retainer and fundamentally change its character.

Public policy independently prevents partial enforcement or recovery on a quantum meruit. In a statutory assessment of the solicitor’s bill, sums paid on account must be repaid when the bill is assessed at nil. Recovery does not depend on a separate restitutionary claim.

The respondents retained a firm of solicitors for an investment treaty arbitration. A side letter converted their conventional hourly retainer into a conditional fee agreement under which discounted fees were payable in any event and substantial additional fees depended on success. It was common ground that the agreement was unenforceable because the success fee could exceed 100% and its percentage was not stated.

Costs Judge Rowley assessed the solicitors’ bill at nil and required repayment of money paid on account. Foster J upheld that decision in [2022] EWHC 2054 (QB). The solicitors appealed on whether they could sever the contingent provisions, recover a quantum meruit, or retain payments unless the clients established a restitutionary claim.

1. The appeal was dismissed on all grounds. The September 2017 agreement was, as a whole, a conditional fee agreement governed by section 58 of the Courts and Legal Services Act 1990. The provision for discounted fees could not be separated conceptually from that agreement. A non-compliant agreement remained subject to the common-law public policy against champertous retainers.

2. The third limb of the severance test asks whether removal of the unenforceable provision would so alter the contract’s character that it would cease to be the sort of contract originally made. The comparison is between the whole contract before severance and the proposed contract afterwards. Substance, including the extent and effect of the required surgery, matters more than the number of deleted words.

   Severance here would remove every conditional element and turn a conditional fee agreement into a conventional discounted hourly retainer. It would also remove the stated consideration for the discount, namely the prospect of success fees. That was a fundamental change, so the third limb was not satisfied.

3. Severance was independently barred by public policy. It would permit partial enforcement of an agreement which Parliament had made unenforceable for clients’ protection. Public policy addresses potential conflicts of interest, and its application does not depend on proof that the client suffered actual prejudice. Any further relaxation of that policy is for Parliament.

4. A quantum meruit was unavailable. A solicitor cannot recover indirectly for services rendered under a prohibited arrangement when public policy prevents contractual recovery. Receipt of those services did not unjustly enrich the clients in circumstances where the solicitors were legally precluded from charging for them.

5. Under section 70 of the Solicitors Act 1974 and the detailed-assessment scheme, the final certificate records any balance due to or from the solicitor. Since the bill was properly assessed at nil, payments on account exceeded the recoverable amount and had to be repaid. No separate restitutionary claim was required.

Andrews LJ agreed and added that fees for work completed before the retainer became an unenforceable conditional fee agreement would remain recoverable. Newey LJ agreed with both judgments.

1. Court of Appeal (Civil Division): The solicitors’ appeal in [2023] EWCA Civ 1107 was dismissed on all three grounds.
2. High Court, King’s Bench Division: Foster J, sitting with an assessor, upheld the Costs Judge’s decision in [2022] EWHC 2054 (QB).
3. Costs Judge: Costs Judge Rowley held that the unenforceable conditional fee agreement yielded no recoverable fees, assessed the bill at nil and required repayment of sums paid on account.