Can Solicitors & Litigation Funders Receive Payment For Work Done Under A Conditional Fee Agreement (CFA) If They Terminate It?

The above question was the crux of what was to be determined by the Court in the case of Escalate Law Ltd and Bermans (2012) Ltd v Kennedy and Kennedy [2021] EWHC 2232 (Ch).

Escalate Law Ltd and Bermans (2012) Ltd v Kennedy and Kennedy

Facts of the case

Mr and Mrs Kennedy (the Kennedys) had brought a professional negligence claim against a firm of solicitors, PWM, who had been instructed to advise them in relation to the purchase of a plot of land. It was alleged that PWM had failed to properly advise the Kennedys in relation to two aspects of an overage agreement required by the vendor.

Bermans (2012) Ltd (Bermans) agreed to act for the Kennedys in relation to the claim against their former solicitor and Escalate Law Ltd (Escalate) agreed to act as the funder. The work was to be carried out under a CFA and Bermans began carrying out the necessary work in pursuance of the claim against PWM.

The CFA provided that Bermans and Escalate were entitled to terminate the agreement in the event that the Kennedys committed any of the specified breaches contained within it. In the event of termination, Bermans and Escalate were entitled to claim their fees (at their stated hourly rate) plus any disbursements incurred between the date of acting and the date of termination.

On 4th May 2020, a termination notice was served on the Kennedys, by Bermans and Escalate, together with a demand for payment in the sum of £75,148.02, in which it was alleged that the Kennedys had committed a number of the specified breaches.

The issues that were to be determined at trial were whether the Kennedys were in breach of contract and thus whether the right to terminate existed because the Kennedys had:

1. Failed to provide clear instructions in respect of a number of points that would prove pivotal to the success of their case
2. Deliberately misled Bermans and Escalate as to the causation element of the claim
3. Sought to have Bermans and Escalate work in an inappropriate and/or unreasonable manner

The Kennedys argued that the CFA was varied into a damages-based agreement (DBA) by email and they denied being in breach of contract.

Outcome

The Court rejected that the CFA had been converted to a DBA and commented that a change of strategy within the terms of the CFA did not amount to it being varied or converted into a DBA.

The case against PWM was being advanced on the basis that their negligence prevented the Kennedys from building houses on the land which ultimately caused the loss. However, the Kennedys were not in a financial position to build these houses in any event, nor did they have funding in place to facilitate the building. They were therefore seeking to mislead Bermans and Escalate as to the loss element of their claim.

The strategy that the Kennedys instructed Bermans and Escalate to act in accordance with amounted to instructions that were both improper and unreasonable.

Escalate and Bermans were therefore entitled to terminate the agreement and to payment of the fees and disbursements incurred during that period.

Implications

This case, and its outcome, ultimately hinged on the specifics of the terms of the CFA and the conduct of the Kennedys in relation to their instructions: the general legal principles which can be drawn from it perhaps, therefore, seem somewhat limited.

However, the terms of the CFA weren’t particularly unusual and the Kennedys certainly weren’t acting in an inimitable way. This reaffirms the importance of transparency and honesty with your legal representatives: the Kennedys ultimately paid the price for their unclear and misleading instructions.