In Forster v Reynolds Porter Chamberlain [2023] EWHC 1150 (Ch) the High Court found that the duties solicitors owed to the client, even when acting under a CFA agreed on a "no win no fee" basis, remain unaltered.
RPC acted for the client in litigation and following an agreed settlement with the opponent. Under the terms of the CFA all sums recovered from the opponent were payable to RPC and counsel in priority to the client. The client also had the benefit of an after the event (ATE) insurance policy, which covered repayment of a loan to fund expert fees, which was recommended by RPC.
The settlement required the opponent to pay to the client compensation of £350,000 and her costs of £400,000. There were concerns about the opponent's financial position and the client instructed RPC to enforce the settlement, but RPC refused to do so. The opponent paid £50,000 before being declared bankrupt. The client claimed against RPC for damages for the loss of opportunity to make a larger recovery, and argued that conflicts of interest arose under the CFA and the loan agreement.
The Court held that RPC had a clear conflict of interest in advising the client to borrow money and then advising and acting for the lender in preventing the client from enforcing the settlement. RPC could not properly have advised or acted for borrower and lender without the informed consent of both. RPC was preferring the lender's and its own interests over the client's when the loan agreement was made and it continued when the opponent defaulted on payment. The loan agreement gave RPC effective control of the settlement of the litigation and the means of enforcement. It was a clear and serious breach of duty for RPC to encourage the client to enter into the loan agreement without explaining that RPC was advising the lender and the effect of the agreement.
It was found that RPC was in breach of its duty to the client when it declined to act on her instructions to enforce the settlement. Whilst RPC had a greater financial interest in successful enforcement than the client did, as a consequence of the CFA, that did not entitle RPC to decide what to do. As a result of the enormous costs incurred on the client's claim and the modest settlement in her favour, there was an intractable conflict of interest and duty on RPC once the opponent defaulted.
In Michael Partridge Suzette Partridge v Healys LLP [2023] EWHC 2340 (KB) , a professional negligence action against the Defendant firm of solicitors, one of several allegations raised by the Claimants was that Healys had put themselves in a position of conflict under the terms of the CFA they were engaged under by advising the Claimants to settle at a mediation. The specifics of the conflict, or why the advice was not in the Claimants’ best interest was not pleaded nor was there a pleading that the advice to accept the offer was negligent. Healys applied to strike out the claim on the basis the pleaded claim had no real prospect of success.
The Court held that in the absence of any pleaded allegation that the advice at mediation was negligent, simply giving non-negligent advice that led to a termination of the retainer was not an actionable conflict. Rather, it was a situation expressly provided for in the CFA agreement.
In conclusion, a solicitor acting under a CFA will have a financial interest in the outcome of the case which may conflict with the client's interest. It is therefore necessary that any advice given to the client on whether a settlement offer should be accepted or not must be made in line with previous advice on the prospects of success and with the best interests of the client in mind.
