Wednesday Law Report: Solicitor's agreement for costs was unenforceable

1 December 1999 Geraghty & Co v Awwad and another Court of Appeal (Lord Bingham of Cornhill, Chief Justice, Lord Justice Schiemann and Lord Justice May) 25 November 1999

AN AGREEMENT made in 1993 between a solicitor and her client, by which the client would, if he lost his action, pay the solicitor nothing or less than her normal profit costs, and would pay her normal profit costs if he won, was champertous and unenforceable.

The Court of Appeal dismissed the appeal of Miss Geraghty, a solicitor, against a decision that a "conditional normal fee" agreement made between her and her client, Mr Awwad, was unenforceable.

The agreement between Miss Geraghty and Mr Awwad, that she would charge him her normal rate if he won the litigation in which she was acting for him, but that if he lost she would charge only pounds 90 an hour, was an oral agreement made in September 1993 which was not evidenced in writing.

In March 1996 Miss Geraghty provided Mr Awwad with a signed bill of costs charging pounds 90 per hour for her work, but he refused to pay. Miss Geraghty commenced proceedings against him, and at a trial of preliminary issues the judge held, inter alia, that she was not entitled to recover anything because the agreement, as a "conditional normal fee" agreement, was champertous.

Miss Geraghty appealed, contending that rule 8(1) of the Solicitors Practice Rules 1990 would be ultra vires if construed so as to render an agreement to recover a normal fee unenforceable as being illegal. Rule 8(1), which had since been amended, had provided at the material time that:

A solicitor who is retained or employed to prosecute any action, suit or other contentious proceeding shall not enter into any arrangement to receive a contingency fee in respect of that proceeding.

"Contingency fee" was defined in rule 18(2)(c) as meaning:

any sum (whether fixed, or calculated either as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution of any action, suit or other contentious proceeding.

Timothy Dutton QC and Louise Merrett (Wright Son & Pepper) for Miss Geraghty; Geoffrey Shaw QC (Peter Carter-Ruck & Partners) for Mr Awwad.

Lord Justice Schiemann said that the court was bound by the decision in Swain v The Law Society [1982] 2 All ER 827, but was not bound to follow either Thai Trading Co (a firm) v Taylor [1998] 3 All ER 65 or Mohammed v Alaga [1999 ] 3 All ER 699.

In 1993 there was no statutory provision which made a conditional normal fee irrecoverable, although the Access to Justice Act 1999 now permitted, amongst other things, conditional fee agreements in certain prescribed circumstances. The common law position was, however, that it was contrary to public policy for a solicitor to act for a client in pursuance of a conditional normal fee agreement in circumstances which were not sanctioned by statute.

Whilst a conditional normal fee agreement might not expose a lawyer to the same temptation as a contingency fee agreement, i.e. an agreement by which the solicitor would recover some of his client's winnings, it did expose him to temptations to which he would not have been exposed if he had not entered into it. The public interest in the highest quality of justice outranked the private interests of the two litigants. That rendered it particularly important that lawyers should not be exposed to avoidable temptations not to behave in accordance with their best traditions.

The concept of a "normal" fee was singularly elusive: some solicitors' normal fees were a multiple of those charged by others for what on the face of it was the same work. It would be very difficult and undesirable for the answer to the question whether or not an agreement was illegal to depend on a detailed examination in each case of solicitors' costs structures. Moreover, if solicitors' practices conducted the bulk of their business on the basis of conditional normal fee arrangements, then their normal fees would presumably have to be higher than they would have been had such arrangements not been usual in the firm.

In those circumstances, it could not be said that the 1990 rules were ultra vires, since such a submission was premissed on the assumption that the rules sought to forbid what was permitted under the common law.