The Enforceability Of Conditional Fee Agreements: Diag Human v Volterra Fietta [2022] EWHC 2054 (QB)

• Published date: 10 January 2023
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Law Firm: Debevoise & Plimpton
• Author: Mr Patrick Taylor and Doreena Hunt

Introduction. The High Court (the 'Court') has upheld a decision finding that a law firm which charged its client nearly $3m under an unenforceable conditional fee agreement ('CFA') has to repay the money to the client.

The judgment is a 'harsh' reminder to law firms showcasing the stark monetary consequences of providing legal services under CFAs which do not comply with sections 58-58A of the Courts and Legal Services Act 1990. In summary, the Court held that: (1) non-compliant CFAs are unenforceable, (2) consequently, costs are not payable unless the offending CFA is severable from the overall contract; and (3) fees paid under the CFA must be returned to the client as of right'the law firm is not entitled to payment under an unlawful agreement.

Background. The Respondent ('Diag') hired the Appellant ('Volterra') to represent it in a bilateral investment treaty arbitration in which Diag was claiming $2.4 billion.

The initial retainer was contained in the engagement letter sent in February 2017. Volterra was retained on a discounted hourly rate basis ('Retainer One'). Approximately $107,000 was billed under this arrangement before being amended by a side letter, signed by the parties in September 2017.

The side letter created a new retainer containing a CFA. CFAs must comply with section 58-58A of the Courts and Legal Services Act 1990 to be lawful and therefore enforceable. Under the new retainer, Volterra agreed to apply a 30% discount to the fees under Retainer One, in exchange for a success fee entitling Volterra to 280% (more than double the statutory maximum of 100%) of its base New Retainer fees (the 'New Retainer'). Two fees were now payable to Volterra under the New Retainer: (1) the discounted fee accrued under Retainer One and (2) a success fee.

In May 2019, the New Retainer was terminated with Diag in 'substantial fee arrears' of almost $3 million'roughly $100,000 was owed under Retainer One and $2.9 million under the New Retainer.

Volterra brought a claim against Diag for payment of the arrears. Volterra did not dispute the unlawfulness of the CFA in the New Retainer, however, Volterra argued that Retainer One was severable from the New Retainer, so the fees due under Retainer One remained payable. Diag argued that the New Retainer changed the 'nature' of the agreement from an hourly arrangement to an (unlawful) CFA arrangement.

The cost judge, Master Rowley, of the Senior Courts Costs Office ('SCCO'), found in favour of Diag. The SCCO held...