In its recent decision in Forster v Reynolds Porter Chamberlain LLP, the High Court found that City law firm, RPC, had breached its duty of care to its client, Ms Forster, after failing to keep her adequately informed of costs incurred under a conditional fee agreement ("CFA"). The Court also held that RPC were conflicted in acting for Ms Forster, and that in failing to enforce the settlement agreement in accordance with Ms Forster's wishes, it caused her to suffer loss. The decision serves as a useful reminder that whilst a CFA governs the solicitor's remuneration, it does not alter the duties owed to the client. Insofar as solicitors prioritise their own interests under a CFA, or the interests of one client at the expense of another, they risk incurring liability for negligence and for breach of fiduciary duty (in addition to possible regulatory exposure).
Ms Forster instructed RPC to defend her in a fraudulent misrepresentation claim brought by two individuals (the "Opponents"). RPC acted for Ms Forster under a CFA with a 100% uplift on their fees, as did the three Counsel who represented her at trial. Ms Forster arranged 'after the event' insurance (the "ATE Policy") which covered limited adverse costs, non-lawyer disbursements payable to RPC and repayment of a loan taken out by Ms Forster at a late stage of the proceedings to fund her expert witness, a forensic accountant from Deloitte (the "Loan Agreement"). Ms Forster had reluctantly agreed to instruct Deloitte, having been persuaded by RPC. The loan was provided by Giltspur Capital LLP ("Giltspur"), a firm controlled by Mr Deacon. The Judge found that Giltspur was effectively RPC's 'in house resource' for funding arrangements. RPC recommended the Loan Agreement to Ms Forster, who only became aware of the pre-existing relationship between Giltspur and RPC when it emerged in the evidence at trial. Also unbeknown to Ms Forster, RPC had been incurring significant costs in the litigation for several months and at a mediation in December 2010, Ms Forster discovered that total costs were almost £2.5m. After several rejected settlement offers and counteroffers, the matter proceeded to trial on 30 March 2011.
The claim was settled soon after the start of the trial, via a Tomlin Order under which it was agreed that the Opponents would pay Ms Forster £350,000 plus 80% of her costs. By this point, the total fees incurred by RPC and Counsel acting for Ms Forster exceeded £5.3m. Under the terms of the CFA, Ms Forster was obliged to pay any recoveries to RPC, who would repay the Loan Agreement on her behalf. RPC and Counsel would then be paid their respective costs, with Ms Forster entitled to any remaining sums. RPC delayed enforcement of the settlement, contrary to Ms Forster's wishes, in the belief this would yield a more substantial recovery from the Opponents. Ultimately, the Opponents only paid £50,000 and were subsequently declared bankrupt in 2016 on Ms Forster's petition. Nothing more was recovered from them.
Ms Forster commenced proceedings against RPC for negligence. Her claim was essentially for loss of the opportunity to enforce the Tomlin Order by first converting the Order terms into a judgment debt and then promptly enforcing it and the costs order against the Opponents' assets in 2010 and 2011. It was Ms Forster's case that RPC had become conflicted in continuing to act for her given their interest in the Loan Agreement, and that they had preferred their own interests to hers in delaying enforcement action.
2. The Judgment
Ms Forster alleged that RPC had breached its duty of care by: i) failing to inform her of the exceptionally high level of costs and the commensurate risk of a shortfall in costs recovery; ii) failing to advise her adequately on the benefits and disadvantages of using a Deloitte partner as her expert witness; iii) failing to advise her adequately and fairly on the benefits and disadvantages of the Loan Agreement; and iv) failing to enforce the terms of the schedule to the Tomlin Order in accordance with her instructions in October 2011.
Fancourt J found that RPC had failed to keep Ms Forster adequately informed of the amount of fees incurred, with Ms Forster obtaining costs information on a highly sporadic basis, and on one occasion only by reading the ATE Policy, rather than via direct communication from RPC. Fancourt J also held that it was wrong for RPC to have informed Ms Forster that the costs incurred were of no concern to her on the basis that RPC had been instructed on a 'no win no fee basis', as this overlooked the risk of a shortfall in costs recovery. In any event, RPC was expressly required to provide the 'best information possible' about costs under the terms of the CFA and it had failed to do so. However, as Ms Forster had not argued that her claim against the Opponents would have settled earlier, or on more favourable terms, if RPC had provided adequate cost updates, Fancourt J concluded that Ms Forster had suffered no loss in this regard.
In response to Ms Forster's further claims of breach of duty, the Court concluded that RPC had not adequately advised Ms Forster in relation to the Loan Agreement, and that in failing to enforce the terms of the settlement agreement, it had preferred Mr Deacon's interests over hers. Fancourt J found that RPC had 'a clear conflict of interests in advising Ms Forster to borrow money from Mr Deacon and ... acting for Mr Deacon in preventing Ms Forster from enforcing [the settlement agreement]'. To properly advise or act for Mr Deacon and Ms Forster, RPC should have obtained both parties' informed consent. On the matter of RPC's failure to enforce the settlement agreement, it was irrelevant whether its strategy in delaying was well-intentioned or likely to result in a more substantial recovery, as 'RPC were not entitled to refuse to act in accordance with [Ms Forster's] instructions'. In doing so, RPC breached its duty and caused Ms Forster loss of opportunity to recover under the settlement agreement. Fancourt J awarded damages of £192,500, being 55% of the £350,000 settlement amount, on the basis that Ms Forster's likelihood of full recovery would have been approximately 55% if enforcement action had been taken in 2011 and 2012.
This case is a reminder that solicitors should never put their own interests (or those of funders) ahead of the interests of clients. Rather, solicitors remain dutybound to avoid conflicts of interest and to act in the best interests of their clients, irrespective of whether they are engaged under a CFA. Solicitors who get this wrong expose themselves to claims in negligence and for breach of fiduciary duty, in addition to potential regulatory consequences.
Originally published 16 June 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.