Liquidator not liable to pay solicitor’s fees
Devonshires Solicitors LLP has successfully defended a claim in the High Court against a liquidator for outstanding fees due under a conditional fee agreement (CFA). Partner Jim Varley advised insolvency practitioner Stephen Hunt in the case versus the solicitors Stevensdrake Limited.
Mr Hunt was appointed as liquidator of a company called Sunbow Limited and instructed Stevensdrake to pursue two individuals for monies owed to the company. Initially they agreed that fees and disbursements would be paid from recoveries only. Mr Hunt and Stevensdrake had worked on a number of insolvency matters before and had traditionally operated on that basis.
However, in this instance and three years into the process, Stevensdrake issued a CFA which suggested Mr Hunt was personally responsible for their fees if the claim was successful – success being defined as a win in court. The debtors settled their claims but only a small amount of the money owed was paid. Despite this, the solicitors turned to Mr Hunt for recovery of their fees, relying on the wording of the CFA, but he refused to pay. As a result, the case was taken to trial where it was found that the liability to pay remained dependent on recoveries and so Mr Hunt was found to be not personally responsible for the fees as the recoveries had not been made.
Jim said: “In the insolvency sector, it’s generally accepted that you win together or you lose together. It is therefore very unusual for a solicitor to attempt to sue an insolvency practitioner if it has not been possible to recover the money.
“If it had stood alone, the new clause in the CFA would have moved the goals posts by attempting to change the way both parties had always operated. The judge found the parties had not intended to make this radical change and despite the clause’s potential significance, it wasn’t highlighted to our client and this was crucial to the case.
“The judge’s primary finding was that the CFA was subject to a mutual understanding and acceptance by Stevensdrake that its right to payment was conditional on recoveries. The judge also found the solicitor to be negligent and in breach of fiduciary duty in failing to advise Stephen Hunt on the CFA’s meaning and effect. This fell below the standard of reasonable care expected of a solicitor.
“Although this was a successful outcome, it underlines the need for liquidators to be very careful when agreeing terms of business with their solicitors. They need to be clear who is paying for what and when, and that everything they agree and discuss is fully understood and documented. “