High Court upholds Legal Ombudsman order that firm repay most of £37k contingency fee

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4 August 2016

Agreement: inadequate advice on effects

Agreement: inadequate advice on effects

The High Court has rejected a solicitor’s appeal against a Legal Ombudsman (LeO) order that he refund £34,000 of his £37,000 fee to a client he signed up to a contingency fee agreement (CFA).

The LeO said the client had not been properly advised about the terms and effects of the CFA, among other findings which Mr Justice Wyn Williams said the ombudsman was entitled to reach.

Solicitor Leonard Ejiofor, trading as Mitchell & Co in Surrey, told Legal Futures that he would be taking the case to the Court of Appeal.

He appealed to the High Court over his firm’s work for a Ms Patel in a probate dispute where she was seeking to establish her third share of a property that was being sold.

After a relatively small amount of work for which she paid, Ms Patel said she could not afford any more upfront fees, having been told that litigation could cost up to £35,000. She agreed to a CFA giving the firm 20% of any damages, initially over the phone.

On 9 December 2013, the trainee working on the case spoke to the executors’ solicitor to put her on notice of the claim. She agreed to hold any funds until she spoke to the trainee again. He then wrote to the solicitor, and on 10 December received an undertaking that she would hold the proceeds of the property sale until Ms Patel’s claim had been dealt with.

Also on 10 December, Ms Patel attended the firm’s offices to sign the CFA. Mr Ejiofor told the court that the undertaking was received after this was done, meaning the potential dispute was still live. But Williams J said that in a letter to the LeO in 2014, Mr Ejiofor appeared to acknowledge that it was received before.

Almost immediately Ms Patel reached a settlement with her siblings, under which she agreed that they could deduct £94,600 from the £157,428 she was to receive from the property sale in satisfaction of claims they had against her. The court said that, at the latest, Mr Ejiofor was aware of this on 11 December.

That day, he billed £37,608, representing 20% of the sale proceeds plus VAT and disbursements, deducting it from Ms Patel’s money and leaving her with £25,000. After Mr Ejiofor rejected various complaints, particularly around the advice on the CFA, Ms Patel complained to the LeO.

The ombudsman’s decision said there was no evidence of “significant activity” from the firm in relation to the case; there was no evidence that the firm set out the pros and cons of the CFA; that Mitchell & Co knew about the undertaking before the CFA was signed; and that the firm had put its interests ahead of its client’s.

The ombudsman said: “In my view there was clear pressure bordering on duress. There does seem to me to have been a rather disagreeable rush to get Miss Patel to sign up to the CFA without any real thought for the impact upon her.

“In the circumstances I can only conclude it was a bad bargain and cannot stand due to the inequality of the bargaining situation between the firm and Ms Patel brought about by the knowledge they had.”

The LeO ordered the refund of £34,000, leaving £3,342 as what it considered a reasonable estimate of the costs the firm had actually incurred.

On appeal, Williams J first rejected a bid to the LeO’s jurisdiction to order the repayment, and second the argument that its decision was unreasonable or irrational.

“On the basis of the attendance notes produced by the claimant, I am satisfied that it was open to [the LeO] to conclude that the advice tended to [Ms Patel] as to the terms and consequences of the contingency fee agreement was, at the very least, inadequate,” the judge said.

He said that at the time the CFA was signed, the trainee knew the proceeds of sale would not be dissipated and, further, that Ms Patel had “an indefeasible right” to her one-third share, meaning the prospects of litigation were “very small by the time the agreement was signed”.

Saying the LeO was also entitled to find that there was “pressure bordering on duress”, Williams J clarified that the ombudsman did not mean duress in its strict legal sense. “In my judgment he was conveying no more than [Ms Patel] felt under pressure to reach an agreement with the claimant about payment for the claimant’s legal services.”

Finally, the judge said the claimant had not produced any documentation to counter the finding that it had not done a significant amount of work.

In a statement to Legal Futures, Mr Ejiofor said he respected Williams J’s judgment, and “value and respect the Legal Ombudsman”.

“However, we respectfully disagree with Wyn Williams J’s judgment in a number of respects. For example, the powers claimed, and exercised, by the ombudsman in this case were very extensive and were used to undo a contractual agreement which was freely entered into by solicitor and client, at least in significant part because the ombudsman was of the view that the contractual agreement was not appropriate or fair in the circumstances.

“That the ombudsman can do this is concerning, not least because of the principle of contractual freedom which is an established common law right and a right at EU law.

“In the circumstances, we are accordingly pursuing an appeal from the judgment to the Court of Appeal.”

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