City law firm RPC has been ordered to pay a former client damages of £192,500 after it put itself in an “intractable conflict of interest and duty” during its work for her.
Mr Justice Fancourt found that RPC – which is well known for acting for solicitors facing claims – preferred its own interests and those of a funder to whom it introduced the client over those of the client herself.
He rejected the firm’s contention that the terms of the conditional fee agreement (CFA) it signed with Deborah Forster allowed it to put its interests before hers.
RPC acted for her in a dispute with investors in her company who removed her. The case settled during trial in March 2011 with a Tomlin order that they would pay Ms Forster £350,000 and 80% of her costs, with £400,000 on account; the £750,000 was to be paid six months later.
However, only £50,000 was paid and nothing more was recovered.
She claimed for loss of the opportunity to enforce the Tomlin order in October 2011 – RPC did not follow her instructions to do so, preferring instead to negotiate – and thereby recover more.
In August 2010, Ms Forster was concerned to learn that RPC’s estimated costs for the case were £700,000. She was told that she did not need to worry as the case was being run on a ‘no win, no fee’ basis.
By the time of an unsuccessful mediation in December 2010, the fees had gone up to £2.5m and eventually were more than £5.3m. RPC did not update her on the rising fees at all.
A key event in autumn 2010 was RPC’s decision that Ms Forster should replace the valuation expert she had been using with a far more expensive forensic accountant from Deloitte.
In February 2011, RPC persuaded her to sign a funding agreement with a John Deacon to help pay for disbursements but did not disclose to her that it had an existing relationship with Mr Deacon and his company, Giltspur Capital, in which it was invested.
The firm also failed to disclose that it started to act for Mr Deacon soon after the agreement was signed.
The various agreements meant that Mr Deacon would be paid first from any recoveries, followed by RPC and counsel, with Ms Forster receiving anything left.
However, the judge found that, in persuading a reluctant Ms Forster to accept the settlement, RPC gave her “a clear assurance” that she would receive £350,000 out of the £750,000 that was to be paid on 30 September 2011.
As a result, the firm was estopped from contending that, because of the terms of the CFA, she lost nothing of value as a result of any breach of duty.
As concerns about receiving the settlement grew, Ms Forster instructed RPC in October 2011 to enforce the Tomlin order. It did not do so and, when Ms Forster tried to disinstruct the firm and do this herself, used a power of attorney in the Deacon agreement to obtain an injunction to stop her.
In granting it, HHJ Judge Purle QC expressed concern about the propriety of RPC acting for Mr Deacon against Ms Forster, and about RPC indemnifying Mr Deacon in relation to the application. The injunction was discharged after Ms Forster agreed that RPC would continue acting.
It did the same again in July 2012 after Ms Forster tried to enforce judgment for £700,000 in a second Tomlin order. She was released from the injunction the following year and obtained judgment for the money.
Bankruptcy orders were eventually obtained in 2016, with some help from RPC, but no recoveries made.
Fancourt J said there was “no doubt” that RPC failed adequately to keep Ms Forster informed of the level of fees.
It proceeded on the basis that the CFA meant the fees were not a matter to concern her but the judge said the CFA expressly required RPC to give her the best costs information possible.
“The staggeringly high level of costs, as compared with the value of the claims, self-evidently impacted the cost-effectiveness of the case.”
But this did not cause any loss as Ms Forster did not allege that she would have been settled earlier, or more favourably, but for the high level of costs.
RPC also failed to advise Ms Forster, in breach of duty, “on the benefits and disadvantages of retaining Deloitte as expert witness”; essentially, it made the decision.
Fancourt J rejected RPC’s argument that, as a matter of interpretation, the CFA allowed it to have regard to its own interests in appropriate circumstances, such as reasonably concluding that the client’s instructions would have disastrous consequences for them both.
There were certain conditions that conferred rights on RPC but “there is an express term that requires RPC otherwise always to act in the client’s best interests…
“The express terms requiring Ms Forster to give instructions that allow RPC to do their work properly, and not to ask RPC to work in an improper or unreasonable way, are not obligations to defer to RPC’s own interests at any stage.” There was also no implied term to this effect.
In relation to the Deacon agreement, “RPC had a clear conflict of interests in advising Ms Forster to borrow money from Mr Deacon and then advising and acting for (or in the name of) Mr Deacon in preventing Ms Forster from enforcing the first Tomlin order [without consent, which it did not have]…
“The conflict went further than acting for two clients whose interests in a transaction conflicted because RPC had its own interest in the business of Giltspur and in working with Mr Deacon, which it did not disclose to Ms Forster at any time…
“What was happening was that RPC was preferring Mr Deacon’s and its own interests over those of its client.”
RPC failed in its duty to provide adequate advice on the agreement. It was “both complex and onerous” for Ms Forster, the judge said, with a 24% interest rate. “No one but a lawyer or an experienced user of litigation funding would easily have understood the overall effect of the terms.”
“It was the clearest and a serious breach of duty for RPC to encourage Ms Forster to enter into the Deacon funding agreement without explaining their connection to Mr Deacon, the fact that RPC were advising Mr Deacon, and the effect of entering into the Deacon funding agreement in the event that Ms Forster and RPC later disagreed about settlement or the enforcement of any settlement or judgment.”
Fancourt J held that, properly advised, Ms Forster would not have signed the agreement.
RPC was also in breach of its duty by declining to act on her instructions to convert the first Tomlin order into an enforceable judgment and then enforce it.
“As a result of the enormous costs incurred on Ms Forster’s claim and the modest settlement in her favour, there was an intractable conflict of interest and duty on the part of RPC once the [other side] defaulted.
“No term of the CFA in this case allowed RPC to refuse to perform Ms Forster’s instructions and place its own interests before hers. It was a breach of duty for RPC to fail to act in the way that she instructed.”
He concluded that there was a 55% chance of recovering £700,000 (given the £50,000 that was paid) and so ordered RPC to pay Ms Forster £192,500, 55% of £350,000, for the loss of chance to enforce the first Tomlin order.
An RPC spokesman said: “We are disappointed at the judgment regarding events that occurred over 10 years ago, but we respect the court’s decision and will be considering the next steps.”