Court of Appeal: No implied duty of good faith in solicitor’s retainer

Retainer: CFA contrary to an implied duty

There is no implied duty of good faith in a solicitor’s retainer, the Court of Appeal has ruled in rejecting an appeal by a law firm trying to recover £3m in fees from a former client.

Lord Justice Coulson said it did not matter that the retainer in question was a conditional fee agreement (CFA).

London law firm Candey sued former client Basem Bosheh and another man after the former settled a civil claim brought by Sheikh Mohamed on a ‘drop hands’ basis.

Under the terms of the CFA, this meant Candey would recover nothing from Mr Bosheh (and his son) as a contribution towards their costs.

Candey alleged that Mr Bosheh acted in breach of an implied obligation of good faith and in repudiatory breach of the retainer, and that the other man had procured the breach and/or was liable in unlawful conspiracy. The claims relied heavily on both privileged and confidential material.

At first instance, Ms Clare Ambrose, sitting as a deputy High Court judge, ruled that Candey could not rely on either the privileged nor some of the confidential material, and that the claim based on the alleged implied terms, including that of good faith, had no prospect of success.

She made similar findings in respect of the claims in deceit and fraudulent misrepresentation, conspiracy and inducing breach of contract.

She held that the only claim which had a real prospect of success was the alleged breach of an express term of the retainer which required the client to “always seek to recover costs by order or agreement”. This part of the claim is ongoing.

The Court of Appeal said the question of whether there was an implied duty of good faith was the critical issue and that Ms Ambrose had been right to find there was not.

Coulson LJ went through the usual test for implied terms and found that none applied.

“There is no authority that supports the proposition that, when retaining a solicitor to act for him or for her, the client owed that solicitor a duty of good faith,” he said.

“The absence of authority is perhaps unsurprising: it is a startling concept. Many would say that, if a duty of good faith was applicable at all, it would arise the other way round, and be owed by the solicitor to the client.”

The fact it was a CFA made no difference: “It governs the solicitor’s remuneration; it does not change the services or duties that the solicitor owes the client, or vice versa.”

Furthermore, the CFA was itself contrary to the implied duty. “As Candey well knew, the allegations made by Sheikh Mohamed against the Boshehs involved fraud and dishonesty.

“The CFA assumed that it was quite possible that Sheikh Mohamed would win his claim – that he would prove that the Boshehs had acted fraudulently – because the CFA provided that, if that happened, Candey would recover nothing.

“Thus, the possible truth of the fraud allegations was inherent in the CFA itself. It would therefore be contrary to the CFA to suggest that the Boshehs somehow owed a duty of good faith to Candey, particularly when addressing the allegations of fraud made against them by Sheikh Mohamed.”

Managing partner Ashkhan Candey had given his clients only a 50% chance of success. Coulson LJ said: “There can be no room for a good faith obligation in such circumstances; otherwise, rather than this being a conditional fee agreement, it would become a guaranteed fee agreement: Candey would ‘win’ (i.e. recover its costs) if their clients were telling the truth (because Sheikh Mohamed would lose and the CFA would allow Candey to recover); but they would also ‘win’ if their clients were found not to be telling the truth (because of the breach of the good faith obligation). That is why the implied term is at odds with the CFA itself.”

The judge concluded: “In short, this was an ordinary solicitors’ retainer which happened to be on a CFA basis. There are thousands of those in operation at any one time in the UK.

“Nobody has ever suggested before that they are relational contracts, or that in every CFA, the client owed the solicitor a duty of good faith. As my Lord, Lord Justice Phillips, pointed out during argument, that is not how they are sold to the public.”

That dealt with the entirety of the claim except that based on the costs term and any claim dependant on the privileged and confidential material.

But the court went on to confirm Ms Ambrose’s finding on the latter too. “Candey’s argument on that point appeared to suggest that, if a client behaves in such a way that he gives his lawyer a cause of action against him, that may amount to an implied waiver of privilege.

“I reject that submission. There is no authority for it. Moreover, implied waiver on such a basis would not be a narrow exception; it might apply in numerous situations. It would inevitably impact on the solicitor-client relationship.”

Coulson LJ also echoed the criticisms made at first instance of Candey’s conduct when it received bank statements belonging to Mr Bosheh – which had been sent as part of his disclosure obligations – a week after Candey had terminated the retainer. The bank was unaware the proceedings had settled.

Ms Ambrose said that, rather than inspecting the statements, Candey should have returned them immediately.

Coulson LJ said: “Candey had no right to open the bank statements, let alone go through them in detail. The judge was right to find that that action was unlawful and unjustified.”

He concluded that the public policy interest in excluding evidence improperly obtained was not trumped by the objective of achieving justice in the particular case.

A factor in this was the nature of Candey’s claim. “It cannot be disputed that Candey’s claim is an attempt to avoid the terms of their own CFA,” he said.

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