A claims management company had an agreement with a well-known law firm to receive 17.5% of the fees for high-value personal injury cases it referred, the High Court has ruled.
The decision means that the £570,000 claim against Liverpool firm Goldsmith Williams Solicitors (GWS) can go ahead.
His Honour Judge Pearce, sitting as a High Court judge, was also critical of the arguments put by GWS, which he described as akin to “wishful thinking”, including “a defence based on illegality which involves impugning their own conduct”.
East London company Litkraft specialised in attracting claimants from Eastern Europe and entered into an agreement to introduce clients to GWS from 2011.
This was formalised in a written contract in 2013 after the introduction of the referral fee ban in the Legal Aid, Sentencing and Punishment of Offenders Act 2012.
GWS paid £600 a case plus translation fees but LitKraft then sought a higher fee for higher-value cases.
The key issue for the preliminary hearing was whether the agreement was varied in January 2014 to provide that GWS would pay 17.5%, capped at £10,000, of the costs it recovered in cases where damages were in excess of £25,000 and not covered by fixed costs.
Litkraft stopped introducing new cases in 2016 after the pair settled a dispute over unpaid invoices. In 2021, it began this claim for £570,000 in unpaid fees, which also seeks an inquiry and account of the sums due.
As well as arguing that there was no concluded agreement on the 17.5%, GWS submitted it was also void for illegality, first for breaching the referral fee ban, and second because it was not disclosed to clients.
The judge did not allow GWS to run the former argument as it had not been pleaded and said GWS would have to apply to amend its defence if it wanted to later in the proceedings.
HHJ Pearce found the evidence – including correspondence and the 2016 settlement agreement – was clear that GWS had agreed to pay 17.5%.
He added: “It is a distinctly unattractive feature of the manner in which this case has been defended that a firm of solicitors should argue amongst other things that the failure of the parties to reduce the agreement to writing is fatal to the argument that there was a concluded contract between the parties, yet their own employee had stated in an email that a written contract was unnecessary and indeed gave oral evidence that he believed that a binding oral contract had been conducted.”
On illegality, the judge said Litkraft was not in breach of the disclosure rules governing CMCs – it was GWS that was in breach of Solicitors Regulation Authority rules through its non-disclsoure.
“It is at the very least ironic that a firm of solicitors should be using its own illegality to seek to defeat a claim against it for fees that it has otherwise agreed to meet for services which it accepts have been of value to it in earning fees.”
HHJ Pearce held that the underlying purpose of the requirement for notification would not be furthered by barring the claim.
He was also critical of GWS for trying to argue that the settlement agreement, despite its clear wording, did not unconditionally assert a liability to pay Litkraft the 17.5%.
This made him “highly cautious” about accepting the evidence of Christopher Williams and Simon Cottrell, two of the three equity partners being sued as GWS.
“At worst, they have changed their position from accepting that GWS had an agreement with the claimant to pay the percentage to a denial that any agreement was ever reached, presumably for the dishonest purpose of avoiding paying the claimant its due. It is easy to see how [Litkraft’s owner] has come to this view.
“At best, they are each so hopelessly confused about what was discussed and recorded in the settlement agreement that they cannot now distinguish between what they thought the position to be at different times.
“It is not necessary to determine which of these is correct since, either way, their reliability as witnesses is severely undermined.”
HHJ Pearce concluded that his criticisms of the defence pointed to it “being based at least in part on wishful thinking bolstered by after the event attempts at rationalising the meaning of discussions that in retrospect have looked unhelpful”.
He continued: “It is unattractive in any case, but is the more serious where the litigants who are solicitors, owing not only professional duties to their clients but also obligations as officers of the court.”