Diag Human SE v Volterra Fietta (A Firm)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Stuart-Smith,Lady Justice Andrews,Lord Justice Newey |
| Judgment Date | 04 October 2023 |
| Neutral Citation | [2023] EWCA Civ 1107 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-002450 |
[2023] EWCA Civ 1107
Lord Justice Newey
Lord Justice Stuart-Smith
and
Lady Justice Andrews
Case No: CA-2022-002450
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
IN THE MATTER OF AN ASSESSMENT UNDER PART III
OF THE SOLICITORS ACT 1974
MRS JUSTICE FOSTER
Royal Courts of Justice
Strand, London, WC2A 2LL
Nicholas Bacon KC and Simon Teasdale (instructed by Saunders Law) for the Appellant
Jamie Carpenter KC (instructed by Mishcon de Reya LLP) for the Respondents
Hearing dates: 12–13 July 2023
Approved Judgment
This judgment was handed down remotely at 10.30am on 4 October 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
The appellants are a firm of solicitors. The respondents engaged them to provide legal advice in relation to an investment treaty arbitration claim against the Czech Republic. Dr Stava is and was at all material times the controlling mind and ultimate beneficial owner of Diag Human SE [“Diag”]. In September 2017 the parties entered into a conditional fee agreement [“CFA”], which provided for the solicitors to be paid on an hourly basis but at a discounted rate for work done pursuant to the agreement, in consideration of which the solicitors would be entitled to success fees in specified circumstances.
The CFA was unenforceable because it included a success fee that could exceed 100% and because it did not state the success fee percentage. The solicitors, however, submit that they are entitled to sever the offending success fee provisions and recover fees at the discounted rate for the work they have done; alternatively they submit that they are entitled to recover fees assessed on a quantum meruit for the work they have done for and at the request of their clients; and, in any event, they submit that they are entitled to retain sums that the clients had paid on account of their costs.
In a judgment that addressed these submissions as preliminary issues in an assessment of the solicitors' bill, Costs Judge Rowley held against the solicitors on each point. Put shortly, he held that the consequence of the CFA being unenforceable was that the solicitors could recover nothing under their bill, which he assessed at nil, and that they were required to repay to their clients sums that the clients had paid on account. The solicitors appealed to the High Court. On 29 July 2022 Foster J, sitting with Master Simon Brown as an assessor, upheld the decision of the Costs Judge, largely for the reasons he had given: [2022] EWHC 2054 (QB).
The solicitors now appeal against the decision of Foster J, essentially repeating the submissions that they made before the Courts below. The issues on this appeal can be shortly stated, as follows:
i) Ground 1: was the Judge wrong to hold that severance is not available to the solicitors?
ii) Ground 2: was the Judge wrong to hold that Quantum Meruit is not available to the solicitors?
iii) Ground 3: in the absence of a claim founded on principles of restitution, was the Judge wrong to hold that the solicitors must repay to their clients sums that they have already been paid on account of costs?
For the reasons I shall explain, which substantially reflect the reasons of the Courts below, I would dismiss the appeal on all grounds.
Two points may be noted at the outset. First, a feature of the CFA upon which the solicitors rely is that the discounted element of their fees was to be paid in any event, win or lose. That has led to the agreement being variously described as a “discounted fee agreement” or as an “hybrid agreement”, meaning one where some fees fall to be paid by the client in any event and some only arise in the specified circumstances. Although these may be convenient labels, they are not terms of art: describing the agreement as an “hybrid agreement” does not invest the fees that fell to be paid in any event with any special status. What is important and common ground is that the agreement between the parties as a whole is a CFA. The starting point, therefore, is that the agreement as a whole is unenforceable because it is a non-compliant CFA.
Second, the sums in play in this appeal are considerable, with the clients' claim against the Czech Republic being measured in billions and the fees claimed by the solicitors being measured in millions. The precise figures do not matter. That said, the issues that arise in this appeal are important irrespective of the sums at stake in the present case. They are capable of arising in much less exalted circumstances and could be of major significance to solicitors and clients even where the sums involved are more modest by many orders of magnitude.
The factual background
There was an initial agreement recorded in a letter dated 23 February 2017 from the solicitors and addressed to Dr Stava and Diag [“the February 2017 Agreement”]. The letter referred to Diag as the client of the solicitors. To signify agreement to its terms, Dr Stava signed the letter “for and on behalf of [Diag]”. There was an issue, which it is not necessary to resolve, about whether Dr Stava either was or became the solicitors' client under the February 2017 Agreement.
The February 2017 Agreement was conventional, with the solicitors' remuneration being based on hours worked at rates that were set out in the agreement. It provided for monthly billing and for monies to be paid on account. It incorporated the solicitors' standard terms of agreement, to which it is not necessary to refer further. It is common ground that it was valid and enforceable.
In September 2017 discussions took place. It does not matter who initiated them, but it is apparent that the existing fee arrangements were giving rise to difficulty. As a result, on 6 September 2017 the solicitors issued a side letter, the contents of which give rise to this appeal, as follows:
“Dear Dr Stava
This is a side letter to the engagement letter (the “ Engagement Letter”) signed between Diag Human SE (“Diag”) and Volterra Fietta. To the extent of any inconsistency between the terms of this side letter and those of the Engagement Letter, the terms of this side letter shall prevail. All terms of the Engagement Letter, to the extent not inconsistent with this side letter, shall continue in force. Terms defined in the Engagement Letter and not otherwise defined in the side letter shall bear the same meanings in this side letter as in the Engagement Letter.
1. The terms of the Engagement Letter and this side letter shall (notwithstanding anything else contained herein) apply to you personally, jointly and severally with Diag, to the extent that you are a claimant in a BIT claim brought on your behalf solely or jointly with Diag against the Czech Republic. In the event that we believe that there is a conflict of interest between you and Diag, we may be required to terminate our engagement with one of you.
2. The fees payable by Diag to Volterra Fietta in the first instance, to be invoiced and paid as set out in the Engagement Letter, shall be subject to a discount of 30%. This discount shall apply only to fees for work done by Volterra Fietta. It shall not apply to disbursements paid by Volterra Fietta on behalf of Diag which are re-invoiced to Diag. Nor shall it apply to fees charged by third parties for work done for Diag, whether or not this work is requested, mandated or supervised by Volterra Fietta.
3. In consideration of the discount referred to in paragraph 2, Diag shall, in the event (the “ relevant event”) of an award or settlement of its investment treaty arbitration claim against the Czech Republic, or enforcement or settlement of the Final Award (the “ commercial arbitration award”) issued in an ad hoc arbitration between Diag and the Czech Republic – Ministry of Health (Case No. RSP 06/2003) on 4 August 2008, or a combination of both, pay Volterra Fietta within 30 days of the relevant event additional fees as set out in paragraphs 5 to 7 (all of these paragraphs being cumulative).”
As foreshadowed in paragraph 3 of the side letter, paragraphs 5 to 7 set out the sums that would be payable depending on the outcome of the arbitration. Paragraphs 10 to 21 then set out how sums due were to be calculated in the event that the agreement was terminated, depending upon whether the issues of jurisdiction and merits were or were not bifurcated in the arbitration. The side letter concluded with a worked example of how the solicitors' fees should be calculated on given assumptions including a successful outcome in the arbitration. Subsequent calculations show that the worked example produced an uplift of 280% over the solicitors' base fees (i.e. their profit costs calculated on an hourly rate). The side letter was duly signed by Dr Stava, this time “for and on behalf of himself and [Diag]”.
There is therefore no doubt that, from 6 September 2017, Dr Stava and Diag were both clients of the solicitors under the agreement that was now set out in the original engagement letter of 23 February 2017 as varied by the side letter [“the September 2017 Agreement”]. Whether the September 2017 Agreement was a new agreement or a variation of the February 2017 Agreement seems to me to be irrelevant to its proper interpretation and the issues in this appeal. What is plain is that the September 2017 Agreement governed the question of fees for any and all work carried out by the solicitors from that date.
It was common ground before the Courts below and is common ground before us that, since the terms in paragraph 5 onwards of the side letter set out terms which were contingent on the outcome of the...
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