England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HON. MR JUSTICE ROUGIER

		Royal Courts of Justice Strand, London, WC2A 2LL
		25 November 1999

Thursday, 25 November 1999

LORD JUSTICE SCHIEMANN:

St Yves of Brittany, patron saint of lawyers, used in the thirteenth century to act for nothing for the poor. Many lawyers still do. At the other extreme are those who will only act in return for payment. In the middle are those who would be prepared to act for nothing or less than usual if their client loses but wish to be paid if their client wins. One such is the appellant Miss Geraghty. After a trial, Rougier J found that, prior to her carrying out the work in question, the solicitor and the client orally agreed on 20^th September 1993 that she would charge him at her normal rate if he won the litigation and would charge him at a lower rate (£90 per hour) if he lost the litigation. These appeals are concerned with the enforceability by her of that particular type of conditional fee agreement entered into by her with her client, Mr Awwad, in relation to libel litigation brought by him against Mr Gustavson.

The area of the law is one in which judicial perceptions have differed and in which there has been much public and parliamentary debate and some recent legislation. Many professions operate with the concept of success fees. But the position of solicitors and barristers is to a degree different in that they are regarded as owing a duty to the court which may require them to reveal to the court matters which it would be in the interests of their client to conceal. The background to the debate has been, on the one side, a historically widespread perception that if the lawyer has too much at stake in the success of the litigation then he may yield to the temptation to prolong litigation which could have settled or to a temptation to act improperly in order to secure success, and on the other side, a conviction that it aids access to justice if clients can litigate without the fear of having to pay both sides' costs if they lose.

The debate has been concerned purely with financial temptation. There are three categories of reward for success – (1) where the lawyer will recover some of the clients winnings; (2) where the lawyer will recover his normal fees plus a success uplift; (3) where the lawyer will only recover his normal fees. They used all to be described as contingent fees but, in what H.H. Judge Cook in the third edition of his book on Costs refers to as a triumph of semantics, situations (2) and (3) have in recent years been given the name of conditional fees whereas situation (1) is still described as a contingent fee. I shall keep that nomenclature for situation (1). The present case is concerned with situation (3) which I shall call a conditional normal fee case to distinguish it from situation (2) which I shall call the conditional uplift case.

So far as the position in the case of his client losing is concerned, the lawyer may agree to forego all his normal fees or a part of his normal fees. No one suggests that the answer to the questions posed in the present case should be determined by whether the lawyer agrees to forego all or merely part of his fees.

Manifestly the greater the potential gain for the lawyer the greater the potential temptation to misbehave. Looked at from that point of view, situation (1) is worse than (2) which is worse than (3). Looked at from the point of view of accessibility the converse is generally the case – the greater the reward of the lawyer if his client wins the more palatable for him is the risk that he may receive little or nothing if his client loses. The result of the public debate over the years has been a shift from a situation in which both contingency fees and conditional fees were generally regarded as unprofessional to one in which conditional fees are regarded as acceptable in closely defined circumstances.

The oral agreement between the solicitor and her client in the present case was not evidenced in writing. On the contrary, her letter of 20^th September 1993 merely refers to the charge of £90 per hour. The judge found that the absence of any reference to charging at her normal higher rate in the event of the client winning the litigation, was attributable to her desire to keep out of written correspondence and memoranda any reference to an agreement which appeared to be prohibited by the Solicitors Practice Rules. In due course the client took out the money which his opponent had paid into court and the libel litigation came to an end. She sent in a bill to her client charging merely the lower rate. Had there only been the letter of 20^th September and no oral agreement there would have been no problem. However, having found that the real agreement was the oral agreement of that date, Rougier J found that she was not entitled to recover a penny because the proceedings were champertous.

The Common Law so far as presently relevant was originally formulated in a context where these matters were not regulated by Statute. Recently Parliament has increasingly intervened to modify the Common Law and recent judgments regularly refer to the relevant statutes. Inevitably, Parliament legislates against its perception of the Common Law and the Courts' enunciations of public policy arguments take place in a context which includes changing public perceptions as evidenced in legislation. The appellant challenges the correctness of Rougier J.'s decision on the basis of recent developments in Statute Law and Common Law. She submits that it is no longer the policy of the law to deny a solicitor her ordinary profit costs in circumstances where she has agreed with her client that he should pay her nothing or less than her normal profit costs if he loses and her normal profit costs if he wins.

It is convenient to set out first the relevant statutory provisions and then to set out the developing case law.

II The legislation

The Solicitors Act 1974 contains the following relevant sections:

s. 31

(1) ..… the Council^[1] may … make rules, with the concurrence of the Master of the Rolls, for regulating in respect of any matter the professional practice, conduct and discipline of solicitors.

The Solicitors Practice Rules 1990 provided in 1993

Rule 8(1)

A solicitor who is retained or employed to prosecute any action, suit or other contentious proceeding shall not enter into any arrangement to receive a contingency fee in respect of that proceeding.

That rule has since been amended to add the following words

A solicitor who is retained or employed to prosecute or defend any action, suit or other contentious proceeding shall not enter into any arrangement to receive a contingency fee in respect of that proceeding save one permitted under statute or by the common law.

Rule 18(2) is a definitions rule and defines 'contingency fee' under Rule 18(2)(c) as meaning

….. any sum (whether fixed, or calculated either as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution of any action, suit or other contentious proceeding.

Section 58^[2] of the Courts and Legal Services Act 1990 as originally enacted provided

(1) In this section "a conditional fee agreement' means an agreement in writing between a person providing advocacy or litigation services and his client which -

(a) does not relate to proceedings of a kind mentioned in subsection (10)^[3];

(b) provides for that person's fees and expenses, or any part of them, to be payable only in specified circumstances;

(c) complies with such requirements (if any) as may be prescribed by the Lord Chancellor^[4]; and

(d) is not a contentious business agreement (as defined by section 59 of the Solicitors Act 1974).

(2) Where a conditional fee agreement provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not a conditional fee agreement, it shall specify the percentage by which that amount is to be increased.

(3) Subject to subsection (6), a conditional fee agreement which relates to specified proceedings shall not be unenforceable by reason only of its being a conditional fee agreement.

(4) In this section "specified proceedings" means proceedings of a description specified by order made by the Lord Chancellor for the purposes of subsection (3)^[5].

(5) Any such order shall prescribe the maximum permitted percentage for each description of specified proceedings.

(6) An agreement which falls within subsection (2) shall be unenforceable if, at the time when it is entered into, the percentage specified in the agreement exceeds the prescribed maximum permitted percentage for the description of proceedings to which it relates.

(7) Before making any order under this section the Lord Chancellor shall consult the designated judges, the General Council of the Bar, the Law Society and such other authorised bodies (if any) as he considers appropriate.

(8) Where a party to any proceedings has entered into a conditional fee agreement and a costs order is made in those proceedings in his favour, the costs payable to him shall not include any element which takes account of any percentage increase payable under the agreement.

That section has now been substantially amended by the Access to Justice Act 1999 so as to permit, amongst other things, conditional fee agreements in certain prescribed circumstances and so as to legislate that conditional fee agreements relating to contentious business but which do not conform to those circumstances are unenforceable.

III Developments in the case law

Since the hearing before Rougier J., the sort of issues with which this case is concerned have twice fallen to be decided by this court. In Thai Trading Co v Taylor [1998]Q.B. 785 this court was faced with a situation not dissimilar to the present. There, the counterclaiming defendant's husband, who was a solicitor, acted for her on the understanding reached prior to March 1993 that he would recover his ordinary profit costs only if she succeeded in the action. She obtained judgment on her counterclaim with costs. On a review of taxation of those costs the judge had held that he was bound by authority to hold that the arrangement as to fees was contrary to public policy and void as an agreement for a contingent fee, that therefore the defendant was not liable to pay her solicitor's profit costs^[6], and that, accordingly, by virtue of the indemnity principle, no liability attached to the plaintiff to pay those costs. This Court allowed the defendant's appeal. The leading judgment, with which Kennedy and Hutchison LJ agreed, was delivered by Millett LJ.. He said this at p.785:-

The Solicitors Act 1974

It should be observed at the outset that there is nothing in the Solicitors Act 1974 which prohibits the charging of contingent fees. Section 59 (2) merely provides that nothing in the Act shall give validity to arrangements of the kind there specified. It does not legitimise such arrangements if they are otherwise unlawful, but neither does it make them unlawful if they are otherwise lawful.

The Solicitors' Practice Rules 1987 by contrast provide that a solicitor engaged in any contentious business shall not enter into any arrangement to receive a contingency fee, that is to say a fee payable only in the event of success in the proceeding. There is now an exception for conditional fee agreements which satisfy the requirements of the Courts and Legal Services Act 1990. Except as there provided, therefore, it is unprofessional conduct for a solicitor to enter into any agreement even for his normal fee where this is dependent on achieving a successful result in litigation. The plaintiffs placed much reliance on this. But the fact that a professional rule prohibits a particular practice does not of itself make the practice contrary to law^[7]: see Picton Jones & Co. v Arcadia Developments Ltd. [1989] 1 E.G.L.R. 43 Moreover, the Solicitors' Practice Rules are based on a perception of public policy derived from judicial decisions the correctness of which is in question in this appeal.

Maintenance and champerty

The law governing contingent fees outside the scope of the Courts and Legal Services Act 1990 is derived from the public policy relating to champerty and maintenance. Until 1967 these were both criminal and tortious. Following the recommendation of the Law Commission on Proposals to Abolish Certain Ancient Criminal Offences (Law Com. No. 3) the Criminal Law Act 1967 provided that they should not longer be either criminal or tortious. Section 14 (2) of the Act, however, preserved the rule of the common law that they are contrary to public policy.

Maintenance was described by Lord Denning M.R. in In re Trepca Mines Ltd. (No. 2) [1963] Ch. 199, at p. 219 as "improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse". Champerty was described by Scrutton L.J. in Ellis v Torrington [1920] 1 K.B. 399, 412 as "only a particular form of maintenance, namely, where the person who maintains takes as a reward a share in the property recovered". This last formulation does not assume that the maintenance is unlawful. There can be no champerty if there is no maintenance; but there can still be champerty even if the maintenance is not unlawful. The public policy which informs the two doctrines is different and allows for different exceptions. In examining the present scope of the doctrine, it must be remembered that public policy is not static. In recent times the roles of maintenance and champerty have been progressively redefined and narrowed in scope. The current position is stated by the decision of the House of Lords in Giles v Thompson [1994] 1 AC 142, 161.

Maintenance

The policy underlying the law of maintenance was described by Fletcher Moulton L.J. in British Cash and Parcel Conveyors Ltd. v Lamson Store Service Co. Ltd. [1908] 1 KB 1006, 1014, in terms which were approved by Lord Mustill in Giles v Thompson [1994] 1 AC 142, 161:

"It is directed against wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse".

The language and the policy which it describes are redolent of the ethos of an earlier age when litigation was regarded as an evil and recourse to law was discouraged. It rings oddly in our ears today when access to justice is regarded as a fundamental right which ought to be readily available to all.

But even in former times maintenance was permissible when the maintainer had a legitimate interest in the outcome of the suit. This was not confined to cases where he had a financial or commercial interest in the result. It extended to other cases where social, family or other ties justified the maintenance in supporting the litigation. In Neville v London "Express" Newspaper Ltd. [1919] A.C. 368, 389 Lord Haldane said:

"Such an interest is held to be possessed when in litigation a master assists his servant, or a servant his master, or help is given to an heir, or a hear relative, or to a poor man out of charity, to maintain a right which he might otherwise lose".

…….

In the present case the plaintiffs do not contend that Mr. Taylor was guilty of unlawfully maintaining his wife's suit. He was doubly justified in doing so: the suitor was both his wife and his employee.

Champerty

In Giles v Thompson [1994] 1 AC 142, 161 Lord Mustill cited with approval Fletcher Moulton L.J.'s description of maintenance to which I have already referred, and added: "This was a description of maintenance. For champerty there must be added the notion of a division of the spoils".

The public policy which underlies the doctrine of champerty was described by Lord Denning M.R. in In re Trepca Mines Ltd. (No.2) [1963] Ch. 199, 219-220:

"The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses".

Describing champerty as "a particularly obnoxious form" of maintenance in Trendtex Trading Corporation v Credit Suisse [1980] Q.B. 629, 654 Lord Denning M.R. reserved his particular condemnation for the lawyer who charged a contingency fee, that is to say, a fee which would be payable only if his client was successful. He said:

"[Champerty] exists when the maintainer seeks to make a profit out of another man's action - by taking the proceeds of it, or a part of them, for himself. Modern public policy condemns champerty in a lawyer whenever he seeks to recover - not only his proper costs - but also a portion of the damages for himself: or when he conducts a case on the basis that he is to be paid if he wins but not if he loses". (My emphasis)

Lord Denning M.R. was there repeating what he had said in Wallersteiner v Moir (No. 2) [1975] Q.B. 373, 393:

"English law has never sanctioned an agreement by which a lawyer is remunerated on the basis of a "contingency fee", that is that he gets paid the fee if he wins, but not if he loses. Such an agreement was illegal on the ground that it was the offence of champerty".

Lord Denning M.R. was prepared nevertheless to authorise the plaintiff in a derivative action to enter into a contingency fee agreement, but the other members of the court (Buckley and Scarman L.JJ.) thought otherwise. It is, however, clear from the judgements of the majority that they did not have in mind the charging of normal fees contingent on success in the action. Thus Buckley L.J. said at page 402:

"Under a contingency fee agreement the remuneration payable by the client to his lawyer in the event of his success must be higher than it would be if the lawyer were entitled to be remunerated, win or lose: the contingency fee must contain an element of compensation for the risk of having done the work for nothing. It would, it seems to me, be unfair to the opponent of a contingency fee litigant if he were at risk of being ordered to pay higher costs to his opponent in the event of the latter's success in the action than would be the case if there were no contingency fee agreement".

It is understandable that a contingency fee which entitles the solicitor to a reward over and above his ordinary profit costs if he wins should be condemned as tending to corrupt the administration of justice. There is no reason to suppose that Lord Denning M.R. in Trendtex Trading Corporation v Credit Suisse [1980] Q.B. 629 or any of the members of the court in Wallersteiner v Moir (No. 2) [1975] Q.B. 373 had in mind a contingency fee which entitles the solicitor to no more than his ordinary profit costs if he wins. These are subject to taxation and their only vice is that they are more than he will receive if he loses. Such a fee cannot sensibly be described as a "division of the spoils". The solicitor cannot obtain more than he would without the arrangement and risks obtaining less. On the principle that "the worker is worthy of his hire" I would regard the solicitor who enters into such an arrangement, not as charging a fee if he wins, but rather as agreeing to forgo his fee is he loses. I question whether this should be regarded as contrary to public policy today, if indeed it ever was.

After referring to British Waterways Board v Norman 26 H.L.R. 232 (a decision of the Divisional Court and Aratra Potato Co Ltd v Taylor Joynson Garrett [1995] 4 All ER 695, a first instance decision, both of which followed the traditional approach of Lord Denning, he continued at p.789

If this is the law then something has gone badly wrong. It is time to step back and consider the matter afresh in the light of modern conditions. I start with three propositions. First, if it is contrary to public policy for a lawyer to have a financial interest in the outcome of a suit, this is because (and only because) of the temptations to which it exposes him. At best he may lose his professional objectivity; at worst he may be persuaded to attempt to pervert the course of justice. Secondly, there is nothing improper in a lawyer acting in a case for a meritorious client who to his knowledge cannot afford to pay his costs if the case is lost: see Singh v Observer Ltd. (Note) [1989] 3 All E.R. 777; A. Ltd. v B. Ltd. [1996] 1 W.L.R. 665. Not only is this not improper; it is in accordance with current notions of the public interest that he should do so. Thirdly, if the temptation to win at all costs is present at all, it is present whether or not the lawyer has formally waived his fees if he loses. It arises from his knowledge that in practice he will not be paid unless he wins. ……

Accordingly, either it is improper for a solicitor to act in litigation for a meritorious client who cannot afford to pay him if he loses or it is not improper for a solicitor to agree to act on the basis that he is to be paid his ordinary costs if he wins but not if he loses. I have no hesitation in concluding that the second of these propositions represents the current state of the law.

I reach this conclusion for several reasons. In the first place, I do not understand why it is assumed that the effect of the arrangement being unlawful is that the solicitor is unable to recover his proper costs in any circumstances. Where the solicitor contracts for a reward over and above his proper fees if he wins, it may well be that the whole retainer is unlawful and the solicitor can recover nothing. But where he contracts for no more than his proper fees if he wins, this result does not follow,. There is nothing unlawful in the retainer or in the client's obligation to pay the solicitor's proper costs if he wins the case. If there is anything unlawful, it is in the waiver or reduction of the fees if he loses. On ordinary principles the result of holding this to be unlawful is that the client is liable for the solicitor's proper costs even if he loses the case. I regard Aratra Potato Co. Ltd. v Taylor Joynson Garrett [1995] 4 All E.R. 695 as wrongly decided.

In the second place, it is in my judgment fanciful to suppose that a solicitor will be tempted to compromise his professional integrity because he will be unable to recover his ordinary profit costs in a small case if the case is lost. Solicitors are accustomed to withstand far greater incentives to impropriety than this. The solicitor who acts for a multinational company in a heavy commercial action knows that if he loses the case his client may take his business elsewhere. In the present case, Mr. Taylor had more at stake than his profit costs if he lost. His client was his wife; desire for domestic harmony alone must have provided a powerful incentive to win.

Current attitudes to these questions are exemplified by the passage into law of the Courts and Legal Services Act 1990. This shows that the fear that lawyers may be tempted by having a financial incentive in the outcome of litigation to act improperly is exaggerated, and that there is a countervailing public policy in making justice readily accessible to persons of modest means. Legislation was needed to authorise the increase in the lawyer's reward over and above his ordinary profit costs. It by no means follows that it was needed to legitimise the long-standing practice of solicitors to act for meritorious clients without means, and it is in the public interest that they should continue to do so. I observe that the author of Cook on Costs 2nd Ed. (1995) page 341 expresses his doubt that it is now against public policy for a solicitor to agree with the client that he will not charge a fee unless a particular result is achieved. I agree with him and would hold that it is not.

Conclusion

In my judgment there is nothing unlawful in a solicitor acting for a party to litigation to agree to forgo all or part of his fee if he loses, provided that he does not seek to recover more than his ordinary profit costs and disbursements if he wins. I would accordingly overrule British Waterways Board v Norman, 26 H.L.R. 232 and Aratra Potato Co. Ltd. v Taylor Joynson Garrett [1995] 4 All E.R. 695 and allow the appeal.

Judgment in that case was delivered on 27 February 1998. The Plaintiff petitioned the House of Lords to appeal but this petition was refused on 21^st June 1999 (sic)^[8]. Meanwhile, on 9 November 1998 judgment had been delivered by the Divisional Court (Rose L.J. and Mitchell J.) in Hughes v Kingston upon Hull City Council [1999] 2 WLR 1229. It fell for decision in that case whether the Divisional Court were bound by what had been said by Millett L.J. in Thai Trading. The Court came to the conclusion that where Millett L.J. stated that

"the fact that a professional rule prohibits a particular practice does not of itself make the practice contrary to law"

he had erred because he had not been referred to binding House of Lords authority. Rose L.J., said this at p.1235ff^[9]

In Swain v The Law Society [1983] 1 A.C. 598, 608 Lord Diplock said by reference to the Solicitors Act 1974:

"The Act of 1974 imposes the Society a number of statutory duties in relation to solicitors whether they are members of the Society or not..... Such rules and regulations may themselves confer upon the Society further statutory powers or impose upon it further statutory duties. [It also confers upon the Council of the Law Society, acting either alone or with the concurrence of the Lord Chief Justice and the Master of the Rolls or of the latter only, power to make rules and regulations having the effect of subordinate legislation under the Act.] Such rules and regulations may themselves confer upon the Society further statutory powers or impose upon it further statutory duties. [The purpose for which these statutory functions are vested in the Society and the Council is that of the protection of the public or, more specifically, that section of the public that may be in need of legal advice, assistance or representation. In exercising its statutory functions the duty of the Council is to act in what it believes to be in the best interests of that section of the public, even in the event (unlikely though this may be on any long term view) that those public interests should conflict with the special interests of members of the Society or of members of the solicitors' profession as a whole.] The Council in exercising its powers under the Act to make rules and regulations and the Society in discharging functions vested in it by the Act or by such rules or regulations are acting in a public capacity and what they do in that capacity is governed by public law; and although the legal consequences of doing it may result in creating rights enforceable in private law, those rights are not necessarily the same as those that would flow in private law from doing a similar act otherwise than in the exercise of statutory powers".

Lord Brightman (with whose speech, as indeed in relation to Lord Diplock's speech, the other members of the House agreed) said, at page 614:

"......The Law Society was incorporated by royal charter in 1831, and was granted its present charter in 1845. Its purposes are defined in the preamble to the 1845 charter as the promotion of professional improvement and the facilitation of the acquisition of legal knowledge. The society has a number of important statutory functions under the Solicitors Act 1974, which affect not merely the solicitors' profession but also the public well-being; for example, power to make regulations, with the concurrence of the Lord Chancellor, the Lord Chief Justice and the Master of the Rolls..... power, with the concurrence of the Master of the Rolls, to make rules for regulating the professional practice, conduct and discipline of solicitors (section 31)....."

Lord Brightman said, at page 621, and it is at the heart of Mr. Findlay's submission in relation to the Thai Trading case:

"The rules have the force of a statute, and the form of master policy and the form of certificate of insurance have statutory authority, just as much as if the rules, master policy and certificate were set out in a Schedule to the Act".

Mr. Findlay submitted that had Swain v The Law Society [1983] 1 A.C. 598 been before the Court of Appeal in the Thai Trading case [1998] QB 781 the second passage which appears on page 785 of Millett L.J's judgment which I have already read could not have appeared in that form.

……….

The significance of Swain v The Law Society [1983] 1 A.C. 598 and what there appears in relation to the statutory status of the solicitors rules is that the current Solicitors' Practice Rules 19990 provide, in rule 8, that a solicitor shall not enter into any arrangement to receive a contingency fee in respect of contentious proceedings. By virtue of rule 18 (2)(c) contingency fee is defined as meaning:

"any sum (whether fixed, or calculated either as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution or defence of any action, suit or other contentious proceedings...."

The submission by Mr. Findlay therefore is that the stipendiary's finding of fact which I have identified^[10] .... means that there was here a contingency fee, contrary to the statutory provisions of the Solicitors' Practice Rules and therefore the resultant arrangement was unenforceable. He therefore submitted that this appeal must fail. For my part, I am satisfied that that submission is unanswerable.

On 25^th March 1999 the court certified under section 1 (2) of the Administration of Justice Act 1960 that the following point of law of general public importance was involved in the decision, namely: "Are speculative agreements lawful, in particular in criminal cases where the solicitor claims costs from the other side if he wins and where there is no intention to create any liability for their own costs if proceedings fail?" Leave to appeal was refused by the Divisional Court. We do not know of any petition for leave being made.

The next case when this sort of point fell for decision by this court was Ali Mohammed v Alaga [1999] 3 All E.R.699 ( Lord Bingham of Cornhill CJ and Otton and Robert Walker LJJ) . Unfortunately, although the decision in Thai Trading was on counsel's list of authorities, the court was informed that it was of no assistance and did not look at it or have it in mind. In Mohammed the judge had struck out the statement of claim on the grounds that the claim was in contract, was illegal and was unenforceable. The pleaded contract was:-

"(a) that the plaintiff would from time to time introduce Somali refugees to the defendant, who would in turn apply for Legal Aid and thereafter represent them on their applications for asylum;

(b) that following the said introduction the plaintiff would assist the defendant by interpreting on behalf of the refugee clients, by filling out the necessary Green Form applications, by writing letters to the Home Office, Department of Social Security and others and thereafter attend with the clients at meetings with Home Office representatives;

(c) in consideration thereof the defendant agreed to pay commission of one half of any fees received by it from the Legal Aid Board in respect of any Somali Nationals who became clients of the said firm and who sought and obtained Legal Aid;

(d) that if and when the plaintiff required assistance from third parties to carry out his agreed responsibilities, payment to them would be made out of his commission;

(e) that the defendant would regularly disclose copies of all payments received by it from the Legal Aid Fund together with documents in support in respect of the Somali Nationals who became clients of the firm....."

The issue in the case was whether an agreement by an interpreter with a solicitor for the payment of a share of the Legal Aid fees earned by that solicitor in consideration of the introduction of clients and the provision of other associated services was legally enforceable, and if it was not legally enforceable, whether the other party had a claim against the solicitor in restitution for the value of the translation and interpretation services which he had rendered. This latter point had not been argued below.

The Chief Justice with whom the others agreed said this at page 703b:-

The judge recorded that, for purposes of the legal argument, he was making two factual assumptions in favour of the plaintiff, first, that the agreement alleged had been made; and second, that the plaintiff was unaware of any prohibition on fee-sharing agreements.

The first of the relevant Solicitors' Practice Rules 1990 is r. 3, which provides:

"Solicitors may accept introductions and referrals of business from other persons and may make introductions and refer business to other persons, provided there is no breach of these rules and provided there is compliance with a Solicitors' Introduction and Referral Code promulgated from time to time by the Council of the Law Society with the concurrence of the Master of the Rolls"

The Code provides in section 2 (3):

"Solicitors must not reward introducers by the payment of commission or otherwise. However, this does not prevent normal hospitality. A solicitor may refer clients to an introducer provided the solicitor complies with section 4 below".

Most relevantly our attention is drawn to r. 7 (1) which provides:

"A solicitor shall not share or agree to share his or her professional fees with any person except......" A series of exceptions are listed, none of which, it is accepted, applies in the present case".

Lord Bingham then referred to the passage in the speech of Lord Diplock in Swain's case which I have already cited and continued at page 704 :-

I would add that the requirement that the Master of the Rolls should concur in the making of rules under s. 31 is in my judgment enacted to ensure that the wider interest of the public is recognised in any rules that are made.

He summarised the appellant's case as follows at p.706a:-

(1) In the absence of any statutory or other legal restriction everyone is free to make any contract they like and such contracts are enforceable.

(2) While the Act confers power on the Law Society to make rules to regulate the conduct of solicitors, the Law Society has no power to regulate the conduct of the public at large who are not solicitors.

(3) Thus, while the Law Society may lawfully forbid solicitors to make fee-sharing agreements, it has no power to forbid anyone else, or to ordain that such agreements shall be unenforceable save by solicitors.

(4) In the absence of an effective legal prohibition a non-solicitor party who makes a fee-sharing agreement with a solicitor is entitled to enforce it.

(5) It would be repugnant if the party prohibited from making such an agreement (the solicitor) were free to take the benefits accruing to him under the agreement, but were then entitled to plead the illegality of the agreement when called upon to pay the consideration due to the other contracting party, particularly when (as assumed here) that party is ignorant of the prohibition binding on the solicitor.

Lord Bingham continued at page 706c :-

While recognising that that argument is, by no means, without force, I would not for my part accept it. I reject it for the following reasons.

(1) Section 31 confers power on the Law Society to make, with the concurrence of the Master of the Rolls, subordinate legislation governing the professional practice and conduct of solicitors.

(2) When making such subordinate legislation, the Law Society is acting in the public interest and not (should there by any conflict) in the narrower interests of the solicitors' profession (see Swain v Law Society). The concurrence of the Master of the Rolls is required as a guarantee that the interests of the public are fully safeguarded.

(3) By r. 3 of the rules and by the code, solicitors are permitted to accept referrals and introductions only provided that introducers are not rewarded by commission or otherwise.

(4) By r. 7 solicitors are prohibited from sharing fees or agreeing to do so.

(5) Thus there is a prohibition on the making by solicitors of agreements of the kind assumed to have been made in this case.

(6) Although it is true that the prohibition is only imposed in terms on solicitors, and they alone are liable to imposition of a professional penalty for breach, a contract requires the concurrence of at least two parties and the effect of the prohibition, if observed, is to outlaw the making of such agreement.

(7) There are substantial reasons why, in the public interest, such agreements should be outlawed, some of those reasons being described by Lightman J.

(8) It follows that if would defeat the public interest, which r. 7 in particular exists to promote, if a non-solicitor party to a fee-sharing agreement could enlist the aid of the court to enforce against a solicitor an agreement which the solicitor is prohibited from making.

(9) If the court were to allow its process to be used to enforce agreements of this kind, the risk would inevitably arise that such agreements would abound, outwith the knowledge of the Law Society.

He continued at p.707e

Fortunately for him, however, [counsel for the appellant] had another string to his bow. Reference has already been made to the pleaded allegation in paragraph 8 of the statement of claim that the plaintiff carried out translations and interpretations, wrote letters and attended meetings. In paragraph 15 a claim in quasi contract was made for remuneration for those services, which also featured as the fourth head of claim at the end of the pleading as a quantum meruit claim for services rendered. It is further a matter of agreement between he parties that the plaintiff has been paid what the defendant says were fees for interpretation and translation. Mr. McCombe accordingly claims that, even if the alleged agreement is discarded as illegal and unenforceable, and, without making any reference to that agreement at all, the plaintiff is entitled to be paid a reasonable sum for professional services rendered by him to the defendant on behalf of the defendant's clients, the surrounding circumstances being such as to show that such services were not rendered gratuitously.

Sir Godfray Le Quesne Q.C. representing the defendant, resisted that argument. It was, he submitted, only because of the unlawful fee-sharing agreement that the introductions were made by the plaintiff to the defendant at all. Accordingly, he suggested that the plaintiff was in effect seeking to recover part of the consideration payable under an illegal and unenforceable agreement.

That is, I think, a possible view of the case. But the preferable view in my judgment is that the plaintiff is not seeking to recover any part of the consideration payable under the unlawful contract, but simply a reasonable reward for professional services rendered. I accept that as an accurate description of what on this limited basis the plaintiff is, in truth, seeking. It is furthermore in my judgment relevant that the parties are not in a situation in which their blameworthiness is equal. The defendant is a solicitors' firm and bound by the rules. It should reasonably be assumed to know what the rules are and to comply with them.

It is manifestly unfortunate that Swain was not cited in Thai Trading and that neither Thai Trading nor Kingston were cited in Mohammed. As it seems to me the criticism made of Thai Trading in Kingston was justified. However, although the court in Thai Trading may have been in error in asserting that breach of a professional rule did not involve any illegality, it does not necessarily follow that the court could not have decided that the illegality in question was not of such a nature as to render the whole agreement unenforceable. In that state of the recent authorities in my judgment while this court is bound by Swain we are not bound to follow either Thai Trading or Mohammed. It is unfortunate that, for reasons which in the context of this particular case are perfectly understandable, while Miss Geraghty has argued in favour of following Thai Trading, we have heard no argument to the contrary.

IV Does public policy prohibit the recovery of conditional normal fees?

In Swain it was held that rules made under similar powers were to be regarded as a form of delegated legislation. It is conceded that the rules in the present case must be regarded in the same light. It was submitted on behalf of the appellant that Rule 8(1) should not be construed so as to render an agreement to recover a conditional normal fee unenforceable as being illegal because if it was so construed then it would be ultra vires. That submission went as follows:-

1. No statutory provision makes a conditional normal fee irrecoverable. S.59(2) of the Solicitors Act 1974 does not render any agreement illegal. It merely provides that nothing in s.59(1) of that Act should give validity to such an agreement^[11]. S.58 of the Courts and Legal Services Act 1990 similarly does not render such an agreement illegal. It also merely renders legal some conditional fee agreements of which the present is admittedly not one
2. At Common Law sums on the face of it due under a conditional normal fee agreement were in 1993 not irrecoverable.
3. s.31 of the Solicitors Act 1974 empowers the Council to make rules regulating the professional practice of solicitors but does not empower the Council to make irrecoverable fees which at Common Law and under Statute law are recoverable.

I would accept the first of these propositions. The situation has now been tidied up by the Access to Justice Act 1999 but that is of no present relevance. However, after considerable hesitation, I have come to the conclusion that the second of these submissions should be rejected and that therefore the third does not need to be examined.

Before considering the second submission it is potentially important, in a situation in which public policy as expressed in litigation is clearly on the move, to be clear as to the date in relation to which the Common Law has to be established. We have not been addressed on this point but it appears common ground that the relevant date is the date of the agreement rather than the date of commencement of proceedings, the date of the judgment of the court below or the date of this court's judgment. I proceed on that basis.

As to the second submission, I am very conscious that there are substantial arguments in favour of the enforceability of conditional normal fee agreements. The following points amongst others can be made:-

4. A conditional normal fee arrangement is of advantage to the client.
5. It does not, on its face at any rate, increase the potential liability for costs of the client's litigation opponent should he in due course be ordered to pay the costs of the litigation.
6. It is of potential advantage to the litigation opponent of the client in that, if such opponent is awarded costs against the client, the client's assets from which those costs must be taken will be larger because they will not have been diminished by costs owed to the client's own lawyer.
7. The agreement does not involve any division of the spoils in the way that a contingent fee agreement does and in the way in which, arguably, a conditional uplift fee agreement does^[12]. There is therefore no extra incentive for the lawyer to stir up litigation.
8. The temptation to the lawyer to act improperly is less than it would be if the agreement was a contingent fee or conditional uplift agreement.
9. If the lawyer's client has no assets then a conditional normal fee agreement merely gives legal form to what is a practical reality - the lawyer only gets paid if the client wins. Yet it is accepted as laudable for lawyers to act in such circumstances.
10. There is nothing improper in the lawyer agreeing to act for the client for his normal fee whilst having it in his mind, for reasons of friendship or wishing to foster future work from that client, not to exact his fee if the client should lose. It seems odd that an open contractual statement of what is unobjectionably in a solicitors' mind should render unenforceable an agreement which would have been enforceable had the solicitor not shared his thoughts with his client and promised not to change his mind.
11. Situations can arise where initially a normal fee agreement is entered into between lawyer and client. Thereafter the client, before the conclusion of the litigation, becomes financially unable to promise to continue to pay his lawyer even if he loses. It is manifestly undesirable for the lawyer to leave the client in the lurch. A conditional normal fee agreement covering the remainder of the litigation, perhaps the last day of a trial which has run for longer than expected, has much to be said for it. The distinction between waiver at that point and waiver after the conclusion on the case is a nice one.
12. A conditional fee agreement facilitates access to the courts by members of the public.
13. Leave to appeal against Thai Trading was refused by the House of Lords. Although in general the mere refusal of leave by the House lends no added authority to a decision of this court, had Thai Trading been perceived by their Lordships as permitting something which was illegal and against public policy then it is probably reasonable to suppose that leave would have been given.

But equally there are arguments on the other side. While a conditional normal fee perhaps does not expose a lawyer to the same temptations as a contingency fee it does expose him to temptations to which he would not be exposed if he had not entered into it. The following points can be made:-

14. The public interest in the highest quality of justice outranks the private interests of the two litigants. This renders it particularly important that lawyers should not be exposed to avoidable temptations not to behave in accordance with their best traditions.
15. The concept of a "normal" fee is singularly elusive - some solicitors' normal fees are a multiple of those charged by others for what on the face of it is the same work.
16. It would be very difficult and undesirable for the answer to the question whether or no an agreement is illegal to depend on a detailed examination in each case of solicitors' costs structures.
17. If solicitors practices are set up, the bulk of whose business is conducted on the basis of conditional normal fees arrangements, then their normal fees would presumably have to be higher than they would have been had such arrangements not been normal in the firm.

It is worth citing a little more from Wallersteiner v Moir (No.2) 1975 Q.B.373. Lord Denning M.R. said this:-

5 Contingency fee

English law has never sanctioned an agreement by which a lawyer is remunerated on the basis of a 'contingency fee', that is that he gets paid the fee if he wins, but not if he loses. Such an agreement was illegal on the ground that it was the offence of champerty. In its origin champerty was a division of the proceeds (campi partitio). An agreement by which a lawyer, if he won, was to receive a share of the proceeds was pure champerty. Even if he was not to receive an actual share, but payment of a commission on a sum proportioned to the amount recovered—only if he won—it was also regarded as champerty: see Re Attorneys and Solicitors Act 1870 ((1875) 1 Ch D 573d at 575) by Jessel MR; Re A Solicitor. Even if the sum was not a proportion of the amount recovered, but a specific sum or advantage which was to be received if he won but not if he lost, that, too, was unlawful: see Pitman v Prudential Deposit Bank Ltd by Lord Esher MR. It mattered not whether the sum to be received was to be his sole remuneration, or to be an added remuneration (above his normal fee), in any case it was unlawful if it was to be paid only if he won, and not if he lost.

That state of the law has been recognised by Parliament. In a series of Solicitors Acts from 1870 to 1974, a solicitor may make any agreement he likes with his client as to his remuneration save that—

'nothing [herein] … shall give validity to … (b) any agreement by which a solicitor retained or employed to prosecute any action, suit or other contentious proceeding, stipulates for payment only in the event of success in that action, suit or proceeding … ^[13]

Now for recent changes. In 1967, following proposals of the Law Commission, Parliament abolished criminal and civil liabilities for champerty and maintenance, but subject to this important reservation in the Criminal Law Act 1967, s 14(2):

'The abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal.'

It was suggested to us that the only reason why 'contingency fees' were not allowed in England was because they offended against the criminal law as to champerty; and that, now that criminal liability is

abolished, the courts were free to hold that contingency fees were lawful. I cannot accept this contention. The reason why contingency fees are in general unlawful is that they are contrary to public policy as we understand it in England. That appears from the judgment of Lord Esher MR in Pittman v Prudential Deposit Bank (13 TLR at 111):

'In order to preserve the honour and honesty of the profession it was a rule of law which the Court had laid down and would always insist upon that a solicitor could not make an arrangement of any kind with his client during the litigation which he was conducting so as to give him any advantage in respect of the result of that litigation.'

Seeing that the general rule is one of public policy, it is preserved by s 14(2) of the 1967 Act. It is so treated in the Solicitors' Practice Rules 1936–1972^[14]. Rule 4, so far as material, says:

'(1) "contingency fee" means any sum (whether fixed or calculated either as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution of any action, suit or other contentious proceeding …

'(3) A solicitor who is retained or employed to prosecute any action, suit or other contentious proceeding shall not enter into any agreement or arrangement to receive a contingency fee in respect of that action, suit or other contentious proceeding.'

In my opinion, those rules accurately state the general rule as to contingency fees.

Buckley L.J. said

. A contingency fee, that is, an arrangement under which the legal advisers of a litigant shall be remunerated only in the event of the litigant succeeding in recovering money or other property in the action, has hitherto always been regarded as illegal under English law on the ground that it involves maintenance of the action by the legal adviser. Moreover, where, as is usual in such a ca

se, the remuneration which the adviser is to receive is to be, or to be measured by, a proportion of the fund or of the value of the property recovered, the arrangement may fall within that particular class of maintenance called champerty.

............

It may, however, be worthwhile to indicate briefly the nature of the public policy question. It can, I think, be summarised in two statements. First, in litigation a professional lawyer's role is to advise his client with a clear eye and an unbiased judgment. Secondly, a solicitor retained to conduct litigation is not merely the agent and adviser to his client, but also an officer of the court with a duty to the court to ensure that his client's case, which he must, of course, present and conduct with the utmost care of his client's interests, is also presented and conducted with scrupulous fairness and integrity. A barrister owes similar obligations. A legal adviser who acquires a personal financial interest in the outcome of the litigation may obviously find himself in a situation in which that interest conflicts with those obligations. See in this connection Neville v London Express [1919] AC 368 at 382 et seq. and Re Trepca Mines Ltd (Application of Radomir Nicola Pachitch (Pasic) ,[1963] Ch 199 at 219, 255.

This is not something which can be dealt with by judicial orders, directions or rules. We cannot constrain any solicitor to accept a retainer on a contingency fee basis, nor can we require the Law Society to alter its rules. The matter is, indeed, one which, in my opinion, would require comprehensive consideration by a body such as the Law Commission, the Lord Chancellor's Law Reform Committee or a specially appointed committee before any change were made on these lines; and any change must be effected by an alteration in the relevant professional rules of etiquette or by legislation. Accordingly the suggestion that recourse might be had in this case to contingency fees is not, in my judgment, a suggestion which we can adopt. In any case, in my opinion, public policy does not require its adoption if another solution of the problem is available.

Scarman L.J. said

A contingency fee for conducting litigation is by the law of England champerty and, as such, contrary to public policy. This is law of longstanding. It has been frequently declared by the courts. In the comparatively recent case of Re Trepca Mines Ltd (Application of Radomir Nicola Pachitch (Pasic)), the Court of Appeal reaffirmed it, Lord Denning MR using these words [1963] Ch at 218:

'I pause here to say that they [i.e. the agreements in the case] were both clearly champertous agreements … They were clearly unlawful and not capable of being enforced in England.'

It is to be noted that the rule does not depend on solicitors' practice or their practising rules, but on public policy^[15]. As Lord Esher MR put it in the passage quoted by Lord Denning MR from Pittman v Prudential Deposit Bank (Ltd) ((1896) 13 TLR 110 at 111), the courts laid down the rule 'in order to preserve the honour and honesty of the profession'.

Times have changed since 1896, and indeed in one significant respect since 1963, when Trepca Mines Ltd was decided. The maintenance of other people's litigation is no longer regarded as a mischief: trade unions, trade protection societies, insurance companies and the state do it regularly and frequently. The law has always recognised that there can be lawful justification for maintaining somebody else's litigation; today, with the emergence of legal aid, trade unions, and insurance companies, a great volume of litigation is maintained by persons who are not parties to it.

As Pearson LJ remarked in Trepca Mines Ltd [1963] Ch at 226 champerty is a species of maintenance. The law, may, therefore, recognise exceptions to its illegality: and Lord Denning MR proposes that an exception should be recognised in the case of a stockholder's derivative action. There is, however, no trace of any such an exception in the books. This is not surprising. It would be strange if the company could be compelled to pay a percentage of the moneys it recovers in the action to the plaintiff's solicitor without its consent; for the order proposed by Lord Denning MR does not and cannot depend on the consent of the company which is, ex concessis, in the control of the defendant.

Secondly, there is no need for the exception. Justice can be done without resort to it. We are giving Mr Moir the court's sanction for the conduct by him of the counterclaim on behalf of the two companies, the effect of which is that he has a full indemnity for his costs. Of course, this is not complete protection; for instance, one or both of the companies concerned might become insolvent; but this is a risk often faced by litigants in all sorts of cases. Ought this court now to introduce into the law the exception proposed by Lord Denning MR? I think not.

Counsel, who at our invitation and on the instructions of the Law Society has presented submissions on the question as amicus curiae (thereby helping the court immensely), has made the Law Society's position abundantly clear: they believe that the implications of creating the exception proposed by Lord Denning MR calls for further study. I agree. The exception, if it is to come, could have repercussions which in this, or indeed any litigation, the courts cannot fully probe, analyse, or assess. It is legislative, not forensic work. This was clearly the view of the Law Commission when it reported^[16] on maintenance and champerty in 1966.

The Law Commission reported in favour of abolishing the criminal offences of maintenance and champerty, and tortious liability in respect of them, but described the question of allowing contingency fees in litigation as a big question 'upon which the professional bodies as well as the public must have further time for reflection before any solutions can or should be formulated' (para. 19 of the report). When Parliament passed legislation to give effect to the Law Commission's proposals, it was careful to preserve the existing law insofar as it declared contracts of maintenance or champerty to be illegal: Criminal Law Act 1967, s 14(2).

Although I could have wished to have seen by now some results from 'the further study' of contingency fees which the Law Commission recommended (para. 20), the delay in the matter (which may or may not be inevitable, I do not know) is no excuse for the court attempting to do the work of the legislature.

One final point. I am not impressed with the argument based on r 5 of the Solicitors' Practising Rules 1972. The rule empowers the Council of the Law Society to waive in writing a practising rule in a particular case or cases. Since the prohibition of a solicitor from conducting his client's litigation on a contingency fee basis is made part of the practising rules (r 4), it is said that it can be waived by action taken under r 5. Waiving a practice rule is one thing; changing the law is quite another matter. We are faced with a rule of law recognised as such by the Court of Appeal. If on a consideration of the law we were able to say it permits of an exception, then no doubt the Law Society could waive its rule, if it thought fit. But, if, as I think, the present state of the law recognises no such exception, we are in no position either to invite the Law Society to waive its rule or to hold that such a waiver could introduce into the law an exception which otherwise would not exist.

The Solicitors Practice Rules may do no more than reflect public policy developed elsewhere - which seems to have been the approach of Scarman L.J. in the passage in the quotation which I have emphasised. Alternatively they may be regarded in this respect as laying down public policy by persons chosen in legislation as being best placed to do this - which gains some support from the passage which I have cited from Lord Bingham's judgment in Mohammed commenting on Swain.

While I accept that the observations which I have cited from Wallersteiner may not be technically binding upon this court in relation to conditional normal fee agreements and that they could, as is suggested by Millett L.J. in Thai Trading, be confined to contingent fees and conditional uplift fees, I have no doubt that they do reflect the general understanding of the Common Law in 1993, which understanding I consider was shared by Parliament during the recent legislation. What I have called a conditional normal fee case is described in Scotland as a speculative action^[17]. The Lord Chancellor's Green Paper on Contingency Fees^[18] stated in paragraph 4.2

There does not appear to be any substantial argument against the introduction^[19] of speculative actions in England and Wales.

The White Paper published later in the year stated in paragraph 14.3

The Government accordingly proposes to remove the existing prohibitions to enable clients to agree with any or all of their lawyers payment of a conditional fee on the speculative basis already permitted in Scotland.

It is manifest that everyone was proceeding on the basis that speculative actions were not permitted in England and that legislative action was required to change this.

I share Lord Scarman's reluctance to develop the Common Law at a time when Parliament was in the process of addressing those very problems. It is clear from the careful formulation of the statutes and regulations that parliament did not wish to abandon regulation altogether and wished to move forward gradually. I see no reason to suppose that Parliament foresaw significant parallel judicial developments of the law. I add that, on the judge's findings in the present case, it appears that this understanding was shared by the solicitor who successfully endeavoured to prevent the conditional normal fee agreement from being evidenced in writing.

I would therefore hold that acting for a client in pursuance of a conditional normal fee agreement, in circumstances not sanctioned by statute, is against public policy. In those circumstances I would also reject the submission that the Rules were ultra vires, a submission which was premised on the assumption that the rules sought to forbid what was permitted under the Common Law.

I conclude this section with a few comments on submissions made on behalf of the solicitor on the basis that the court finds such an agreement against public policy.

Mr Dutton Q.C., encouraged by the approach of this court in Thai Trading, submitted that the proper construction of the oral agreement in question was that the solicitor's normal fee was due on completion but the solicitor promised not to enforce a fee above £90 an hour. That was not the agreement which the Judge found had been concluded. For my part I would in any event reject that as a sensible distinction in relation to the problems with which we are concerned. If the solicitor promises for consideration not to enforce above £90 an hour then the situation seems to me indistinguishable from an agreement that only £90 an hour should be paid.

Mr Dutton also founded submissions on the passage in Millett L.J.'s judgment which I have cited to the effect that, since there is nothing intrinsically wrong in the agreement that the client should pay costs if the client won the libel action, that part of the agreement could be enforced. What was unlawful, was the agreement not to charge if the client lost. That appears to me to be a miscategorisation. If any thing is against public policy it is the solicitor undertaking or continuing to act for a party in litigation in circumstances where the solicitor stands to gain more from the action if it is won than if it is lost.

Mr Dutton submitted that, even if it was a breach of the Practice rules to enter into a conditional normal fee agreement, and even if those Rules, construed as I would construe them, were intra vires nevertheless it did not follow that the courts would totally refuse to enforce the agreement - for the courts to act thus would leave the client with all the benefit of the work done by the solicitor under a concessionary arrangement made for the benefit of the client and would leave the solicitor bereft of any reward for a lot of work. For my part, I would hesitate to say, in the absence of full argument, that any breach of the rules in the course of reaching a fees agreement necessarily involved forfeiting all possibility of enforcing the agreement. But the present case is one where it seems to me that, if such an agreement is against public policy ( as I think it was in 1993) then it should not be enforced by the courts. It would be inappropriate to leave the enforcement of this policy purely to the disciplinary processes of the professional body.

V The procedural background to the present appeals

The main appeal is by Miss Geraghty in these circumstances. In March 1996 her retainer was terminated by Mr Awwad. In April she provided him with a signed bill of costs charging £90 an hour for her work. He refused to pay and sought solicitor and own client taxation by Originating Summons dated 8th May 1996. In September 1996 this was amended for the first time to allege that the retainer was a "differential fee arrangement" and that therefore nothing was recoverable by her. Two preliminary issues were tried by Rougier J of which only one concerns us, namely, what were the precise terms of the retainer. I have already indicated his findings in the first paragraph of this judgment. The judge held this retainer to be unenforceable and ordered that the proceedings under the Originating Summons be stayed save for the purpose of giving effect to his order. He ordered Geraghty & Co to pay two thirds of Mr Awwad's costs. After the subsequent decision in Thai Trading came to her attention, Miss Geraghty successfully applied to Ward L.J. for leave to appeal a few days out of time; and, on the same occasion, on Mr. Awwad's application, that Judge directed that the notice of appeal be served upon Mr. Gustavson, against whom, by accepting a payment into court, Mr. Awwad had obtained a judgment in the libel proceedings. By the skeleton arguments submitted to us by their counsel, Miss Geraghty and Mr. Gustavson differed as to the correctness of the decision in Thai Trading, while Mr. Awwad adopted a neutral stance on this. Later Miss Geraghty and Mr. Gustavson came to an agreement which, as we were informed, left Mr. Gustavson with no interest in the outcome of the appeal: and, in the result, he was not represented before us.

The second appeal is concerned with the impact of the judge's costs order upon Mr Humphreys who was a partner of Miss Geraghty for a short period of the time whilst she was retained by Mr Awwad and for some time thereafter. I shall consider Mr Humphreys' appeal in part IX of this judgment. Before doing so I shall consider shortly three further submissions which were made on behalf of Miss Geraghty to the effect that she was entitled to be paid for her work.

VI The variation submission

It will be recalled that on the 20th September 1993, the day of the oral agreement between Miss Geraghty and Mr Awwad she sent him a letter of which in due course he signed a copy. That letter contained no reference to any conditional normal fee arrangement but did contain the following:-

I shall carry out most of the work personally. My charge rate in this instance will be £90 per hour.

Mr Dutton submits that even if, as the judge found, the original oral agreement of that date was a conditional normal fee agreement, by the time Miss Geraghty

sent in her bill in 1996 the agreement had been varied to a simple agreement to pay £90 in any event and that the element of conditionality had been excised by agreement. He relies on a variety of indications in attendance notes and later letters between 1993 and 1995 to evidence such a variation. In particular he relies on a letter of 28th September 1995 written by Miss Geraghty to Mr Awwad with which she enclosed her letter of 20th September 1993. He submits that it would have been impossible for her in those circumstances thereafter to seek to recover any fee calculated at her normal, higher, rate.

I am no more persuaded by this submission than was the judge. Mr Awwad and Miss Geraghty had reached an agreement whereunder he was only to be charged £90 an hour but his litigation opponent Mr Gustavson would be charged her normal higher rate. Why should Mr Awwad wish to vary such an agreement? As a libelled man with a grievance if anything his desire was plainly to make life as uncomfortable for Mr Gustavson as possible. Indeed whilst he was negotiating a settlement with him he, with her approval, was asking that she should be paid at a rate of £150 per hour. She shows no signs of ever having been interested in varying the agreement. From her point of view such a thing only made sense as a ploy to prevent Mr Gustavson from being able to plead that it was void as being against public policy. But she had no reason to suppose that Mr Gustavson would ever hear of the conditional normal fee agreement. She had carefully arranged, according to the judge's findings, that no evidence of the agreement should appear in any document. The judge found no evidence of an agreement on Mr Awwad's part to such a variation nor did she give evidence of any desire on her part to vary any agreement. She maintained throughout the trial that the original agreement was for £90.

VII The estoppel submission

Mr Dutton submits that the principle of fair conduct referred to in Panchaud Frères Établissement Grains [1970] 1 Lloyd's Rep. 53 prevents Mr Awwad from now taking the point that she had agreed a higher figure than £90 in the event of his winning the libel litigation and that therefore the agreement was champertous. I disagree for a number of reasons. One will suffice. The principle in that case does not prevent Mr Awwad from asserting facts in his evidence. If those facts lead the court to the conclusion that the agreement was champertous then the court will refuse to enforce it what ever Mr Awwad's attitude. Points on illegality are taken by the court of its own motion, not because of any consideration of fairness as between the two parties to the dispute but on wider considerations. The principle in Panchaud is simply not in play.

VIII Quantum meruit

Mr Dutton attempted to make use of that part of the decision in Mohammed which ruled that the interpreter was entitled to be paid a fair fee for his work as interpreter notwithstanding that his agreement to work as such was part of a champertous agreement which the court refused to enforce. In my judgment this attempt should fail. If the court, for reasons of public policy refuses to enforce an agreement that a solicitor should be paid it must follow that he can not claim on a quantum meruit. The position in Mohammed was totally different. The interpreter was blameless and no public policy was infringed by allowing him to recover a fair fee for interpreting; the public policy element in the case only affected fees for the introduction of clients. In the present case, what public policy seeks to prevent is a solicitor continuing to act for a client under a conditional normal fee arrangement. That is what Miss Geraghty did. That is what she wishes to be paid for. Public policy decrees that she should not be paid.

IX Mr Humphreys' appeal

The main issue in the costs litigation before Rougier J. was whether Mr Awwad was liable to the firm consisting of Miss Geraghty and Mr Humphreys to pay the costs of the libel litigation by Mr Awwad against Mr Gustavson which never came to trial. I shall call those the libel costs. Mr Humphrey's appeal is concerned with the costs of the litigation in front of Rougier J. which I shall call the originating summons costs . The judge, as I have already indicated, ordered Geraghty & Co to pay two thirds of the originating summons costs. Mr Humphreys, her erstwhile partner, applied to the judge for a declaration that he be not jointly liable with her for the payment of those costs. The judge refused to make that declaration. The second appeal is concerned with the correctness of that refusal.

The judge found the following relevant facts:-

18. Mr Humphreys and Miss Geraghty were in partnership between 6.1.1996 and 6.9.1997.
19. He was therefore not a partner when the conditional fee agreement was made.
20. He did not know that this agreement had been made.
21. The bill of costs relating to the libel litigation was delivered at a time when he was a partner.
22. He signed the acknowledgement of service of the originating summons as a partner.
23. The summons, at the time, made no reference to the conditionality of the retainer in the libel litigation.

To those findings could be added

24. The undisputed fact that a small part of the fee which was claimed in the bill of costs related to work done by Miss Geraghty during the time when he was a partner.
25. The undisputed evidence that between Miss Geraghty and Mr Humphreys there was an agreement to the effect that all of the fees in relation to the libel action would be hers.

The judge held that Mr Humphreys was a party to the proceedings before him but that he, the judge, had a discretion not to award costs against him. He however saw no reason to depart from the normal rule that each unsuccessful defendant in proceedings should be liable for the costs of those proceedings.

The libel costs could not be recovered by Miss Geraghty from Mr Awwad without her first having delivered a bill of costs pursuant to s.69 of the Solicitors Act 1974. Such a bill of costs was delivered on the notepaper and in the name of Geraghty & Co, a firm of which Mr Humphreys was at that time a partner. The originating summons in which the originating summons costs were incurred was issued on behalf of Mr Awwad because he was entitled under s. 70 of that Act to make an application to the High Court for the bill to be taxed. In that summons he correctly named Geraghty & Co as respondents. This had the effect, as is conceded, of making Mr Humphreys, who was at that time a partner, a respondent. The fact that thereafter Mr Humphreys left the partnership does not alter the fact that he remained a respondent to the originating summons. He could have asked at any time to take no further part in the proceedings and could have made whatever admissions were requisite to produce his release. He did not for reasons one can well understand. Thus the formal position was that he was one of the partners claiming fees, he never renounced his claim so far as Mr Awwad was concerned and he remained in litigation in which his entitlement to those fees was in issue. The fact that his entitlement turned upon matters which happened before he joined the firm does not alter the formal position. Nor does the fact that the point which was chiefly argued in the originating summons litigation was first raised after Mr Humphreys had acknowledged service on behalf of the firm.

Mr Stephen Jones on behalf of Mr Humphreys submits that the latter has done nothing which increased the costs of the originating summons proceedings in any way and that it would be unreasonable to expect him to have disassociated himself publicly from an argument being put forward by Miss Geraghty whom he had no reason to disbelieve. He submits that the failure by Mr Humphreys to disassociate himself from her has not contributed to the costs and that if he had disassociated himself it would not have reduced those costs. I see no reason to doubt any of this.

However none of it is any reason why Mr Awwad, who presumably thought he was litigating in circumstances where, if he was successful and obtained an award of costs, he would have recourse against two people, should be deprived of recourse against one of them. I see no reason to suggest that the judge went outside the limits of his discretion as to costs. He was asked to make an unusual order by Mr Humphreys and there were good reasons for refusing to do so.

X Conclusion

I would dismiss each of these appeals.

LORD JUSTICE MAY:

I agree with Schiemann L.J. that the appeal of Geraghty & Co should be dismissed. I gratefully adopt his account of the facts and will not cite at length from statutory provisions or authorities which he has set out.

In his judgment given on 12th December 1997, Rougier J. decided that Miss Geraghty had, on 20th September 1993, entered into an agreement with Mr Awwad that she would charge her full normal rate if he won his libel litigation, but a reduced rate of £90 per hour if he lost. In the state of the law as it then appeared to be, this was an unlawful agreement and Miss Geraghty or Geraghty & Co were not entitled to charge anything for the large amount of work that she had done.

I consider that any payment to Miss Geraghty of the difference between her normal charging rate and the £90 per hour which she agreed to receive if Mr Awwad lost his libel action was a "sum ... payable only in the event of success in the prosecution of [the action]". It was a contingency fee within the definition in rule 18(2)(c) of the Solicitors' Practice Rules 1990 as they stood in 1993. Her agreement was, therefore, an "arrangement to receive a contingency fee" prohibited by rule 8(1). I reject Mr Dutton's submission that these provisions should be construed purposively so as not to apply to an agreement to charge no more than a normal fee. The submission depended on the premise that such an agreement was permissible at common law and, as will be seen, I do not accept the premise. Nor am I persuaded (as was Millett L.J. in the Thai Trading Co. V. Taylor [1998] QB 781 at 788E) that there is any difference in substance between an agreement to charge a fee or an enhanced fee if the client wins and an agreement to forgo some or all of the fee if he loses. They are the same, and each comes within the definition in rule 18(2)(c).

The Solicitors' Practice Rules are made under section 31 of the Solicitor's Act 1974 by the Council of the Law Society with the concurrence of the Master of the Rolls. They are secondary legislation having the force of statute, as was decided in Swain v. The Law Society [1983] 1 A.C. 598. The Rules regulate professional practice, but breach of the Rules is unlawful in addition to being a breach of professional practice. This court in the Thai Trading case unfortunately did not consider Swain. A necessary part of the decision in the Thai Trading case was the proposition (at page 785H) that "the fact that a professional rule prohibits a particular practice does not of itself make the practice contrary to law". This means, in my judgment, that Millett L.J.'s conclusion at page 790H cannot be correct for a breach of rule 8(1) of the Solicitors' Practice Rules 1990 as they stood in 1993. In my view, the Divisional Court in Hughes v. Kingston upon Hull City Council [1999] 2 WLR 1229 decided this point correctly. The decision in Hughes has very recently been applied, in my view again correctly, by another Queen's Bench Divisional Court in Leeds City Council v. Carr (15.10.99 - The Times 12.11.99).

Although no doubt not every trifling breach of the Solicitors' Practice Rules would render a transaction with which it was concerned unenforceable, in my view an arrangement to receive a contingency fee contrary to rule 8(1) would make the fee agreement which it comprised unenforceable. That was the conclusion of this court where there was a breach of rule 7 of the Solicitors' Practice Rules, which forbids fee sharing, in Mohammed v. Alaga [1999] 3 All ER 699. In the context of enforceability, I can see no distinction of substance or quality between an unlawful contingency fee arrangement and an unlawful agreement to share professional fees. The facts of the present case are stronger against enforceability than were those in Mohammed v. Alaga. Geraghty & Co are solicitors seeking to enforce an arrangement which, as the judge found, Miss Geraghty knew to be contrary to the Rules of her profession. In Mohammed v. Alaga, the plaintiff was not a solicitor and it was assumed that he was unaware of any prohibition on fee sharing agreements. In my judgment, therefore, Rougier J was correct to hold that the fee agreement which he had found was made in this case was both unlawful and unenforceable.

In agreement with Schiemann L.J, I would reject Mr Dutton's submission that rule 8 of the Solicitors' Practice Rules 1990 as it stood in 1993 was a rule which the Council of the Law Society were not empowered to make. The submission again depends on the premise that it was permissible at common law make an agreement for a contingency fee.

Section 59(1) of the Solicitor's Act 1974 does not, contrary to Mr Dutton's submission, legitimise an arrangement to receive a contingency fee. It permits a solicitor to make a contentious business agreement providing for his remuneration in a number of possible ways, each of which is a single basis for remuneration and none of which is contingent on success in the litigation. Section 59(2)(b) suggests, without positively providing, that a stipulation for payment only in the event of success in an action is not permitted.

I do not consider that it was lawful in 1990, apart from the Solicitors' Practice Rules, for a lawyer to enter into an arrangement to receive a contingency fee. I say this for three reasons. Firstly, I consider that the judgments of Lord Denning M.R. and Buckley L.J. in Wallersteiner v. Moir (No. 2) [1975] Q.B. 373 and of Lord Denning M.R. in Trendtex Trading Corporation v. Credit Suisse [1980] Q.B. 629 at 654, read as a whole, hold that a lawyer who conducts a case on the basis that he is to be paid if he wins but not if he loses is unlawful. Lord Denning M.R. says this in terms in passages quoted by Millett L.J. in the Thai Trading case. Schiemann L.J. in his judgment in the present appeal has set out extended passages from the judgments in Wallersteiner v. Moir. I am not persuaded, as was Millett L.J. in the Thai Trading case at page 788C-D, that these authorities are to be read as applying only to a lawyer who makes an arrangement for a contingency fee which entitles him to a reward over and above his ordinary profit costs if he wins. On the contrary and in particular, the passage in Lord Denning M.R.'s judgment in Trendtex at page 654 speaks both of a lawyer who seeks to recover a portion of the damages in addition to his proper costs, and of one who is to be paid if he wins, but not if he loses. These authorities, in my judgment, state the law as it was up to 1990. In so far as Ladd v. London Road Car Company (1990) L.T. 80 might possibly be read as holding otherwise (which I doubt, as did Kennedy L.J. in the Leeds City Council case), that did not represent the law 90 years later.

Secondly, section 58 of the Courts and Legal Services Act 1990 in its original form was enacted to permit conditional fee agreements in limited circumstances. Schiemann L.J. has set out the relevant terms of this section. It was enacted to permit what was otherwise impermissible. The agreement which Miss Geraghty was found to have entered into in the present case in 1993 came within the general structure of section 58 of the 1990 Act. But she did not have the benefit of section 58(3), because the Lord Chancellor had not then made the orders which the section required for its operation. Those orders which were first made did not encompass the agreement in this case. Thirdly, it was in my experience the common understanding of lawyers practising up to 1990 and beyond that it was indeed unlawful for a lawyer to conduct a case on the basis that he would be paid if he won but not if he lost. As Schiemann L.J. has said, there is no logical or forensic distinction between an agreement to receive a reduced fee and an agreement to receive no fee, if the client loses his case.

Since, as I think, the law in 1990 and up to 1993 was as I have summarised it, I do not consider that it is strictly necessary for this court to reach any conclusion as to the balance of public policy which underlay that law. Public policy considerations are extensively discussed in the judgments in the Trendtex and Wallersteiner v. Moir cases. In so far as public policy might enter the present debate, I agree with Schiemann L.J.'s conclusion. I accept the general thesis in the judgment of Millett L.J. in the Thai Trading case that modern perception of what kinds of lawyers' fee arrangements are acceptable is changing. But it is a subject upon which there are sharply divergent opinions and where I should hesitate to suppose that my opinion, or that of any individual judge, could readily or convincingly be regarded as representing a consensus sufficient to sustain a public policy. The difficulties and delays surrounding the introduction of conditional fee agreements permitted by statute emphasise the divergence of view. In my judgment, where Parliament has, by what are now (with section 27 of the Access to Justice Act 1999) successive enactments, modified the law by which any arrangement to receive a contingency fee was impermissible, there is no present room for the court, by an application of what is perceived to be public policy, to go beyond that which Parliament has provided. That applied with, if anything, greater force in 1993 than it does today.

I agree with sections VI to IX of Schiemann L.J's judgment and do not wish to add anything to them.

For these reasons, I would dismiss both appeals that are before the court.

LORD CHIEF JUSTICE:

I agree that these appeals should be dismissed for the reasons given by My Lords.

Order: Appeals Dismissed.

Costs of Geraghty & Co's appeal against Miss Geraghty; Costs of Mr Humpreys' appeal against Mr Humpreys (including reserved costs); Leave to appeal to Miss Geraghty to House of Lords. Order does not form part of approved judgment.

Note 1   Of the Law Society    [Back]

Note 2   The section came into force in July 1993 (SI 1993/2132)    [Back]

Note 3   This subsection contains a list of specified proceedings which did not include libel proceedings.    [Back]

Note 4   None were prescribed until the Conditional Fee Agreements Regulations 1995.    [Back]

Note 5   No proceedings were so specified until the Conditional Fee Agreements Order 1995. That order did not specify libel proceedings. The Conditional Fee Agreements Order 1998 specifies all proceedings.    [Back]

Note 6   The disbursements had been paid by the Defendant out of her own money and the Plaintiff’s liability for these was not in issue.    [Back]

Note 7   My emphasis    [Back]

Note 8   [1999] 1 W.L.R.1359    [Back]

Note 9   In the quotation which follows the passages in square brackets are part of Lord Diplock’s speech but were not included in Rose L.J.’s citation.    [Back]

Note 10   The stipendiary had found that the solicitors did not intend to make his client liable for costs should his case fail.    [Back]

Note 11   A point accepted by the court in Thai Trading.    [Back]

Note 12   Since the winnings produced by the litigation will produce or swell the assets from which the uplift will have to be found.    [Back]

Note 13   See the Solicitors Act 1974, s.59(2)(b)    [Back]

Note 14   Made by the Council of the Law Society and approved by the Master of the Rolls under the Solicitors Act 1957, s.25    [Back]

Note 15   my emphasis    [Back]

Note 16   Proposals for reform of the law relating to maintenance and champerty; Law Commission No.7    [Back]

Note 17   Civil Justice Review 1988 Cmnd 394 para. 385.    [Back]

Note 18   1989 Cmnd. 571    [Back]

Note 19   My emphasis    [Back]