06 March 2020

Lord Doherty has ruled that success fee arrangements entered into between a Firm of Solicitors and an Advocate with a businessman client were pacta de quota litis.

In 2015, Robert Kidd pursued a commercial action in the Court of Session against his former Solicitors, Paull & Williamsons LLP (“P&W”), for $210million over losses he allegedly suffered when they acted for him in a substantial commercial transaction.

Levy & McRae LLP (“L&M”) acted for Mr Kidd and his company A&E Investments Inc.

In their letter of engagement to their clients, Robert Kidd and A&E Investments Inc, L&M set out the terms upon which it proposed to accept instructions to act which included, in addition to a basic fee, a provision for a success fee threshold of £10m. The success fee was to be calculated as a percentage of their basic fee. L&M also wrote to the Junior Counsel they had instructed, Jonathan Brown, to set out the proposed terms with him which also included a provision for a success fee.

Mr Kidd’s action against P&W ultimately settled for £19m, in addition to interim expenses already paid to L&M of £1m.

The Court heard that the settlement monies were paid by bank transfer to L&M who remitted them to Mr Kidd under deduction of £5.6m, with L&M claiming that that sum was the balance which remained due in respect of its basic fee (£2.1m), its success fee (£1.89m being 90% of the basic fee), Junior Counsel’s basic fee (£1.1m) and Junior Counsel’s success fee (£0.99m again being 90% of the basic fee).

Mr Kidd and A&E Investments Inc claimed that the success fee elements of the agreements with L&M and Mr Brown were “pacta de quota litis being agreements entered into with a client in contemplation of litigation by the firm of solicitors having conduct of the cause and the advocate instructed in the cause, whereby the quantum of payment due to the solicitors and advocate is tied to and depends upon the quantum of the sum recovered by way of the action”. They went on to say that arrangements such as these were contra bonos mores and illegal and unenforceable.

Whilst L&M and Mr Brown pled in their defence that success fees were on their way, in terms of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018, which is not yet fully in force, the Court took the view that that was no reason to condone their use before any regulation was put in place to impose controls.

In coming to his decision, Lord Doherty, agreeing with Mr Kidd and A&E Investments, held that the success fee element of their fee gave L&M and Mr Brown a stake in the amount recovered which contravened the pactum principle. Lord Doherty explained that the pactum principle was intended to prohibit the conflict of interest which arises when a lawyer has “a pecuniary interest in the amount which the client may recover. The conflict is between, on the one hand, the lawyer’s pecuniary interest; and, on the other hand, his duties to the client and to the court”.

At the time of writing, it is understood that L&M are seeking leave to appeal Lord Doherty’s decision – it is not known if Mr Brown is also doing similarly.

For further information, please do not hesitate to contact:

Gillian Harman, Associate, E: gah@bto.co.uk / T:0141 221 8012