Judgment in Candey Limited v Bosheh & Anor[1] was handed down by the Court of Appeal on 1 August 2022, just as buckets and spades were being packed into suitcases for the summer holiday. The court dismissed the appeal of the claimant/ appellant, Candey, against the first instance judgment of Ms Clare Ambrose[2], on all grounds.

Background

Candey had previously acted for Basem Bosheh, the first defendant/respondent, in a fraud action, central to which was an allegation that Mr Bosheh was being used as a front by Amjad Salfiti, the second defendant/respondent. In the fraud action: Sheikh Mohamed brought the claim and Mr Bosheh had brought a substantial counterclaim; and Candey acted under a CFA.

The fraud action was settled on a drop hands basis shortly before trial, with the result that Candey was unable to recover fees for its work done under the CFA. A few hours after delivering the settlement agreement to Mr Bosheh and giving him notice terminating the retainer, Candey issued and served a claim form and particulars of claim on him claiming damages for fraud and breach of contract, valued at more than £3m.

Candey’s good faith claim

Candey’s claim was put, in part, on the basis that:

• The CFA retainer between Candey and Mr Bosheh (and his son, for whom they had also acted) was subject to an implied term that the Boshehs would at all times act in good faith towards Candey[3];
• The Boshehs had settled proceedings on “terms that were substantially less advantageous to the Boshehs than had been proposed”[4];
• That was because the offer which Candey had negotiated prior to the drop hands would have meant that the Boshehs received 50% of any monies recovered by Sheikh Mohamed from Mr Salfiti, capped at £1m[5];
• Candey’s position on the CFA was that if £1m was received, it would be owed to Candey as costs[6]; and
• The Boshehs had acted in bad faith by agreeing a settlement with Sheikh Mohamed “that resulted in them not achieving a “success” under the terms of the Retainer, and thereby seeking to deprive the Claimant of payment under the Retainer”[7].

Did the CFA retainer contain an implied duty of good faith?

The claim and appeal also raise interesting issues of the use of privileged and confidential material by a solicitor suing a former client where the solicitor alleges fraud. However this article concentrates on Candey’s case that, under the CFA retainer, the Boshehs owed Candey a duty of good faith.

Ms Ambrose found at first instance that there was no reasonable prospect of Candey establishing this at trial. On appeal, Candey’s Ground 3 was that the judge was wrong in law to have made this finding. That was, per Coulson LJ, “the most important ground of appeal”, since if there was no duty of good faith, Candey’s claim would, in very large part, fall away[8].

Candey’s case was that “its relationship with Mr Bosheh was a relational contract giving rise to a duty of good faith as outlined in Bates v Post Office Ltd (No 3) (Common Issues) [2019] EWHC 606 (QB)“[9].

Coulson LJ held that the judge had been right to find that there was no reasonable prospect of Candey establishing this at trial for the following reasons:

• The alleged implied term was not so obvious it went without saying (para 36);
• There was no authority in support of Candey’s case, which was unsurprising, because the proposition that a client owes a solicitor a duty of good faith “is a startling concept” (para 37);
• There was no relevant distinction between a CFA and an ordinary retainer in respect of the alleged implied term. The CFA merely altered the terms of payment for the solicitors’ services. Further, the CFA was itself contrary to the alleged implied term. Candey had advised the Boshehs that their prospects were 50/50 and Candey therefore knew there was a chance that the Boshehs would be proven to have acted fraudulently. If the CFA contained a term of good faith on the Boshehs’ part, it would become a guaranteed fee agreement, since if the action was lost, Candey would still be paid because the Boshehs would have breached the good faith term (paras 38–40);
• Sense-checking against the non-exhaustive list of factors set out by Fraser J in Bates v Post Office at para 725 supported the result that the retainer did not contain a duty of good faith (para 41). Consistently, Ms Ambrose had found at first instance that “the solicitor’s fiduciary duty to the client would displace […] a finding [that the Boshehs owed Candey a duty of good faith] under Bates v Post Office”. This seems to have been a reference to Fraser J’s factor 6: “They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships.”

Coulson LJ also held at paras 44–62 that Candey’s claim had no reasonable prospect of success even if there was a duty of good faith. That was because the drop hands settlement was not substantially less advantageous to the Boshehs than the previous offer in which they would have been paid up to £1m by Sheikh Mohamed, since it was Candey’s case that all such sums would have been paid to Candey as costs.

Comment

The overall result gives a clear indication to firms of the potential risk of a CFA client agreeing a settlement that deprives the firm of any entitlement to costs. In other cases, it may be that the evidence shows the client agreed a settlement in bad faith towards the solicitor, to deprive them of entitlement to costs. However, the solicitor will still not be able to recover on the basis that the client owed them a duty of good faith, absent the retainer expressly containing such an obligation (which would be unusual!).

As Coulson LJ commented at para 53, conflicts of interest can potentially arise:

“under a CFA between the client and the solicitor where the terms are drafted in such a way that the solicitor’s costs recovery is itself dependant [sic] on the client recovering something – anything – from the proceedings. […] Such conflicts cannot be resolved by an implied duty owed by the client to consider the solicitor’s financial interests rather than his own; it is for the solicitor to ensure that such conflicts do not arise in the first place.”

It is therefore advisable to ensure the terms of a CFA are well drafted and, as far as possible, deal properly with all possible outcomes if the case is settled rather than being disposed of at trial.

[1]      [2022] EWCA Civ 1103.

[2]      [2021] EWHC 3409 (Comm); [2022] 4 WLR 12.

[3]      Paragraph 81 of the High Court judgment.

[4]      Paragraph 3 of the claim form, quoted at para 45 of the Court of Appeal judgment.

[5]      Paragraph 9 of the particulars, quoted at para 46 of the Court of Appeal judgment.

[6]      Paragraph 50 of the Court of Appeal judgment.

[7]      Paragraph 11.b of the particulars, quoted at para 46 of the Court of Appeal judgment.

[8]      Paragraph 25 of the Court of Appeal judgment.

[9]      Paragraph 84 of the High Court judgment. See also Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB); [2013] 1 CLC 662 and Al Nehayan v Kent [2018] EWHC 333 (Comm).