£3.1 Million Fee Dispute Highlights Importance of Clear CFA Drafting

A recent High Court decision involving litigation boutique Seladore Legal and class action specialist Pogust Goodhead highlights how disputes over retainers and funding arrangements can quickly develop into substantial pieces of litigation in their own right.

The dispute concerns a bill totalling almost £3.1 million for legal services provided by Seladore in connection with the landmark Mariana dam litigation. Whilst the court has not yet determined all of the issues between the parties, the judgment provides valuable guidance on Conditional Fee Agreements (CFAs), contractual interpretation, and the courts’ approach to technical challenges to legal fee arrangements.

For solicitors, costs lawyers and law firms operating under alternative funding arrangements, the decision serves as a useful reminder that robust drafting remains essential, but that the courts may be reluctant to invalidate commercial agreements on purely technical grounds where the parties clearly understood what they had agreed.

What was the dispute about?

Seladore Legal was instructed by Pogust Goodhead under two separate retainers.

The first related to proposed proceedings connected to an equitable lien claim arising from settlement discussions in the Mariana litigation. The second involved broader litigation support services provided by Seladore.

The retainers were structured as discounted Conditional Fee Agreements.

Following completion of the work, Seladore delivered a final bill of almost £3.1 million. Although approximately £886,000 had been paid, more than £2.2 million remained outstanding.

Pogust Goodhead challenged the enforceability of the agreements and sought repayment of sums already paid under the retainers.

The result was a significant dispute concerning not only the amount claimed but whether the agreements themselves complied with the statutory requirements governing CFAs.

Why were the CFAs challenged?

The central issue concerned section 58 of the Courts and Legal Services Act 1990.

Pogust Goodhead argued that the retainers failed to comply with the legislation because they did not properly specify the percentage uplift payable upon success.

The agreements provided that, if successful, Seladore would be entitled to fees charged at 170% of its standard hourly rates, subject to rounding.

The argument advanced was that this wording failed to identify the success fee percentage required by the legislation and therefore rendered the agreements unenforceable.

Had that argument succeeded, it could have had significant consequences for Seladore’s ability to recover substantial parts of the £3.1 million claimed.

The court’s approach: substance over form

Master Pester rejected the challenge.

The court concluded that stating fees would be charged at 170% of standard rates was effectively the same as stating that fees would increase by 70%.

In the judge’s view, there was no meaningful distinction between the two formulations.

Importantly, the court focused on the practical reality of the arrangement.

The judgment noted that this was not a situation involving an inexperienced client or a vulnerable consumer attempting to understand a complex funding agreement. Instead, the retainers were entered into between two sophisticated legal businesses operating in the litigation market.

The judge observed that Pogust Goodhead was “about as far removed from the position of the little old lady” as could realistically be imagined.

Viewed objectively, the agreements clearly communicated what would become payable in the event of success.

To hold otherwise would, in the court’s words, amount to “empty formalism”.

What about the phrase “subject to rounding”?

A further challenge concerned the wording “subject to rounding”.

It was argued that this wording prevented the agreements from stating a precise percentage uplift.

Again, the court was not persuaded.

The evidence demonstrated that the financial effect of the rounding provision was minimal and entirely capable of calculation.

The judge noted that the difference amounted to approximately £1,678 across a claim exceeding £3 million.

Even if there had been a technical breach of the legislation, the court indicated that it would have been difficult to characterise such a minor discrepancy as material.

The judgment reflects a broader judicial reluctance to invalidate commercial agreements where the parties have clearly understood their obligations and any alleged defect has no practical impact.

The wider significance for legal costs disputes

Whilst the decision relates to a specific CFA dispute, its importance extends beyond this particular case.

Over recent years there has been a growing trend towards challenges based on retainer validity, CFA compliance, client care documentation, and funding arrangements generally.

In some cases, these arguments have become more significant than the actual value of the work undertaken.

Disputes increasingly focus on questions such as:

• Whether a CFA complies with statutory requirements
• Whether retainers were properly drafted
• Whether clients received sufficient information
• Whether success fee provisions are enforceable
• Whether contractual terms are sufficiently clear

The Seladore decision suggests that courts may continue to favour substance over technicality, particularly where commercial parties are involved and there is no genuine uncertainty regarding what was agreed.

However, firms should not assume that defective drafting will always be forgiven.

The fees dispute is not over

Although Seladore succeeded in striking out part of the defence, the litigation remains ongoing.

The court did not determine whether the full £3.1 million claimed is recoverable.

Several important issues remain to be resolved, including:

• Whether the fees charged were reasonable
• Whether the work undertaken justified the amounts claimed
• Whether “success” occurred within the meaning of the agreements
• The extent of any recoverable fees

These issues will proceed for further determination.

As a result, the judgment should not be viewed as a final victory on the fees claimed, but rather as a significant procedural success for Seladore in defeating one of the key challenges to the enforceability of the retainers.

Lessons for law firms

The decision provides several practical lessons for solicitors and law firms.

Firstly, retainers and funding arrangements should always be drafted carefully and reviewed regularly. Whilst courts may adopt a pragmatic approach, litigation over technical drafting points is rarely desirable.

Secondly, firms should remember that large fee disputes often arise years after the work was carried out. Documents that appear perfectly clear at the time of instruction may later be subjected to forensic scrutiny.

Thirdly, the case reinforces the importance of ensuring that clients fully understand the basis upon which fees will be charged and recovered.

The stronger the retainer documentation, the stronger the firm’s position if disputes later arise.

How ARC Costs can assist

At ARC Costs, we regularly advise solicitors and law firms on retainers, CFA compliance, solicitor-client disputes, and legal costs recovery.

Our services include:

• Reviewing retainers and funding arrangements
• Advising on CFA enforceability
• Assisting with solicitor-client assessments
• Preparing and challenging Bills of Costs
• Advising on proportionality and recoverability
• Supporting firms through detailed assessment proceedings

The dispute between Seladore Legal and Pogust Goodhead demonstrates how quickly fee arrangements can become the focus of substantial litigation.

Whether acting for receiving parties or paying parties, obtaining specialist costs advice at an early stage can help minimise risk and strengthen recovery prospects.

As legal fees continue to attract greater scrutiny, firms should ensure that their retainers are not only commercially effective but capable of withstanding challenge if they later find themselves under the microscope.

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