Conditional fee arrangement didn’t have implied duty of good faith

Candey, a firm of solicitors, entered into a retainer with its client relating to litigation involving fraud allegations against the client. The retainer included a conditional fee arrangement whereby Candey was only entitled to payment if the client recovered amounts in the litigation. The client subsequently settled the proceedings on a “drop hands” basis. This meant Candey didn't get paid. Candey sued its client arguing that in settling the litigation in this way the client had breached an implied duty of good faith.

The Court of Appeal agreed with the High Court that a retainer between a solicitor and client is not subject to a duty of good faith, regardless of the presence of a contingency fee. The court approached the question by reference to the usual test for implied terms and then by considering if there was a “relational contract”.

There was no implied term of good faith because such term was not necessary for the retainer to work, nor so obvious that it went without saying and, if anything, the duty of good faith would arguably be owed by the solicitors to the client, not the other way around. Moreover, an implied duty upon the client of good faith towards Candey when resisting the fraud allegations against it would be contrary to the conditional fee arrangement itself, which expressly contemplated the prospect that the claimant in the original litigation would succeed in proving the fraud allegations (in which case Candey would recover nothing).

Nor was the retainer a relational contract, such that a duty of good faith would be implied as a matter of law, because the factors set out in Bates v Post Office were not present. There was no guarantee at the outset that the retainer would be a long-term contract, no commitment to collaboration, no high degree of communication and no expectation of loyalty, and the court had already found that an implied term of good faith was contrary to the conditional fee arrangement itself.

In short, the agreement was no more than an ordinary solicitor’s retainer, that happened to be on a conditional fee basis, and there was no prospect of establishing an implied duty of good faith. The court emphasised the general rule that the concept of good faith did not justify a departure from the general test for implied terms and did not constitute a special rule or an opportunity to “avoid orthodox and clear principles of English contract law”.

Candey has indicated it intends to appeal to the Supreme Court.

Judgment: Candey v Basem Bosheh