The Volterra Fietta Case: A Wake-Up Call for Law Firms on Conditional Fee Agreements

Background

The Court of Appeal’s decision in?Diag Human SE & Anor v Volterra Fietta?([2023] EWCA Civ 1107), delivered on October 6, 2023, underscores the importance of strict compliance with Conditional Fee Agreement (CFA) regulations.

Volterra Fietta, a law firm, entered into a CFA in 2017 while representing a client in an investment treaty arbitration against the Czech Republic. The CFA included a success fee exceeding 100% but failed to specify the percentage, violating the Courts and Legal Services Act 1990. When a fee dispute arose, the court declared the CFA unenforceable, with key findings:

• No Severance: The court refused to sever the defective success fee clause to enforce the rest of the CFA.
• No Quantum Meruit: The firm was barred from recovering fees under alternative legal doctrines.
• Refund Ordered: Fees already paid by the client were refunded as no enforceable CFA existed.

The Supreme Court is expected to deliver its judgment this month (December 2024), potentially reshaping CFA enforceability and fee regulation.

Implications for Law Firms

This decision sends a clear message: compliance with CFA regulations must be meticulous. Key takeaways include:

1. Stricter Client Protections: CFAs must be transparent and compliant to safeguard clients from unclear or unfair terms.?
2. No Margin for Error: Non-compliance renders CFAs entirely unenforceable, with no recovery options for solicitors.
3. Access to Justice Concerns: The judgment may discourage firms from offering CFAs, limiting options for clients unable to pay traditional fees.

How Law Firms Can Respond

Law firms should prioritise compliance to avoid similar pitfalls:

1. Draft Carefully: Ensure CFAs meet all legal requirements, including clear success fee percentages.
2. Review Regularly: Conduct internal compliance checks to catch errors before execution.
3. Educate Teams: Provide staff with ongoing training on CFA regulations and relevant case law.
4. Enhance Transparency: Communicate CFA terms and risks clearly to clients.

The Supreme Court ruling may offer further guidance and could prompt legislative reform to clarify the regulatory framework.