The Supreme Court decision in FHR European Ventures LLP (Respondents) v Cedar Capital Partners LLC (Appellant) seems to raise concerns for solicitors in private practice. In my experience, it is not unusual to find a solicitor being remunerated by their firm in two ways: an annual salary plus a commission-bonus calculated on total fees billed in a set period. In the light of the FHR decision, it seems possible (likely?) that, if clients have not been told about the commission element of the solicitor’s remuneration package, then the solicitor and their firm could be at risk.
First, the undisclosed commission might constitute a ‘secret commission’ and thus fall into the FHR decision facts. In that case, clients whose fee payments have funded the commission payment can claim back the relevant amount.
Second, if the solicitor or their firm goes bankrupt or into liquidation, then, under the principles of FHR, the clients’ right of recovery gives them a priority over creditors, because the Supreme Court has confirmed that the clients’ claims are proprietary and not just equitable. In effect, the commission monies never belong to the solicitor or the firm, do not form part of their respective estates and so cannot be claimed by creditors.
Third, the solicitor and firm might be in breach of conduct rules that require proper accounting to clients on fee arrangements and other ‘financial benefits received as a result of [the] instructions’ (Code of Conduct).
Solicitors and their firms might try to argue that the remuneration of solicitors, even where ‘commission bonuses’ are concerned, is based on aggregated billings over a period and not on specific billings to specific clients. However, that does not hold much water, not least because conflict of interest is the concern at the heart of the legal principles governing ‘secret profits’. Therefore, if a solicitor knows that, in addition to salary, every hour billed (or every hour billed over a threshold) will bring them an extra X% of personal income, then that solicitor has a conscious or unconscious internal pressure to add billable hours. I am sure that most solicitors do not succumb to that pressure. But that is not the point – the pressure is there, and it should not be.
It will be interesting to see if firms and/or individual solicitors change their client care letters and/or payment structures. And if they only change their client care letters, are they really doing enough to deal with the de facto conflict of interest inherent in the payment structure?
Christopher Parr, Asia regional corporate contracts counsel, ON Semiconductor Trading, Fribourg, Switzerland
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