Lawfulness of contingency fees questioned
29/06/2009
Significant concerns are being expressed within the legal profession about “contingency fee agreements” used by a number of heir locator firms or probate genealogists. In legal opinions provided to Title Research by two leading barristers on probate law, Constance McDonnell and Peter John, a number of concerns have been raised about the legality of contingency fee agreements. This article provides extracts from these legal opinions.
Title Research is one of the few firms in the sector that does not charge contingency fees.
Profiting from the estate
Where an executor/administrator or professional adviser (e.g. solicitor) agrees to a contingency fee agreement to find beneficiaries, it is agreed on the basis that the executor/administrator does not pay anything out of their share of inheritance to pay for locating the other beneficiaries. Consequently, these agreements are clearly attractive to the executor/administrator as it allows them to profit from a greater share of the estate.
In the legal opinion from Peter John of 5 Paper Buildings, Temple, he states:
“There are significant legal grounds for concluding that the lawfulness of contingency fee agreements could be successfully challenged on the basis [that]…a genealogist may be considered to be the agent of the personal representative and, therefore, unlawfully making a profit from his role as trustee.”
The legal duty of the executor/administrator to preserve the estate and not profit from it, has been well established in common law, as Peter John points out:
“This would be in breach of the general rule established in Keech v Sandford and subsequently through cases such as Regal (Hastings) Ltd v Gulliver and Phipps v Boardman that a personal representative, as a fiduciary, is bound to act only in the interest of the estate and that he is not entitled to profit from that position as personal representative. If a personal representative does break this rule he is bound to account for any profits which he makes.”
Risk of litigation for probate practitioners
So what about the role of probate practitioners acting as professional advisers? Peter John advises:
“It would be hoped that the professional adviser would not suggest the engagement of a genealogist on a contingency fee basis. But if such advice is given the professional adviser must face the risk of being brought into any subsequent litigation which seeks to challenge that contingency fee agreement on any of the grounds I have discussed above.”
“The terms of their contract or retainer with the personal representative may well mean that they are brought in as a defendant to proceedings on the basis of either negligent advice or a breach of that retainer or contract.”
Peter John concludes:
“Given the legal fragility of such [contingency fee] agreements…there must remain a significant question mark over whether they should continue to be used at this time, and for how long they can continue to be used as a relatively common charging structure for genealogists.”
Reasonable fees
Constance McDonnell of Lincoln’s Inn, believes the method of charging used to locate beneficiaries should be reasonable:
“I consider that a personal representative (PR) who instructs or allows an heir-locator to trace beneficiaries on the basis that it will then present any traced beneficiaries with a ‘contingency fee’ agreement, may be found personally liable to a beneficiary for having breached his duty as a PR of the estate, and possibly his fiduciary duty.”
“It is improper for a PR to permit the value of a beneficiary’s share to be depleted in such a way; the only proper method of charging …would be according to an hourly rate or fixed fee.”
“As to the question of whether the fee should be payable according to an hourly rate or a fixed fee, I am of the view that either might be objectively viewed as reasonable, and therefore properly payable by a PR, depending on the value of the estate, the predictability of the extent of work which needs to be carried out by the heir-locator, and the availability of funds in the estate.”
Unlawfulness of ‘contingency fee’ agreements
Constance McDonnell concludes:
“A beneficiary who has signed a ‘contingency fee’ agreement with an heir-locator should, in my view, not consider himself as bound by it. He should notify the heir-locator and the PRs of the estate that he considers that the agreement is unlawful and unenforceable (although if they are not enforced, the heir-locator may still be entitled to a reasonable fee for the work he has done).”
Title Research believes that contingency fees are unfair and potentially unlawful. This has led us to conclude that the time has come for better regulation to protect consumers. To find out more about probate genealogy fees and our position on contingency fees, read our article, Consumer protection needed on "heir hunters" fees
If you would like to receive a full copy of the legal opinions, or if you would like comment on this article, please free to get in touch at debate@titleresearch.com
BP Collins solicitors (www.bpcollins.co.uk) instructed Constance McDonnell and Peter John on behalf of Title Research.
[1] (1726) Sel Cas Ch 61
[2] [1942] 1 All E R 378
[3] [1967] 2 AC 46 HL