Background
The claim arose from a road traffic accident, when the car the claimant was driving was struck from behind by a bus. In March 2016 the claimant retained HH Law and entered into a Conditional Fee Agreement. The CFA was set with the statutory maximum success fee of 100% but was capped at 25% of general damages and past losses pursuant to the Conditional Fee Agreements Order 2013.
HH Law provided an 'Insurance Information Fact Sheet' which recommended that the claimant obtain an ATE premium from Centron Insurance at a cost of £349. The document required the claimant to sign and acknowledge that she had read and understood the terms, and permitted HH Law to take out the insurance policy.
The claim itself was largely uneventful; starting in the portal before falling out and proceedings being issued. The matter concluded less than a month after court proceedings were issued.
When the personal injury defendant made a Part 36 Offer of £3,400, HH Law advised that should the claimant accept the offer, the total deductions would be £1,178.21, comprising 'Contribution towards our Costs (25% of damages) £829.21' and 'ATE Insurance policy £349.00' and stated: 'To clarify, if you were to accept this offer you will receive £2,221.79 and a balance of £1,178.21 will be paid towards our legal costs'.
After the conclusion of the damages claim, the claimant instructed new solicitors, JG Solicitors, to dispute HH Law's costs; principally the 100% success fee.
First Instance decision
Success fee
DJ Bellamy undertook a 'paper assessment' limited to the amount of the success fee, pursuant to s.70(6) Solicitors Act 1974. He limited the success fee to 15%.
HH Law had taken the position that post LASPO they were not required to individually risk assess each claim in order to set the success fee. They had stated that it was their business model to engage the cap of 25% on every file so that a claimant would always retain 75% of their damages. It was stated that this model was applied by most of HH Law's competitors and "reflects the 'market rate'". They had stated that there was "no doubt that the claimant was fully aware of the charging structure and it was expressly set out in her Conditional Fee Agreement and funding documentation… In this case, neither at the outset of the case when funding was discussed, or at any point to its conclusion did the claimant raise a concern, or seek to suggest the fee was unfair".
The District Judge, in giving his judgment, made reference to CPR 46.9, which states:
46.9
(1) This rule applies to every assessment of a solicitor’s bill to a client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1988 or the Access to Justice Act 1999 or by the Lord Chancellor under Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.
(2) Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.
(3) Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed
(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;
(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;
(c) to have been unreasonably incurred if –
(i) they are of an unusual nature or amount; and
(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.
(4) Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.
He found that there had been little or no direct contact with the claimant and that the claimant could rebut the presumption above as there was "no clear evidence the claimant approved either expressly or impliedly, with full knowledge, the cost to be incurred, and more particularly, the success of 100% could easily be said to be unusual…" The success fee was subsequently allowed at 15%.
ATE Premium
After the assessment had concluded the claimant asked the judge to deal with the cash account. A cash account is a ledger which shows the money spent by the solicitor on behalf of the claimant.
The ATE premium had not been included within the bill of costs and had not been assessed. The judge agreed that the ATE premium was a disbursement and should be included on the cash account. This meant that there was a refund due to the claimant for the premium.
HH Law appealed both decisions.
The first appeal
On appeal both decisions were upheld by Mr Justice Soole in a judgment handed down in March 2018.
In relation to the success fee it was found that without 'informed consent' there had been no agreement; that the claimant would have to be specifically told that the success fee was set without reference to a risk assessment.
In relation to the ATE premium, it was determined that these are usually treated as disbursements and was part of the services offered by solicitors and the DJ was right to exclude this from the cash account.
HH Law appealed again to the Court of Appeal.
Court of Appeal
Success fee
Giving the lead judgment, the Master of the Rolls upheld the decision in respect of the success fee but overturned the decision in respect of the ATE premium.
HH Law had argued that it was for the claimant to satisfy the court that the approval had not been given. The claimant contended for the opposite, namely that it was for the solicitors. The court stated that it was for the solicitor to bear the burden:
“If the solicitor wishes to rebut the challenge by relying on the presumption in CPR 46.9(3)(a) or (b), the burden lies on the solicitor to show that the pre-condition of the presumption, informed approval, is satisfied. Once the solicitor has adduced evidence to show that the client gave informed consent, the evidential burden will move to the client to show why, as a result of having been given insufficiently clear or accurate or comprehensive information by the solicitor or for some other reason, there was no consent or it was not informed consent. The overall burden of showing that informed consent was given remains on the solicitor.”
HH Law's justification for setting the success fee at 100% (and applying a cap of 25%), that it was their business model, was rejected.
The MR stated, "…the amount of a success fee is traditionally related to litigation risk, as reasonably perceived by the solicitor or counsel at the time the agreement was made. Across the broad range of litigation, it would be unusual for it not to be".
Accordingly, the original 15% success fee decision was upheld.
ATE Premium
In relation to the ATE premium it was held that this was a contract between the claimant and the insurer and so was not classed as a disbursement. The solicitor was not obliged to make the payment to the insurer and accordingly, the original decision was reversed with the premium being removed from the cash account.
Comment
Once the district judge’s view had been upheld by Soole J, the claimant’s solicitors were facing an uphill struggle with their appeal on the 100% success fee in the Court of Appeal, and so it has proved. Objectively, it is rather difficult to justify a success fee deliberately set at the maximum where, prior to LASPO ending recoverability, its level would have been a modest 12.5% in an RTA case representing a more realistic view of the likely risk.
There are a growing number of claims with clients seeking to challenge their legal fees and this decision is likely to add to that number. Clients with older cases which have long since concluded may need to rely on the special circumstances provisions as set out in the Solicitors Act 1974. Whether a court will permit a claimant to utilise said provisions will remain to be seen. This decision also means that a claimant cannot challenge, under a Solicitors Act assessment, an ATE premium which was taken out. A claimant will need to bring separate negligence proceedings and contend that they were not properly advised in respect of the same.
The solicitors were no doubt correct that their business model of charging the maximum success fee capped by 25% of general damages and past losses is, or was, widespread in the industry. There seems to have been a common view among claimant solicitors that to maintain what they saw as acceptable levels of profit, the fixed costs for these cases which were recoverable from insurers needed to be supplemented by an amount deducted from the client’s damages, and that deduction needed to be as high as could be achieved. They saw claimants as being willing to sacrifice 25% of their damages to get legal representation in order to achieve a successful result, and in order to see that the 25% level could be reached, the best way of doing so was to set the success fee at the maximum, and without regard to the risk of the case.
In his seminal reports on costs, Sir Rupert Jackson had envisaged that claimants themselves would in fact gain, as a market would develop where solicitors would compete against one another on success fees, and so the level of deductions lost from damages, with clients being willing to shop around to choose a solicitor who was willing to take on their case for a low level of deduction achieved through a modest success fee. In fact, only few solicitors seemed willing to take this competitive approach which would have benefited claimants themselves, and the culture of informed clients looking for the best deal was not encouraged and did not develop.
After this judgment, in addition to claimants who were advised by solicitors who charged 100% success fees from their damages wanting to be able to challenge those deductions it is clear that this business model though used widely cannot continue. The risk in each case will need to be assessed in future and indeed no doubt in ongoing cases where that has yet to be done, and the level of success fee set accordingly. Sir Rupert’s expectation of competition may be achieved, but even if not it is clear a proper view must be taken as to the extent of the risk.
Claimants should benefit from substantially lower deductions from damages, but at the same time the level of solicitors’ overall income from each case will reduce and they will need to look towards a process where any success fee they charge will add only marginally to the level of fixed costs. Some solicitors will no doubt have altered their business models after the earlier judgments in the case, those that have not will now need to do so. As claimant operations look ahead to the new regime expected to arrive in 2020, post the introduction of the Civil Liability Act and associated Small Claims Track reforms, this will only add to the burden of issues to be addressed. It will no doubt remain the case however that claimants themselves will be able to find suitable representation and will be better protected when they do so.
The CFA model with associated deduction from damages calculated by reference to an uplift of costs only of course works when there are recoverable costs alongside which a success fee can be calculated. In an expanded Small Claims Track raised to £5,000 for RTA claims there will be no significant levels of recoverable costs so the CFA model will not easily work and claimant operations will need to look at other types of retainer arrangements. CFAs with success fees are though expected to continue being used for claims above the SCT limit and in addition to ongoing claims, this is where the judgment will impact. The overall impact of the judgment on success fees and therefore on the claimant market is likely to be substantial.
Contact
For more information please contact William Mackenzie on 020 7645 9507 or at William.mackenzie@dwf.law or Simon Denyer, Strategic Legal Development Consultant on 0161 604 1551 or at Simon.denyer@dwf.law
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