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A costly lesson..

26 November 2020

The High Court was asked to decide whether a solicitor is required to demonstrate it had obtained 'informed consent' to charge their client an amount of costs which was greater than the client could have recovered from their opponent.

The recent case of Belsner v Cam Legal Services Ltd [2020] EWHC 2755, which arose from a minor RTA with modest damages, has attracted significant comment. It concerns costs which a solicitor charged, and recovered from, their client over-and-above what was (and could be) recovered from the opponent in litigation.

The High Court was asked on appeal from the decision of a District Judge, principally, to decide whether a solicitor is required to demonstrate it had obtained 'informed consent' from their client to charge that client an amount of costs which was greater than the client could have recovered from their opponent.

Background

The Claimant was a motorbike pillion passenger knocked off the motorbike following an accident with a car. She sustained relatively minor injuries to the middle finger of her right hand, her right elbow, right ankle, and left knee.

The Claimant instructed Cam Legal Services Ltd (the 'Defendant'), and entered into a Conditional Fee Agreement ('CFA'), to bring a claim against the car driver's motor insurer pursuant to the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (the 'RTA Protocol'). The driver's motor insurer admitted liability early-on and the claim remained and settled within the RTA Protocol regime without proceedings being issued.

The RTA Protocol is designed to streamline low value RTA personal injury claims and imposes a fixed costs regime which is contained at Table 6 in CPR 45.18.

The claim settled within the Stage 2 process (of the RTA Protocol) for £1,916.98 in damages, plus fixed costs, and disbursements of £1,783.19 (including VAT).

The Defendant deducted £385.50 from the Claimant's damages (i.e. from £1,916.98), as it thought was  allowed by the Engagement Letter, Terms & Conditions, and CFA, and forwarded the remaining sum (£1,531.48) to the Claimant.

The Issue

The Defendant, as is common practice for this type of claim, did not send the Claimant a bill of costs or an invoice.

The Claimant instructed Clear Legal Limited trading as Checkmylegalfees.com Limited and issued a Part 8 Claim Form in the Senior Courts Costs Office seeking an order that the Defendant provide the Claimant with a statutory bill  (pursuant to s.70 of the Solicitors Act 1974).

Paragraph 20 of the judgment sets-out the contents of the statutory bill:

"1. Basic charges of £2,171.90 plus VAT, [there was no fixed-cap on the Defendant's base costs].

2. A success fee of 100% of the basic charges, capped at 25% of the recovered damages, i.e. £385.50 plus VAT. (There appears to have been a mistake here, since the cap was intended to apply to the success fee inclusive of VAT).

3. The GP report fee of £255 plus VAT.

4. The psychology report fee of £806 plus VAT."

The total came to £4,306.07 (£3,588.40 plus VAT of £717.67). The Defendant had decided to limit what they could recover from the Claimant over-and-above the fixed fee recovered from the driver's motor insurer, but the judge pointed out (at paragraph 21) that under the terms of the retainer, the Defendant could, under the terms of its agreement, have left the Claimant with no damages and £605.90 out of pocket (i.e the Defendant self-imposed a "cap" since it did not feature within the contractual agreement).

Therefore, the question the Court had to consider was whether the Defendant was properly permitted to deduct the £385.50 from the Claimant's damages?

The Law

The issue on appeal centred around s.74(3) of the Solicitors Act 1974 which states:

"3.The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim."

According to CPR 46.9(2), the above position is the default position absent a written agreement to the contrary:

"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."(our emphasis)

The (Simplified) Arguments

The Defendant's CFA stated:

"Normally, you can claim part or all of our basic charges and our expenses and disbursements from your opponent. You provide us with your irrevocable agreement to pursue such a claim on your behalf. However, you cannot claim from your opponent the success fees or the premium of any insurance policy you take out.

If we and your opponent cannot agree the amount, the court will decide how much you can recover. If the amount agreed or allowed by the court does not cover all our basic charges and our expenses and disbursements, then you pay the difference.”

The Defendant argued that, since it provided a costs estimate of £2,500 plus VAT to the Claimant within the Engagement Letter, s74(3) of the Solicitors Act 1974 did not apply because, in accordance with CPR 46.9(2), the Claimant had "expressly permitted" the Defendant to charge more than could be recovered from the driver's motor insurer.

The Claimant argued that CPR 46.9(2) requires informed consent from the Claimant which the Defendant had not satisfied because the Defendant did not inform the Claimant that recoverable costs from the driver's motor insurer were capped at £500 plus VAT.

Judgment

The Court found in the Claimant's favour.

Lavender J held that CPR 46.9(2) requires informed consent (paragraph 70):

"A solicitor who wishes to rely on CPR 46.9(2) must not only point to a written agreement which meets the requirements of the rule, as the Defendant did, but must also show that his client gave informed consent to that agreement insofar as it permitted payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings. For this purpose, the solicitor must show that he made sufficient disclosure to the client."

The judge further held that the Defendant did not provide sufficient disclosure because the Defendant did not tell the Claimant what the likely recoverable (fixed) costs from the driver's motor insurer would be.

The judge held that the Defendant ought to have specifically informed the Claimant that, while the costs estimate they provided was in the sum of £2,500 plus VAT, she might only recover £500 or £550 plus VAT from the driver's motor insurance (depending on which protocol applied at the time of settlement – see Table 6 & Table 6B at CPR 45.18).

Therefore, Lavender J held that informed consent was not given and, therefore , the Defendant could not rely on CPR 46.9(2) to charge the Claimant (and deduct from her damages) the £385.50 fee.

Comment

The combined legal fees of this appeal involving two QCs amounted to £87,715.33 (which Lavender J pointed out is 225 times the amount of the £385.50 originally at issue) and the important issues involved are destined for hearing in the Court of Appeal.

It was emphasised that each case will turn on its own facts. The facts that, in this case, the Claimant was not told what the likely recoverable costs from the driver's insurers would be and Defendant could in theory have deducted an uncapped amount from the Claimant's damages leaving her with nothing, featured in the Judgment.

The hearing of any appeal is likely to include issues as to whether RTA Protocols are "proceedings" under section 73 Solicitors Act, whether fiduciary duties apply when a solicitor is offering terms of a retainer, whether CPR 46.9 (2) requires informed consent and, if so,  what is required for informed consent to be given.

Solicitors will want to review their current (active and 'ready-on-the-shelf') retainers to ensure they are appropriately drafted.

It appears, where it is easily ascertainable, such as fixed-costs cases, an estimate of the likely recoverable costs from a prospective opponent(s) should be drafted into the retainer alongside an estimate of the solicitor's total likely costs and if appropriate a "cap" on the solicitor's fees (which is written into the agreement from the out-set and is not applied ad-hoc following the formation of the contract). Such a "cap" places an upper ceiling on the potential costs a solicitor can recover from their client which, in the majority of cases, should be easily understandable by a client because they will know their maximum potential exposure to their solicitor for their costs.

For further information please contact Jonathan Hopkins or Sheona Wood.

Further Reading

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