Making deductions from client’s damages – how to avoid comeback

 

Ian Moxon
Costs Lawyer

I am writing this to the many hardworking Personal Injury and Litigation Solicitors out there who I would describe as “fair-traders”. I’m talking about those heroes who go to work each day, recover damages for their clients and who don’t make unreasonable Solicitor/own client charges for doing so.

The post-April 2013 Jackson costs reforms reduced cash-flow from inter partes costs to Personal Injury Solicitors (and many other Litigation Solicitors as well) through the ending of recoverability of additional liabilities (particularly success fees) and through the introduction of fixed costs, a harsher test of proportionality and costs budgeting. In response to those changes many Personal Injury Solicitors have adopted a practice of automatically deducting from their client’s compensation 25% of the damages by way of irrecoverable success fee. Some other Personal Injury and Litigation Solicitors also make deductions from damages for any ATE insurance policy taken out as well as irrecoverable base costs (irrecoverable disbursements and profit costs). Those deductions from client’s compensation have sparked a new area of Solicitor / own client costs litigation – in other words, former clients of Personal Injury and Litigation Solicitors contesting the amount of those deductions from their damages.

Now I write this article with the greatest of respect to those Costs Lawyers doing this Solicitor and own client costs work, not least because some are former colleagues, but because they are doing nothing wrong or immoral whatsoever. However, some commentators have indicated their distaste in relation to all this, but without mention of the rights of consumers of legal services. For those Solicitors whose charges are reasonable and correct this is just another way to promote their businesses ahead of those whose practices are not so fair. If you have nothing to hide, don’t fear this.

There have also been negative comments made about the Costs Lawyers doing this type of work – their suggestions being that they are akin to the people collecting PPI. Costs Lawyers, displaced by the increase in fixed costs (reduction in inter partes costs work), have to do something to earn a living. As regulated legal professionals, Costs Lawyers are able to receive instructions directly from members of the public to conduct costs litigation, including having rights of audience in costs related matters. Qualification to become a Costs Lawyer is very difficult indeed and those Costs Lawyers now building Solicitor own client costs practices are most certainly not pretenders. The business model of Costs Lawyers running Solicitor own client costs practices is simple. Solicitor’s clients have an absolute right to seek assessment of their Solicitor’s charges by a Judge. Such clients are invited to provide instructions on the basis that they have been over-charged by their former Solicitors. The instructed Costs Lawyers then seek to obtain as much paperwork relating to the client’s previous legal matter as possible (particularly the Solicitor’s retainer documentation – which at the time of writing this is an ongoing battleground), after which the Costs Experts rake through the documentation with a fine-tooth comb to look for anything which could make the retainer unenforceable, the former Solicitor’s base fees or success fee appear excessive and/or the final charges to the client incorrect. Many of these Costs Lawyers have years of experience acting for Solicitors in inter partes costs matters and they know every trick in the book. If problems are identified the Costs Lawyers then report back to their client as to how things may be taken further, including Solicitors Act costs litigation backed up with ATE insurance. The “one-fifth” rule applies – in other words, the Solicitor pays their former client’s costs of the Solicitor / own client costs proceedings if their Bill is reduced by more than 20% and vice versa. Personal Injury and Litigation Solicitors faced with such a suit may well endure a painful and expensive exercise, which could, more worrying, harm their reputation.

So, how can the genuine, fair-trading, Solicitor protect himself from future assaults by Costs Lawyers instructed by their former clients. Without going into the detail of routes to challenging bills for contentious business, time limits, special circumstances and the like, here are my top tips;

Create a relationship of trust with your own client

There is no substitute for taking instructions from a local client, meeting them in person (face-to-face), doing a fantastic job for them and finally accounting to the client properly and accurately. Such relationships will endure, the client, his family and friends will return with further new business and if there is any issue with your Solicitor and own client charges they can be sorted out quickly and cheaply without damage to your reputation. Moreover (much more) isn’t that way of working why so many became Lawyers in the first place?

On the other hand, there are some firms of Solicitors who take on distant clients. Those clients are then pushed through a rigid system of work, often by Junior Fee Earners who are “motivated” by toxically high WIP targets within a culture of greed. Such Practices will then automatically deduct fixed percentages from their client’s compensation at the end of successful matters by way of irrecoverable costs, often without checking that those deductions are correct. Unsurprisingly, the former clients of such Solicitors have no loyalty, are often unhappy with the service they have received and are confused by the deductions out of their compensation. It is such a style of working that is creating an ever-increasing flow of new work for the Costs Lawyers above.

Set up your retainer properly

At PIC, at the outset of each inter partes costs claim, our Costs Lawyers carefully read through the retainer documentation to identify what costs can be recovered between the parties within the confines of the Indemnity Principle. Our Costs Lawyers are well trained in what to look out for and we have various Checklists to help with that task (and any issues identified are discussed with our instructing Solicitors). In a similar way, the Costs lawyers instructed by the former clients of Solicitors carry out a review of the retainer documentation in order to establish what the client was contractually required to pay their Solicitors and to look for any other issues, such as defects affecting the enforceability of the retainer as a whole.

It is inevitable that there will be problems with retainers from time to time – such is the often-complex nature of those agreements (although if you are working with a reputable firm of Claimant Costs Lawyers, such as PIC, then those retainers will be constantly reviewed and refined to a point where problems are minimal). However, if the Solicitor has formed a relationship of trust with their own client and agreed at each stage the action that will prevail, it will be much harder for a former client to pick that retainer apart even if there are problems.

Good practice on setting up a retainer includes, (1) meeting with your client face to face at the outset and discussing the funding options suitable for the particular matter, (2) properly investigating any possible BTE costs insurance (the availability of which will largely avoid any Solicitor and own client charges at the end of the matter), (3) presenting a draft copy of the Conditional Fee Agreement or funding contract terms to your client prior to signing up and (4) sitting down with your client for the sign up of the funding contract itself. I also suggest that careful consideration is given to the necessity for ATE insurance (many clients are routinely pushed into taking out such insurance when their particular case simply doesn’t require such a policy). If this process is followed there ought to be few problems.

Bad practice involves sending out a standardised retainer pack to a distant client, whom you have never met (or even spoken to). Indeed, I have heard of some Solicitors starting work on the progression of the claim before the signed retainer has even been received back – don’t do that.

Remember, in a Solicitor and own client costs dispute, your former client will not only have in his possession most or all of the retainer documentation (unlike an inter partes costs assessment where such documentation is privileged), but he will also be able to explain the lack of oral explanation to his Costs Lawyers or even the Judge.

A breach of the statutory requirements in relation to your Conditional Fee Agreement could render your Conditional Fee Agreement unenforceable (S.58 CLSA), resulting in you being unable to claim any costs at all (either inter partes or Solicitor / own client).

Your retainer terms must not be unreasonable

Solicitor / own client costs are usually assessed on the Indemnity Basis – in other words, the costs to be paid by the client cannot be unreasonable (a subtle, but significant variation to the usual Standard Basis of assessment). Particular problems may arise for the client’s former Solicitors if their retainer hourly rates were unusually high or the success fee (to be calculated against base costs) was unusually high.

Many Personal Injury Solicitors have adopted a practice of putting hourly rates significantly above the SCCO Guideline Rates into their Conditional Fee Agreements, with the hope that they will not be prevented from trying to recover high rates, under the Indemnity Principle inter partes, where the circumstances of the case allow. However, at the end of successful matters, the irrecoverable success fee, to be paid by your own client, is then calculated against those unusually high rates, resulting in a deduction from compensation which is unreasonable (the deduction is unreasonable because the retainer rates are unreasonable). A better practice is for the Solicitor to agree suitable higher rates with their client, on a case by case basis, as the circumstances of the particular claim dictate (with any standard form Conditional Fee Agreement providing for more sensible rates).

Personal Injury Solicitors often also incorporate a standard 100% success fees within their post-April 2013 Conditional Fee Agreements, with a view to being able to recoup the full 25% allowable irrecoverable success fee from their client’s compensation at the end of the matter. However, the percentage success fee within the CFA must not be unreasonable and it goes without saying that a 100% success fee in a rear-end shunt RTA claim is most certainly not (see A & Anor v Royal Mail Group). Such deductions for irrecoverable success fees are an easy target for the Solicitor / own client Costs Lawyers above.

Time recording

Back in the CFAlite hay-days between year 2000 and 2013 some Solicitors were enthusiastic with their time recording (and why not?). But everything changed on the 1st April 2013 and with the end to recoverability of additional liabilities, fixed costs and all the rest, the race to the bottom began (albeit a very reluctant shuffle so far) and since then the consumer of legal services is once again King.

When looking at the deductions made from his damages, your former client might ask (1) why are the profit costs so high and (2) why is the success fee, calculated against those base profit costs so high? (and, in those circumstances, the client may be able to ask for a detailed breakdown).

The obvious advice here from me is to now record time sensibly. In this post-Jackson era, there are many benefits from applying the “look my own client in the eye test”. In other words, if you can’t look your own client in the eye and explain your charges, you shouldn’t be recording the costs against his file. For example, can you really look your own client in the eye and explain why you are charging him £30.00 for reading a one sentence email in? (Sensible time recording also has huge beneficial implications these days when it comes to costs budgeting and inter partes detailed assessments – things which I’ve discussed in other articles).

Explain any unusual charges to your client

For Solicitors conducting litigation, the law (section 74(3) of the Solicitors Act 1974 and PD to CPR 46(6)) does not want you to charge your own client anything much beyond what can be recovered between the parties (consumer protection). Costs which cannot normally be recovered between the parties on the standard basis should be regarded as “unusual” for purposes of the above rules. Most standard form post-April 2013 Conditional Fee Agreement include an explanation as to why the success fee will be payable by the client if the case is won – fine. But what about everything else?

Every Solicitor’s overriding duty to their own litigation client is to act in their client’s best financial interests. From the client’s perspective, the “financial outcome” is the amount of damages left in their pocket after all costs (inter partes and Solicitor / own client) have been paid. Are costs incurred by the Solicitor, on his own client’s behalf, which he knew, or ought to have known, would not be recoverable from the Opponent “unusual”? I would say, almost certainly yes, unless they were incurred with the express or implied approval of the client. Anything unusual therefore needs to be explained to your client before being incurred (and I don’t think a sweeping sentence in a client care letter is always good enough).

Very high hourly retainer rates, ten-minute charging units or very high Conditional Fee Agreement success fees are obvious examples of “unusual” costs. But what about costs in excess of a Phase under a costs management order – surely such irrecoverable expenditure needs to be agreed in advance, so that the litigation client can assess the ultimate impact on the financial outcome of the case?

Agree all items of expenditure on the case in advance with your own client (with advice as to the prospects for inter partes recovery of those costs) and then there will be no surprises at the end of the case.

Wong v Vizards and all that jazz

Solicitors are required to provide their clients, at the outset, with an estimate of the likely costs (they also need to provide an estimate of how long the matter is likely to take – more than 30 days?). Anyway, there have been many Solicitors and own client costs disputes over the years arising from inaccurate costs estimates. Remember, your client needs accurate costs information, throughout the course of any litigation, so that he can assess the ultimate outcome for himself after payment of costs. If that costs information, supplied to your own client is wrong, he will be upset when the planned financial outcome (after payment of costs) is not what he was expecting. The lesson here is to provide good quality advice to your own client about his ultimate costs liability.

Pilbrow v Pearless De Rougemont style arguments

Did you tell your client that the conducting fee earner would be unqualified? If your client was under the impression that his file was being conducted by a qualified Solicitor, when in fact it was being run by a Paralegal, there can be very significant Solicitor / own client costs implications. Keep your client up to date with the status of the person who is conducting their file (and don’t use the phrase Litigation Executive – there is no such thing).

How to properly calculate any deductions from compensation

Now here is where so many Solicitors are getting it wrong. You cannot automatically deduct 25% from every client’s compensation in a personal injury claim (See Conditional Fee Agreement Order 2013 and Courts and Legal Services Act 1990). Essentially, you can deduct from your client’s compensation up to 25% of their damages by way of irrecoverable success fee under an enforceable post 1st April 2013 Conditional Fee Agreement (I make that point because I have seen files where 25% deductions of damages have been made where there wasn’t even a signed Conditional Fee Agreement!). The success fee is calculated against your profit costs (not against the damages). The amount of those profit costs is the amount which your client is liable to pay under the terms of the retainer, in so far as they are not unreasonable (see points made above). The amount of the success fee is the percentage in your Conditional Fee Agreement (in so far as that success fee is not unreasonable), calculated against your (not unreasonable) net base profit costs, capped at 25% of the damages recovered (and remember, the 25% cap is against the compensation recovered for pain, suffering and loss of amenity, and any past pecuniary losses, less any recoupable benefits to the DWP – not any future pecuniary losses). The 25% cap includes VAT and applies only to first instance proceedings (so not to any appeal proceedings, for example).

Also, but only in so far as your retainer provides, you may charge your own client for any base costs which cannot be recovered inter partes, provided those costs were agreed as “unusual” in advance.

If you are just seeking irrecoverable additional liabilities from your own client, I recommend you provide an initial breakdown along the following lines;

My total profit costs for dealing with your claim, as per the terms of the retainer are (£….)

My success fee @ …% as agreed, calculated against my profit costs (and capped at no more than 25% of the general damages and past pecuniary losses, less CRU. Including VAT)  (£….)

The irrecoverable ATE insurance premium (£….)

Total (£….)

If you are seeking irrecoverable base costs and additional liabilities from your own client, I recommend you provide an initial breakdown along the following lines;

My total profit costs for dealing with your claim, as per the terms of the retainer are (£….)

VAT (£….)

My success fee @ …% as agreed, calculated against my profit costs (and capped at no more than 25% of the general damages and past pecuniary losses, less CRU. Including VAT) (£….)

The irrecoverable ATE insurance premium (£….)

Other disbursements including VAT (listed) (£….)

Subtotal (£….)

Subtract – the amount of total costs recovered from the Opponent including VAT (Include an explanation here if the costs recovered from the Opponent were less than the Solicitor’s full charges) (£….)

Grand Total (the balance payable by the client)  (£….)

I also recommend, when providing your final completion statement to your client, you include an invitation for them to come to your offices to go through the deductions made from their damages, if they aren’t completely satisfied. And I recommend you do that, because if your client believes the deductions are incorrect he may well bypass you and instruct a Costs Lawyer to check his legal bill for him instead (and that won’t be fun for you). The invitation to discuss your charges with your own client, face to face, may well generate new business from your client, his family and friends on the basis that the relationship of trust you have built up continues……

If you need any help with your Solicitor/own client charges please get in touch with PIC, who will be happy to help.

PIC offer a wide range of training to include:-

  1. Cost Budgets (this training has been provided to both APIL and AvMA)
  2. Proportionality
  3. New electronic bill training, compulsory from April 2018 (this training is being provided to APIL on 13th March)
  4. An essential costs update
  5. Any training session required bespoke to your needs.

If you would like to arrange a training session at your firm click here.   If you have any queries in relation to this article and would like to contact Ian click here.

Ian Moxon – Costs Lawyer

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