Deductions from a protected party’s damages: lessons from AKS -v- National Farmers Union Mutual Insurance Society Ltd.
The recent case of AKS -v- National Farmers Union Mutual Insurance Society Ltd [2025] EWHC 126 (SCCO) provides an important reminder of the process that must be followed when seeking to deduct the payment of costs from a Claimant who is a protected party and confirms that the Court must assess any success fee prior to payment being taken from a protected party’s damages. In this instance, following the wrong procedure and incorrectly calculating the success fee, led to the Court finding that a significant overpayment had been made from a protected party’s damages.
Seth Law Limited were instructed to act on behalf of the Claimant (a protected party) in a claim arising from a road traffic accident on 27th February 2017. The claim for damages was concluded in November 2022, with a settlement of £3.7 million being approved by way of an order sealed on 18th December 2022. The settlement order provided for the Defendant to pay the costs of the claim and required that the costs payable by the Claimant to Seth Law be subject to a detailed assessment.
Seth Law subsequently received a payment from the Claimant’s damages totalling £73,750.00 in respect a success fee. This payment had been arranged by the Claimant’s Deputy who had been acting on the understanding that she had a discretion to do so as part of performing her duties. This understanding was incorrect.
An application was made on 13th June 2023 by Seth Law who sought an assessment under CPR 47 and an award to the solicitors of a success fee of 25% of the Claimant’s damages. Seth Law then sought to withdraw the application on the basis that the matter had been dealt with by the Claimant’s Deputy. Despite Costs Judge Leonard making it clear that this position was incorrect and explaining that the law required that the Court assess any success fee prior to it being deducted from a protected party’s damages, the solicitors continued to assert that the payment of costs from the Claimant’s damages was a matter for the discretion of the Deputy.
An order was made by Costs Judge Leonard on 24th January 2024 which provided reasoning as to why the explanation given by Seth Law was not accepted. A hearing for the assessment of the deductions was listed for 11th April 2024 and directions were given for Seth Law to provide the court with the information that would be required.
There was no compliance with the directions ordered, nor was an application made by Seth Law to set aside or vary the order. The Court was not provided with the information required to assess the success fee. Following a delay in the proceedings, the assessment hearing was re-listed for 23rd July 2024.
In the intervening period, Seth Law Limited was closed down by the SRA. The hearing on 23rd July 2024 was not attended and, as the Court did not have the relevant information to judge the reasonableness of the success fee, this was assessed at nil.
The assessment hearing was re-listed to take place on 25th October 2024, following an application by the Deputy to set the previous order aside. A number of documents that had been located by the Deputy were provided to the Court.
At the hearing on 25th October 2024, Costs Judge Leonard considered the Conditional Fee Agreement and risk assessment. It was noted that a real risk assessment did not appear to have been undertaken, and that the success fee in the CFA was based on a generic definition of risk. There were concerns regarding the success fee of £73,750.00. The amount charged equated to exactly 25% of the assessed amounts for the Claimant’s general damages and past losses. However, Costs Judge Leonard found that Seth Law had never been contractually entitled to claim this amount.
The Bill of Costs prepared for the recovery of costs from the Defendant indicated that the total of Seth Law’s profit costs was £157,134.84 inclusive of VAT. The CFA allowed for a success fee of 25% and so Court identified that the maximum contractual success fee would have actually been just over half of the amount that had been charged to the Claimant, i.e. £39,283.71 including VAT.
As the CFA defined the success fee as being a percentage of ‘basic charges’ (i.e. charges for the legal work done on the claim), then the Court advised that the success fee must be calculated as an appropriate percentage of the basic charges actually rendered to the Claimant. It was noted that a solicitor/client bill did not appear to have ever been provided to the Claimant, and only an invoice for the success fee was seen by the Court. In order to determine what the correct amount for basic charges was, for the purpose of calculating the success fee, it was therefore necessary to consider the certified Bill of Costs prepared for the assessment of inter partes costs and the sums recovered.
The total amount of costs recovered from the Defendant was £220,000.00. Given that Seth Law were not seeking the approval of any shortfall in costs not recovered from the Defendant, the Court were able to calculate basic charges as being the amount left from this agreed sum once counsel’s fee’s, disbursements, VAT and interest had been accounted for.
Seth Law’s basic charges were calculated as being £110,017.57 (inclusive of VAT). This equated to a success fee of 25% being £27,504.39 (inclusive of VAT). This was not, however, the conclusion of the assessment of the success fee.
For a success fee of £27,504.39 to be recovered, it was stated that this sum must be reasonable in amount and, following consideration of the circumstances of the case, Costs Judge Leonard could not see that a success fee in excess of 15% could be justified, on the basis that there were minimal prospects of Seth Law going unpaid for any period. There was no evidence that informed consent had been given by the client to a success fee of 25% (i.e. a success fee at a higher percentage than was justified by the risk) and it appeared that there was no real risk assessment until years after the success fee had been set.
The assessment was concluded with Costs Judge Leonard ordering that the costs settlement of £220,000.00 be approved (this representing a recovery of just under 82.5% of the total bill of £267,117.27 which was considered to be within a reasonable range) and that Seth Law’s success fee be assessed at 15% of basic charges, resulting in an award of £16,602.64.
The result of the assessment meant that there had been a significant overpayment by the protected party in respect of the success fee of some £57,247.36. Whilst the solicitors were required to repay this amount, as Seth law were in compulsory liquidation, Costs Judge Leonard noted it would regrettably remain to be seen whether any such repayment would be made.
This case is an important reminder of the procedure that must be followed when dealing with the deduction of costs from damages when acting on behalf of a protected party. It confirms that a success fee must be assessed by the Court prior to any deduction being made in this regard and that the approval of a Deputy is not determinative of the amount to be deducted from a protected party’s damages for solicitor’s costs.
Additionally, the case provides a helpful summary of the applicable law and the relevant provisions of the CPR for these circumstances, which are listed as follows:
- CPR 21.2(2)(d): a protected party is a party to litigation who lacks capacity to conduct the proceedings.
- CPR 21.10: where a claim is made on behalf of a protected party, no settlement, compromise or payment in respect of that claim shall be valid without the approval of the Court.
- CPR 46.2(2)(a): where money is ordered or agreed to be paid to, or for the benefit of, a child or protected party, the court must order a detailed assessment of the costs payable by, or out of money belonging to, the child or protected party. The amount payable to the legal representatives by the child or protected party will, by virtue of CPR 46.4(4), be limited to that amount.
- CPR 46.4(3) and Practice Direction 46 at paragraph 21 set out a number of exceptions to CPR 46.2(2). None of these exceptions applied to this case.
- The general rule (which did apply to this case) is that if any element of a solicitor’s costs falls to be deducted from a protected parties damages rather than recovered from an opponent, then the solicitor’s costs must be first assessed by the Court.
- The assessment in this regard will be on the indemnity basis as per CPR 46.9.
- When the Claimant is a protected party, any proposed compromise of a claim for costs must be approved by the Court.
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Leigh King, Costs Lawyer
20.03.2025