Nicky Herbert v HH Law Limited  EWCA Civ 527
The Court of Appeal has now given judgment in the case of Nicky Herbert v HH Law Limited  EWCA Civ 527.
The decision in this case is a matter of interest for all Solicitors conducting work under Conditional Fee Agreements which provide for a success fee but particularly those who do so on a volume basis.
Some discussion of the case seems to suggest that there is fear that this case harbours more doom for the conduct of personal injury litigation on a Conditional Fee Agreement, but this article suggests that closer analysis reveals that is not the case-but rather that it is reminder of paying proper attention to the crucial issue of the arrangements which you have for with your client for the payment of costs.
How the Dispute came about
It is a fortunate Solicitor who conducts volume personal injury litigation and has not yet been faced with a client, quite often some months after settlement of the claim and often now represented by a specialist in the area, seeking to challenge the costs which have been deducted from their damages.
The reality of aggressive marketing in this area is that clients who have settled claims and agreed costs are being invited to look again at the arrangements they entered into and to question the costs which have been sought from them, usually by way of deductions from damages, may be refundable.
We have seen the first skirmishes in this new battlefront with multiple claims being made for disclosure of files, with the court being told when asked to consider such applications that this is the latest risk of the litigation floodgates being opened-the lines this time are not being drawn between Solicitor and Defendant Insurer but between Solicitor and Client. It is clear that the court is going to carefully navigate the tight line between upholding the protections afforded to lay clients ,who are often inexperienced and sometimes unsophisticated litigants, and discouraging a multiplicity of claims in an already stretched civil justice system.
In Herbert the Solicitors were faced with a client who having been involved in a RTC and had successfully recovered damages of £3400 and against whom the deductions were limited only to the success fee which was calculated solely on those costs recovered from the Defendant in the main action (which was itself limited to no more than 25% of damages) together with the ATE policy. Despite the limited liability the client exercised her right to a Solicitor-Client Assessment which challenged the entitlement of the Solicitor to make those deductions. It is worth emphasising that the sums in issue were modest-being a success fee of £691 plus VAT and a premium of £349. However, one can understand why given the limited overall nature of the costs in this case (which was subject to the Fixed Costs regime) such sums were in reality a considerable amount of the income from the claim, and when multiplied against that firm’s other similar claims one can see where the argument advanced by Mrs Herbert’s Solicitors that without the recovery of such costs their business model becomes uneconomic.
An important point to emphasise when considering the costs sought is that the success fee was set at 100% of costs. Contrast this to the Pre-LAPSO regime where such claims attracted a 12.5% success fee between the parties, with most Solicitors in this market at that time not seeking any costs from the client other beyond inter partes recovery. The regime was not intended to allow Legal Representatives to substantially increase their recovery in relation to success fees and in that context perhaps the opposition to the amount of the success fee seems less surprising.
Solicitor Act Assessment
To look then at how this case found itself before the Court of Appeal.
As mentioned above Mrs Herbert, through her new Costs Solicitors, challenged the right of her Solicitors in the substantive action to charge her the 100% success fee and the right of the Solicitor to deduct the sums for the ATE policy. The case had proceeded to paper assessment before a District Judge in the Sheffield District Registry.
Since this was a Solicitor’s Act Assessment the court proceeded under CPR 46.9- The relevant parts of the rules provide that:
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.
This is supported by the Costs practice Direction which provides that:
6.1 A client and solicitor may agree whatever terms they consider appropriate about the payment of the solicitor’s charges. If however, the costs are of an unusual nature, either in amount or the type of costs incurred, those costs will be presumed to have been unreasonably incurred unless the solicitor satisfies the court that the client was informed that they were unusual and that they might not be allowed on an assessment of costs between the parties. That information must have been given to the client before the costs were incurred.
6.2 Costs as between a solicitor and client are assessed on the indemnity basis. The presumptions in rule 46.9(3) are rebuttable.
On Detailed Assessment the outcome of the decision of the District Judge, applying those rules, was that the Success Fee was an unreasonable cost and thus had been reduced from the 100% agreed to 15%. In relation to the ATE the court held that this was a Solicitors’ Disbursement and as such the DJ found that it should have been part of the Bill and thus it was removed from the cash Account-the effect of which being the Solicitor could not deduct it from the Client.
The Solicitors being unhappy at the findings, and with permission from the DJ, had then proceeded to an Appeal before single High Court Judge who effectively upheld the District Judge. Since the Solicitors were perhaps understandably dismayed to be faced with a reduced success fee and no payment for the ATE, together of course with a liability for the Costs of Assessment and particularly ,one suspects, when they perceived that this result was an attack on their business model they therefore appealed to the Court of Appeal.
The decisions the court was asked to make in relation to the Success Fee and ATE
The issues before the court in this second appeal were limited to a consideration of whether the decision was :
- Wrong in law in the construction and Application of CPR 46.9 (3) in particular in construing and applying the presumptions which are provided for
- Was wrong in Law in the construction and Application of CPR 46.9 (4) in particular in permitting the court to reduce an agreed success fee on a Solicitor and client basis by the court’s own assessment of the degree of risk in the present case
- Wrong in law in characterising an ATE insurance premium as a Disbursement liable to Assessment under S70 of the Solicitors Act 1974
Success Fees-risk assessment, informed consent
The parties were not really in dispute that the documentation provided for the provision of a 100% success fee and by the time of the hearing before the Court of Appeal it was accepted that the Claimant had been told that this was a sum which would not be recovered from the other party in her claim.
The dispute between them was then whether such a fee was incurred with the express or implied approval of the client and if not whether such a fee was unusual in nature and unreasonable in amount.
The Court of Appeal found that the written documentation was not sufficient to demonstrate that the client had approved the success fee-given that the approval had to be on the basis of informed consent. There does not appear to have been any additional evidence before the court as to the advice given to the Claimant on the uplift which was to be charged. Thus, the Solicitor was not entitled to the presumption that such costs having been incurred with approval from the client were reasonable.
Having found that the court then found that the fee was unusual in nature and amount.
It is interesting that in this case the 100% was admitted not to be on the basis of any risk assessment process or a reflection of the Solicitor’s assessment of the reasonableness of the uplift, but rather was a blanket amount applied across all cases by the firm representing Mrs Herbert. Given the history of Conditional Fee Agreements in this country firmly routed in an appraisal of the risks which are being accepted by the Solicitor it is suggested that one is not that surprised that the court was taken aback by a blanket uplift, particularly given that the level of that was 100%-the maximum which can be sought.
Having found that this starting point of 100% regardless of the litigation risk was unusual the court found for the purposes of CPR 46.9 the Success Fee was an unusual cost. That of course meant that it was accepted that the court was entitled to examine the reasonableness of the costs which was claimed.
There was no appeal in relation to the question of the appropriate amount of the Success Fee and thus the Court of Appeal did not consider at all the question of what uplift was reasonable once it had found that there was no informed consent for the 100% and that the same was an unreasonable cost. The 15% allowed by the District Judge thus remained in place.
A word on ATE
The Claimant’s initial Solicitors having been faced with an unfavourable result on the Success Fee did find themselves have something to celebrate in relation to the ATE.
The court allowed the appeal in relation to the ATE finding that this was not a Solicitor’s disbursement. That has to be correct given that the insurance premium is not an item which the Solicitor is obliged to discharge regardless of whether the client has put him in funds-the contract of insurance is of course between insurer and Litigant. Since the court found that there was no practice of accepting this as a disbursement on a Solicitor and Client basis the court found that the ATE did belong in a cash account and not as an item in the bill to the client.
The effect of this is that it takes the insurance premium outside of the scope of Assessment between Solicitor and client and thus subject to an agreement to that effect being in place to allow for it the premium is quite properly to be deduced from the money held by the Solicitor before accounting to the client.
Tips on Practice
So what can be learnt as to how to properly deal with deductions from damages in the hope that Solicitors can properly protect themselves from challenges.
Retainer and Evidence
It remains crucial that time is taken to ensure that the terms of your retainer with the client are clear and consistent. Standard documentation must fit the case being brought and the agreement reached on costs. Clear and full advice must be given to the client and that advice must be evidenced on your file.
Having set the retainer up correctly take the time to make sure that you refer the client to the agreement as to costs especially in relation to sums which will not be recovered from the Defendant in the substantive action. It is essential that the Client is advised properly as to the effects of that at key times-in particular when offers to settle are being discussed. Make sure the client knows and agrees the deductions that will follow and that you have evidence of them agreeing the same.
The court was not impressed by a blanket 100% finding it to be an unusual cost in a RTC claim. There may be an interesting argument about whether that would be the case in an area recognised as generating a greater risk, such as clinical negligence where such an uplift may have been justifiable in the Pre LAPSO regime. However given the findings of the court which suggests that they expect to see risk assessment it would be a brave litigator who chose to run that argument.
Thus you need to undertake a risk assessment, make sure your client sees it and is advised on it. That does not need to be a massively time consuming-but some thought of all factors and then taking the time to set those out clearly will bear fruit in ensuring you are entitled to charge the vital success fee. If you chose not to do a risk assessment reflecting the factors in the claim then we would suggest you need to be prepared to demonstrate that you have given your client very clear advice on the question of how the uplift has been set and that advice should be given before the CFA is entered.
Remember that the success fee can include all costs including the costs of postponement of fees and the arrangements about the funding of disbursements-such items could not form part of the success fee claimed from the Defendant pre LAPSO but is an appropriate part of the success fee on a Solicitor-Client Basis. Areas such as this may in fact mean that the success fee which you can recover will be significantly higher than the fixed %s which applied to the pre LAPSO regime. Even in Herbert the percentage was beyond that which would have applied between the parties under the pre LAPSO regime.
It is suggested that full advice to the client on this point has clear advantages:
- A client who understands your costs is more likely to feel that they are getting a good deal-in most cases they are-and is less likely to be inclined to enter a dispute with you about the deductions.
- It may be that full advice on this point will lead to the Success Fee being a cost that there was informed consent for-thus allowing the presumption in CPR 46.9 to operate in your favour so that challenge becomes problematic to the client
- Even if you don’t meet the hurdle of informed consent you improve your chances of maximising your recovery on the basis of what a reasonable success fee would be-in many cases it may be that this would take the notional success fee above the 25% cap and in effect rendering any challenge pointless-since there would be no refund to the client.
The position following Herbert seems to be straightforward. This charge is not something which should appear as a disbursement in your bills to your client.
You do need to have clear documentation to the Client advising as to the contract of insurance and as to your right to hold this money from damages and then discharge the premium on behalf of your client.
A final word on the subject of deductions generally-it was not a matter before the Court of Appeal but it is something which seems to be an issue in many Solicitor-Client disputes is the question of the bill/invoice to the client. It is essential that when claims settle and when costs are received that you properly invoice and account to your client-final bills should be rendered showing all costs and making sure that they meet the requirements of the Solicitors Act and having been rendered they need to be delivered to your client.
If you have concerns about your retainer and charging arrangements then remember PIC offer a CFA health check service. Please feel free to contact Reuben Glynn for an informal chat in the strictest confidence.