The ‘what, where and why’?
Today we are taking a look back at the case of MNO v HKC & Anor [2022] EWHC 2919 (SCCO) which is an interesting reminder of the considerations the Court will make when assessing the appropriate level of the success fee to be deducted from the Claimant’s damages.
The case involved an RTA with two Defendants, where the Claimant suffered severe injuries including very serious brain injuries. The Claimant recovered £5.25 million in an award for immediate damages together with an order for periodical payments from the Defendants. On a capitalised basis the damages were said to be over £9 million pounds. The Defendants were ordered to pay the Claimant’s costs on a standard basis subject to detailed assessment. The terms of the order provided that unless the Claimant’s solicitors waived their entitlement to be paid by the Claimant any shortfall in the costs recovered inter partes as they may otherwise be entitled to under the terms of the retainer there was to be a detailed assessment of the solicitor/client costs incurred on behalf of the Claimant and of the amount which was reasonable for the Claimant’s solicitors to recover from the Claimant.
The Costs Judge had approved the recovery of the costs of the ATE premium against the Claimant. The claim for the shortfall of base costs not received from the Defendant was withdrawn. This left the success fee which was claimed at 20% with the recovered profit costs on which the success fee was based being calculated by the solicitors at £467,077.20 net of VAT. The success fee did not exceed the statutory cap. The success fee was assessed and allowed at 15%.
The provisions for the assessment of solicitor and client costs are contained in CPR 46.9. These costs are to be assessed on the indemnity basis (CPR 46.9 (3)) but are to be presumed to have been reasonably incurred if they were incurred with the express or implied approval of the client (CPR 46.9 (3)(a)); to be reasonable in amount if their amount was expressly or impliedly approved by the client (CPR 46.9 (3)(b)) but to have been unreasonably incurred if they are of an unusual nature or amount (CPR 46.9 (3)(c)(i)); and the solicitor did not tell the client that as a result the costs might not be recovered from the other party (CPR 46.9 (c)(ii)). Where the court is considering a percentage increase on the application of the client, the court will have regard to all relevant factors as they reasonable appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied (CPR46.9 (4)). CPR 21.12 (4) is also relevant to the expenses incurred by a Litigation Friend.
The 20% success fee claimed in this case was the first stage of a two-staged success fee. A 100% success fee was to be payable if the matter was to settle within 3 months of a trial window or was resolved at trial.
The general approach to the assessment of the reasonableness of the success fee is without the benefit of hindsight and without reference to what actually happened although it was acknowledged that resultant events could provide an indication of the reasonableness of the asserted risk. In this case, it was accepted on the facts and matters known to the solicitors when they entered into the CFA that there was no material or substantial risk of liability affecting the case and consequently the success fee. This left the only substantial risk being the Part 36 risk. The CFA provided a paragraph in respect of the Part 36 risks although the risk assessment did not refer specifically to the Part 36 risks.
It was argued that the Litigation Friend had approved the success fee by entering into the CFA and that this approval was informed which meant that the success fee of 20% was presumed reasonable. However, it was considered for the court to be satisfied that approval was informed in the ordinary case that would necessitate a full and fair explanation of factors relevant to the amount of the success fee. If the client had approved, it in the amount claimed the factors which go to explain how it was reached would need to be set out for the client to be reasonably bound by it. The Court of Appeal decision in Belsner had not removed the need for informed consent. It did not matter why for these purposes consent had to be informed. It was for the court to determine what was reasonable for the Protected Party to pay having regard to the assumptions in CPR 46.9(3).
In this case there was a reliance on a number of documents to show that approval was on an informed basis including the CFA and other documents such as attendance notes and letters written to the Litigation Friend. It was clear from the evidence that a success fee was payable; that it was not recoverable from the Defendants; that it was subject to the statutory cap; and that the success fee would have been based on risk and calculable as a percentage of the solicitor’s profit costs. Although the risk assessment did not refer to Part 36 risk, it was considered that on reading the CFA that the Litigation Friend would have been aware that there was some risk. The Litigation Friend gave informed consent to the payment of a success fee out of damages but the Court was not satisfied that the other documents established informed consent as to the amount of the success fee for the client to be reasonably bound by it.
It was considered that although the reasons for setting a success fee at a certain level will be beyond the normal understanding of a lay person and the explanation complex, this in itself did not mean that the explanation was not required. It was noted that although there was no informed consent, this did not mean it was not recoverable against the client or that the uplift was not reasonable and could not in principle be recovered against the client. Informed consent merely created a presumption of reasonableness.
The fact that this was a staged success fee was relevant in this case. Given that this was a two-stage success fee there needed to be an explanation of how both translated in terms of risk. The argument that the success fee falling within a reasonable range that it could not be said to be unreasonable was not good enough.
The conclusion following analysis was that the success fee of 20% was too high, 15% for the first stage of a two stage success fee in a high value claim where the only substantial risk was that of a Part 36 risk, could reasonably be said to be generous to the solicitor, given the “standard” for a first stage of a two stage success fee on an RTA was 12.5%, and also made suitable allowance for the variation and risks as submitted.
Summary
The recovery of a success fee from a client will always be dependent on the particular circumstances of the case. All documents will be considered, and it is important that the explanations are adequate not only to the payment of a success fee but to the level and how the risk translates to the particular percentage or percentages being claimed. Approval or agreement to the success fee is relevant only in so far as it is informed. Informed consent is very much a fact specific issue and even then, it will only give rise to a presumption of reasonableness.
How can PIC help?
We at Partners in Costs can provide guidance on a variety of costs matters, so if you wish to discuss or have a subject you would like covered, please do contact us.
Laura Harber, Costs Lawyer
09.02.2023