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Costs: High Court rules that Claimant did not give informed consent to deduction from damages

  • 28 October 2020 28 October 2020
  • UK & Europe

  • Insurance & Reinsurance

Following settlement of the Claimant's RTA claim, her Solicitor (the Defendant) deducted £385.50 from her damages. However, the High Court found that the Defendant had not given sufficient disclosure to the Claimant in order to rely upon CPR 46.9(2), and she had not given her informed consent to the deduction.

Costs: High Court rules that Claimant did not give informed consent to deduction from damages

Darya Belsner v Cam Legal Services Limited [2020] EWHC 2755 (QB)

Background

The Claimant pursued a successful RTA claim which settled for £1,916.98. The client care letter she received from the Defendant stated that if she won her case she would be liable to pay the Defendant's basic charges and a success fee. It further explained the success fee would be deducted from any damages at the end of the claim, and could not be more than 25% of the Claimant's damages. The Defendant's estimate of costs for the necessary work was £2,500.

The Conditional Fee Agreement ("CFA") provided that if the Claimant won her claim she would pay the Defendant's basic charges, expenses and disbursements and a success fee together with the insurance premium. The success fee was set at 100%, subject to the cap of 25% of the total amount of any general damages.

However, none of the documents provided for an overall cap on the amount recoverable by the Defendant from the Claimant.

When the claim settled, the at-fault driver's insurers paid the Defendant £1,783.19 inc VAT for their fixed costs and disbursements. The Defendant paid the Claimant £1,531.48 (£1,916.98 less £385.50) but did not send her a bill of costs or an invoice.

Claim

The Claimant instructed Checkmylegalfees.com who issued a Part 8 Claim Form seeking an assessment of the Defendant's profit costs and success fee. A provisional assessment by District Judge Bellamy held that informed consent was required by CPR 46.9(2) in relation to basic charges and this had not been given. The success fee was also reduced from 100% of basic charges to 15% following Herbert.

The Defendant challenged this decision; the judge maintained his decision on the success fee but changed his mind in relation to the need for informed consent, meaning the Defendant was entitled to charge the Claimant the £385.50.

The Claimant appealed arguing that as the Defendant was seeking to rely upon CPR 46.9(2), it needed to show the Claimant gave informed consent to the payment of an amount of costs greater than that which the Claimant could have recovered from another party to the proceedings.

Appeal

The Claimant submitted that as the relationship between her and the Defendant was a fiduciary one, the Defendant was not permitted to retain a profit derived from that relationship without her fully informed consent. It was accepted the Client Care Letter had said the Claimant could be charged fees in excess of those recoverable from the insurers but it was contended this was not sufficient to mean her agreement to these terms constituted informed consent. It was not identified to the Claimant the amount of costs that were recoverable from the opponent.

The Defendant argued allowing the Claimant's appeal would "result in a wholesale change of the basis on which solicitors advise their clients in fixed costs cases". It would also mean that solicitors "working in the lowest value area of personal injury litigation had a higher burden, in terms of the advice which they were required to give to their clients", than solicitors dealing with higher value and more complex claims.

Judgment

Mr Justice Lavender stated the requirement for informed consent arises because of the fiduciary nature of the relationship. The solicitor must show that s/he "made sufficient disclosure to the client". The key question was whether the Defendant made sufficient disclosure to the Claimant for the purposes of section 74(3) of the Solicitors Act 1974 and CPR 46.9(2).

Having analysed the documents sent to the Claimant, Mr Justice Lavender concluded there was "no doubt that the Defendant disclosed to the Claimant that the agreement between them permitted payment to the Defendant of an amount of costs greater than that which the Claimant could have recovered from another party to the proceedings".

However, the estimate of costs sent to the Claimant totalled £2,500 plus VAT, yet it was not pointed out that the Claimant may only recover £500 + VAT (based upon settlement in the portal at stage 2) or £550 + VAT (if the claim settled for less than £2,250 out of the portal) in fixed costs from the insurers. Mr Justice Lavender considered this may have affected the Claimant's consent to the agreement "insofar as it permitted payment to the Defendant of an amount of costs greater than that which the Claimant could have recovered from the Insurers". It would not have been an "unduly onerous burden" to require the Defendant to make this disclosure.

It was a "very striking feature" that the Defendant's estimated basic charges were five times the amount the Claimant might be entitled to recover from the insurers if her claim settled for less than £10,000 at stage 2. This ought to have been brought specifically to the Claimant's attention.

The Judge concluded that the Claimant did not give her informed consent to the agreement and the Defendant could not rely on it for the purposes of CPR 46.9(2).

What can we learn

  • Mr Justice Lavender noted that this was "clearly a test case" and the parties attached "considerable importance" to it. This was evidenced by their statement of costs together totalling £87,715.53, over 225 times the amount of £385.20 originally at issue. The Defendant has already said it will seek to appeal the decision.
     
  • The case of Herbert v HH Law Ltd was referred to in Mr Justice Lavender's judgment. He noted the facts of Herbert "were in many respects very similar" but HH Law had agreed to cap the overall amount which it might recover at 25% of the claimant's damages. The Defendant in this case "acted as if it, like HH Law, had agreed to cap the costs which it could recover from the Claimant at 25% of the damages" but it had not agreed to do this.
     
  • In his judgment Mr Justice Lavender noted "Whether there has been sufficient disclosure must depend on the facts of each case... A number of cases have considered whether the fiduciary must disclose not merely the fact that he is to receive a commission, but its amount".
     
  • Claimants must be given examples of the likely amounts of costs that may be recovered from opponents in order to provide informed consent.

End

Additional authors:

Oksana Hudson

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