What is the cost of success? Court of Appeal issues guidance on recovery of success fees

The Court of Appeal has issued an important judgment on calculating success fees which will impact the business model adopted by many claimant solicitors in the aftermath of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). The decision has the potential to result in thousands of claimants challenging success fee deductions from their damages award by their solicitors.

Background

The Claimant was involved in a rear end shunt and instructed HH Law to pursue a claim for damages. Under her Conditional Fee Agreement (CFA) the success fee was 100%, capped at 25% of her damages, as required by The Conditional Fee Agreements Order 2013. She also purchased an ATE policy at a cost of £349.

Proceedings were issued and settlement was agreed in the sum of £3,400. HH Law capped the success fee at £829.21 and deducted this from the Claimant's damages along with the cost of the ATE premium at £349.

The Claimant then instructed JG Solicitors to challenge the recoverability of the success fee and the ATE premium. Her main argument was that the success fee should not have been set at 100% as the risks with her claim were low and subsequently there was no merit in a 100% success fee. Her argument in relation to the ATE premium was that it had been included within the firm's cash account but not included in the invoice and was a solicitor disbursement.

The Claimant was successful on both points at first instance. The judge found that there was no clear evidence that she had agreed to a success fee of 100% and reduced it to 15%. As the ATE premium was not included in the bill sent to the Claimant, HH Law could not charge her for it.

HH Law appealed both decisions but both appeals were dismissed. It was held that the Claimant did not provide informed consent as to the 100% success fee as she was not told by HH Law that they had not considered the specific risks of her case. Further, the ATE premium was a solicitor's disbursement and could not be deducted from the Claimant's damages.

Court of Appeal

The matter proceeded to the Court of Appeal and was heard before the Master of the Rolls (MR), Sir Terence Etherton, who gave the lead judgment.

The decision on the success fee was upheld but the decision on the ATE was, perhaps unsurprisingly, reversed.

HH Law failed with their argument that, as per its business model, it was fair and reasonable to set all success fees at 100% subject to the 25% cap. The MR found that setting all success fees at 100% does not consider the litigation risk of each individual case and stated:

“I do not consider that either HH’s justification for its charging model or the 25% cap answer the point that in this country, in the context of a conditional fee agreement, the amount of a success fee is traditionally related to litigation risk, as reasonably perceived by the solicitor or counsel at the time the agreement was made."

The original decision to reduce the success fee to 15% was therefore upheld. The Claimant had not given informed consent as to the 100% success fee as HH Law had not explained that 100% was standard across all cases and they did not actually assess the specific risks of her case.

HH Law did have success with appealing the ATE decision. The MR held that the ATE premium was not a solicitor disbursement and therefore did not need to be included in the solicitors' bill and could be deducted from the Claimant's damages.

What can we learn?

• During submissions for HH Law, Nicholas Bacon QC submitted that the Court was "on the precipice" of inviting thousands of claimants whose damages had been reduced by legal costs to contest their bill. The decision has the potential to open the floodgates for such claims.
• Since the introduction of LASPO, many claimant PI firms have adopted the business model used by HH Law and have set success fees at 100% regardless of the case risks. Many claimant solicitors have considered a straightforward rear end shunt to carry the same risks as a highways claim or an LVI. Their reasoning is that this is necessary to remain profitable since the introduction of fixed costs and as success fees and ATE premiums are no longer recoverable from defendants.
• If claimant PI firms have failed to conduct a risk assessment to decide the success fee and have used a broad-brush approach of 100% across all cases they will have left themselves open to clients being able to reduce the success fee. Unless claimant solicitors can show that their clients had informed consent as to the setting of the success fee, (in that they informed clients that the success fee was not set based upon the risks of their particular case), then following the HH decision they will not be able to justify a 100% success fee.
• Claimant solicitors may need to consider whether they need to revise their success fee calculation as the case progresses and further information comes to light.

This judgment will be another blow to claimant PI firms and it remains to be seen whether HH Law will seek a further appeal to the Supreme Court.

The full judgement can be found here.