Solicitors handling low-value personal injury claims since LASPO should have undertaken risk assessments before setting success fees – rather than just applying 100% across the board – the Court of Appeal has ruled.
In a ruling that could lead to an avalanche of challenges by former clients, the court did give them some good news by deciding that an after-the-event (ATE) insurance premium was not a disbursement, meaning a client could not challenge it on a Solicitors Act assessment.
Claimant Nicky Herbert was advised by her Liverpool solicitors HH Law (better known as Hampson Hughes) to accept an offer of £3,400 for a rear-end shunt by a bus, of which £829 would be deducted as the firm’s success fee (25% of damages) and £349 for ATE insurance, leaving her to bank £2,222.
She accepted the offer but subsequently instructed JG Solicitors, which has become well known for its work challenging deductions from personal injury clients’ damages.
JG argued that HH had failed to conduct a risk assessment justifying the level of success fee and that the 100% uplift was out of step with the fixed success fee of 12.5% under the previous costs regime for RTA claims which settled before trial.
In its evidence, HH said that, like most of the market, it had changed its model as a result of LASPO to routinely charge a 100% success fee, capped at 25% of the damages.
The district judge reduced the success fee to 15%, finding no clear evidence the claimant had approved the cost to be incurred “with full knowledge”, and that there was no risk assessment on the file to justify the 100% success fee sought
He also held that the ATE premium should have been included in the bill as a disbursement and not in the cash account as an item of client expenditure.
Giving the ruling of the Court of Appeal, the Master of the Rolls, Sir Terence Etherton, said that on a Solicitors Act assessment, the burden was on the solicitor to show there was informed approval of the success fee.
He continued that the combination of the retainer, CFA and a ‘What you need to know’ document provided Ms Herbert with “a clear and comprehensive account of her exposure to the success fee and HH’s fees generally”.
That left the question of whether the firm needed to conduct an individual risk assessment after recoverability was abolished for such claims in April 2013. “The wording of CPR 46.9(4) shows that it was envisaged that a success fee would be related to risk,” Sir Terence said.
He went on: “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.
“Across the broad range of litigation, it would be unusual for it not to be. It continues to be the case in those limited areas, such as publication and privacy proceedings and mesothelioma claims, where success fees are still recoverable from the losing party.
“Even taking the sub-set of low value personal injury claims, [HH’s] evidence goes no further than that ‘most’ of HH’s competitors have adopted the same business model and ‘many’ of HH’s competitors charge success fees in the same way.
“That is insufficient to avoid the need, for the purposes of informed consent of the client under CPR 46.9(3)(a) and (b), to have told the client that the success fee of 100% took no account of the risk in any individual case but was charged as standard in all cases.”
On the ATE premium, Sir Terence said the case law indicated that a disbursement qualified as a solicitors’ disbursement if either it was a payment which the solicitor was obliged to make whether or not put in funds by the client – such as court fees, counsel’s fees and witnesses’ expenses – or there was a custom of the profession that the particular disbursement was properly treated as included in the bill as a solicitors’ disbursement.
This was reflected by the definitions of ‘disbursement’ and ‘professional disbursement’ in the SRA Handbook.
An ATE premium did not fit either of these; “it is not, technically speaking, a litigation expense at all,” the judge said.
“I appreciate that the consequence is that the client will not be able to challenge the amount of an ATE insurance premium through the convenient mechanism of an assessment under the Solicitors Act 1974 s70.
“That is not, however, a good reason to decline to apply the principle which is clearly binding on us, in the light of the limited evidence before us, and so create a precedent which both undermines the coherence of the principle and may have unforeseen implications in other and different cases.
“No doubt, if this outcome is considered unsatisfactory within the profession, the Solicitors Regulation Authority and the Law Society can consider what could be done to bring an ATE insurance premium within the principle as to what is a solicitor’s disbursement.”
PJ Kirby QC and Robin Dunne of Hardwicke were instructed by JG to represent Ms Herbert. In an analysis published on their website, they said the consequences of the ruling would be “profound”.
They wrote: “Since LASPO, many firms have used the same model as HH Law in modest claims where the individual risk was low.
“Unless (which is unlikely) they have advised their client when the CFA was signed that the success fee was not set on the basis of the risks of the case, the client will be able to reduce the success fee on a Solicitors Act assessment.
“There are likely to be huge numbers of clients who have the ability to do so, even if they have to rely on special circumstances.”
Clients wanting to challenge the ATE premium, however, would have to do so in separate proceedings.
Nick Bacon QC of 4 New Square and Andrew Hogan of Ropewalk Chambers represented the claimant.