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High Court slashes success fee citing proportion of fees at risk

Spencer: Decision was plainly wrong

A district judge failed to consider the risks that a claimant solicitor should have taken into account when entering into a conditional fee agreement (CFA) and so was wrong to award a 65% success fee, the High Court has ruled.

In NJL v PTE [2018] EWHC 3570 (QB) [1], the underlying road traffic accident claim involved a serious brain injury which left the claimant a protected party.

By the time the relevant CFA was entered into – on a change of litigation friend – liability had been admitted. However, the claimant’s solicitors, Irwin Mitchell, said there were “significant and real risks” regarding quantum and causation.

The CFA Lite provided for a success fee of 25% if the claim settled more than three months before trial and 100% thereafter. The case settled within the three months for around £2m.

Before District Judge Searl, the claimant conceded that the 100% success fee could not be justified, and argued for a 67% success fee, equating to a 60% chance of recovering costs under the ‘ready reckoner’.

The defendant argued that the claimant was unable to justify a success fee above 20% and that so it should therefore be fixed at 12.5% pursuant to rule 45.19. DJ Searl awarded 65% given the complexity of the case.

Mr Justice Martin Spencer, sitting was Master Leonard as assessor, said this decision was “plainly wrong and must be overturned”.

He explained: “She makes no attempt to analyse the risks which should reasonably have been taken into account by the claimant receiving party when the success fee was agreed in August 2012.

“In particular, she does not state what percentage of the solicitor’s base costs should have been regarded as at risk, nor does she consider in terms the percentage chance of success in relation to ‘beating’ any part 36 offer of settlement.”

The judge said Master Leonard had assured him that this sort of percentage was ‘standard’ or ‘usual’ in this sort of case.

“Since the decision in C v W, if there is a ‘standard’ or ‘usual’ success fee at all, it is 20%. No reasons have been articulated by the district judge as to why she should have rejected 20% in favour of a success fee as high as 65% and, in my judgment, that assessment cannot stand.”

Going on to consider the appropriate success fee, Spencer J said there was nothing about the case which took it out of the category of standard, high-value personal injury cases where there were issues in relation to causation.

The challenge, he said, was to assess the risk that some of the costs incurred would be unrecoverable, specifically the risk arising from the timing of a part 36 offer and the risk of rejecting that offer and failing to better it at trial.

The claimant’s solicitors could have anticipated the defendant making a part 36 offer relatively late in a case of this nature, meaning that “even on a conservative estimate the solicitor should not have anticipated more than 25% of his costs being at risk”.

Spencer J continued: “With the combined forces of [the solicitor’s] own experience and that of leading counsel, I would be very surprised if he would have anticipated the risk of a part 36 offer being rejected and then not bettered at trial as being as high as 50% or anything like it.

“However, even if the risk is taken as 50%, if it is only 25% of the costs which are at risk, then the overall chance of success is 87.5% (100 – (50% x 25%)). Using the ready reckoner this would justify a percentage increase of 14.29%: on this basis, even a 20% success fee would be regarded as generous.

“In any event, the claimant, in my judgment, clearly fails to achieve a success fee of 21% or more so as to avoid the statutory reduction to 12.5%.

“Having discussed the risks and the proper approach of a reasonable cost judge and a reasonable solicitor with my assessor, I conclude that a reasonable success fee might, at a pinch, have been assessed at 20% but certainly no higher and probably lower.

“In any event, the success fee which I would substitute in this case for the 65% reached by the district judge should be one of 20% which then reduces to 12.5% by reason of the provisions of CPR 45.19.”