High Court throws 100% success fee model for low-value PI claims into doubt

100% success fee: Needs to be individually justified

The High Court has thrown the industry-standard model for handling low-value personal injury claims into doubt after ruling that solicitors still need to undertake individual risk assessments before setting the success fee – rather than just applying 100% across the board.

Mr Justice Soole also said that they needed their client’s “informed” consent to the figure proposed.

Claimant Nicky Herbert was advised by her Liverpool solicitors Hampson Hughes (HH) 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 after-the-event (ATE) insurance, leaving her to bank £2,222.

Details of the costs incurred were in an invoice (not a request for payment) for £6,176, comprising £4,796 in costs (22.10 hrs at £118), VAT of £959 and disbursements of £421 (medical report £216 and court fee £205).

She accepted the offer but subsequently instructed JG Solicitors, which has become infamous 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 adopted a post-LASPO model of routinely charging a 100% success fee, capped at 25% of the damages.

CPR 46.9(3)(a) and (b) presume that the client has given their “express or implied approval” to the fees charged.

At first instance, District Judge Bellamy said: “There is no clear evidence the claimant approved either expressly or impliedly, with full knowledge, the cost to be incurred, and more particularly, a success fee of 100% could easily be said to be unusual both in nature and amount given the circumstances of the claim that were known to the solicitors at the time [that was, its straightforward nature].

“Further, there is no risk assessment on the file that would in any event justify as being reasonable, a success fee of 100%.”

He found it difficult to say that a success fee of much more than 12.5% “could ever be justified” in a case of this nature.

“On the circumstances described by the client the facts of the case was straightforward, the nature of the injury was minor soft tissue damage and whiplash, there was no time off work, and it was likely this case would be settled for a modest amount in a short period of time.”

Given this, and allowing for the fact that the “modest” disbursements were funded by the solicitors for a “fairly short” period, the judge said the appropriate success fee was 15%.

Upholding the decision, Soole J said: “I do not accept that the ‘approval’ of the client is satisfied by the mere fact of the client’s consent to the relevant type or amount of cost to be incurred. The language of ‘approval’ evidently requires something more.

“I respectfully agree with Holland J in Macdougall [v Boote Edgar Esterkin [2001] 1 Costs LR 118] that approval requires an informed consent. It follows that the simple refrain of freedom of contract establishes neither the presumptions nor the reasonableness of the success fee in the particular case.

“Secondly, I do not accept that the requirement of approval is directed only at cases where the client has been misled by the solicitor…

“Thirdly, I do not accept that the LASPO changes had the effect of removing risk assessment as a relevant factor when considering the success fee percentage increase on a solicitor-client assessment.

“Whilst LASPO excluded the success fee from the inter partes assessment, CPR 46.9(4) demonstrates that it did not do so for the purpose of a solicitor-client assessment.”

This meant, Soole J said, that when the costs judge was faced with a client’s application under rule 46.9(4) for a reduction of the percentage increase, there was no good reason for the risk in the individual case to be excluded as a relevant factor.

“On the contrary it is likely to be the primary factor. This reflects the fact that the assessment is concerned with the circumstances of the particular retainer.”

He concluded: “Putting the point another way, if and insofar as HH took no account of the risk in the individual case and provided for a 100% uplift (subject to the 25% cap) in all cases by reason of its particular post-LASPO business model, I consider that informed approval would require this to be clearly explained to the client before she entered the agreement.”

With the presumptions not arising, Soole J said it was for the judge to assess the reasonableness of the success fee in the particular case.

“He rightly held that the risk in the individual case was a relevant factor and rejected the arguments based on HH’s business model. There being rightly no challenge to his assessment of the risk factor at 15%, this ground of appeal must be dismissed.”

Soole J also upheld the district judge’s decision that Ms Herbert’s ATE insurance premium was a solicitor’s disbursement.

HH argued that the premium was a client disbursement, paid over to the insurer by the mere agency of the solicitor, which would have put it beyond the scope of a solicitor-client assessment.

“In my judgment, the purchase of ATE insurance cover is an inextricable part of the package which the solicitor provides to the client in such litigation and which HH provided Ms Herbert in this case,” Soole J said.

“The fact that that there was a contract between client (insured) and insurer is not decisive. The reality is that the insurance cover is offered and provided as part of one overall package presented by the solicitor to the prospective client; and then, pursuant to the terms of the retainer, the solicitor pays the premium to the insurers from the gross settlement sum received from the third party.

Ordering HH to pay the costs of the assessment, the district judge refused to inquire further into HH’s contention that JG’s retainer with Ms Herbert was tainted by illegality and unenforceable because it was obtained through cold-calling.

Soole J again upheld the decision. The contention by HH director Craig Ralph was “based on no more than cautiously phrased evidence that he ‘had been made aware’ of such an allegation by another former client”, while JG had expressly denied the particular and general allegation in a signed statement.

“The judge’s decision, that it would be disproportionate for him to take the matter further and that Mr Ralph should redirect his complaint to the SRA, fell squarely within the ambit of his case management discretion,” Soole J concluded.

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