Personal injury (PI) law firms that fail to spell out in their retainers the costs clients could be liable for beyond what is recovered from defendants face a wave of litigation following a major High Court ruling.
Even if they ultimately cap their recovery, this needs to be included in the retainer too.
Checkmylegalfees, which acts for the claimant in Belsner v Cam Legal Services Ltd  EWHC 2755 (QB), said millions of clients may have claims a result.
Mr Justice Lavender said there had to be informed consent which explained in detail what the deduction could be – rather than just warning in broad terms of a potential liability – even though the firm here ultimately capped recovery to a fraction of it.
His ruling in what he recognised was a test case could end up in the Court of Appeal, as the firm – Norfolk firm CAM Legal – is seeking permission to appeal.
He said it was the first time a court has had to decide whether a solicitor seeking to rely on CPR 46.9(2) has to show that the client gave informed consent to paying the solicitor more costs than it could have recovered from another party.
“Consequently, the parties appear to attach considerable importance to this appeal,” he observed, with the two parties spending nearly £88,000 on the appeal, at which £385.50 was at issue.
Darya Belsner’s case for an injury suffered as a pillion passenger on a motorbike settled in the RTA portal for £1,917 in damages plus fixed costs and disbursements of £1,783. The firm – trading as Scooters and Bikes Legal – deducted £385.50 from the damages as its success fee (100%, capped at 25% of damages).
The claimant then instructed Checkmylegalfees, which requested the final statute bill and then applied for a Solicitors Act assessment.
CAM’s bill came to £4,306, meaning there was a shortfall of £2,523 to be paid by Ms Belsner. CAM capped that at £385.50.
Section 74(3) of the Solicitors Act 1974 says the amount allowed on assessment cannot exceed what the court would have allowed as between party and party. However, CPR 46.9(2) says this can be overridden by written agreement. The question was whether it required informed consent.
The client-care letter included a costs estimate of £2,500. DJ Bellamy found that the paperwork given to Ms Belsner made it clear that CAM would seek to recover any shortfall in costs not recovered and decided that to require informed consent “places the burden too high”.
He did, however, reduce the success fee from 100% of the basic charges to 15%, in line with the Court of Appeal ruling last year in Herbert. This led to basic costs of £1,392 and success fee of £209 plus VAT.
On appeal by both sides, Lavender J said the requirement for informed consent arose from the fiduciary nature of the relationship between solicitor and client.
He agreed that it was clear CAM told the claimant that the agreement between them allowed the firm to charge her more than it had recovered from the other side, but did not explain that, in a case worth less than £10,000, the costs recovered might be no more than around £500.
“If it had been pointed out to the claimant that, while the defendant’s estimate of costs was £2,500 plus VAT, she might recover only £500 or £550 plus VAT from the insurers, then that may have affected the claimant’s consent to the agreement…
“It may, for instance, have led the claimant to ask whether her liability could be capped, or to approach a different firm of solicitors, who would cap her liability. Prima facie, therefore, it ought to have been disclosed.”
Lavender J said it would not have been “an unduly onerous burden” on CAM to do this.
“It would not involve explaining all of the detail and complexity of the provisions of the Civil Procedure Rules and the protocol which I have set out. Nor would it have required identifying every possible outcome of the claimant’s claim.
“Rather, it involved taking the outcome which the defendant had itself assumed for the purposes of its estimate of costs and stating what the recoverable costs might be in that case.”
The “general terms” used by CAM to describe the amount of the defendant’s costs which the claimant might recover from the insurers – which simply indicated that she might not recover all of the costs – were “not such as to bring home to the claimant” her potential liability.
This potential liability was “so striking that it ought, in my judgment, to have been brought specifically to the claimant’s attention”.
The court did not consider the defendant’s appeal as a result.
As a result, Ms Belsner was only responsible for profit costs to the level they were recovered from the insurer, CAM Legal was only entitled to charge a reasonable success fee on the level of profit costs recovered (15% of £500 plus VAT i.e. £90), and so it had to repay her £295.50 (£385.50 – £90).
Mark Carlisle of Checkmylegalfees.com said: “The judgment is a long overdue reminder of a solicitor’s fiduciary duties.
“The court has, for the first time, confirmed that it is those duties that underpin all aspects of ‘informed consent’ to legal fees, and that those duties don’t stop outside the door of the post-LASPO personal injury department or when a conditional fee agreement is involved.
“I have no doubt that it will be painted by the sector as an interference with freedom of contract but that misses the point. Solicitors remain free to contract with clients in whatever way they like, but subject to informed consent following full and frank disclosure of the material facts.”
He said the decision gave clients true price transparency and the opportunity to look around for a better deal, “whilst putting an end to the ability of lawyers to abuse the conditional fee regime”.
Darren Draper, practice manager for CAM Legal said they would seek permission to appeal: “We genuinely believe [Lavender J] was wrong to ignore the fact that we, as a firm, did ultimately cap all of our unrecovered costs.”
Ged Courtney, a costs draftsman at Kain Knight Costs Lawyers – which acted for CAM – said: “The logical conclusion of the judgment is that, notwithstanding the significant amount of costs information CAM Legal provided to Ms Belsner, including the fact that she would be responsible for any shortfall in unrecovered profit costs, that by not setting a cap on those overall charges or illustrating what an overall shortfall might look like, a solicitor firm is unable to rectify that by subsequently capping that shortfall costs liability at the end of the case.
“It seems to us, with respect to Mr Justice Lavender, that that cannot be the correct legal position.”
At the same time, Nick McDonnell, director at Kain Knight, said the ruling was good news for firms which advised clients of the cap they would apply.
In such cases, “informed consent is likely to have been given and it will be reasonable for the solicitor firm to charge its client up to the level of that cap. Since a large proportion of solicitor/client retainer documents do provide for such an overall cap, then this decision should provide some comfort.”