Ruling casts doubt on PI lawyers’ model of recovering success fee from damages

Insurance: ATE premium not recoverable

Insurance: ATE premium not recoverable

Solicitors proposing to recover a success fee from a prospective personal injury client’s damages are under a professional obligation to tell them that other solicitors may be available who would not, a regional costs judge has said.

The ruling on additional liabilities by District Judge Lumb in Birmingham – albeit in the context of protected claimants – is likely to reverberate across the claimant market as it challenges what has become a standard way of operating for many solicitors.

This is to recover from the client a maximum success fee of 25% of damages and the cost of after-the-event (ATE) insurance.

The case of A & Anor v Royal Mail Group [2015] EW Misc B24 (CC) concerned claims by two children through their father and litigation friend (known as MS) over injuries suffered as passengers in a car accident. They were awarded £2,115 and £2,065 in damages respectively.

Their solicitors, Scott Rees, sought to recover a 100% success fee – capped at 25% of the damages – and an ATE premium of £195 from the damages. Though DJ Lumb acknowledged that the terms of the retainer were normally a contractual matter between solicitor and client with which the court would not interfere, here any deductions from damages were subject to the approval of the court because the claimants were minors.

DJ Lumb noted that as the current legislation does not require solicitors to undertake a risk assessment so as to calculate the correct success fee, “it seems it has now become commonplace for solicitors to enter into conditional fee agreements with clients with a stated success fee of 100% even though the prospects of the claim being successful are virtually certain”.

Scott Rees argued that one consequence of not allowing the success fee to be recovered would be that solicitors would not accept instructions for minors or patients as they would uneconomic to run.

The judge said: “The suggestion that solicitors would not undertake the work without the enhancement of a success fee in (at least in as much as it relates to simple and straightforward cases) is unfounded by the experience of the courts in dealing with the many thousands of these cases throughout the country.

“On the contrary, it seems there are many solicitors who are quite prepared to do the work without a success fee. There is no compulsion on solicitors to do the work. They may choose not to do so if it is uneconomic for their firm. Other firms will do that work instead.

“No doubt any competent solicitor would advise a prospective litigation friend that other solicitors may be prepared to accept instructions without insisting upon a success fee. Such advice would surely form part of the professional requirements in the Solicitors’ Code of Conduct when discussing funding arrangements with a prospective client.”

DJ Lumb said he was unable to undertake a summary assessment of the success fee here because Scott Rees had failed to provide all the documents required under PD 21, including a copy of the risk assessment, which had not been undertaken. This meant a detailed assessment was needed.

He then refused to approve deduction of the ATE premium. In the circumstances, given the application of qualified one-way costs shifting, “there were effectively no risks to insure against [and] even if there was a risk, that risk was so small or remote that any competent solicitor would not advise a client to go to the expense of taking out an ATE policy”.

DJ Lumb went on to provide some “observations” on the issues in the case “as I am conscious that the same points will arise time and again in other courts and not just where Scott Rees are acting for the claimant”.

He noted that although the current legislation does not specify the need for a risk assessment, the fact that one has to be produced under PD 21 meant it was, in effect, still a requirement. An appropriate success fee in this case might have been 5% or even nothing at all, he suggested.

DJ Lumb said that even if he was satisfied that 100% was reasonable – which was “highly unlikely” – “the problems in this case do not end there. The amount of the base costs owed under the terms of the retainer between Scott Rees and MS have not been quantified… In the absence of knowing what those base costs are, the success fee of 100% of an unknown figure cannot be quantified”.

He continued: “Scott Rees seek to ignore this difficulty by relying upon the cap which section 5 of the Conditional Fee Agreements Order 2013 provides that the success fee payable by the client is capped at 25% of the damages recovered for pain and suffering and loss of amenity and past losses. That however requires an assumption that the success fee exceeds the 25% cap, which although it may be likely where the success fee is set at 100% of basic charges is not self-proving.

“The skeleton argument submits that the amount of the success fee is automatically crystallised at 25% of the damages as soon as the court approves the proposed settlement. That is obviously an incorrect statement of the law. The court cannot approve the settlement until it has reached the stage at which it is satisfied that the proposed deductions are reasonable. The argument put forward by Scott Rees therefore falls victim to circularity.

“Disturbingly, what it perhaps betrays is an intention that the formulation of the success fee at 100% is designed to ensure that the cap on the success fee at 25% of the damages is always reached. If that is the intention (and I did not hear argument on the point and this does not form part of my decision), then it occurs to me that such a structure arguably comes dangerously close to a contingency fee which may be unlawful.”

DJ Lumb said it was clear that the Jackson report contemplated that success fees would “seldom be equivalent to 25% of the damages”.

    Readers Comments

  • Steve H says:

    If I may, I say on behalf of child claimants in this kind of case, ‘amen!’: in my view, too many child claimants/litigation friends are being taken advantage of by too many solicitors and too many DJs/DDJs are letting them get away with it, presumably through ignorance of the Rules/PDs.

    We deal with hundreds of these cases every year (on behalf of compensators) and can say with confidence that, as is ever the case with such things, some firms are much worse than others and yet other firms are whiter than white.

    Hopefully the rule changes in April in this respect will start shining some sunlight on these shenanigans – after, sunlight is said to be the best of disinfectants!

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