Falling Short of Success: Belsner v CAM Legal Services  EWHC 2755 (QB)
Christopher McClure examines the decision of Lavender J in Belsner v CAM Legal Services  EWHC 2755 (QB) and provides some guidance to solicitors on futureproofing retainers.
The battle between solicitors and their former clients has intensified following a recent High Court decision on the effect of s. 74(3) of the Solicitors Act 1974 as it relates to the level of costs which a solicitor may deduct from damages recovered on behalf of a client.
Section 74(3), although often overlooked – or evn ignored – is perfectly clear insofar as its intended application is concerned. It reads –
The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.
The aim of this provision is to limit a client’s costs exposure to his own solicitor to the amount which the client would, on assessment, have been awarded inter partes.
There is, however, a caveat to this provision. CPR r. 46.9(2) provides that –
Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.
Quite incredibly, as Lavender J noted in his judgment: [This is] the first occasion, so far as counsel or I are aware, on which 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 the payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.
In disputing a success fee of £385.70, the parties combined costs were said to total £87,715.53.
As always seems to be the way in such matters, the facts of the case itself were entirely standard. The claimant had brought a claim for damages for personal injury suffered in an RTA. The relatively low value of the claim meant that it was, quite properly, submitted via the RTA protocol and there it settled for £1,916.98 plus fixed costs and disbursements of £1,783.19 inclusive of VAT.
The claimant’s solicitors then deducted from the client’s damages a success fee of £385.70 and the claimant instructed Checkmylegalfees.com to contest the deduction.
The CFA in question provided for a success fee of 100% of the base profit costs but limited to 25% of the total amount of any general damages for pain, suffering and loss of amenity, and damages for pecuniary loss, other than future pecuniary loss.
However, for all intents and purposes the CFA did not provide for an overall cap on the amount recoverable by the solicitor from the client.
This is a crucial point that we will revisit in this article.
As the solicitor had not sent the client a final statute bill, the (now former) client issued Part 8 proceedings for an Order under s. 68 of the 1974 Act that a statute bill be delivered to the former client. Subsequently, an Order was sought pursuant to s. 70(1) seeking an assessment of the statute bill albeit the assessment restricted to base profit costs and the success fee; there was no challenge to the disbursements claimed.
(This is because the disbursements had been paid by the paying party. Equally, the solicitor did not seek any base profit costs from the client beyond those already recovered from the paying party, i.e. fixed portal costs. However, as the success fee payable was to be determined by the level of base profit costs awarded on assessment, the base profit costs claimed – and thus the success fee also – were disputed by the client).
The bill of costs subject to assessment contained profit costs at an hourly rate, all disbursements and the success fee.
On assessment before DJ Bellamy, it was determined that the solicitor has failed to give informed consent for the purposes of CPR r. 46.9(2) and, as such, base costs were limited to £500 plus VAT (being the amount of costs recoverable inter partes). Moreover, the success fee was reduced from 100% to 15%, being £75 plus VAT. The solicitor sought a view of the assessment.
DJ Bellamy maintained the success fee at 15% but was persuaded to change his mind in relation to the issue of informed consent. Said he:
I am satisfied, because I have been referred to other contractual provisions […] that it is clear enough that entering into this agreement the solicitors will seek to recover the shortfall between their costs and the costs recovered from the other side. I think to import informed consent places the burden too high. It simply has to be an express term and an express term is a term that is clearly set out in the agreement and about which there can be no doubt and I am satisfied that this documentation meets that test."
Both parties appealed: the client on the point of informed consent; the solicitor by reason of the award against it for costs of the solicitor-own client assessment.
(Although the solicitor had included all costs within its bill, and those had been reduced by 37%, it had ever made it clear to both the client and the court that it sought only disbursements and the success fee from the client).
The Client’s Appeal
The main plank of the (successful) appeal was that the nature of the fiduciary relationship between solicitor and client was such that informed consent was required if the solicitor is to look to the client for a shortfall –
A solicitor who wishes to rely on CPR 46.9(2) must not only point to a written agreement which meets the requirements of the rule, as the [solicitor] did, but must also show that his client gave informed consent to that agreement insofar as it permitted payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings. For this purpose, the solicitor must show that he made sufficient disclosure to the client.”
In terms of what amounts to ‘sufficient disclosure’, the issue for the solicitor in Belsner was that, whilst the client had been informed of its potential liability for costs to the solicitor, she had not been told – other than in general terms – the level of costs likely to be recovered from the paying party.
Solicitors can get a flavour for the weight of the burden upon them to demonstrate that the client’s consent was informed by reference to the following from Lavender J –
‘The [solicitor] used a series of general terms to indicate what the [client] might recover from the Insurers […]. Mr Kirby submitted that the [solicitor] ought to have gone further and given some indication of the level of costs which might be recoverable from the Insurers. He submitted that an example would suffice, such as:
“For example, if your claim settles at Stage 2 for less than £10,000, then the amount which your opponent will be liable to pay in respect of our basic costs might be £500 plus VAT.”
‘It seems to me that I have to consider whether this is material information, in the sense that it may have affected the [client’s] consent to the agreement between them insofar as it permitted payment to the [solicitor] of an amount of costs greater than that which the Claimant could have recovered from another party to the proceedings […].
‘If it had been pointed out to the Claimant that, while the [solicitor’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 between them insofar as it permitted payment to the [solicitor] of an amount of costs greater than that which the [client] could have recovered from the Insurers. It may, for instance, have led the [client] 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.’
The Solicitor’s Appeal
Regrettably, Lavender J did not deal with the issue of costs of the solicitor-own client assessment on the basis that it was rendered otiose by reason of the client’s successful appeal.
The decision is a worrying one for solicitors who, in the absence of informed consent from the client, are effectively prevented (at least run the risk of costs for so doing) from deducting from a client’s damages costs which exceed the amount that would have been permitted on assessment inter partes. Success fees which, post-LASPO 2012, are no longer recoverable between the parties, must fall into the remit of this judgment.
However, whilst cold comfort to personal injury firms who deal with fixed costs cases, this judgment is of far greater concern to those firms than others simply because –
- The nature of fixed fees is such that the solicitor is in a far better position to give the client information regarding the likely amount of costs to be recovered before informed consent has been provided by the client; and
- Dovetailed into that point, the success fee, which is based upon hourly rate costs, is a model that is used almost exclusively in personal injury cases
What Can Be Done?
The common consensus amongst firms is that firms whose retainers provide for an overall cap of the client’s liability to them for costs are likely to fall outside the reasoning in Belsner.
It must be borne in mind that, in this case, had the solicitor pressed to the fullest extent its entitlement to the shortfall between hourly rate and fixed costs, then the client would have been not only left without any damages, but £605.90 out of pocket. It is highly likely that Lavender J was mindful of the need to guard against the potential for a legal perversity such that an injured client was, for the privilege of bringing a successful claim, left firstly without damages, and secondly with an outstanding debt.
Moreover, a cap on a client’s overall costs liability would put a client in the position of being ‘informed’ of their ultimate exposure to costs by reference to damages recovered. On that point, it was said that –
I note that the documentation provided to the [client] in the present case was similar to that provided in Herbert v HH Law, which the Master of the Rolls described in paragraph 48 of his judgment as providing "a clear and comprehensive account of her exposure to the success fee and HH's fees generally." However, the agreement in that case differed from the agreement in the present case in that it included a cap of 25% of the damages on the amount which HH Law could recover from Ms Herbert.
To that end, solicitors who work in the PI sector would be well advised to revisit the terms of their retainer in order to ensure that provision is made therein to cap the client’s exposure in costs to the solicitor. The industry standard appears to be 25% of damages recovered.
Please contact Christopher McClure to discuss any query relating to this article. Christopher is based at our Manchester office and can be contacted on 0161 835 4087.
LLB (Hons), PG Dip (BVC)
Wednesday 6th January 2021