Solicitors handling low-value personal injury claims since LASPO should have undertaken risk assessments before setting the success fee – rather than just applying 100% across the board – unless they told the client that the fee was not set by reference to risk, the Court of Appeal ruled yesterday.
The law firm involved, Liverpool-based Hampson Hughes, has expressed concern that the case will open the floodgates to solicitor/own client assessments.
The appeal court in Herbert v HH Law [2019] EWCA Civ 527 also decided that an after-the-event (ATE) insurance premium was not a disbursement, meaning a client could not challenge it on a Solicitors Act assessment.
First District Judge Bellamy in Sheffield and then Mr Justice Soole agreed with former client Nicky Herbert that HH had failed to conduct a risk assessment justifying the level of success fee. In its evidence, HH said that, like most of the market, it had changed its model as a result of LASPO to routinely charge a 100% success fee, capped at 25% of the damages.
The district judge reduced the success fee to 15%, finding no clear evidence the claimant had approved the cost to be incurred “with full knowledge”. He also held that the ATE premium should have been included in the bill as a disbursement and not in the cash account as an item of client expenditure.
Giving the ruling of the Court of Appeal, the Master of the Rolls, Sir Terence Etherton, said that on a Solicitors Act assessment, the burden was on the solicitor to show there was informed approval of the success fee.
He continued that the combination of the retainer, CFA and a ‘What you need to know’ document provided Ms Herbert with “a clear and comprehensive account of her exposure to the success fee and HH’s fees generally”.
But even though recoverability in such claims was abolished in April 2013, he said “the wording of CPR 46.9(4) shows that it was envisaged that a success fee would be related to risk”.
He went on: “I do not consider that either HH’s justification for its charging model or the 25% cap answer the point that in this country, in the context of a conditional fee agreement, the amount of a success fee is traditionally related to litigation risk, as reasonably perceived by the solicitor or counsel at the time the agreement was made.
“Across the broad range of litigation, it would be unusual for it not to be. It continues to be the case in those limited areas, such as publication and privacy proceedings and mesothelioma claims, where success fees are still recoverable from the losing party.
“Even taking the sub-set of low value personal injury claims, [HH’s] evidence goes no further than that ‘most’ of HH’s competitors have adopted the same business model and ‘many’ of HH’s competitors charge success fees in the same way.
“That is insufficient to avoid the need, for the purposes of informed consent of the client under CPR 46.9(3)(a) and (b), to have told the client that the success fee of 100% took no account of the risk in any individual case but was charged as standard in all cases.”
On the ATE premium, Sir Terence said the case law indicated that a disbursement qualified as a solicitors’ disbursement if either it was a payment which the solicitor was obliged to make whether or not put in funds by the client – such as court fees, counsel’s fees and witnesses’ expenses – or there was a custom of the profession that the particular disbursement was properly treated as included in the bill as a solicitors’ disbursement.
This was reflected by the definitions of ‘disbursement’ and ‘professional disbursement’ in the SRA Handbook. An ATE premium did not fit either of these, he said. This meant the client would not be able to challenge the premium in a Solicitors Act assessment.
“No doubt, if this outcome is considered unsatisfactory within the profession, the Solicitors Regulation Authority and the Law Society can consider what could be done to bring an ATE insurance premium within the principle as to what is a solicitor’s disbursement.”
Speaking for HH, Phil Thompson, a costs draftsman at the firm, said: “While the court did find that it was necessary to provide a greater degree of explanation to the client, to make sure that they understood that the success fee was not being calculated on the risk of their individual case, we are satisfied that lessons have already been learnt from this finding. We have continually updated our retainer documents and client billing processes to provide further clarity and certainty to clients.
“HH Law Limited funded this appeal for the wider good of the profession in order to bring greater clarity to the law. We’re therefore glad that it has now been made clear that firms can assess success fees without risk, as long as this is clearly explained to the client. We are also pleased that our funding documentation has been considered… and was found to be clear in its writing and understanding and did not breach any of the relevant legislation…
“While we’re happy with the judgement overall, there is concern that this case will open the floodgates to solicitor/own client assessments. There has been a raft of solicitor/own client assessment claims which has in the main been solicitor-led litigation – no doubt due to the ability to recover indemnity costs for what is often very small sums sought.
“This is a worrying trend as in many cases and, in the case of Mrs Herbert, she never actually complained to the firm directly.”
PJ Kirby QC and Robin Dunne of Hardwicke were instructed by JG Solicitors to represent Ms Herbert. They said: “Unless (which is unlikely) solicitors have advised their client when the CFA was signed that the success fee was not set on the basis of the risks of the case, the client will be able to reduce the success fee on a Solicitors Act assessment.
“There are likely to be huge numbers of clients who have the ability to do so, even if they have to rely on special circumstances.”
Clients wanting to challenge the ATE premium, however, would have to do so in separate proceedings.
Nick Bacon QC of 4 New Square and Andrew Hogan of Ropewalk Chambers represented the claimant.