Costs News

24 September 2015
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Regional costs judge slashes success fee deduction from minors’ damages

A 100% success fee is not automatically reasonable for the purposes of CPR 21.12 because an “ill-informed” client agreed to it, according to the regional costs judge who last month cast doubt on the standard way many low-value personal injury retainers work.

District Judge Lumb in Birmingham was giving his second judgment in A & Anor v Royal Mail Group, which 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.

In the first ruling, which we covered in the 27 August eBulletin, District Judge Lumb refused to allow the premium to be deducted from the children’s damages on the grounds that there was no real risk of losing, but was unable to undertake a summary assessment of the success fee 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.

As he explained in the latest ruling ([2015] EW Misc B30 (CC)), rather than go to the expense of a full detailed assessment, he issued directions for Scott Rees to file a series of documents, including the case file, for a paper hearing.

M’s costs claim was for £4,682, including profit costs of £3,003 for 20.9 hours of work. A’s claim was £4,682, including profit costs of £3,045.50, for 21.4 hours of work. The success fee amounted to £430 for M and £440 for A. All figures were plus VAT. MS’s total liability for costs was £10,460, of which £2,014 was recoverable for each claim, leaving a personal liability to Scott Rees for a shortfall of £6,432.

“It is patently absurd that anyone should pursue damages claims totalling £4,180 while at a risk of having to pay £6,432 for doing so,” the judge said. “However, that is the claim for costs as presented to the court by Scott Rees. Whether they choose to pursue the litigation friend for all or some of those costs is a matter between Scott Rees and MS.”

As a bill had not yet been delivered, the judge was not carrying out a Solicitors Act assessment but he observed that on their face, the client-care letter/CFA and ‘instructions to act’ document operated as an exclusion of the protection afforded by the Solicitors Act and the CPR.

He added: “I cannot see anywhere any express reference to section 74(3) of the Solicitors Act 1974 or CPR part 46.9(2). It does not appear, therefore, that MS had been advised that he was giving up any rights from the ‘normal’ position. At the original hearing, it appeared that he had the mistaken belief that any shortfall would automatically be met from the children’s damages. That may well become relevant on a future occasion should there be a solicitor and own client assessment of costs.”

But, for the purposes of this hearing, he was instead looking solely at what would be an appropriate success fee to deduct from the children’s damages as a reasonable expense, reasonably incurred for the purposes of part 21.12.

Looking initially at the base costs claimed, he concluded that “for these extremely simple claims, those levels of time spent are unreasonably high – particularly when one considers that there is an obvious substantial overlap in dealing with the two claims together. The fixed recoverable costs under CPR part 45 equate to nearly 10 hours at the lowest guideline hourly rate of £118 for a grade D fee-earner, which would be the appropriate grade for these claims.”

Having established that the appropriate reasonably incurred base costs should be in the region of £1,180 plus VAT, he went on to consider the appropriate success fee.

“Simply because an ill-informed litigation friend signs up to a CFA with a success fee of 100% does not automatically mean that a 100% success fee is a reasonable expense for the purposes of CPR 21.12.

“The court has to look at all the circumstances in judging what is reasonable and in my judgment the best way to do this is to continue to look at the risks involved for the solicitors as has hitherto always been the case.”

On the basis of the known facts at the commencement of the claims, DJ Lumb dismissed a list of 11 risk factors which Scott Rees said could have been taken into account had a risk assessment been carried out.

Scott Rees also provided the judge with statistics showing that 62% of its children cases in the past year have been unsuccessful, but he found them of “dubious probative value”. DJ Lumb said: “They certainly do not support their submission that ‘applying a commercial reality as 62% of cases are unsuccessful this supports a success fee of 25%’.

“This appears to be an unintended shift of their position from a success fee of 100% to 25%. What it perhaps betrays is a true intention that the success fee should always equate to 25% of the damages as opposed to a percentage of the profit costs, a point which I dealt with in my first judgment.”

Noting that pre-Jackson the average success fee in settled cases was 12.5%, he said the risks here were less than average “and therefore a success fee in excess of 12.5% could not be justified”.

He continued: “In my original judgment, I indicated that in these straightforward cases the risk element would be in the region of 5%. Adding together the risk and deferment elements, my assessment of a reasonable success fee would be 10% of reasonably incurred base costs of £1,180 – namely £118 plus VAT.”

He noted that this was in line with Jackson LJ’s expectation that the 10% uplift in damages would leave most claimants no worse off by being responsible for payment of the success fee.

Earlier in the ruling, the judge observed that Jackson LJ’s hope that the deregulation of success fees would lead to a competitive market between solicitors “has not transpired, at least not yet”.

DJ Lumb said: “This may be because the public have not been in a position to make an informed choice to shop around for the best deal.

“As I commented in my first judgment, there is a professional obligation in the Solicitors Code of Conduct to discuss funding options carefully with the client and to advise the client in accordance with the client’s best interests. Until solicitors incorporate within their marketing an intention to be competitive with other firms concerning success fees, Sir Rupert Jackson’s aspirational forecast is unlikely to come to pass.”

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