Litigation Funding

Though change is a constant in the personal injury market, the way that low-value road traffic accident cases were handled actually settled down quickly after 1 April 2013.

A conditional fee agreement with 100% success fee, limited by statute to 25% of the damages, plus after-the-event (ATE) insurance, soon became the norm and solicitors reported that there was surprisingly little pushback from clients.

Of course, now that defendant insurers are not paying additional liabilities, such retainers are generally not scrutinised by the courts. But given the chance to do so recently, because of the need to approve the settlements reached on behalf of children, District Judge Lumb in Birmingham used two hearings to critique this now-standard way of operating. It makes for uncomfortable reading for receiving party solicitors.

A & Anor v Royal Mail Group [2015] EW Misc B24 (CC), (No2) EW Misc B30 (CC) concerned claims by two children (known as M and A) through their father and litigation friend (MS) over injuries suffered as passengers in a car accident. They were awarded £2,115 and £2,065 in damages respectively. Their solicitors sought to recover a 100% success fee and an ATE premium of £195 from the damages.

DJ Lumb noted that as 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”.

He 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”.

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, 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 at a risk of having to pay £6,432 for doing so,” the judge said. He went on to look at what would be an appropriate success fee to deduct from the children’s damages for the purposes of CPR 21.12.

Looking initially at the base costs, 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… 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.”

Considering the risks involved for the solicitors, he noted that pre-Jackson the average success fee in settled cases was 12.5%. He said the risks here were less than average: “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.” Quite how this matches up with his decision to disallow the ATE premium is not clear.

Of course, the Jackson report contemplated that success fees would seldom be equivalent to 25% of the damages, in part because of competition between solicitors, but DJ Lumb said this has not happened because of both consumer ignorance and solicitors’ reluctance to do it. The solicitors argued that litigation involving a minor may now prove “uneconomic” to run or at least unattractive. However, the court had little empathy with this. DJ Lumb said that “no doubt” any “competent” solicitor would, in accordance with their professional obligations, advise a prospective litigation friend that other solicitors may be prepared to act without seeking a success fee.

What does this ruling mean? At the moment, it is just a shot across the bows, but indicates that the judiciary is far from ignorant about what is going on at the coalface and does not like what it sees. Again, the court has demonstrated that it is not afraid to prioritise the need for reasonableness of costs when comparing with the level of damages recovered, particularly in low-value litigation. It also raises the question of at what time, if any, would it be appropriate to advise the client that ATE would be a reasonable and appropriate expense.

Theoretically, this decision could spell the end for the model utilised by some law firms. But then it is only at county court level and whether receiving party solicitors heed the warnings of DJ Lumb remains to be seen. Should the Ministry of Justice take an interest, however, yet more change could be on the way.

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Published date
12 Feb 2019

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