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02 February 2022
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Attempting to recover the shortfall in solicitor and own client costs – a win for the consumer?

Background

The case of BCX v DTA [2021] EWHC B27 (Costs) (16 December 2021) concerned a claimant who incurred a brain injury in an RTA. The case settled for £1.3million in damages and was an uneventful case with no issues regarding conduct of either party. The costs were presented to the defendant for £424,977 and were agreed for £330,000.  This judgment came about due to the claimant’s solicitor seeking to recover the ‘shortfall’ from the claimant of £159,758 which included the success fee and ATE premium. 

Costs Judge Brown carried out a provisional assessment and assessed costs at £274,859. He awarded the success fee of 15% at £26,850 and the ATE of £1,932. He confirmed that a reasonable recovery (under CPR 46.9) was in fact less than the amount that was agreed with the defendant and confirmed that there was, in fact, no shortfall. On this basis, he approved the agreed sum of costs recoverable from the defendant of £330,000.

The Law

There are various provisions which relate to recovering costs from a client. Section 74(3) of the Solicitors’ Act 1974 states that no deductions can be made from a client’s damages unless another rule applies. CPR 46.9(2) confirms that the Solicitor’s Act can be disapplied if there is written consent that permits payment to the solicitor of a greater amount. In this case, there was provision in the retainer that a shortfall may be recovered from the client.

This matter came before the court as the claimant was a protected party and in accordance with CPR 46.4(2) the court was required to carry out a detailed assessment of the costs.  The basis of the assessment of a solicitor / client assessment is on the indemnity basis as per CPR 46.9. The costs will be held to be unreasonably incurred if they are unusual in nature or amount, and/or the solicitor did not tell the client that as a result, the costs might not be recovered from the other party.

The Decision

As stated above the Costs Judge assessed the bill at less than had been agreed with the defendant on an inter partes basis. Costs Judge Brown commented that a substantial amount of unreasonable time had been incurred on this claim, and that the work could have been done at far less expense. He acknowledged that the claimant in some cases will have to pay sums that are not recoverable inter partes, e.g. interlocutory applications or if the client required well in excess of what was reasonable on an inter partes basis in terms of client care. However, he did not accept the claimant’s submission that the litigation friend had agreed to the shortfall being recovered. For him to have accepted that, the court would have required an analysis of the nature of the claim and a sufficient basis for thinking that the litigation friend was in a position to give informed consent. Costs Judge Brown was not provided with either of these.

When going through the bill of costs presented on a provisional basis, Costs Judge Brown confirmed that it was not reasonable for two fee earners to attend the initial meeting, funding work was not allowed (Motto v Trafigura [2011] EWCA Civ 1150 was referred to) and travel time was deemed irrecoverable as no explanation had been provided to the litigation friend that this time was not likely to have been recoverable inter partes. A key comment was also made in relation to the costs of case management, as it was confirmed that these costs are generally recoverable as damages under the Rehabilitation Code.

The success fee was reduced from 20% to 15% on the basis that there was no specific risk assessment provided and the 20% claimed was not reasonable. The ATE was deemed recoverable as it was not an unreasonable amount and was reasonably incurred.

Implications

It is clear that where the law allows a solicitor to recover a shortfall from their client, that solicitors should proceed with caution. A claimant can challenge the solicitor/client costs claimed in relation to any shortfall for a number of reasons, and not limited to the costs being unreasonably incurred, going over a phase in a budget, not providing an accurate estimate of costs (Wong v Vizards [1997] 2 Costs LR 46) and not providing enough information to the client.

It is clear from this case that solicitors need to provide more in-depth information to their client as to what costs are recoverable inter partes, and make it clear that some of the work to be undertaken may result in a shortfall in costs. In reality, solicitors should be doing this anyway because of the provisions in paragraphs 8.6 and 8.7 of the SRA Code of Conduct for Solicitors requires this information be provided. However, it now appears that the burden placed on the solicitor is much higher, and that a failure to provide this information may result in an adverse decision leading to a non-recoverable shortfall in costs.

This decision should encourage claimant lawyers to become savvier on the hourly rates that they agree at the outset and may also focus the solicitor’s mind on spending given they are unlikely to recover the shortfall.  However, It is unlikely that there will be an influx of assessments of solicitor/client costs, as detailed assessments are only a mandatory requirement for children and protected parties. It remains to be seen whether there will be an increase in applications for solicitor/client assessments for non-protected parties, where their solicitor is attempting to recover a shortfall as the claimant would be likely to need separate/new legal representation.

This article was written for THOMSON REUTERS DISPUTE RESOLUTION BLOG  and was first published on 2 February 2022.  

Laura Rees is a Costs Lawyer for Hill Dickinson, and a Council member at the Association of Costs Lawyers

 

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