12 May 2022

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Costs judges can order disclosure as part of Solicitors Act assessments

High Court ruling also highlights importance of cash account exercise

Slater & Gordon ordered to hand over recordings of sign-up calls

Costs judges can order disclosure as part of Solicitors Act assessments, a High Court judge has ruled in the latest face-off between Checkmylegalfees (CMLF) and Slater & Gordon (S&G).

In a ruling with several points of interest for costs practitioners, Mr Justice Ritchie also highlighted the importance of the cash account exercise to Solicitors Act proceedings

He was ruling on appeals against two test case decisions by Costs Judge Rowley: Edwards concerns the process S&G used to sign up personal injury clients and whether they gave informed consent, while Raubenheimer involves the allegation that S&G received a secret commission from an after-the-event (ATE) insurer.

S&G appealed the former decision that it disclose the audio recordings of the sign-up calls made with 10 clients, but Ritchie J held that a costs judge has the power to order disclosure in a part 8 claim for a solicitor and own client assessment (SOCA).

There was “no express rule” in part 8 dispensing with the disclosure provisions of CPR 31. These apply to all “claims” and the judge rejected the suggestion that SOCAs were not claims.

He continued: “On policy grounds I take into account that it is in the interests of the parties to a part 8 claim and the interests of the courts and of justice, that the judges dealing with such claims can make whatever case management decisions they should need to make so as fairly to elicit the issues and to permit the parties to prove their claims and to achieve justice in accordance with the overriding objective in CPR r.1.1.

“I also consider that the power to order disclosure is useful, for the purpose before a SOCA is made, of determining whether a hybrid hearing is needed within part 8 or a transformation order should be made (transforming part or all of the part 8 claim into a part 7 claim) and to identify the scope of the issues and to decide which judge should hear which issues.

“Disclosure should not be the normal order in SOCAs because it is not usually needed and this judgment should not be taken as a licence to apply in all part 8 claims.”

The judge agreed that standard disclosure was appropriate in these cases, where informed consent was at the root of many of the pleaded issues. He observed that “one only has to listen to the audio recording of the sign-up process for Mr Turnbull to feel uncomfortable about lack of informed consent for the [unrecovered costs] clauses in the CFA”.

Judge Rowley had rejected S&G’s application for a stay and security for costs, which was based on the argument that CMLF was acting champertously and/or providing insurance unlawfully by offering clients an indemnity, rather than ATE insurance, and further that it did not have the wherewithal to meet adverse orders for costs.

Ritchie J agreed with this decision. “CLL [Clear Law Ltd, of which CMLF is a trading name] marketed themselves as specialist lawyers not insurers. The indemnity was a marketing tool to help persuade the claimants to sign up, as part of CLL’s offered CFA light retainers.” The unopposed evidence before the costs judge was that there was no ATE market for insuring adverse costs orders in costs assessments.

Further, the arrangement was not champertous: “The classic champerty categories arise where the funder gains from a share of the claimants’ ‘damages’ or sums won. There is no such gain by CLL in my judgement through a lawyer simply receiving assessed fees for legal work.”

Ritchie J added: “I consider that it is in the public interest for claimants generally and these claimants specifically to be enfranchised to test the way in which those fees were explained, charged, deducted and calculated.”

S&G also failed to provide evidence to make any adverse ruling on CMLF’s impecuniosity. “Defence counsel’s rather harsh assertions about the invalidity of the listed £3m of assets owned by CLL were nothing more than submissions by a barrister.”

In any case, weighed against the risk that S&G might not get paid if it won was “the principle that access to justice is important”.

The judge said: “All litigation is uncertain. No PI solicitors’ firm is immune from financial pressures as the financial history of many firms (some of which have gone bust and others of which have been taken over) during the last 20 years has shown.”

The claimants challenged the placing of the whole ATE figures in the cash accounts, suspecting that secret commissions had been paid to S&G which should be credited to them.

They submitted that the cash account was to be assessed or approved in the SOCA and to that extent the ATE premium had to be considered, and made part 18 requests about the premiums.

However, Judge Rowley held that the High Court, rather than a Solicitors Act assessment, was the appropriate venue to challenge the composition of an ATE premium.

Ritchie J decided that this was wrong. “In my judgement, the cash account cannot be signed off in the SOCA and no order can be made by the [costs judge] for sums to be paid to or by the defendant or the claimants unless the items in the cash account are accurate and certified by the [costs judge]. If they are in dispute, that dispute must be resolved before the final SOCA order can be made between the parties.”

It would not be right to require the 150 or so claimants to issue part 7 claims relating to the alleged secret commissions. The sums were very small and the issuing fees alone would be “substantial”, Ritchie J said.

“The better way for these issues to be dealt with would be to consider the correct judge/transfer to the Chancery Division etc. at the next case management hearing after disclosure and part 18 answers certified by a statement of truth, and to determine the scope of the SOCA orders at the same time. The issues may involve quantification of the ATE premiums or the proof of the existence of and reason for the alleged secret commissions.”

CMLF said it believed secret commissions have been widespread in the market since 2013 and this ruling could mean an estimated 1.4m former personal injury clients have claims against their solicitors. The sign-up process argument could lead to “significant refunds” for large numbers of former clients as well.

It said average refunds achieved to date were £734 but could rise to £1,000 “if we are right about secret commissions”.

The separate case of Belsner, also involving informed consent, will be heard by the Court of Appeal in July. CMLF said that, in all, it reckoned about 3.7m people could be entitled to a refund.

Mark Carlisle, founder of CMLF, said: “Not only is it a welcome victory for this particular group of former Slater & Gordon clients, but it clarifies the law in relation to this type of case generally, especially on disclosure of the electronic documents that are in modern times often key to the client sign-up process and the issues of informed consent that are bound up in that.”

He said he also welcomed the court’s acknowledgement that the role of the cash account was “fundamental” in these cases, and its accuracy and completeness “was not something to which solicitors can just pay lip service anymore”.

Mr Carlisle continued: “Both points provide considerable protection not only to our clients, but to all consumers of legal services now and in the future.

“Those consumers will now be far better equipped to drill down on what they have been charged, why they have been charged it, and what money or other benefits their solicitors have both paid out and received in their name.”

An S&G spokeswoman said: “We are disappointed by the judgment on these interlocutory matters. However, it should be noted that it is not a decision on the merits of the case.

“S&G still have full confidence in our actions and fully expect to be able to justify our entitlement to payments received from former clients.”