Background
The judgment in this case centres on whether solicitors should be able to take payment of a success fee from damages awarded to the Claimant. The case was for damages for personal injury arising out of a road traffic accident and was made under the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents. There was a Conditional Fee Agreement in place.
The claim was settled following submission of the Stage 2 Settlement Pack for £1,916.98 in damages, plus fixed costs and disbursements of £1,783.19. The Claimant’s solicitors, CAM Legal Services Ltd (“CAM”) took £385.50 from the amount paid to the Claimant, Darya Belsner (“Belsner”) which represented a success fee of 25% of the damages recovered pursuant to the terms of the CFA which capped the success fee and which formed part of the retainer between Belsner and CAM.
Belsner challenged the deduction. Between solicitor and client S.74 (3) of the Solicitors Act prevents payment of more than would be payable between parties – unless the rules of court permit. CPR 46.9 (2) allows a greater sum to be payable as long as there is a written agreement between the parties.
The Court found that Belsner was only responsible for the fixed costs to the level of £500 and that CAM was only entitled to charge a reasonable success fee on the level of profit costs recovered (being 15% of £500 plus VAT), the effect being there must be a £295.50 repayment to Belsner. Why?
The grounds for the decision
The court considered two pertinent aspects of the case. Firstly, it confirmed that a solicitor is a fiduciary in circumstances where the solicitors wish to take a profit by way of fees over and above the level of costs that can be obtained from the other side. Secondly, and because of the fiduciary nature of the relationship and the provisions of statute and the CPR it was important for the solicitor to have obtained the client’s informed consent to the proposed charging.
The Court noted that in the documents sent by CAM to Belsner at the outset of the case, CAM’s estimated basic charges (£2,500) were five times the amount (£500) which CAM might be entitled to recover from the defendant if the claim settled for less than £10,000 at Stage 2 in the Protocol. The Court concluded that this ought to have been brought specifically to Belsner’s attention, if she was to give informed consent to the agreement insofar as it permitted payment to CAM of an amount of costs greater than that which she could have recovered.
CAM asserted that, notwithstanding that they did not do so, by the terms of their retainer, they were entitled to take more than the total damages obtained. It is clear from the judgment that any such argument would not meet with success.
CAM has reportedly already said that the decision will be challenged in the Court of Appeal.
What lies ahead? The next PPI?
Apart from the appeal, Belsner’s solicitors are reported to have said that the judgment will potentially enable five million people to claim refunds of excessive success fees deducted from compensation under CFA’s in similar circumstances. Even allowing for an exaggeration in the number of potential Claimants and allowing for a lower average level of deduction from compensation, the value of the potential claims could run into hundreds of millions of pounds.
Response to Claims
When is the disclosure of information sufficient to ensure informed consent?
In this particular case, the Claimant was told in general terms that she may have to pay her solicitors more than could be recovered from the other side. There were a number of such general warnings. The court found this was simply not enough to obtain informed consent especially where costs of £2,500 were estimated and it was possible that settlement may take place with fixed costs of only 20% of that sum payable by the other side.
In future claims whether there has been sufficient disclosure in the retainer documents, and otherwise, to enable the provision of informed consent will depend on the facts of each case.
At present there is no easily defined yardstick to measure the sufficiency of information given.
Will the duty to provide information be variable in response to the lack of sophistication of the claimant? Yes, that seems likely. There may also be a different approach that is appropriate for commercial clients.
Are there causation arguments? In a breach of fiduciary duty case, instead of simply requiring a causal link, the court looks to see what would have happened if the breach had not taken place. This is not the same as the general rule on causation. However in this case no such arguments were raised as the issue was simply whether informed consent was needed and had been given. If not the statute and the CPR combine to limit the amount that can be paid to the solicitors by their client. Whether the courts will allow exploration of what may have happened had the breach not taken place is to be seen but it may well be that there is no room for such arguments.
If sufficient information had been provided and settlement achieved on a different basis would a lower level of damages have been accepted? If so can it be argued that this will balance out the amount claimed back in costs? It may not do so as the breach of fiduciary duty is directed at the improper profit earned by the fiduciary and the level of damages may not be relevant to this loss. Nevertheless this approach could always be argued.
If there is a potential/significant risk, claims can be ‘bought off’ by an early offer. Given that the Court of Appeal is likely to be considering this matter, it would not be advisable to be making any offers at present, although, assessment of the retainer documentation is advisable to enable a preliminary assessment of risk.
No doubt there will be attempts to make blanket notifications.
Informed Consent – when should it be obtained?
The question then arises as to when (and how frequently) informed consent should be obtained from a client. This will vary on a case-by-case basis. However, as a general rule, it would be advisable for solicitors to obtain informed consent:
- At the outset of a claim once an initial review of the evidence has been conducted by the solicitor
- Upon receipt of documentation which has a material impact upon the claim and the recovery of costs (e.g. Expert’s reports, medical records, incident reports, etc.)
- Immediately prior to issuing Court proceedings
- At all key stages of the Court proceedings (i.e. at the disclosure stage, upon the exchange of expert evidence, the exchange of witness statements, at the CMC stage and immediately prior to trial) and
- When an event occurs during the course of the claim which has a material impact upon the prospects of success and/or the recoverability of costs.
Are there wider implications?
The relationship between a solicitor and their client is one in which the client reposes trust and confidence in the solicitor. It is often defined as a fiduciary relationship. In respect of litigation costs, this recent decision is a stark reminder that, as a fiduciary, a solicitor is not permitted to receive profit from their client without obtaining informed consent beforehand.
Although the fulfillment of fiduciary duties will be assessed on a case-by-case basis, this judgment will inevitably place solicitors’ conduct on costs generally firmly under the microscope.
Is this problem limited to cases with a CFA?
The burden of complying with fiduciary duties when advising on the recovery of costs could widen the application of this judgment to more refund claims. The wording of CPR 46.9 is said to apply to every assessment of a solicitor’s bill to a client except a bill paid by Legal Aid. This means that we could see disgruntled Claimants from across the entire litigation spectrum coming to the fore and intimating refund claims against their solicitor. It appears that the principles in this judgment could apply to all types of litigation (including ‘big ticket’ litigation) where informed consent has not been obtained from a client regarding any potential shortfall in recovered costs as against costs payable by a client. Should this prove to be the case, we could see the birth of a monumental wave of refund claims against solicitors both with and without CFAs. Hopefully the Court of Appeal will restrict the possible ambit of the decision.
If that is not the case the principle could be taken further and we may see the courts directing their attention at solicitors who fail to properly budget claims from the outset in order to ensure that clients are given focussed advice on the economics and strategy of claims and can give informed consent as a result.
Conclusion
Belsner may be the start of a new wave of claims arising from solicitors working on CFAs but this is subject to what happens in the Court of Appeal. The claims farmers are eagerly awaiting the outcome. After the Court of Appeal it is possible that attention could be directed more strenuously at solicitors’ advice on costs more generally.
