Success fee cap – plus VAT?

I am grateful to Kerry Underwood for highlighting one unresolved aspect of Jackson implementation.

Lord Justice Jackson recommended that, with an end to recoverability of success fees from paying parties, in personal injury cases there should a cap on the amount of damages that may be taken as a success fee from the client. He recommended a cap set at 25% of the damages other than those for future care and loss. The government has accepted that recommendation.

However, does the 25% figure include or exclude VAT? This does not appear to have been clarified.

As Kerry explains, if VAT is on top then the true rate as far as the client is concerned is 30% (25% plus a further 20% VAT).

On the other hand, if the 25% includes VAT then to the solicitor the actual maximum percentage “take” is 20.83% (25% less 20% VAT).

Either clients or solicitors are going to be more out of pocket than the headline figures suggest.

Kerry also points out that it is crucial to remember that the 25% cap is only on the success fee and thus the claimant’s solicitor is still entitled to charge solicitor and own client costs on top, thus potentially taking far more than 25% of the damages. Whether the claimant personal injury market will bear this remains to be seen.

Kerry’s further thoughts on Jackson implementation can be read here.

I’ll look at the issue of how the cap will apply to success fees on counsels’ fees on another day.

4 thoughts on “Success fee cap – plus VAT?

  1. I have two real problems with Jackson.

    The first is the proportionality principle. Why on earth should a successful party who has won not be able to recover the ‘necessary’ costs of bringing his claim? If the ‘necessary’ costs are disproporionate, that suggests something is wrong with our legal system. The solution is to simplify the legal system, not an arbitrary and unprincipled cap on recoverable costs.

    Article 6 of the ECHR guarantees a right of access to the courts. The case law surrounding it has said that that right must be “effective”. I struggle to see how I have an effective right of access to the court when I cannot recover the costs necessary for me to do so. This may erode my damages to the point where the game isn’t worth the candle. Goodbye article 6.

    Nor do I understand the principle whereby costs are treated differently from damages. What are costs really but damages under another name? Where necessarily incurred, they are a foreseeable expense caused by the wrong which necessitated the action. No one says that damages should be subject to arbitrary limits because they are a burden on society, or that there should be barriers on the pursuit of small damages claims. What is the logic for treating costs differently?

    My second problem relates to the first, in that it seems very odd that while damages now recognise the fact that those without the means to mitigate may incur additional expense (borrowing costs etc), that will no longer be so with costs. If a private person has to go to the law, why should be not recover the cost of funding he incurs, which a rich person would not.

    The solution? I don’t know, but I strongly agree with Masters Campbell, Howart & Leonard that we should at least have looked at limiting CFAs to individuals without other means of funding (eg union membership, insurance, or unencumbered assets of more than, say, £150,000). Together with fixed success fees, this would have mitigated many of the problems of the current system, while retaining its access to justice qualities.

  2. The proposed proportionality change is a disgrace. It will allow a defendant with means to fight to the death as they know the costs will be butchered at the back end as being disproportionate.

    In the mean time a claim may not continue given the disproportioante costs that were incurred and so some claims may drop out the system. How is that just and parity between the parties?

    If you fight all the way and force issues to be determined why should you not have to pay for doing so in the event that you then lose?

    In terms of BTE whilst some is ok some is isn’t, what the authorisation being increased at £750 a time and hoops that have to be jumped through. The time you see expended dealing with some BTE insurers is horrendous and yet this wont be recoverable either

  3. Its very unlikely there will be VAT given Damages do not attract VAT. All the draft wording is directed to Damages only and in terms of a ‘maximum percentage’ so we will not see 30%.

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