Success fee cap on damages


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A couple of recent Blog posts (“Success fee cap plus uncapped ATE?” and “No cap in non-PI cases”) commented on the potential reductions to claimants’ damages that we may see with the end to recoverability of success fees and how the suggested cap may operate.

Kerry Underwood has reminded me that he explored these issues all the way back in 1999 in his book No Win No Fee No Worries (well worth tracking down an old copy on Amazon).

The following sample letter was produced in the book as an example of what not to send to a client despite being compliant with the regulations as they were. In future, in non-personal injury claims with a 100% maximum success fee, but no cap, this letter may be quite useful:

“Dear Mr Jones,

I am pleased that the Judge found in your favour and indeed I have already received the damages cheque for £5,000.

My Firm’s costs total £6,000 of which I have recovered £4,000 from the other side.

You will recall that under the terms of the conditional fee agreement we agreed that I could increase my costs by 100% if you won. We agreed that figure because this was a risky case as shown by the fact that it went to trial.

The effect of increasing my costs by 100% is that they now total £12,000 and, as mentioned above, I have received £4,000 costs from the other side leaving a shortfall of £8,000, but I have applied the £5,000 damages and so the balance due to me from you is £3,000. To make this easy to follow I have prepared a little table.

£

My firm’s basic costs

6,000

Success fee

6,000

Total

12,000

Less costs from other side

4,000

Balance

8,000

Less damages applied to costs

5,000

Balance due to me from you

3,000

 

Please let me have your cheque in due course.

You will recall that for £85 we insured against you having to pay the other side’s costs and our own disbursements if we lost. This means that if you had lost it would have cost you nothing but as you have won it has cost you £3,000.

Never mind. It’s a funny old world.

I recall that you wanted the conditional fee scheme because you could not afford lawyer’s fees. A wise decision!

I will be pleased to act for you again in the future – after your forthcoming bankruptcy has finished.

Alternatively next time you are a passenger in a bus and you get injured you might find it cheaper just to admit liability.

Yours sincerely”

Even where there is a 25% cap in place, which will apply to personal injury claims, Kerry’s book gives the following example of the impact on damages:

“Cap on Success Fee only

£

Base costs

6,000

Less received from other side

4,000

Balance

2,000

Success fee (£6,000 but capped at 25% of £5,000)

1,250

Charged to client

3,250

Damages

5,000

Balance due to client

1,750

 

Actual success fee (£1,250 on £6,000) = 20.833%

Thus, in applying the 100% success fee and limiting that success fee to 25% in accordance with the Law Society’s agreement the solicitor actually takes £3,250 from the client’s £5,000. I have excluded VAT for the sake of simplicity (!) but you are entitled to add that to the £3,250 and thus:

£

 

3,250.00

VAT at 17.5%

568.75

Total costs

3,818.75

Balance to client

1,181.25

Total

5,000.00

 

You might like to undertake an exercise to compose a letter to Mr Jones explaining that his cheque for £1,181.25 out of £5,000.00 damages really does represent 75% of his damages and that the £3,818.75 taken by you out of his £5,000.00 really is a 25% cap on the success fee.”

Actually, with costs draftsmen and costs lawyers looking for the opportunities that Jackson may create, composing letters likes this to clients may be a nice little earner.

Many thanks to Kerry for permission to reproduce these extracts. 


4 thoughts on “Success fee cap on damages


  1. Warning: Use of undefined constant user_level - assumed 'user_level' (this will throw an Error in a future version of PHP) in /homepages/25/d110586513/htdocs/gwslaw/wp-content/plugins/ultimate-google-analytics/ultimate_ga.php on line 524
    Anonymous on said:

    Warning: Use of undefined constant user_level - assumed 'user_level' (this will throw an Error in a future version of PHP) in /homepages/25/d110586513/htdocs/gwslaw/wp-content/plugins/ultimate-google-analytics/ultimate_ga.php on line 524

    well done Simon

    Now get Jackson & Clarke to read your blog so they too can realize the farce they are creating with their proposed changes, and how it will kill off any access to justice for anyone – apart from the Insurers, of course, who obviously need the money!


  2. Warning: Use of undefined constant user_level - assumed 'user_level' (this will throw an Error in a future version of PHP) in /homepages/25/d110586513/htdocs/gwslaw/wp-content/plugins/ultimate-google-analytics/ultimate_ga.php on line 524
    Simon Gibbs on said:

    Warning: Use of undefined constant user_level - assumed 'user_level' (this will throw an Error in a future version of PHP) in /homepages/25/d110586513/htdocs/gwslaw/wp-content/plugins/ultimate-google-analytics/ultimate_ga.php on line 524

    I have it on good authority that anybody who’s anybody already reads the Legal Costs Blog.


  3. Warning: Use of undefined constant user_level - assumed 'user_level' (this will throw an Error in a future version of PHP) in /homepages/25/d110586513/htdocs/gwslaw/wp-content/plugins/ultimate-google-analytics/ultimate_ga.php on line 524
    Graham on said:

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    So that means Messrs Jackson & Clarke will not have read it then, like they failed to read all the representations made against the reforms.


  4. Warning: Use of undefined constant user_level - assumed 'user_level' (this will throw an Error in a future version of PHP) in /homepages/25/d110586513/htdocs/gwslaw/wp-content/plugins/ultimate-google-analytics/ultimate_ga.php on line 524
    Jonathan James on said:

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    Clearly what is expected and intended here is that claimant lawyers will jib at the prospect of having to write Kerry’s letters and will simply take the hit themselves. This will mean that only high value claims will be commercially viable to a law firm and lower value claims will become unrepresented. All the claimant costs will be saved by the defendants and presumably they will then be happy to be generous with damages!

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