Jackson Report – Success fees

Arguably, Lord Justice Jackson’s most significant recommendation, in his Final Report, is an end to recovery between the parties of success fees.

This proposal will lead to obvious and huge savings to defendants.  Those who think that current political uncertainty will lead to much of the Report being shelved should think again.  Whichever party is in power after the general election, there will be a pressing need to control public expenditure.  In terms of the money paid out by the NHSLA alone, and ignoring all the other areas where the public purse pays for litigation, this will be a compelling reason to adopt this recommendation.  This is great news for defendants but really bad news for claimant lawyers.

Yes, solicitors can still enter into CFAs with their clients and charge a success fee.  But there are two big problems.  Firstly:

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Heavy advertising in recent years telling potential claimants that they will keep 100% of their damages will make it very unattractive for claimant solicitors to now start taking a cut of their clients’ damages.  There will be enough firms who decide to take the hit themselves that others will be forced to follow.  Success fees in personal injury claims are likely to disappear.  For the lower-end RTA claims, the loss of the 12.5% success fee will not be dramatic but it will come straight from solicitors’ profit margins.  It is likely to discourage some claims from being pushed to trial where the incentive of the automatic 100% success fee will disappear.  On the other hand, the removal of the 100% threat will encourage defendants to take more cases to court, especially in relation to quantum disputes.

Even if firms do feel able to charge success fees, Jackson LJ’s proposed cap will limit to a large extent the amount that can be charged.  Not only is a cap of 25% of damages recommended, but Jackson LJ’s master-stroke is that this cap will exclude damages referable to future loss.  The element of damages that claimants will be required to pay as success fee will be limited to the general damages and past losses.  In heavy litigation, and in particular catastrophic injury and clinical negligence claims, the cap is going to bite significantly in a high proportion of claims.  This will have a big impact on profit margins for some firms.

The claimant lobby has been arguing that this proposal will reduce access to justice.  This argument fails for a number of reasons.  These proposals largely revert the position to the one that existed prior to the Access to Justice Act 1999.  As Jackson LJ happily notes: “During 1996 APIL confirmed that those arrangements provided access to justice for personal injury claimants and that those arrangements were satisfactory”.  He further notes: “In this regard, it is significant that in Scotland personal injury cases are conducted satisfactorily on CFAs, despite the fact that success fees are not recoverable”.  Until recently, most BTE work and trade union work was conducted on unwritten speccing arrangements.  It is not obvious that recoverability of success fees brought about an increase in the kind of claim that was pursued.  The same kind of claim will still be run but the profit margins will shrink.

The Jackson package, and in particular this recommendation, is designed, at least in relation to personal injury work, to reduce legal costs at the expense of claimant lawyers.  And that can be no bad thing.

Regulation 4(2)(c) lives on

Under the old Conditional Fee Agreement Regulations 2000 a solicitor had a duty, before entering into a CFA, to inform the client “whether the legal representative considers that the client’s risk of incurring liability for costs in respect of the proceedings to which agreement relates is insured against under an existing contract of insurance” (Regulation 4(2)(c)).  Failure to comply would generally render the CFA unenforceable (see Myatt v National Coal Board [2006] EWCA Civ 1017). 
 
The CFA Regulations have now been revoked.  Does that mean that a powerful weapon has been lost to defendants and that sloppy claimant solicitors can rest easy?  Not necessarily.  A fascinating decision has recently emerged from the Senior Courts Costs Office that suggests this issue may still be a live one.
 
The decision in Thomas v Butler and Other T/A Worthingtons Solicitors [2009] EWHC 90153 (Costs) concerned a solicitor/own client assessment but there is no reason to suppose the decision would have been any different if this had been an inter partes assessment.  The key issue that arose was whether the solicitors had complied with their duties under the Solicitors Costs Information and Client Care Code 1999 that was in force at the time (and remained in force until 30 June 2007) which states:
 
“4. Advance costs information – general
 
The overall costs
 
(a) The solicitor should give the client the best information possible about the likely overall costs, including a breakdown between fees, VAT and disbursements.
 
….
 
Client’s ability to pay
 
(j) The solicitor should discuss with the client how and when any costs are met, and consider:
 
(i) whether the client may be eligible and should apply for legal aid (including advice and assistance);
 
(ii) whether the client’s liability for their own costs may be covered by insurance;
 
(iii) whether the client’s liability for another party’s costs may be covered by pre-purchased insurance and, if not, whether it would be advisable for the client’s liability for another party’s costs to be covered by after the event insurance (including in every case where a conditional fee or contingency fee arrangement is proposed); and …”
 
Having considered the evidence presented, Master Campbell concluded:
 
“Having considered this course of events revealed by the contemporary documents, I am satisfied that Worthingtons [the Claimant’s solicitors] did not comply with the Code and I reject Mrs Nicholaou’s [the fee earner] evidence that she used her “best attempts to ‘discover’ pre-existing legal expenses insurance, none was identified” as the points of reply contend.  Whilst it may be correct that Mrs Nicholaou examined Mr Thomas’ home insurance policy for LEI cover and found none, Mrs Nicholaou knew from the papers she had received from Irwin Mitchell that there was a policy with Lawclub.  Accordingly she had a duty under paragraph 4(j) (ii) and (iii) of the Code to explore that policy further.
 
 
In breach of the Code, Mrs Nicholaou failed to discuss funding options adequately and compounded the problem by omitting to contact Lawclub.
 
 
It follows, for the reasons I have given, that I consider that Worthington‘s costs have been unreasonably incurred in this case. Had Mrs Nicholaou followed the Code correctly and investigated the availability of the Lawclub policy as Mr Thomas had instructed her to do, he would not have been obliged to meet Worthington’s costs out of his own pocket; either the firm would have acted for him under a CFA backed by Lawclub or he would have taken his case elsewhere to another firm which would have done so. Under CPR 44.4(1) the court “will not allow costs which have been unreasonably incurred.”  Accordingly, the fees that have been unreasonably incurred must be disallowed and any sums that Mr Thomas has paid to Worthingtons fall to be returned to him with interest.”
 
(One odd thing to note about this judgment is that the Code states that certain information “should” be discussed.  Not “must”.  Master Campbell has previously interpreted “should” as being no more than a recommendation (see Metcalfe v Clipston [2004] EWHC 9005 (Costs) and Cullen v Chopra [2007] EWHC 90093 (Costs).  On this occasion he appears to have treated “should” as introducing a mandatory requirement.) 
 
If correct, not only does this decision reintroduce Regulation 4(2)(c) challenges by the back door but throws open a whole host of other challenges for failure to comply with the Code.  Although the 1999 Code is no longer in force, similar requirements now appear in the Solicitors’ Code of Conduct 2007.

One should perhaps be cautious about reading too much into this case as it was very fact specific.  What was no doubt at the front of Master Campbell’s mind was the fact that the Claimant had given clear instructions that he wished his claim to be dealt with by way of a CFA backed by his legal expenses policy.  This was not done. 
 
However, it has been a question that has long troubled legal costs practitioners as to whether switching the consumer protection element from the Regulations to the solicitors’ rules really ended the scope for challenges.  As Cook on Costs 2010 puts it:
 
“It is supremely optimistic to hope that transferring regulation to the SRA will put an end to future costs satellite litigation.  If the solicitor contravenes the code of conduct, which has the same statutory force as the revoked regulations, cannot the client still contend that the retainer is unenforceable … thereby enabling the paying party to rely on the indemnity principle to avoid liability for payment?”
 
Happy days are here again.

A working alternative to recoverable success fees?

As the tension mounts as to what might be going through the mind of Lord Justice Jackson as he prepares his final report on his civil costs review, might he be influenced by the litigation landscape north of the boarder?  The recently published Report of the Scottish Civil Courts Review states that the majority of damages claims in Scotland are pursued on the basis of "speculative fee arrangements" (no win, no fee agreements).  This is despite the fact that: "Unlike in England and Wales, success fees and ‘after the event’ insurance premiums are not recoverable and will have to be paid by a successful [claimant] from the damages recovered, unless they are waived or absorbed by the [claimant’s] solicitor".  Jackson LJ’s Preliminary Report raises a number of concerns about the English system of recoverable success fees and ATE premiums.  If non-recovery seems to work in Scotland, why not here?

And while Jackson LJ may be looking north of the boarder, they are looking back.  The Scottish report concludes: "We have given careful consideration to the use made of speculative fee arrangements in this country and the experience of conditional fee agreements in England and Wales. We consider that it would be premature to recommend any changes to speculative fee agreements as they are presently constituted in Scotland. The civil costs review in England and Wales chaired by Lord Justice Jackson should be monitored for its research findings and its conclusions"

Deep-fried Mars Bar anyone?

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Challenging success fees

The, now revoked, Collective Conditional Fee Agreement Regulations 2000 state:

“5. (1) Where a collective conditional fee agreement provides for a success fee the agreement must provide that, when accepting instructions in relation to any specific proceedings the legal representative must prepare and retain a written statement containing -

(a) his assessment of the probability of the circumstances arising in which the percentage increase will become payable in relation to those proceedings (“the risk assessment”);


(b) his assessment of the amount of the percentage increase in relation to those proceedings, having regard to the risk assessment; and

(c) the reasons, by reference to the risk assessment, for setting the percentage increase at that level.”

In Various Claimants v Gower Chemicals (Cardiff County Court, 28/2/07) the paying party sought to argue that a failure to prepare a statement of reasons in accordance with Regulation 5(1) rendered the retainer invalid and all costs should therefore be disallowed.  That argument was rejected on the basis that “the natural and ordinary meaning of the regulation is that there must be a provision in a CCFA that complies with the specification set out in the regulation. Regulation 5(1) does not additionally require that the prescribed provision must be performed”.

Is that an end to the story?  Not quite.  The ever ingenious Gibbs Wyatt Stone recently acted for the Defendant in an EL claim (Middleton v Mainland Market Deliveries Ltd (Southampton CC, 20/10/09)).  The Claimant’s Bill claimed a 100% success fee on the basis that the fixed EL success fees had been applied to the case when the claim was accepted under the CCFA and the matter had settled at trial.  In fact, the date of the accident was such that it did not fall within the fixed success fee regime.  The judge accepted that fixed success fees did not apply as a matter of law and that the Court could not simply adopt the fixed success fee figures when assessing the success fee in this case (see Atack v Lee [2004] EWCA Civ 1712).

Costs Practice Direction 32.5(1)(b) requires a receiving party to serve with his Bill:


“a statement of the reasons for the percentage increase given in accordance with Regulation 3(1)(a) of the Conditional Fee Agreements Regulations or Regulation 5(1)(c) of the Collective Conditional Fee Agreements Regulations 2000. [Both sets of regulations were revoked by the Conditional Fee Agreements (Revocation) Regulations 2005 but continue to have effect in relation to conditional fee agreements and collective conditional fee agreements entered into before 1st November 2005]”

The Claimant in this case had served a document, prepared at the time the case was accepted, that gave a detailed analysis of the various strengths and weaknesses of this case and then stating that the success fee would be 27.5% if the claim settled pre-trial of 100% if settled at trial.

However it was argued for the Defendant that this document did not properly comply with the requirements of 5(1)(c).  That section required “the reasons, by reference to the risk assessment [emphasis added], for setting the percentage increase at that level”.  Because the solicitors had simply adopted the fixed success fees, they had not undertaken the “risk assessment” required by 5(1)(a).  Regulation 5 is a 3-stage process.  To comply with 5(1)(c) requires the earlier steps to have also been undertaken.  As such, it was argued there was a breach of CPD 32.5(1)(b) and that, by virtue of CPR 44.3B(1)(d)(i), the success fee was therefore not recoverable.   

This was a different argument to the one run in Gower Chemicals.  That argument was based on there being a breach of the CCFA Regulations which rendered the whole retainer invalid and all costs being irrecoverable.  The argument advanced in this case was not that there was a breach of the Regulations, but that there was a breach of the detailed assessment disclosure requirements and the success fee alone was irrecoverable.

The judge accepted the Defendant’s submissions and disallowed the success fee.

If this decision were to be followed by other judges, a very large number of other cases would potentially be affected.  A large number of “risk assessments” prepared in CCFA cases do not strictly follow the 3-stage process.  Interestingly, there is a possible argument that the requirement to comply would have existed even if this was a fixed success fee case.  The CCFA in place pre-dated the revocation of the Regulations (as most still do).  There is nothing in CPD 32.5(1)(b) that disapplies the rule in fixed success fee cases.  Although Lamont v Burton [2007] EWCA Civ 429 and Kilby v Gawith EWCA Civ 812 are authority for the proposition that the courts have no discretion as to whether to allow fixed success fees, does this extend as far as overriding the disclosure or notification requirements?  If a party fails to comply with CPD 19.4(1), for example, surely they can’t recover the success fee notwithstanding that it is a fixed fee case.  Does this also apply to CPD 32.5(1)(b) in its current form?

In the same case, Counsel had entered into his CFA after liability had been admitted.  The CFA did not put Counsel at risk in relation to Part 36 offers (despite his risk assessment being prepared on the mistaken basis that it did).  Nevertheless, the fixed success fee figures had also been applied producing a claim for 100% as the matter proceeded to trial.  The judge accepted that the success fee should be reduced to the 5% figure suggested in paragraph paragraph 24 of C v W [2008] EWCA Civ 1459.

Who says that legal costs isn’t exciting?  

Notification of funding – The New Rules

In a previous posting (read here) I discussed the old rules relating to providing information about the funding of a claim.  The latest update to the Civil Procedure Rules has made important amendments which came into force on 1st October 2009.
 
The old CPR 44.3B read:
 
“(1) A party may not recover as an additional liability –
 
(c) any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order”
 
The new wording of CPR 44.3B is:
 
“(1) Unless the court orders otherwise, a party may not recover as an additional liability –
 
(c) any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;
 
 
(e) any insurance premium where that party has failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order.
 
(Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) provides that a party must inform any other party as soon as possible about a funding arrangement entered into before the start of proceedings.)”
 
These changes fall into four categories:
 
1.      The wording “in the proceedings” is deleted and the reference to the new wording of the Practice Direction (Pre Action Conduct) makes it clear that notice must now be given pre-proceedings.
 
2.      The insurance premium provision deals with the consequence of not giving the information discussed below.
 
3.      The addition of the new wording “unless the court orders otherwise” is perhaps surprising. It was previously clear that failure to comply with the notification provision produced an automatic sanction in that the additional liability was not recoverable (in the absence of a successful application for relief from sanctions).  It now appears to be in the general discretion of the court as to whether to allow the additional liability despite the breach, although the starting point is obviously non-recoverability.  What is strange is that the new wording is followed by the same note that previously appeared: “Rule 3.9 sets out the circumstances the court will consider on an application for relief from a sanction for failure to comply with any rule, practice direction or court order”.  If the court now has a general discretion there would be no need to formally make an application for relief from sanctions.  Or, is the wording “unless the court orders otherwise” meant to refer to the situation where a successful application has indeed been made, but not otherwise?  We’ll no doubt have to wait for the first decisions on the correct interpretation.
 
4.      The word “he” is replaced by the non-sexist “that party” (so as not to upset any chicks reading).
 
Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) now reads (amendments underlined):
 
“Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party must inform the other parties about this arrangement as soon as possible and in any event either within 7 days of entering into the funding arrangement concerned or, where a claimant enters into a funding arrangement before sending a letter before claim, in the letter before claim.”
 
For the reasons I gave in the previous posting on this subject, I am of the view that these changes clarify, rather than change, the requirements concerning pre-proceedings notification (although the corresponding transitional provisions might suggest the contrary).
 
An important change has been made to the Costs Practice Direction in respect of staged After-the-Event (ATE) premiums.  CPD 19.4(3) now reads:
 
“Where the funding arrangement is an insurance policy, the party must –
 
(a) state the name and address of the insurer, the policy number and the date of the policy and identify the claim or claims to which it relates (including Part 20 claims if any);
 
(b) state the level of cover provided by the insurance; and
 
(c) state whether the insurance premiums are staged and, if so, the points at which an increased premium is payable.”
 
This finally formalises the guidance given by the Court of Appeal in Rogers v Merthyr Tydfil CBC [2006] EWCA Civ 1134.
 
What is not 100% clear is what the consequence would be of failing to give notification of the fact the policy is staged or to give the trigger points.  Would the receiving party lose all premiums or would they still be able to recover the first stage premium (on the basis that the paying party can be no worse off in respect of this first premium even if they were not notified of the staging; the prejudice comes from not having the opportunity to settle the claim before the subsequent premiums become payable)?  More test litigation ahead for costs draftsmen and other costs professionals.
 
It should be pointed out that none of these changes affect those acting under discounted CFAs\CCFAs without a success fee (usually defendants).  There is no need to provide notice of funding in this situation because the full hourly rate payable in the event of a win is not treated as being an additional liability (see Gloucestershire CC v Evans [2008] EWCA Civ 21).
 
There are also important changes to the rules concerning ATE premiums in publication proceedings although, frankly, if you work in that niche area you should already be more than aware of those changes.
 

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Notification of funding – The Old Rules

The old Practice Direction – Protocols (PDP), at paragraph 4, stated:

 
“A.1 Where a person enters into a funding arrangement within the meaning of rule 43.2(1)(k) he should inform other potential parties to the claim that he has done so.
 
 
A.2 Paragraph 4A.1 applies to all proceedings whether proceedings to which a pre action protocol applies or otherwise.
 
 
(CPR rule 44.3B(1)(c) provides that a party may not recover any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order.)”
 
 
On 9th April 2009 this was replaced with the Practice Direction – Pre-Action Protocols.  The relevant section, at 9.3, is substantially the same:
 
 
“Where a party enters into a funding arrangement within the meaning of rule 43.2(1)(k), that party should inform the other parties about this arrangement as soon as possible.
 
 
(CPR rule 44.3B(1)(c) provides that a party may not recover certain additional costs where information about a funding arrangement was not provided.)”
 
 
These sections have, surprisingly, caused problems. This has been due to a conflicting interpretation as to how the word “should” ought to be understood. Is it meant to be a mandatory provision or simply a “recommendation”?
 
 
Master Campbell, in Metcalfe v Clipston [2004] EWHC 9005 (Costs), adopted the latter interpretation:
 
 
“For [the paying party] to succeed, I consider the obligation on the receiving party to give notification of funding pre issue must be absolute but in my judgment, the word ‘should’ in the PDP does not impose such an obligation. On the contrary, I would construe ‘should’ as meaning ‘ought to’ which is not the same as ‘has to’ or ‘must’. Likewise I consider that a step that is ‘recommended’ under the CPD does not involve any element of compulsion but instead means ‘favoured’. It follows that I find against [the paying party]. In my judgment, pre issue, all the CPD does is to recommend that information is provided and although Section 19.2(5) states that notification may be required by a pre-action protocol, there is nothing in the clinical dispute protocol requiring service of any information. The PDP at paragraph 4.A.1 is of no assistance either because the requirement to provide information is optional not compulsory. Nor does paragraph 4A.2 PDP assist because ‘proceedings’ means the issue of court process and not prospective proceedings.”
 
 
Master Campbell reached the same decision again in Cullen v Chopra [2007] EWHC 90093 (Costs).
 
 
I have never found this reasoning remotely persuasive for a number of reasons:
 
 
  1. The word “must” is hardly ever used in the Pre-Action Protocols. The word “should” is usually used. For example: “Some solicitors choose to obtain medical reports through medical agencies, rather than directly from a specific doctor or hospital. The defendant’s prior consent to the action should be sought and, if the defendant so requests, the agency should be asked to provide in advance the names of the doctor(s) whom they are considering instructing”; “The parties should consider whether some form of alternative dispute resolution procedure would be more suitable than litigation”; “The defendant should reply within 21 calendar days of the date of posting of the letter identifying the insurer”. I would suggest that it would be absurd if a party failed to comply with any of these steps but could then claim to have complied 100% with the relevant Protocol on the basis that these were meant to be no more than “recommended” steps.
  1. In the case of Crosbie v Munroe [2003] EWCA Civ 350 the Court of Appeal went out of there way to explain their interpretation of the PDP and whether the notification requirement applied pre-proceedings:
“After completing this judgment, it came to my attention that lower courts are encountering similar difficulties over the meaning of the word ‘proceedings’ as used in paragraph 4A.2 of the Practice Direction: Protocols. Although we have of course not heard argument on this point, it appears to me that this word clearly needs to be interpreted along the lines indicated in paragraph 34 of this judgment. In other words, for instance, the dealings between the parties which lead up to the disposal of a clinical negligence claim are to be treated as ‘proceedings’ for the purposes of that paragraph even if the dispute is settled without the need to issue a claim form.”
 
Although these comments were clearly obiter, it would be extremely strange for the Court of Appeal to go out of its way to comment on the interpretation of a Practice Direction if failure to follow that Practice Direction had no consequences.  If there were no consequences, what were the “difficulties” that the Court of Appeal was referring to?
 
 
3.     Immediately after 4A.2 PDP is the following wording: “CPR rule 44.3B(1)(c) provides that a party may not recover any additional liability for any period in the proceedings during which he failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order” (similar wording appears after 9.3 of Practice Direction – Pre-Action Protocols). The Court of Appeal, in Garbutt v Edwards [2005] EWCA Civ 1206, had this to say when trying to interpret the word “shall”:
 
“In particular, Rule 15 begins by providing that a solicitor ‘shall’ provide costs information. But, while the word ‘shall’ is often mandatory, particularly when used in legislation, it has, depending on the context, been interpreted on occasion as directory or exhortatory only: see for example R v Secretary of State for the Home Department ex parte Jeyeanthan [2000] 1 WLR 354. In Rule 15, for the reasons given below, the word ‘shall’ is not in my judgment mandatory in the sense that non-compliance with the Code will always result in a breach of Rule 15. Rule 15 must be interpreted with the Notes that appear immediately following it.”
 
 
Applying this reasoning, the note immediately following the section details a specific sanction and the word “should” is therefore surely intended to be mandatory on this occasion with the consequences of non-compliance being spelt out. The alternative interpretation produces the bizarre outcome that the PDP details a sanction that only applies to a breach of a totally different rule and not anything contained within the PDP itself. If this were correct, it would be unique within the PDP or Pre Action Protocols for a sanction to be listed totally detached from the relevant rule.
 
Any confusion that existed under the previous rules has now been removed by the latest update to the Civil Procedure Rules.  I’ll be posting details of these changes in the next few days on the Legal Costs Blog.

Successful Conditional Fee Agreement challenge

Most Conditional Fee Agreement (CFA) challenges follow a well-trodden path. However, occasionally a new variation arises where there is no authority directly on all fours. This happened in the recent case of Smith v Carpetright plc, heard by Regional Cost Judge Sparrow in Norwich County Court.

The Claimant had entered into a CFA with Godfrey Morgan solicitors. It was a condition of the, now revoked, CFA Regulations 2000 that for a CFA to be valid the solicitor must advise the client, before the CFA is entered into, whether they recommend a particular method of funding the claim and if they recommend a particular ATE insurance policy their reasons for doing so.

The CFA in question recommended an ATE policy with Amicus. Witness evidence was served during the detailed assessment proceedings that stated that this was the policy that was also orally recommended to the client. However, the CFA itself then went on discuss an Accident Line Protect insurance policy and stated that such policies are “only made available to you by Solicitors who have joined the Accident Line Protect Scheme”.

Gibbs Wyatt Stone acted for the Defendant and argued that there had been a breach of the Regulations in that it was inherently confusing as to which policy was being recommended (whether an Amicus policy or an Accident Line Protect policy) and that there had been a total failure to explain why the Amicus policy was being recommended, if it was, given the only details given had related to the Accident Line Protect policy.

The Judge held that there was real confusion in the written CFA as to what was being recommended and the likelihood was that anybody reading the CFA would consider that Amicus and Accident Line Protect were one and the same. Regardless of whether or not clear oral advice had been given, the Regulations required the advice concerning the ATE recommendation to be in writing and this had not been clearly done. This amounted to a breach which undermined consumer protection and was therefore a material breach. The CFA was held to be invalid and costs of over £90,000 were disallowed.

The Claimant is appealing this decision.

Impressive CFA success rate?

The Claims for you (a trading name of Wixted & Co solicitors) website claims that they succeed in 98% of their accident claims. If true, this is an impressive success rate. However it does raise a number of issues:

1.  Is this success rate not a reflection of the quality of the lawyers who work for this firm but rather a reflection of how risk adverse they are? Do they only take on cases they consider to be dead certs and wouldn’t touch with a ten-foot barge pole anything that looks as if it has the slightest chance of failure?

2.  If this level of success is even remotely typical of personal injury firms, where on earth did the fixed success fee figures come from? The ready-reckoner produces a success fee of 2% where the prospects of success are 98%, but the fixed success fee for even straightforward RTAs that settle pre-trial is 12.5%.

3.  For non-fixed success fee claims, what level of success fee does this firm claim? What do they argue on detailed assessment to support their success fees? Do they claim an average success fee of 2% to reflect their success rate? If any readers of the Legal Costs Blog have any recent experience, let us know.

Tranter v Hansons (Wordsley) Ltd – Duty to investigate BTE

Under the, now revoked, CFA Regulations 2000 there was a duty to advise a client whether the legal representative considered that the client was insured under an existing contract of insurance (BTE) before the CFA was entered into (Regulation 4(2)(c)). Failure to do this would render the CFA invalid.

Since the Court of Appeal decision in Sarwar v Alam [2001] EWCA Civ 1401, if not before, it has been common knowledge that motor policies commonly contained BTE cover available for the benefit of passengers, even if the potential claim is against the insured driver. Therefore, failure to consider whether a passenger may have the benefit of BTE cover available through the defendant driver may amount to a breach of the Regulations.

A subtle variation of this issue arises where the claimant was a passenger on a bus and the accident was caused by the negligence of the bus driver. It has been common, for a number of years, for such BTE cover to also be attached to bus companies’ motor insurance.

There have now been a number of decisions covering this issue and exploring whether a failure to make appropriate enquiries of the defendant bus company as to whether such cover was available would invalidate the CFA.

In Cochrane v Chauffeurs of Birmingham (Central London CC) 22/6/07, Donaldson v Four Square Coach Company (Huddersfield CC) 11/6/07 and Robinson v Doselle (Milton Keynes CC) 19/12/05 the courts held on each occasion that there had been a material breach of the Regulations.

The one case that went against the flow was the decision of Master Rogers in Dole v ECT Recycling Ltd [2007] EWHC 90086 (Costs). In that case the Claimant’s solicitors put forward witness evidence that stated: “I confirm that as at the date when the CFA was signed in this case (15/07/2004) it was not common knowledge that the bus companies would have been covered by Before the Event Legal Expenses insurance which would have been available for passengers to sue the bus company for the negligent driving of its own drivers”. The Defendant did not put forward any evidence to counter this claim. Master Rogers held: “I accept the clear conclusion from Mr Bennett’s uncontradicted evidence that the state of knowledge of solicitors specialising in this field in the summer of 2004 was not that the defendants to a claim of this nature might have passenger cover, and in particular that such cover would be dealt with independently of any claim made against them by the passenger.” He therefore concluded that the reasonable enquiries that a solicitor was expected to undertake would not have extended to considering whether BTE cover was available in this situation as they would not have known such cover might be available.

The latest decision on this issue is that of Tranter v Hansons (Wordsley) Ltd [2009] EWHC 90145 (Costs). The Claimant’s solicitors produced a witness statement that stated: “I confirm that as at the date when the CFA was signed in this case (14/04/05) and based on my experience in the personal injury field, it was not common knowledge in the industry that a bus company would have applied Legal Expenses Insurance to the passengers on a bus to sue itself”.

Master Wright nevertheless concluded: “In my judgment the Defendant has raised a genuine issue and I consider that the Claimant’s solicitors in this case have failed to comply with Regulation 4(2)(c) of the CFA Regulations 2000. Whether or not it was common knowledge in the industry at the date the conditional fee agreement was signed that a bus company would have applied legal expenses insurance to the passengers on a bus to sue itself, it certainly was common knowledge that motor insurance policies frequently provide insurance cover for passengers to enable them to sue the driver. This is clear from Sarwar v Alam where the judgment of the Court of Appeal was given in 2001. In my judgment there is no justification for making a distinction between private motor insurance policies and insurance policies taken out by the operators of public vehicles such as buses. … In the present case the Claimant’s solicitors knew (or ought to have known because of the Court of Appeal’s decision in Sarwar) that private motor insurance policies often contained provisions which protect passengers. They ought also to have anticipated that in the case of public vehicles (such as buses) there could be similar provisions in the insurance policies taken out by the operators of such vehicles. They should have taken reasonable steps (a letter or two would have sufficed) to enquire. However they did not do this”.

The CFA was therefore held to be invalid.

Advising on success fees

Advising clients on the level of success fee that might be allowed in any given case is an inherently difficult task given the unpredictability of the courts. Another reason why it is difficult to advise is due to the method by which success fee are normally calculated. The courts generally accept, as a starting point, the “Ready Reckoner” (see for example paragraph 4 of Atack v Lee [2004] EWCA Civ 1712). This allows for a calculation that, based on the prospects of success fee in any given case, produces the correct level of success fee to reflect that risk. The difficulty with the figures produced by this method is that a tiny change in the prospects of success can produce a radically different success fee. For example, a case with a 50% chance of success produces a 100% success fee. A case with a 60% chance of success produces only a 67% success fee. Therefore even a very small difference in a judge’s assessment of the prospects of success can radically alter the amount that can be allowed on a bill. How can one accurately advise a client as to what a judge is likely to allow?

Gibbs Wyatt Stone were instructed in relation to a case concerning a claimant who had tripped over a defective paving stone. This type of claim is generally recognised as not being straightforward due to the availability of a s58 statutory defence. However, the typical difficulty still arose as to what figure to recommend in relation to the level of success fee. In the event, GWS advised that the Defendant’s offer of £14,500, made prior to a formal Bill being served, provided reasonable protection. A formal Bill was served and the matter proceeded to detailed assessment in the Supreme Court Costs Office. The matter was heard by Principal Costs Officer Lambert. He assessed the prospects of success at 65% and, using the “Ready Reckoner”, allowed a success fee of 55%. Taken together with the other reductions made, the Bill of Costs was reduced from £35,150.50 to £13,991.83. The Defendant therefore succeeded on its offer and was awarded the costs of the detailed assessment proceedings.

The Claimant was unhappy with the success fee allowed and appealed to a Costs Judge. An odd aspect of appeals from a Costs Officer to a Costs Judge, in addition to there being an automatic right of appeal, is that such an appeal is by way of a complete rehearing rather than a straight appeal. This means that the Costs Judge will consider the matter afresh rather than simply decide whether to uphold or overturn the Costs Officer’s decision.

The “appeal” was heard by Master O’Hare who decided not only that the Costs Officer’s assessment of the prospects of success had not been unduly low but had actually been too high. He assessed the prospects of success at 67% and, based on the “Ready Reckoner”, this reduced the success fee to 50%, which was what he allowed. The Claimant’s appeal therefore not only failed but resulted in a further reduction to the amount which had originally been awarded. The Defendant was awarded the costs of the appeal.

Until fixed success fees are introduced for this type of case, costs draftsmen and other costs professionals will continue to struggle to advise their clients in these claims.