Three is company

In this third post on retainers, I set out some thoughts on current issues in drafting retainers, which are particularly acute at the current time, not least by reason of recent changes in the substantive law or the Civil Procedure Rules. A solicitor who acts on the basis of a traditional privately paid retainer, charging an hourly rate is not immune to those changes, but it is fair to say that the changes will be felt most acutely by litigation solicitors who act on a contingency fee basis, usually by way of conditional fee agreement. I put forward for your consideration the following points.

First the introduction of fixed recoverable costs. There are two obvious consequences to this very wide ranging reform which will remake not only the legal profession but the entire face of civil litigation. The first point to note is that so far as contentious work is concerned, in order to avoid being limited to fixed costs on a solicitor-own client basis, as well as against the opposing party to litigation, a solicitor must have regard to section 74(3) of the Solicitors Act 1974 which provides as follows:

The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.

The relevant rules of court include rule 46.9(2) CPR which states:

Section 74(3) of the Solicitors Act 19746applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.

Meaning that if a retainer does not expressly provide for the recovery of the shortfall between costs incurred on an hourly rate basis and the fixed recoverable costs actually recovered, the solicitor cannot look to the court for the shortfall.

Secondly. the introduction of fixed recoverable costs, at scale, means that there will be scenarios, where a solicitor is charging a client on the basis of an hourly rate, but the award of fixed recoverable costs may exceed, the amount of time based fees that the solicitor has incurred. It is I think, trite law, that an award of fixed costs is made without regard to the client’s own liability to pay her solicitor’s fees, as fixed costs function as a partial statutory disapplication of the indemnity principle. Unless a conditional fee agreement provides for a specific basis of charging in fixed recoverable costs cases, the sum recovered will remain client money, and have to be partially refunded to the client, when the solicitors hourly rate charges have been paid.

Thirdly, in personal injury claims subject to the new QOCS rules which came into force last year, there will be cases, where although substantial damages are awarded, they may be subject to set off or enforcement by defendants who have obtained a costs order in their favour, and the actual sum recovered, may be much less than might otherwise be the case. If a conditional fee agreement contains an unqualified cap on deductions by reference to damages recovered then a solicitor may end up significantly out of pocket as 25% of “not very much” is “even less than not very much”. 

In addition, caselaw in the recent past has brought perhaps into sharper focus, points which were already present, but not perhaps catered for in many retainers, or the detail of terms and conditions. Thus, it would be prudent where statutory bills of costs are delivered by email, as virtually everything is these days, to obtain the client’s specific consent to delivery of electronic bills, as otherwise delivery may prove ineffective. If high hourly rates are being sought, then the client’s informed consent should be sought, and advice documented. And if, that unicorn, the 100% success fee is sought from a client without regard to the risks posed by an individual case, that must specifically be explained to the client, so that informed consent can be obtained.

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