The recent decision of District Judge Lumb in the case of A & M.v.Royal Mail Group in which in the context of an infant settlement approval hearing, he refused to approve the deduction of ATE premiums and 100% success fees has thrown into the spotlight the practice of charging success fees to clients, which are then deducted from their damages.
Whatever the rights or wrongs of the decision in that case, this is a topic which not only is not going to go away, but is likely to explode into satellite litigation sooner rather than later between solicitors and their aggrieved former personal injury clients.
The reason is straightforward: as noted in the Review of Civil Litigation Costs: Final Report a majority of households in this country have BTE legal expenses insurance but may be unaware that they do so:
There are approximately 25 million households in the UK.23 Approximately 10-15 million households have BTE insurance as an add-on to house or contents insurance.
It is becoming apparent, that many solicitors are signing clients up to conditional fee agreements with 100% success fees, without being aware that their clients have the benefit of BTE legal expenses insurance.
The reason is not hard to discern: many solicitors carrying out bulk personal injury work, will never see their client in the flesh and working to standard forms, and checklists produced through the magic of a computerised case management system will fail to ascertain all the client’s funding options prior to signing them up to a conditional fee agreement with a success fee.
The starting point when a client instructs a solicitor is that the solicitor is under a professional obligation to give to the client best possible costs advice. Chapter 1 of the Solicitors Code of Conduct, published April 2015 has the following as relevant outcomes:
O(1.1)
you treat your clients fairly;
O(1.6)
you only enter into fee agreements with your clients that are legal, and which you consider are suitable for the client’s needs and take account of the client’s best interests;
O(1.12)
clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them;
O(1.13)
clients receive the best possible information, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of their matter;
O(1.14)
clients are informed of their right to challenge or complain about your bill and the circumstances in which they may be liable to pay interest on an unpaid bill;
The indicative behaviours which the Solicitors’ Regulation Authority would expect to see include:
IB(1.13)
discussing whether the potential outcomes of the client’s matter are likely to justify the expense or risk involved, including any risk of having to pay someone else’s legal fees;
IB(1.14)
clearly explaining your fees and if and when they are likely to change;
IB(1.15)
warning about any other payments for which the client may be responsible;
IB(1.16)
discussing how the client will pay, including whether public funding may be available, whether the client has insurance that might cover the fees, and whether the fees may be paid by someone else such as a trade union;
IB(1.17)
where you are acting for a client under a fee arrangement governed by statute, such as a conditional fee agreement, giving the client all relevant information relating to that arrangement;
IB(1.19)
providing the information in a clear and accessible form which is appropriate to the needs and circumstances of the client;
As is well known, a client can seek to have a solicitor’s fees assessed by way of a solicitor-own client assessment and pursuant to rule 46.9(3)(c) costs will be presumed to have been unreasonably incurred if they are of an unusual nature or amount and the solicitor did not tell the client that as result the costs might not be recovered from the other party.
Case law from before the introduction of the CPR, makes it plain that where costs are unusual in nature or amount, the court will look to see whether the client gave informed consent, to the incurrence of those costs. Thus it is not enough for the client to agree to pay the fee: the basis for the charging the client must be explained to them and why and how it has been calculated.
Thus a solicitor contemplating charging a success fee that a client will have to pay out of their own damages will have to comply with all the obligations noted above in the Code of Conduct, the Civil Procedure Rules and at common law.
In practical terms this will mean investigating the funding options open to a client, examining and comparing the benefits and dis-benefits of each, explaining these to the client and doing so in sufficient detail that the client is able to make an informed choice as to whether to proceed with the conditional fee agreement or not.
Whether this stretches so far as to advise a client that they are free to seek a solicitor who will act without taking a success fee is an interesting point. It certainly stretches far enough to advise a client who has suffered a road traffic accident and has the benefit of BTE legal expenses insurance that they should use their BTE insurance, as the longstanding authority of Sarwar.v.Alam [2002] 1 WLR 125 makes clear:
45 In our judgment, proper modern practice dictates that a solicitor should normally invite a client to bring to the first interview any relevant motor insurance policy, any household insurance policy and any stand-alone BTE insurance policy belonging to the client and/or any spouse or partner living in the same household as the client. It would seem desirable for solicitors to develop the practice of sending a standard form letter requesting a sight of these documents to the client in advance of the first interview. At the interview the solicitor will also ask the client, as required by paragraph 4(j)(iv) of the Client Care Code (see paragraph 14 above) whether his/her liability for costs may be paid by another person, for example an employer or trade union.
46 If these simple steps are taken, they ought to reduce the burden and extent of the inquiries about which some of the interveners expressed concern. The solicitor will then be able to read through the policy, and if BTE cover is available, if the motor accident claim is likely to be less than about £5,000 and if there are no features of the cover that make it inappropriate (for instance, if there are a number of potential claimants and the policy cover is only, say, £25,000), the solicitor should refer the client to the BTE insurer without further ado. The solicitor’s inquiries should be proportionate to the amount at stake. The solicitor is not obliged to embark on a treasure hunt, seeking to see the insurance policies of every member of the client’s family in case by chance they contain relevant BTE cover which the client might use.
Accordingly, if a client has agreed to pay a success fee in circumstances where the solicitor either failed to discover that the client had BTE or failed to advise the client to use it, an action for damages for professional negligence would lie.
However, who is going to bring such a claim for a sum which may be only a few hundreds of pounds on the Small Claims track? And who would represent them? In fact there is an alternative remedy.
A success fee incurred in these circumstances would be a cost unreasonably incurred. A solicitor-own client assessment can take place using the Part 8 procedure: such a case is not allocated to a track, and pursuant to section 70 of the Solicitors Act 1974, the costs of the assessment must be determined and paid. On the assumption that most success fees will be 100% of the base costs, albeit subject to a cap of 25%, should the success fee be disallowed then the costs of the assessment will likely accrue to the client.
Another interesting point would be to what extent the court would consider the reasonableness of the success fee, if it was proper to incur one. In this respect, it may be that the Birmingham case is the first stone in an avalanche of satellite litigation to come.