SUCCESSFUL CHALLENGE TO 100% SUCCESS FEE UPHELD ON APPEAL: HIGH COURT JUDGMENT TODAY: SOLICITOR AND OWN CLIENT ASSESSMENT OF COSTS

In  Herbert v HH Law Ltd [2018] EWHC 580 (QB) Mr Justice Soole refused a solicitor’s appeal against a decision reducing the success fee from 100% to 15%.  This is a very important decision for claimant personal injury lawyers who, habitually, claim a 100% mark up on a risk assessment in a personal injury case.

“I do not accept that the LASPO changes had the effect of removing risk assessment as a relevant factor when considering the success fee percentage increase on a solicitor-client assessment”

THE CASE

The claimant had instructed the defendant solicitors in a personal injury case. The agreement between the claimant and the defendant allowed a 100% mark up for the additional liability. The case settled for £3,400.  The defendant deducted £829.20 from the damages representing the success fee.

THE HEARING BEFORE THE DISTRICT JUDGE

The claimant issued an application for two bills of costs.  The District Judge held that a figure of 12.5% was reasonable and the sum was reduced to £276 plus vat a total of £331.20.

THE APPEAL TO THE HIGH COURT JUDGE: THE REASONABLENESS OF THE SUCCESS FEE

The defendant solicitors argued that the charges had been expressly, or impliedly, approved by the claimant.  Approval was satisfied by the client’s consent that was embodied in the CFA.  These arguments were not accepted on appeal. Soole J stated:

1. Dealing first with the presumptions in CPR 46.9(3)(a) and (b), I do not accept that the ‘approval’ of the client is satisfied by the mere fact of the client’s consent to the relevant type or amount of cost to be incurred. The language of ‘approval’ evidently requires something more. I respectfully agree with Holland J in Macdougall that approval requires an informed consent. It follows that the simple refrain of freedom of contract establishes neither the presumptions nor the reasonableness of the success fee in the particular case.

2. Secondly, I do not accept that the requirement of approval is directed only at cases where the client has been misled by the solicitor. That happened to be the circumstance in Macdougall, but there is nothing in the language of CPR 46.9 which so restricts its reach, nor is there any principled reason why it should do so.

3. Thirdly, I do not accept that the LASPO changes had the effect of removing risk assessment as a relevant factor when considering the success fee percentage increase on a solicitor-client assessment. Whilst LASPO excluded the success fee from the inter partes assessment, CPR 46.9(4) demonstrates that it did not do so for the purpose of a solicitor-client assessment. The terms of that sub-rule are the same as the former CPR 48.8(3), save for the necessary exclusion of an application by the solicitor.

4. When the costs judge is faced with the client’s application under 46.9(4) for a reduction of the percentage increase, I can see no good reason for the risk in the individual case to be excluded as a relevant factor. On the contrary it is likely to be the primary factor. This reflects the fact that the assessment is concerned with the circumstances of the particular retainer. By that retainer, and the fiduciary obligations to which it gives rise, the exclusive focus of the solicitor is on the best interests of the client: see also the SRA Code of Conduct 2011, Introduction and Outcome 1.6.

5. Accordingly and in any event I do not accept that the removal of the PD 48 list of relevant factors had the effect of excluding the assessment as a relevant factor under the successor to CPR 48.8(3), namely 46.9(4); nor as a matter relevant to approval for the purpose of the presumptions under 46.9(3).

6. Like the Judge, I accept that 46.9(4) is not free-standing and that CPR 46.9 must be read as a whole. Thus if a client applies for a reduction in the success fee, he may be met by evidence that he gave his informed approval to the percentage identified in the CFA. If so, the presumption in 46.9(3)(a) and/or (b) is likely to be satisfied and will be difficult to dislodge. Alternatively, if the presumption is not established, the costs judge will proceed to the assessment and hence the reasonableness of the success fee percentage.

7. Putting the point another way, if and insofar as HH took no account of the risk in the individual case and provided for a 100% uplift (subject to the 25% cap) in all cases by reason of its particular post-LASPO business model, I consider that informed approval would require this to be clearly explained to the client before she entered the agreement.

8. In any event the suggested irrelevance of a risk assessment is at odds with HH’s own documents relating to this case. Thus its ‘Insurance Information Fact Sheet’ stated that ATE insurance was appropriate because of a list of factors which included that ‘The premium reflects the category of risk’: see also its internal review note of 25.4.16 which assessed the prospects of success.

9. In the absence of any such informed approval by Ms Herbert I see no basis for the application of either presumption (a) or (b). I do not consider that presumption (c) arises, since Ms Herbert was advised that the uplift would not be recoverable from the other party.

10. The presumptions not arising, it was for the Judge to assess the reasonableness of the success fee in the particular case. He rightly held that the risk in the individual case was a relevant factor and rejected the arguments based on HH’s business model. There being rightly no challenge to his assessment of the risk factor at 15%, this ground of appeal must be dismissed.”

JUDGMENT ON THE INSURANCE PREMIUM

The judge also upheld a finding that the payment of an insurance premium by the solicitor was a disbursement. The solicitors had paid out a £349 premium on the claimant’s behalf. They were required to repay that sum to the claimant.

1. I again prefer Mr Simpson’s submissions. I consider the Judge’s decision to be supported by the definition of a cash account in PD46 para.6.6(b), the observations in In re Remnant and the commentary in the cited text books. I do not accept that the Solicitors Accounts Rules point the other way.

2. If a payment by a solicitor is properly to be classified as a solicitor’s disbursement, it should be contained in his bill of costs and thus be amenable to the s.70 process of solicitor-client assessment. The effect of allowing the solicitor to include the item in the cash account would be to deprive the client of the opportunity to challenge the item on a solicitor-client assessment.

3. Equally, it is no answer to leave the client to a remedy against the solicitor in fraud or professional negligence. Nor does the s.68 power to order delivery of a bill permit the Court to determine the particular contents of the bill to be delivered : see my decision^[4] in Parvez v. Mooney Everett[2018] EWHC 62 (QB). If the solicitor fails to include that item in the delivered bill of costs, he has to bear the consequence; subject to any application for leave to withdraw the bill and deliver a fresh bill.

4. My conclusion is that the Judge was right to approve the cash account in the version which excluded the ATE premium, a solicitor’s disbursement.

ARGUMENT OF ILLEGALITY

The defendant solicitors argued that the way in which the claimant’s (new) solicitors obtained the claimant as a client was (somehow) unlawful. This argument was rejected by both judges.

1. “The final ground of appeal, as revised in oral submissions, is that the Judge erred in the way he dealt with HH’s argument that JG’s claim for the costs of the success fee issue was vitiated by illegality relating to the formation of JG’s retainer from Ms Herbert. The Judge wrongly stated that any concern should be pursued with the SRA. He should at least have ordered JG and Ms Herbert to make witness statements explaining how JG came to be instructed.

2. HH’s skeleton argument of 27.3.17 and its submissions on costs dated 4.5.17 pointed to Mr Ralph’s witness statement in which he referred to a number of cases where former clients had retained JG to challenge its bill of costs. He expressed concern that JG had obtained a client list and had then in breach of the SRA Code ‘cold called’ these clients in order to obtain instructions. Mr Ralph referred to a former client (Mr Miles) where ‘…I have been made aware that [he] alleges he was contacted directly, on his mobile telephone by Mr Green who asked for instructions to bring a claim’. He asked the Court to direct Mr Green and Ms Herbert to file and serve witness statements setting out how she came to instruct JG and whether she had been cold called by telephone. Such a breach of the SRA Code would have the consequence that the retainer was tainted with illegality and unenforceable; and thus that any order for costs would offend the indemnity principle.

3. Mr Green responded with submissions, signed by him and dated 2.5.17, in which he stated that it was ‘simply untrue’ that he had a list of clients who were being cold called. This applied both generally and in respect of the identified client. He stated that a number of former clients of HH had sought to instruct him in the light of valid concerns about its charges. The instructions had come via a number of marketing methods all of which were compliant with the Code of Conduct. He denied that Mr Miles had been contacted directly by JG.

4. The Judge responded to this issue as follows: ‘The Defendant suggests the court should investigate the conduct of the Claimant’s solicitor and in particular how he came to act for the Claimant. The allegation is one of professional misconduct and in my view should be directed to the SRA. It would be disproportionate and wrong for this court to embark upon such enquiry given the powers of the Solicitors regulatory body’.

5. In support of his argument that the Judge should have ordered witness statements, Mr Hogan cited the SRA Code at Rule 8.3 that ‘you do not make unsolicited approaches in person or by telephone to members of the public in order to publicise your firm or in-house practice or another business’; and authority that a retainer entered in breach of the Code was illegal and unenforceable: Mohamed v. Alaga & Co [2000] 1 WLR 1815; Garbutt v. Edwards [2006] 1 WLR 2907.

6. In my judgment there is no basis for criticism of the Judge’s decision on this point, nor therefore of his consequent costs order. Mr Ralph’s evidence of cold-calling was based on no more than cautiously phrased evidence that he ‘had been made aware’ of such an allegation by another former client; and Mr Green had expressly denied the particular and general allegation in a signed statement. The Judge’s decision, that it would be disproportionate for him to take the matter further and that Mr Ralph should redirect his complaint to the SRA, fell squarely within the ambit of his case management discretion.

7. For all these reasons this appeal must be dismissed.”