THE APPROVAL OF SOLICITOR AND OWN CLIENT COSTS OF A PROTECTED PARTY AFTER SETTLEMENT: CLIENT NOT LIABLE TO PAY ANY FURTHER PROFIT COSTS; SUCCESS FEE REDUCED TO 15%

In  BCX v DTA [2021] EWHC B27 (Costs) Costs Judge Brown reduced, substantially, the sums payable to solicitors from their own client. The judge was considering own client costs after the defendant had paid the bulk of the costs.  It was found that the sums the defendant had already paid in profit costs were appropriate and there were no further sums due on a solicitor and own client basis. The success fee was reduced to 15% (from 20%), but based on the profit costs that had been allowed. The insurance premium were allowed in full.

THE CASE

The claimant had been seriously injured to the extent he was a protected party . He instructed solicitors and the case was resolved with a payment of £1.3 million.

THE RECOUPMENT OF SOLICITOR AND OWN CLIENT COSTS

The inter partes costs issues had been agreed.  The court had to determine what sum was payable out of the claimant’s damages towards costs. The sum claimed totalled £159,758.30.

1. 1. The sum payable by the Defendant on the inter partes order for costs, inclusive of interest and costs of detailed assessment, has been agreed, following mediation, in the sum of £330,000, The Claimant’s solicitors Irwin Mitchell LLP (‘IM’) have not waived their entitlement to claim further costs against the Claimant and seek payment of a sum from the Claimant of £159,758.30 of the following:

(i) £94,977.38 (inclusive of VAT), representing what is says it a shortfall in profit costs from those recovered from the Defendant (the ‘shortfall’ claim);

(ii) payment of a success fee in the sum of £62,848.92 (inclusive of VAT); and,

(iii) payment of the costs of an ATE premium in the sum of £1,932.

THE JUDGE’S OBSERVATIONS

The judge made some general observations about the way these issues should be considered.

1. 1. The matter originally came before me on an application for approval of a deduction from the damages sought in respect IM’s claims. It was not clear to me that that I had any power to dispense with an assessment following the order made by Judge McCloud. It may well however be the case that the court does have a jurisdiction to dispense with a detailed assessment even after an order has been made in the terms set out above where there had been a material change of circumstances. In any event it was clear to me that it was not in the interests of the protected party to dispense with detailed assessment in this case even if I had the power to do so.

1. 1. I should say that the hearing of the application and subsequently at the assessment reliance was placed on the agreement to the litigant friend to the deductions sought. I do not however accept the contention that simply because the litigation friend has agreed to the deductions in respect of IM’s claim that this is an end of the matter. To my mind that is clear from the rules, in particular 46.4.

1. 1. I would doubt that many litigation friends, typically, of course, relatives of injured claimant, would be in a position to know whether the costs claimed by the solicitors are reasonable. It strikes me that there is a risk that the litigation friend may simply have been informed by the solicitors, or led to believe, that the costs they are claimed are payable without any reference to the need to determine whether they are reasonable or indeed that such costs are payable only if reasonable. Moreover, the solicitors are themselves in a position of trust. On this issue their interests are plainly not aligned with the protected party or the litigation friend and they are not in a position to give advice on the reasonableness of their own charges. Indeed, the litigation friend may not fully take into account the consequence of substantial deductions from damages; they may just be relieved that she or he does not have to pay for them themselves. Whilst I have every reason to be believe that the litigation friend in this case has acted conscientiously and assiduously in the interests of the protected party, I have not been give any sufficient basis for thinking that she is in a position to give informed consent to the deductions^[4].

1. 1. I should add that at the application for approval I was also provided with advice from counsel (not Mr. Mallalieu QC) in respect of the costs claimed by IM. I understand that this would have been provided to the litigation friend. As I think is clear from the provisions under CPR 46.9 a detailed scrutiny is required of the costs claimed. It is not enough in my view for an advice from counsel simply to indicate that a claim for ‘shortfall’ costs looks reasonable or indeed that a success fee looks reasonable, at least without an adequate analysis of the nature of the claims and the objections that might reasonably and properly be raised to them. Nor is it enough simply to say that because assessment can be costly that therefore it is reasonable to agree to an amount that otherwise might be appear unreasonable. There is or might be no need for any attendance of the part of the litigation friend or the deputy at the assessment. Further, as was the practice of Costs Judge O’Hare, now retired, there might be a provisional assessment as a preliminary to any detailed assessment in person.

1. 1. Further and in any event, even if any consent or approval were informed, by the terms of CPR 46.9 it would merely give rise to a presumption of reasonableness. I was however able to form my own preliminary view as to the reasonableness of the costs claimed and whether further scrutiny was appropriate. I have previously expressed considerable and detailed concerns about the costs claimed by IM which I set out in the recital in an order made on the initial application (and which it is not necessary for me to repeat here).

1. 1. As the hearing Mr. Mallalieu argued that even if the consent of the litigation friend were not determinative I should give weight to it. I accept that this is so. It is clearly in the interests of the claimant that finality is achieved at an early stage. Indeed there may be problems if the Court were to be too fastidious about this process. Nevertheless it was unclear how, if I were to form a preliminary view that there were concerns which justified a more detailed scrutiny of the claim for costs, any such consent should operate in determining the reasonable amount payable, save insofar it might be relevant to the application of the presumptions in CPR 46.9.

1. 1. I have had regard to the CPR 44.4 (3) factors. I have dealt with some of the relevant factors above. That this clam settled when it did is a credit to the Claimant’s solicitors and indeed to the Defendant’s insurers who I understand initiated the discussions. There are no obvious other issues of conduct arising as I see it. Complexity is to be assessed across spectrum. Albeit it is fair to say that a claim of this value is likely to have the potential to become complex it is not clear to me to me the claim was legally complex; there was some potential factual complexity in respect of the issues concerning capacity in particular and complexity in respect of the expert evidence (for which the experts took a substantial burden). It was also necessary for the solicitors to understand the nature of the expert evidence when dealing with issues such as capacity and the effect of underlying condition. This was plainly a case for specialist personal injury law firm.

1. 1. In carrying out this assessment I have fully in mind the presumptions that apply on assessment of costs under r.46.9. I should exercise any doubt in favour of the solicitors and the rules that would apply in an assessment under the standard basis in respect of proportionality do not apply. As Mr. Mallalieu QC however accepted the matters set out in r.46.9 are merely presumptions. Plainly despite the different basis of assessment, the presumptions will not necessarily lead to any greater sum being payable than would be the case on standard basis assessment. This is plainly so since the very concerns which give rise to disallowances of costs inter partes can also give rise to deductions from claim under an assessment on the indemnity basis; such concerns include an excessive of amount time on activities, too much inter fee earner discussion, duplication of work (multiple fee earner attendance on others when only one fee earner attendance is reasonable), inadequate delegation of work (ie senior fee earners doing work that could and should be done by lower grade fee earners) and work not properly charged. Moreover there may be no element of doubt in assessing the reasonableness of costs in respect of certain activities (or phases) with which the Court is familiar, so the basis of the assessment may make no difference to the allowance.

1. I am conscious that in some cases it will be clear that a claimant will have to pay sums by way of costs which are not recoverable inter partes. Thus, for instance, where there has been an interlocutory appeal or application in respect of which the claimant does not recover the cost but which steps were reasonably taken to protect the interest of the claimant. I am not aware that there were any such steps in this case, which settled without any court hearing save the approval hearing. I acknowledge also that if a client does demand a high level service which means that not all costs will not be recovered from the other side subject to the presumptions set out above in r46.9 the client may be required to pay the additional costs associated with such a level of service. Again, it is not clear to me that this is a matter that arises in this claim.

THE “SHORTFALL” CLAIM

The judge then carried out a detailed assessment of the bill of costs.  The conclusion reached was that the defendant had already paid the sum that it was reasonable to expect the claimant to pay.

“Overall my assessment of the reasonable sum the Claimant is required to pay his solicitors is is less that the Defendant had agreed to pay. However it is in accordance with my own instinctive and necessarily highly preliminary view that the inter partes compromise looked generous and should be approved. The consequence of this finding is that, provisionally, I am not currently satisfied, that any payment should be made by the protected party in respect of IM’s claim for a ‘shortfall’.”

THE SUCCESS FEE

The judge then considered whether the success fee of 20% was reasonable.  This was reduced to 15%.

1. 1. No success fee is claimed by counsel. The success fee payable to IM is, of course, payable as a percentage of the underlying time costs. To my mind the CFA should be read as providing that the fee payable is function of the reasonable assessed time costs, not those costs which are claimed but which are found to be unreasonable. The uplift for the fee claimed is put at 20%.

1. 1. In their risk assessment the solicitors state:

“The success fees applicable to your claim are determined by our assessment of the prospects of success balanced against the risks of your claim. This assessment is based purely on the information available to us at the time of entering into this agreement. This includes the ordinary risks of litigation together with those specific issues which we regard as relevant and appropriate to take into account in relation to your claim.”

1. 1. The success fee in the CFA is two staged: it rises from 20% to 100% of the base costs three months before trial. The risk assessment in the papers provided to me, which appears to be substantially generic in nature, provides three levels of risk, High, Medium and Low. The case is said to have fallen within the third category, Low Risk, which prescribes, as far as I can see, a success fee of 20%. The following is said about cases which call into this category:

“Low Risk

Evidence on liability is strong. Identity of defendant and insurer are known or obtainable. Likelihood of early admission of liability but possible issues on causation/ quantum.”

1. 1. Like Counsel instructed to provide an advice on IM’s claim, I have not found a bespoke risk assessment.

1. 1. I find it difficult to see that the Claimant could have failed to recover significant damages given the serious nature of his injuries and the circumstances of the accident as they would reasonably be known to the solicitors- – albeit there may reasonably have been an anticipation of significant improvement and recovery. I am not satisfied that there was any real doubt as to how the accident occurred as at the time when the CFA was entered into: the risks in respect of primary liability, and I might add- contributory negligence, were essentially theoretical in nature.

1. 1. The real difficulty in this case appears to lie in clause 10 of the CFA and in assessing the risk that the solicitors might lose the right to recover part of their fees as a result of the Claimant’s failure to beat a Part 36 offer which he had rejected on their advice (‘the Part 36 risks’).

1. 1. Two decisions were relied upon in the written advice of counsel on the approval application for the proposition that a success fee of 20% was usual and reasonable in these circumstances: C v W [2008] EWCA Civ 1459 an NJL v PJL [2018] EWHC 3570 (QB).

1. 1. In C v W [2008] EWCA Civ 1459 the Court broke down the elements that constituted the Part 36 risk’ as follows: firstly – the chance that a Part 36 offer would be made, secondly- the chances that such an offer would be made at an earlier or later stage in the proceedings, thirdly- the chance that the solicitors would advise the litigation friend to reject it, fourthly -the chance that she would accept their advice and fiftly- the chance that, having rejected the offer, she would fail to beat it at trial .In considering these matters, Moore-Bick LJ said:

“Some of these might be assessed with a degree of confidence: for example, one could confidently predict in a case of this kind that a Part 36 offer would be made at some stage. One might also predict, though perhaps not with quite the same degree of confidence, that Mrs. C would reject such an offer if her solicitors advised her to do so. The timing of an offer was more difficult to predict, but was potentially of some importance because only fees earned by the solicitors after its rejection would be at risk; fees earned up to that point would be secure. The chance that Taylor Vinters would advise Mrs. C to reject an offer which she subsequently failed to beat at trial is difficult to assess, but one would not expect highly experienced solicitors practising in this field to differ very widely in their assessment of the bracket in which an award would be likely to fall, provided they had access to the same information. That would include access to any evidence of contributory negligence which, if established, would reduce the amount of the award. The task facing Taylor Vinters in May 2001 was to assess, as best they could, the risk of losing part of their fees for reasons of that kind, and then expressing that as a percentage of the total fees likely to be earned to trial. Only by doing so could they calculate a success fee expressed as a percentage uplift on the whole of their profit costs. However, the explanation form shows that they did not attempt to grapple with that task and indeed I doubt whether they had the means of doing so in any reliable way.”

1. 1. The claimant’s claim for damages in C v W arose out of road traffic accident; she was a passenger in motorcar driven by the defendant to the and suffered a head injury. There were risks identified in respect of contributory negligence: the defendant in that case asserted that the claimant had failed to wear a seat belt and had allowed herself to be driven by a person who was unfit to drive through drink. There were also risks going to the level of the claim: evidence emerged which tended to suggest that some of the damage the claimant’s brain might have been caused by excessive consumption of alcohol and therefore pre-dated the accident; also the Claimant had developed of breast cancer with its consequent implications for her life expectancy and thus the amount required for her future care. The court considered success fee of 20% was reasonable. This was based on assessment of the risk in overall terms of 17%. There are, I would agree, some parallels between that case and this. However the determination of the uplift in that case is of a single stage success fee, not as here the first stage of two-staged success fee.

1. 1. In NJL v PJL [2018] EWHC 3570 (QB) the claimant suffered catastrophic injuries including head injuries also in road tariff accident. The claim settled at a sum which capitalised at about £2m. It appears that full liability was never at risk and this was known to the Claimant’s solicitors at the time when they entered into the relevant CFA. As to the quantum risk Spencer J noted as follows:

“According to Miss Kate Nicklin, a solicitor employed by Irwin Mitchell and who provided a witness statement dated 9 March 2016, the impact of the Claimant’s head injury on his life and on the assessment of damages was very much in dispute, with the Defendant relying upon the fact that the Claimant had been born prematurely (at 32 weeks’ gestation), he had been subjected to violence and sexual abuse by his parents when a child, he had sustained four unrelated head injuries prior to the accident including one which had involved retrograde amnesia, there was a family history of epilepsy, the Claimant exhibited learning difficulties and behavioural problems at school and he was a drug user who had been in trouble with the police. Miss Nicklin also stated that there was a gulf between the medical experts instructed by the parties, with the Defendant’s experts suggesting in their reports that the brain injury, though indisputably severe, may have made little or no difference to the Claimant’s life trajectory.”

1. 1. As to, specifically, the Part 36 risk, Spencer J said as follows:

40.  Firstly, so far as the “timing” risk is concerned, in my judgment, as at August 2012, the Claimant’s solicitors could have anticipated the Defendant making a Part 36 offer relatively late in the proceedings. In Fortune v Roe, Sir Robert Nelson, a very experienced judge in personal injury actions, stated at paragraph 49:

“It was also probable, given the size and complexity of this claim, that such an offer would probably be made late in the proceedings.”

This is also my experience of dealing with many such cases when I was still at the Bar. In fact, the timing of the Part 36 offer in this case mirrored exactly the timing which I would have expected an experienced solicitor to have anticipated in a case of this nature when the CFA was entered into. It seems to me that even on a conservative estimate the solicitor should not have anticipated more than 25% of his costs being at risk.

41.  The second main element relates to the chance of a Part 36 offer being made, being rejected on the solicitor’s advice and then the Claimant failing to better that offer at trial. I do not know, of course, Mr Davis’ “track record” in that regard but I would be surprised if a solicitor of his experience had found himself in that position on many occasions. Furthermore, at the time that the CFA was entered into, he could have anticipated that he would have the advice of Leading Counsel to rely upon in relation to consideration of any Part 36 offer. With the combined forces of his own experience and that of Leading Counsel, I would be very surprised if he would have anticipated the risk of a Part 36 offer being rejected and then not bettered at trial as being as high as 50% or anything like it. However, even if the risk is taken as 50%, if it is only 25% of the costs which are at risk, then the overall chance of success is 87.5% (100 – (50% x 25%)). Using the ready reckoner this would justify a percentage increase of 14.29%: on this basis, even a 20% success fee would be regarded as generous

42.  In any event, the Claimant, in my judgment, clearly fails to achieve a success fee of 21% or more so as to avoid the statutory reduction to 12.5%. Having discussed the risks and the proper approach of a reasonable cost judge and a reasonable solicitor with my Assessor, I conclude that a reasonable success fee might, at a pinch, have been assessed at 20% but certainly no higher and probably lower. In any event the success fee which I would substitute in this case for the 65% reached by the District Judge should be one of 20% which then reduces to 12.5% by reason of the provisions of CPR 45.19 . The same shall apply to CFA3.”

1. 1. It does not appear that Spencer J was addressed on the question as to whether the increase in success fee under the provisions of r45.9 should the matter have gone to trial would impact on the success fee payable in the circumstances that arose in that case. It was not, as I understand it, an issue that the judge needed to address in the circumstances set out above as he was not persuaded to depart from the success fee of 12.5% by more than 20% (as per the the default provisions of 45.19). It is however notable that the Judge, who is and was highly experienced in dealing with claims such as this, was concerned that in any event a success fee of 20% appeared generous; and he did not in the event need to consider whether it was too generous because of the manner in which the default provisions worked.

1. 1. In the event I am not persuaded that these two decisions do support the case that a claim for a 20% success is usual or reasonable in the context of two staged success fee where the second stage rises to 100%, particularly one that does so three months before trial.

1. 1. It seems to me to be clearly reasonable for the solicitors to enter into a two staged success fee. But if solicitors are going to do so on terms which provide that if the matter proceeds to trial their success fee will be 100% (even in a case where liability is not likely to be in issue) then that must be balanced by a lower success fee at an earlier stage. If 20% were reasonable for what was essentially a part 36 risk on single stage success fee, then the uplift for the first stage must be below this: if it were otherwise the solicitors would be substantially over-compensated for the risk that they are taken.

1. 1. Put another way, if the matter were to proceed to trial, or the matter settled within three months of trial, the solicitors would have been compensated by a success fee of 100% on their time costs up to the last day for acceptance of the Part 36 offer. It might then be asked, what further risk does the 20% uplift up to three months pre-trial cover? Presumably it is the possibility that a Part 36 offer is made which solicitors advise should not be accepted but in respect of which a decision is thereafter made to accept and, further, that the Claimant does not recover his costs from the Defendant from the date of expiry of the offer. Whilst this is no doubt a real risk it is difficult to see following C v W that it could justify the success fee claimed: this and other such possible eventualities would appear to be pretty rare occurrences.

1. 1. In this case no real risk was identified in respect of contributory negligence at the outset. However the CFA was entered into an early stage and it would not have been possible to predict with any degree of confidence the precise risks that might emerge in respect of quantum and causation – albeit it could be assumed there would be some significant issues. Hindsight has to be ignored in the determination of a success fee. I accept that it was reasonable to anticipate issues arising in respect of quantum of the sort that arose.

1. 1. To my mind, there was a clear risk that a Part 36 offer would be made which the solicitors might advise the Claimant to reject and the Claimant would not better at trial. As the chronology in this case indicates it cannot always be assumed that settlement negotiations will take place at a late stage; but even if discussion takes place at an early stage the amount of solicitor’s costs that will be incurred before any offer is made would be a substantial proportion of the eventual costs (as the claim for costs in this case illustrate). Moreover in line with observations of Spencer J I would assess the risk that experienced solicitors and counsel, in effect in combination, advise the Claimant to reject a Part 36 offer which the claimant then fails to beat as modest. As Spencer J observed it is difficult to see that the prospects of this occurring at trial as high as 50% or indeed anything like this level of risk (and yet it was this figure which the learned Judge took for illustration purposes in considering the overall risk in NJP).

1. 1. Under the former fixed two-staged success fee regime in RTA cases in rule 45.19 at it then was a success fee of 12.5% would be payable in an inter partes recovery if the claim settled pre-trial. This figure was reached, as I understand it, after extensive negotiation involving relevant affected parties under the auspices of the Civil Justice Council, the CJC. That, as starting point, seems to me to be a better benchmark for the reasonable success fee in respect of a two stage success fee rising to 100% as here. Provisionally then my view is that 20% is too high bearing in mind the risks which were identified and having regard to the fact that this was a two stage success fee with no substantial liability risk.

1. 1. However although not stated as a reason for the success fee uplift in this case, nevertheless, two further matters are customarily relied on as justifying a success fee claimed by a solicitor against a client: firstly, the delay in payment of the solicitors’ own fees and, secondly, the arrangements made for the payment of disbursements such as expert reports. As to the former point solicitors do not generally get paid until success has been achieved on a CFA. This may happen relatively quickly if liability is admitted and interim payments as to costs are made; but otherwise there may be considerable delay. As to the latter point, ATE insurance commonly provides insurance against a non-recovery of disbursements but solicitors dealing with claims such as this, I understand, will generally bear the initial costs. That said these matters are also compensated by the application of judgment rate interest to costs following on from any costs order at the end of the substantive claim, Simcoe v Jacuzzi UK Group plc v [2012] WLR (D) 35 (see generally [39] to [48])^[9] and the extent to which these points can affect the level of uplift is perhaps modest (it was commonly about 2% in many pre-LASPO CFA’s, as I recall).

1. 1. I understand that the litigation friend knew that the success fee was not recoverable from the Defendant. There is however no real basis however for thinking that litigation friend would have been able to consider the reasonableness of the success fee, and thus that any approval, by her entry into the CFA, was informed. Moreover if the CFA were to be regarded as a CBA it would in any event be for me to consider the reasonableness of the success fee in any event.

1. 1. In deciding what a reasonable success fee is, I think I should bear the additional funding matters (referred to in [82] above) in mind. I have not however been provided with any bespoke risk assessment (and I am not sure that there was anything about this case which took it out of the category of standard, high-value personal injury cases). Nor has the success fee in this case been justified on the basis of these funding matters and nor indeed have I currently been given any real basis for understanding why as much as 7.5% would be justified for such matters. In these circumstances I will provisionally allow 15 %.

1. As I understand the statutory cap would not reduce the success fee claimed. So the success fee I provisionally allow is the application of this percentage to the solicitors’ time costs I have allowed above.

THE ATE PREMIUMS

The premium was allowed in full.

1. 1. Although the decision in Herbert v HH Law [2019] EWCA Civ 527 (at [71]) is to the effect that this premium is not a disbursement, in my view the consideration by the Court of the reasonableness of the premium, being (as I understand it) an expense of the litigation friend, is mandated by CPR 21.12. Further, it seems to me to be clearly sensible that this is dealt with by the SCCO in an assessment rather than by application in another court.

1. The policy in this case provided insurance in respect of the non -recovery of disbursements and other side costs following a Part 36 offer. Notwithstanding QUOCS protection I am satisfied that the figure of £1,932.00 being the amount premium (inclusive of IPT), is not a premium that can be said to be unusual in amount and, to my mind, it was reasonably incurred.