COST BITES 35: SOLICITOR AND OWN CLIENT SUCCESS FEES CONSIDERED IN DETAIL: 20% REDUCED TO 15% BY COSTS JUDGE

November 21, 2022 · by · in Assessment of Costs, Costs, Personal Injury, Risks of litigation

The judgment of Costs Judge Brown in MNO v HKC & Anor [2022] EWHC 2919 (SCCO) considers the question of an appropriate success fee between solicitor and client in a personal injury case.  The judge did not accept the argument that the litigation friend’s acceptance of a 20% success fee was binding.  The court went on to consider the success fee and held that 15% was appropriate.

THE CASE

The judge was assessing the success fee payable by a successful claimant to his own solicitors.  The claimant had been seriously injured in a road traffic accident and damages had been agreed at £5.25 million with interim payments said to make the total value of over £9 million.

The judge had allowed the ATE insurance premium. The claim for additional costs, not recoverable from the defendant, was withdrawn.  The remaining item was the success fee.

THE BASIS OF THE ASSESSMENT

    1. This being a detailed assessment of costs liability as between solicitor and client pursuant to CPR 46.4 it is an assessment on the indemnity basis and any doubt is to be exercised in favour of the solicitors.
    1. I remind myself that in Simmons v Castle [2012] EWCA Civ 1288 ([15]) awards of General Damages were uplifted to compensate for the loss of the recoverability of the ATE premiums and success fees from a defendant, such loss exposing the claimant to a liability to pay for the same from his damages.
  1. Further, the amount sought by way of success fee is subject the statutory cap imposed under Section 58(4B)(c) of the Courts and Legal Services Act 1990 and Article 5(1)(a) of the Conditional Fee Agreements Order 2013; it is clear that the sum claimed by way of success fee does not exceed this cap.

THE JUDGMENT ON THIS ISSUE

The success fee claimed was 20%.  It was allowed at 15%.   There is an interesting consideration of the impact of the Belsner decision.

    1. Mr Mallalieu contended that the Litigation Friend had approved the success fee uplift by entering into the CFA, that this approval was informed and this in turn meant that the success fee uplift of 20% was presumed reasonable.
    1. It is clear that in an assessment under the CPR 46.4 I am required, at the very least, to have regard to the presumptions in CPR subrule 46.9 (which I have set out above). Subrule 21.12 (4) provides that, as regards a claim by a litigation friend for costs against a protected party, in deciding whether the costs or expenses were reasonably incurred and reasonable in amount, the court will have regard to all the circumstances of the case including the factors set out in rule 44.4(3) and 46.9.
    1. Mr. Mallalieu accepted that approval for these purposes had to be informed: see Macdougall v Boote Edgar Esterkin (a Firm) [2001] 1 Costs L.R. and Herbert v HH Law Ltd [2019] EWCA Civ 527 [37] and [38]). In McDougall Holland J, in the context of an argument about hourly rates and the presumptions (in the RSC), said:
“To rely on the Applicants’ approval the solicitor must satisfy me that it was secured following a full and fair exposition of the factors relevant to it so that the Applicants, lay persons as they are, can reasonably be bound by it. ” (my underlining0
    1. In Herbert Sir Terence Etherton MR said :
“Counsel were agreed before us that the Judge was correct to hold that “approval” in CPR 46.9(3)(a) and (b) means informed approval in the sense that the approval was given following a full and fair explanation to the client (although there was dispute between them as to the reasoning and significance of the Macdougall case cited by the Judge). We agree.”
    1. .Mr. Mallalieu suggested that there was an unusual feature in Macdougall which led the court in that case to conclude that the hourly rates in that case were not approved, that feature being that the hourly rates increases which were applied retrospectively. I do not think that provides any basis for saying that the approach set out in Macdougall in determining whether any approval in CPR 46.9 (3) could be said informed was wrong or could be distinguished.
    1. Further, the decision in Belsner v Cam Legal Services [2022] EWCA Civ 1387 (in which the Court of Appeal were primarily concerned with CPR 46.9 (2)) confirms, that informed consent was required under 46.9 (3). The Master of the Rolls, Vos LJ said:
The Court of Appeal approved a concession by counsel in Herbert v. HH Law Limited [2019] EWCA Civ 527 (Herbert) that the term “approval” in Part 46.9(3) meant approval following a full and fair explanation to the client: i.e. informed consent.
    1. The Court not go on to say the approach in Herbert was wrong. Neither in Herbert nor in Belsner did the Court of Appeal disapprove of the formulation of Holland J.
    1. I might add, albeit it does not alter my primary conclusion, that it appears that me that there is an inter relationship between the fullness and fairness of the explanation require and the issue as to whether it was reasonable for the client to be bound by it. On one reading Holland J made it clear that the explanation required has to be sufficiently full and fair that it was reasonable for the client to be bound by it. In any event it seems to me that for the court to be satisfied that approval was informed, in the ordinary case that would necessitate a full and fair explanation of factors relevant the amount of the success fee. If the client is taken to have approved it in the amount claimed the factors which go to explain how it is reached would need to be set out for the client be reasonably bound by it.
    1. I might add that at hearing, which took place before the decision of the Court of Appeal in Belsner, I raised the issue as to whether the reason why consent needed to be informed was because the solicitors were considered when negotiating their retainers to be in a position that they could exercise undue influence. In Clare v Joseph [1907] 2 KB 369 Fletcher–Moulton LJ explained at p376 that this was the concern to which the precursors[3] of the current provisions dealing with contentious business agreement (found in Part III of the Solicitors Act 1974, ss 56-66) were directed[4] [5]. In any event it was anticipated that the Court of Appeal might address the issue of informed consent when hearing the appeal in the Beslner, and Mr. Mallalieu reserved his position on the particular point. He did not however seek an adjournment of the case pending the decision. In the event however I permitted Mr Mallalieu an opportunity to put in further submissions on behalf of IM if they so wished do so once the decision became available.
    1. Mr. Mallalieu did make further submissions. He said that the decision in Belsner disposes of the argument that solicitors owe clients a fiduciary duty when negotiating the terms of their retainer; that is because when solicitors and a client are negotiating the terms of the solicitor’s retainer, the client does not have any reasonable expectation that the solicitors will not be acting in the negotiation in their own interests [74]. It is also said that the decision in Belsner judgment disposes of any related argument that the solicitors may be acting in a position of undue influence when negotiating the terms of their retainer. He says that the first stage of the ‘presumed undue influence test’ set out in following passage in Royal Bank of Scotland v Etridge [2002] 2 AC 773 is not made out:
104.  Presumed undue influence is different in that it necessarily involves some legally recognised relationship between the two parties. As a result of that relationship one party is treated as owing a special duty to deal fairly with the other. It is not necessary for present purposes to define the limits of the relationships which give rise to this duty. Typically they are fiduciary or closely analogous relationships. ….
    1. The effect, Mr. Mallalieu says, of the decision in Belsner is that it strips away a possible layer of legal argument concerning whether the Litigation Friend’s agreement to matter such as the success fee is, in some way, ‘invalid’ (by virtue of any presumption of undue influence).
    1. Whilst I had raised the issue, and thus I understand why further submissions have been made, it does not matter why for these purposes consent has to be informed. There is no dispute, as I see it, that it is for the court to determine what is reasonable for the protected party to pay having regard of the presumptions that apply in CPR 46.9 (3), and as I have already noted the Court of Appeal have not removed the need for informed consent. Whilst it may be the case the reason for the presumptions applying (and that this is not a simply claim on a contract) lies not in any presumed undue influence, as now defined, but in more general concerns, it is nevertheless clear that I am required to determine the reasonableness of the costs claimed; it is also clear that the approval or agreement to the success fee is relevant only insofar as it is informed and even then it only gives rise to a presumption. Indeed as Mr. Mallalieu acknowledges solicitors do in any event have obligations to provide clients with costs information and to treat clients fairly (see Belsner, inter alia [80]).
    1. Turning back to this case then I should say that it seems to me that the reason for setting a success fee at a certain level will be beyond the normal understanding of a lay person. Mr. Mallalieu did not submit otherwise but relied in particular upon a number of documents to show that approval was on an informed basis including the CFA and other documents such as attendance notes and letters written to the Litigation Friend. It is clear that the Litigation Friend was well aware that a success fee was payable, that the fee was not recoverable from Defendants (so that it would be paid out of damages) and that it was subject to the statutory cap. It would have been clear that the amount of the success fee was based on risk and calculable as a percentage of the solicitor’s profit costs. And although the risk assessment did not expressly refer to the Part 36 risk I think for these purposes it can be assumed that from a reading of the CFA the Litigation Friend would have been aware that there was some risk.
    1. .Mr. Mallalieu also relied upon passages from Herbert v HH Law Ltd [2019] EWCA Civ 527 in particular,
“It is important to bear in mind that the complaint of Ms Herbert on this issue is not that she should have been sent a more detailed invoice or further invoices but that she did not give her informed consent to the charging of the success fee and its amount. There is no merit in that complaint (subject to the risk point addressed below) because all the information relating to its imposition and calculation and to her exposure to HH’s fees generally, in the circumstances which occurred, was clearly set out in the documentation with which she was provided before agreeing HH’s retainer. The retainer letter said that any contribution by her towards HH’s costs under the CFA would be limited to 25% or less of her recovered damages. It told her who, within HH, would have the initial responsibility for dealing with her claim and the person having overall supervision for the claim. The CFA said that, if she won the claim, she would pay HH’s basic charges, their disbursements, the success fee and the ATE premium. It said that HH would use their best endeavours to recover maximum costs from the defendant and their insurers. It set out the way the success fee would be calculated, and specified that there would be a cap of 25% of the elements of damages described. The “What you Need to Know” document also stated that, if HH won her claim, she would be liable to pay HH’s basic charges, their disbursements, the ATE insurance premium and a success fee, and that her contribution towards her costs liability would be limited to up to 25% of the damages she obtained. That document also set out how the basic charges were calculated, and the hourly rate to be charged, and the imposition of VAT. Subject to the point on litigation risk and the success fee, the totality of that information provided a clear and comprehensive account of her exposure to the success fee and HH’s fees generally.
Mr. Mallalieu’s point was that that aside from the litigation risk all other matters were adequately explained in that case which supported his case that an adequate explanation was given in this case.
    1. It seems to me clearly to be the case that the Litigation Friend gave informed consent to the payment of a success fee out of damages. I am not however satisfied that the other documents including and attendance notes to which he has referred me established informed consent as to the amount of the success fee.
    1. Whether consent is informed consider is necessarily a fact specific issue. The adequacy of the explanations provided in Herbert should perhaps be seen in the context arguments which were advanced to the court (set out at [46] of the decision); moreover the Court was concerned in that case that there was no adequate explanation of the litigation risk (in circumstances where the success fee was set on generic basis as “standard” [53] and, perhaps, a firm specific risk). If litigation risks are to justify the success fee, as here, there would for the presumption to arise there would need to be some explanation as to how the Part 36 risk translated into a 20% success fee. The litigation friend can, I think, be assumed to be aware that a Part 36 risk would justify some success fee but I am not satisfied that there was any explanation as to how the percentage of 20% was reached. This is, perhaps, particularly significant in circumstances where a 100% success fee was to be payable if the matter were to settle within three months of a trial window or was resolved at trial. In the absence of explanation on these matters, I do not think that in totality the explanation can regarded as full or fair and thus, in my view, sufficient for the presumption of reasonableness to arise; nor do I think it is reasonable for the client to be bound by the terms of the CFA.
    1. The solicitors can be presumed to be aware of the guidance in C v W, that that case involved a single staged success fee and, further, generally that in road traffic accident cases on an inter partes basis no more than 12.5% was allowed for a first stage success fee where the second stage is 100% (in accordance with the industry wide agreement and them provision to which I have referred). They would have known that this weighed heavily against a 20% success fee for the first stage success fee where a 100% would be claimed for second stage. They could also be presumed to be aware of the decision in Fortune v Roe [2012] 2 Costs LR 288 which also strongly suggests that the staging of the success fee was unreasonably favourable to the solicitors (as I think Mr. Mallalieu, at one point, seemed to suggest- see below). IM did not, as I understand it (and in the absence of any attendance note clearly demonstrating this), explain these matters. I think the necessary inference is that the Litigation Friend simply thought that 20% was in some way a standard success fee for low risk cases and that she simply trusted the solicitors to claim against the damages what was reasonable.
    1. I am bound to add that it seems to me doubtful, as Mr. Mallalieu appeared to argue, that informed consent may be obtained whatever the quality of the advice and even if, as I understood him, the explanation was wrong or the risks overstated. It seems to me that there must be some proper explanation as to why the figure of 20% was reasonable if there is to be a presumption of reasonableness, and particularly if the approval or agreement is to be binding. On the case Mr. Mallalieu advanced it was difficult to see why the solicitors could not claim a higher success fee of, say, 50% or indeed 75% as a first stage success fee and the Litigation Friend would not be taken to have given informed consent. This is despite the fact on any measure a success fee at such a level would plainly be unreasonable and over compensate the solicitors.
    1. It is, I think, true that very few people will be aware of the factors that are relevant in assessing success fees in cases such as these (even, I might add, lawyers specialising in personal injury); and any explanation might need to refer to some of the guidance to which I have referred and might relatively complex. But that of itself does not mean that such an explanation would not be required. Moreover, and perhaps most importantly, it is to be borne in in mind that not only would informed consent merely create a presumption of reasonableness, the failure to obtain informed consent does not mean that the uplift was not reasonable and cannot in principle be recovered; and thus the absence of any proper explanation does not mean it is not recoverable as against the client. It just means the presumption does not apply.
    1. I would add that it seems to me in the context of considering a two stage success fee it might well be said that the terms of the CJC implemented agreement (by which a first stage of 12.5% uplift leads to 100% at trial) was more likely to be regarded as usual, and that a success fee of 20% for the first stage was unusual such that there was a presumption of unreasonableness in this case. That was, I think, how the matter was approached by District Judge Bellamy in HH v Herbert; an approach which, if not expressly endorsed, did not appear to be the subject of criticism in the appeal. It is, perhaps, to be noted that the 12.5 % which would have been applied on the judge’s approach was uplifted to 15% on account of the disbursements funding which the solicitors provided (but which is not relied on as justification for the amount of the success fee here). Similarly, if on the guidance in C v W a success fee of over 20% was unreasonable as a single stage success fee(where part 36 is the only substantial risk) it might be said that it would follow that a success fee set at this level was unusual as the first of two stages and where the second stage was 100%. It is however not necessary for me to take either approach and apply such a presumption in this case, albeit that if it were necessary to do so, I see no particular difficulty with either of them.
    1. It perhaps goes without saying that if, contrary to my findings above, the explanation provided here were a sufficient basis for a presumption of reasonableness to arise, I would not however be persuaded, in the circumstances set out above and for the reasons set out above, that the explanation provided was adequate to make it reasonable for the Litigation Friend to be bound by her approval or that I was therefore required to find that the success fee of 20% was, in the circumstances, reasonable. The Litigation Friend is essentially a volunteer who is not, as I understand it, expected to have the expertise of a lawyer or indeed to obtain legal advice when entering into a retainer (albeit if the explanation provided in this case were sufficient, then perhaps he or she should in order to protect the interests of the protected party).
Relevance of the staging
    1. Mr. Mallalieu argued that it was irrelevant that the success fee was two-staged. His case was that if I ignored the fact that the success fee was two staged and asked myself simply whether a 20% success fee was reasonable, applying C v W, I should conclude that the 20% success fee was reasonable. All I was being was to do, he said, was to determine what was the reasonableness of the figure claimed by his solicitors. To approach the assessment any other way would be to expose his client to a form of ‘double jeopardy’: that is because, as I understood the effect of this argument, the staging of the success fee was otherwise liable to be considered as unreasonable (in that it might be said to over-compensate his client).
    1. Mr Mallalieu illustrated his argument by reference to the step to the second stage success fee of 100%, being three months prior to trial or the start of the trial window. This, he suggested, was liable to be found to be unreasonable following the decision in Fortune v Roe [2012] Costs LR 288. In that case Sir Robert Nelson sitting as a High Court Judge rejected an appeal from the order of a costs judge that the success fee claimed under a conditional fee agreement should be 20% rather than the 100% claimed by the claimant’s solicitors in a case which settled within three months of the trial (some 18 days). The CFA in that case was signed and entered into after liability was admitted (and indeed judgment had been entered in the claimant’s favour for damages to be assessed); it provided that the success fee would be 100% of the basic charges if the claim was won at any later time than three months before the date fixed for trial. The learned judge commented to the effect that in cases such as that where they were of a very serious nature, there would be a need for a substantial amount of evidence before it can reasonably be expected that any Part 36 offer would be made and this necessarily meant it would be late in the proceedings (he says “close to trial” at [51]).
    1. It does not however follow in my mind that the second stage of a two stage success fee is irrelevant. When I suggested to Mr. Mallalieu that even accepting that the date on which the success fee became payable at 100% might be regarded as unreasonable it did not follow that having a higher second stage for trial or assessment would be regarded as unreasonable. It was not, as I recall, submitted that a 100% uplift at trial, could be regarded as unreasonable nor did Mr. Mallalieu seek to encourage me in the belief that a 100% uplift at trial was unreasonable.
    1. In fact, as I suggested in the exchange with Mr. Mallalieu at the hearing, it might be said that there was indeed a case for saying that an uplifted success of 100% at trial in a case where realistically the claimant was expected to recover very substantial damages for serious injuries was unreasonable. Such a second stage uplift might substantially overcompensate solicitors. That is because even if it were correct that the prospects of failure of a Part 36 offer (which solicitors had advised a client to reject) were not insignificant, the only sums at risk are the costs incurred after the period for acceptance has expired.
    1. Nevertheless I do not accept that even if 100% were too high for a second staged success, a two staged success with some significant uplift at trial to compensate the solicitors for the risk that they were then taking was unreasonable. As is well known the setting of two staged success fees was encouraged by the Court of Appeal in Callery v Gray & Others [2001] EWCA Civ 1117, see [106- 112].
    1. Further, and in any event, as was explained in U v Liverpool City Council [2005] EWCA Civ 475[6], if solicitors have the benefit of increased uplift at trial it follows that the percentage deduction for the earlier stage must be adjusted downwards to reflect that fact. The staging of one stage of a two staged success fees is to be taken into account in decided the reasonableness of the other stage of the success fee. Even accepting Mr. Mallalieu’s broad point that solicitors should not be vulnerable to a double jeopardy, it is difficult to see how it can be said that a solicitor is acting unreasonably in entered into a CFA with two stages providing overall the staging of success fees are not unreasonable. It seems to me that it follows that in this case in deciding what is reasonable as a first stage success fee it is relevant to note that there is substantially increased success fee at the second stage. Thus, if solicitors, as here, enter into a CFA on terms which provide that if the matter proceeds to trial their success fee will be 100% or indeed any increased uplift reflecting the risk at trial (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 than would be payable if it were a single stage success fee.
    1. In short I do not think that the solicitors can have it both ways. If 20% were reasonable for what was essentially a Part 36 risk on a single stage success fee, then the uplift for the first stage must be substantially below this: if it were otherwise the solicitors are liable to be substantially over-compensated for the risk. Accordingly, I also reject this argument.
Within a reasonable range of what is reasonable
    1. Mr Mallalieu’s further and more general point was that the success fee claimed fell within a reasonable range such that it could not to be said be unreasonable.
    1. I am not satisfied that there were unusual risks in this case outside those cases broadly covered by the guidance in C v W and NJL, or, at least that any such risk was apparent to the solicitor at the time when the CFA was entered into. This was expected to be a high value claim and with that greater complexity may be expected. I accept that this will affect the level the risk (see in particular C v W [20] where the risk factor was taken to be at about 3%) but it does not appear that this factor justifies a different approach to the risks identified and analysed in NJL by Spencer J where he was also considering the Part 36 risks in the context of a high value claim.
    1. I accept that 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. It would have been clear that there was likely to be an issue about the claim for loss of earnings and an issue as to how the losses would be projected forward- noting in particular the Claimant’s age and that he was not established in any career. An issue about accommodation costs could be anticipated; as to whether, perhaps, the Claimant would require in residential care as indeed occurred. It could also reasonably be anticipated that there would be issues about life expectancy (albeit to some extent this mitigated by availability a periodical payments order). I understand that in the event there were issues about epilepsy risks and whether they were, as I understood it to be put by Mr. Mallalieu, time limited (albeit the impact on quantum on this issue was not developed in any great detail). There would also generally be expected to be issues arising as the extent of the care the Claimant required as occurred in this case. But none of these potential issues (as they would be seen at the date of entry into the CFA) would make the case, to my mind, unusual when considering the risks in the context of the guidance given.
    1. As I have noted the Claimant had previously instructed other solicitors and some evidence had been obtained by them. As Mr. Mallalieu put it this had the potential to truncate the period in which his solicitors were acting risk-free (ie before any realistic offers could be made). I accept that this might in some cases impact the success fee. However I am not satisfied that much of any substance had been done to progress the claim that would diminish substantially the extent of IM’s costs at risk (the claim had not been issued). The matter was not addressed in detail. However when looking figures have been advanced by the previous solicitors costs and setting those against the IM’s but also considering the work IM needed to do, the point seems to me at best marginal. There was criticism was, I think, made that little substantial progressive work had been done so by previous solicitors such that the earlier instruction would have had, at most, a marginal effect in decreasing the proportion of work that might be said have been anticipated before realistic settlement negotiation could be anticipated.
    1. It was not, I think, suggested that Spencer J in NJL was wrong in his broad assessment of when a claim such as this claim was as a whole likely to be settled (or indeed the other guidance to which I have referred). By the time a Joint Settlement Meeting takes place in general substantial schedules and counter schedules, sometimes in without prejudice form, have been prepared. In any event, as in NJL, the Claimant’s injuries were very serious; he was a protected party and overall settlement is likely only to be possible once a very substantial amount of work had been done by solicitors (with, in general, reports having been obtained by non-medical experts including care experts) and most probably a significant proportion of the work the solicitors might be expected to do (in contrast perhaps to counsel). I accept that it cannot be assumed that settlement negotiations will necessarily always take place at a late stage in the case; but even if discussion takes place at an early stage the amount of the solicitor’s costs that will be incurred before any offer is made would be a large proportion of the eventual costs.
    1. It was open to the Defendants to make Part 36 offers at an earlier stage than the final offers that were made in this case (the case settled, as I say above, as I understand it just over three months before trial). Mr. Malallieu rightly pointed me to the risks that the defendant insurers may make offers in respect of a discrete element of the claim at an early stage; which is apparently what happened here in respect to accommodation claim (by, as I understand it, a lump sum offer). He readily acknowledged that what actually happened in this case is not in itself directly material given the requirement that I should approach the issue without hindsight but it was indicative of what might happen. However I did not understand it to be said that there was no general expectation that cases such as this tend to be settled at a later stage when the evidence is at an advanced stage.
    1. I remind myself of what was said by Spencer J in NJL at [34] :
 The second risk factor which a solicitor needs to take into account is the risk of the fees incurred after the Part 36 offer is made not being recovered because the Part 36 offer is rejected and then, at trial, the Claimant recovering less than the Part 36 offer and being ordered to pay the costs from 21 days after the making of the Part 36 offer (or at least failing to recover those costs). In this regard, the risk may be increased by any complexities or uncertainties which increase the chance of the solicitor “getting it wrong” and advising his client to reject a Part 36 offer which ought in retrospect to have been accepted. The experience of the solicitor will be relevant as will his/her knowledge and expertise in the particular field, together with his/her knowledge of the opponent. I would expect an experienced solicitor to be able to gauge whether a Part 36 offer puts his client seriously at risk, understanding that there may be quite a wide risk area within which a Part 36 offer may fall, and therefore give himself quite a wide margin for error. The experienced solicitor will, in most cases, back himself to get it right.
    1. As I have recorded above the learned judge went on to say that he would be surprised if the solicitor with conduct of that case would have had found himself in a position where the clamant has rejected advice on an offer and then fails to beat that offer at trial on many occasions. He anticipated that the solicitors would have the advice of Leading Counsel to rely upon in relation to consideration of any Part 36 offer. He says in terms that he would be very surprised if the solicitor 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” (my emphasis). It is perhaps also to be borne in mind that when costs budgeting there will normally be allowance for substantial involvement of counsel (often leading counsel) in the preparation of expert evidence (in addition to solicitor’s input) and in evaluating the risks in the claim prior to a JSM. In any event the analysis of the judge in NJL indicating a single stage success fee uplift at 14.29%, was based on the assumption that 50% was a reasonable assessment of the risk. He went on to say that even on this basis, a 20% success fee would be regarded as generous.
    1. It does not appear (as I suggested BCX) that Spencer J was addressed on the question as to whether the increase in the success fee under the provisions of then r45.9 (should the matter have gone to trial) to 100% (ie the second stage) would impact on reasonableness of the success fee payable in the circumstances that arose in that case ie settlement before trial. 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 an amount that was sufficient to make any difference (as per the default provisions of 45.19). It is however notable that the judge, who is highly experienced in dealing with claims such as this, was plainly concerned that in any event a success fee of 20% appeared generous; he did not in the event need to consider whether it was too generous because of the manner in which the default provisions worked. However it does seem to me, for reasons which I have set out above, that the prospect that the success fee would increase at trial is a matter I should take into account.
    1. I accept, of course, that there is a danger in being too precise about this and there must be a reasonable leeway and or margin of appreciation allowing for a number of different eventualities, even the possibility of early settlement and early offers. I am conscious too of Mr. Mallalieu’s point about the truncated time period, and that it may be that other such points could be made. But to my mind set against the CJC agreement (which covered a basket of cases including, importantly cases where liability was in dispute) and the analysis of Spencer J, it seems to me that a success fee 15% for the first stage of two stage success in a high value claim where the only substantial risk is a Part 36 risk could reasonably be said to be generous to the solicitor. In any event to my mind it makes suitable allowance for sorts of variations and risks that Mr. Mallalieu described.
    1. Standing back and looking at this another way, if the matter were to proceed to trial the solicitors would be compensated by a success fee of 100% (or at least one that compensated for them the risks inherent in matter going to full trial on the basis of a Part 36). It might then be asked, what further risk does a 20% uplift up to three months pre-trial cover? Presumably it is the possibility that a Part 36 offer is made which solicitors initially 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 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 rare occurrences. Again looking at the matter this way 15% success for their first stage appears reasonable if not ungenerous.
    1. Mr. Mallalieu, I should say, also sought to rely on the following passage in para. 42 of the judgment in NJL,:
“[h] aving 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. In the result the judge substituted a success fee of 65% with one of 20%. But it did not matter whether the judge was accessing the reasonable success fee at 10%, 14.29% or 20% because of the application of the default provisions. These provisions meant that so long as the reasonable success fee was not greater than 20% the success fee payable was 12.5%. The judge went out of his way to make clear that he had reservations about whether it could be said 20% was reasonable; but it did not matter for the purposes of determining the appeal. It seems to me that I cannot disregard his reasoning and his analysis of the risks which seem to me integral to his decision to allow the appeal in that case. I do not think anything has changed since the decision in NJL by way of practice to make cases of this sort more risky. Indeed I would, if anything, suppose that the introduction of costs budgeting may mean more cases settle.
    1. Nor am I persuaded that I should, over the analysis of Spencer J, take the decision of Sir Robert Nelson as indicating that a higher success fee than is indicated by NJL would be reasonable. In Fortune Sir Robert Nelson held that an uplift of 20 % was a reasonable success fee “whether single or second-stage” [53] (my underlining). That case settled within three months of trial so as this passage suggests it could be said that this was considered reasonable as the second of a multi-staged success fee (alternatively a single stage success fee). Moreover, there was no cross appeal in that case from the decision of Costs Judge and it was not argued that the uplift was too high and it did not therefore matter that a lower success fee might have been reasonable. To my mind this does not assist Mr. Mallalieu particularly when set against the decision of HH Judge Behrens sitting as a High Court Judge in Thornley v Ministry of Defence [2011] 3 Costs LR 335 in which he allowed 15% on broadly similar facts as these, taking 12.5% as his starting point.
    1. There was a further matter which I should add, as it seemed to provide some additional support for my decision (albeit is not integral to my reasons). The ATE insurance in this case (as it typically does) included cover against the adverse costs including those in respect of a Part 36 risk and provided a fund to cover the non recovery of the Claimant’s own disbursements (generally not counsel’s fees). It may well be correct that it was not a bespoke policy but block rated by reference to a broad category of the cases. Mr. Mallalieu did not know and suggested, in effect, nothing could be inferred from the ATE arrangements in this case given that we know little of the categories of cases that may be covered. It is however perhaps notable that the policy provides an indemnity of £100,000 and yet the premium was some £1,123.26 (including IPT). It seems to me that the costs of disbursements at trial and indeed the Defendants’ counsels’ fees at trial, which might be payable under an adverse costs order, might have been expected to be substantial. And yet the level of the premium would appears to suggest that insurer’ experience of having to meet claims against the policy was slight. confirming perhaps the view expressed by Spencer J as to the likelihood that a Part 36 offer would not be beaten in circumstances where solicitors had advised its rejection.
  1. In any event in all the circumstances, I am not persuaded that the approach that I took in BCX on similar facts is wrong. In my judgment 20% is too high and I am not persuaded I should allow a success fee of greater than 15% on the facts of this case.