COST BITES 229: THE CORRECT WAY OF CALCULATING A SUCCESS FEE IN A PERSONAL INJURY CASE: THE SOLICITOR DOES NOT HAVE AN AUTOMATIC ENTITLEMENT TO 25% OF THE DAMAGES

The calculation of a “success fee” in a personal injury action is a subject that has been the subject of several cases over the years.  The issues were considered by District Judge Lumb in SJ (a minor suing by his mother and Litigation Friend AJ) v DGJ Tanner t/a Sopley Farm [2025] EWCC 17. Although, as it turned out the claimant’s solicitors were relatively unscathed the case provides a lesson for the way in which clients must be advised in relation to success fees and how such fees are calculated.

“The concern is that how did the solicitors know at the time of instruction that the success fee would be 25% of SJ’s damages? The correct measure of any success fee would be the appropriate percentage of the profit costs capped at 25% of the damages. At that stage, Vishaal Anand could not have known whether or not the 25% cap would be reached. To express the success fee as automatically 25% of the damages would be an unlawful contingency fee.”

KEY PRACTICE POINT

Make sure that your retainers, covering letters and oral explanations are valid and cannot  be viewed as unlawful contingency fee agreements. A claimant’s solicitor is not entitled to 25% of the relevant damages. Rather the entitlement is to a success fee capped at 25% of  those elements of damages from which a success fee can .  This is a crucial distinction.

THE CASE

The minor claimant was injured and his claim was settled for £3,600.20. The matter required the approval of the court.

THE PROPOSED REDUCTION

The claimant’s solicitors sought a deduction of £900.05 as the success fee.

THE SUCCESS FEE

The judge accepted that there were some risks in the case which justified a success fee of 20% as opposed to 100% stated in the CFA.

THE JUDGE’S CONCERNS ABOUT THE SUCCESS FEE AND THE RETAINER

7. Within the infant approval hearing bundle was a witness statement from the Litigation Friend dated the 1 November 2024 prepared for her by her solicitors. The statement confirmed that SJ had recovered from his injury but had been left with a small scar on the inside of his top lip. The statement then went on to deal with the question of costs and expenses and the deduction of the success fee and ATE premium as expenses incurred by her as litigation friend.

8. Of some concern to the Court was the contents of paragraph 14 of that statement “I confirmed verbally over the phone with their representative, Vishaal Anand, that I was aware that on conclusion of the case, Express Solicitors would deduct 25% and the cost of the After The Event legal expenses insurance policy premium from SJ’s awarded damages.”

9. The concern is that how did the solicitors know at the time of instruction that the success fee would be 25% of SJ’s damages? The correct measure of any success fee would be the appropriate percentage of the profit costs capped at 25% of the damages. At that stage, Vishaal Anand could not have known whether or not the 25% cap would be reached. To express the success fee as automatically 25% of the damages would be an unlawful contingency fee.

THE JUDGE’S CONCERNS OVER THE LEVEL OF COSTS INCURRED

10. Of further concern was the amount of the solicitor and own client costs incurred said to be £29,641.80 contained within a statement of costs signed by the partner solicitor with conduct of the case, Jennifer Lutton. This included in all the equivalent of 89.6 hours work purportedly done by 14 different fee earners all at hourly rates which were very significantly higher than the SCCO guideline hourly rates for Manchester.

11. The level of work said to have been done was all the more striking given that the profit costs recoverable from the Defendant would be limited to the fixed recoverable costs of £1,860. As the CFA would limit the amount of costs to be paid by the Litigation Friend to 25% of the damages (£900.05) and the ATE premium of £336 it would appear that the solicitors were prepared to undertake tens of thousands of pounds worth of work for which they were not going to be paid. Any objective observer would consider that to be a very odd way for solicitors to conduct business. It automatically raises a suspicion that the costs purported to have been incurred were artificially inflated to ensure that the 25% cap was always reached. That suspicion is fortified by the representation made by Vishaal Anand at the time of taking the initial instructions from the client that 25% of the damages would be deducted. The justification, if it is one at all, may be that under the terms of the CFA if the client ceased to instruct the solicitors before the conclusion of the case, then she would have been liable for the basic costs incurred to date. Given the huge level of costs said to have been incurred this would have operated as a powerful incentive to the client to see the case through to the end with Express Solicitors and effectively trapped her into doing so. In that event, that process might have attracted the attention of the Solicitors Regulatory Authority and any solicitor operating such terms of business may be wise to exercise caution in doing so.

THE ASSESSMENT OF THE SOLICITOR’S COSTS

12. As the Court has to be satisfied that the solicitor and own client costs have been reasonably incurred and are reasonable in amount as the first stage in calculating the appropriate success fee deduction, and the contents of the witness statement of the Litigation Friend drafted by the solicitors seemingly indicating that this was potentially an unlawful contingency fee arrangement, I directed a detailed assessment to be carried out by me on the papers and required the solicitors to lodge their full file of papers with the Court.

13. The full file of papers was duly lodged as directed and I have read these. The file reveals a considerable amount of duplication of work both by individual and other fee earners. There is also a considerable amount of non-progressive work undertaken that could properly be characterised as “costs padding”. That said, even on a broadbrush approach I am satisfied that the amount of work reasonably incurred and reasonable in amount would inevitably have exceeded £5000 of profit costs. It is not therefore necessary, in this particular case, to complete a full detailed assessment and certify what would have been the appropriate base costs figure on the indemnity basis. Whatever that figure may have been 20% of it would be in excess of the 25% cap. The full £900.05 success fee is therefore deductible.

THE INSURANCE PREMIUM

14. Insofar as the ATE premium is concerned, I am satisfied that this is also deductible. It was a reasonable expense to incur £336 to insure against the risk of having to pay out disbursements of £1620.