COST BITES 239: HOW MUCH NEEDS TO BE EXPLAINED TO A CLIENT ENTERING INTO A CFA?

We will, for the next few posts in this series, be working our way through one case. We have already looked at the judge’s observations in relation to the claimants’ witness statements.  We now consider the issue of how much explanation needs to be given to a client being signed up to a conditional fee agreement.

“In my judgment, the combination of an oral explanation of the key terms in a simple fashion together with provision of a comprehensive written agreement was a perfectly appropriate method for informing the client of the component parts and signing them up in a businesslike manner … I take the view that the key term in respect of a successful claim is the one which explains the worst potential outcome to the client. This is the percentage cap on damages prescribed by the CFA Regulations 2013 and not the original percentage uplift on the base costs.”

KEY PRACTICE POINT

This part of the judgment is essential reading for any litigator who is involved in working on a conditional fee agreement of any type.  The nature of the explanation to be given is important.  (Litigators should note that the claimants did not shy away from complaining about the contents of documents that had been sent to them, but that they elected not to read). Keeping careful records of oral explanations is important).

THE CASE

David Richardson & Ors v Slater & Gordon UK Limited [2025] EWHC 1220 (SCCO) Senior Costs Judge Rowley.

THE FACTS

224 claimants brought proceedings against the defendant seeking the recovery of fees deducted from damages. Ten claimants had been selected as test cases. Only nine of those claimants in fact participated in the preliminary issues. Of those only four attended trial to give evidence.

THE ISSUE CONSIDERED HERE

There was a major difference between the parties as to the detail required in the oral explanation that needed to be given to clients when entering into a conditional fee agreement.

THE JUDGE’S CONSIDERATION OF HOW MUCH DETAIL NEEDS TO BE GIVEN

How much detail needed to be given?

48. During the so-called “costs wars” which took place in the first decade of this century, the information required to be given to the claimant by their solicitor was considered in great detail. In particular, the CFA Regulations 2000 proved fertile ground for challenge and numerous visits to the Court of Appeal as a result.

49. The difficulties experienced in explaining the workings of CFAs led some academics and practitioners to suggest that a contingency fee agreement of the sort understood to be used in the USA, rather than a CFA, was preferable owing to its simplicity. Simply telling the client that the solicitor would be taking a share of the damages was, at least in principle, an easier discussion to have. In fact, the version of contingency fee agreements eventually brought into civil litigation by the Damages Based Agreements Regulations 2013 had to deal with the reality of recoverable costs and that simplicity of explanation was eroded as a result.

50. At the same time as DBAs became possible, the recoverability of success fees in most cases ended and the CFA Regulations 2013 also introduced a restriction on the extent of the costs the solicitors could seek from their clients in personal injury litigation. As such, a 25% cap came into being. This had originally been suggested by the Law Society as good practice prior to success fees becoming recoverable but it does not appear to have been relevant during the period of recoverability.

51. This restriction clearly provided protection for consumers but, perhaps unwittingly, at the cost of increased complication. With one stroke, the solicitors had to explain to their clients a two stage process, both with percentages but not percentages of the same thing. Previously, the solicitors could simply describe the success fee as being a percentage of the base costs i.e. the hours that they had worked at the agreed hourly rates. They could explain why the percentage had been set and set out reasons for so doing in the agreement.

52. From 2013, the solicitors needed to describe this percentage of the base costs and the reasons for setting it before going on to describe a percentage of the damages which capped the previous percentage figure (or rather the absolute sum produced by that percentage). A further complication for the client would be that the damages figure was only comprised of certain kinds of damages and not simply everything that the client received following an agreement or a court award.

53. It is noticeable in the 2018 script exhibited to Jade Ryan’s witness statement that there is a description of the first percentage i.e. of the base costs being referred to as well as the second percentage regarding the cap on damages. The subsequent scripts reduced the explanation so that it centred squarely on the worst outcome for the client i.e. the maximum percentage of the damages to be paid to the solicitors. It no longer sought to describe the success fee as being based on the risk to the solicitors of bringing the claim on behalf of the client.

54. During the course of the evidence, it became apparent that there was a stark difference between the parties as to the information that needed to be provided to the clients by the solicitors. That difference was essentially a reflection of the change in the script that I have just set out. The claimant’s contentions, as described by Mr Mallalieu and the revised points of dispute, expected a detailed description of the workings of the CFA. Such description would not only set out how the success fee was to be calculated by reference to the risks in the case, but also a number of other aspects of the CFA such as whether the costs recoverable from the opponent were fixed and the impact that would have on the difference between the costs actually incurred and those that could be recovered from the opponent. The resulting shortfall being potentially a concern of the clients.

55. The defendant’s approach was to emphasise the central aspects of the CFA and to leave the remainder to the clients to read from the documentation provided. The description in the script of explaining the “key points” plainly implies that the oral description only covered the points the solicitors considered to be the most important. As can be seen from the passage from the script set out at paragraph 42 above, the key information regarding the CFA was (i) that if the case failed, the client would not be liable to pay any costs i.e. a no win, no fee agreement; (ii) if the client was successful then the maximum they would pay from their damages to the solicitors would be 25%; and (iii) if the agreement came to an end during the course of the claim then the client might be liable for the solicitors’ charges in certain circumstances.

56. A number of the preliminary issues concern the information provided to the client and whether or not the client could be expected to have seen and understood the terms of the agreement. In the circumstances, it seems to me to be necessary to conclude, as a preliminary matter, what was the key information that needed to be provided.

57. Leaving aside the question of whether some of the terms in the documents were internally inconsistent, as alleged by the claimants in preliminary point 4, the terms of the CFA and other documentation appear to be comprehensive in setting out the rights and obligations of the parties. The only omission explicitly criticised by Mr Mallalieu for being absent was a reference to Section 74(3) of the Solicitors Act 1974. That provision relates to proceedings in the County Court and says that a solicitor on the assessment of their bill of costs is limited to such sum as may have been allowed between the parties. Particularly, where the recoverable costs are fixed, it is likely to prove to be a lower sum than the solicitor might otherwise charge their client.

58. S74(3) goes on to say that this limitation may be circumvented by a rule of court. CPR 46.9(2) says that the solicitor and client can enter into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than the client could have recovered from another party in the proceedings. Absent such an agreement, section 74(3) will apply.

59. Mr Mallalieu is correct in saying that there is no reference to section 74(3) in the documentation concerning those claimants who brought proceedings. (It is not relevant if there have been no proceedings and I note that, in any event, reference to section 74(3) does occur in some of the later CFAs). Nevertheless, as Mr Marven submitted, there are numerous references to the client being liable to the solicitor for their costs and that some of those costs may be recovered from the opponent. For example, the first paragraph under the heading “paying us” in the CFA says:

“If you win your claim you are responsible for your legal costs. These include our basic charges and disbursements, some of which may be recovered from your opponent. They may also include an insurance premium you have agreed to pay and our success fee.”

60. It seems to me that the question of whether section 74(3) bites in this case is a good example of the difference between the parties concerning the key information to be brought to the claimants’ attention. The defendant refers to the general terms in the agreement to demonstrate that “a written agreement” between the parties applies and therefore CPR 46.9 is satisfied. The claimants, on the other hand, submit that nothing less than an explicit reference to the section of the Act would be sufficient to enable the client to provide informed consent of that provision.

61. The case law regarding the explanation of the terms of CFAs petered out after the CFA Regulations 2000 were revoked in 2005. Consequently, there has been little, if any, guidance on the depth of explanation required to be given to a client in more recent times. Mr Marven referred to the dicta of the Court of Appeal in Herbert v HH Law Limited [2019] EWCA Civ 527 which, at paragraph 48, described the paperwork there as providing “a clear and comprehensive account of [the client’s] exposure to the success fee and HH’s fees generally.” The only aspect on which HH Law Limited fell down was in deciding to seek a success fee of 100% in every case from their client without any regard to the risks of the individual case and without explaining that to the client.

62. In this case, the CFA documentation is in a standard format which has now been used for many years. Whilst all agreements tend to be different to some extent, I have no reason to think that the wording of the CFAs and associated documents in these cases is materially different from, for example, the CFA in Herbert (other than the risk assessment). The success fees here are supported by a risk assessment and, based on the test cases, there is no policy of claiming a single stage 100% success fee in every case. As a starting point therefore, the claimants appear to have been provided with a perfectly good description of how their agreement works in the manner generally approved by the Court of Appeal in Herbert.

63. As I have described above, the reality is that the claimants did not trouble to consider the documents they had received any further after the telephone explanation. This can be explained to some extent by their collective view that the agreements were in a standard form and therefore would have been the same if they had gone to another firm of solicitors.

64. But this does not assist the claimants in saying that they should have been provided with a more detailed oral description of the documents they were being requested to sign. First, the need for oral explanations to prevent unenforceability was reduced originally in 2003 and then revoked in 2005 in terms of the secondary legislation. Secondly, there is no reason given by the claimants as to why a long and detailed oral explanation of the documents was necessary in addition to the wording of the documents themselves.

65. As the discussion of “Shane” with Ms Gwilliams makes clear, the amount of time a potential client would be prepared to devote to an oral explanation of the documents is likely to be limited. The impression given by the other witnesses was of a similar wish to deal with matters expeditiously.

66. Ms Ryan said that she thought the explanation ought to take 15 minutes and Mr Mallalieu made the most of the discrepancy between that period and the time actually recorded for the calls. According to a table in the points of dispute, which I did not understand to be challenged, all of the explanations were under 10 minutes and some were under two minutes. In my view the more cogent evidence on the time the explanation should take is that of Shane who explained the pack to Ms Gwilliams and who said at the time that it would take no more than 10 minutes.

67. Mr Mallalieu submitted that the variation in the length of time that the calls took led to the inference that the explainers were likely to be missing chunks of the script out. As such, the defendant could not rely on the script as providing a satisfactory explanation (not that the claimants accept that even a full reading of the script would do that.) An alternative theory was aired during the hearing that the claimants simply pressed the signature button more quickly on some occasions than others – so that they had already signed whilst the explanation was being given. I do not think I can draw any of the suggested inferences. There was no evidence to suggest that any of the claimants had signed before being asked to do so. The one transcript (see below) showed the explainer sticking religiously to the script. There is no obvious reason why someone whose job is to follow the script would seek to do something else when they know that the calls are monitored.

68. In fact, the key question regarding the time needed to explain the documents, in my judgment, goes back to a consideration of the amount of detail to be provided on what are described as the key points. In my view, it is relatively simple to describe a CFA in the manner described by Shane in terms of what happens if the client wins, loses or otherwise terminates the retainer. A description which goes into more detail about the workings of a CFA runs into the danger of getting into the weeds of matters such as the indemnity principle and which would then involve the peril of potentially confusing the client rather than clarifying issues to them.

69. In my judgment, the combination of an oral explanation of the key terms in a simple fashion together with provision of a comprehensive written agreement was a perfectly appropriate method for informing the client of the component parts and signing them up in a businesslike manner. From the evidence given by the claimants in the witness box, in my view they understood the key information given in the oral explanation. Some, such as Ms Gwilliams and Mr Rabinovitch, were still clear on those terms when giving evidence and their concerns with the defendant’s charges involved other matters. Mr Moult, in my view, had forgotten about the charge for the ATE policy but accepted it had been clear in the documents and I consider it would have been equally clear to him at the time of signing. I have described my concerns with the difference in Ms Webber’s evidence on this point at paragraphs 30 to 32 above.

70. The one issue which has altered over the time of the use of CFAs (in personal injury cases) is the capping of the recoverable costs from the client so that there are two percentages to be explained to the client. Whilst I am not keen on the prospect of the success fee based on the risks of the case and calculated as against the base costs being downgraded as a key piece of information, I take the view that the key term in respect of a successful claim is the one which explains the worst potential outcome to the client. This is the percentage cap on damages prescribed by the CFA Regulations 2013 and not the original percentage uplift on the base costs.