This High Court judgment from 16th October 2016 has wide reacting implications for solicitors acting for victims of straightforward road traffic accidents.
Since 2013 Solicitors have no longer been able to claim success fees from the other side. These fees and other non-recoverable items have been charged on a solicitor/client basis and have been deducted from compensation in successful cases. In cases brought under the Pre Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents, the fixed recoverable fees are limited. Most firms have stayed in business by charging their clients on the basis of their hourly rate and calculating the success fee by reference to those charges.
The problem is where they fail to address s74 (3) Solicitors Act 1974 which says –
“The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.”
In other words, your costs are limited to what you recover. The paragraph refers to ‘proceedings in the county court.’ It seems to have been conceded that it applied here ven though there were no proceedings as such. This could well be litigated in the future.
This is subject to an exception in CPR 46.9 (2)
“Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.”
This has led to most firms including a suitable paragraph in their retainers such as –
“This agreement expressly permits us to charge an amount of costs greater than that which you will recover or could have recovered from the other party(ies) to the proceedings and expressly permits payment of such sum. This part of the agreement is made under s74(3) of the Solicitors Act 1974 and Civil Procedure Rules 46.9(2) and (3). Insofar as any costs or disbursements are of an unusual nature or amount these costs might not be recovered from the other party(ies)”
This is the paragraph that was the battleground in Belsner. The case itself was a simple RTA claim that settled for £1916.98. The Solicitors had provided a costs estimate of £2500. They charged a success fee of £385.50, although the CFA itself would have entitled them to wipe out the damages. The absence of any cap on deductions was probably significant.
The clients contested the deduction of a success fee and argued that any agreement required informed consent. They argued that consent was only ‘informed’ if the client knew exactly what was recoverable from the other side. The High Court agreed. In particular, Lavender J referred to the following sentence suggested by P J Kirby QC for the client –
“For example, if your claim settles at Stage 2 for less than £10,000, then the amount which your opponent will be liable to pay in respect of our basic costs might be £500 plus VAT.”
So this sentence, as a minimum should be included in retainer letters. It is worth thinking about annexing the schedule of fixed recoverable costs from the protocol. This then enables the client to see what their exposure might be. A cap on any deduction is also very important. There should never be any risk that the costs will subsume the damages.
Firms should revisit their retainers urgently. It is likely that this judgment will be appealed. But in the meantime, this should be addressed right away.
We are able to assist any firms who would like us to review and update their documents.