This is the first of a short series of posts that will deal with deductions from damages in Conditional Fee Cases.
There has been a lot of talk about CFAs and in particular the calculation of success fees. This has largely been driven by the 2019 Court of Case of Herbert v HH Law [2018] EWHC 580 (QB) and the subsequent activity of businesses like checkmylegalfees.com. Many solicitors’ firms have received demands for files in the last month or so.
I don’t plan to go over the details of that case as these have been widely discussed. But there is one particularly important issue that many firms are continuing to overlook. This is the continuing tendency to assume that firms can, despite everything, routinely deduct 25% of damages. This is an expensive disaster waiting to happen.
In Herbert, the Solicitors assessed their success fee at 100% with a cap at 25%. In other words, this was at the top end of what was allowed. The Court of Appeal confirmed that a success fee has to take into account the level of risk. The Master of the Rolls explained –
“I do not consider that either HH’s justification for its charging model or the 25% cap answer the point that in this country, in the context of a conditional fee agreement, the amount of a success fee is traditionally related to litigation risk, as reasonably perceived by the solicitor or counsel at the time the agreement was made. Across the broad range of litigation, it would be unusual for it not to be. It continues to be the case in those limited areas, such as publication and privacy proceedings and mesothelioma claims, where success fees are still recoverable from the losing party”
The success fee in Herbert was reduced to 15% in a case where there had been a simple rear end shunt.
It seems that the continuing problem comes from a confusion between the success fee and the cap. The success fee does not refer to the percentage deduction from damages. It is an uplift on base fees. So, if base costs are £1000, a success fee of 40% means an uplift of £400. It does not mean a 40% slice of the damages. That deduction is, in Personal injury cases, subject to an overall cap of 25% of damages for pain and suffering and past losses.
This may seem obvious to some. But a significant and alarming number of firms are still working on the basis that the success fee is a contingency fee. This basic message needs to be understood and put into practice. Failure to do so can be very costly.
The next post in this series will look at steps that can be taken to maintain a reasonable charging level without falling foul of the rules.
Rob Cook