RUNNING SMALL CLAIMS TRACK PERSONAL INJURY CLAIMS
I deal with this in my new book on the subject. To order one click here.
Only very limited costs are recoverable in small claims. For example in a normal small claim, where the small claims limit is already £10,000.00, a claim for £5,000.00 would attract just £90.00 fixed costs. Court fees and disbursements are also recoverable.
It may be that the figure will be slightly higher for personal injury work, but for all intents and purposes in a small claim one must look to one’s own client, and only one’s own client, for profit costs.
As we all know clients in personal injury matters are generally not prepared to pay win or lose and therefore the only realistic funding mechanism in the market is a No Win No Fee Agreement.
Even if costs are not recoverable the basic position remains the same, and that is that a Contingency Fee Agreement under the Solicitors Act 1974 can be used for pre-issue work but not for post-issue work.
Furthermore once a matter is issued the pre-issue work retrospectively becomes contentious and thus the Contingency Fee Agreement cannot be relied upon as a Solicitors Act 1974 Contingency Fee Agreement can only be used for non-contentious work.
The answer, as it is indeed now for cost bearing work, is to have a Contingency Fee Agreement and the Conditional Fee Agreement both in place from day one with the Conditional Fee Agreement coming into place if the matter becomes issued and the Contingency Fee Agreement then simply falls away.
This is achieved by a Bridging Agreement.
The principle of having an agreement that will only come into place if the other agreement is for any reason not valid has a long history in Conditional Fee Agreement matters going back to Forde v Birmingham City Council  1 WLR 2732 and recently confirmed in Budana v Leeds Teaching Hospital NHS Trust – 4 February 2016.
That deals with the mechanics of running a personal injury claim that is in the small claims track. It does not deal with the issue of how much to charge the client and whether it is possible to run such work profitably.
I believe it is possible to run such work profitably and indeed my firm has always been prepared to take on cases in the small claims track.
Currently in personal injury work virtually all firms charge the client 25% of damages. In Employment Tribunal cases, where no costs have ever been recoverable from the other side, the statutory maximum under the Damages-Based Agreements Regulations is 35% of damages if any form of Contingency Fee Agreement/Conditional Fee Agreement/Damages-Based Agreement is being used. That has become both a maximum and a minimum and thus is now the standard charge and clients happily enter into such agreements and happily allow the deductions.
Prior to this maximum many firms, including my firm, charged 40% including VAT.
40% is not unusual in the United States of America where contingency fees operate in personal injury work and where no costs are recoverable from the other side.
Thus my advice is that firms doing personal injury work in the small claims track should charge 40% of damages to clients. I will return to the issue of whether this is lawful.
One of the unanswered questions is whether clients will simply seek to deal with matters themselves if they have to pay lawyers considerable percentage of damages. I do not believe that this will happen. In the Republic of Ireland there is generally no costs recovery in personal injury work and that has been the case since 2004 and yet 90% of injured people still retain lawyers.
There is no evidence of any reduction in the percentage in injured people instructing lawyers following the sharp cut in portal fees in April 2013 which led to virtually all firms charging the client 25% of damages rather than nothing. Prior to the introduction of recoverability in April 2000 it was standard to charge clients 25% of damages and there was no client resistance.
Consequently I believe that clients will pay 40%.
I question whether clients have any interest in whether solicitors recover any costs from the other side, and how much those costs are, unless it affects the client herself or himself. What the client wants to know is what it will cost them.
If I am right on that then why not start charging clients 40% in all cases, irrespective of whether they are costs bearing or not? That is a market issue but we now charge clients 30% of damages if we take the risk of adverse costs, which by and large in personal injury cases now is the post Part 36 risk given the existence of Qualified One-Way Costs Shifting.
I now return to the issue of whether it is lawful to charge the client more than 25% of damages. The short answer is yes.
If a client is being represented under a Damages-Based Agreement then it is indeed illegal to charge the client more than 25% of damages and credit must be given to the client for any costs recovered from the other side, although this second point would not be relevant in a small claim.
For this and other reasons no one is using Damages-Based Agreements in personal injury work.
True it is that the Conditional Fee Success Fee is limited to 25% of damages and indeed that is of a restricted pool of damages and not the whole sum.
However ordinary solicitor and own client costs are not subject to any such restriction and therefore the balance of unrecovered solicitor and own client costs can be charged to the client without any limit whatsoever, save for the general rule that one must not exploit one’s client and must not behave in a way which diminishes public respect in the profession.
Thus in order to be able to charge the client additional costs the answer is to have a high hourly rate so that there is always a significant unrecovered element of solicitor and own client costs. The protection to the client is then given by capping the total charge to the client. As indicated this is currently at 25% but I believe the market will bear 40%.
This approach was criticised by District Judge Lumb in A & M (by their litigation friend) v Royal Mail Group (2)  MISC B30 (CC). His remarks were obiter and had nothing at all to do with the issue he was trying, which was a totally separate matter of deductions from a child’s damages.
the Court of Appeal, in a central part of its Judgment, recognised, neither with approval nor criticism, the existence of this method, that is of a solicitor and own client hourly rate with the overall charge to the client being capped at a percentage of damages. It amounts to a wholesale rejection of District Judge Lumb’s remarks.
This method is known as the Underwoods Method and the Master of the Rolls said at paragraph 32:-
“He says that the way in which lawyers are typically engaged in this part of the market is heavily reliant on CFAs and legal expenses insurance. Both forms of funding typically provide for lawyers to charge on a conventional hourly basis, but may cap their right to enforce payment with reference to the amount recovered. He adds that it is still very common for costs beyond fixed costs to be deducted from claimants’ damages. There is no evidence before us to support this statement either, although I have no reason to doubt it.”
Clearly firms will have to adjust and the days of costs being double damages or whatever in personal injury cases are over.
That was always a doomed business model as Slater and Gordon’s reliance on entirely unrealistic fees in Noise Induced Hearing Loss claims have shown.
Well organised firms who think things through will be able to make a profit with personal injury small claims and should be able to make a much greater profit, by charging the clients 40%, in claims exceeding the small claims limit.
Early and well-pitched Part 36 offers in costs bearing cases now mean that the claimant’s lawyers get fixed costs AND indemnity costs – see Broadhurst.
People will still be injured and they will still want lawyers. Good firms can make the new system work.
Factory firms are and will continue to go out of business and that will release far more work for the rest of us.