DEATH OF CLIENT: RIGHT TO BRING OR CONTINUE PROCEEDINGS

This piece first appeared in Issue 37 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

In  

Kimathi & Others v The Foreign Commonwealth Office [2016] EWHC

the High Court reviewed the principles relating to bringing an action on behalf of someone who has died.

Such an action is brought by the deceased’s estate and not in the name of the deceased.

The right to bring an action does not vest in administrators until they obtain Letters of Administration.

Foreign administrators have no right to bring an action until the claim is registered in England and Wales.

The issue of proceedings in the name of a deceased person is a nullity.

The court has no discretion to correct a nullity.

A claim brought on behalf of a deceased person must be struck out.

This was a group action against the Foreign and Commonwealth Office and in relation to one claimant, who was deceased, the defendant succeeded in applying to strike out that claim.

Where a person has made a will, any chose in action vests automatically in the executors at the moment of death: see for example paragraph 164 of the Court of Appeal decision in Ingall v Moran [1944] 1 KB 160.

If a person has not made a will and dies intestate, then any chose in action vests in the Public Trustee and remains in heror him until Letters of Administration are issued -Section 9 Administration of Estates Act 1925 as inserted by Section 14 Law of Property (Miscellaneous Provisions) Act 1994 – see Ingall v Moran [1944] 1 KB 160.

Ingall v Moran has been more recently considered, approved and followed, by the Court of Appeal on identical material facts in Millburn-Snell v Evans [2011] EWCA CIV 577, although Ingall has been disagreed with in the context of bankrupts.

In Millburn-Snell, the Court of Appeal said;

“…their claim was a nullity that must be struck out and could not be retrospectively validated by a grant of letters of administration. That is because whereas an executor derives his title to sue from the will and not from the grant of probate – and so can validly sue before obtaining a grant (although he will have to obtain it later in order to prove his title) — an administrator derives his title to sue solely from the grant of administration (see Chetty v. Chetty [1916] 1 AC 603, at 608, 609, per Lord Parker of Waddington).”

Upon, and not before, the Grant of Letters of Administration, the chose in action passes automatically from the President to the administrator.

There is judicial and academic debate as to whether the issuing of proceedings by an “administrator” prior to Letters of Administration renders the proceedings a nullity, incurably bad or constitutes an abuse of process giving the court a discretion to allow the matter to continue – see for example:

Eaton v Mitchells & Butler Plc [2015] EW Misc B26 (CC) (30 April 2015), Wrexham County Court.

In that case the court, in the context of a claimant’s bankruptcy, considered whether Millburn-Snell v Evans was wrongly decided, that is per incuriam, in that it followed Ingall v Moran without considering whether the law had been changed by CPR 17.4, which reads, so far as material:

“(1) This rule applies where (a) a party applies to amend his statement of a case in one of the ways mentioned in this rule, and

(b) a period of limitation has expired.”

“(4) The court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired.”

In

Haq v Singh [2001] EWCA Civ 957,

a bankruptcy case, two members of the Court of Appeal stated, obiter, that CPR 17.4(4) had removed the effect of Ingall v Moran, the point being that in that case the claimant was actually suing in a personal capacity, however much he claimed to the contrary, and was not permitted to amend the proceedings to sue in a representative capacity that he had not formerly possessed, whereas CPR 17.4(4) now gave that power.

It is accepted that whatever the position is it applies “not only to issue proceedings knowing that the cause of action is not vested in you, but to continue them” – Munday v Hilburn [2014] EWHC 4496(Ch).

Also in Munday:

“Of course, if the Court rules, despite the claimant’s advisers’ best endeavours, that the cause of action is not vested in him, then it would constitute an abuse for the claimant to continue with the action thereafter at any rate if the position could not be cured.”

Any which way it is bad news for a claimant, the estate and the solicitor.

Consequently it is vital that any client you act for in any potential litigation has a will.

As power passes on death to the executors it makes sense to have the solicitors conducting the litigation appointed as the executors as they can then seamlessly proceed with the matter.

This is an excellent, and entirely justifiable, ground for cross-selling and insisting that any private litigation client makes a will, and that it would be best to appoint the solicitors as executors.

This is even more the case where the matter is being conducted under a Conditional Fee Agreement; if your client dies intestate, or with a will where you are not the executor, you risk getting no fees.

It is perfectly proper to say to a client who is not prepared to make a will with the solicitor as the executor, at least in relation to the subject matter of the litigation or potential litigation, that you will not act under a Conditional Fee Agreement.

A solicitor acting under an old-fashioned hourly rate agreement is entitled to be paid for all work done up to the date of death, whatever the circumstances. This is under the quantum merit rule, which has no application in Conditional Fee Agreement cases – see Forde v Birmingham City Council [2008] EWHC 90105.

Remember that, in spite of the bleating of the consumer lobby and some judges, agreeing to act for a client under a Conditional Fee Agreement is a concession by the solicitor and a privilege for the client and the client must be expected to cooperate in relation to making a will.

Those judges and self-appointed consumer champions need to get out and ask real clients in real towns and cities whether they prefer to:

(1)         pay by the hour, win or lose; or

(2)         have a No Win No Fee Agreement.

The response generally is: –

(1)         0%;

(2)         100%.

INTERIM AND FINAL STATUTE BILLS AND CHAMBERLAIN BILLS – GETTING THE RETAINER RIGHT: 9

This is the last article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

INTERIM STATUTE BILLS

In

Winros Partnership v Global Energy Horizons Coporation [2021] EWHC 3410 (Ch) (16 December 2021)

the Chancery Division of the High Court held that in a no win no fee Conditional Fee Agreement the natural break principle could never apply to allow the solicitors to deliver an interim statute bill, as no bill could be determined or delivered until the end of the claim, when the case had been won.

Thus, there can never be interim statute bills in a no win no fee agreement, but that leaves open the question of interim statute bills in a no win lower fee agreement.

Discounted conditional fee agreements and interim statute bills

In Sprey v Rawlison Butler LLP [2018] EWHC 354 (QB)

the court considered whether monthly bills delivered by a solicitor to his client under a discounted conditional fee agreement were “statute bills”, and therefore capable of detailed assessment under section 70 of the Solicitors Act 1974.

A solicitor’s retainer is an entire contract and usually the solicitor is entitled to be paid by the client only at the end of the retainer, such as at the conclusion of the litigation.

There are two exceptions to this:

• where the solicitor and client have agreed that the solicitor may render interim bills, and that agreement may be inferred from conduct;”
  
• at a natural break in lengthy litigation (Re Romer & Haslam [1893] 2 QB 286).

In the absence of express terms as to the rendering of interim bills, agreement may be inferred from conduct, such as where the solicitor renders interim bills which the client accepts and pays (Abedi v Penningtons [2000] 2 Costs LR 205).

Here, the court said that the Conditional Fee Agreement did not permit or anticipate the rendering of interim statute bills.

Clause 11.1 under the section “Right to apply for an assessment” indicated that the invoices were not statute bills, as it said that the client had the right to challenge the bills under Section 70 of the Solicitors Act 1974, which was described as the “right to assessment by the court of the amount of the fees, Success Fee and/or Disbursements which are payable by the client under this agreement”.

Unless those three items, that is fees, success fee and disbursements, were read separately, that is disjunctively, then the right to challenge them arose only at the end of the case.

Thus the interim bills were not statute bills, but rather requests for payment on account, or, in the circumstances, Chamberlain bills – see below.

There were other clauses which referred to fees being payable upon the final result of the claim.

A bill rendered by a solicitor to his client may be one of three things:

• a “statute bill” or, if the solicitor is entitled to render interim bills, an “interim statute bill”, that is, a final bill for the period that it covers, which complies with the requirements of the Solicitors Act 1974 can be sued on by the solicitor, under section 69, and which is capable of detailed assessment under section 70;
  
• a request for payment of a sum on account;
  
• a “Chamberlain bill”, that is a series of bills which become a statute bill only upon delivery of the last bill, after Chamberlain v Boodle & King [1982] 1 WLR 1443.

A statute bill cannot be amended without the consent of the parties or an order of the court, which will be granted only in exceptional circumstances (Polak v Marchioness of Winchester [1956] 1 WLR 819).

Statute bills are final bills in respect of the work that they cover, in that there can be no adjustment “in light of the outcome of the business”.

They are complete, self-contained bills of costs to date (Bari v Rosen [2012] EWHC 1782 (QB)).

Applications by a former client for an order for detailed assessment of the solicitor’s bill under section 70 of the SA 1974 are subject to time limits, as follows:

• If the application is made more than 12 months after the client has paid the bill, no order can be made (section 70(4)).

If the application is made more than 12 months after the bill is delivered, or after the bill has been
paid (but within 12 months of payment), the client must show special circumstances (section 70(3))

• If the application is made within 12 months of delivery of the bill, the court may impose terms when making an order for assessment, unless the application was made within one month of delivery, when it may not (section 70(2)).

If the client can show that the invoice or bill was no more than a demand for a payment on account, then he or she will be able to await the production of a statute bill and then make a request for an assessment within the time limits set out in the SA 1974.

 In Richard Slade & Co Solicitors v Boodia and another [2017] EWHC 2699 (QB)

the court held that bills submitted by the claimant firm had not been statute bills.

The firm had invoiced monthly for profit costs but then invoiced separately, and later, for disbursements incurred in periods already billed.

To constitute a bill of costs under section 70 of the Solicitors Act 1974 an interim statute bill had to represent all of the costs incurred or payable in respect of the period of the bill to enable the client to decide whether to exercise their right to challenge the amount.

At paragraph 33 the court said:

“The period within which a client can seek an assessment of costs runs from delivery of the bill. On the facts of this case none of the bills contained both profit costs and disbursements. On the defendant’s argument time for applying for an assessment of the bills runs from the date of delivery of each monthly profit costs bill. The court would be asked to make an assessment without knowing what disbursements had been paid or were liable to be paid by the solicitor in respect of the same period. In my judgment such an exercise would be contrary to the provisions of s.70 which by s.70(5) give the court not the parties a discretion to order separate assessments of profit costs or other costs within a bill. Further, as Mr Dunne submitted, to undertake an assessment of profit costs without knowing what disbursements were for the same period may deprive the client [of] the information on which to decide whether to challenge the profit costs bill for, for example, duplication of work by solicitor and counsel.”

And at 56:

“The Master was bound by statute as explained in authority to hold that an interim statute bill must contain a bill of all costs including profit costs and disbursements in respect of agreed periods of time. Any practical difficulties which this requirement may cause to the solicitor are outweighed by the certainty given to the client, safeguarded by statute and authority, of knowing the total amount of costs they are being asked to pay. The client needs to know the total costs incurred over a certain period to enable them to form an evidenced based view of whether to exercise their right under s.70 to challenge the bill. The right of a client to apply for assessment under s.70 is time limited. After expiry of the specified time limit that right is lost as is asserted by the defendant in respect of the majority of bills in this case. The treatment of incomplete bills of costs as statutory bills could lead to a multiplicity of applications under s.70 merely to preserve the client’s right to apply for assessment”.

Comment:

It is unclear from the judgment as to whether a bill delivered during a no win lower fee case can ever be a statute bill, and it is clear that a bill delivered during a no win no fee Conditional Fee Agreement can never be a statute bill – see Winros Partnership v Global Energy Horizons Coporation [2021] EWHC 3410 (Ch) (16 December 2021).

Although the court said that here the wording of the Conditional Fee Agreement was inconsistent with the ability to deliver interim statute bills – a highly questionable conclusion which disagreed with the decision of the Costs Master – it is open to question whether a different wording would have made any difference.

This is due to the line of authorities that says that a client does not need to decide whether to challenge the bill until she/he knows the full amount, which in a conditional fee case will not be until the end.

That makes no sense.

A client paying an hourly rate, win or lose, can be subject to interim statute bills even though s/he will not know until the end of the case how much the total will be.

Why should a no win lower fee client, paying a lower sum unless the case is won, be in a better position? 

In any event, the client can calculate what the fee would be in the event of success. 

Here the discounted fee was 40% of the full fee, with a 50% success fee.

So, if an interim statute bill of £40 is delivered, then the client knows the extent of the costs if the case is won:

£

Balance of fee                                                                      60

50% success fee on the full fee of £100                         50

Total                                                                                     110

This is a wrong decision.

 Solicitors Act assessments: interim statute bills: Conditional Fee Agreements

In Richard Slade and Company v Boodia and Boodia [2017] EWHC 2699 (QB)

the Queen’s Bench Division of the High Court, in an appeal from the Senior Courts Costs Office, upheld the Cost Master’s finding that interim statute bills must include disbursements.

As they had not done so here, they were not interim statute bills, and thus were not final bills for the period described, because not all of the costs were included in the bill.

Consequently the clients were not time-barred from seeking Solicitors Act Assessments for all 61 invoices involved.

The term “interim” statute bill is a little confusing as in fact the whole point of such a bill is that it is final and complete for the period it covers. That finality and completeness allows solicitors to sue on the bill pursuant to the provisions of Section 69 of the Solicitors Act 1974, but prevents the solicitor from charging any further fees for that period.

Thus finality and certainty is there for both parties and a client can decide whether or not to pay or dispute the bill.

The Shorter Oxford English Dictionary definition of “interim” is:

 “A thing done in an interval; an interlude”

 Thus the description is technically correct as, in the absence of contractual entitlement to the contrary, an interim statute bill can only be delivered when there is a natural break, or interlude, in the proceedings.

Most solicitor and client retainers create a contractual right to deliver an interim statute bill at any time.

However the other dictionary definition of “interim” is:

 “A temporary or provisional arrangement”

and that is where the potential confusion arises as in relation to that period, the whole point is that the bill is a final and permanent arrangement for that time.

The courts have long realized that the wording is somewhat unfortunate. In

 Bari v Rosen (trading as RA Rosen & Co Solicitors) [2012] 5 Costs LR 851

the court said

“15. … a solicitor may contract with his client for the right to issue statute bills from time to time during the currency of the retainer. Such bills are known as “interim statute bills”. They are nevertheless final bills in respect of the work they cover, in that there can be no subsequent adjustment in the light of the outcome of the business. They are complete self-contained bills of costs to date.”

Here the High Court adopted that wording and reasoning.

It is important to note the wording that “there can be no subsequent adjustment in light of the outcome of the business.”

Thus if a bill is genuinely an interim statute bill charged at the discounted rate in a No Win Lower Fee Agreement, then there can be no subsequent further charge. 

Here the court did briefly refer to the situation in a Conditional Fee Agreement case saying: 

“The only potentially practical difficulty would be in a CFA case. Until the outcome of the case was known the client’s liability for costs could not be determined. However, where a decision was to be made between an interpretation that caused inconvenience to a solicitor and one which caused prejudice to a client, the client’s interest prevails.”

The point here is that generally a solicitor can deliver an interim statute bill, as they will know the work done to date and any disbursements incurred, and thus a final interim statute bill can be delivered and the client has to pay it and the solicitor can sue on the bill if it is not paid.

Obviously that cannot be done in a conditional fee case, as the final bill for that period will not be known until the case is concluded.

It is also most important that solicitors in conditional fee cases, whether No Win No Fee or No Win Lower Fee cases, make it clear when delivering a disbursements only bill, that it is not an interim statute bill. Otherwise it may be found that the solicitor can deliver no further charges for that period, and thus cannot charge profit costs.

Proper wording of the bill avoids that problem, but creates another problem, namely that the solicitor cannot sue on an interim on account bill as compared with an interim statute bill.

Thus it is essential to obtain payment on account of such costs, and then an interim on account bill can be delivered and the costs transferred from client account to office account to discharge that bill.

Generally, care needs to be taken when delivering an interim statute bill to ensure that all disbursements to date are included.

There is an obvious problem in relation to counsel’s fees in that counsel may be carrying on work generally and not have delivered a fee note for work done to date.

This is recognized in the judgment where the court says:

“54. Master James recognised in paragraph seven of her judgment the practical difficulties of obtaining and including disbursements such as fees for counsel and experts to coincide with the period in time to which a solicitor’s fees relate. The Master recognised that her answer that interim non-statute bill could be rendered carried the disadvantage by reason of Section 69 their payment cannot be enforced by taking proceedings.” 

Depending upon the circumstances of the funding arrangement and the case, sometimes solicitors will want an interim bill to be a final statute bill for that period, and sometimes they will not.

The benefit of having a final interim statute bill is that the solicitor can sue on it and the client has strict time limits in which to challenge the bill under the Solicitors Act 1974.

The disadvantage from the solicitor’s point of view is that they cannot revisit the work done in that period, and thus it must be a carefully calculated and costed bill for work done during that period.

Thus if a solicitor, in a long ongoing matter, simply wishes to bill say £2,000.00 a month and then adjust the total each year, or at a natural interlude, or at the end of the case, then the solicitor must ensure that it is not an interim statute bill.

Perhaps the most significant area where solicitors must ensure that the bill is not an interim statute bill is where they are acting on No Win Lower Fee basis and thus charging the client the discounted fee as the matter proceeds, but with the right to charge the full primary fee, plus a success fee if appropriate, in the event of a successful outcome.

Let us assume the solicitor is charging £400.00 an hour, discounted to £200.00 an hour in the absence of access, and with a 100% success fee.

10 hours’ work is done and the matter is continuing. 

The correct level of the bill is £2,000.00, reflecting the discounted rate, payable even in the event of defeat.

However, the solicitor will potentially be charging a further £600.00 an hour for that work, being the primary rate of £400.00 an hour plus a 100% success fee of £400.00 an hour, bringing the total up to £800.00 an hour, of which £200.00 per hour has been paid.

In those circumstances, which will become increasingly common in general civil and commercial work once fixed costs are extended, it is crucial that the bill delivered is not a statute bill.

Such bills are in fact “on account” bills and this should be made clear in the text of the bill.

Furthermore the bills should not refer to Solicitors Act assessments as that indicates that they are statute bills. That was the case here but the court held that it “would be reluctant to make a finding of a fatal flaw in the retainer” for that reason.

Where there is a series of interim, and not statute, bills delivered as part of a running account in respect of one piece of work, then the time for requesting assessment, and the time from when the solicitor can sue on the bills, runs from the date of delivery of the final, statute, bill.

Such a bill is known as a Chamberlain Bill, following the case of

Chamberlain v Boodle and King [1982] 3 All ER 188. 

Here the court examined the authorities and stated that in order for a bill to be a statute bill, whether interim or final, it “must be complete, self-contained and final in relation to costs to date.”

A solicitor may render a bill and a client may pay that bill without it constituting a statute bill – see paragraph 22.

That is what is happening when a bill for the discounted element of the fee in a No Win Lower Fee Agreement is delivered and paid.

The assumption, as here, is that a solicitor will want any interim invoice to be an interim statute bill so that it can be sued upon and so that the client’s time for applying for an assessment starts to run.

However with conditional fee cases exactly the opposite is true.

In practice

Do not have the wording about the right to a Solicitors Act 1974 assessment on an “on account” bill.

Although it is not strictly necessary to include all disbursements for the relevant period in an “on account” bill, it is good practice.  It also avoids a client saying something to the effect of “I knew there would be more legal costs payable if I won, but I thought that all the disbursements were already dealt with as I was paying those as we went along, win or lose.” 

Include in an on account bill wording along the following lines:

“This is an interim on account bill. It is not a final bill for the work done during the period covered by this bill.

 We reserve the right to deliver an additional, final, bill at the end of the matter.

Your time for challenging our costs and for applying for an assessment under Sections 70,71 and 72 of the Solicitors Act 1974 does not start until that final bill has been delivered.

We will advise you of your rights when we deliver that final bill.”

The following wording could be used for a Conditional Fee Agreement case, suitably adapted to effect the terms of the Conditional Fee Agreement:

 “ This Interim on account bill represents the fees payable in any event, whether you win or lose your case and full details of the work done [are contained in this on account bill][are available on request][are contained in the attached schedule] and please ask us if you want any more information about that work.

 These fees are calculated at the discounted rate in the Conditional Fee Agreement. If the case is won then you pay the full primary rate, together with a success fee”

 [As the discounted rate is 50% of the full primary rate, then if you win the case you will pay the same sum again, being the difference between the primary rate and the discounted rate.

In addition, you will pay a success fee of []% on that full primary rate giving a further fee of [insert amount].

So, if you win, you will pay a further [Insert amount] in fees over and above the amount contained in this bill.

[However, the total charged to you, including this bill, is capped at []% of [damages][damages recovered].

This bill [does][does not] include all disbursements to date.

Theoretically, I think it possible to deliver a final interim statute bill for the discounted fee in a Conditional Fee Agreement, which would finalize the client’s liability in the event of defeat and enable the solicitor to sue on that element of the bill.

An additional bill could then be delivered on the basis that that is a free standing contractual entitlement to the balance of the full primary fee, plus the success fee.

However, given the fact that the Solicitors Act did not envisage Conditional Fee Agreements, and there is no authority on the point, I advise against such a course of action.

In any event if a solicitor is suing a client for the discounted fee part way through the case, it is hard to see how the solicitor client relationship could be one allowing the solicitor to continue to act until the end of the case.

COSTS INFORMATION UPDATES INCLUDING DISBURSEMENTS – GETTING THE RETAINER RIGHT: 8

This is the eighth article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

It is a requirement that the client is given costs information throughout the case, even if, on the face of it, the client is never going to have to pay anything, for example because they have a CFA-Lite Agreement, or they have Before the Event insurance or whatever.

In fact, there is always a potential liability to the client, for example if they fail to cooperate, or give a solicitor incorrect information, or instruct other solicitors, or carry on with the case without a solicitor, in which case you can charge the client in any event, and it is crucial to have that potential liability to maximize the chance of the client co-operating.

The consequences of failing to give the client costs information throughout the case can be severe; if the failure is such that it means that the client is not primarily liable for all or part of the costs, then even if the client never objects and never complains about not receiving costs information throughout the case, it gives the paying party an opportunity to challenge the bill under the indemnity principle.

Following the case of

Butt v Nizami [2006] EWHC 159 (QB),

the indemnity principle does not apply in fixed costs cases, but it continues to have full force in non-fixed costs cases. It does apply in fixed recoverable costs cases funded by way of a Damages Based Agreement.

However, even in a fixed costs case, the client can challenge the bill and if no, or insufficient, costs information is given throughout the case, then that opens the bill up to a challenge from one’s own client, irrespective of the fact that the indemnity principle does not apply in fixed costs cases.

That is a Solicitors Act 1974 matter and nothing to do with the indemnity principle.

If a client is paying by the hour, win or lose, then regular bills should be delivered as the matter goes on and that will amount to costs information.

A close eye should be kept on how the costs to date relate to the estimate given, and any increase in the estimate should be notified to the client at the earliest opportunity, with a detailed explanation as to why the estimate has increased.

This should always be accompanied by an offer to meet the client free of charge to discuss the proposed increase in the estimate.

In particular, a close eye should be kept on disbursements and counsel’s fees, as these are items which are often not thought through at the outset with the same care as the solicitor’s charges.

Likewise, a close eye should be kept on the situation in relation to any After-the-Event insurance.

That is three close eyes needed J.

In any event there is a professional duty to keep the client fully informed as to their potential exposure to adverse costs in the event of defeat.

Part 36 offers should be carefully monitored and all updated costs information throughout the case should refer to any Part 36 offers made, and the consequences of failing to beat the Part 36 offer or whatever.

There is now no specific frequency with which costs information must be given to the client, but I suggest that it be done each calendar month as part of a regular file review.

The information can be kept quite brief, along the lines of:

“To date our costs total [           ], but under the terms of the agreement between us we have promised to charge you no more than [           ] including VAT, of any damages that you receive, and so our costs will be capped at that sum.

Obviously we will not know the amount of the costs until the claim is finished and we know how much damages you will receive.”

ESTIMATES AND QUOTATIONS – GETTING THE RETAINER RIGHT: 7

This is the seventh article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

The Solicitors Code of Conduct states at Paragraph 8.7:

You ensure that clients receive the best possible information about how their matter will be priced, and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter and any costs incurred.

Costs is defined as meaning fees and disbursements.

That is about a vague as it gets, and as it will be the court deciding these matters, the key is to follow existing case law.

A quotation is a fixed price, and provided that the client has clearly accepted that fixed price quotation, there is little potential for disagreement.

Both parties benefit from the certainty of the arrangement and the solicitor benefits from being able to deliver an invoice for the total sum at the outset and the money can be paid straight into office account before any work is done.

This can apply in any type of work, and in non-contentious work it is common and straightforward.

Thus the solicitor may agree to prepare a Will for £300. An invoice can be delivered in advance.

In litigation, where recovery will be sought from the other side if the client is successful, care needs to be taken to avoid falling foul of the indemnity principle.

Let us suppose the solicitor agrees a fee of £10,000 for a piece of work. Under the indemnity principle that is the maximum that the other side will have to pay, even if the matter becomes protracted.

The answer is to have a No-Win Lower-Fee Conditional Fee Agreement, with the lower fee being the fixed fee, that is £10,000 in the example here.

The full, undiscounted rate can be the full hourly rate, which then allows recoverability in full in the usual way from the other side.

The agreement can be structured on CFA-Lite principles, which means that, even in the event of success, the client does not have to pay more than the fixed sum of £10,000 that has been agreed.

There are endless possibilities as far as the solicitor and client agreement is concerned, but the main points to note are that a quote is a fixed price, and that absent a Conditional Fee Agreement that fixed price will be the maximum that any other party has to pay.

It is important to set out clearly what work is covered by the quote; this is to avoid “mission creep” whereby the client seeks to get the solicitor to do work not envisioned when the price was agreed.

It is also important to deal with what happens if the client disinstructs the solicitor – will the full fee still be payable?

From a commercial point of view, solicitors should effectively build in a contingency when fixing a price for uncertain work such as litigation.

Estimates

Where a fixed price is not agreed, then the solicitor should provide an estimate of the cost of the work at the outset and estimates cause far more problems than quotations.

In

Harrison v Eversheds LLP [2017] EWHC 2594 (QB)

the court said:

“An estimate is to be distinguished from a quotation of fees: an offer which is accepted. An estimate is what it says. It gives an idea, which from a professional firm can be taken as reasonably and carefully made taking into account all relevant considerations, of what the future costs of work on a case are likely to be. A solicitor cannot be held to be restricted to recovering the exact sum set out in an estimate. However, a client is entitled to place some reliance on the estimate. The nature, degree and reasonableness of that reliance will no doubt be one factor in the view taken on an assessment under Section 70 of the Solicitors Act 1974 of how much more than the estimate it is reasonable for the client to pay.”

Frequent problems with estimates are that they are:

• inadequate;

• unclear;

• not properly explained;

• not kept up to date.

One of the major reasons why estimates are inadequate is that the solicitor does not wish to scare off a client, and therefore, consciously or subconsciously, underestimates.

In contentious work the lawyer should discuss the matter with another lawyer before giving an estimate.

Consideration should be given as to whether the estimate should be given for the entire action, or broken down into stages, which will give a total for the whole action, but will address the minds of both the solicitor and the client to the cost of each stage.

This tends to result in more accurate estimates as it forces the solicitor to consider the work likely for each stage, rather than just plucking an overall figure out of the air. It also fits in with the phases approach to costs budgeting.

Solicitors are now used to costs budgeting and the best way of getting estimates right is to look at what has happened in other similar cases, and actual budgets from other cases are a useful tool.

It is essential to make it clear that the estimate is indeed an estimate and not a fixed price quotation.

Wording should be along the following lines:

This is an estimate and it is not a fixed price quote. You may have to pay us more than this, depending on what happens during the case.

We will keep the estimate under review and will revise it if we think that the costs are likely to be higher, or lower, than in this estimate.

If that happens, then we will discuss with you the reasons for the revision.

Estimates should be considered at the regular file review, and in my firm that is each calendar month. As we have seen, there is no specific requirement now under the Solicitors Code of Conduct , but if it is done each calendar month as part of a regular file review, then the client will have no cause for complaint.

In heavy and fast moving litigation, even a month be too long a period between reviews.

If there needs to be a significant revision of the estimate, then the solicitor will need to justify that by reference to what has changed since the original estimate was given, and whether the cause of the change could have been foreseen at the beginning of the case.

If an estimate is clearly an estimate and not a fixed priced quote, the solicitor will not be held to it, but it will be taken into account when the court considers what is reasonable for the client to pay.

No Estimate

In

Brookes (t/a Brookes & Co) v Atlantic Marine & Aviation LLP [2018] EWHC 1168 (Comm) (28 February 2018)

the Commercial Court held that a solicitor could bill her client, and the client was liable for the relevant fees, even though the solicitor had not provided any fee estimate before the work commenced.

The solicitor had acted for the client in a number of matters, and at the beginning of their relationship, the client had emailed the solicitor stating that, unless it was necessary to deal with the matter urgently, the client required a purchase order with a fee estimate before any work was commenced.

The footer to the client’s email stated that it did not constitute any offer, acceptance or contract and that no contract would be binding and no order placed or accepted without a signature on behalf of the client.

The solicitor replied stating that it was difficult to see how using purchase orders could work in practice and that it was difficult to give a firm estimate without more information about the claim and sent the client a Letter of Engagement and standard terms of business and the client gave instructions for work to be carried out and the solicitors delivered bills for that work.

The client then failed to pay the last bill and argued that a purchase order and estimate were conditions precedent to any liability for fees.

The court held that the footer on the client’s email deprived it of any contractual effect and that it needed to look at subsequent events and noted that the client had not responded to the solicitor’s query about how the purchase order system could work in practice and had instructed the solicitor to do work without further mention of purchase orders.

Furthermore the solicitor’s Letter of Engagement made it clear that the solicitor’s terms and conditions of business applied; it provided that if they were not signed and returned, then they were deemed to have been accepted.

Consequently there was no condition of precedent to the client’s liability for the bills and nor was there any implied retainer.

The solicitor’s terms governed the relationship and the solicitor was only obliged to use best endeavors to provide a costs estimate.

The appropriate way to resolve any dispute about the quantum of the outstanding bill was to send it for detailed assessment.

In

Garbutt v Edwards [2005] EWCA Civ 1206

the Court of Appeal rejected an argument that a failure to give an estimate rendered the retainer unlawful and said that it was merely a factor for the Costs Judge to take into account.

That was a between the parties assessment, where the paying party was seeking to avoid payment on the basis that if there was no lawful retainer, then the client had no liability to pay the solicitor, and therefore the indemnity principle meant that the third party was not liable.

Generally, courts are likely to be harder on solicitors in solicitor and own client assessments where no estimate has been given, as compared with a losing third party seeking to achieve a windfall.

Inadequate Estimates

Factors to be taken into account in deciding what sum is reasonable for the client to pay include whether the client relied upon the estimate and in what way the client relied upon it.

Whether there should be a reduction, and if so to what extent, is a matter of judgment for the court and specific deductions can be made to reflect the impact which an erroneous and uncorrected estimate had on the conduct of the client.

The court should consider what deduction, if any, is necessary to do justice between the parties but it is not the proper function of the court to punish the solicitor for providing a wrong estimate, or for failing to keep it up to date.

The leading cases on these issues are a series of cases known as

Mastercigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch), [2009] EWHC 1295 (Ch) and [2009] EWCA Civ 1526.

In those cases the court said that the client did not have to go so far as to show the ingredients of an estoppel against the solicitor.

“One part of my reasoning was that it would often be difficult for a client to show that “he would have” acted differently but the client may be able to show “it is possible he might have approached the litigation differently” if he had been given a more accurate estimate. Thus, my formulation of what is required does not go so far as to require the client to prove on the balance of probabilities that he would have acted differently.”

In the judgments the courts also made it clear that the approach apparently adopted in

Wong v Vizards (a Firm) [1997] 2 Costs LR 46

whereby Costs Judges would allow a margin of 15% or 20% on top of the estimate was wrong.

“… the adoption of a margin approach greatly simplifies the steps which a Costs Judge needs to take when carrying out a detailed assessment of a bill, which has been preceded by a lower estimate… It is obvious, at least to me, that the adoption of a margin approach as the conventional approach in the majority of cases pays scant, if any, attention to the legal process which I attempted to describe in my earlier judgment…”

SMALL CLAIMS PORTAL: USELESS, BROKEN AND FARCICAL

In a farce worthy of Brian Rix, the creators of the Small Claims Portal, frequently and wrongly described as the Whiplash Portal, want to know why it is not working.

In January 2022, minutes from the Official Injury Claim – the Orwellian title needed because it is a fraud on the English and Welsh public – chaired by the Ministry of Truth, aka Ministry of Injustice, show that research has been commissioned into the failure.

 In a system for use by litigants in person, but so complex that I predict that in due course the Official Court of Appeal will struggle to make sense of it, almost no litigants in persons are using it.

For those of you unfamiliar with this shambles, this is a Small Claims Portal for road traffic accidents valued at less than £10,000, or less than £5,000 for the injury. It came in on 31 May 2021, and has proved to be an incomprehensible disaster, as predicted by everyone who does this type of work.

At the same time damages for whiplash injures were reduced by around 80%.

A combination of these factors means that for many people, it is not worth bringing a claim, demonstrated by the 75% fall in claims.

The advisory group was surprised at the lack of claims management company involvement, just 101 claims out of 41,000 in the first quarter.

That is not even one organized claims management company; that must be cases for mates, employees or yourself.

Claims management companies have pulled out of this work entirely; they know a dodo when they see one.

Dear Advisory Group – you do not need to do any research – there is no worthwhile profit for claims management companies and the system is massively too complex for litigants in person.

A system designed to drive out lawyers from the process and force litigants to act for themselves or through claims management companies has resulted in 90% of claims being brought through solicitors.

This compares with a figure of 90% of claims being brough through solicitors prior to the change.

It also compares with almost exactly the same pre- and post-figures in the Republic of Ireland when it brought in a similar system.

The group’s naivety, putting it politely, is astonishing.

It assumed that individuals with potential whiplash claims would be diverted to the portal by insurers, that would be the insurers who have campaigned successfully to all but abolish whiplash claims.

In another report, the I Am A Criminal Self-Reporting Portal Advisory Committee, expressed surprise that criminals are not routinely reporting their crimes to the police on this portal.

The Really, Really Honesty Official Injury Claim tweeted in January 2022 that anyone injured in a car accident “can claim without specialist knowledge”, a clear lie given their own statistics.

If it was that easy, why do 90% of claimants go to solicitors, knowing that they will have to pay 25% to 40% of their damages to those solicitors now that costs cannot be claimed from the defendant’s insurance company?

Grim humour was added in that the portal fails when an insurer offers £0, as compared with £0.00.

In a Comedy Club statement the Super Mega Official Injury Claim said:

“As a practical solution, if compensators are able to inform their handlers to insure zero values are entered as £0.00 until the fix is implemented, claims can continue through the process normally.”

Phew! That is a relief!

I always like to give helpful template letters, so here is one to your client:

Dear Client

I am delighted that the insurance company has offered £0.00, rather than £0, which means that you can continue your matter on the portal and get nothing, rather than having to wait to get nothing for your injuries.

It may be that this portal’s days are numbered.

The new Master of the Rolls is very keen on portals for everything and frequently refers to the Small Claims Portal; it may be that his advisors have suggested that this is not the best example.

The disaster that has been this portal threatens the development and modernization of the rest of the Civil Justice System.

By the way, if you think hindsight is a wonderful thing, I predicted every aspect of this in my 2017, three volume, 1300-page work Kerry On… Personal Injury Small Claims, Portals and Fixed Costs – available for £50 here.

TYPES OF CONDITIONAL FEE AGREEMENTS – GETTING THE RETAINER RIGHT: 6

This is the sixth article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

Set out below are Documents 11 – 49 from my Documents, Videos, Agreements and Advices Menu, which gives you an idea of the different types of Conditional Fee Agreements.

These are available for sale – contact me on 01442 430900 or kerry.underwood@lawabroad.co.uk

CONDITIONAL FEE AGREEMENT (CFA)

CONDITIONAL FEE AGREEMENT – Personal Injury NWNF = No Win No Fee

11. NWNF without success fee

12. NWNF – without success fee – no charge to client beyond recovered costs

13. NWNF – without success fee; charge to client capped at 25% of damages including ATE premium

14. NWNF – without success fee; charge to client capped at 25% of damages excluding ATE premium

15. NWNF – with success fee

16. NWNF – with success fee; all charges to client capped at 25% of damages including ATE premium  

17. NWNF – with success fee; all charges to client capped at 25% of damages excluding ATE premium

18. No Win Lower Fee – without success fee – no charge to winning client beyond recovered costs

19. No Win Lower Fee – without success fee – charge to winning client capped at 25% of damages including ATE premium

20. No Win Lower Fee – without success fee – charge to winning client capped at 25% of damages excluding ATE premium

21. No Win Lower Fee – with success fee

22. No Win Lower Fee- with success fee; all charges to winning client capped at 25% of damages including ATE premium

23. No Win Lower Fee- with success fee; all charges to winning client capped at 25% of damages excluding ATE premium

CONDITIONAL FEE AGREEMENT – Clinical Negligence

24. No win – no fee (NWNF) without success fee

25. NWNF – without success fee – no charge to client beyond recovered costs

26. NWNF – without success fee; charge to client capped at 25% of damages including ATE premium

27. NWNF – without success fee; charge to client capped at 25% of damages excluding ATE premium

28. NWNF – with success fee

29. NWNF – with success fee; all charges to client capped at 25% of damages including ATE premium

30. NWNF – with success fee; all charges to client capped at 25% of damages excluding ATE premium

31. No Win Lower Fee – without success fee – no charge to winning client beyond recovered costs

32. No Win Lower Fee – without success fee – charge to winning client capped at 25% of damages including ATE premium

33. No Win Lower Fee – without success fee – charge to winning client capped at 25% of damages excluding ATE premium

34. No Win Lower Fee – with success fee

35. No Win Lower Fee- with success fee; all charges to winning client capped at 25% of damages including ATE premium

36. No Win Lower Fee- with success fee; all charges to winning client capped at 25% of damages excluding ATE premium

CONDITIONAL FEE AGREEMENT – General Civil/Commercial Litigation

37. No win – no fee (NWNF) without success fee

38. NWNF – without success fee – no charge to client beyond recovered costs

39. NWNF – without success fee; charge to client capped at [  ]% of damages including ATE premium

40. NWNF – without success fee; charge to client capped at [  ]% of damages excluding ATE premium

41. NWNF – with success fee

42. NWNF – with success fee; all charges to client capped at [  ]% of damages including ATE premium

43. NWNF – with success fee; all charges to client capped at [  ]% of damages excluding ATE premium

44. No Win Lower Fee – without success fee – no charge to winning client beyond recovered costs

45. No Win Lower Fee – without success fee – charge to winning client capped at [  ]% of damages including ATE premium

46. No Win Lower Fee – without success fee – charge to winning client capped at [  ]% of damages excluding ATE premium

47. No Win Lower Fee – with success fee

48. No Win Lower Fee- with success fee; all charges to winning client capped at [          ] of damages including ATE premium

49. No Win Lower Fee- with success fee; all charges to winning client capped at [          ] of damages excluding ATE premium

SECTION 57 – CONTINGENCY FEE AGREEMENTS CONTINGENCY FEE AGREEMENTS COMBINED WITH CONDITIONAL FEE AGREEMENTS DAMAGES-BASED AGREEMENTS – GETTING THE RETAINER RIGHT: 5

This is the fifth article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

DAMAGES-BASED AGREEMENTS

Damages-Based Agreements are creatures of statute and the regulations are set out in the Damages-Based Agreements Regulations 2013.

My strong advice is never to use such agreements in relation to civil work, and this is for two main, connected reasons.

Firstly the maximum amount that can be charged in a Damages-Based Agreement in a personal injury matter is 25% including VAT and counsel’s fees and costs recovered from the other side.

Thus in a typical funding arrangement under a Conditional Fee Agreement a solicitor will get costs from the other side in accordance with the portal scheme or Fixed Recoverable Costs or open costs and will then charge the client an additional fee by way of solicitor and own client unrecovered costs and success fee and will generally cap that at 25% of damages.

Thus normally a solicitor will get 25% of damages plus recovered costs.

Under a Damages-Based Agreement the fee will be 25% including recovered costs.

Clearly where the fixed costs are over 25% of the damages, which they virtually always are once proceedings are issued, even in the fixed costs scheme, then the client pays nothing.

That is known as the Ontario Principle.

Indemnity principle applies

It gets worse.

If acting under a Damages-Based Agreement in a personal injury matter, which at present all FRC cases are, then the indemnity principle limits you to a total of 25% of damages, INCLUDING VAT and counsel’s fees, so you will get nowhere near even Fixed Recoverable Costs.

Example

Let us take an Employer’s Liability case where £15,005 is awarded at court.

Act on an hourly rate basis, getting paid win or lose, and the proposed fixed recoverable costs (FRC) are £12,517.80 including advocacy fees and VAT.

Maximum fee (25% of £15,005)	£3,751.25
Less
Counsel fixed advocacy fee including VAT	£1,980.00
	£1,771.25
Say counsel’s fee for conference, advice, etc. £1,500.00 + VAT	£1,800.00
Fee to solicitor for taking risk and winning	MINUS  £     28.75

So you take all of the risk – and win.

Recovery is limited to £3,751.80, all of which – and more – is spent on counsel’s fees.

The defendant gets a windfall of £8,766.55 (FRC of £12,517.80 minus MAXIMUM DBA of £3,751.80).

Alternatively act by the hour and charge what you want.

Thus due to the indemnity principle, the solicitor acting for a successful claimant will only receive the contingency fee, even if recoverable costs would be higher. This point has been picked up by Master Haworth of the Senior Courts Costs Office. Speaking at the Lexis Nexis Costs and Litigation Funding Forum on 31 October 2012 he questioned what would happen in such a case, pointing out that the Legal Aid, Sentencing and Punishment of Offenders Act 2012 does not abrogate the indemnity principle and concluded that this meant that the solicitor would not be able to recover more than he would recover as a contingency fee.

Master Haworth gave as an example of a £12,000.00 personal injury case with recoverable costs of £6,000.00.

A solicitor operating under a Damages-Based Agreement would only be able to recover £3,000.00, providing the defendant’s insurer with a windfall of £3,000.00 and achieving no benefit for the claimant.

A solicitor in the same case with a conditional fee agreement and no success fee, thus totally protecting the claimant from any fees or deduction from damages would receive £6,000.00.

A solicitor with a conditional fee agreement with a success fee would receive up to £9,000.00, being recoverable fees plus a success fee capped at £3,000.00, being 25% of damages.

As Master Haworth so accurately put it:

“It makes DBAs meaningless in low-value claims.”

Nizami v Butt [2006] 1 WLR 3307

determined that the indemnity principle did not apply in relation to portal or Fixed Recoverable Costs cases as they represented a freestanding regime.

It is far from clear that that ruling applies to portal and Fixed Recoverable Costs cases which are funded by a Damages-Based Agreement. In any event if the matter becomes subject to open costs, for example because the claimant matches or beats its own Part 36 offer, or the matter is allocated to the multi-track and therefore fixed costs do not apply – see Qader & Others v Esure Ltd & Khan v McGee [2016] EWCA Civ 1109, 16 November 2016, or the matter is simply above the portal and Fixed Recoverable Costs limit, then the indemnity principle bites.

The potential benefits of a Damages-Based Agreement in securing a percentage-based fee without reference to time spent can be achieved by way of a pre-issue Contingency Fee Agreement under Section 57 of the Solicitors Act 1974, combined with a Bridging Agreement and Conditional Fee Agreement and that is the way I deal with matters here.

For those reasons I have not drafted a Damages-Based Agreement in relation to personal injury matters.

Contingency Fee Agreement for use pre-issue with Bridging Agreement and Conditional Fee Agreement – Underwoods model

Notes for Solicitors

THE PRE-ISSUE CONTINGENCY FEE AGREEMENT

Pre-issue work in all matters is classed as non-contentious business within the meaning of Section 57 of the Solicitors Act 1974.

1. Contingency fee agreements have always been allowed in non-contentious work.  Pre-issue work is classed as non-contentious and therefore can be carried out under a contingency fee agreement.

2. However once the case is issued then that pre-issue work retrospectively becomes contentious and thus the contingency fee agreement is of no effect.  The solution is to enter in to a conditional fee agreement and a contingency fee agreement from Day One.

3. The agreement with the client will be that the contingency fee agreement operates until proceedings are issued at which point it drops away and the conditional fee agreement is deemed to have been in place from the beginning.  This is achieved by a bridging agreement.

4. Absent contractual agreement with the other side there is no right to costs pre-issue and therefore it does not matter that the conditional fee agreement is not in place.  Costs are only payable by agreement; if they are agreed then there is no problem and if they are not agreed then proceedings will need to be issued at which point the conditional fee agreement comes in to force with effect from the beginning of the case.

5. The potential problem is that fees on an hourly basis, even with a success fee, may be significantly less than the contingency fee would have been.  That will depend upon a combination of the settlement figure and the contingency fee percentage on the one hand and the time spent and the hourly rate on the other hand.

6. Thus where there is a contingency fee agreement you should have a high hourly rate in the conditional fee agreement.

7. Solicitor and own client rates can and should be very much higher than the rates that you are likely to recover on a between the parties basis, on the standard basis.

8. This is for two reasons:
   
   (i) to maximize the alternative “take” to the contingency fee; and
   
   (ii) to maximize the indemnity costs received if, as a claimant, you match or beat your own Part 36 offer.

Such agreements cannot be used in employment tribunal work, where you must use a Damages-Based Agreement if working on a contingent basis, even in relation to pre-issue work.

Apart from employment cases, such agreements are specifically excluded from the provisions of The Damages-Based Agreements Regulations 2013 by Regulation 1(4) of those same Regulations:

“(4) Subject to paragraph (6), these Regulations shall not apply to any damages-based agreement to which section 57 of the Solicitors Act 1974 (non-contentious business agreements between solicitor and client) applies.”

The paragraph (6) exception reads:

“(6) Where these Regulations relate to an employment matter, they apply to all damages-based agreements signed on or after the date of which these Regulations come into force.”

As the Explanatory Note to The Damages-Based Agreements Regulations states:

“…section 58AA(9) of the [Courts and Legal Services] Act provides that, where section 57 of the Solicitors Act 1974 (c.47) applies to a DBA (other than one relating to an employment matter) it is not unenforceable only because it does not satisfy the conditions in section 58AA (4), under which these Regulations are made. Accordingly article 1(4) [sic – should read Regulation 1(4) – articles apply to Orders not Regulations] excludes those DBAs to which sections 57 of the Solicitors Act 1974 applies from the scope of these Regulations.”

Section 57 of the Solicitors Act 1974 has itself been amended by section 98 of the Courts and Legal Services Act 1990 and sections 117 and 221 of, and schedule 16 to, the Legal Services Act 2007, and now reads:

“57 Non–contentious business agreements

(1) Whether or not any order is in force under section 56, a solicitor and his client may, before or after or in the course of the transaction of any non–contentious business by the solicitor, make an agreement as to his remuneration in respect of that business

(2) The agreement may provide for the remuneration of the solicitor by a gross sum or by reference to an hourly rate, or by a commission or percentage, or by a salary, or otherwise, and it may be made on the terms that the amount of the remuneration stipulated for shall or shall not include all or any disbursements made by the solicitor in respect of searches, plans, travelling, taxes, fees or other matters.

(3) The agreement shall be in writing and signed by the person to be bound by it or his agent in that behalf.

(4) Subject to subsections (5) and (7), the agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor.

(5) If on any assessment of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the costs officer may enquire into the facts and certify them to the court, and if from that certificate it appears just to the court that the agreement should be set aside, or the amount payable under it reduced, the court may so order and may give such consequential directions as it thinks fit.

(6) Subsection (7) applies where the agreement provides for the remuneration of the solicitor to be by reference to an hourly rate.

(7) If, on the assessment of any costs, the agreement is relied on by the solicitor and the client objects to the amount of the costs (but is not alleging that the agreement is unfair or unreasonable), the costs officer may enquire into—

(a) the number of hours worked by the solicitor; and

(b) whether the number of hours worked by him was excessive.”

It will be seen that section 57(2) specifically sanctions remuneration by way of a percentage.

There is no statutory cap on the percentage that may be charged to a client under a pre-issue contingency fee agreement but solicitors have a duty not to exploit clients and a duty to conduct themselves in a way that does not bring the profession into disrepute. Charging an unfairly high percentage risks putting a solicitor in breach of these duties.

In personal injury cases Parliament has fixed the maximum percentage to be taken by way of a success fee, or under a damages-based agreement, at 25%, including VAT, of a restricted pool which I have named the Allowed Damages Pool ( see – https://kerryunderwood.wordpress.com/2013/03/07/conditional-fee-agreements-damages-based-agreements-and-contingency-fees/).

In addition there is the issue of the now unrecoverable After-the-Event insurance premium. Pre-issue there is no risk of adverse costs; post issue there is. My advice is that in a pre-issue contingency fee agreement in relation to personal injury matters the percentage charged to the client, including VAT, should be 40%.

In employment matters Parliament has fixed the maximum at 35% including VAT and in potential employment Tribunal matters a damages-based agreement must be used.

In non-employment Tribunal employment matters I advise that the contingency fee be 40% including VAT.

Parliament has fixed the maximum percentage under all other damages-based agreements, that is all except personal injury and employment tribunal matters, at 50% including VAT.

There is no such restriction in relation to the success fee element of a conditional fee agreement outside the field of personal injury.

Thus I am satisfied that in non-employment and personal injury civil work under a pre-issue contingency fee agreement a figure of up to 50% including VAT is not unreasonable. Whether it is commercially viable in the marketplace is another matter. Traditionally my firm has worked on one-third.

I am satisfied that these figures are fair and reasonable and are certainly ones with which clients are happy.

The agreement must be in writing and must be signed by the client (section 57(3) Solicitors Act 1974).

We insert a default hourly rate of £480 including VAT as that is now our standard rate for most types of work, including work in preparation for multi-track cases. Solicitors can put in the figure that they think fit, but this must be discussed and agreed with the client. You can have different rates for different levels of lawyer and work, but one of the benefits of contingency fee agreements is their simplicity.

The protection and value to the client is that they pay nothing in the event of failure to obtain damages.

The client is guaranteed a fixed percentage of anything recovered.

This is in effect a contingency fee agreement and gives greater protection to clients than a conventional conditional fee agreement, as recognized in a an interesting, accurate and telling part of the High Court’s judgment in Bolt Burdon Solicitors v Tariq & Ors [2016] EWHC 811 (QB) (13 April 2016)

“156 Mr Mallalieu submitted strongly that the questions of fairness and reasonableness were not to be tested by the outcome, but by reference to the reasonable perception at the time the agreement was entered into. He submits that any analogy or comparison with a conditional fee agreement is wholly inappropriate. By way of illustration, assume a conditional fee agreement with an uplift of 100%. Solicitors incur costs of £200,000, which with the mark up of 100%, entitles them to £400,000. If the sum recovered in the proceedings is £1million, this may be a satisfactory outcome for the client. But if instead, after the same amount of work, the recovery in the proceedings is only £50,000, there would still be the same liability to pay costs of £400,000. This is because in a conditional fee agreement costs are always tied to the work done, whereas in a contingency fee agreement costs are always proportionate to recovery. Mr Mallalieu submits that to grant the relief sought in this case would be to destroy the commerciality of contingency fee agreements of this kind.”

For example if the contingency fee is 40% then the fixed percentage of damages to the client is 60% and if it is a 30% contingency fee then it is 70% and so on.

Detailed guidance is given by the Court of Appeal in Rees v Gately Wareing [2014] EWCA Civ 1351.  Note that once proceedings are issued you must not use a contingency fee agreement, even if you are not on the record, or are merely assisting another solicitor.

Section 74 of the Solicitors Act 1974

Section 74(3) of the Solicitors Act 1974 provides:-

“(3)        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 a 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.”

This is an important provision, which on its face prevents a solicitor charging any client any element of solicitor and own client costs in any County Court matter, including small claims, fixed costs matters as well as non-fixed costs matters in both the fast-track and multi-track in the County Court.

It allows a charge on defeat, but only to the extent that between the parties recovery would have been made in the event of a win.

However Section 74(3) has the escape clause “except in so far as rules of court may provide otherwise…”

They do.

CPR 46.9 reads:-

“Basis of detailed assessment of solicitor and client costs

46.9

(1) This rule applies to every assessment of a solicitor’s bill to a client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1988 or the Access to Justice Act 1999 or by the Lord Chancellor under Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

(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.

(3) Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –

(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;

(c) to have been unreasonably incurred if –

(i) they are of an unusual nature or amount; and

(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.

(4) Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.”

Thus the Act, read in conjunction with this rule, does allow the solicitor to charge the client more than would have been recovered, but only if there is a written agreement expressly permitting payment of a greater sum.

CPR 46.9(4) refers to Conditional Fee Agreement success fees.

The appropriate wording should go in every retainer/Client Care Letter/agreement dealing with County Court or potential County Court litigation.

I suggest the following wording:-

“Section 74 Solicitors Act 1974 agreement

This agreement expressly permits the solicitors to charge an amount of costs greater than that which you will recover or could have recovered from the other party to the proceedings and expressly permits payment of such sum.

This part of this agreement is made under section 74(3) of the Solicitors Act 1974 and Civil Procedure Rules 46.9 (2) and (3).

In so far as any costs or disbursements are of an unusual nature or amount these costs might not be recovered from the other party.”

The portal system also raises the issue of when proceedings are issued; this is relevant in relation to whether the matter has become contentious, thus triggering section 74 and triggering the need to switch from a Contingency Fee Agreement to a Conditional Fee Agreement.

Proceeding to stage 3 involves paying a court fee and getting a hearing before a judge, so it seems to me that at that stage proceedings have been issued.

It is arguable that proceedings are issued once the matter is on the portal.

Adopting the Underwoods method avoids any problem; whenever proceedings have been issued, be that stage 1, stage 3 or Part 7, the Contingency Fee Agreement drops away and the Conditional Fee Agreement comes into place and the section 74 wording is in place.

Success fee

The success fee is now, generally not recoverable and thus represents costs which will not be recovered from the other party.

The rules require that the solicitor and client enter into a written agreement which expressly permits payment to the solicitor of an amount greater than that which the client could have recovered from another party to the proceedings.

In

Breyer Group Plc and Others v Prospect Law Limited, Unreported, Senior Courts Costs Office, 26 July 2017

the Senior Courts Costs Office said that a general warning was insufficient and that the solicitors must specifically point to this unusual aspect and give specific advice upon it – see paragraph 25 of the judgement.

This law only applies to County Court matters and therefore this wording does not have to be put in matters which do not come before the County Court, for example CICA claims.

There is a circular argument as to whether this clause needs to be in a Contingency Fee Agreement covering pre-issue of proceedings. By definition the Contingency Fee Agreement covers pre-issue work and if proceedings are issued then the Conditional Fee Agreement is in place from day one.

However if the matter is settled pre-issue and costs are sought from the other side, with an additional charge to be made to the client as is usual, then it is arguable that on assessment the client could rely upon Section 74(3) in the absence of this clause being included.

The counter-argument is that it is not contentious business and Section 74(1) specifically applies only to contentious business.

It is simply not worth taking the risk. Include the wording.

THE BRIDGING AGREEMENT

This is a standard agreement for any type of civil litigation, but must not be used in any employment case as the Courts and Legal Services Act 1990 requires the use of a Damages-Based Agreement in employment cases conducted on a contingency fee basis.

The bridging agreement contains consideration of one penny as a contract without consideration has to be a deed under seal to be enforceable.

It is arguable that the consideration is the agreement to enter in to both agreements, but there is no point in taking the risk.

THE CONDITIONAL FEE AGREEMENT

This is the usual Conditional Fee Agreement that you utilize for the type of work covered by the Contingency Fee Agreement. I have set out elsewhere an extensive list of the different types of Conditional Fee Agreement, all of which are available from me – at a price J

THE UNDERWOODS METHOD – GETTING THE RETAINER RIGHT: 4

This is the fourth article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

This method effectively creates a lawful contingency fee agreement which gives greater protection to clients than a conventional conditional fee agreement, as recognized in a an interesting, accurate and telling part of the High Court’s judgment in Bolt Burdon Solicitors v Tariq & Ors [2016] EWHC 811 (QB) (13 April 2016)

“156 Mr Mallalieu submitted strongly that the questions of fairness and reasonableness were not to be tested by the outcome, but by reference to the reasonable perception at the time the agreement was entered into. He submits that any analogy or comparison with a conditional fee agreement is wholly inappropriate. By way of illustration, assume a conditional fee agreement with an uplift of 100%. Solicitors incur costs of £200,000, which with the mark up of 100%, entitles them to £400,000. If the sum recovered in the proceedings is £1million, this may be a satisfactory outcome for the client. But if instead, after the same amount of work, the recovery in the proceedings is only £50,000, there would still be the same liability to pay costs of £400,000. This is because in a conditional fee agreement costs are always tied to the work done, whereas in a contingency fee agreement costs are always proportionate to recovery. Mr Mallalieu submits that to grant the relief sought in this case would be to destroy the commerciality of contingency fee agreements of this kind.”

Contrary to popular belief there is no maximum charge to one’s own client in personal injury work ,other than the solicitor and client reasonableness which applies to all retainers under CPR 46.9 which I deal with below, provided that the correct method of funding and the correct documents are used.

Solicitors have a duty not to exploit clients and not to bring the profession into disrepute or act in a way that undermines public trust and confidence in the profession.

Here I explain how to structure charges and agreements so that you are in a similar position if you win a civil claim on a no win no fee basis as compared with acting on an old fashioned hourly rate, win or lose, while still protecting the client.

Clearly if you do not win you are in a far worse position than charging by the hour, win or lose, as in a no win no fee arrangement the lawyer receives nothing in the event of defeat.

Having made the huge concession to the client of not charging in the event of defeat, it is nonsensical for a lawyer to be worse off, if they win, than under an old fashioned win or lose hourly rate.

That turns the notion of a success fee on its head.

The answer is to have a sufficiently full hourly rate so that there is a gap between solicitor and own client costs and recoverable costs, just as there is in all other civil work charged by the hour.

That unrecovered gap is not subject to any restriction, save the overriding professional obligations set out above.

Further protection, as well as an attractive marketing position, can be achieved by promising to cap as a percentage of damages the amount actually payable by the client over and above costs recovered from the other side.

Here I set out a scheme that works for all civil cases.

This will be of much greater relevance when fixed recoverable costs are extended to virtually all civil claims worth £100,000 or less, in October 2022.

It is important to note that under the indemnity principle all costs must be contractually payable by the client, some of which are then recovered from the other side in a cost bearing matter.

The indemnity principle does not apply in relation to portal costs and Fixed Recoverable Costs (Butt v Nizami [2006] EWHC 159 (QB)) but here I set out a scheme that works for all cases.

Section 74 of the Solicitors Act 1974

Section 74(3) of the Solicitors Act 1974 provides:-

“(3)        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 a 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.”

This is an important provision, which on its face prevents a solicitor charging any client any element of solicitor and own client costs in any County Court matter, including small claims, fixed costs matters as well as non-fixed costs matters in both the fast-track and multi-track in the County Court.

It allows a charge on defeat, but only to the extent that between the parties recovery would have been made in the event of a win.

However Section 74(3) has the escape clause “except in so far as rules of court may provide otherwise…”

They do.

CPR 46.9 reads:-

“Basis of detailed assessment of solicitor and client costs

46.9

(1) This rule applies to every assessment of a solicitor’s bill to a client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1988 or the Access to Justice Act 1999 or by the Lord Chancellor under Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

(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.

(3) Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –

(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;

(c) to have been unreasonably incurred if –

(i) they are of an unusual nature or amount; and

(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.

(4) Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.”

Thus the Act, read in conjunction with this rule, allows the solicitor to charge the client more than would have been recovered, provided there is a written agreement expressly permitting payment of a greater sum.

CPR 46.9(4) refers to Conditional Fee Agreement success fees.

The appropriate wording should go in every retainer/Client Care Letter/agreement dealing with County Court or potential County Court litigation.

I suggest the following wording:-

“Section 74 Solicitors Act 1974 agreement

This agreement expressly permits the solicitors to charge an amount of costs greater than that which you will recover or could have recovered from the other party to the proceedings and expressly permits payment of such sum.

This part of this agreement is made under section 74(3) of the Solicitors Act 1974 and Civil Procedure Rules 46.9 (2) and (3).

In so far as any costs or disbursements are of an unusual nature or amount these costs might not be recovered from the other party.”

This law only applies to County Court matters and therefore this wording does not have to be put in matters which do not come before the County Court, for example High Court claims.

There is a circular argument as to whether this clause needs to be in a Contingency Fee Agreement covering pre-issue of proceedings. By definition the Contingency Fee Agreement covers pre-issue work and if proceedings are issued then the Conditional Fee Agreement is in place from day one.

However if the matter is settled pre-issue and costs are sought from the other side, with an additional charge to be made to the client as is usual, then it is arguable that on assessment the client could rely upon Section 74(3) in the absence of this clause being in the Contingency Fee Agreement.

The counter-argument is that it is not contentious business and Section 74(1) specifically applies only to contentious business.

It is simply not worth taking the risk. Include the wording.

I advise never having a Damages-Based Agreement in any case, expect in Employment Tribunal, or potential Employment Tribunal cases, where they are compulsory if acting on a contingent basis.

The Agreements

Have a Section 57 Solicitors Act 1974 Contingency Fee Agreement together with a Conditional Fee Agreement in place from day one, with the Conditional Fee Agreement coming into place if the matter becomes issued and with the Contingency Fee Agreement then falling 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 was approved in Forde v Birmingham City Council [2009] 1 WLR 2732 and  confirmed in Budana v Leeds Teaching Hospital NHS Trust – 4 February 2016.

Forde v Birmingham is also authority for having more than one agreement in place simultaneously.

The reason for having more than one agreement is that a Contingency Fee Agreement under the Solicitors Act 1974 can be used for pre-issue work, but not for post-issue work, whether or not the case is cost bearing, that is irrespective of which track it is allocated to.

Once a matter is issued the pre-issue work retrospectively becomes contentious and thus the Contingency Fee Agreement cannot be relied upon as such an agreement can only be used for non-contentious work.

It would be possible to have everything in one document, but defence lawyers are very unfamiliar with Contingency Fee Agreements, and so are most judges.

By definition if you have reached the stage of assessment, proceedings have been issued and it will be the Conditional Fee Agreement, with which everyone is now familiar, which will govern costs.

I think it best not to have a hybrid agreement containing the Contingency Fee Agreement as that is likely to sound alarm bells to the paying party and the judge.

If a matter is settled pre-issue, then that is a matter of contract and the funding arrangement is irrelevant.

Case Law

The Underwoods Method was criticised by District Judge Lumb, now retired, in

A & M (by their litigation friend) v Royal Mail Group (2) [2015] 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.

In

Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94 (23 February 2016)

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.”

CHECKLIST OF MATTERS TO CONSIDER WITH A CLIENT – GETTING THE RETAINER RIGHT: 3

This is the third article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

• Does the client have Before-the-Event insurance?
  
• Topping up Before-the-Event insurance by way of a No-Win, Lower Fee Agreement
  
• Lower fee to be the amount paid by the Before-the-Event insurer
  
• After-the-Event insurance
  
• Who is paying for the ATE insurance?
  
• ATE insurance included in capped percentage of damages?
  
• Use of counsel
  
• Counsel’s fees
  
• Will counsel be on a Conditional Fee Agreement?
  
• Disbursements – who is paying and when?
  
• Interest charged to client on disbursement/costs funding
  
• Recovering interest from the other side
  
• Third party funding
  
• Types of third party funding
  
• Who is the agreement between?
  
• Who gets what and in what order?
  
• Will all charges to the client be capped by reference to damages?

IMPRISONED FOR CONTEMPT: CAN I HAVE MY COSTS PLEASE?

This piece appears in Kerry On Costs… And So Much More…, a fortnightly publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

In

Kea Investments Ltd v Watson [2022] EWHC 5 (Ch) (11 January 2022)

the respondent was committed to prison for four months for contempt of court, but sought costs on the basis that the applicant had failed to prove all of the allegations.

The High Court ordered the respondent to pay 50% of the applicant’s costs on the indemnity basis.

In spite of these apparently bizarre facts, in law this was a ruling concerning the correct application of CPR 44.2 (2), by which the staring point is that the unsuccessful party will pay the costs of the successful party, with the court having the power to make a different order – CPR 44.2 (b).

Unsurprisingly, the court held that the applicant was the successful party as he had succeeded in having the respondent sent to prison.

Surprisingly, the applicant conceded that, as he had not succeeded on all of the issues, a different order should indeed be made.

The court ordered the respondent to pay 50% of the applicant’s costs and, as is usual in contempt cases, awarded those costs on the indemnity basis.

WHAT CAN YOU AGREE WITH YOUR CLIENT? – GETTING THE RETAINER RIGHT: 2

This is the second article in a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

• Hourly rate – uncapped
  
• Hourly rate – total capped
  
• Hourly rate but total capped by reference to percentage of damages
  
• No-win, No-fee with success fee not capped by reference to damages
  
• No-win, No-fee – success fee capped by reference to damages
  
• No-win, No-fee – no success fee
  
• CFA-Lite – costs limited to those recovered
  
• No-win, Lower fee with all of the above
  
• Fixed Fee
  
• Fixed initial fee – then hourly rate with all above combinations 
  
• Fixed initial fee – then conditional fee with all above combinations
  
• No-win, Lower fee with all of the above combinations
  
• Credit for fixed initial fee in the event of a win?
  
• Who is paying disbursements?
  
• Interest
  
• Higher hourly rate to reflect solicitor funding case
  
• Part 36 – Who is taking the risk?
  
• Retainer
  
• Right to interim bill
  
• Recovered costs plus a percentage of damages
  
• Advance fee plus any contingent or conditional agreement.

YOU CAN’T JUST TAKE 25%! OR 35% OR 50% – GETTING THE RETAINER RIGHT: 1

Happy New Year!

This is the first of a series of posts dealing with Getting the Retainer Right.

This piece first appeared in Issue 36 of Kerry On Costs… And So Much More…, a weekly  publication costing £500 a year plus VAT, and available until 31 December 2022, including back Issues for 2021 here.

By subscribing to the Newsletter, you are entitled to a free copy of my 1300-page, three volume book Personal Injury Small Claims, Portals and Fixed Costs and also a free copy of my book of Qualified One-Way Costs Shifting, Section 57 and Set-Off.

Although, generally, clients are happy to pay a capped percentage of damages in return for having no risk, by way of a No Win No Fee Conditional Fee Agreement, the establishment’s traditional hostility to Contingency Fee Agreements, and the freedom and power that they give to individuals against big corporations, means that you cannot simply charge what is in reality a Contingency Fee, unless the matter is settled pre-issue.

Pre-issue, there is no problem as Contingency Fee Agreements have been lawful in non-contentious business at least since the Solicitors and Attorneys Act 1729.

The relevant provisions are now in Section 57 of the Solicitors Act 1974.

Thus, if the matter is settled pre-issue, then you can indeed simply charge the client a straight 25%, 35%, or whatever irrespective of risk, and irrespective of the work done.

The problem is that at the outset, you will never know whether or not the case will settle pre-issue, and once the case is issued then it becomes contentious, and the work done pre-issue retrospectively becomes contentious, and thus cannot be covered by a Contingency Fee Agreement.

Theoretically, a Damages-Based Agreement does allow a fixed percentage charge to be made whether the matter is settled pre-issue or post-issue, but that acts as an absolute cap on damages payable by the other party, due to the indemnity principle.

The percentage includes VAT, and a quick glance at the table of fixed recoverable costs will show that a Damages-Based Agreement in personal injury work means that you cannot even recover fixed recoverable costs from the paying party.

Fixed recoverable costs are to be extended to virtually all civil claims valued at £100,000 or less, in October 2022, and the same principles will apply.

Although Butt v Nizami disapplies the indemnity principle in fixed costs cases, a Damages-Based Agreement still limits recoverability to 25% of damages as that is the law contained in the Damages-Based Agreements Regulations, passed by Parliament, which obviously override any court decision.

Furthermore, in Damages-Based Agreements, credit must be given to the client for costs recovered from the other side and thus generally you would be charging the client nothing at all, which defeats the purpose of seeking to charge the client a sum equal to a percentage of damages in return for taking all of the risks.

Thus Damages-Based Agreements should never be used in civil work, although they are compulsory if working on a contingency basis in Employment Tribunal or potential Employment Tribunal work.

Conditional Fee Agreements, effectively a form of Contingency Fee Agreement but with additional restrictions, are allowed in contentious work.

Thus the preferred method is to have a Contingency Fee Agreement and a Conditional Fee Agreement entered into by the client at the outset of the case, with a Bridging Agreement providing that the Conditional Fee Agreement only comes into play if the matter is issued, but then is effective from the beginning of the case.

This allows a straight percentage to be charged if the matter is settled pre-issue, but if the matter is settled post-issue, then all of the rules and regulations applying to Conditional Fee Agreements apply.

The success fee in personal injury Conditional Fee Agreements is capped at the lower of 100% of base costs or 25% of the Allowed Damages Pool, that is general damages and past special damages, net of Compensation Recovery Unit payments.

However, it is a cap and not an entitlement.

A full hourly rate charged to the client will inevitably mean a shortfall between recovered costs and solicitor and own client costs, and that shortfall can be charged to the client, just as it would be in a non-Conditional Fee case, and does not form part of the success fee.

It is only the success fee which is limited to 25% of damages.

It will be seen that, in appropriate cases and depending upon the amount of work done etc., the client can be charged a percentage higher than 25%.

Thus the key is to get the hourly rate right, and that too is under attack by those challenging solicitors’ bills, and to get the documentation in order.

Generally, in personal injury cases, the combination of unrecovered solicitor and own client costs, together with the success fee, will exceed 25% of damages, thus allowing that capped sum to be charged.

As reliance on the Conditional Fee Agreement only occurs if the matter has been issued, and generally then more work will have been done than on a case settled pre-issue, reaching the 25% charge to the client will rarely be a problem.

The key is the ability to justify the percentage success fee and the hourly rate on any given issued case.

Non-Personal Injury Matters

Exactly the same principles apply, save that in general civil litigation the success fee is not limited to 25% of damages.

The success fee in all in all civil litigation remains capped at 100% of base costs.

In relation to non-personal injury work, there is a Damages-Based Agreement cap of 50% of damages, but I advise against using Damages-Based Agreements, except in Employment Tribunal, or potential Employment Tribunal cases, where they are compulsory if you are acting on a contingent basis.

The maximum in Employment Tribunal or potential Employment Tribunal cases is 35% under a Damages-Based Agreement.

The Percentage

I have referred above to 25%, and that is the maximum percentage of damages that may be charged by way of a success fee in a personal injury matter under a Conditional Fee Agreement, or in total in a personal injury matter under a Damages-Based Agreement.

There is no maximum prescribed under a Section 57 Solicitors Act 1974 Contingency Fee Agreement in any type of work and in

Bolt Burdon Solicitors v Tariq & Others [2016] EWHC 811 (QB)

the High Court approved a contingency fee of 50%.

Please note that Contingency Fee Agreements under Section 57 of the Solicitors Act 1974 cannot be used in Employment Tribunal proceedings, or potential Employment Tribunal proceedings, where a Damages-Based Agreement must be used if the matter is being dealt with on a contingent fee basis, and where the maximum charge is 35% of damages.

With Conditional Fee Agreements the courts have strongly encouraged the use of a cap for all charges made to the client, and indeed in

Belsner v Cam Legal Services Ltd [2020] EWHC 2755 (QB)

the High Court held a retainer that did not cap all charges, but merely the success fee, as unfair in a Solicitors Act 1974 solicitor and own client assessment, and disallowed the costs. The appeal against this decision is expected to be heard by the Court of Appeal in February 2022.

In connection with the key issue of informed consent, and fairness under the Solicitors Act 1974 goes to informed consent, the court in

Swann v Slater and Gordon (UK) Limited 25 January 2021, Queen’s Bench Division Birmingham

referred to the “magnetic attraction” of a percentage cap on all charges payable by the client.

However, even in personal injury cases, that cap does not need to be limited to 25%, and indeed there is no limit at all, save that in personal injury cases the success fee element of charge may never exceed 25% of the allowed damages.

My view is that an overall capped charge of 40%, including VAT, will be held by the court to be fair, provided that the client is genuinely given informed consent.