CHILDREN AND SUCCESS FEES PART 2: WHAT SUCCESS FEE WAS REASONABLE?

We looked earlier at the decision of the Regional Cost Judge Lumb in the case of A & B -v- The Royal Mail Group  [2015] EW Misc B24(CC)(14th August 2015). As a result of that case the decision of the success fee payable was adjourned for a detailed assessment.  The reserved judgment on that issue was given today. It is set out in full below (it is now available on Bailli, and is an attachment to this blog here.20150918 A02BM921 A & anr v Royal Mail group redacted approved final judgment).

“It is patently absurd that anyone should pursue damages claims totalling £4180 at a risk of having to pay £6432.04 for doing so”

KEY POINTS

  • The starting point for the figure for the success fee is the base figure from which the success fee percentage is multiplied. If the base costs are unreasonably high then any calculated success fee would be similarly skewed.
  • The court reduced the base fee to an appropriate level.
  • The object of a risk assessment is to assess the chances of winning the case. In this context this means obtaining an award of damages and/or payment of costs.
  • The key point is the known facts at the commencement of the claims and at the time the CFAs were entered into.
  • The risk factors in these straightforward cases gave rise to an additional liability of 5%.
  • The additional liability due because of deferment of the fees was a further 5%.
  • The sum of £141.60 additional liability was allowed in relation to each claim (compared to the £528.76 and £516.25 originally claimed.

District Judge Lumb :
  1. This judgment follows on from, and should be read in conjunction with, my previous judgment reported as A & Anor v Royal Mail Group at [2015] EW Misc B24 (CC).
  2. The case concerns a claim for damages for personal injuries and consequential losses brought by A and M through their father and Litigation Friend, MS, as a result of a road traffic accident. The background to the claim is fully set out in my previous judgment and does not require repetition here.
  3. Damages awards for both children had been agreed with the Defendant and provisionally approved by me at a hearing subject to the issue of the deduction from those damages of costs and expenses incurred by the Litigation Friend.
  4. In my previous judgment I explained why I was not prepared to approve a deduction of an ATE premium and why I could not carry out a summary assessment of the success fee element of the Claimants’ solicitors’ costs.
  5. Upon the handing down of my judgment the Claimants’ solicitors requested a detailed assessment of the success fee element. I did not consider that it would be proportionate to order a full blown detailed assessment under CPR Part 47 and I therefore gave special directions to enable an assessment on paper of the outstanding issue namely what amount, if any, should be deducted from the children’s damages under CPR Part 21.12 as a reasonable expense reasonably incurred by the Litigation Friend for the success fee of the Claimants’ solicitors costs.
  6. Those directions required the Claimants’ solicitors to file with the court the following documents:
    1. an informal breakdown in the form of a schedule of the solicitor and own client base costs sought;
    2. the solicitors’ full file of papers;
  • any bill or fee note that has been sent to be Litigation Friend;
  1. brief written submissions concerning the appropriate level of success fee contended for;
  1. Those documents were duly filed (with the exception of any bill or fee note delivered to the Litigation Friend from which I conclude that no such bill has yet been delivered) and have been considered together with the papers already before the court at the time of the original hearing.
  2. Scott Rees have filed two statements of costs, one in respect of each of the two children’s claims. The statements of costs include a certificate of compliance with the indemnity principle as follows “the costs as stated above do not exceed the costs which the Claimant is liable to pay in respect of the work which the statement covers. Counsels fees and other expenses have been incurred in the amounts stated above and will be paid to the persons stated.”
  3. For M’s claim the costs schedule totals £4682.44 including profit costs of £3003.70 plus VAT. For A’s claim the total is £4682.44 including profit costs of £3045.50 plus VAT. For each claim the success fee of 100% of the profit costs figure capped at 25% of the damages is maintained.
  4. Thus the success fee sought for M’s claim is £3003.70 but capped at 25% of his damages of £2065 namely £516.25. This is a VAT inclusive figure and therefore the net success fee sought is £430.21 plus VAT. The equivalent figures for A’s claim are £3045.15 capped at 25% of her damages of £2115 namely £528.75 being £440.63 plus VAT.
  5. The total liability for costs of the Litigation Friend according to the certificate on the statement of costs is £5261.35 for A’s claim and £5190.69 for M’s claim. His total liability to his own solicitors is therefore £10,460.04. By operation of the fixed recoverable costs regime under CPR Part 45 the Defendant’s contribution to his costs is £2014 for each claim. This leaves a personal liability to his own solicitors for a shortfall of £6432.04.
  6. It is patently absurd that anyone should pursue damages claims totalling £4180 at a risk of having to pay £6432.04 for doing so. However, that is the claim for costs as presented to the court by Scott Rees. Whether they choose to pursue the Litigation Friend for all or some of those costs is a matter between Scott Rees and MS.
  7. As I emphasised in my first judgment, the contractual relationship between MS and his solicitors is not a matter for the court to consider in the current application. The court is not being required to carry out a solicitor and own client detailed assessment under the Solicitors Act 1974. Should a bill be delivered by Scott Rees to MS they will be obliged to inform him of his right to request such an assessment.
  8. Protection is provided against this potentially absurd situation both in statute and in the CPR. However, that protection can be waived by agreement between the solicitor and client. Unless the solicitor and client have entered into a written agreement pursuant to CPR Part 46.9 (2) expressly permitting payment to a solicitor of an amount of costs greater than that which the client could have recovered from another party in the proceedings, the Solicitors Act 1974 section 74 (3) limits the solicitors entitlement to that amount in County Court proceedings. In other words, there is no point pursuing a client for bills of costs which exceed the sums recovered from the other side if you do not have an express written agreement with your client allowing you to do so.
  9. In the present case I have examined the solicitors’ full file of papers and their retainer documentation and on the face of it the client care letter/CFA and “instructions to act” document operate as an exclusion of the protection afforded by the Solicitors Act and the CPR.
  10. I cannot see anywhere any express reference to section 74 (3) of the Solicitors Act 1974 or CPR part 46.9 (2). It does not appear therefore that MS had been advised that he was giving up any rights from the “normal” position. At the original hearing it appeared that he had the mistaken belief that any shortfall would automatically be met from the children’s damages. That may well become relevant on a future occasion should there be a solicitor and own client assessment of costs.
  11. For the purposes of the present application I am solely concerned with what would be an appropriate success fee to deduct from the children’s damages as a reasonable expense, reasonably incurred for the purposes of CPR Part 21.12.
  12. A starting point is to consider the base costs claimed in each case as it is from that base figure that the success fee percentage is multiplied. If the base costs are unreasonably high then it follows that any calculated success fee would be similarly skewed.
  13. The base costs in A’s claim are said to be £3045.50 representing 21.4 hours of work. The base costs in M’s claim are said to be £3003.70 representing 20.9 hours of work.
  14. For these extremely simple claims those levels of time spent are unreasonably high particularly when one considers that there is an obvious substantial overlap in dealing with the two claims together.
  15. The fixed recoverable costs under CPR Part 45 equate to nearly 10 hours at the lowest guideline hourly rate of £118 for a Grade D fee earner which would be the appropriate grade for these claims. That should be sufficient to conduct these very straightforward cases and having considered in detail the work done according to the solicitors’ file of papers my preliminary view is confirmed.
  16. Having established that the appropriate reasonably incurred base costs should be in the region of £1180 plus VAT I now have to consider what the appropriate success fee should be in each case.
  17. Further written submissions on the level of the success fee have been received from Scott Rees in accordance with the directions that I gave following the handing down of my first judgment. These deal with three separate points: interpretation of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO), the Conditional Fee Agreements Order 2013 (CFAO) in conjunction with Sir Rupert Jackson’s final report; risk factors that could have been taken into account had a risk assessment been carried out (it was not); and in-house statistics concerning the percentage of successful child cases as a proportion of the number of enquiries made with Scott Rees over the preceding 12 months.
  18. I dealt with the statutory interpretation point in my first judgment. Whilst it is true to say that in the relevant Implementation Lecture Sir Rupert Jackson anticipated that the deregulation of success fees would lead to a competitive market between solicitors to offer the lowest success fees to secure the work, it is equally true to observe that this has not transpired, at least not yet. This may be because the public have not been in a position to make an informed choice to shop around for the best deal.
  19. As I commented in my first judgment there is a professional obligation in the Solicitors Code of Conduct to discuss funding options carefully with the client and to advise the client in accordance with the client’s best interests. Until solicitors incorporate within their marketing an intention to be competitive with other firms concerning success fees Sir Rupert Jackson’s aspirational forecast is unlikely to come to pass.
  20. In any event, one must not lose sight of the test to be applied under CPR Part 21.12 of the reasonable expense, reasonably incurred. Simply because an ill informed Litigation Friend signs up to a CFA with a success fee of 100% does not automatically mean that a 100% success fee is a reasonable expense for the purposes of CPR 21.12.
  21. The court has to look at all the circumstances in judging what is reasonable and in my judgment the best way to do this is to continue to look at the risks involved for the solicitors as has hitherto always been the case. I therefore reject the first submission made by Scott Rees.
  22. In the alternative, Scott Rees have submitted a list of risks that they say would have been applicable had risk assessments been carried out for the claims of A and M at the time that the CFAs were entered into. That list is as follows:
    1. “ That the parents are responsible resulting in a conflict of interest causing Scott Rees to withdraw and recovery of fees become highly impossible (sic)
    2. Risk that the claims for care were performed by a negligent parent therefore any potential claim for care may be lost completely. This puts the Claimant at a greater risk of failing to beat a Part 36 offer.
  • Risk of accident facts will not be known for some time because the parent is the Defendant and we are unable to discuss the accident circumstances due to the child’s age.
  1. Risk of an untraced Defendant
  2. Risk of allegations of fraud including occupancy allegations
  3. Risk of allegations it’s a low velocity impact case which requires a full trial under a Part 7 procedure.
  • risk that medical expert asserts there is no discernible injury or the injury is would (sic) result in a valuation of less than £1000 therefore making it a small claim resulting in no recovery of legal fees.
  • risk special damages are challenged i.e. care, medical expenses.
  1. risk of contributory negligence (failing to were (sic) a seatbelt)
  2. Failure to beat a Part 36 offer
  3. Failure to attend court by parents due to lack of interest of the parents or parents failing to bring to court appropriate documents such as a birth certificate resulting in adjournments and wasted costs.”
  1. These submissions are largely ill-conceived and of very little assistance. The object of a risk assessment is to assess the chances of winning the case. Winning the case in this context means obtaining a payment of damages and/or payment of costs in favour of the client.
  2. These alleged risks listed bear little resemblance to the known facts at the commencement of the claims of A and M and at the time the CFAs were entered into. As such they cannot be said to be relevant factors as they reasonably appeared to the solicitor when the CFA was entered into.
  3. There was no risk that the Litigation Friend was responsible for the accident as he was not driving at the time. The accident circumstances were clear-cut; the Defendant was a well known corporation; there was no realistic suggestion of a low velocity impact or fraud involving occupancy allegations. There was no care claim. There was no risk of a finding of contributory negligence against children of these ages (now 12 and 4). The alleged Part 36 risk in these most straightforward of children cases is virtually non-existent as only realistic offers are likely to be made as in any event acceptance is always subject to approval by the court. The alleged risk xi) is not a proper consideration in any risk assessment and a cynical observer might comment calls into question for whose benefit the claim is being pursued, the client or the solicitor?
  4. The internal statistics from Scott Rees that I am told show that 62% of their children cases in the past 12 months have been unsuccessful are of dubious probative value. They certainly do not support their submission that “applying a commercial reality as 62% of cases are unsuccessful this supports a success fee of 25%”. This appears to be an unintended shift of their position from a success fee of 100% to 25%. What it perhaps betrays is a true intention that the success fee should always equate to 25% of the damages as opposed to a percentage of the profit costs, a point which I dealt with in my first judgment.
  5. In my earlier judgment I explained how the fixed success fee pre Jackson was 12.5% where the case is settled before a trial. In setting a figure of 12.5% it is reasonable to assume that this was taken as representing an average with some cases potentially justifying a lower or higher figure depending upon the risks involved. In the cases of M and A the risks were less than average and therefore a success fee in excess of 12.5% could not be justified.
  6. In the early days when success fees were recoverable from the other side it was generally considered that a 5% component of a success fee would be for the deferment of the solicitor receiving his costs until the end of the case. I make the wry observation that once it was established in case law that this 5% deferment element was not recoverable from the other side that risk assessments were commonly drawn to state that 0% of the calculated success fee was attributable to the deferment of the payment the of the costs until the conclusion of the case. Now that the position has reverted to the success fee being irrecoverable from the other side I see no reason why the deferment element of 5% should not be recovered from the client.
  7. In my original judgment I indicated that in these straightforward cases the risk element would be in the region of 5%. Adding together the risk and deferment elements my assessment of a reasonable success fee would be 10% of reasonably incurred base costs of £1180 namely £118 plus VAT.
  8. The equivalent of a reasonably incurred success fee in each case which falls to be deducted from the damages under CPR Part 21.12 will therefore be £141.60. These figures are substantially less than the amounts claimed by Scott Rees at £528.76 and £516.25 for A and M respectively.
  9. In my original judgment I referred to the view expressed by Sir Rupert Jackson and Professor Fenn, his economic assessor, that the majority of Claimants would be no worse off by being responsible for payment of the success fee if their general damages were increased by 10%. By way of a cross check I am comforted in the knowledge that the Simmons v Castle uplift of 10% for general damages in A’s case is approximately £173 and in M’s case is approximately £168. These figures compare very favourably with £141.60.
  10. Finally I note that had the claimed success fees been allowed in full these would have been equivalent to between 36% and 37% of the amount I consider would have been reasonably incurred profit costs on the facts of these two straightforward claims. Those success fees would have been far higher than could have been justified in all the circumstances as a reasonable expense incurred by the Litigation Friend. The sum of £141.60 in respect of each claim will be deducted from the damages of each claim for the reasons which I have given above with the balance to be invested in accordance with the investment directions to be given upon the handing down of this judgment.

ARTICLES FROM OTHER WRITERS ON THE FIRST PART OF THE JUDGMENT

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