Costs Combat

Francis Kendall examines the rising number of costs challenges against PI firms

Law firms suing law firms over costs may appear to be the ultimate sign of a profession intent on eating itself, but there is suddenly a lot of it about.

There has been an increasing number of applications before the Senior Courts Costs Office (SCCO) to obtain disclosure of parts of a law firm’s file over which the solicitor has proprietary rights. These are aimed at obtaining the information needed for a possible challenge to deductions that personal injury firms have made from clients’ damages.

Three rulings have been published, with the score currently 2-1 against granting the application.

In the first case, Green & Ors v SGI Legal LLP [2017] EWHC B27 (Costs), Master Leonard said it was for the claimants to show that they were entitled, as of right, “to receive copies of another person’s property, even on agreeing to pay the proper cost of supplying it”.

He continued: “If one person writes a letter to another, keeping a copy, it is not self-evident that the recipient can require another copy on demand, even on agreeing to pay for it. The mere fact that the defendants were formerly the claimants’ solicitors does not seem to me to change that. Nor does the fact that such letters are, by definition, not confidential as between the parties…

“The question is to my mind not whether there is authority to the effect that the claimants are not entitled to receive copies of the defendant’s property, but whether there is authority to the effect that they are.”

The claimants conceded, on the authority of Leicestershire County Council v Michael Faraday & Partners [1941] 2 KB 205, that they had no right to require that the defendants supplied, for example, copies of file notes or ledger entries that remain their property, on payment or otherwise.

But they sought to distinguish this case by reference to the fact that they had limited their claim to copies of three categories of documents all of which they said were created for their benefit. They also argued that paragraph 6.4 of practice direction 46, which requires various supporting documents to go in with an application for detailed assessment, that the client should be able to obtain them from the solicitor.

Master Leonard said: “I am unable to agree. The purpose of creating documents for the client’s benefit is fulfilled when those documents are given to the client. Supplying extra copies is another matter.

“A client who wishes to challenge a solicitor’s charges, but who has nonetheless lost or destroyed the key documents upon which that challenge is based, will obviously be at a disadvantage. It does not follow that the solicitor has any obligation to compensate for that.

“Nor will a client’s inability to supply the required documents with an application for detailed assessment in itself invalidate the application.”

The next decision came from Master James in Hanley v JC & A Solicitors Ltd [2017] EWHC B28 (Costs).

The status quo, she said, was that such applications almost invariably led to an order for the production of the documents that belonged to the former client upon payment of a fee, but not an order for documents that did not belong to them.

“The development of a new business model of representing claimants who were previously represented under a CFA by their former solicitors, and whose damages have been depleted to a greater or lesser extent by the charging of a fee under the post-LASPO regime, has led to a significant increase in the number of these cases coming through the courts, and the SCCO in particular. Does this mean that there is a need for a change in the status quo?”

She concluded that there was not, noting that there was no binding decided case in which solicitors have been ordered to hand over papers over which they have proprietorial rights.

Master James said: “I am concerned by several aspects of this case, for example the defendant taking a sum equal to exactly 25% of the damages and rendering a second bill several years after the first one was delivered and paid.

“However, I am also concerned by the floodgates that would likely be opened by a ruling that solicitors can be ordered to hand over their complete file in circumstances such as these; such a move would foreseeably instil considerable satellite litigation and I am not persuaded that this would be a positive step, and dismiss the application accordingly.”

However, Master Brown went in the other direction. In Swain v JC & A Ltd [2018] EWHC B3 (Costs), the claim ultimately focused on the disclosure of four schedules referred to in the disclosed part of the conditional fee agreement, and any other documents in the firm’s client-care pack that had not been disclosed.

Master Brown said section 68 of the Solicitors Act 1974 gave the court the discretion to order the provision of copies of the documents sought, “whether or not a proprietary right in the relevant documents has been established”. Here, he said, “it would be appropriate in this case for that discretion to be exercised in the claimant’s favour”.

The claimant said he had never received a signed copy of the CFA, and in any case the judge said he doubted whether many clients, particularly those bringing relatively low-value personal injury claims, “would appreciate the need to retain documents they had been provided with in the course of a claim for any length of time.

“Indeed, I would expect many clients to assume that if they were to lose or mislay the papers for any reason, their solicitor would provide them copies on request.” It was reasonable for the claimant to seek the documents “as he is at a substantial disadvantage without them”.

He added: “Section 6.4 of practice direction 46 provides that if any application for an assessment concerns a conditional fee agreement, a copy of that conditional fee agreement must accompany the claim form.

“Whether or not the court might issue proceedings notwithstanding a failure to append such an agreement to the claim form, the practice direction clearly acknowledges the importance of considering such an agreement in advance of an application for an assessment.

“Further, quite apart from any concern as to the reasonableness of the fees generally and the necessity of expenses claimed in the bills in this case, it seems to me that there is a particular need to consider the status of the fee-earner and the rates that were agreed for the fee-earners.”

The claimant had been told a legal executive would be handling his claim, and the judge said “the rate of £250 per hour is perhaps a rate one would normally associate with a substantially higher-grade fee-earner in a matter of significantly greater complexity and value.

“I would expect details as to the charging arrangements to be set out in the schedules to the CFA and I think it would be necessary to consider these prior to an application for an assessment in the context of a general consideration of the reasonableness of the funding arrangements and the charges.”

There was also confusion about whether a success fee was provided for, which the schedules would clear up.

Master Brown acknowledged the “substantial and legitimate concerns about the proportionality of costs incurred in applications of this sort, and as to the prospect that allowing the production of copies of documents might encourage ‘satellite’ litigation”.

But he said: “In this case the costs that would be at stake on an application for assessment are potentially significant in proportion to the damages received such that the matter is likely to be of importance to the claimant, particularly given the recent demand for payment by the defendant.

“Indeed I do not think that these two concerns should weigh against making an order which I otherwise consider to be correct; if the sums involved are modest in proportion to the costs that would be incurred in pursuing a section 70 assessment, that might be said to be a factor which weighs in favour of giving the disclosure sought now, not against.”

Further, he said, if the exercise of providing copies or inspection of documents was at the claimant’s expense this should deter frivolous requests, while the ‘one fifth rule’ was statutory protection against frivolous or unsubstantiated applications for assessment.

So where are we now? These claims are being brought by Leeds firm JG Solicitors, which describes itself as “the UK’s leading experts in fighting unfair compensation deductions”. Managing director James Green told the Gazette that the firm would “continue to fight” for clients who had been advised that their lawyers were entitled to take 25% of their damages.

Clerksroom barrister Robin Dunne, who has been instructed by JG, added: “The fundamental problem is that some solicitors take the 25% maximum contribution as the sum that will be recovered in any case, whatever the work done. The reasons for this are commercially understandable and I have sympathy with firms trying to successfully run PI practices in the current climate. However, that does not justify overcharging – the 25% is a maximum cap, not a starting point or a figure that should be recovered on every case.”

These cases emphasise the need for solicitors to ensure that their retainers are rock solid to start with, and that the bills delivered are crystal clear. Transparency is going to be the best way to avoid problems of this nature.

But with different judges taking different approaches to this issue, it seems that Master Brown was right when he said that “authoritative guidance on the point may assist”.

Francis Kendall is vice-chairman of the Association of Costs Lawyers and a partner at Masters Legal Costs Services

This article was first published in the March 2018 issue of PI FOCUS.

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27 Mar 2018

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