PI clients must give “informed consent” to deduction of unrecovered costs from damages

Personal injury (PI) law firms need their clients’ informed consent to the deductions that will be made from their damages for outstanding costs, even if that liability is voluntarily capped when it falls due, the High Court has ruled.

This means including more detail than stating simply that a client is likely be liable to costs not recovered from the defendant.

The decision of Mr Justice Lavender (pictured) in Belsner v Cam Legal Services Ltd [2020] EWHC 2755 (QB) is arguably the biggest victory to date secured by Checkmylegalfees.com, which said millions of clients may have claims against their former solicitors as a result.

Lavender J’s ruling in what he recognised was a test case could end up in the Court of Appeal, as the firm – Norfolk firm CAM Legal – is seeking permission to appeal.

He said it was the first time a court has had to decide whether a solicitor seeking to rely on CPR 46.9(2) has to show that the client gave informed consent to paying the solicitor more costs than it could have recovered from another party.

Darya Belsner’s case for an injury suffered as a pillion passenger on a motorbike settled in the RTA portal for £1,917 in damages plus fixed costs and disbursements of £1,783. The firm – trading as Scooters and Bikes Legal – deducted £385.50 from the damages as its success fee (100%, capped at 25% of damages).

The claimant then instructed Checkmylegalfees, which requested the final statute bill and then applied for a Solicitors Act assessment. CAM’s bill came to £4,306, meaning there was a shortfall of £2,523 to be paid by Ms Belsner. CAM capped that at £385.50.

Section 74(3) of the Solicitors Act 1974 says the amount allowed on assessment cannot exceed what the court would have allowed as between party and party. However, CPR 46.9(2) says this can be overridden by written agreement. The question was whether it required informed consent.

The client-care letter included a costs estimate of £2,500. DJ Bellamy found that the paperwork given to Ms Belsner made it clear that CAM would seek to recover any shortfall in costs not recovered. “To import informed consent places the burden too high. It simply has to be an express term and an express term is a term that is clearly set out in the agreement and about which there can be no doubt and I am satisfied that this documentation meets that test.”

He did, however, reduce the success fee from 100% of the basic charges to 15%, in line with the Court of Appeal ruling last year in Herbert. This led to basic costs of £1,392 and success fee of £209 plus VAT.

On appeal by both sides, Lavender J said the requirement for informed consent arose from the fiduciary nature of the relationship between solicitor and client.

He agreed that it was clear CAM told the claimant that the agreement allowed the firm to charge Ms Belsner more than it had recovered from the other side, but did not explain that, in a case worth less than £10,000, the costs recovered might be no more than around £500.

“If it had been pointed out to the claimant that, while the defendant’s estimate of costs was £2,500 plus VAT, she might recover only £500 or £550 plus VAT from the insurers, then that may have affected the claimant’s consent to the agreement…

“It may, for instance, have led the claimant to ask whether her liability could be capped, or to approach a different firm of solicitors, who would cap her liability. Prima facie, therefore, it ought to have been disclosed.”

Lavender J said it would not have been “an unduly onerous burden” on CAM to do this: “It would not involve explaining all of the detail and complexity of the provisions of the Civil Procedure Rules and the protocol which I have set out. Nor would it have required identifying every possible outcome of the claimant’s claim.

“Rather, it involved taking the outcome which the defendant had itself assumed for the purposes of its estimate of costs and stating what the recoverable costs might be in that case.”

The “general terms” used by CAM to describe the amount of the defendant’s costs which the claimant might recover from the insurers – which simply indicated that she might not recover all of the costs – were “not such as to bring home to the claimant” her potential liability.

This potential liability was “so striking that it ought, in my judgment, to have been brought specifically to the claimant’s attention”.

The court did not consider the defendant’s appeal as a result.

Mark Carlisle of Checkmylegalfees.com said: “The judgment is a long overdue reminder of a solicitor’s fiduciary duties. The court has, for the first time, confirmed that it is those duties that underpin all aspects of ‘informed consent’ to legal fees, and that those duties don’t stop outside the door of the post-LASPO personal injury department or when a conditional fee agreement is involved.

“I have no doubt that it will be painted by the sector as an interference with freedom of contract, but that misses the point. Solicitors remain free to contract with clients in whatever way they like, but subject to informed consent following full and frank disclosure of the material facts.”

He said the decision gave clients true price transparency and the opportunity to look around for a better deal, “whilst putting an end to the ability of lawyers to abuse the conditional fee regime”.

Darren Draper, practice manager for CAM Legal, said they would seek permission to appeal: “We genuinely believe [Lavender J] was wrong to ignore the fact that we, as a firm, did ultimately cap all of our unrecovered costs.”

Ged Courtney, a costs draftsman at Kain Knight Costs Lawyers – which acted for CAM – said: “The logical conclusion of the judgment is that, notwithstanding the significant amount of costs information CAM Legal provided to Ms Belsner, including the fact that she would be responsible for any shortfall in unrecovered profit costs, by not setting a cap on those overall charges or illustrating what an overall shortfall might look like, a solicitor firm is unable to rectify that by subsequently capping that shortfall costs liability at the end of the case.

“It seems to us, with respect to Mr Justice Lavender, that that cannot be the correct legal position.”

At the same time, Nick McDonnell, director at Kain Knight, said the ruling was good news for firms which advised clients of the cap they would apply.

In such cases, “informed consent is likely to have been given and it will be reasonable for the solicitor firm to charge its client up to the level of that cap. Since a large proportion of solicitor/client retainer documents do provide for such an overall cap, then this decision should provide some comfort.”

Lavender J noted how important the parties considered the appeal, spending nearly £88,000 on it between them.

PJ Kirby QC and Robin Dunne (instructed by Clear Legal Limited t/a checkmylegalfees.com) for the claimant. Nicholas Bacon QC (instructed by the defendant) for the defendant.

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Costs News
Published date
21 Oct 2020

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