Update your CFAs now: decision may make thousands unenforceable

The outcome of Belsner v Cam Legal Services Limited [2020] EWHC 2755 (QB) is critically important to lawyers specialising in RTA and EL/PL work subject to fixed costs and will have an immediate effect. However, the consequences may be much more far-reaching, and any lawyer undertaking CFA work would be well-advised to consider whether their terms require amendment.

Background

On 5 February 2016 the claimant, Ms Belsner, was a pillion passenger when the motorbike she was riding was involved in a collision. Following the accident, she instructed the defendant, a law firm, to pursue damages. The defendant offered to act under CFA terms and sent a client care letter which set out the basis on which they would charge her. The relevant details of the CFA are contained at paragraphs 9 to 16 of the judgment. However, importantly (as noted at para 15) “none of the documents provided for an overall cap on the amount recoverable by the defendant from the claimant…”

The defendant did not advise Ms Belsner of the value of her claim, but completed a risk assessment which indicated that the defendant considered the likely value of the matter was less than £2,000.

Matters progressed and the insurer settled Ms Belsner’s claim for £1,916.98 damages, plus fixed costs and disbursements totalling £1,783.48. The defendant then paid on to Ms Belsner the sum of £1,531.48 (the amount of damages less £385.50 in respect of the success fee) but did not send a bill of costs or invoice.

Ms Belsner instructed Checkmylegalfees.com Limited and on 10 May 2018 a claim form was issued seeking an order for delivery of a statute bill. The defendant served a statute bill on 24 May 2018 which totalled £4,306.07 comprising:-

  1. Basic Charges of £2,171.90 plus VAT
  2. 100% success fee capped at 25% damages of £385.50 plus VAT
  3. GP Report of £225 plus VAT
  4. Psychology report of £806 plus VAT
  5. Total £3,588.40 plus VAT

On the defendant’s case therefore, it had been entitled to charge the claimant £4,306.07, which would have left her £605.90 out of pocket. The defendant had therefore chosen not to charge the whole of the fees they were strictly entitled to, and instead charged only the sum of £2,168.98, being the fixed costs recovered plus the success fee.

The court subsequently carried out a provisional (on paper) assessment and at first instance held that the claimant had not given “informed consent” as required by CPR 46.9(2), and on this basis limited to the basic charges to the £500 plus VAT being the amount actually paid in respect of costs by the insurer relating to costs. The court also reduced the success fee from 100% to 15%. Commenting on whether informed consent had been given, District Judge Bellamy said “given the differences in hourly rates and the lack of detailed explanation of the various costs scenarios it is hard to see how informed consent could be given”.

At a subsequent oral hearing the defendant argued that the CFA was sufficiently clear that the amount they could charge were not limited, and that accordingly it was clear that circumstances could arise in which the claimant would have to pay more than they recovered from the opponent. The Claimant argued that it was not sufficiently clear, and that in order to give express permission she should have been given enough information to balance the likely liability with the likely recovery.

Ultimately, the court assessed the defendant’s costs in the sum of £1,392 plus VAT for base costs and £208.80 plus VAT for the success fee.

As such, the Court held that the defendant was entitled to:-

  1. Base Costs: £1,392 plus VAT
  2. Success Fee: £208.80 plus VAT
  3. GP Fee: £255 plus VAT
  4. Psychology report fee: £806 plus VAT
  5. Total £2,661.80 plus VAT

However, in total Ms Belsner had only ever paid £2,168.98 because the defendant had only charged the amount recovered from the defendant plus the success fee. As such, the provisional assessment did not result in any financial recovery for Ms Belsner.

The Appeal

Ms Belsner appealed the decision on the basis that she had not given “informed consent” to the agreement that she would (or could) pay more to her solicitor than the amount recovered from her opponent in the court proceedings.

Summary of Decisions

  1. The fact that the defendant had not sought to charge everything it was entitled to was not relevant; it was not a part of the agreement.
  2. Had Ms Belsner been provided with sufficient information about the likely damages and the likely costs recoverable from her opponent, it might have affected her decision to enter into the CFA.
  3. The general terms used by the defendant in its CFA were not sufficiently clear to enable Ms Belsner to understand that she might end up with a shortfall.
  4. This case was distinguishable from Herbert v HH Law [2019] EWCA Civ 527 because in Herbert the solicitor had stated in the CFA that the amount recoverable from the client was capped at 25% of damages. There was no such limitation in this case.
  5. As a result of the above findings, Ms Belsner did not give her informed consent to enter into the CFA and it was therefore unenforceable.

Protecting Yourself

All lawyers practicing in cases subject to fixed costs, including EL/PL and RTA, as well as those acting in Intellectual Property subject to scale costs and tribunals which may be subject to specialist costs regimes should urgently review their CFAs and ensure that they:-

  1. Make clear that the client may be charged more than they could recover from their opponent; and
  2. Include a cap on the amount which will be taken from damages in the event of success as in Herbert; or
  3. Provide an estimate of the level of damages which the client can expect to recover (and this should be bespoke to each case) and set out the details if what costs are recoverable from an opponent under Part 45. This could be as simple as including tables 6B / 6C / 6D (and the relevant tables for “portal” costs) within a schedule to the CFA.

Of course, if the CFA is not compliant then it will be necessary to take remedial action in relation to ongoing cases. It may be sufficient to send a letter to your clients providing (1) an estimate of their damages, and (2) details of what they may recover from the opponent. It may then be possible to argue that by continuing to provide instructions they have given their “informed consent” to proceed on that basis. However, it may be necessary to go further and give the client an option to terminate. It is also possible that, were it to “get out” that such a letter had been sent, it may put firms which specialise in recovering legal fees for consumers on notice of a potential goldmine of cases.

Therefore, if you find yourself in this position, you should seek advice as soon as possible to protect yourself from potential future claims.

Matthew Rose is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com and 0113 222 3248. You can contact the Clarion Costs Team on 0113 246 0622.

Part 36 – is it unjust to award CPR 36 consequences when the defendant does not have the money to pay? (Rawbank -v- Travelex)

This article supplements and updates one titled Consequences of Beating a Part 36 Offer: Injustice published on 12 June 2019.

The case of Rawbank SA -v- Travelex Banknotes Limited [2020] EWHC 1619 (Ch) related to a contract that the Defendant would provide banknotes totalling in excess of $40 million to the Claimant. Due to the Coronavirus pandemic the Defendant was suffering from financial difficulties such that it could not fulfil its contract with the Claimant, and required restructuring. However, the Defendant had no defence to the claim, it was simply unable to fulfil its contractual obligations. Judgment was entered against the Defendant which was more advantageous to the Claimant than the terms of a Part 36 offer the Claimant had made.

Giving judgment in relation to the consequences of CPR 36, the Court allowed some of the consequences under CPR 36.17(4), but declined to allow an “additional amount” as provided for by CPR 36.17(4)(d). This decision reinforces a number of previous judgments in relation to the application of Part 36.17, specifically:-

  1. That the Court may adopt a cherry-picking approach and allow some of the consequences of CPR 36.17(4) but not others; and
  2. The court does not have discretion to award an “additional amount” at a rate other than 10% – it is all or nothing,

What is interesting about this case, however, is why the judge declined to make the award of the additional amount.

The Part 36 offer was made on terms that “the Defendant paid £48,290,000 within 14 days of accepting the offer…” At paragraphs 35 – 37 of the judgment, Zacaroli J held that “…acceptance of the Part 36 offer could only be made by actually paying the sum referred to in it…” and that because the Defendant was insolvent, “…it would be unjust to make at least some of the orders identified in Rule 36.17(4)”. The Court effectively found that because the Defendant did not have the money to pay the settlement sum, it could not have accepted the offer, and furthermore the fact of the Defendant’s impecuniosity meant that it would unjust to award the additional amount set out in CPR 36.17(4)(d).

In summary: a party’s financial position is a relevant consideration when considering the injustice test.

This decision appears to contradict, at least in part, the earlier authority of  Cashman -v- Mid Essex Hospital Services NHS Trust [2015] EWHC 1312 (QB), in which it was held that the court cannot take into account the amount of the additional amount when considering the test on injustice. It is a logical extension of that principle that the fact of a defendant’s ability or inability to pay is not a relevant consideration for the court to consider.

Furthermore, the judge appears to have erred in finding that the Part 36 offer ” could only be [accepted] by paying the sums referred to in it…” as CPR 36.14(7) provides that if the settlement sum “is not paid within 14 days of acceptance of the offer… the claimant may enter judgment for the unpaid sum”. It is plainly wrong to say that a party which accepts a Part 36 offer will then be bound to prioritise payment of the settlement sum above secured creditors (as was suggested at paragraph 35 of the judgment); the defendant will simply become liable to pay the amount of the settlement sum. If the defendant does not do so, then the claimant will be entitled to enter judgment. That judgment will be an unsecured debt and will be dealt with in an insolvency in accordance with the usual order of priority.

This decision appears to be a departure from previous authority and raises some significant uncertainty surrounding the meaning of “injustice” in the context of CPR 36.17, which many lawyers had hoped had been settled by a number of judgments in 2018 and 2019. It remains to be seen whether Rawbank will set a new standard by which the test of injustice is measured, or whether future courts will distinguish the case on the basis of its somewhat unique factual background. In either case, it can only be hoped that a case will find its way to a higher court to give some clarity on the question of what precisely “injustice” is.

Matthew Rose is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com and 0113 222 3248. You can contact the Clarion Costs Team on 0113 246 0622.

Solicitors Hourly Rates: Shulman -v- Bogolyubov

In Shulman -v- Kolomoisky & Bogolyubov, Senior Courts Costs Office (24/06/20) the Second Defendant (Bogolyubov) had instructed solicitors in Canary Wharf (postcode E14), which would place it within London Band 3 of the Solicitors Guideline Rates. The Claimant, who was liable to pay the Second Defendant’s costs, argued that the court should allow rates falling between the guideline rates for London 1 and London 3, taking into account the nature of the work.

Referring to the judgment of Mrs Justice O’Farrell in Ophen -v- Invesco [2019] EWHC 2504 (TCC) that “the guideline rates are based on rates fixed in 2010 and reviewed in 2014… they are not helpful in determining reasonable rates in 2019”, Master Rowley of the Senior Courts Costs Office considered the Claimant’s proposed starting point to be “entirely opportunistic”. The Master went on to point out that “the Guideline Rates were originally provided to judges when the Civil Procedure Rules arrived in April 1999 and the concept of summary assessment of costs first came into being. Many judges had little or no experience of costs and the guideline rates were there to provide assistance on summary assessment. They were not intended to replace a more thorough consideration of appropriate hourly rates in detailed assessments… it is something of an indictment on the evidence usually provided at detailed assessment hearings that the Guideline Rates have often been used… without variation. Although Master Rowley did point out that the Second Defendant had provided no explanation as to how the level of the hourly rates had been arrived at, he commented that the guideline rates re “is really the roughest of rough guides as to what might be allowed”.

In light of these comments, Master Rowley considered that in the absence of any evidence, the Court is required to consider the “pillars of wisdom” at CPR 44.4(3) in order to arrive at a conclusion as to whether the rates claimed are reasonable.

One further comment of note is that Master Rowley pointed out that “there is a very fluid market in terms of what hourly rates can be obtained” and that there are many factors which affect this which fall outside the remit of CPR 44.4(3), such as the solicitor’s appetite for such work or the potential for future work to be obtained from the same client.

Based upon the above, Master Rowley allowed rates of £750 for Grade A, £400 for Grade C, and £200 for Grade D.

It is important to note that this case related to firms practicing in London, which paying parties (and some judges) in regional courts consider to be a “special case” with no application outside the M25. It therefore adds to a growing volume of case law that the Guideline Rates are no longer suitable as a starting point, but until there is guidance from a higher court this should be treated as supportive but not a guarantee for receiving parties outside London.

Matthew Rose is a Solicitor in the Costs and Litigation Funding Department at Clarion. You can contact him on 0113 222 3248, or by email to matthew.rose@clarionsolicitors.com.

Part 36 – offer to pay by instalments

A party to proceedings (usually the defendant / paying party) may sometimes want to make an offer to pay the settlement sum by instalments. Whilst this is possible to do by Part 36, it does have an effect on the effect of the offer.

CPR 36.6(2) provides that a defendant’s Part 36 offer which offers to pay “all or part of the sum at a date later than 14 days following acceptance of the offer will not be treated as a Part 36 offer unless the offeree accepts”. The effect of this rule is that where a defendant makes an offer to pay by instalments:-

  1. If it is accepted then it will be treated in the usual way as a Part 36 offer. Therefore, Part 36.13 will apply (the defendant will pay the claimant’s costs up to acceptance, payment must be within 14 days etc);
  2. If it is not accepted and the defendant goes on to beat it, then CPR 36.17 will not apply.

It is important to note that this rule only applies to defendants’ part 36 offers – a claimant may make a Part 36 offer to accept payments by instalment and it will be treated as a Part 36 offer in the usual way.

The rules do appear to create a lacuna where a claimant makes a Part 36 offer including payments by instalments but where the offer includes a counterclaim or adverse claim. I am not aware of any existing authority on this point; it is likely that this is because this only affects a very small number of claims. In my view, it is likely that the court would construe such an offer as being a claimant’s offer for the purpose of CPR 36.6(2) unless it related solely to a counterclaim, in which case I think that it would be treated as being a defendant’s offer in accordance with CPR 20.2(2)(b).

Matthew Rose is a Solicitor on the Costs team at Clarion Solicitors. Contact him at matthew.rose@clarionsolicitors.com or on 0113 222 3248.

Part 36 Pointers

Matthew Rose gives an overview of key points for Part 36. Lockdown tip: remember Part 36 follows the rules of service, so make sure you get agreement to serve offers by email.

Matthew Rose is a Solicitor on the Costs team at Clarion Solicitors. Contact him at matthew.rose@clarionsolicitors.com or on 0113 222 3248.

New Rules for Damages Based Agreements

In October 2019 proposals to reform the Damages Based Agreement (DBA) Regulations were published. Here I give a brief rundown of what the new proposals mean.

The Law Society has recently published a more detailed analysis of the key points which can be viewed here.

Matthew Rose is a Solicitor in the Clarion Costs Team. You can contact him on 0113 222 3248 or by email to matthew.rose@clarionsolicitors.com.

 

 

Coronavirus Update: Bar Council guidance on attendance at Court

The Bar Council has today given further guidance to its members that advocates should not attend hearings in person unless they are “genuinely urgent” and cannot be done remotely. However, it is anticipated that such a hearing will be a rare occurrence.

My standing advice is that where a hearing is listed, practitioners should contact the court as soon as possible and ask for guidance. I recently wrote to the County Court at Huddersfield and asked what procedures are currently in place; I received a response today stating that “all hearings will be adjourned: you will be contacted before the hearing”.

The situation continues to develop rapidly and therefore it is likely that the position in relation to hearings will change.

Matthew Rose is a solicitor in the Clarion Costs Department. You can contact him on 0113 222 3248 or by email at Matthew.Rose@clarionsolicitors.com.