The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) was a piece of legislation which introduced a number of very important changes to civil litigation costs and funding.
One of those changes was the abolition of the recovery of additional liabilities inter partes for retainers created on or after 1 April 2013 (save for some limited exemptions). This meant that additional liabilities were to be paid by clients, and on personal injury matters, it was foreseen (and currently happens in practice) that they would be deducted from the client’s damages. Additional liabilities are therefore now a solicitor/own client expense.
The case of Herbert -v- HH Law Limited is a case that any law firm conducting personal injury litigation (and deducting additional liabilities from clients’ damages) should read. The case relates to an Appeal by the Defendant Solicitors (“HH”) of decisions made by District Judge Bellamy at Sheffield County Court in April and June 2017. The decisions on Appeal were:
- The reduction of a success fee from 100% to 15%;
- Approval of a cash account in terms which treated the payment of an ATE Insurance Premium as a solicitor’s disbursement; and
- Ordering HH to pay the costs of the assessment and refusing to inquire further into HH’s contention that the retainer of the Claimant’s new solicitors (JG Solicitors Limited) was illegal and/or unenforceable.
The appeal was heard on 21 March 2018 before Mr Justice Soole at Sheffield High Court, where he dismissed all 3 grounds.
- A Risk Assessment should always be prepared in respect of any Conditional Fee Agreement. The LASPO reforms have not resulted in risk assessments no longer being required (a point unsuccessfully argued by HH). A Risk Assessment is a very important document that goes to the heart of the calculation of the success fee. It is a key document for the Court to consider in any solicitor/own client dispute over the level of a success fee charged. It is important that law firms do not take a ‘blanket’ approach to success fees. Law firms should calculate success fees individually on each case, taking into account the specific facts and risks.
In this case, the success fee was claimed at 100%, but by virtue of the LASPO reforms was subject to a maximum cap of 25% of the total amount of general damages for pain, suffering, loss of amenity and damages for past financial loss. The Appeal Judge endorsed the success fee allowed by District Judge Bellamy, which was based on the findings that the facts of the case were straightforward, the nature of the injury was minor soft tissue damage and whiplash, there was no time off work and it was likely that the case would be settled for a modest amount in a short period of time.
The Appeal Judge stated:
“in the circumstances of this particular case, allowing for the fact that the modest disbursements were funded by the solicitors for a fairly short period, the appropriate success fee was 15%……”.
This case therefore represents a useful guide as to what the success fee should be on straightforward and low value personal injury work.
- An ATE insurance premium should be treated as a solicitor’s disbursement and should therefore be included in any final invoice to a client and in any solicitor/own client bill/breakdown of costs.
In this case, the Defendant did not treat the ATE premium accordingly and therefore failed to properly include it within the final invoice. The result of this was that when District Judge Bellamy considered and approved the cash account, it left a balance of £349.00, which was ordered to be refunded to the Claimant (despite the Defendant actually paying the sum to the insurer!).
The Appeal Judge said the following:
“if the solicitor fails to include the item in the delivered bill of costs, he has to bear the consequence; subject to an application for leave to withdraw the bill and deliver a fresh bill”.
It is therefore very important for any firms which conduct litigation work under Conditional Fee Agreements (with the support of ATE insurance) to ensure that Risk Assessments are properly prepared for each case and that ATE insurance premiums are included in final invoices to clients.
This blog was prepared by Andrew McAulay, who is a Partner and the Head of the Costs and Litigation Funding Team at Clarion. He can be contacted on 0113 336 3334 or at firstname.lastname@example.org.
The case of Housemaker Services & Anor -v- Cole and Anor  is a useful case for any litigant or law firm considering whether to make an application for a non-party costs order.
- The claim was brought under CPR Part 8 for a limitation direction under Section 1028 of the Companies Act 2006. The underlying claim related to three disputed invoices rendered by the First Claimant to the Defendants. The First Claimant had subsequently been struck off the register and dissolved.
- The Court dismissed the claim because the First Claimant could not demonstrate that the dissolution of the company had caused the claim not to be brought, and therefore the Court declined to give a limitation direction.
- The Court ordered the First Claimant to pay the Defendants’ costs on the standard basis. The Defendants applied for Mr Wayne Williams, the sole director of the Claimant, to be joined as Second Claimant to the proceedings, for the purposes of making an application for a non-party costs order against him.
- The Court made the order joining Mr Williams (Second Claimant) and then gave further directions for the application against him to be dealt with on paper. The Judgment essentially deals with those submissions and the Courts determination of the application for a non-party costs order against Mr Williams.
Submissions of Interest/Note
- Mr Williams gave instructions to pursue the proceedings and appeared to have funded them. The First Claimant had no assets and it was highly unlikely that they would be able to satisfy an order for costs.
- In respect of a non-party costs order, a warning at the earliest opportunity should be given. The first warning of the application was made at a very late stage.
- There was no suggestion that proceedings were brought in bad faith, for an ulterior motive or improperly.
Useful Information/Comments from the Judgment
- Paragraph 10 – “A decision to make a non-party costs order is exceptional, but this only means that it is outside of the ordinary run of cases. In a case where a non-party funds and controls or benefits from proceedings, it is ordinarily just to make him pay the costs, if his side is unsuccessful, because the non-party was gaining access to justice for himself, and thus can be regarded as the real party to the litigation”. (this was a general comment about non-party costs orders).
- Paragraph 11 – “However, the director of a limited company is in a special position. It is not an abuse of the process for a limited company with no assets to bring a claim in good faith. It is always open to a defendant to such a claim to apply for security for costs. The mere fact that a director who controls the company’s litigation also funds the claim is not enough in the ordinary case to justify a non-party costs order against him if the company’s case fails”.
- Paragraph 12 – “A company is indeed owned by its members. But this does not mean that the shareholder is the “real” party to the claim. In law, the assets of the company (including any claim) belong to the company, and not to the members. Where the proceedings are brought in good faith and for the benefit of the company (rather than for some collateral purpose), the company is indeed the real claimant. If it were otherwise, the principle of the separate liability of the company from its members would be eroded”.
- Paragraph 13 – “Moreover, it is not an unusual thing, let alone wrong, that a director who is a shareholder of a company and who funds the company’s claim will ultimately benefit from it if it is successful. It is simply a consequence of the policies adopted by our company law, allowing businessmen to take some risks in seeking profit without incurring unlimited liability”.
- Paragraph 14 – “A person choosing to deal voluntarily with (or to sue) a limited liability company does so against the legal background. Any potential unfairness caused to a party who is (involuntarily) sued by such a company is remedied by the security for costs jurisdiction”.
- Paragraph 15 – “Accordingly, in order to make it just to order a director to pay the costs of unsuccessful company litigation, it is necessary to show something more. This might be, for example, that the claim is not made in good faith, or for the benefit of the company or it might be that the claim has been improperly conducted by the director”.
The Court decided that this was not a case where non-party costs order should be made. The Court did not find that the behaviour of Mr Williams in controlling, funding and ultimately hoping to benefit from the claim went beyond the ordinary case of the director and shareholder of a company pursuing a legal claim (paragraph 22).
This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. He can be contacted on 0113 336 3334 or at email@example.com.