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 unenforceable to the extent it required the client to pay more than was actually recovered from her opponent.

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.

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21ST CENTURY LITIGATION (Part 3)

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The third part of this series will explore the liability of third party funders in the matter of Arkin v Borchard Lines Ltd (Nos 2 and 3) [2005] 1 WLR 3055.

Background

This matter related to an unsuccessful action in respect of anti-competitive practices which resulted in the collapse of the Claimant’s company, and which severely affected his finances. The Claimant entered into an agreement with a professional litigation funding company (MPC) to provide funding for the expert evidence and litigation support services for the expert. MPC did not agree to pay any of the Defendants’ costs or to provide finances for an ATE premium due to the significant amount of the premiums available.

The claim was unsuccessful at Trial and the Claimant was ordered to pay the Defendants’ costs. The Defendants’ then sought a non-party cost order against MPC for the entirety of the Defendants’ entitlement to costs. However, this was refused at first instance.

The Defendants subsequently appealed the decision.

Decision

The Court of Appeal considered the balance that needed to be struck between the access to justice provided by third party funding and the general rule that costs should follow the event. It was considered that a funder who purchased a stake in an action should then be protected from all liability of the opposing party’s costs in the event the claim fails.

The Court of Appeal commended the following approach:

‘a professional funder, who finances part of a Claimant’s costs of litigation, should be potentially liable for the costs of the opposing party to the extent of the funding provided’

This has become known as the Arkin cap. This approach has provided clarity and transparency to funders as they can now quantify their liability should the matter fail.

Whilst the cap has been readily adopted by the funding industry, it has also not been without criticism. The main criticism being that the cap creates an uneven playing field in favour of the third party funder as they will only ever be liable for the amount of their investment, whilst the opposing party would be liable for all of the costs of the funded party.

In the next part of the series…

The next blog in this series will take a look at the recent decision which has built upon the ‘Arkin cap’ in the matter of Davey v Money [2019] EWHC 997 (Ch).


This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

THIRD PARTY FUNDING – A VIABLE OPTION FOR 21st CENTURY LITIGATION (Part 1)

This series of blog articles will address the increasing viability of third party funding as an alternative to traditional litigation funding methods. It will look at how the law has developed historically and how the Court now approaches third party funding and the potential liability of third party funders.

The first part of this series will explore how the Court’s attitude to third party funding has changed significantly from the 19th through to the 21st Century.

Champerty and Maintenance

The historic position taken by the Court in respect of third party funding was that it was illegal and tortious. Two offences had developed through the common law: champerty and maintenance.

Champerty referred to when a person who did not have a legal interest in the matter provided financial assistance to litigation in order to receive a share of the profits.

Maintenance was the procurement of direct or indirect financial assistance from another in order to carry on, or defend, proceedings without lawful justification (British Cash & Parcel Conveyors v Lamson Store Service Co [1908]).

Therefore, the default position was that such agreements, which would be considered third party funding arrangements today, would be considered illegal, tortious and unenforceable. However, even at the turn of the 20th Century, the courts were willing to find such arrangements enforceable as a matter of public policy. For instance, in insolvency proceedings, which by their very nature meant that one party would need financial assistance in order to carry on or defend proceedings (Seear v Lawson (1880)), the Court found that a third party funding agreement was enforceable.

Abolition

The default position changed with the enactment of the Criminal Law Act 1967 (CLA 1967). S.13 CLA 1967 abolished the offences and torts of champerty and maintenance. S.14 CLA 1967 changed the approach of the test, which now started from the presumption that such agreements were enforceable, unless there was a valid reason as a matter of public policy.

Comment

Statutory intervention was important to provide additional certainty and security to parties wishing to enter into third party funding arrangements. However, such an approach cannot be taken for granted outside of the jurisdiction of England and Wales.

Recently, the Supreme Court in Ireland, in the matter of Persona Digital Telephony Ltd v The Minister for Public Enterprise (2017), found a third party funding agreement to be unlawful. This is because the offences of Champerty and Maintenance have not been abolished by statute In Ireland. The Court felt that it is consequentially bound to find such agreements unlawful and that any change of approach was within the remit of the Legislator, not the Judiciary.

In the next part of the series…

The next blog will take a look at how the Court has begun to develop the law in respect of third party funding, with a look at the decision in Factortame Ltd v Secretary of State for Transport, Local Government and the Regions No.8 [2002].

This blog was prepared by Kris Kilsby who is an Associate Costs Lawyer at Clarion and part of the Costs Litigation Funding Team.  Kris can be contacted at kris.kilsby@clarionsolicitors.com or on 0113 227 3628.

How can the precedent H budget assist with any submissions for a split trial?

The budget can be used in certain instances to assist with the litigation.  A request for a split trial is one of those instances.   The fundamental argument surrounding whether there should be a split trial is predominantly the additional costs associated with this extra trial.

Whether you are requesting the split trial or opposing it, the budget can help.

How can the budget assist with any submissions in support of the application? The budget can demonstrate that the costs remain proportionate and reasonable and those costs are not excessive, despite the additional costs that will be incurred.

How can the budget assist with any submissions in opposition to the application? The budget may be able to highlight that the additional costs will result in the costs being wholly disproportionate and unreasonable.

The budget can be a useful tool for litigators.

Sue Fox is the Head of Costs Budgeting in the Costs and Litigation Funding department at Clarion Solicitors. You can contact her at sue.fox@clarionsolicitors.com and 0113 336 3389, or the Clarion Costs Team on 0113 246 0622.

 

Costs and Litigation Funding Update Seminar

Clarion are holding a Costs and Litigation Funding Update Seminar on Thursday 22 October 2015. The seminar will provide a valuable update on a broad range of topics relating to legal costs and litigation funding. Clarion will provide up-to-date and useful guidance on case law post Jackson, cost budgeting and WIP due-diligence.

For more information, please click the link below:

http://www.clarionsolicitors.com/who-we-are/events/costs-and-litigation-funding-update