Tag: solicitor/own client costs dispute

Falling short when advising client of ‘shortfall’

Anna LockyerLeave a comment

The importance of clear client communication on costs budgets has again come to the fore, this time in the context of solicitor-own client costs.

When a case is subject to a costs management order, if budgeted costs are to be exceeded it follows that the implications of that overspend are properly explained to the client. Even if the client has been notified that the excess may not be recoverable from the opponent, further steps need to be taken before deductions can instead be made from damages.

The SCCO case of ST v ZY [2022] EWHC B5 (Costs) (21 February 2022) highlighted exactly that. The costs exceeded the budget by £31,304.68 in the following phases:

-Issue/statements of case: the figure approved was £4,792.46, but £10,771.50 was claimed, an excess of £5,979.04.

-Witness statements: the figure approved was £1,391.51, but £7,643.50 was claimed, an excess of £6,251.99.

-ADR/Settlement: the figure approved was £12,452.85, but £31,526.50 was claimed, an excess of £19,073.65.

In points of dispute, the Defendant relied on the ‘good reason’ requirement of CPR 3.18 (b) not being met to challenge the Claimant’s departure from their budgeted costs.

No attempts were made by the Claimant to advance a reply on the grounds of ‘good reason’ in relation to the excess in the issue/statements of case or the ADR/settlement phases. Recovery from the Client’s damages was instead the default position.

In relation to the overspend in the witness phase, the Claimant did however seek to justify extra costs on the basis that some unexpected work was required in relation to additional witness statements. The time included in the bill of costs for this amounted to 1.9 hours. Unsurprisingly no good reason was found for the £6,251.99 overspend.  

The Defendant also took issue with £11,038 being claimed over and above the 1% and 2% caps allowed for costs management. The Claimant conceded that recovery of this additional excess from the Defendant was not possible and again turned to the Client’s damages.

Senior Costs Judge Gordon-Saker commented in his judgement that he had seen nothing to suggest that the excess had been explained to the Client.

Counsel for the Claimant set out in his skeleton argument that costs information had been provided to the extent that she had been advised there would be a shortfall and the advice letters estimated that shortfall to be £43,500 plus VAT the month before settlement. This figure was very close to the budget overspend of both the budget phases and the costs management cap combined, which altogether totalled £42,342.68 plus VAT.

Claimant’s Counsel submitted that the excess costs were not unusual in nature or in amount and were therefore reasonably incurred so the presumption as per CPR 46.9(3)(c) was not applicable. SCJ Gordon-Saker agreed that they were not of an unusual nature but did consider them to be unusual in amount, distinguishing both elements with a simple analogy:

“Paying a brief fee of £50,000 when the usual fee would be £5,000 would be unusual and one can easily see that the solicitor should be at risk if the client is not informed that the fee might not be recovered because of that. The amount can be unusual without the nature being unusual.”

On the facts of this case SCJ Gordon-Saker then pointed out that the issue/statement of case budgeted costs were exceeded by 100%, witness statement budgeted costs by over 400% and ADR/settlement budgeted costs by over 150%.

He did however accept that the Client was advised throughout that there would be costs deducted from damages because they were not recoverable from the Defendant, but that there was nothing to suggest she was told about the set budget or the effect of the budget. He further went on to say:

“To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. ST should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.”

Consequently, costs in excess of both the budget and the 1% and 2% caps were presumed to have been unreasonably incurred. On a practical note SCJ Gordon-Saker concluded his judgment by stating:

“I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. At that point the client is moving from pursuing a claim in which reasonable and proportionate costs will be recoverable to a claim where no further costs will be recoverable in respect of some or all of the phases.”

This case exemplifies the interplay between budgeted cases and solicitor-own client costs and the consequences of ambiguity.

When a budget is to be exceeded and it is apparent that those costs would neither satisfy the ‘significant development’ requirement for upward budget revision nor the ‘good reason’ test at assessment, the client needs to be advised of ‘unusual’ costs from all angles to minimise any potential write-off.  If and when a budget has actually been set, be clear about the consequences of exceeding that budget, especially if the client is to foot the shortfall bill. 

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilandCommercialCosts@clarionsolicitors.com.

Deductions from damages – what is said and not what is approved by the client

clarioncosts1 Comment

Professor Dominic Regan and Joanne Chase, senior associate at Clarion, take a look at the recent solicitor own client decision of Karatysz v SGI Legal LLP and the basis on which the Defendant successfully appealed a first instance decision of DJ Bellamy sitting at Sheffield District Registry of the High Court.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

SGI Legal LLP v Karatysz – Informed consent irrelevant to CPR46.9(3)(c)(ii)

Andrew McAulayLeave a comment

The decision of Mr Justice Lavender in SGI Legal LLP v Karatysz [2021] EWHC 1608 (QB) (11 June 2021) has been handed down today.

The matter concerned a Solicitors Act assessment in respect of the Defendant Solicitors’ deduction from the Claimant’s damages following a successful RTA claim. At the original hearing the District Judge found that informed consent was relevant for the purpose of CPR 46.9(3)(c)(ii) and that the solicitors’ costs should be limited to the costs recovered from the insurers.

The Defendant Solicitors were successful on appeal, Mr Justice Lavender held that “the issue under CPR 46.9(3)(c)(ii) is whether or not the solicitor told his client what is there set out. That issue concerns what the solicitor said, not whether the client agreed with or approved what the solicitor told him.”

See the full judgment here and listen to Joanne Chase and Dominic Regan discuss the judgment in more detail in our latest video.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Avoiding Challenges to your Costs II: What is an Invoice

Joanne Chase3 Comments

Until an invoice is delivered in accordance with the Act, a solicitor does not have any right to take client money. Doing so could (and probably would) be a breach of Rule 5.1 of the Solicitors Accounts Rules. Unfortunately there is no further explanation within the Act as to what a statute invoice is or what information it must contain.

This is the second blog in a series covering various aspects of solicitor / own client relationships. You can find the other blogs here:-

Avoiding Challenges to your Costs I: Invoicing Clients

Avoiding Challenges to your Costs III: Talking about Money

Avoiding Challenges to your Costs IV: Time Recording

Whether or not an invoice is a “statute” invoice is determined with reference to the authorities. There are a number of factors which the Court will take into account, but it is important to recognise that this is not a “check box” exercise. The mere fact that one or more factors are missing will not automatically mean that the invoice is not a statute invoice.

The following factors will be relevant:-

  • If the invoice is raised before the conclusion of the case, whether the solicitor is entitled to charge their client at that point (Underwood, Son & Piper v Lewis [1894] QB 306 A.L.). There is a rebuttable presumption that a solicitor has no right to invoice on an interim basis unless there is a contractual right to do so (Chamberlain v Boodle & King [1982] 1 WLR 1443 and Davidsons v Jones-Fenleigh [1980] Costs LR 70).
  • Whether the invoice contains a statement that it is a statute invoice and is final for the period covered (Adams v Al Malik [2014] 6 Costs LR 985).
  • There should be sufficient information within the bill to identify the work to which it relates (Ralph Hulme v Gwllim [2002] EWHC 9034 (Costs)). This could include a date range or breakdown of costs.

A final invoice also may only include work actually done, and cannot include a claim for future time. Any invoice which includes a claim for future time is therefore likely to be deemed to be an invoice for a on account of costs.

In summary, a client invoice should be clear that it is final for the period covered and identify the work done. Solicitors’ retainers should be careful to incorporate terms entitling them to raise interim invoices during the case.

You can find out more about our services here or you can contact the Costs Team at CivilCosts@clarionsolicitors.com

Success Fees and ATE Premiums post-LASPO – HH Law v Herbert Law Limited – Court of Appeal decision

Joanne ChaseLeave a comment

The case of HH Law Limited v Herbert [2019] EWCA Civ 527

Background

This is a matter that was subject to a further appeal following the original appeal heard in March 2018. My colleague, Andrew McAulay, has prepared a useful summary of the outcome of that appeal and the background to the dispute which I will not repeat here.

Costs proceedings

In the subsequent appeal, HH Law (HH) sought to appeal two main areas; the reduction in the success fee, and the finding that the ATE Premium was a disbursement.

The Success Fee

The first ground of appeal put forward by HH was that, in a solicitor/client assessment, costs would be considered reasonably incurred and reasonable in amount if there had been express or implied approval by the client (CPR 46.9(3)). HH were able to successfully show that the documents provided to the client provided a ‘clear and comprehensive account of her exposure to the success fee and HH’s fees generally’.

However, it was under CPR 46.9(4) whereby the Court held that a success fee of 100% on the circumstances was unusual in both nature and amount. The Court of Appeal stated that the approach to calculating a success fee was to base it upon the solicitor’s perception of litigation risk at the time the agreement was made.

HH contended, within a witness statement, that it was a fundamental part of their business model to set the success fee on all cases at 100% irrespective of the litigation risk, and that such a business model was prevalent across the industry following the changes introduced by the Legal Aid, Sentencing, and Punishment of Offenders Act 2013 (LASPO). The Court of Appeal dismissed this approach and stated that there had been insufficient information provided to the client to ensure that informed consent was achieved in respect of the basis of setting the success fee at 100% for all cases irrespective of risk. The success fee was, therefore, held at 15%.

Comment: This may be considered an alarming result in the grand scheme of things and could lead to an increase in solicitor/client challenges to the level of success fee deducted from damages.

However, there is a simple solution to these challenges. The judgment firmly establishes that success fees should be calculated based upon the litigation risk at the date the agreement was entered. It is therefore essential to carry out a risk assessment when entering into the CFA.

The ATE Premium

HH had incurred the costs of the ATE premium and deducted it directly from the firm’s client account. Ms Herbert had contended that the premium was a disbursement and, therefore, could be challenged under a solicitor/client assessment. The Court carefully considered the definitions of what a solicitors’ disbursement was

‘a disbursement qualifies as a solicitors’ disbursement if either (1) it is a payment which the solicitor is, as such, obliged to make whether or not put in funds by the client, such as court fees, counsel’s fees, and witnesses’ expenses, or (2) there is a custom of the profession that the particular disbursement is properly treated as included in the bill as a solicitors’ disbursement’.

The Court came to the conclusion that an ATE premium did not fall within either definition, and that HH had been acting as an agent of the client when paying the ATE premium.

Comment: It was noted that the consequence of this finding would significantly reduce a client’s ability to challenge the amount of ATE premiums in future, and obiter, it was suggested that steps could be taken to bring ATE premiums within the definition of disbursements in future.

We still have places available at our next Costs and Litigation Funding Masterclass on 16 May 2019. https://lnkd.in/d33uy9e

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.

 

Make sure you prepare a Risk Assessment!

Andrew McAulay1 Comment

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:

  1. The reduction of a success fee from 100% to 15%;
  2. Approval of a cash account in terms which treated the payment of an ATE Insurance Premium as a solicitor’s disbursement; and
  3. 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.

Key Points

  1. 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.

  2. 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”.

Summary

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 andrew.mcaulay@clarionsolicitors.com.