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

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.

 

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Make sure you prepare a Risk Assessment!

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.