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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> SGI Legal LLP v Karatysz [2021] EWHC 1608 (QB) (11 June 2021) URL: http://www.bailii.org/ew/cases/EWHC/QB/2021/1608.html Cite as: [2021] Costs LR 833, [2021] EWHC 1608 (QB), [2021] WLR(D) 334, [2021] 1 WLR 5624, [2021] WLR 5624 |
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[New search] [Printable PDF version] [Buy ICLR report: [2021] 1 WLR 5624] [View ICLR summary: [2021] WLR(D) 334] [Help]
County Court Claim No: E90SE026 |
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY
ON APPEAL FROM
SHEFFIELD DISTRICT REGISTRY
Lowgate Hull HU1 3EZ (Remote hearing on Cloud Video Platform) |
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B e f o r e :
____________________
| SGI LEGAL LLP |
Defendant/ Appellant |
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- and |
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| Mrs MARTA KARATYSZ |
Claimant/ Respondent |
____________________
PJ Kirby QC and Robin Dunne (instructed by Clear Legal Ltd t/a checkmylegalfees.com) for the Respondent
Hearing date: 17 November 2020
____________________
Crown Copyright ©
Mr Justice Lavender:
(1) Introduction
(1) that the Defendant's base costs were limited to the base costs recovered from Mrs Muddiman's insurers, Aviva; and
(2) that the Defendant must pay the Claimant's costs of the assessment of the Defendant's bill, on the basis that the amount of the bill had been reduced by more than one fifth.
(2) Background
(2)(a) The Collision
(2)(b) The Defendant's Retainer
" Enclosed is a Conditional Fee Agreement (CFA) which, together with this Client Care Letter, will form the agreement between us. We also enclose a copy of the Personal Injury Booklet that explains how the CFA works and also contains our Terms of Business, which you are advised to read carefully, particularly the sections on Client Satisfaction, Client Money and Limitation of Liability."
"Outline of the Work
A broad outline of the work we will undertake on your behalf is as follows:
- Submit your claim to the relevant party
- Liaise with all parties and gather evidence to establish evidence in respect of liability
- Arrange your medical appointment and medical report to substantiate your injuries
- Ensure all items of expense incurred as a result of this accident are claimed from the other side where recoverable in English law
- Advise you throughout on the above with a view to valuing your claim
- Negotiate settlement on your behalf in accordance with your instructions
- Proceed your case to Court when negotiations break down and your case has greater than 50% prospects of success
- Where appropriate prepare your claim for trial if amicable settlement cannot be achieved"
"Costs and Timescales
For an explanation of how the Conditional Fee Agreement (CFA) works, please refer to the Personal Injury Client Care Booklet provided. If you require a further copy, please contact us and we will arrange for a further copy to be sent.
The booklet also contains detailed information on the costs of and funding options for pursuing your personal injury claim. Please read through this information carefully and contact us should you have any queries or require any further information.
As matters currently stand the Court rules allow you to recover costs from your opponent (the person who caused your accident) unless the claim is a Small Claim (which is where the personal injury damages are £1,000 or less). However, there is a chance that at some point in the future this may change.
You will see from the Personal Injury Booklet that we aim to achieve an outcome whereby no more than 25% of your damages are deducted in respect of costs. This is achievable because the Court rules currently allow you to recover costs from your opponent and so this enables us to claim your costs from your opponent rather than entirely from your damages. If the rules were to change to prevent you from recovering costs from your opponent, then by entering into the CFA with us, you hereby agree that we would be entitled to deduct a higher proportion than 25% of your damages in respect of costs.
It is difficult at this point to predict with any certainty whether that will be necessary, but if it does become necessary we will discuss that with you. The changes (if they apply to your case) may be such that we may have to enter a revised CFA with you and this may include an agreement to retrospectively cover the work we are now agreeing to undertake for you.
Recommendation Agreement
We have entered into a Recommendation Agreement with Glenfield Marketing. This agreement remunerates Glenfield Marketing for advising you of our services and recommending you to contact us with regards to your claim for personal injury. We have agreed to pay Glenfield Marketing the sum of £625 for recommending that you contact us directly with your instructions to pursue a claim for personal injury."
"After-the-Event Insurance
We have recommended that you take out an ATE policy with Allianz Legal Protection, a division of Allianz Insurance plc.
The premium for the Allianz policy would be payable only on the successful conclusion of your claim and would at that stage be deducted from your damages. If your claim fails the premium will be written off, even though you might need to make a claim against the policy for disbursements.
As discussed by telephone, on the basis of the detail you have provided on your injuries we confirm that the cost of the Allianz premium will be £142.35. Should your injuries prove more serious the cost of the premium may increase. We will inform you if this becomes the case.
SGI Legal LLP does not receive commission from Allianz Legal Protection and has no interest in Allianz Legal Protection. However, the Partners at SGI Legal do have an interest (though a separate business, Exchange Holdings Limited) in a reinsurance company, which has a contract with Allianz Legal Protection. This contract allows the reinsurance company to share any underwriting profit made during the year in which the ATE policy is issued.
It is very difficult to define the level of financial interest that the Partners have as this depends on the success of the business. However, we estimate the interest to be in the region of 30-40% of recovered insurance premiums."
"This agreement is a binding legal contract between you and your solicitor/s and confirms the agreement entered into by telephone between us on 26/10/2016 17:34:28. Please read everything carefully. This agreement must be read in conjunction with the document: "CFA: What You Need to Know", which is attached to, and forms part of this agreement."
"3. Paying us
3.1 If you win your claim, you pay our basic charges, our disbursements and a success fee.
3.2 You are entitled to seek recovery from your opponent of part or all of our basic charges and our disbursements.
3.3 You will also pay the ATE insurance premium (if applicable) as set out in the document: "CFA: What You Need to Know".
4. The Success Fee
4.1 The success fee is set at 100% of our basic charges but will be capped at 25% of the damages you recover relating to:
a) General damages for pain, suffering, and loss of amenity; and
b) Damages for pecuniary loss, other than future pecuniary loss
Net of any sums recoverable by the Compensation Recovery Unit of the Department of Work and Pensions, inclusive of VAT."
"2. Procedure
2.1 If your claim is successful, you will be paid damages by your opponent. The damages are the amount of money you will receive.
2.2 After your damages have been awarded, we will seek to recover our fees, which will comprise our basic costs, disbursements made on your behalf and a success fee.
3. Basic Charges
3.1 These are our charges for the legal work we do, based on the rate we charge which is set out in the enclosed Client Care Booklet.
3.2 You agree to these hourly rates, expressly understanding the following; it may be that your case is one to which the court fixed fees apply. This means that the amount of costs which your opponent will have to pay if your (sic) win is limited to a fixed sum. The costs which are chargeable under this agreement will almost certainly exceed those fixed costs and so you will be required to pay the shortfall from your damages. This is because the Solicitors' basic charges are comprised of hourly rates which when multiplied by the likely number of hours worked will exceed the fixed fees payable by the opponent. Even if your case is not a fixed fee case, the hourly rates are higher than the rates which the court is likely to order your opponent to pay to (sic). We believe these rates are justified to reflect the skill and specialised knowledge in the handling of your claim. However, we are required to provide a warning to you that the hourly rates might not be recovered from your opponent and that you nevertheless approve the rates which we are charging. This warning having been given, you permit payment to us of an amount of costs greater than that which you can recover from another party to the proceedings.
3.3 Further to the above warning as to recoverable costs, s 74(3) of the Solicitors Act 1974 shall not apply and having been warned that hourly rates may not be recovered in full you accept that the rates are chargeable in full.""
"8. What happens if you win
8.1 You are then liable to pay all our basic charges, disbursements, success fee and the insurance premium for any After-the-Event insurance taken out.
8.2 You may be able to recover part or all of our basic charges and disbursements from your opponent. If for whatever reason you cannot recover all of our costs and disbursements from your opponent then you remain liable to pay them to us.
8.3 You will not be able to recover the Success Fee or your insurance premium (if applicable) from your opponent. You must pay both costs yourself.
8.4 If you and your opponent cannot agree the amount, the Court will decide how much you can recover. If the amount agreed or allowed by the Court does not cover all our basic charges and disbursements, we will seek to recover the balance from you."
"Our responsibilities we must:
16.1 Always act in your best interests, subject to our duty to the court;
16.2 Explain to you the risks and benefits of taking legal action;
16.4 Give you the best information possible about the likely costs of your claim for damages."
(2)(c) The Claim against Aviva
(2)(d) Costs and the Defendant's Bill
(1) Basic charges of £1,717 plus VAT of £343.40.
(2) A success fee of 100% of the basic charges, capped at 25% of the relevant recovered damages, i.e. £260.42 plus VAT of £52.08.
(3) The medical report fee of £180 plus VAT of £36.
(4) The ATE insurance premium of £143.
(1) £1,977.42 in respect of costs.
(2) £323 in respect of disbursements.
(3) £431.48 in respect of VAT.
"Less monies received on account from Aviva £1,116.00"
"Balance payable by client, limited to 25% of £455.50
damages plus ATE premium paid."
(2)(e) The Claim for an Assessment of the Defendant's Bill
"The Clamant seeks an order that
1. There be an Order in standard form pursuant to s.70(1) Solicitors Act 1974 for assessment of the final bill delivered to the Claimant as follows (a copy of which is attached to this claim form)
a. Bill Number: SB73269.1
and delivered on 15th January 2018 in the total sum of £2731.90.
2. Such assessment be restricted by virtue of s.70(6) Solicitors Act 1974 to the profit costs element in the sum of £1,977.42."
"We agree to an Assessment in accordance with Paragraphs 1 & 2 only of the Claimants (sic) Particulars of Claim."
"There be an assessment pursuant to s.70 Solicitors Act 1974 of the Defendant's invoice/invoices as follows
a. Invoice Number SB 73269.1 Dated 15/01/2018 Amount of £2731.90
[such assessment to be limited pursuant to s.70(6) Solicitors Act 1974 to [those parts of the invoices that are actually in dispute, namely the success fee in the sum of £1977.42 inc VAT]]"
(2)(f) The "On Paper" Assessment of the Defendant's Bill
(2)(f)(i) The "On Paper" Assessment: The General Point
"The bill comprises
The bill therefore totals £2,731.90.
The sum of £1,116 received from the third party is then credited, leaving a balance payable by the client of £1,615.90, which is then limited to £455.50.
The reality therefore is that the Defendant has charged legal fees of £1,571.50 (£1,116 of which was paid by the third party, and £455.50 by the Claimant).
As a consequence the bill must as a starting point be reduced to a maximum of £1,571.50, otherwise the Claimant would owe a further £1,160.40 (as demonstrated in the attached draft Cash Account)."
"The bill is limited to £1,571.50 in that this is the amount of the payment which it requires.
The form of the bill is entirely a matter for the defendant and the defendant is perfectly entitled to set out in its bill the component elements which are payable by the claimant under the terms of her retainer; and then to set out that the amount payable above inter partes recovery is limited to 25% of damages (in accordance with the indications given in the retainer documentation) plus the ATE premium."
"I agree with C.
See notes in White Book p. 2370.
It is the full amount of the bill which is taken into account when determining the "1/6"."
(2)(f)(ii) The "On Paper" Assessment: Point 1
(2)(f)(iii) The "On Paper" Assessment: Point 2
(1) subsection 74(3) of the Solicitors Act 1974 applied because a claim under the Protocol constituted "proceedings in the county court";
(2) that subsection was not disapplied pursuant to CPR 46.9(2) because the Defendant had not obtained the Claimant's informed consent to the agreement between them insofar as it permitted payment to the Defendant of an amount of base costs greater than that which the Claimant could have recovered from Aviva; and
(3) consequently, the Defendant could not recover from the Claimant more by way of base costs than it had received from Aviva. (It is arguable that, if subsection 74(3) had applied, it would have limited the Defendant's base costs to the £600 (including VAT) "which could have been allowed ... as between party and party", rather than the £900 actually paid by Aviva to the Defendant, but the Claimant did not object to the Defendant retaining the £300 paid by Aviva by mistake.)
"74(3) applies: County Court proceedings were contemplated by the mere fact of adopting the Low Value procedure in CPR. However, the fixed cost will operate as a cap (limit) on recovery unless there is a written agreement in clear terms: CPR 46.9(2)."
(2)(f)(iv) The "On Paper" Assessment: Point 3
"Having considered the Bill & further comments 9 hrs x £120 would seem reasonable."
(2)(f)(v) The "On Paper" Assessment: Point 4
(2)(g) The Review of the "On Paper" Assessment of the Defendant's Bill
(1) The Claimant supported the district judge's decision on the General Point.
(2) The Claimant did not challenge the district judge's decision on Point 1.
(3) The Claimant supported the district judge's decision on Point 2, but added the following alternative argument in paragraphs 35 and 36 of her skeleton argument:
"35. If the Judge were to find on review that s.74(3) does not strictly apply, that is not the end of the matter.
36. The Judge would be able to reach the same result, either by the application of CPR 46.9(3)(c), or by applying the "fairness" test under the Non Contentious Business Remuneration Order."
(4) The Claimant supported the district judge's decision on Point 3. The Claimant did not submit that the district judge should have assessed the time allowed at anything other than 9 hours and did not argue for a lower rate than £120 per hour.
(5) The Claimant supported the district judge's decision on Point 4.
(2)(g)(i) The Amount at Issue
(1) The Defendant had received £1,116 from Aviva and had deducted £455.50 from the Claimant's damages. The Defendant was not seeking to be paid anything more in respect of its costs.
(2) The Claimant accepted that the Defendant could retain the £1,116 received from Aviva, which included:
(a) £216 (i.e. £180 plus VAT of £36) in respect of the medical report fee; and
(b) £900 (i.e. £750 plus VAT of £150) in respect of the Defendant's base costs.
(3) The Claimant also accepted that the Defendant had been entitled to deduct a total of £278 from the Claimant's damages, made up of:
(a) £143 in respect of the ATE insurance premium; and
(b) £135 (i.e. £112.50 plus VAT of £22.50) in respect of the success fee, calculated as 15% of £900.
(4) So the dispute was over £177.50 (i.e. £455.50 less £278). As to this:
(a) The Claimant said that this amount was not payable because the Defendant's base costs were limited to the £900 received from Aviva.
(b) The Defendant contended that it was entitled to more than £900 in respect of its base costs and/or to a success fee of more than 15% of its base costs.
(5) Although the following figures were not cited before the district judge, it can be seen that the £177.50 difference between the parties was equivalent to:
(a) a further £154.35 (i.e. £128.63 plus VAT of £25.72) in respect of the Defendant's base costs, making its base costs £1,054.34 (i.e. £878.62 plus VAT of £175.72) rather than £900; and
(b) the consequential increase in the 15% success fee by £23.15, to £158.15, rather than £135.
(2)(g)(ii) The General Point
"I am going to deal with the general point, Mr Marven, because I am not persuaded to change my mind for the reasons I gave. I do not think that this piece of paper, as it is drafted, helps your argument, with respect. It is a fairly confusing piece of paper, and I think it cannot be said with any clarity precisely what the bill constitutes. It says there is a balance payable, but you have to do the maths. The claim form seeks an assessment of the final bill and adds it up at £2,731.90. Although the assessment is limited to profit costs, I think anybody looking at that bill would struggle to say precisely what it was, but I think, on the basis of my previous decision and the reasons I gave, I cannot see any need to change what I said. I stand by it."
(2)(g)(iii) Point 2
"But of course it is important not to lose sight of what one does under sub-rule (3). It is a question of, firstly, what the presumption is. Even if you say that I am the wrong side of the presumption this (sic) it is presumed to be unreasonable I would suggest that, once you have gone through this bill, you have assessed the hourly rates at whatever you think is right and you have reduced the time, that is not unreasonable any more."
(1) the Defendant's submission that its costs were presumed to be reasonable pursuant to CPR 46.9(3)(a) & (b); and
(2) the submission made in paragraph 36 of the Claimant's skeleton argument that the district judge could, by the application of CPR 46.9(3)(c), reach the same result as he would have reached if he had found that subsection 74(3) applied.
"5. So where does that take me in relation to this review and the thorny problem of informed consent? It remains my view, because it is supported by the judicial authority in MacDougall and Herbert, that it is not possible to rely solely upon a piece of paper exchanged between solicitor and client as express consent when matters, for example, in relation to hourly rates, time spent and success fees are being discussed.
6. It is very difficult to imagine a scenario where a lay client who is not well versed in the litigation process can be said to have sufficient information to approve, whether expressly or impliedly, without seeing an explanation. Simply to say "My hourly rate is X" is in my view not sufficient. There are no guidelines available for the lay client in relation to fixed recoverable costs, for example, and there is no real explanation for informed consent to be given. "A full and fair exposition" are the words used by Holland J, and I do not think I can improve upon those. This is a case where there is no explanation of the fixed recoverable charges. A client cannot do his own assessment of what his likely contribution is to be, particularly when the agreement is capable of interpretation, entitling the solicitor to recover all of their basic charges.
7. I, for those reasons, am of the view that the question of informed consent does require to be addressed before it can be said that any agreement can be enforced. I think I would come to exactly the same conclusion even if section 74(3) is not engaged, and, if we go, effectively, to the suggestion that under 46.9 the presumptions are there, I think it is easy to recognise that, as I indicated, for example, an hourly rate of £165 (sic) for a Grade D fee earner might be deemed to be unusual in amount when most, if not all, low-value RTA cases are dealt with by Grade D fee earners and the courts are well aware of seeing rates between £111 and £125.
8. Similarly, again with regard to the lack of information on fixed recoverable fees, that similarly impacts on any agreement that might be relied upon on (sic) 46.9(3). So, in short, save only that I might have changed my mind if I see sufficient evidence that there have been no issued proceedings on what I first said, I think the issue of informed consent is now relevant when that is being considered, 46.9 as well as 74(3)."
"MR MARVEN QC: Sorry, can I ask what may be a slow question? Obviously, if there are issued proceedings, I entirely follow that I have lost on that.
JUDGE BELLAMY: Yes.
MR MARVEN QC: If there were not issued proceedings, am I to understand your judgment ----
JUDGE BELLAMY: Then 74(3) does not apply.
MR MARVEN QC: Quite.
JUDGE BELLAMY: I am still saying that there should be implied within 46.9(3) the informed consent.
MR MARVEN QC: Tell me if I am being gloomy here, but in fact I have lost and lost to exactly the same extent, whatever the answer to that question?
JUDGE BELLAMY: You have.
MR MARVEN QC: I just want to be clear about that.
JUDGE BELLAMY: The only reason is that you have won in so far as I would be persuaded on the evidence before me today that 74(3) does not apply.
MR CARLISLE: Can I just be absolutely clear because I think I am being equally as obtuse
JUDGE BELLAMY: And I keep my hourly rates as they are, by the way.
MR CARLISLE: So if section 74(3) applies, the base costs are limited to the base costs recovered.
JUDGE BELLAMY: Yes.
MR CARLISLE: But if section 74(3) does not apply, they are limited to that amount in any event.
JUDGE BELLAMY: In any event, because I say there is no ----
MR SHENTON: Because that is a reasonable amount.
JUDGE BELLAMY: That is a reasonable amount and there is no informed consent. And, for the avoidance of doubt, you can tag this on to any existing appeal to get clarity between I do not think the clarity on section 74(3) and the informed consent is too much of a difficulty: it is where it then impacts on 46.9, is it not?"
(2)(g)(iv) Points 3 and 4
(2)(g)(v) Costs
(2)(g)(vi) The District Judge's Order
"1. The Court's 'on paper' decisions are affirmed, save that in respect of the decision on point of dispute 2, in the event that court proceedings were not issued the Solicitors Act 1974 section 74(3) does not apply, but the court's decision remains that the Defendant's base costs are limited to base costs recovered inter partes by the Claimant, on the basis of the presumptions in CPR r 46.9(3).
2. The Defendant do by 28th January 2020 file and serve a witness statement confirming whether or not proceedings were in fact issued on the claim that is the subject matter of the Defendant's bill.
3. The Defendant's bill be assessed in the sum of £1,394.00, being base costs of £750 and a success fee of 15% on such base costs, together with VAT and the disbursements as claimed.
4. The Court having undertaken the Cash Account exercise the Defendant do by 21st January 2020 pay to the Claimant the balance of £177.50.
5. The Defendant's bill having been reduced by 49% the Defendant do by 21st January 2020 pay the Claimant's costs of the application, summarily assessed in the sum of £8,500 inclusive of VAT."
(1) £750 base costs, plus VAT of £150;
(2) £112.50 success fee (i.e. 15% of £750), plus VAT of £22.50;
(3) £180 medical report fee, plus VAT of £36; and
(4) £143 ATE insurance premium.
(2)(h) The Instigation of this Appeal
"If and in so far as it is necessary to address the issue, the district judge was wrong to conclude that, if court proceedings had been issued, (which they had not), SA 1974 s 74(3) would have been engaged to limit basic charges to inter partes recovery. The district judge was wrong not to conclude that the CFA had the effect that SA 1974 s 74(3) was disapplied under CPR r. 46.9(2)."
(2)(i) The Respondent's Notice
(1) subsection 74(3) of the Solicitors Act 1974 applied; but
(2) the Defendant could not rely on CPR 46.9(2) as disapplying subsection 74(3) because:
(a) CPR 46.9(2) could only be invoked by a solicitor if his client had given informed consent to the relevant written agreement; and
(b) the Claimant had not given informed consent to that written agreement.
(1) The construction issue did not arise, because it was not disputed by the parties to that appeal that subsection 74(3) of the Solicitors Act 1974 applied, even though that was, like the present case, a case in which a claim had been made under the Protocol and had been settled before a claim form was issued.
(2) There was a dispute whether a solicitor who wished to rely on a written agreement pursuant to CPR 49(2) had to obtain his client's informed consent to that agreement. I decided that informed consent was necessary.
(3) There was also a dispute whether, on the facts of that case, the client had given informed consent to her written agreement with her solicitor. I decided that, on the facts of that case, the client had not given informed consent.
"In light of the judgment in Belsner and on consideration of the matter by leading counsel the claimant would wish to serve a respondent's notice which would seek to contend that the District Judge should also have found that s74(3) Solicitors Act 1974 applied. (It would appear although it is not entirely clear that the District Judge found that there were not proceedings in the County Court and that therefore s74(3) of the Act did not apply.)"
"the judge was wrong to find that s. 74(3) Solicitors Act 1974 did not apply to this claim. Proceedings should be construed to include claims that settle within the MoJ Portal."
"1. The Respondent waited until the High Court determined the issue of whether informed consent was required to displace the presumptions as (sic) s. 74(3) and r. 46.9(2) in Belsner v CAM Legal [2020] EWHC 2755 (QB). The High Court found that informed consent was required. Had it found to the contrary, the issues raised in the Respondent's Notice filed on (sic) would not be relevant. The question whether s. 74(3) and r. 46.9(2) apply to cases that settle within the MOJ portal was fully argued at first instance. The Appellant is fully aware of the issue and will suffer no prejudice by having to address this point at the appeal.
2. Those representing the Respondent alerted the Court, and the Appellant, to the proposed Respondent's Notice on 22nd October, by way of a latter to the Court, which was copied by email to the Appellant's representatives."
(3) The Claimant's Application
(1) While the delay from 27 February to 27 October 2020 was significant, the breach of the CPR was neither serious nor significant, since:
(a) the issue which the Claimant sought to raise by the respondent's notice had been fully argued before the district judge; and
(b) ground 2 in the grounds of appeal addressed at least part of the issues which the Claimant sought to raise by the respondent's notice.
(2) The reason for the default was that the Claimant had been unable until judgment was handed down in Belsner v Cam Legal Services Ltd to give proper consideration to the need for a respondent's notice because, if I had decided against Ms Belsner on the issue as to the need for informed consent under CPR 46.9(2), the question as to the application of subsection 74(3) of the Solicitors Act 1974 would have become otiose. Mr Kirby quite properly accepted that there had been a deliberate choice not to file a respondent's notice in time.
(3) Having regard to all the circumstances of the case, I ought to grant the relief sought, particularly because:
(a) The respondent's notice did not raise a new point which would ambush or surprise the Defendant. It had been fully argued before the district judge. The construction issue could be dealt with at the hearing of the Defendant's appeal. The question whether the Claimant gave informed consent for the purposes of CPR 46.9(2) had been raised by the Defendant itself in ground 2 of the grounds of appeal.
(b) There was likely to be no real prejudice to the Defendant.
(c) The point was an important one to the profession and needed to be dealt with at High Court level.
(1) The breach of the CPR was both serious and significant.
(2) There was no good reason for it.
(3) He was not ready to deal with the construction issue at the hearing. Although it had been argued below, the Claimant had advanced on appeal arguments which had not been advanced before the district judge, namely the arguments set out in paragraphs 47 to 57 of the Claimant's skeleton argument, which advocated, by reference to two authorities, an "updating construction" of subsection 74(3) of the Solicitors Act 1974.
(1) The construction issue did not arise in Belsner v Cam Legal Services Ltd.
(2) Belsner v Cam Legal Services Ltd was, as I said in my judgment, a test case. All parties will have appreciated the likelihood that, whatever decision I reached on the appeal, my judgment would itself be the subject of at least an application for permission to appeal to the Court of Appeal, with the result that my judgment would not necessarily be the final word on the issues raised in that appeal.
(1) As to the scope of the issues proposed to be raised by the respondent's notice:
(a) The principal issue to be argued before me would be the construction issue, since my judgment in Belsner v Cam Legal Services Ltd both:
(i) decided that, if subsection 74(3) of the Solicitors Act 1974 applied in the present case, the Defendant needed to establish informed consent in order to rely on CPR 46.9(2) as disapplying subsection 74(3); and
(ii) provided assistance on the question whether the Claimant had given informed consent for the purposes of CPR 46.9(2).
(b) The construction issue did not form part of ground 2 in the grounds of appeal and, in any event, it was accepted that ground 2 did not arise and would not be argued.
(c) Mr Kirby was right to point out that the construction issue was argued before the district judge, but Mr Marven was right to point out that the "updating construction" argument was not advanced before the district judge. A refinement of legal submissions is not unusual on appeal, but this additional argument served to increase the scope of what the Defendant would have to deal with if the Claimant were permitted to file the respondent's notice.
(d) Understandably, Mr Marven had not come to the hearing of the appeal prepared to argue an issue which the Claimant did not have permission to raise.
(2) There would be prejudice to the Defendant if the application were allowed, not least because the appeal would either have to be adjourned or heard in two parts.
(3) There are, as I have mentioned, a series of similar appeals. I can readily see that there is potential for the construction issue to arise in many of these cases, since many claims brought under the Protocol settle without a claim form being issued. However:
(a) Curiously, Mr Kirby's recollection was that the issue has not arisen in any other appeal. If he is right, then this may be because the defendants in such cases have taken the same position as the defendant in Belsner v Cam Legal Services Ltd. I do not know, because there was no evidence before me on this point. However, if Mr Kirby was right, then that tends to cast doubt on his assertion that the construction issue is an important issue which needs to be resolved urgently.
(b) Nevertheless, if there is a need to resolve the construction issue, then it will arise in another appeal or appeals and can be dealt with then.
(4) The Terms of the Contract
(1) The success fee was capped at 25% of the relevant damages by clause 4.1 of the CFA, but there was no such agreement in relation to the Defendant's base costs.
(2) On the contrary, paragraph 8.1 of the document entitled "CFA: What You Need To Know" expressly provided that, if the Claimant won her case, she would then be liable to pay all the Defendant's basic charges. This is consistent with paragraphs 2.2, 3.2, 3.3, 8.2 and 8.4 of that document and clause 3.1 of the CFA.
(3) The Client Care Letter stated that the Defendant aimed to achieve an outcome whereby no more than 25% of the Claimant's damages were deducted in respect of costs. That, however, was an aspiration rather than a commitment.
(4) Mr Marven relied on the next two sentences in the Client Care Letter, which read:
"This is achievable because the Court rules currently allow you to recover costs from your opponent and so this enables us to claim your costs from your opponent rather than entirely from your damages. If the rules were to change to prevent you from recovering costs from your opponent, then by entering into the CFA with us, you hereby agree that we would be entitled to deduct a higher proportion than 25% of your damages in respect of costs."
(5) He submitted that it was implicit in the second of these sentences that, unless the rules of court were changed, the Defendant could not deduct more than 25% of the Claimant's damages in respect of costs. However, in my judgment it is not possible to imply such a term in the face of an express term to the contrary, namely paragraph 8.1 of the document entitled "CFA: What You Need To Know".
(5) Ground 1: The Limitation Decision
(5)(a) Ground 1: CPR 44(1)-(3) and 46.9(1) & (3)
"This rule applies to every assessment of a solicitor's bill to a client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1988 or the Access to Justice Act 1999 or by the Lord Chancellor under Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012."
"Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed
(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;
(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;
(c) to have been unreasonably incurred if
(i) they are of an unusual nature or amount; and
(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party."
"(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs
(a) on the standard basis; or
(b) on the indemnity basis,
but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party."
(1) the court would not allow costs which had been unreasonably incurred or were unreasonable in amount; but
(2) the court would resolve any doubt which it may have about whether costs were reasonably incurred or were reasonable in amount in favour of the Defendant.
(1) any costs relating to more than 9 hours' work were unreasonable; and
(2) any costs claimed at a rate of more than £120 were unreasonable in amount.
(5)(b) Ground 1: CPR 46.9(3)(a) & (b)
(1) Such an agreement would not constitute the approval, express or implied, of any particular item of work being done by the Defendant. Nor would it, for example, constitute approval to the Defendant taking 11 hours over work which the district judge considered could be done in 9 hours.
(2) Nor would an agreement to such a cap constitute the approval of the amount of the Defendant's costs or, for instance, of the Defendant's hourly rate. A client who agrees that she will not pay more than 25% of her damages is not agreeing that she will pay 25% of her damages, come what may.
(1) In dealing with Point 3, the District Judge decided that 9 hours at £120 per hour was reasonable for the Defendant's base costs. That is £1,296 (i.e. £1,080 plus VAT of £216). Had Aviva not paid the Defendant by mistake the extra £300, the Claimant would have had to pay £696 (i.e. £1,296 less £600) to the Defendant, together with the ATE insurance premium of £143 and a success fee equivalent to 15% of £1,296, i.e. £194.40. That would have made a total of £1,033.40 to be deducted from the damages of £1,250, leaving the Claimant with £216.60, or 17%, of her damages.
(2) The position is even more striking if one uses the figures in the Defendant's bill, in which the Defendant contended that its base costs were £2,060.40 (i.e. £1,717 pus VAT of £343.40) and its success fee was £312.50. Adding the ATE insurance premium of £143 to these amounts gives a total of £2,515.90. If the Defendant had claimed that amount from the Claimant, then, even allowing for the extra £300 which Aviva paid to the Defendant, the Defendant's costs would have exceeded the amount of the Claimant's damages by £365.90 (i.e. £2,515.90 less the sum of £1,250 and £900). On that basis, bringing the claim for damages would have left the Claimant with no damages and £365.90 out of pocket.
(3) The Defendant had paid £625 to Glenfield Marketing. In order for the Defendant not to be out of pocket, it needed to charge at least that amount to the Claimant by way of base costs and success fee. Yet if, as happened, the claim settled at Stage 2 for £1,250, then, in order to limit its recovery to 25% of the Claimant's damages, the Defendant would have to claim no more than £760.42 (i.e. £500 base costs plus £260.42 success fee) plus VAT from the Claimant. That is only £135.42 more than the Defendant had paid to Glenfield Marketing.
(1) The Defendant did not (unlike the solicitors in Belsner v Cam Legal Services Ltd) give the Claimant an estimate of its likely costs. Indeed, the Defendant did not even tell the Claimant what hourly rate it would charge.
(2) Nor did the Defendant inform the Claimant that, for example, if her claim settled at Stage 2 for less than £10,000, then the amount which her opponent would be liable to pay in respect of the Defendant's base costs might be £500 plus VAT.
(1) On the one hand, the Defendant said, in paragraph 3.2 of the document headed "CFA: What You Need To Know" that the costs which were chargeable under the agreement would almost certainly exceed the fixed costs which Aviva would have to pay and so the Claimant would be required to pay the shortfall from her damages. Moreover, the Defendant stated in paragraph 8.3 of that document that the Claimant would have to pay the success fee and the ATE insurance premium herself.
(2) On the other hand, the Defendant stated in the Client Care Letter that it aimed to achieve an outcome whereby no more than 25% of the Claimant's damages were deducted in costs and that this outcome was "achievable". It could be said that this was an ambitious statement in the context of a claim for damages for a whiplash injury for which the Claimant had received no medical attention. The amount of the claim was likely to be modest, as the Defendant must have appreciated While the Defendant could not predict the precise amount for which the claim would settle, the Defendant must have appreciated that it was likely to be at the lower end of claims covered by the Protocol. No evidence was adduced before me to suggest that the Defendant ever believed that the Claimant's claim might settle for an amount significantly greater than the amount for which it did settle.
(3) Clause 3.2 of the CFA and paragraph 8.2 of the document headed, "CFA: What You Need to Know" each referred to the possibility of the Claimant recovering "part or all" of the Defendant's basic charges and disbursements from Aviva. This said nothing about how large a part of her costs the Claimant was likely to recover from Aviva if she did not recover all of them.
(5)(c) Ground 1: CPR 46.9(3)(c)(i)
(5)(d) Ground 1: CPR 46.9(3)(c)(ii)
(1) MacDougall v Boote Edgar Esterkin [2001] 1 Costs LR 118 concerned the need for informed consent when a solicitor sought to rely on the predecessor of CPR 46.9(3)(b).
(2) Herbert v HH Law Ltd [2019] 1 WLR 4253 concerned the need for informed consent when a solicitor sought to rely on CPR 46.9(3)(a) & (b).
(3) My decision in Belsner v Cam Legal Services Ltd concerned the need for informed consent when a solicitor sought to rely on CPR 46.9(2)
"There is no longer any dispute between the parties in relation to CPR r 46.9(3)(c). The judge recorded (at para 27) that Mr Andrew Hogan, counsel for HH before him and junior counsel for HH before us, accepted that an irrecoverable success fee could be regarded as a cost of an "unusual nature or amount" but had submitted that, as the retainer made it clear that the success fee could not be recovered from the other party, the condition in CPR r 46.9(3)(c)(ii) was not satisfied, and so there was no presumption under CPR r 46.9(3)(c) that it was unreasonably incurred. The judge agreed with that submission: para 47. There is no respondent's notice challenging that decision."
(5)(e) Ground 1: CPR 46.9(3)(c) and the Limitation Decision
(1) There was no need for the presumption in CPR 46.9(3)(c), since the district judge had already decided that £161 per hour was in fact an unreasonable rate.
(2) Moreover, the district judge had already decided the extent to which that rate was unreasonable: it was unreasonable insofar as it exceeded £120 per hour, but no further.
(1) a claim form had been issued, in which case subsection 74(3) of the Solicitors Act 1974 applied; or
(2) a claim form had not been issued, in which case subsection 74(3) of the Solicitors Act 1974 did not apply, but he applied the presumption in CPR 46.9(3)(c).
"And I keep my hourly rates as they are, by the way."
(6) Ground 3: The Amount of the Bill
"Unless
(a) the order for assessment was made on the application of the solicitor and the party chargeable does not attend the assessment, or
(b) the order for assessment or an order under subsection (10) otherwise provides,
the costs of an assessment shall be paid according to the event of the assessment, that is to say, if the amount of the bill is reduced by one fifth, the solicitor shall pay the costs, but otherwise the party chargeable shall pay the costs."
(6)(a) Ground 3: Post-Hearing Submissions
(1) in the acknowledgment of service;
(2) by not objecting to the order of 28 March 2018 (paragraph 1 of which included the words, "Amount of £2,731.90");
(3) by applying for the variation other parts of that order, but not paragraph 1; and
(4) by asserting that, for the purposes of the assessment of the success fee, the court needed to assess the total amount claimed for the Defendant's base costs.
(6)(b) Ground 3: Authorities on Subsection 70(9) and its Predecessors
" includes the full amount of the bill, and disregards the added expression "say X" (Re Carthew (1884) 27 Ch D 485; Re Mackenzie (1894) 69 L.T. 751) or the fact that a lesser figure is alone claimed (Re Paull (1884) Ch D 485)."
" the costs of such reference shall, except as herein-after provided for, be paid according to the event of such taxation; that is to say, if such bill when taxed be less by a sixth part than the bill delivered then such attorney or solicitor shall pay such costs; and if such bill when taxed shall not be less by a sixth part than the bill delivered then the party chargeable with such bill shall pay such costs ; "
"The bill delivered was a detailed bill consisting of items amounting to £83 3s. 4d. At the foot of it was written "say £78," and the signature followed these words. There was no letter accompanying the bill, so we can only infer the intention with which those words were written. It is not necessary to come to a very positive conclusion on the point; but I should say that the words in substance mean this, "Here is my bill for £83 3s. 4d. If you will pay £78 without taxation I will accept it in full discharge. If you do not I will take what taxation gives me.""
"The first point is, was it a bill for £78? It is impossible, in my opinion, to say that it was. It was a bill containing items making up £83 3s. 4d., with an offer to take a less sum, and it is impossible to say that the bill delivered within the meaning of the Act was a bill for £78."
"In In re Paull an order was obtained under sect. 41 for taxation after payment. The bills as delivered amounted to £361 19s. 2d., but the solicitor stated that he claimed only £320 16s. 6d., which was £41 2s. 8d. less than the amount of the bills. He had previously delivered a cash account in which he had treated the bills as being of the lesser amount. An order for taxation after payment having been obtained, full bills were carried in and the Taxing Master disallowed £81 3s. 8d., reducing their amount to £280 15s. 6d., which is more than five-sixths of the £320 16s. 6d. but less than five-sixths of the £361 19s. 2d. If the matter stood there, I should say, as in Carthew's Case, that the bill must be taken as at the larger amount, and that it must be considered that more than a sixth has been taxed off, and that the solicitor must pay the costs of the taxation."
"I understand that note when expanded to mean, "Our charge if made by items would amount to 10l. 10s. 8d., and that is more than the 7l. 11s. which we have already stated to be our whole claim in respect of the business comprised in this bill." I think, therefore, that the taxing master was justified in saying that the 7l. 11s. was the bill actually claimed; and, although the mistake of treating the other document as the bill is perfectly intelligible now, yet it was a mistake, because the letter of December 24 was the bill. That being so, Re Tilleard and Re Russell, Son & Scott exactly apply, and I think the taxing master was right in following those cases."
"Section 70(9) provides for a basic and simple default rule that the costs of the assessment should follow the event (ie be paid by the losing to the winning party), where the "event" (ie the criterion of who has won and who has lost) is defined by reference to whether a reduction in the amount of the bill of one fifth has been achieved by the client in the assessment (I refer to this as "the one-fifth rule"). However, subsection (10) allows the court to modify this position where the costs officer certifies that there are "special circumstances relating to a bill or to the assessment of a bill.""
"Disputes between solicitors and clients regarding the amount of solicitors' bills can be substantial, and the costs of resolving them can likewise be substantial. ... Both client and solicitor benefit from knowing in advance what the basic default rule is governing the costs of an assessment, and what ordinarily counts as winning and losing, so that they can make a rational calculation of the risks involved in proceeding with a disputed assessment before a costs judge."
"In my judgment, the policy behind section 70(9) is that the remedy under section 70 should be efficacious and that potential claimants should not be disincentivised from bringing claims under section 70 by the usual costs-shifting rule. The result of the usual cost-shifting rule would be that, if the solicitors were successful in obtaining judgment for their bill they would in the absence of other factors obtain an order for costs. Without section 70(9), this would be so even if it was reduced by 20% or more. Section 70(9) displaces that result."
"Farrell v Alexander [1977] AC 59 establishes, that where the meaning of a consolidation statute is clear, the court should not generally investigate its "antecedents": see per Lord Wilberforce, at p 73, Lord Simon of Glaisdale, at p 83, and Lord Edmund-Davies, at p 97. It should interpret the statute afresh according to its ordinary meaning. Those antecedents include earlier judicial authorities as well as earlier legislative provisions. But it does not follow that the interpretation of a consolidation statute in this way authorises the court to ignore some earlier authority on an earlier legislative provision which has been consolidated where that authority is binding on it under the doctrine of precedent."
(6)(c) Ground 3: Decision
(1) The decision in Re Carthew turned on the construction of the particular bill at issue in that case. The Court of Appeal did not purport to lay down any general rule that a bill which said, in effect, "I could demand x, but I demand the lesser sum of y", was a bill for x rather than y. On the contrary, it is implicit in the reasoning of Baggallay LJ that, if he had interpreted the bill in that case as saying "I could demand £83 3s 4d, but I only demand £78", then he would have treated it is a bill for £78. He treated it instead as a bill which contained both a demand for £83 3s 4d and an offer (which was unaccepted and therefore of no effect) to compromise that demand if the client paid £78.
(2) Contrary to what is said in paragraph 7C-123 of Volume 2 of the White Book, I do not read Re Carthew as laying down a general rule that the words, "Say X" in a bill must always be disregarded. On the contrary, Re Hellard & Bewes [1896] 2 Ch 229 is an example of a case in which the words, "Say X" were interpreted as meaning that the amount demanded was X (although the principal ratio of North J's decision was that the document which contained the words, "Say £7 11s" was not the bill in that case).
(3) As for Re Paull, it appears that the only figure mentioned in the bill in that case was the figure of £361 19s 2d. The offer to accept less was separate from the bill, and so the bill remained a demand for £361 19s 2d.
"The reality therefore is that the Defendant has charged legal fees of £1,571.50 (£1,116 of which was paid by the third party, and £455.50 by the Claimant)."
(7) Conclusion