England and Wales High Court (Senior Courts Costs Office) Decisions

IN THE HIGH COURT OF JUSTICE
SENIOR COURTS COSTS OFFICE

		Clifford's Inn, Fetter Lane London, EC4A 1DQ
		4 November 2010

Master Campbell:

1. In this detailed assessment in which the Defendant is paying the costs of the Claimant under the terms of a Consent Order dated 6 May 2009, the remaining live issue is the level of the success fee due under the Claimant's Conditional Fee Agreement ("CFA") with her Solicitors, Irwin Mitchell. All other matters have been agreed. The CFA is dated 3 February 2006 and provides for a success fee of 100% if the claim is resolved within three months of trial, but discounted to 25% if an earlier settlement is achieved. Since the Claimant accepted an offer on 20 February 2009 and the trial was listed for 30 March 2009, it is common ground that the case was compromised within the 100% "window". Accordingly, a 100% success fee has been claimed in the Claimant's bill of costs.
2. The Defendant objects to paying 100% and contends that a 20% success fee is appropriate. It is that discrete issue which the parties argued before me on 20 October 2010, no less £88,000 plus interest at 8% from 6 May 2009 turning on the point, Irwin Mitchell's profit costs in part 2 of their bill having earlier been agreed in the sum of £110,000 (base costs of £93,617.02 plus VAT of £16,382.98). If the Claimant be right, that sum again will be payable by the Defendant; if the Defendant to be correct, the success fee will be limited to £22,000. At the conclusion of argument, when Miss Sarah Lambert appeared for the Claimant and Mr Mallalieu represented the Defendant, I notified the parties that I accepted the Defendant's submissions, that the success fee would be allowed at 20% and that I would give my reasons in writing. These are the reasons.

BACKGROUND

3. This can be stated shortly. On 8 December 2001, the Claimant was involved in a "head-on" car crash with a vehicle driven by the Defendant on the A421 near Milton Keynes. Her injuries were catastrophic; closed head injury, fractured spine at C1/C2, fractured right humorous associated with radial nerve palsy, fractured pelvis, open fractures of the right tibia, right femur and fibular, fractures to the ribs, knee caps, sacral, wrist, a large laceration to the right thigh and degloving injury to the left leg. The Claimant consulted Irwin Mitchell. Her claim was initially covered by an insurance policy, but when the limit of indemnity was reached, she entered into the CFA with Irwin Mitchell to which I have referred. Following the issue of proceedings, the trial date was ultimately given for 30 March 2009, but the litigation settled on 12 March 2009, when the Claimant accepted a Part 36 offer made by the Defendant on 20 February 2009 in the sum of £600,000 less CRU, plus costs on the standard basis, to be assessed if not agreed.
4. The key dates to which this judgment must have regard are the following:

•    8 December 2001 – the road traffic accident;

•    27 January 2003 – criminal conviction of Defendant for dangerous driving;

•    27 March 2003 – liability admitted;

•    11 September 2003 – offer to settle by Defendant (not under Part 36) in the sum of £250,000;

•    14 January 2005 – proceedings served;

•    10 March 2005 – defence served admitting negligence, but denying that Claimant had sustained a head injury;

•    6 April 2005 – judgment entered for damages to be assessed;

•    3 February 2006 – CFA signed;

•    28 September 2007 – Defendant offers £475,000 less CRU;

•    31 January 2008 – round table meeting; "informal" offer of £600,000 from Defendant;

•    3 March 2008 – trial listed for 10-12 March 2008 vacated; trial listed for 30 March 2009;

•    4 April 2008 – Part 36 offer by Claimant in sum of £800,000 less CRU;

•    20 February 2009 – Defendant's Part 36 offer in the sum of £600,000 less CRU; •    12 March 2009 – offer accepted;

•    16 July 2009 – consent order made by Master Eyre.

THE CONDITIONAL FEE AGREEMENT

5. As I have said, this is dated 3 February 2006. The following are the terms relevant to the issue I need to decide:

"Your Conditional Fee Agreement

For use in road traffic cases

What is covered by this agreement?

•    the work done in pursuing your claim for damages for personal injury suffered in the course of an accident on 8 December 2001 insofar as your legal costs exceed the limit of the indemnity under the terms of your legal expenses insurance policy issued by Churchill Insurance …

Paying Us

If you win your claim:

•    You are primarily liable to pay our basic charges, success fee, your disbursements, after the event insurance premium and VAT.

•    You will be able to recover all your legal costs from your opponent providing that these are reasonable …

Success Fee

The success fee will be:

(a) if you win your claim prior to three months before the date fixed for trial or the first date of the trial window (whichever is earlier) 25% of the basic charges; or

(b) if you win your claim at any later date or time: 100% of the basic charges; or

(c) if Rules of Court fix the percentage success fee recoverable from your opponent this will be the percentage which shall apply.

Whichever applies above the whole of the success fee relates to the risks involved in your case and no part thereof relates to the cost of postponement of payment of our legal fees and expenses. The reasons for setting a success fee at the above levels are set out in Schedule 1 attached to this agreement …

Law Society Conditions

The attached Law Society Conditions (which have been modified by Irwin Mitchell) are part of this agreement …

SCHEDULE 1 – Reasons for Level of Success Fee

The Risk Assessment

The percentage success fee shown at (a) above reflects our assessment of the risks of your case, based purely on the information available to us at the time of entering into this agreement. This includes those specific issues which we regard as relevant and appropriate to take into account and which are set out in the table below.

The percentage success fee shown at (b) above reflects all of the risks in the table below which would be enhanced considerably should your case not settle prior to three months before trial. The enhanced risks at trial are due to the potential risk of failing to establish one or more fundamental elements of your case in respect of which the Judge prefers the opponent's evidence, and also the significant risk that you may fail to beat an offer or Payment into Court made by your opponent (see Condition 3(k) – Part 36 Offers or Payments of your Agreement).

Particular Issue	High Risk	Med Risk	Low Risk	Comments
Type of Accident			...	RTA head on collision
Claimant's Evidence		...
Liability			...	Liability has been conceded and judgment entered in the Claimant's favour
Contributory Negligence				100% liability
Causation		...		There may be an issue as to the extent of the claimant's head injuries which are presently yet to be fully assessed
Quantum		...		There are several variables including the extent of the claimant's residual earnings prospects, the care claim, the orthopaedic proposals and the head injury
Expert Evidence		...
Documents Available			...
Part 36 Offer	...			The principle risk relates to an effective part 36 payment into court on quantum issues. There have been no part 36 offers to date.

Law Society Conditions

3. Explanation of Words Used

(b) Basic charges – Our charges for legal work we do on your claim for damages.

(c) Claim – A claim is your demand for damages for personal injury whether or not court proceedings are issued.

(e) Damages – Money that you win whether by a Court decision or settlement.

(g) Interim damages – Money that a court says your opponent(s) must pay or your opponent agrees to pay while waiting for a settlement or the Court's final decision.

(k) Part 36 offers or payment – This is an offer by your opponent(s) to settle your claim made strictly in accordance with Rules of Court and which has certain consequences for recovery of legal costs. If your opponent(s) makes a Part 36 offer or payment to settle your claim then:

•    If you reject and supported by our advice you continue to pursue your claim but you recover damages that are less than the sum offered or paid by your opponent(s) we will not charge you our basic charges or success fee for the work done after the expiry of 21 days following receipt of the notice of the offer or payment.

(m) Success fee – The percentage of basic costs that we add to your bill if you win your claim for damages.

(n) Win – Your claim for damages against your opponent … is finally decided in your favour, whether by a court decision or an agreement to pay your damages. … "Finally" means that your opponent(s):

•    is not allowed to appeal against the Court decision; or

•    has not appealed in time; or

•    has lost any appeal."

6. As I have said, Mr Mallalieu accepts that the case settled within three months before the date fixed for trial and accordingly the second stage of the provision for the two-stage success fee under the CFA was reached.

LAW

7. This is a road traffic claim to which fixed success fees under CPR 45.16 would ordinarily apply, but in the present case this is not so as the rule was not in force at the date of the accident. It is also agreed that paragraphs 11.7 and 11.8(1) of the Costs Practice Direction ("CPD") are relevant. They provide as follows:

"11.7 When the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.

11.8 (1) In deciding whether a percentage increase is reasonable relevant factors to be taken into account may include:

(a) the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;

(b) the legal representative's liability for any disbursements......."

8. It follows that the task with which the Court is charged is to decide whether, having regard to the facts and circumstances as they reasonably appeared to Irwin Mitchell when the CFA was signed on 3 February 2006, the risk that the circumstances in which any fees due to the firm would become payable, were no better than evens thereby justifying a success fee of 100%.

THE SUBMISSIONS FOR THE DEFENDANT

9. Mr Mallalieu submitted that the success fee should not be allowed at a level that is unreasonable. In deciding what is reasonable, regard needed to be given to the risk assessment in the CFA and in particular to two aspects: first, the risk of failing to establish liability: second, the risk of failing to beat a Part 36 offer.
10. In respect of liability, Mr Mallalieu submitted that the risk of losing on liability was nil. The reason for this was that prior to the date of the CFA, the Claimant had already entered judgment on liability for damages to be assessed. Accordingly, for the purposes of the CFA, the Claimant had by then achieved a "win" within the definition of paragraph (n) of the Law Society Conditions. Thus there was no risk whatsoever that the Claimant would not be liable to pay Irwin Mitchell's basic charges and disbursements under the "paying us" provision in the CFA. For that reason, the 100% success fee was excessive and should be reduced.
11. As to the other factors set out in the risk assessment, nothing could be attributed to contributory negligence since this was not in issue, likewise in relation to any of the Claimant's evidence insofar as it related to establishing liability. In reality, the only risk of any nature went to the possibility that the Claimant might not beat a Part 36 offer, in which event she would be liable to pay the Defendant's costs from the date of that offer, albeit that she would receive her costs up to that point. By the date of the CFA, the claim had been ongoing for just over a year without any Part 36 offer having been made. Accordingly, as of 3 February 2006 there was no risk to the Claimant that she would not beat a Part 36 offer since none had been offered. The only factor which could impact upon risk was in relation to the level of the injuries which she had suffered. This had two aspects, first what was the Claimant's "employability" which would impact upon her loss of earnings claim, and second, what level of care did she require? Whilst those factors went to the risk of failing to beat a Part 36 offer, they had no bearing on whether she would, or would not, be paid any damages. For that reason the success fee should be reduced.
12. As to the level of the reduction, Mr Mallalieu relied on C v W [2008] EWCA Civ 1459. In that case, there had been a CFA with a single stage success fee of 98% (less 15% for postponement) which had been entered into after an admission of primary liability. That success fee had been reduced to 70% by the District Judge, thence to 50% by the Circuit Judge and ultimately to 20% by the Court of Appeal. Mr Mallalieu relied on the following passages of the judgment of Lord Justice Moore-Bick:

"8. It was common ground that the purpose of a success fee under a CFA is to compensate solicitors for the risk of failing to recover any fee at all. However, that does not mean that they can charge, and subsequently recover if successful, whatever success fee their client is prepared to agree, because it is subject to assessment under CPR Part 44 (insofar as it is payable by the opposing party) and paragraph 11.8(1) of the Costs Practice Direction makes it clear that in deciding whether a success fee is reasonable one of the principal factors to be taken into account (normally the most significant) is the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur. …

10. The principal ground on which Mr. Morgan QC challenged the calculation of the success fee was that the defendant had already admitted liability at the time the CFA was entered into. In those circumstances, he submitted, there was no significant risk that Mrs. C would fail to recover substantial damages in respect of her injuries, even if she were found partly to blame. Accordingly, it was wrong to approach the assessment of risk, and thus the calculation of the success fee, in the way that would have been appropriate if liability had been in doubt. …

12. In my view there is much force in Mr. Morgan's argument. The CFA itself speaks of "winning" and "losing", "winning" being defined in terms which include any situation in which the claimant is successful in recovering damages from his opponent and "losing" as meaning a failure to recover because the claim has been lost or terminated on advice prior to trial. …

14. … In the absence of any evidence that the accident had been caused by anything other than negligence on the part of the driver and in the light of the fact that his insurers had already admitted liability on his behalf, it is difficult to see how Mrs. C could have failed to recover substantial damages given the serious nature of her injuries. …

15. To add a further 20% success fee to reflect the size of the claim was, in my view, also wrong. It is probably true in general that high value claims tend to be more complex and to involve a greater amount of work than claims of lower value, but that does not of itself increase the risk …"

13. In Mr Mallalieu's submission, C v W provided clear guidance in cases where, as here, liability was admitted prior to signing the CFA. In the present case, by the date of the CFA, judgment had already been entered, the Claimant was entitled to damages under that judgment, there was no issue about contributory negligence and the Defence had admitted liability and many of the causative issues. For those reasons the Court should follow C v W and reduce the success fee to 20%.
14. Mr Mallalieu further submitted that it made no difference that the success fee had been staged. Whilst it was right that in KU v Liverpool City Council [2005] EWCA Civ 475, Brooke LJ, at paragraph 21, had said that a solicitor might benefit by adopting a two stage success fee, such fees must still be objectively justifiable. Moreover staged success fees were most commonly and appropriately used where liability was in dispute, so that if a Defendant elected not to admit liability, but instead to fight through to trial, he would pay a higher success fee than would the case had he chosen to settle at an earlier stage. That was not the situation here as liability was no longer in issue when the CFA was signed. It followed, in Mr Mallalieu's submission, that it was important to treat those cases differently in which liability had been conceded to those it which it had not. What the solicitor could not do in setting the success fee was to add a second and higher stage in case the risk might eventuate where, as here, that risk no longer existed because the Claimant already had judgment on liability. For that reason, it was not appropriate for the Court to look more leniently at the 100% success fee simply on account of the fact that it had been staged: 20% was still the correct figure.

THE SUBMISSIONS FOR THE CLAIMANT

15. Miss Lambert submitted that whilst it was correct that liability was admitted, causation had not been conceded and no admissions had been made in relation to the Claimant's head injuries, nor about any psychological injures she may have suffered. This had been a catastrophic personal injury case in which, even though the CFA had been signed five years after the accident, the prognosis had remained uncertain and the Claimants' injuries still had not crystallised. Assessing quantum had proved extremely difficult, with the result that the assessment of settlement offers proved to be problematic. The CFA had allowed for a 25% success fee on the basis of an early resolution, rising to 100% if settlement took place within three months of trial. This was reflective of the fact that if the claim reached that point, it indicated that each side, through their respective experts, considered that they had a real prospect of success: in other words, the chances of beating a Part 36 offer were no better than evens, thereby justifying a success fee of 100%.
16. Miss Lambert further drew attention to the fixed success fee regime under CPR 45. This provided for 100% in road traffic cases that went to trial. Whilst it was common ground that rule 45 did not apply here, Miss Lambert submitted that the rule was indicative of the intention of its authors that staging was the appropriate way in which success fees should be fixed. Moreover, KU provided clear authority that a two-stage success fee was to be commended and that where, as here, the claim had not settled in the earlier period, but instead close to trial, Claimants' Solicitors were entitled to expect an additional willingness on the part of Costs Judges to allow the higher of the two success fees claimed.
17. So far as C v W was concerned, Miss Lambert submitted that the facts were very different. C v W involved a CFA with a single success fee in which the CFA had been signed three months after liability had been admitted, whereas in the present case, the CFA had not been entered into until five years after the accident. It followed, that where the Solicitor had indicated that he would accept a discounted success fee if the case settled early, he was entitled to greater leniency when the level of the success fee was ruled upon in the event that the case had been run close to trial, which was precisely what the Defendant had done here.
18. Miss Lambert further relied on Williams v Yasin (22 January 2010 QB) (His Honour Judge Grenfell sitting as a Deputy Judge of the High Court (unreported)), which had concerned a high value personal injury claim (£5 m settlement less 25% for contributory negligence) that had been funded by a CFA with a two-stage success fee. This had provided for 50% if the claim settled more than three months before trial and 100% thereafter. On appeal, His Honour Judge Grenfell upheld the Regional Costs Judge's decision to allow the success fee at 100%.
19. At paragraph 14, the learned Judge had said this:

"The reasoning which the Court of Appeal applied to the facts of that case [C v W] showed clearly why, where there is a single stage success fee, the assessment of risk of failure to win should have been considerably lower than it was. Insofar as that reasoning could be applied to the first stage success fee of 50% in the instant case, there would have been a strong argument for reducing that significantly. However, as C v W anticipated the approach to risk assessment for a two-stage success fee is very different, simply because it is designed to deal with the very problems facing both parties in a highly complex case such as the instant case. In my judgment the Regional Costs Judge was right to distinguish C v W by accepting Mr Foy's submission that for those reasons it was not relevant to consideration of a second stage success fee 100%."

Miss Lambert placed reliance on that passage to support her contention that the success fee should be 100%.

20. Miss Lambert further drew attention to an attendance note made by Mr Whiteley of Irwin Mitchell close to the time the CFA was signed. Whilst that had recognised that liability had been conceded, it also identified quantum as being highly complicated, in particular that:

"In summary, the major risks relate to quantifying this claim in the fact of [any] Part 36 payment in or Part 36 offer for periodical payments. At the moment assessing long term outcome for our client in terms of her needs for care, accommodation and her earnings capacity is not straightforward."

21. On the basis of Mr Whiteley's then knowledge, 100% had been properly sought, since there would be no "win" by the Claimant until not only had there been an award of damages in her favour, but also an order for payment of a particular sum of money. It followed that the case had not been "finally" concluded until the Part 36 offer had been accepted and the consent order sealed.

DECISION

22. It is agreed that £88,000 inclusive of VAT plus interest turns on my decision whether the success fee should be 100% (as claimed by the Claimant) or 20% (as contended for by the Defendant). No intervening figure is suggested by either side.
23. The starting point is the CFA. Applying CPD 11.7, what were the facts and circumstances as they reasonably appeared to Mr Whiteley when the CFA was signed on 3 February 2006? Expressed differently, Mr Whiteley would have asked himself "based upon what we know at the moment, what can go wrong with this claim which might prevent us from being paid?" To answer these questions, it is necessary to look again at the definition of "win" in the CFA. This is provided for in paragraph 3(n) of the Law Society Conditions:

""win" means your claim for damages against your opponent is finally decided in your favour, whether by a court decision or an agreement to pay you damages".

24. In my judgment, the Claimant "won" her case when the Defendant admitted liability and that "win" was put beyond peradventure when judgment was entered on liability with damages to be assessed, thereby removing the possibility, however remote, that the Defendant might withdraw his admission. It matters not, in my view, nor is it relevant to the attainment of that win, that the level of the damages still needed to be worked out, since the definition refers to "an agreement to pay you damages" rather than to "an agreement to pay you £500,000 damages" or some other figure. Provided the Defendant agreed to pay damages (which he did by admitting liability and submitting to judgment), that was a "win" carrying with it an entitlement to payment of costs.
25. I am not persuaded that finality was only achieved when there was a sealed order in the Claimant's favour for a quantified sum. In my judgment, the agreement to pay damages became "final" at the latest when the judgment on liability was entered and, as I have said, how much or how little the Claimant would receive is irrelevant since it is common ground that the nature of her injuries dictated that money at a level to be determined would be paid in compensation. It follows, in my view, that the principal fact that Mr Whiteley would have taken into account when the CFA was signed in assessing the risk that his firm might go unpaid, was whether liability was in dispute. Since by then the Claimant already had a judgment in her favour, I agree with Mr Mallalieu that the answer to that question was "none". I consider that when the CFA was signed on 3 February 2006, the Claimant was litigating in a risk free environment so far as recovery of her costs were concerned, since she was bound to recover damages that were substantial (but the figure does not matter). For that reason, providing for a 100% success fee in the CFA as if liability had been in doubt, was unreasonable, and the figure must be reduced unless Miss Lambert can satisfy me that the difficulties and complexities that existed in assessing quantum carried with it a risk that justified a figure as high as 100%.
26. In my judgment, the factors that go to the risk of failing to beat a Part 36 offer do not justify a success fee of 100% either. At this point I remind myself that the definition of "win" is not "win at least £X", but is to achieve a decision whether by a court order or an agreement to pay damages, whether that be for £1 or £500,000, or some higher figure. In other words, to add, as appears to have happened, an element to the success fee to reflect the size of the claim and its likely complexity is unreasonable. I agree with Mr Mallalieu that C v W is authoritative guidance on this point and for convenience I repeat paragraph 15 of Lord Justice More-Bick's judgment that:

"To add a further 20% success fee to reflect the size of the claim was, in my view, also wrong. It is probably true in general that high value claims tend to be more complex and to involve a greater amount of work than claims of lower value, but that does not of itself increase the risk of losing."

27. It follows, in my judgment, that the fact that assessing quantum proved to be extremely difficult, is not a factor that bears upon the prospect of the Claimant winning or losing the case. That win had already been achieved. The high value and complexity could only bear upon the risk of failing to beat the Part 36 offer, but even if that had happened, the costs up to the date of the offer would have been be recoverable and only those incurred after that date would have become payable to the Defendant. For his part, Mr Mallalieu accepted that the possibility of failing to beat a Part 36 offer so that circumstances such as these could have arisen, did carry a risk, and for that reason, the Defendant has conceded that a 20% success fee would reflect that factor. I agree with that submission.
28. That leaves the issue of staging. As I have said, C v W concerned a single stage success fee, whereas, in the present case, the CFA contained a staged success fee, as was the case in Williams. I am in no doubt that Williams is distinguishable. Firstly, in Williams the CFA was entered into before the admission of liability was made, albeit only by a week. Secondly, that admission, when made, was subject to the issue of contributory negligence, a factor which is not relevant here. Thirdly, when the CFA was signed in this case, the Claimant had a judgment on liability: the Claimant in Williams did not. Fourthly, as Mr Mallalieu correctly pointed out, staging should not be used to permit a litigant to recover a high success fee simply by virtue of the fact that the CFA sought a staged rather than a single success fee. In both cases, the success fee must be reasonable, and for the reasons I have given, I consider that 100%, whether staged or not, was unreasonable.
29. A final point is this: I encountered some difficulty in identifying the passages in C v W referred to in the penultimate sentence of paragraph 14 of Williams, and in assisting me to overcome my limitations in this respect, Miss Lambert directed me to paragraph 25 of C v W. That paragraph addresses the possibility of a provision in a CFA which gives solicitors the right to review the success fee once an offer under Part 36 is made. However, the CFA in this case had not been adapted to meet such an eventuality and is a further reason why I do not consider Williams is of assistance in the present case.

NEXT STEPS

30. For the reasons I have given, the success fee is assessed at 20% so the additional amount payable is £18,723.41 plus VAT of £3,276.59, total £22,000. At the conclusion of the hearing I assessed the Defendant's costs of this issue in the sum of £4,774.38, which are to be set off against the Claimant's agreed costs. There is no need for either side to attend when this judgment is handed down, save that if the Claimant proposes to apply for permission to appeal, Miss Lambert or those instructing her may wish to do so on that date. Alternatively, written submissions may be lodged for that purpose.