England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		21/05/2009

Mr Justice Jack :

1. This is an appeal against an order made by Master Campbell on 9 October 2008 whereby, in the course of a detailed assessment of costs in an action where the claimant had entered a conditional fee agreement, he reduced a success fee claimed at 100% to 67%. 100% represented a notional 50% prospect of success in the action. 67% represents a 60 per cent chance of success.
2. The rationale behind the percentage mark up as it is applied in our courts is that the successful cases should pay for the unsuccessful ones. The theory runs as follows. If a solicitor acts in two cases with 50% chances of success, he will win one and lose one, and so he needs a success fee, or mark up, on the costs in the successful action of 100% to recover the costs of both. If he acts in three cases each with a one third chance of success, he will win one and lose two. So in the winning case he needs a mark up of 200%. But the maximum allowed in law is 100%. If he acts in three cases each with a two thirds chance of success, he will win two and lose one. So in each winning case he needs a mark up of 50%. If he acts in five cases with a 60% chance of success, he should win three and lose two, so he needs a mark up of two thirds (or 67% as Master Campbell took it) on each of the three to pay for the two. It can be seen that a small decrease in the chances of success, results in a comparatively large increase in the mark up required. So it is in a solicitor's interest to assess the chances as lower rather then higher. The calculation is set out in the Law Society's "Conditional Fees: a Survival Guide". The effect of conditional fee agreements is to put the burden of funding litigation by both successful and unsuccessful claimants onto unsuccessful defendants.
3. It is immediately obvious that this rationale is a very approximate approach. For solicitors do not take on cases which neatly fall into these categories. Further, the theory assumes that the costs in each case are the same. But, so far as the authorities go, no better theory has been advanced. What can be done as an alternative is to examine how in practice conditional fee agreements have worked out for solicitors in particular fields of work, and on the basis of actual figures to calculate what mark up is required on winning cases to secure a proper remuneration overall. As a result of such an examination by Fenn & Rickman and following negotiations with interested parties the CPR now specify the percentage increases which are allowed in respect of road traffic accidents in costs only proceedings (Part 45, section 3) and employer's liability claims and employer's liability disease clams (Part 45, sections 4 and 5).
4. The action with which Master Campbell was concerned was brought by the son and executor of John Oliver. He had died of septicaemia on 23 February 2003 in King George's Hospital. In December 2002 he had been Whipps Cross Hospital for an operation, where it was thought he had acquired MRSA. He was sent home but was later admitted to King George's in a deteriorated condition.
5. On 27 March 2003 Mr Oliver's widow telephoned the solicitors, Gadsby Wicks. In accordance with the firm's usual procedure she spoke to one of the two nurses whom the firm employs for this purpose. The nurse took details of what had happened to Mr Oliver in the last three months of his life. The next step was that the potential claim was considered on the following Monday by a meeting of the firm's 8 lawyers at which the lawyers considered the claims presented by the nurses, which had come in over the past week. I was told that there would be 20 to 30 such claims on a typical Monday, of which about 15% might be accepted by the firm. It is apparent from this that the firm has a substantial practice in medical negligence. The figures I was given which I have just mentioned suggest about 190 cases a year. I was also told that of the cases accepted about 50% succeeded. A decision was made to accept Mrs Oliver's claim. It was accepted on the basis that the claim would be for having caused or permitted Mr Oliver to become infected with MRSA. As to risk assessment, it was noted 'Do not know cause of the infection'. The quantum of the claim was put at £20,000. No decision was made as to funding at that meeting. In accordance with the firm's practice an appointment was made for Mrs Oliver to attend the firm and meet with a nurse to discuss funding. I was told that the two nurses are trained for this. Nonetheless the lawyers' meeting on the Monday determined the success fee for a conditional fee agreement at 100%. At the meeting with Mrs Oliver the nurse would have considered whether the claim might attract legal aid and whether there were any relevant insurance policies. She would then have arranged for Mrs Oliver to enter into a conditional fee agreement with the firm. This is in a form which has been devised by the firm as suitable to its needs. It is not in the form promulgated by the Law Society, but no criticism was made as to that, and I intend none.

6. The agreement included the following:

"Success fee

34 This is the percentage of the Basic Charges that we will add to the Basic Charges and require you to pay if you Win although normally you will be able to recover all, or more probably part, of it from Your Opponent.

35 We have set the percentage at 100% of the Basic Charges. We are not permitted by law to set it at more than 100%. The percentage at which we have set the Success Fee reflects our assessment of your prospects of success in pursuing Your Claim at the time we entered into this Agreement and the fact that if you Lose we will not earn anything. It does not reflect the fact that if you Win we will not be paid the Basic Charges until our work is finished.

36 Our assessment of your prospects of success in pursuing Your Claim at the date we signed this Agreement include the following:

(a) the fact that success or failure will depend to a considerable degree upon the extent to which the court will be willing to accept your account of the history of your treatment, the injury which you have suffered and the surrounding circumstances.

(b) The fact that we have not yet had an opportunity to test the credibility of your evidence with regard to such matters and in particular have not been able to check it thoroughly against contemporaneous written records and Your Opponent's version of the facts.

(c) the fact that in order to Win you will need through to the completion of any trial the support of reputable, independent and suitably qualified medical experts whose expert opinions will be accepted by the court in preference to the opinions of any experts Your Opponent may engage to assist them.

(d) The fact that we have not yet had an opportunity to identify experts who will be able and willing to support Your Claim.

(e) The fact that we have not yet had an opportunity to identify experts who will be able and willing to support Your Claim.

(f) The fact that if Your Opponent decides to defend the claim we do not yet know what experts (if any) will be willing and available to support the defence.

(g) The fact that we do not yet know to what extent and for what reasons any experts engaged by Your Opponent will be willing to give evidence to the court in defence of Your Claim.

(h) The fact that for all of the reasons set out above we have not yet been able to form anything other than a preliminary view of your prospects of success because we have not yet been able to assemble all of the evidence which will be necessary to succeed at trial and we have not been able to assess the strength and credibility of the evidence (and in particular the expert evidence) which Your Opponent may assemble to defend Your Claim.

(i) In particular we are concerned that it may not be possible to establish any breach of duty because we do not know the cause of your late husband's infection."

Clauses 36(a) to (h) were standard provisions, whereas 36(i) was tailored to the case. Clause 97 provided:

"97 We can end this Agreement at any time if we no longer believe that you are likely to Win. If that happens you will only have to pay us the Expenses. These will include the barristers' fees of any barrister who does not have a conditional fee agreement with us but will not include the interest referred to in paragraph 42 of this Agreement."

6. The action did not run a smooth course. Following the obtaining of the medical records, expert advice was sought. The view of the consultant was that the hospital was not at fault in relation to the infection and its treatment. However, he considered that inadequate attention had been paid to Mr Oliver's diet at Whipps Cross Hospital and that the weakness which ensued had caused or contributed to his death in King George's Hospital. The case was continued on that basis, though with reduced confidence. It was a basis, however, which turned out to be reflected in the opinion of the Hospital's own expert witness. The outcome was that the action was settled on 7 December 2007 for £50,000 and costs. The costs as assessed including the success fee at 67% came to £197,851. It is thus likely that on that basis the total costs of the action were in the order of £300,000, which has come from public monies. They will be higher if the appropriate success fee is 100%. It may rightly be said that a case which is settled for £50,000 should not cost £300,000 in lawyers' fees. But that is not and cannot be a point on this appeal.
7. Master Campbell had before him a statement from Mr Roger Wicks, one of the two partners in the firm, which set out the decision making process of the firm as I have outlined it. In the course of it Mr Wicks stated:

"11. It was not possible to attribute a precise percentage for the prospects of success given the limited information that was available to us. When assessing a clinical negligence case at this early stage with your access to the medical records, the treating clinician's explanation or any specialist medical advice, all one can decide is that there are not obvious flaws so that the case is not a definite loser, but is a case with uncertain prospects i.e. the prospects of success are more or less evenly balanced.

12. Given that it is not possible at that early stage to express the prospects of success in the form of a precise percentage, all one can do is put the case into one of three categories.

(a) firstly, those with high (although not absolutely certain) prospects of success, an example being a regained swab case. If one were to put a percentage on these it might be 80% plus.

(b) secondly, those cases for which the prospects of success are extremely doubtful, an example being a case with a substantial limitation problem for which the court is unlikely to exercise Section 33 discretion. One would have to say in relation to those cases that the prospects of success are probably no more than (about) 20%.

(c) the third category are those cases (such as this one) in which the prospects of success can only be assessed as being uncertain. It is simply impossible to assess the percentage chance of success for those cases with any mathematical precision whatsoever. It is, in my view, frankly nonsense to suggest that these cases can be assessed as having (say) a 50% chance of success as opposed to (say) 60% or 40%. Indeed, it is highly likely that if several different lawyers were to be asked to assess the same case by giving a precise percentage, they would produce a range of difference assessments spanning at least 20 percentage points. In other words, it would not be remarkable for one lawyer to assess a case at 60% and another to assess the same case at 40%.

13. Before one could make any more precise assessment of the prospects of success it would be necessary to at least obtain copies of the medical records together (preferably) with a preliminary expert opinion. However, those steps cannot be taken without incurring disbursements, which our clients would have to pay for whereas we provide a guarantee to all of our clients that, whatever happens they will never be personally responsible for any costs, win or lose. I am hugely proud of that guarantee, which ensures absolutely that there is access to justice for everyone.

14. It has been suggested that we would never take any case unless we assessed the prospects of success as being greater than 50% because it would not make commercial sense for us to do so. That is not all correct. We do take cases (such as Mr Olivers's) that we risk assess as having uncertain prospects of success and are able to do so because (very broadly) the success fees that we receive for wining cases compensate us for the losses that we suffer on unsuccessful cases."

8. Because the success fee was challenged, junior counsel for the claimant, Mr Alexander Hutton, prepared a note describing what the case had involved. In the course of it he stated:

"As can be seen from the terms of the conditional fee agreement, the original case contemplated was that the Defendant had negligently caused the fistula and infection during the operation and/or had failed to treat it properly thereby causing his death. At that stage, if I had been asked to advise, I would certainly not have been able to advise that there were better than 50-50 prospects of success. That fact is underlined by the reality of subsequent events that such a case envisaged at the time of the CFA in 2003 subsequently failed, in that it was abandoned following receipt of Mr Durdey's report and at the conference in January 2006."

9. It was submitted to Master Campbell for the hospital that the action should have been assessed as having a 67%, or two thirds, chance of success, equating to a 50% success fee. It was said that, if the prospects had been less than 50% the case would not have been taken on. The master stated:

"25. The rationale behind the solicitors' decision to adopt a 100% success fee appears to me to be based upon the proposition that we do not yet have enough information to be able to give you, the client, full advice as to the prospects of success. But we, nonetheless, feel there are reasonable grounds for investigating the possibility of pursuing a claim for clinical negligence. From that I draw the following:

26. First, the solicitor has evaluated the client's case and concluded that it is not hopeless, or unarguable, as would be the case if, for example, it was statute barred under the Limitation Act. Secondly, it is that we have not material to go on, save what you, the client, have told us to judge whether you have good or bad prospects of winning. This leads, thirdly, to the proposition that the success fee must accordingly be 100%.

27. Whilst I follow the reasoning in points one and two, for my part I fail to see how the conclusion in point two can justify a solicitor in saying, "so the success fee must be 100%". In my opinion, in doing so, the solicitor is basing his judgment on ignorance and has fixed the success fee at the highest level law permits, because he has no material to go on, save what the client has told him. No investigations have been made at the hospital, he has read no medical reports or notes and he is entirely reliant on what he has been told by the client. In these circumstances, it seems to me to be wrong, as a matter or principle, for a solicitor to be able to say:

'I signed up the client to a CFA at the first meeting. I had no material to indicate whether the case was a sure fire winner, or a loser, so the success fee must be 100%'."

Paragraph 26 reflects broadly paragraph 12(c) of Mr Wick's statement, where Mr Wicks states that no accurate assessment can be made between, say, 60 or 40%, and so 50% must be taken. But in paragraph 27 he does not take account of the assessment made by the firm at the Monday meeting that the case was neither very strong nor very weak.

10. Master Campbell concluded:

"30. It follows that, in my judgment, [a] 100% success fee is too high. Disregarding, for a moment, whether the parties would in fact have been better served by using a CFA with a staged success fee, I infer from what was discussed at the meeting on 9^th April 2003, that the case was believed, or perceived, by Gadsby Wicks to have been far from hopeless. As experts in the field of clinical negligence, they considered, clearly, that there were reasonable grounds for investigating the case further. In my opinion, if reasonable grounds did indeed exist, as the solicitors found, it must follow that they thought the case had merits, otherwise the firm would have rejected it.

31. In my judgment, those reasonable grounds, when converted into prospects of success, would fairly, reasonable and realistically have led to a figure of 60% for prospects of success. Using the ready reckoner this would give a success fee of 67% and that is the figure I allow.

11. It was established early in the life of conditional fee agreements that it is normally reasonable for a conditional fee agreement to be concluded on the occasion when the claimant first instructs his solicitor. I refer to Callery v Gray [2001] 1 WLR 2112, paragraph 91. It was also established in Callery v Gray and is now contained in paragraph 11.7 of the Practice Direction to CPR 44 that :

11.7 … , when the court is considering the factors to be taken into account in assessing an additional liability [i.e. a success fee], 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.

12. Paragraph 11.8 of CPR 44 provides:

11.8 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;

(c) what other methods of financing the costs were available to the receiving party.

It is agreed that here (c) is not relevant: there was no other available means funding the costs. Paragraph 11.9 should be included for completeness:

11.9 A percentage increase will not be reduced simply on the ground that, when added to base costs which are reasonable a (where relevant) proportionate, the total appears disproportionate.

13. In his judgment the master stated that he was disregarding the possibility of a staged success fee, that is an agreement which provides for a low percentage if the case is successfully determined at an early stage but allows a higher percentage if it is not. He was right to do so. In U v Liverpool City Council [2005] 1 WLR 2657, [2005] EWCA Civ 475 Brooke LJ stated in paragraph 47:

"Once it is clear (in the absence of any later consensual variation which provides for a different success fee) that a CFA may only carry one success fee, and that the task of a costs judge is to determine whether that success fee was reasonable one in the light of the matters that the legal representative knew or should have known when is was made, there is simply no room for a costs judge to substitute different percentage increases for different items of costs, or for different periods when costs were incurred. He could only do this with the benefit of hindsight, which is prohibited, and the rules and the regulations give him no power to remake the parties' agreement. His powers of interference are limited to altering the success fee to a more reasonable one when he considers the size of the additional liability the paying party should bear.

Brooke LJ also stated in paragraph 57:

"We end by reiterating that cost judges should be more willing to approve what appear to be high success fees in cases which have gone a long distance to trial if the maker of the CFA has agreed that a much lower success fee should be payable if the claim settles at an early stage. … ."

Putting it the other way, it may be harder for a solicitor to justify a high fee if he has not in an appropriate case entered a two stage agreement.

14. Something else which did not feature before Master Campbell was the possible effect of the operation of clause 97 of the agreement. If a solicitor who has a line of cases which have been assessed as having a 50% chance of success and so carry 100% success fees, carries on with the winners but 'unloads' the others under a provision such as clause 97, the balance and the rationale for the success fees being put at 100% may be affected. But just as some 'losers' may be dropped early under a provision such as clause 98 and so saving costs, some winners will settle early, which will cut the costs recovered. I asked during the course of the hearing what the success rate of Gadsby Wicks was. As I have said, I was told that it was of the order of 50% of the approximately 15% of the cases which the firm accepts. So the failure rate is about 50%. I was told that the failures included cases where the firm ceased to act by operation of clause 97.
15. The crucial question on the appeal is whether on the material which was before the master he was justified in concluding that the prospects of success should have been assessed at 60% rather than 50%, when Gadsby Wicks first decided to accept the claim. The basis of his decision was the firm must have thought that the claim had a better than 50% chance, otherwise it would not have been accepted. In my view, shared by my assessors, that basis was not substantiated. The assessment was that the claim might have a better or worse than even chance of success. Having been addressed as to the merits of the claim by Mr Hutton and also read his note written for the assessment, I agree that the claim was of a kind that faced difficulties and had uncertain prospects. Based on what Gadsby Wicks knew when the conditional fee agreement was made it was one which could easily have been assessed as having chances of success lower than 50%. I therefore consider that the master was wrong to take the view he did. I should say that it is not a matter of my concluding that I would have exercised differently the discretion which a costs judge has to choose a figure within the range reasonably available to him: compare Atack v Lee [2005] 1 WLR 2643, [2004] EWCA Civ 1712, paragraph 38. I regret that my view is that he erred in the manner I have set out.
16. In his decision Master Campbell cited from the judgment of His Honour Judge Dean QC in Barham v Athreya, Central London County Court, 15 June 2007, unreported, quoting from paragraph 57 :

"In other words, if you chose to enter a CFA at such an early stage, you are, as it were, giving yourself the right to argue for or to bargain for 100% and that cannot be right. It puts a premium on ignorance rather than the contrary."

This may suggest that a solicitor should not enter an agreement at an early stage. However, as I have said, he is entitled to do so. It follows inevitably from that entitlement that he will be in a position of ignorance compared with that when he has the medical records and expert advice. But he is likely to be experienced in the field and he will have some knowledge of the claim. His 'ignorance' is relative. He may have taken on a winner: he does not know. But equally he may have taken on a case where greater knowledge would show the chances were well below 50 percent. The master considered that he was bound by the decision in Barham v Athreya, but he was not.

17. The appeal will be allowed, and the success fee will be restored to 100 per cent.