English and Welsh Courts - Miscellaneous

IN THE COUNTY COURT
SITTING AT BIRMINGHAM

		Birmingham Civil Justice Centre 33 Bull Street Birmingham
		14/08/2015

District Judge Lumb :

Background

1. A and M who are now aged 12 and 4 respectively have brought claims for damages for personal injuries and consequential losses following a road traffic accident on the 31 July 2013. They bring these claims through their father and Litigation Friend, MS.
2. The claims were originally brought through the usual minor injury claim portal process. Agreement was reached with the insurers for the Defendant for the claims for general damages for pain and suffering and loss of amenity and for special damages which included some physiotherapy costs. That agreement was, of course, subject to the ultimate approval of the Court under CPR part 21.
3. Thankfully, the injuries were not terribly serious and having considered the medical evidence that was filed and having confirmed with the Litigation Friend at the hearing that full recovery had taken place in accordance with the prognoses in the medical reports I was able to provisionally approve awards of £2115 and £2065 respectively.
4. In addition to the damages the Defendant agreed to pay the fixed recoverable costs calculated in accordance with CPR Part 45 and which were agreed in the sum of £2014 for each Claimant.
5. Up to that point the hearing had progressed in exactly the same way as infant approval hearings have done in the many thousands of cases over the years since the CPR were first introduced in 1999 and indeed under the old Court rules prior to that date. The role of the Court in these hearings remains the same that it always has been; to ensure that the interests of the child have been protected and that is why the approval of the Court is required before any proposed settlement becomes binding.
6. It has always been the position that the Litigation Friend would be entitled to expect to be reimbursed for any expenditure including costs reasonably incurred on behalf of the child in pursuing the claim. Historically, this has seldom proved a problem as in these straightforward cases the solicitors acting for the Claimant have nearly always agreed to accept whatever costs they could recover from the other side and agreed to waive their entitlement to any other costs.
7. This remained the position even following the introduction of conditional fee agreements (CFA) with success fees backed by after the event insurance (ATE) policies and associated premiums which could also be recovered from the other side.
8. In the very exceptional cases where the solicitors sought to recover extra costs there had to be a detailed assessment of the costs by the Court. These were very few and far between so as to be statistically insignificant.
9. It is only since the world of costs has been revolutionised following the publication of Sir Rupert Jackson's report Review of Civil Litigation Costs: Final Report that difficulties now arise on a frequent basis in Courts of first instance in relation to these important yet hitherto straightforward applications.
10. The principal difficulties arise in relation to applications to deduct the success fees and ATE insurance premiums from the child's damages which are no longer recoverable from the other side. All these difficulties feature in this case and this judgment sets out the various considerations that have to be taken into account both generally and specifically in relation to the facts of the present case.

The Jackson reforms and the CPR

11. The Jackson reforms were implemented through Part 2 of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) and the enabling Statutory Instrument Article 3 of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (Commencement no5 and Saving Provision) Order 2013. Section 44 of the Act dealt with Conditional Fee Agreement success fees and section 46 with insurance premiums by way of costs. Neither were to be recoverable from the Defendant paying party but could be recovered from the solicitor's own client.
12. These changes came into effect on 1 April 2013 by the Conditional Fee Agreements Order 2013. This revoked the Conditional Fee Agreements Order 2000 and abolished the fixed success fees applicable in road traffic accident personal injury claims. These success fees had been set at 100% for cases that concluded at the trial and 12.5% for cases that settled before trial.
13. The new legislation modified some of the original provisions regarding conditional fee agreements that first appeared in the Courts and Legal Services Act 1990 but certain fundamental requirements such as the need for the CFA to be in writing and specifying the level of the success fee remained.
14. Although the maximum success fee remained at 100% the new provisions did not include any requirement to undertake a risk assessment of the prospects of winning the case to calculate an appropriate success fee. Accordingly, it seems it has now become commonplace for solicitors to enter into conditional fee agreements with clients with a stated success fee of 100% even though the prospects of the claim being successful are virtually certain.
15. Such a case might be one where the Claimant is a wholly innocent passenger subjected to a rear end shunt collision by the negligent driver of another vehicle. In Beal v Russell [2011], a case decided before fixed success fees were introduced, the SCCO assessed an appropriate success fee on similar facts to be 5%.
16. The level of success fee is simply a term of the retainer that is the contract between a solicitor and his client. Whether it is fair for solicitors and clients to enter into CFAs with success fees of 100% in these cases may depend upon the quality of advice given by the solicitors or, some may suggest, upon the scruples of the solicitor. The Courts are unlikely to interfere with the terms of a contract freely entered into by an adult with capacity.
17. The position where that adult is a Litigation Friend acting for a person who lacks capacity such as a child is subtly different as if it is proposed that those costs irrecoverable from the other side are sought to be paid from the child's damages then before any payment can be made the Court has to approve it under CPR 21.12. While the adult Litigation friend may remain liable under the retainer for the full costs to the solicitor (subject to any waiver) the Court will only give approval to the deduction from the damages if the costs have been reasonably incurred and are reasonable in amount.
18. When the reforms were first introduced there remained the problem that before any expenses under CPR 21.12 which were also costs could be deducted there had to be a detailed assessment of those expenses. Inevitably, there would be insufficient information or time available at these short Court appointments and the case would have to be adjourned for detailed assessment. This operated as a positive disincentive to solicitors to pursue recovery of these extra expenses and as before solicitors tended to waive any costs that could not be recovered from the other side.
19. The "problem" of the need for a detailed assessment was tackled by the introduction of CPR 46 PD 2.1 which provided that the Court need not order an assessment of costs under CPR 46.4:

"(a) where there is no need to do so to protect the interests of the child…."

(b) where another party has agreed to pay a specific sum in respect of the costs of the child ………and the legal representative has waived the right to claim further costs

That still left open the need for a detailed assessment where (a) and (b) did not apply. This resulted in a further amendment to CPR 46.4 with effect from 6 April 2015 as follows;

the costs recoverable under the rule above are limited to –

(a) costs incurred by or on behalf of a child and which have been assessed by way of detailed assessment pursuant to rule 46.4(2)

or

(b) costs incurred by or on behalf of a child by way of success fee under a conditional fee agreement or sum payable under a damages based agreement in which a claim for damages for personal injury where the damages agreed or ordered to be paid do not exceed £25,000 where such costs have been assessed summarily pursuant to rule 46.4(5).

Rule 46.4(5) provides that

where costs payable comprise only the success fee claimed by the child or protected party's legal representative under a conditional fee agreement or the balance of any payment under a damage based agreement the court may direct that –

(c) the assessment procedure referred to in rule 46.10 and paragraph 6 of the Practice Direction 46 shall not apply and

(d) such costs be assessed summarily.

This amendment was supported by an amended practice direction

Practice Direction 21 para 11.2 and 11.3 generally provide that;

the Litigation Friend must support any claim for expenses and costs by a witness statement setting out:-

(e) The nature and amount of the costs and expense

(f) The reason the cost or expense was incurred

And in claims for a success fee where damages are under £25,000

(a) copy of CFA

(b) Risk assessment

(c) Why funding model employed

(d) Advice given to LF re funding arrangements

(e) Details of any costs agreed, recovered, or fixed costs recoverable

(f) Confirmation of the amount awarded or agreed in respect of general damages and past loss (net of CRU).

The present application

20. An application is made in this case for payment of success fees and ATE insurance premiums from the Claimants' damages. In support of the application I have been provided with witness statements in each case from the Litigation Friend MS, copies of the client care letters, a document in each case signed by MS entitled instructions to act, together with a document headed skeleton argument signed by Christopher Walker, a chartered legal executive with the Claimants solicitors, Scott Rees. I have heard oral submissions by Mr Susak, a solicitors agent appearing on behalf of the Claimants and I also heard from MS, the Litigation Friend. I reserved judgment so as to have time to reflect upon the position, consider my decision and to provide a judgment that I hope will provide some assistance to other judges who have to grapple with these applications in the new procedural climate.
21. It was clear in hearing from MS that he believed that Scott Rees had advised him that the deduction of the success fees and ATE insurance premiums would be automatic. This is confirmed by paragraph 25 of the skeleton argument "The Litigation Friend accepted [the liability to pay the success fee] in the knowledge that they (sic) would be indemnified out of the successful recovery of damages on behalf of the Claimants." MS did not appreciate that the true position was that he had a potential personal liability to Scott Rees for these sums totalling £1865 and that this sum would only be deducted from the children's damages if the Court gave permission as part of the approval process.
22. The solicitors have failed to comply with all the requirements of Paragraphs 11.2 and 11.3 of CPR PD21 by failing to provide a copy of the risk assessment (there wasn't one) and failing to deal adequately or at all with the advice given to the Litigation Friend about funding arrangements or why the funding model was employed or to give details of any agreed costs. The statement of MS in M's case simply stated that ;

"I understand that a sum of £215 will be used to reimburse the physiotherapist, and a sum of £195 will be used to pay the After the Event Insurance cover, which was explained to me by the Solicitors. I furthermore understand that a sum of £516.25 will retained (sic) as the Solicitor's success fees."

23. A similar statement was prepared in A's case.
24. The failure to comply with the practice direction alone prevents the Court from dealing with the summary assessment of the success fee. There are also other concerns which, for the sake of completeness, are dealt with later in this judgment.
25. I do not consider that the ATE insurance premiums can be considered to be a reasonable expense reasonably incurred for the purposes of CPR Part 21.12.
26. The Jackson reforms introduced the concept of Qualified One Way Costs Shifting (QOCS). Under these provisions Claimants only became liable for Defendant's costs in the event that a claim is lost in very limited circumstances. Essentially full QOCS protection would only be lost if the claim featured fundamental dishonesty by the client (highly unlikely if not impossible in the circumstances of the present case and in any event if present would provide a ground for the solicitors to be no longer bound by the CFA) and partial loss of QOCS protection would only apply up to the amount of damages recovered in the event of a Claimants failing to beat a CPR Part 36 offer. Again that does not arise in this case and even if it did would represent such a negligible risk that it would not be reasonable or proportionate to take out insurance to protect against it.
27. In the circumstances of this case there were effectively no risks to insure against and this was confirmed by Mr Susak who when challenged by the Court to specify any risk that could justify taking out an ATE policy in this case could not do so. Even if there was a risk, that risk was so small or remote that any competent solicitor would not advise a client to go to the expense of taking out an ATE policy. It follows that the Court will not give its approval to the ATE premiums being deducted from the children's damages.
28. In the circumstances of this case if Scott Rees wish to proceed with recovery of the success fees from the children's damages there will have to be a detailed assessment of the outstanding expenses, namely the success fees.

Further observations

29. Although I have concluded that a detailed assessment is necessary, I wish to make some further observations about the circumstances of this case and of concerns that arise. As yet, there has been no guidance handed down from the Senior Courts and I am unaware that any of these cases have gone to appeal. I hope these observations might be of assistance as I am conscious that the same points will arise time and again in other Courts and not just where Scott Rees are acting for the Claimant. Their skeleton argument appears to be a generic document intended to be relied upon in most, if not all, of their cases where a CFA has been entered into by a Litigation Friend on behalf of children.
30. In this case MS entered into two CFAs one each on behalf of A and M. The specified success fee in each is 100%. On the face of it that is a high success fee on the facts of this case and what would have been known to the solicitors at the time the CFA was entered into.
31. Both A and M were innocent passengers in a vehicle that had been in collision with another vehicle driven by a negligent Defendant. Both Mr Susak, the solicitor's agent who appeared at the hearing and the skeleton argument confirm that no risk assessment was carried out by Scott Rees in this case.
32. It is true that the current legislation does not specify a requirement for a risk assessment. It is silent about it. The Practice Direction refers to the risk assessment as being one of the documents to be produced on an application for payment of expenses from the protected party's funds. That requirement is not consistent with any argument that a risk assessment is now redundant.
33. Indeed, if solicitors/Litigation Friends wish to justify proposed deductions from a child's damages as being reasonable then a risk assessment would be at least highly desirable as evidence in support of their arguments. The very fact that it is mentioned as one of the documents to be produced may mean that it is, in effect, a requirement. Had a risk assessment been carried out in the present case the prospects of success were so high as to be virtually certain. An appropriate success fee might have been as low as 5% as in Beal v Russell or possibly nothing at all.
34. The Court is not concerned with the quality of the advice provided to MS by Scott Rees. That is a matter between them.
35. The Court is concerned, however, in performing its duty under CPR Part 21 to consider whether a 100% success fee was a reasonable expense both in amount and whether it was reasonably incurred at all.
36. That appears to be the contractual position between MS and Scott Rees and it is not for the Court to interfere with that contractual term in these circumstances by seeking to substitute a different lower success fee particularly where the solicitors are holding MS to his liability to pay the full success fee and have not sought to agree any reduction with him save perhaps that it would not exceed an amount equivalent to 25% of the children's damages.
37. In the circumstances it follows that I would be very unlikely to be satisfied that a 100% success fee per se was an expense reasonably incurred and reasonable in amount for the purposes of CPR Part 21.12.
38. Even if I was satisfied that it was reasonable to enter into a CFA with a 100% success fee the problems in this case do not end there. The amount of the base costs owed under the terms of the retainer between Scott Rees and MS have not been quantified.
39. I have not been told of any bill delivered to MS or even an indication of the costs that Scott Rees have informed him he owes. If he disagreed with the level of those charges they could be challenged under the provisions of the Solicitors Act 1974 and would then fall to be assessed on a solicitor and own client basis by the Court at a detailed assessment. In the absence of knowing what those base costs are, the success fee of 100% of an unknown figure cannot be quantified.
40. Scott Rees seek to ignore this difficulty by relying upon the cap which section 5 of the Conditional Fee Agreements Order 2013 provides that the success fee payable by the client is capped at 25% of the damages recovered for pain and suffering and loss of amenity and past losses. That however requires an assumption that the success fee exceeds the 25% cap which although it may be likely where the success fee is set at 100% of basic charges is not self-proving.
41. The skeleton argument submits that the amount of the success fee is automatically crystallised at 25% of the damages as soon as the Court approves the proposed settlement. That is obviously an incorrect statement of the law. The Court cannot approve the settlement until it has reached the stage at which it is satisfied that the proposed deductions are reasonable. The argument put forward by Scott Rees therefore falls victim to circularity.
42. Disturbingly, what it perhaps betrays is an intention that the formulation of the success fee at 100% is designed to ensure that the cap on the success fee at 25% of the damages is always reached. If that is the intention (and I did not hear argument on the point and this does not form part of my decision) then it occurs to me that such a structure arguably comes dangerously close to a contingency fee which may be unlawful. It certainly does not fall within the permitted exception of a damages based agreement under section 46 of LASPO 2012.
43. In his final report Sir Rupert Jackson recommended that General Damages recovered in a case where a CFA was entered into after 1 April 2013 should be increased by 10% to compensate any Claimant for the additional irrecoverable expense of a success fee. Following the Court of Appeal decision in Simmons v Castle that enhancement has taken effect. The skeleton argument from Scott Rees in this case refers to the quote from the economic assessor to Sir Rupert Jackson's Inquiry, Professor Paul Penn, that the increase in general damages will in the great majority of cases leave Claimant's no worse off. That clearly demonstrates that it was not within the contemplation of either Sir Rupert Jackson or Professor Penn that the success fee would always be equivalent to 25% of the damages or indeed that that would be the norm. On the contrary it would appear that it was contemplated that the success fee would seldom be equivalent to 25% of the damages.
44. The skeleton argument filed by Scott Rees concludes with a section entitled "Consequences of not indemnifying the Litigation Friend". This makes the following assertions;

"The success fee is charged by solicitors following the introduction of the Jackson Reforms. The implementation of these reforms have cut fees that Claimant's solicitors are entitled to recover from the Defendant to a level that is uneconomic, or at least unattractive to pursue without the additional recovery of the success fee."

Should the Courts not allow the recoverability of the success fee, then two issues will arise

Firstly Litigation Friends will not engage in litigation on behalf of the child or protected party if they have to bear the costs of litigation personally.

Secondly solicitors will not accept instructions for minors or patients as they are uneconomic to run. The commercial realities are that large members of the public are impecunious and/or would not pursue litigation at their own expense if it will not benefit them.

Children and protected parties can be classed as society's most vulnerable, hence the implementation of CPR 21 generally. Should the Court not allow the Litigation Friend to be indemnified out of the damages of a successful Claimant, then societies most vulnerable citizens will have no course in litigation. A dire scenario.

45. These so called submissions have no place in a properly prepared skeleton argument. They are, in the widest sense, political assertions that are of no relevance to the judiciary or the Courts who constitutionally are apolitical. If the solicitors consider that the predictive or fixed recoverable costs are insufficient then their argument is with the Government and the Legislature and not with the Judiciary or the Courts whose role is to apply the law.
46. The suggestion that solicitors would not undertake the work without the enhancement of a success fee in (at least in as much as it relates to simple and straightforward cases) is unfounded by the experience of the Courts in dealing with the many thousands of these cases throughout the country. On the contrary, it seems there are many solicitors who are quite prepared to do the work without a success fee. There is no compulsion on solicitors to do the work. They may choose not to do so if it is uneconomic for their firm. Other firms will do that work instead.
47. No doubt any competent solicitor would advise a prospective Litigation Friend that other solicitors may be prepared to accept instructions without insisting upon a success fee. Such advice would surely form part of the professional requirements in the Solicitors Code of Conduct when discussing funding arrangements with a prospective client.

District Judge Lumb

Regional Costs Judge

Birmingham