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The Solicitor fiduciary duty to client to explain costs issues was highlighted in the recent case of Belsner v Cam Legal Services Ltd. Lavender J, in the above mentioned recent case, held that s74(3) of the Solicitors Act 1974 meant that no deduction at all was to be made to the Claimant’s damages, even though the Claimant entered a retainer/Conditional Fee Agreement which expressly authorised a success fee deduction on the damages, and also permitted any costs unrecovered inter-partes, to be deducted from the client’s damages. The Judge held that such a contractual agreement did not give the Claimant informed consent which was purportedly required under CPR 46.9(2) in order for s74 (3) of the Solicitors Act 1974 to apply.
Facts of the Case
The Claimant had been involved in a Road Traffic Accident and the Solicitor acted on her behalf in recovering damages for the said accident. The CFA or retainer signed by the Claimant stated that she could be liable for basic costs, success fee and disbursements. Furthermore, the CFA stated that the Claimant’s liability could exceed the amount recovered inter partes from the Defendant.
Whilst at present, many personal injury solicitors will apply a cap on the level of costs which the Claimant will be liable to pay, usually 25% deduction on the damages in line with the success fee limits, in this instance the Solicitor elected to seek there additional costs not recovered from the Defendant, from the Claimant. Unlike a success fee which is capped ta 25% of general damages and past losses, if the Claimant enters into an agreement under CPR 46.9(2), no cap will apply on unrecovered costs.
The matter itself settled within the Pre Action Protocol at Stage 2 for the sum of £1,916.98. The Solicitor deducted £385.50 from the Claimant’s damages in the first instance, equating to the success fee deduction only.
The Claimant later sought a final statute bill from the Solicitor. On preparing a detailed bill, it was evident that the costs incurred significantly exceeded those deducted previously, and also the amounts recoverable inter-partes. Only £385.50 had been deducted, and the Solicitor therefore utilised the full extent of unrecovered charges to demonstrate the deduction had been reasonable. The Claimant applied to have their Solicitor’s Bill assessed (which claimed the full amount of costs not recovered inter-partes), which resulted in a detailed assessment.
The District Judge found that the written Conditional Fee Agreement was sufficiently clear to allow the Solicitors the right to recover costs in full from the Claimant. The District Judge held:
“I think to import informed consent places the burden too high. It simply has to be an express term and an express term is a term that is clearly set out in the agreement and about which there can be no doubt, and I am satisfied that this documentation meets that test.”
The District Judge’s assessment resulted in basic costs of £1,392 plus VAT and a success fee of £208.80 being payable by the Claimant to their Solicitor.
The matter was subsequently appealed to the High Court.
The Ruling of the High Court
S 74 (3) of the Solicitors Act 1974 was considered:
‘The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.’
The Solicitors in the case (the Defendant) submitted that there was a written agreement between the parties and thus s74(3) of the Solicitors Act 1974 could not apply as per CPR 46.9 (2) which states the following:
‘Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.’
However, the Judge in question held that a mere written agreement was not sufficient, and that informed consent was required from the Claimant because of the Solicitor’s fiduciary duty to client, stating:
“A solicitor who wishes to rely on CPR 46.9(2) must not only point to a written agreement which meets the requirements of the rule, as the Defendant did, but must also show that his client gave informed consent to that agreement insofar as it permitted payment to the Solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings. For this purpose, the Solicitor must show that he made sufficient disclosure to the client.”
The Judge went on to consider whether sufficient disclosure was made by the Solicitors to amount to informed consent by the Claimant. The Judge found that the Solicitors did provide an estimate of costs, but did not deem this to be sufficient disclosure, stating:
“If it had been pointed out to the Claimant that, while the Defendant’s estimate of costs was £2,500 plus VAT, she might recover only £500 or £550 plus VAT from the Insurers, then that may have affected the Claimant’s consent to the agreement between them insofar as it permitted payment to the Defendant of an amount of costs greater than that which the Claimant could have recovered from the Insurers. It may, for instance, have led the Claimant to ask whether her liability could be capped or to approach a different firm of solicitors, who would cap her liability. Prima facie, therefore, it ought to have been disclosed.”
The Judge stated that informed consent meant that a Solicitor was under the obligation to give a detailed explanation of the CPR provisions and the Protocol regarding fixed costs:
“It does not seem to me that it would have been an unduly onerous burden to require the Defendant to make this disclosure. It would not involve explaining all of the detail and complexity of the provisions of the Civil Procedure Rules and the Protocol which I have set out. Nor would it have required identifying every possible outcome of the Claimant’s claim. Rather, it involved taking the outcome which the Defendant had itself assumed for the purposes of its estimate of costs and stating what the recoverable costs might be in that case.”
It was therefore held that the Claimant had not given her informed consent to the Conditional Fee Agreement and that the Defendant could not rely on this agreement for the purposes of CPR 46.9(2) and that the firm of Solicitors had failed to comply with the Solicitor fiduciary duty owed to their client.
Impact of Belsner v Cam Legal Ltd
The findings of this case may ‘open the floodgates’ to further claims now being made for unreasonable deductions under CFAs. It is known to be in the process of being appealed further, given the potential ramifications of this matter.
It is also somewhat concerning that costs in excess of £50,000 have been expended by both parties on this matter, relating to a success fee of less than £400.
The case does demonstrate the importance of fully advising a Claimant of their costs liability within a CFA. Absence of informed consent meant that the estimate of costs provided to the Claimant did not provide them with the full disclosure required, nor provide them with the understanding as to their potential exposure to costs for any legal advice or services provided by the Solicitor.
It is considered however, that the High Court decision in Belsner may have overstepped the mark. CPR 46.9(2) does not state it requires informed consent, and this requirement has been imported by the High Court. The Court of Appeal will therefore need to consider whether the use of informed consent is appropriate.
How Can ARC Costs Assist?
ARC Costs are a team of specialist Costs Lawyers and Costs Draftsmen who can assist in the recovery of costs whether you are the receiving party, or if you are the paying party, we can assist you in disputing costs through negotiations and Points of Dispute.
We regularly advise on the importance of the Solicitor fiduciary duty to client relationship, and also in respect of Solicitor Client assessments. We can assist Solicitors from the outset of a case by ensuring your CFA is compliant and that the terms will allow for maximum costs recovery. Assistance can also be provided in recovering inter partes costs by preparing a detailed and accurate Bill of Costs on your behalf, and in providing representation at any Detailed Assessment proceedings, whether you are the receiving party or the paying party.
If you have been served with a Statute Bill from your Solicitor, we can assist you in challenging these fees.
Should you have a query which you would like to discuss or require our assistance in a costs matter; please contact us using the contact forms on the website, email us at info@arccosts.co.uk or call one of our costs experts on 01204 397302.