Solicitor Deductions 'Fair and Reasonable' in significant Court of Appeal decision
Posted on 27th October 2022 at 12:37
By Sean Linley, Costs Draftsman
The long-awaited outcome of the Court of Appeal case of Belsner v CAM Legal Services Ltd [2022] EWCA Civ 1387 (27 October 2022) has ended with the appeal allowed in favour of the solicitors. Deductions of £821.25 plus VAT for the additional liabilities and short-fall were accordingly found to be lawful and will not have to be paid back to the client. The case sends out a strong message to those bringing these sorts of solicitor-own-client assessments but the solicitors themselves did not escape criticism with breaches of the SRA code of conduct found.
5 key questions were set out to be addressed:
13. Against that background, the key questions that will require determination are: (i) whether section 74(3) and Part 46.9(2) apply at all to claims brought through the RTA portal without county court proceedings actually being issued, (ii) whether the Solicitors are required to obtain informed consent from the Client in the negotiation and agreement of the CFA, either due to the fiduciary nature of the solicitor-client relationship or through the language of Part 46.9(2), (iii) if informed consent was required, whether the Client gave informed consent to the terms of the CFA relating to the Solicitors' fees, (iv) whether, in any event, what can be regarded as the term in the Solicitors' retainer allowing the Solicitors to charge the Client more than the costs recoverable from the defendant to the RTA claim was unfair under the CRA 2015, and (v) what are the consequences of the determination of these issues on the assessment in this case.
14. For the reasons that appear in this judgment, I have decided in summary that (i) section 74(3) and Part 46.9(2) do not apply at all to claims brought through the RTA portal without county court proceedings actually being issued, (ii) the judge was wrong to say that the Solicitors owed the Client fiduciary duties in the negotiation of their retainer, (iii) although the Solicitors were not obliged to obtain the Client's informed consent to the terms of the CFA on the grounds decided by the judge, the Solicitors did not comply with the SRA Code of Conduct for Solicitors (the Code) in that they neither ensured that the Client received the best possible information about the likely overall cost of the case, nor did they ensure that the Client was in a position to make an informed decision about the case, (iv) the term in the Solicitors' retainer allowing them to charge the Client more than the costs recoverable from the defendant was not unfair within the meaning of the CRA 2015, and (v) the court can and should reconsider the assessment on the correct basis, which is under paragraph 3 of the Solicitors' (Non-Contentious Business) Remuneration Order 2009 (the 2009 Order), which requires the Solicitors' costs to be "fair and reasonable having regard to all the circumstances of the case". The costs actually charged to the Client in this case were fair and reasonable.
So in short:
- Section 74(3) and Part 46.9(2) does not apply to all claims brought through the RTA portal without county court proceedings actually being issued.
- It was wrong to say the the Solicitors owed the Client fiduciary duties in the negotiation of their retainer.
- The solicitors did not comply with the SRA Code of Conduct in that "they neither ensured the Client received the best possible information about likely overall cost of the case, nor did they ensure that the Client was in a position to make an informed decision about the case".
- The term in the retainer, allowing the solicitor to charge the Client more than what was recoverable between the parties was not unfair within the meaning of CRA 2015.
- The correct approach from the Court under paragraph 3 of the Solicitors' (Non-Contentious Business) Remuneration Order 2009 which requires Solicitors' costs to be "fair and reasonable having regard to all the circumstances of the case." In Belsner the deductions charged were fair and reasonable.
The Court of Appeal did note that the current position was unsatisfactory:
First, the distinction between contentious and non-contentious costs is outdated and illogical. It is in urgent need of legislative attention. Secondly, there is no logical reason why section 74(3) and Part 46.9(2) should now apply to cases where proceedings are issued in the County Court and not to cases pursued through the pre-action portals. Thirdly, it is unsatisfactory that, in RTA claims pursued through the RTA portal (and perhaps the Whiplash portal), solicitors seem to be signing up their clients to a costs regime that allows them to charge significantly more than the claim is known in advance to be likely to be worth. The unsatisfactory nature of these arrangements is not appropriately alleviated by solicitors deciding, at their own discretion, to charge their clients whatever lesser (and more reasonable) sum they may choose with the benefit of hindsight. Fourthly, it is illogical that, whilst the distinction between contentious and non-contentious business survives, the CPR should make mandatory costs and other (e.g. Part 36 and PD8B) provisions for pre-action online portals, but otherwise deal only with proceedings once issued. Section 24 of the Judicial Review and Courts Act 2022 will allow the new Online Procedure Rules Committee (OPRC), in due course, to make rules that affect claims made in the online pre-action portal space. It would obviously be more coherent for the OPRC to make all the rules for the online pre-action portals and for claims progressed online. Finally, it is also unsatisfactory that solicitors like checkmylegalfees.com can adopt a business model that allows them to bring expensive High Court litigation to assess modest solicitors' bills in cases of this kind. The Legal Ombudsman scheme would be a cheaper and more effective method of querying solicitors' bills in these circumstances, but the whole court process of assessment of solicitors' bills in contentious and non-contentious business requires careful review and significant reform.
It is likely that Belsner will weigh on the minds of legislators and may well see changes in future, as well as changes to the Civil Procedure Rules. It's evident that there are inconsistencies which will need to be addressed. The future impact of new schemes will no doubt reduce the time and expense in dealing with such matters, particularly the introduction of the Legal Ombudsman Scheme.
The final remarks concerning the manner in which firms are bringing solicitor-own-client challenges are likely to be welcomed by solicitors. It is a clear warning shot from the judiciary and one which will surely signal the death knell for the widespread bringing of such claims.
The concluding remarks make for interesting read also:
97. I agree with the Client that, in all the circumstances, she ought as a matter of good professional practice to have been told the level of fixed costs that she would recover if the case settled within the RTA portal. But that does not necessarily mean that the Solicitors' Bill was unfair. The question is only whether it was fair and reasonable in all the circumstances, having regard to the factors in the 2009 Order for the Client to pay an additional £385.50 on top of what was recovered from the third party. I see no reason why she should not be required to do so. She has filed no evidence suggesting that she is not a reasonably sophisticated client. She accepted in her points of dispute that she expected that she might have to pay some of her base costs. DJ Bellamy assessed the Solicitors' reasonable base costs at some £1,392 plus VAT, which exceeded the £500 plus VAT recovered from the third party. She has never suggested that she did not understand that she would have to pay a success fee on top of some of her base costs. The success fee charged fee was capped by statute at 25% of recovered damages. Lavender J admittedly applied the success fee (of 15% of base costs) assessed by DJ Bellamy to the base costs of £500 recovered from the third party, but he thought the Solicitors had a legal duty to obtain the Client's fully informed consent to charging more by way of base costs than was recovered from the third party. He was wrong about that.
98. The Client in this case has never had any real or economic interest in the pursuit of this costly litigation. Only checkmylegalfees.com have such an interest. The Solicitors capped their fees voluntarily at a fair and reasonable level after the event, even if they ought to have told the Client what she would recover by way of fixed costs in the RTA portal, and even if they ought to have agreed in advance when they entered into the CFA to the cap they later applied voluntarily. Mr Ben Williams KC, counsel for the Solicitors, told us in argument that the Solicitors would not have "dreamed" of doing anything other than making a proportionate deduction from the damages as opposed to charging the Client their full base costs and the maximum possible success fee. In future, I hope that solicitors will not suggest CFA or other fee arrangements to their clients that allow for fees that they would not dream of actually charging.
99. The Client, in effect, argued that the full ramifications of the fully informed consent requirement found by the judge (but not upheld by me) should be read back in to the assessment through the requirement of fairness in the 2009 Order. I do not agree. I think the overall Bill was fair and reasonable. I would, therefore, re-assess the total base costs and success fee payable as being £821.25 plus VAT (£500 + £321.25, the latter figure being £385.50 less VAT). I am conscious that, on one analysis, this assessment could be construed as allowing base costs in excess of £500, since a success fee of 15% of base costs was fixed by DJ Bellamy and not appealed thereafter. In the extremely unusual circumstances of this case, I am reassessing the Bill from scratch because the costs are non-contentious ones which were assessed as contentious ones. For the reasons I have given, I have not found it helpful to do so in the traditional way of assessing base costs and then the success fee. Nothing I have done in that regard will be relevant to future cases. I have simply applied Morgan J's dictum and an overall approach to fairness and reasonableness in the convoluted circumstances of the three stages of this case.
100. For the reasons that I have given in Karatysz v SGI Legal [2022] EWCA Civ 1388, which was heard immediately following this case, the question to ask in order to determine "the amount of the bill" under section 70(9) of the 1974 Act is "what is the total sum that the bill is demanding be paid to the Solicitors, whether or not all or part of that total sum has actually been paid". Accordingly, in this case, the amount of the Bill was £821.25 plus VAT, and the Client achieved no reduction from that Bill as a result of seeking an assessment for the purposes of section 70(9) either before DJ Bellamy or in this court. The prima facie position would, therefore, be that the Client should pay all the costs unless there are special circumstances under section 70(10) of the 1974 Act. I am conscious that there may be other arguments as to costs in the complex circumstances of this case, so will leave the parties to agree the costs here and below, and we can determine them on paper if necessary.
Conclusion
101. For the reasons I have given, I would allow this appeal, and order that the base costs and the success fee payable by the Client in this case should be assessed in the total sum of £821.25 plus VAT. The sum of £295.50 must be repaid by the Client to the Solicitors.
So Belsner restores some normality but it's clear normal will not be enough in future. The Court of Appeal are clear as to their hopes that "solicitors will not suggest CFA or other fee arrangements to their clients that allow for fees that they would not dream of actually charging."
It acts as a staunch reminder that solicitors should ideally consider their terms on a case specific basis and that taking a view on conclusion is not necessarily satisfactory. Many firms for instance, will apply blanket success fees without contemporaneous risk assessments supporting the level claimed. Such an approach continues to leave vulnerabilities and will, as can be seen in Belsner, catch the ire of the judiciary.
There are plainly complex and nuanced issues at play and the conclusive agreement seems to be that the current process is not satisfactory and needs to be revised.
Considering the level of sums argued about the costs now to be met are sure to raise eyebrows. Ultimately, though considering the impact of LASPO and fixed costs then Belsner is to be welcomed for practitioners. When the burden of legal fees was shifted from Defendants to Claimants it was inevitable that there would be a rise in solicitor-own-client challenges, though this has to be viewed with nuance to ensure that the balance is struck between fairness and preserving the economics of access to justice.
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