Legal Update by May Martin.
Lavender J has held that solicitors cannot rely upon CPR 46.9(2) to recover more from a client than could have been recovered between parties in the proceedings, unless they can show that the client provided informed consent. The decision potentially has far-reaching consequences for the use of conditional fee agreements (“CFAs”).
The judgment of Lavender J in Belsner v Cam Legal Services Limited  EWHC 2755 (QB) sent solicitors scrambling to amend their template CFAs but there is potentially no need to panic.
Cam Legal Services (“the Defendant”) is seeking permission to appeal the decision and there is a reasonable chance that it will be overturned.
The case involved a dispute over the amount payable by a client to their solicitor for work done on a claim where the fixed recoverable costs regime applied.
Section 70 of the Solicitors Act 1974 (“the Solicitors Act”) allows a client to apply to the High Court for an assessment of the bill of costs of their solicitor.
Section 74(3) of the Solicitors Act limits the amount of costs which the High Court may allow when conducting an assessment under section 70 in relation to proceedings in the county court. Under Section 74(3), the assessed amount cannot exceed the amount that could have been allowed in respect of that item as between party and party in the county court proceedings.
However, section 74(3) does not apply if the solicitor and the client have entered into a written agreement which expressly permits payment to the solicitor of an amount greater than that which the client could have recovered from another party to the proceedings [CPR Part 46.9(2)].
The questions in Belsner were:
The Claimant was injured in a road traffic accident on 5 February 2016 and instructed the Defendant to bring proceedings on her behalf.
The Defendant provided a CFA and various other documents to the Claimant which set out the terms on which the Defendant would be acting. These documents expressly stated that if the Defendant’s costs exceeded the amount recovered for costs from the other party to the claim, the Claimant would be herself liable for the excess.
The documents also contained the following clauses:
The success fee was capped at 25% of the Claimant’s damages but there was no overall cap on the amount recoverable by the Defendant from the Claimant.
The Claim proceeded under the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (“the Protocol”). It settled following submission of the Stage 2 settlement pack and the defendant to the personal injury claim (“the Insurers”) paid £1,916.98 in damages, plus fixed costs and disbursements of £1,783.19 including VAT.
The Claimant then requested a statute bill from the Defendant which was served on 24 May 2018. It contained the following charges, totalling £4,306.07 (inc VAT):
As the Claimant only recovered £1,783.19 for costs and disbursements from the Insurers, she was liable to pay to the Defendant the sum of £2,522.88 (£4,306.07 - £1,783.19). This would have extinguished the Claimant’s damages and left her liable to the Defendant for £605.90.
The Defendant agreed to limit the costs they sought from the Claimant to those recovered from the Insurers plus the success fee of £385.50. Nevertheless, on a point of principle, the Claimant issued a Part 8 Claim Form seeking an assessment of the profit costs and success fee elements of the Defendant’s bill.
DJ Bellamy assessed the Defendant’s bill at basic costs of £1,392 plus VAT and a success fee of £208.80 plus VAT on the basis that CPR 49.6(2) applied and so the Defendant was entitled to recover more from the Claimant than had been recovered from the Insurers to the original claim.
The Claimant appealed on the basis that CPR 46.9(2) should not apply because she had not provided her informed consent to being charged more by the Defendant than the amount recovered from the Insurers. The Claimant contended that, in order to provide informed consent, she should have been provided with enough information to balance up and have knowledge of her likely liability, for example, information about the fixed costs that might be recoverable as against the Defendant’s estimate of their costs.
The Defendant argued that CPR 46.9(2) did not require informed consent, merely a written agreement that is sufficiently clear that the solicitors have the right to recover more from the Claimant than the amount recovered from the other side.
Lavender J began his judgment with a discussion of the fiduciary relationship between solicitor and client. He went on to discuss the relationship between CPR 46.9(2) and CPR 46.9(3) and considered Herbert v HH Law  2 Costs LR 261. The key paragraphs of his decision are  –  where he states (my emphasis):
‘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.’
According to Lavender J, the requirement for informed consent arises because of the fiduciary relationship between solicitor and client. For the Claimant to be able to provide informed consent, Lavender J stated that the Defendant should have given some indication of what the likely recoverable costs from the Insurers might have been.
Lavender J states that his decision does not impose an onerous requirement upon the Defendant. The Defendant had informed the Claimant that most personal injury claims settle at Stage 2 and so, according to Lavender J, the Defendant could easily have also indicated the likely costs that would be recoverable from the Insurers.
Finally, Lavender J noted that this case was particularly striking because the Defendant’s estimated costs were five times the fixed recoverable costs and that, under the terms proposed in the Defendant’s documents, the first £3,200 of the Claimant’s damages would have been paid to the Defendant. He held that this was so striking that it should have been brought to the Claimant’s attention.
First, some practical advice for solicitors: make sure that any CFA contains either:
It is clear that Lavender J was particularly concerned about the possibility of the Claimant in Belsner having her damages completely extinguished, so an overall cap will help to avoid that issue.
Second, the judgment of Lavender J could be liable to be overturned on appeal. CPR 46.9(2) simply does not have a requirement of informed consent. Lavender J acknowledges this at paragraph  when he draws a distinction between the requirements of the rule and the need for informed consent.
His decision to add a requirement of informed consent is based on his framing of the case as one involving a fiduciary relationship. He cites a passage from Snell’s Equity about a claim for breach of fiduciary duty and the defence of informed consent.
However, discussion of breaches of fiduciary duty are not ordinarily applied in the context of section 70 of the Solicitors Act. Section 70 provides a statutory route for a client (the principal) to challenge the costs of the fiduciary (the solicitor). In those circumstances, a claim for breach of fiduciary duty has been replaced by the regime set out in the Solicitors Act. Principles developed in the context of fiduciary duties should not necessarily be imposed upon the Solicitors Act.
Furthermore, Lavender J stated it would not have been onerous for the Defendant to indicate the fixed costs that might be recovered should the claim settle at stage 2.
However, what if the Claimant’s personal injury claim had not settled at that stage? What if it dropped out of the Protocol altogether or the parties had made Protocol or Part 36 offers, with the costs consequences that follow? Requiring the Defendant to explain the possible outcomes and the associated costs consequences would make the duty placed on the Defendant significantly more onerous.
Litigation is inherently risky and unpredictable. To require the Defendant to set out the likely fixed recoverable costs may have not been onerous in Belsner, but in many cases the uncertainty will be so great that the likely fixed recoverable costs cannot be accurately predicted. Belsner may open the door to clients whose litigation proceeded in an unexpected way bringing claims stating that they were not adequately informed as to what they were likely to recover from the other party to their claim.
The decision of Lavender J in Belsner was a surprise to many personal injury lawyers and has the potential to have far-reaching consequences. I anticipate that it could be overturned on appeal.
In the interim, solicitors would be well advised to either provide some information about fixed costs, or insert an overall cap on the liability of clients in CFAs.
This should allow clients to know the extent of their possible exposure to costs and hence can help protect solicitors from their costs being challenged using Belsner.
May Martin is a Pupil Barrister at Parklane Plowden Chambers.