Belsner v Cam Legal Services Ltd

Introduction

In this case each party appeals with permission granted by District Judge Bellamy against a different part of his order of 14 August 2019, made in the Sheffield District Registry of the High Court, on an assessment pursuant to section 70 of the Solicitors Act 1974 of the Defendant’s bill of costs relating to work done by the Defendant for the Claimant in a claim for damages for personal injury arising out of a road traffic accident on 5 February 2016, which was made under the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (“the Protocol”) and which was settled following submission of the Stage 2 Settlement Pack for £1,916.98 in damages, plus fixed costs and disbursements of £1,783.19 including VAT.

The Claimant appeals against paragraph 1 of DJ Bellamy’s order, which was in the following terms:

“The Defendant’s bill be assessed in the sum of £3,104.15 (being base profit costs of £1,392.00, success fee profit costs of £208.80, VAT on profit costs of

£320.16 and disbursements of £1,783.19 inclusive of VAT).”

The grounds of the Claimant’s appeal are as follows:

The Defendant appeals against paragraph 2 of DJ Bellamy’s order, which was in the following terms:

“The profit costs in the bill having been reduced by 37%, the Defendant do pay the Claimant’s costs in respect of today’s hearing. The court assesses the costs at £2,550 plus VAT and Court fee of £424.”

The Defendant’s grounds of appeal are as follows:

This is clearly a test case. In itself, this could be seen as a case about £385.50 in costs and the costs (which were assessed at £3,484 in total) of the assessment of the Defendant’s bill. However, the Claimant’s solicitors, Clear Legal Limited, trading as checkmylegalfees.com, have acted for the clients in other, similar cases, several of which have resulted in assessments conducted by District Judge Bellamy which are the subject of appeal. No doubt similar issues could arise in many other cases. Consequently, the parties appear to attach considerable importance to this appeal. According to their statements of costs, the Claimant and the Defendant have spent £52,575.63 and £35,139.70 respectively on this appeal. That is a total of £87,715.53, which is over 225 times the amount of £385.50 originally at issue.

The Defendant’s Terms and Conditions of Business stated, inter alia, as follows:

“17.

The charges agreed between us may exceed the costs recoverable from another party. This means that in practice there may be a proportion of your costs which you will have to bear yourself irrespective of any order for costs which may be made against the opposing party or parties.

18.

As between the parties to litigation or arbitration in England and Wales, the usual position (which is subject to exceptions) is that the losing party will be ordered to pay a significant part, at least, of the winning party’s legal costs (as well as the losing party’s own costs). An order for payment of costs as between the parties will usually be made at the end of proceedings, but may also be made during the course of proceedings, for example following pre-trial hearings. Costs ordered to be paid during the course of proceedings may have to be paid within a specific time, typically within 14 days of the order.

19.

If you obtain an order for costs in your favour against any other party or parties at any stage it does not vary or alter these Terms and Conditions. Whether a party awarded costs in fact recoups any costs will depend on the ability of the other party or parties to pay. You will be liable to us to pay our fees, disbursements and VAT (if added) in full in accordance with these Terms and Conditions irrespective of whether an order for costs is made against the other party or parties and whether or when you are able to recover any costs from your opponents. You agree that you shall not be entitled to withhold or defer payment to us pending receipt of funds from the party or parties against whom an order for costs has been made.

20.

If any order for costs is made in your favour against any other party or parties, the amount of those costs will either be agreed with the party or parties against whom the order is made or will be assessed by the court or arbitrator(s). If an assessment by the court or arbitrator(s) is required, you will have to meet all our fees, disbursements and VAT incurred in conducting the assessment proceedings on your behalf. Depending upon the outcome of the assessment, the court may order the paying party or parties to meet part of the costs of the assessment. This does not affect your liability to us to meet our costs, disbursements and VAT incurred in pursuing the costs recovery in accordance with these Terms and Conditions or entitle you to withhold or defer payment to us pending receipt of funds from the party or parties against whom an order for costs has been made.

…

22.

We will give you the best possible information about the likely overall costs of the matter. We will tell you as soon as possible if we think our charges might be higher than any estimate or other indication of costs that has been given. An estimate is only a guide. You should not treat it as a binding quotation.”

The CFA provided as follows:

“If you win your claim, you pay our basic charges, our expenses and disbursements and a success fee together with the premium for any insurance you take out. You are entitled to seek recovery from your opponent of part or all of our basic charges and our expenses and disbursements, but not the success fee or any insurance premium.”

The CFA stated that details of the Defendant’s basic charges were set out in schedule

Hourly rates were then given for various levels of solicitor, from trainees to solicitors with at least 8 years’ litigation experience.

The CFA provided for a success fee of 100% of the basic charge, subject to the cap

None of the documents, however, provided for an overall cap on the amount recoverable by the Defendant from the Claimant, save in the event that the claim for damages for pain and suffering was less than the small claims limit: see paragraph 9 of the Client Care Letter. Solicitors can, and some do, propose that the amount which they are entitled to claim from their client in a case of this nature is limited to a percentage (say 25%) of the damages ascertained or agreed. The Defendant, however, did not propose such a cap.

Attached to the CFA were the Law Society’s Conditions, which stated, inter alia, as follows:

“We must:

…

-

give you the best information possible about the likely costs of your claim for damages.

…

Dealing with costs if you win

…

-

Normally, you can claim part or all of our basic charges and our expenses and disbursements from your opponent. You provide us with your irrevocable agreement to pursue such a claim on your behalf. However, you cannot claim from your opponent the success fees or the premium of any insurance policy you take out.

-

If we and your opponent cannot agree the amount, the court will decide how much you can recover. If the amount agreed or allowed by the court does not cover all our basic charges and our expenses and disbursements, then you pay the difference.

-

You, not your opponent, pay our success fee and any insurance premium.

-

You agree that after winning, the reasons for setting the success fee at the amount stated may be disclosed to the court and any other person required by the court.

-

If your opponent is receiving Community Legal Service funding, we are unlikely to get any money from him or her. So, if this happens, you have to pay us our basic charges, expenses and disbursements sand success fee.

We are allowed to keep any interest your opponent pays on the charges.

You agree to pay into a designated account any cheque received by you or by us from your opponent and made payable to you. Out of the money, you agree to let us take the balance of the basic charges, success fee, insurance premium, our remaining expenses and disbursements, and VAT.”

The Defendant did not advise the Claimant on the likely quantum of her claim at this stage, but Helen Coe of the Defendant completed a “Matter Risk Assessment” in which she answered “No” to the question:

“Is the claim likely to be worth less than £2k?”

The Defendant pursued the claim against Ms Barford’s insurers (“the Insurers”) in accordance with the Protocol. Liability was admitted and the Insurers paid the Stage 1 fixed costs as required by paragraph 6.18 of the Protocol in the amount provided for in CPR 45.18 (i.e. £200 plus VAT). The Defendant obtained medical reports from a GP and a clinical psychologist and sent a Stage 2 Settlement Pack to the Insurers, who accepted the Claimant’s offer and paid £1,916.98 in damages, plus the Stage 2 fixed costs (i.e. £300 plus VAT) and disbursements as provided for in paragraph 7.47 of the Protocol and CPR 45.18 and 45.19. As I have already stated, the total amount paid by the Insurers in respect of fixed costs and disbursements was £1,783.19 including VAT.

The Defendant paid £1,531.48 (i.e. the amount of the damages, less £385.50), to the Claimant, but did not give her a bill of costs or an invoice.

The Claimant instructed Checkmylegalfees.com Limited (who later merged with Clear Legal Limited) and on 10 May 2018 they issued a Part 8 Claim Form in the Senior Courts Costs Office, seeking an order that the Defendant deliver its statute bill to the Claimant. On 24 May 2018 the Defendant served its final statute bill on the Claimant. The first part of the bill set out the Defendant’s professional charges. These consisted of 4 items:

The total was stated to be £3,588.40 plus VAT of £717.67. That is £4,306.07 including VAT. Thus, the Defendant was asserting that it could have charged the Claimant £2,522.88 (i.e. £4,306.07 less £1,783.19), which would have been £605.90 (i.e. £2,522.88 less £1,916.98) more than the amount recovered by the Claimant in damages. On that basis, engaging the Defendant to represent her on the terms proposed by the Defendant would have left the Claimant with no damages and £605.90 out of pocket.

The payments received from the Insurers were then listed in the bill. These amounted to £1,486 plus VAT of £297.19, or £1,783.19 including VAT. The bill then concluded as follows:

“COSTS VAT

Mr Kirby has helpfully accepted in paragraph 13 of his skeleton argument that the effect of the bill was that the Defendant only sought to recover from the Claimant the amounts received from the Insurers in respect of costs, plus £385.50 (i.e. the success fee subject to the cap).

On 4 July 2018 the Claimant issued a Part 8 Claim Form in the Sheffield District Registry of the High Court seeking an assessment of the Defendant’s bill, restricted to the profit costs and the success fee. No challenge was made to the amount of the disbursements.

On 21 August 2018 District Judge Bellamy made an order for an assessment and gave directions. The order was in the following terms:

“There be an assessment pursuant to s.70 Solicitors Act 1974 of the

Defendant’s bill as follows –

Bill no. 4025 dated 27^th May 2018 in the total sum of £4306.07

On 6 February 2019 District Judge Bellamy carried out a provisional assessment of the bill. In his provisional assessment, District Judge Bellamy:

In relation to the question whether informed consent was given, the district judge said as follows:

“Given the differences in hourly rates and the lack of detailed explanation of the various costs scenario it is hard to see how informed consent could be given.”

The Defendant gave notice that it challenged these aspects of the provisional assessment and there was a hearing on 2 July 2019. The district judge maintained his decision in relation to the success fee, but was persuaded to change his mind in relation to the need for informed consent in relation to CPR 46.9(2). He said as follows in paragraph 6 of his judgment:

“The next issue for the court to determine is what do the words “written agreement” mean in 46.9(2) and whether the court should import in that paragraph that there must be sufficient information given to the contracting non-legal party, in other words the potential Claimant, in order to make an informed decision. It is submitted on behalf of the solicitors, the Defendant in this case, that it is sufficient that there is a written agreement and that that written agreement is sufficiently clear giving the solicitors the right to recover more than the costs recovered from the other side, and that the words of the terms and conditions of business and CFA are sufficiently clear to allow this to happen. It is said on behalf of the Claimant that there must be more information given in terms really that the client in order to give express permission must have enough information in order to balance up and have knowledge of the likely liability, for example, between fixed costs that might be recoverable as against the estimate of costs. I think that is setting the bar too high and I think it is trying to read in to 46.9(2) something that is not there. I think the court is entitled to look at the agreement, to make sure that it contains sufficient certainty and sufficient clarity so that the Claimant entering into the agreement knows full well that there is a potential liability for further costs over and above those which are recovered by the solicitors from the other side. I was initially troubled by paragraph 19, which is page 3 of the bundle of the terms and conditions which simply reserve the right to charge actual costs, taking into account recoverable costs, and in my view if that was all there was that might have been uncertain in relation to express terms of the agreement, but I am satisfied, because I have been referred to other contractual provisions, particularly at page 28 para 19, page 19 (inaudible) of recovery that it is clear enough that entering into this agreement the solicitors will seek to recover the shortfall between their costs and the costs recovered from the other side. 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.”

Given this decision, the district judge did not revisit his provisional decision on the question whether informed consent was in fact given. Nor did the district judge amend his provisional assessment of the amount of the Defendant’s bill. That assessment resulted in the figures in paragraph 1 of his order, i.e. basic costs of £1,392 plus VAT (rather than £2,171.90 plus VAT) and a success fee of £208.80 plus VAT (rather than £385.10 plus VAT).

The net effect of this decision was that the Defendant was entitled to charge the only sum which it had ever demanded from the Claimant, i.e. the sum of £385.50, and, indeed, would have been entitled to charge her considerably more if it had not chosen to limit its demand to that amount. The assessed figures amount to £1,920.96 including VAT. The Insurers paid £600 including VAT in respect of the Defendant’s basic charges. On this basis, the Claimant would have liable for £1,320.96 of the Defendant’s fees, if the Defendant had not volunteered to cap them. That would have left the Claimant with only £596.02 (i.e. £1,916.98 less £1,320.96), or 31%, of her damages.

The district judge allowed time for further written submissions on the issue of costs, which is why he did not make his order until 13 August 2019. He set out the reasons for his decision on costs in an email dated 7 August 2019, as follows:

“I accept, in the modern regime of costs it may be difficult to reconcile the decisions of re Paul and Carthew with how costs are now managed by the Court under CPR. However I believe in terms of principle I am bound by those decisions, and it leaves very little room to argue that “special circumstances” can include [as might otherwise be the case under CPR] the lack of any financial recovery/benefit to the Claimant. I believe the Court of Appeal may at some stage need to re-visit this issue, albeit I accept it may not be proportionate to do so!

I accept the submissions therefore on the part of the Claimant and will order the Defendant to pay the costs of the assessment [not the review where I have made no Order].

…

I have no hesitation in giving permission to appeal the order for costs, as it seems to me the whole issue will benefit from a higher court decision.”

The present case is the first occasion, so far as counsel or I are aware, on which a court has had to decide whether a solicitor seeking to rely on CPR 46.9(2) has to show that the client gave informed consent to the payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.

In order to approach that question, it is appropriate to consider the fiduciary nature of the relationship between solicitor and client, the terms of section 74 of the Solicitors

The relationship between solicitor and client is a fiduciary one. As a fiduciary, a solicitor may not receive a profit from his client without his client’s fully informed consent. As stated in Snell’s Equity (2020) 34^th Edn. at paragraph 7-015 (omitting footnotes):

“To provide the fiduciary with an effective defence to a claim for breach of fiduciary duty, the principal’s consent to relaxation of the fiduciary’s liability must be fully informed. The burden of establishing informed consent for conduct which would otherwise constitute a breach of fiduciary duty lies on the fiduciary. In order to show that the consent was fully informed there must be clear evidence that it was given after the fiduciary made “full and frank disclosure of all material facts”. “The key is disclosure - ‘sunlight bleaches’”. The principal’s consent will be “watched with infinite and the most guarded jealousy” by the court.

The materiality of information to be disclosed is determined not by whether it would have been decisive (although, if it would have been decisive, then it clearly was material), but rather by whether it may have affected the principal’s consent. Thus, it is no defence to a claim for breach of fiduciary duty for the fiduciary to argue that the principal would have acted in the same way even if the information had been disclosed. Further, consistent with equity’s focus on substance rather than form, disclosure is treated in a functional, rather than a formalistic, way, so that the sufficiency of disclosure depends on the sophistication and intelligence of the person to whom disclosure is required to be made.”

Whether there has been sufficient disclosure must depend on the facts of each case:

In paragraphs 81 and 82 of his judgment in FHR European Ventures LLP v Mankarious [2011] EWHC 2308 (Ch) Simon J summarised the effect of certain nineteenth century authorities as follows:

“81.

Since the sufficiency of disclosure is dependent on the facts of particular cases, previous decisions will be of limited assistance. However, it is convenient at this stage to refer to a line of cases relied on by the Defendant: i) …

In cases in which a conflict an interest and duty may arise, ii) Where the principal knows the agent will receive a commission and could have discovered what the commission was, but did not take the trouble to enquire, a misapprehension as to the amount of the commission will not mean that there has been no informed consent, see for example Great Western Insurance Co of New York v. Cunliffe (1874) LR 9 Ch App 525 at 539 and Baring v. Stanton (1876) 3 Ch D 502 at 505.

iii)

The Court will not regard there being a lack of consent where the principal knows that commission will be paid, but wrongly assumes that it is an annual retainer rather than the ‘standard and usual brokerage’, see Hindmarsh v. Brigham & Cowan Ltd [1943] 76 Ll.LR 141 at 152r.

82.

The latter two categories illustrate a consistent approach: where the agent can show a customary usage or that the amount of the commission is standard and ascertainable on enquiry, the failure of the principal to make enquiries as to the amount of the commission is fatal to a contention that there has been insufficient disclosure. They do not assist where there is no customary usage of which the principal is deemed to have notice, or where the amount of the commission is not easily ascertainable from an available source which the principal has failed to take the trouble to discover.”

Tuckey LJ said as follows in paragraph 36 of his judgment in Hurstanger Ltd v Wilson:

“36.

There is some doubt as to whether the agent's duty of disclosure requires him to disclose to his principal the amount of the commission he is to receive from the other party. Bowstead & Reynolds says, at para 6–084:

“where [the principal] leaves the agent to look to the other party for his remuneration or knows that he will receive something from the other party, he cannot object on the ground that he did not know the precise particulars of the amount paid. Such situations often occur in connection with usage and custom of trades and markets. Where no usage is involved, however, the principal's knowledge may require to be more specific.”

The cases cited support these propositions. Here I think the requirement is more special. Borrowers like the defendants coming to the non-status lending market are likely to be vulnerable and unsophisticated. A statement of the amount which their broker is to receive from the lender is, I think, necessary to bring home to such borrowers the potential conflict of interest.”

After referring extensively to Hurstanger Ltd v Wilson, Longmore LJ said as follows in paragraph 42 of his judgment in Medsted Associates Ltd v. Canaccord Genuity Wealth (International) Ltd [2019] 1 WLR 4481:

“It follows from all this, in my judgment, that even if the relationship of Medsted and its clients was a fiduciary one, the scope of the fiduciary duty is limited where the principal knows that his agent is being remunerated by the opposite party. As Bowstead & Reynolds say, if the principal knows this, he cannot object on the ground that he did not know the precise particulars of the amount paid. He can, of course, always ask and if he does not like the answer, he can take his business elsewhere. Bowstead & Reynolds does add that where no trade usage is involved (and no usage was alleged in the present case), the principal's knowledge may require to be “more specific”. In the Hurstanger case the court held that it did need to be more special because “borrowers [such as the Wilsons] coming to the non-status leading market [were] likely to be vulnerable and unsophisticated”. The contrary is the case here since, as the judge found (para 90) the clients were wealthy Greek citizens and it is likely that they were experienced investors (Mr Komninos, for example, had already dealt through MAN).”

These authorities are not directly relevant in the present case, but they are potentially relevant by analogy.

Mr Kirby also relied on a number of provisions of the SRA Code of Conduct 2011, including in particular paragraph O(1.13), which provided as follows:

“You must achieve these outcomes:

…

O(1.13) clients receive the best possible information, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of their matter;”

Section 74 of the Solicitors Act 1974 provides as follows:

“Special provisions as to contentious business done in county courts.

(1)

The remuneration of a solicitor in respect of contentious business done by him in the county court shall be regulated in accordance with sections 59 to 73, and for that purpose those sections shall have effect subject to the following provisions of this section.”

“(3)

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.”

Although no claim form was issued in the present case, and although there appears to have been a dispute about this point before the district judge, it was not disputed before me that section 74(3) applies in the present case, except insofar as rules of court may otherwise provide. The relevant rule of court is CPR 46.9(2). It is appropriate to set out the whole of CPR 46.9:

“(1)

This rule applies to every assessment of a solicitor’s bill to a client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1984 or the Access to Justice Act 1995 or by the Lord Chancellor under Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

(1)

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.

(2)

Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –

(a)

to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b)

to be reasonable in amount if their amount was expressly or impliedly approved by the client;

(c)

to have been unreasonably incurred if –

(i)

they are of an unusual nature or amount; and

(ii)

the solicitor did not tell the client that as a result the costs might not be recovered from the other party.

(3)

Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.”

Where costs are assessed on the indemnity basis, CPR 44.3(1) provides that the court will not allow costs which have been unreasonably incurred or are unreasonable in amount and CPR 44.3(3) provides that the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.

It has been held that, for the purposes of CPR 46.9(3), an item of costs or the amount of costs has not been “expressly or impliedly approved” unless the client gave his or her informed consent. The first case to which I was referred was MacDougall v Boote Edgar Esterkin [2001] 1 Costs LR 118, a case in which a firm of solicitors contended that an unusually high hourly rate was presumed to be reasonable under RSC Order 62, rule 15(2) (the predecessor of CPR 46.9(3)(b)) because their clients had agreed to it. Holland J said as follows in paragraph 7 of his judgment:

“My further conclusion is that the quality of the approval has to be such as to raise a presumption. In the course of argument I talked of ‘informed’ approval and even with reflection I adhere to that concept. To rely on the Applicants' approval the solicitor must satisfy me that it was secured following a full and fair exposition of the factors relevant to it so that the Applicants, lay persons as they are, can reasonably be bound by it.”

The next case to which I was referred was the decision of the Court of Appeal in Herbert v HH Law Ltd [2019] 1 WLR 4253. The facts of that case were in many respects very similar to the facts of the present case, save that HH Law Limited (“HH Law”) agreed to cap the overall amount which it might recover from Ms Herbert at 25% of her damages.

Ms Herbert retained HH Law to conduct her low value road traffic accident claim.

The unusual feature of that case was that the 100% success fee did not relate to the reasonably perceived risk of Ms Herbert’s litigation, but was a matter of general practice for HH Law, as part of its business model. Ms Herbert obtained an order for assessment of the success fee. The Court of Appeal held that there had been no informed consent to this unusual feature of the success fee and upheld the decisions of District Judge Bellamy and Soole J that the success fee should be reduced to 15% of the basic charges, which meant a reduction from £829.20 to £331.20 including VAT.

It will be noted that HH Law was paid the reduced success fee even though it could not be recovered from the other party to the claim. No argument was advanced in that case that this was precluded by section 74(3) of the Solicitors Act 1974, because no informed consent had been given to the agreement under CPR 46.9(2). Nevertheless, the Court of Appeal held that Ms Herbert did give informed consent to all aspects of the retainer except the unusual basis on which the success fee had been calculated.

Sir Terence Etherton MR said as follows at paragraphs 37 and 38 of his judgment: “37. Counsel were agreed before us that the judge was correct to hold that “approval” in CPR r 46.9(3)(a) and (b) means informed approval in the sense that the approval was given following a full and fair explanation to the client (although there was dispute between them as to the reasoning and significance of the Macdougall case [2001] 1 Costs LR 118 cited by the judge). We agree.

Later, in paragraphs 47 and 48 of his judgment, the Master of the Rolls said as follows:

“47.

… So far as I have been able to understand and confine Ms Herbert's complaint on this aspect of the appeal to what it is open to her to argue in this court (aside from the relevance of litigation risk assessment in fixing the success fee), it is no more than that she should have been told at the outset that the success fee would be 25% of the relevant damages she received since this would inevitably be less than 25% of HH's basic charges (save in very rare circumstances). I do not agree that this meant that the documentation provided to her by HH at the outset of the retainer was inaccurate or misleading. The CFA stated expressly that the success fee could not be more than 100% of basic charges; there was a maximum limit on the amount of the success fee which HH could recover from her; and the maximum limit was 25% of the total amount of general damages for pain, suffering and loss of amenity and damages for pecuniary loss, other than future pecuniary loss, awarded to her in the proceedings covered by the CFA. The amount of the success fee she was charged was consistent with a success fee calculated in accordance with that description. While it is true that the invoice she was sent did not set out the basic charges and then apply the cap of 25% of damages, the retainer letter stated that her contribution towards costs would always be limited to 25% or less of her relevant recovered damages. The "What You Need to Know" document said the same. There was, accordingly, nothing for her to pay by way of HH's charges other than the success fee capped at 25% of the general damages recovered from the defendant (in addition to the costs recovered from the defendant).

48.

It is important to bear in mind that the complaint of Ms Herbert on this issue is not that she should have been sent a more detailed invoice or further invoices but that she did not give her informed consent to the charging of the success fee and its amount. There is no merit in that complaint (subject to the risk point addressed below) because all the information relating to its imposition and calculation and to her exposure to HH's fees generally, in the circumstances which occurred, was clearly set out in the documentation with which she was provided before agreeing HH's retainer. The retainer letter said that any contribution by her towards HH's costs under the CFA would be limited to 25% or less of her recovered damages. It told her who, within HH, would have the initial responsibility for dealing with her claim and the person having overall supervision for the claim. The CFA said that, if she won the claim, she would pay HH's basic charges, their disbursements, the success fee and the ATE premium. It said that HH would use their best endeavours to recover maximum costs from the defendant and their insurers. It set out the way the success fee would be calculated, and specified that there would be a cap of 25% of the elements of damages described. The "What you Need to Know" document also stated that, if HH won her claim, she would be liable to pay HH's basic charges, their disbursements, the ATE insurance premium and a success fee, and that her contribution towards her costs liability would be limited to up to 25% of the damages she obtained. That document also set out how the basic charges were calculated, and the hourly rate to be charged, and the imposition of VAT. Subject to the point on litigation risk and the success fee, the totality of that information provided a clear and comprehensive account of her exposure to the success fee and HH's fees generally.”

It will be noted that the agreement as to costs in that case was similar to the agreement in the present case, save that the Defendant in this case did not agree that the Claimant’s costs liability should be limited to 25% of the damages which she obtained.

The Protocol, which applied to the Claimant’s claim, provides for three Stages. In summary, Stage 1 is where the claim is made and liability is admitted or denied, Stage 2 is where the parties attempt to agree the amount of damages if liability is admitted; and Stage 3 is where the Court resolves any disputes as to quantum.

To expand slightly on that, but still omitting much of the detail:

Section III of CPR 45 applies to claims to which the Protocol applies. CPR 45.17

Table 6 in CPR 45.18 sets out the amount of fixed costs in cases under the Protocol. Amounts are specified for Stage 1 fixed costs, Stage 2 fixed costs and Stage 3. Different amounts are specified for cases where the value of the claim: (a) is not more than £10,000; or (b) is more than £10,000, but not more than £25,000. For a claim with a value of not more than £10,000, the Stage 1 fixed costs are £200 and the Stage 2 fixed cost are £300. All of these figures are net of VAT and are increased by 12.5% if the Claimant lives or works in a specified area (primarily London) and instructs a legal representative who practises in that area: see CPR 45.17. That 12.5% increase was not applicable in the present case.

CPR 45.19 specifies the types of disbursements which may be claimed, but does not fix the amount of those disbursements, save in soft tissue injury claims.

There are a number of circumstances in which the Protocol can cease to apply to a claim. These include:

In addition, in Stage 3 the Court may determine that a claim is not suitable to continue under the Stage 3 Procedure: see paragraphs 7.2 and 9.1 of CPR Practice Direction 8B.

Published statistics show that, for one reason or another, the Protocol does in practice cease to apply to many claims commenced under it. It is certainly the case that a solicitor advising his client at the outset of a personal injury claim which fell within the scope of the Protocol would not be entitled to assume that the client’s case would remain within the Protocol.

It will be recalled that the Defendant stated in paragraph 23 of the Client Care Letter that most personal injury claims settle by negotiation after medical evidence and details of financial losses had been obtained, i.e. at or after Stage 2, if the claim remains within the Protocol. I see no reason to doubt the statement made in paragraph 23 of the Client Care Letter. Indeed, achieving a large number of settlements in Stage 2 is clearly a central purpose of the Protocol.

Section IIIA of CPR 45 applies to claims which are started under the Protocol but no longer continue under it or under the Stage 3 Procedure. CPR 45.29B provides that, for as long as the case is not allocated to the multi-track, the only costs allowed in such a claim are the fixed costs in CPR 45.29C and disbursements in accordance with CPR 25.29L. This is subject, inter alia, to CPR 45.29J, under which the court may award a greater amount of costs if it considers that there are exceptional circumstances.

As to fixed costs, Table 6B in CPR 45.29C specifies the fixed costs. Different amounts are specified for cases which settle before the issue of proceedings, cases which settle after the issue of proceedings but before trial and cases which are disposed of at trial:

Like CPR 45.19, CPR 45.29I specifies the types of disbursements which may be claimed, but does not fix the amount of those disbursements, save in soft tissue injury claims.

Counsel for each party submitted careful and thorough skeleton arguments, which were ably developed, but not radically changed, in the course of their oral submissions, so I need only summarise their submissions in this judgment.

For the Claimant, Mr Kirby submitted that:

Mr Kirby accepted that the Defendant stated in the Client Care Letter, in its Terms and Conditions of Business and in the Law Society’s Conditions attached to the CFA, that the Claimant could be charged fees in excess of those recoverable from the Insurers, but he submitted that this was not sufficient to mean that her agreement to these terms constituted informed consent. That required a full and fair exposition of the relevant factors, and the factor which was not identified to the Claimant was the

For the Defendant, Mr Bacon submitted that:

I do not consider that this appeal can be determined by a simple comparison between the wording of CPR 46.9(2) and (3). The requirement for informed consent which applies in cases under CPR 46.9(3) does not arise because of the use of the word “approval” rather than the word “agreement”. The requirement for informed consent arises because of the fiduciary nature of the relationship.

It goes without saying that an agreement for the purposes of CPR 46.9(2) must be a valid and enforceable agreement. It follows, for example, that an agreement procured by fraud or misrepresentation would not suffice. Nor, obviously, would an agreement whose performance would involve a breach of fiduciary duty. To that extent, therefore, CPR 46.9(2) requires informed consent.

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 key question in this case is therefore whether the Defendant made sufficient disclosure to the Claimant for the purposes of section 74(3) and CPR 46.9(2). There were, broadly, three possibilities which were given canvassed in argument. At one extreme, neither party suggested that a solicitor is obliged to give a detailed and comprehensive explanation of the provisions of the Civil Procedure Rules and the Protocol concerning fixed costs. On the other hand, the Defendant’s position was, in effect, that it is sufficient for a solicitor to disclose to the client that the agreement 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, without giving any detail as to what the limits are on such recovery. In between was the position contended for by Mr Kirby, which was that the solicitor was obliged to give some indication of what the limit on recovery might be.

It is appropriate at this stage to review what the Defendant told the Claimant about the potential limits on the recovery of costs from the Insurers:

There can be no doubt that the Defendant disclosed to the Claimant that the agreement between them permitted payment to the Defendant of an amount of costs greater than that which the Claimant could have recovered from another party to the proceedings. In particular, the Defendant disclosed that:

The Defendant also disclosed to the Claimant that, in cases involving road traffic accidents worth less than £25,000, the amount that the opponent is liable to pay in respect of the Defendant’s basic charges is fixed by the provisions of the Civil Procedure Rules. The Defendant did not attempt to summarise those provisions, nor did it give any example or examples of what they might mean in practice.

Instead, the Defendant used a series of general terms to indicate what the Claimant might recover from the Insurers, i.e.:

One expression used by the Defendant was criticised by Mr Kirby as misleading. That is the expression “a significant part, at least” in paragraph 18 of the Terms and Conditions of Business.

Mr Kirby submitted that the Defendant ought to have gone further and given some indication of the level of costs which might be recoverable from the Insurers. He submitted that an example would suffice, such as:

“For example, if your claim settles at Stage 2 for less than £10,000, then the amount which your opponent will be liable to pay in respect of our basic costs might be £500 plus VAT.”

It seems to me that I have to consider whether this is material information, in the sense that it 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 another party to the proceedings.

As stated in Snell’s Equity, it is relevant to consider the sophistication and intelligence of the Claimant. No evidence was adduced about this. She was a consumer rather than a business, but there is no reason to believe that she was particularly vulnerable or incapable of reading and gaining a layman’s understanding of the documents provided to her.

I also bear in mind that the Defendant was under a professional obligation to give the

Pursuant to that obligation, the Defendant provided the estimate in paragraph 23 of the Client Care Letter. This was, in effect, an estimate of the basic charges for the work necessary to take the case to Stage 2 and the service of the Stage 2 Settlement Pack, if the claim remained within the Protocol.

The estimate was £2,500 plus VAT. There is a striking contrast between that figure and either:

If the claim had settled at that stage (and the Defendant acknowledged in paragraph 23 of the Client Care Letter that most personal injury claims do settle at or after that stage) then, on the basis of the Defendant’s estimate, if the claim had remained within the Protocol (and using for these purposes the success fee as set out in the CFA, rather than as reduced on assessment), the Claimant would have owed the Defendant £2,400 (i.e. £2,500 - £500, plus VAT) plus 25% of the damages. In that event, unless the damages were at least £3,200, the effect of the agreement was that the Claimant would have had to pay all of her damages and more to the Defendant. The quantum of the Claimant’s claim could not be known for certain at that stage, but it was not suggested to me that the Defendant could exclude the possibility that the Claimant’s damages would be less than £3,200.

It is necessary to ignore for these purposes the fact that the Defendant subsequently chose not to claim everything which it was entitled to claim by way of costs. The Defendant acted as if it, like HH Law, had agreed to cap the costs which it could recover from the Claimant at 25% of the damages. Many solicitors agree to do this, but the Defendant did not.

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.

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.

The general terms used by the Defendant to describe the amount of the Defendant’s costs which the Claimant might recover from the Insurers are not such as to bring home to the Claimant that, if the claim settled at Stage 2 then she might recover only

I note that the documentation provided to the Claimant in the present case was similar to that provided in Herbert v HH Law, which the Master of the Rolls described in paragraph 48 of his judgment as providing “a clear and comprehensive account of her exposure to the success fee and HH’s fees generally.” However, the agreement in that case differed from the agreement in the present case in that it included a cap of 25% of the damages on the amount which HH Law could recover from Ms Herbert. Moreover, no argument had been advanced based on CPR 46.9(2) and so the Court of Appeal did not have to address the issues which I have had to consider.

I have considered carefully the argument that it was sufficient for the Defendant to disclose that the amount that the Insurers would be liable to pay in respect of the Defendant’s basic charges was fixed by the provisions of the Civil Procedure Rules. It was open to the Claimant either to ask for more detail or to look up the relevant provisions for herself. The nineteenth century authorities referred to by Simon J in FHR European Ventures LLP v Mankarious provide some support for this argument by way of analogy, but they all concerned businesses and trade usages, whereas the present cases concerns a consumer and some detailed and complex provisions of the Civil Procedure Rules and the Protocol. Those cases were applied in Medsted Associates Ltd v. Canaccord Genuity Wealth (International) Ltd because the clients in that case were wealthy Greek citizens who were likely to be experienced investors, but not in Hurstanger Ltd v Wilson, where the clients were vulnerable and unsophisticated, nor in FHR European Ventures LLP v Mankarious.

Each case has to be decided on its own facts. In this case, it is a very striking feature of the agreement being proposed to the Claimant by the Defendant that the Defendant’s estimated basic charges were five times the amount which the Claimant might be entitled to recover from the Insurers if her claim settled for less than £10,000 at Stage 2 in the Protocol and that, in that event, she might have to pay the first £3,200 of her damages to the Defendant. This was so striking that it ought, in my judgment, to have been brought specifically to the Claimant’s attention, if she was to give informed consent to the agreement 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, 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..

I conclude that the Claimant did not give her informed consent to the agreement and the Defendant cannot rely on it for the purposes of CPR 49(2).

Given my conclusion on the Claimant’s appeal, it is not necessary for me to decide the Defendant’s appeal. It was fully argued by the parties in their written submissions, but there was no time to hear oral submissions at the hearing.

For the reasons which I have given, I allow the Claimant’s appeal. I make no decision on the Defendant’s appeal, since that is rendered otiose by my decision on the Claimant’s appeal.

I express my gratitude to the lawyers on both sides for the care taken in the preparation and presentation of these appeals, which was of considerable assistance to me.