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The cost of (un)informed consent

The cost of (un)informed consent

James Parkinson – Costs Lawyer

I recently had a check up at the dentist. After some prelims to check I had no COVID symptoms (temp taken etc.), I entered the surgery. Another fella, let us call him Mr C Fees, was not allowed in as he was bang on 1 month early for his appointment (I do not think a muddled calendar is a symptom of COVID, mind). After the 10 minutes or so with the dentist & his assistant (other than some “wear & tear”, my teeth are OK, thankfully), I headed to the counter to pay. Whilst pre-warned, I was faced with what seemed an excessive charge of £41 – I screamed, internally of course, “how much!?” (much like when someone says that they paid £100+ for some trainers or £1,000 for a phone that does exactly the same as another that costs half the price, just without a pretty fruit image embossed on the casing). But, being a typical Brit, I grinned & accepted it.

What does a trip to the dentist have to do with legal costs I hear you ask? Well, nothing really, but the little anecdote came to mind when reading Belsner v CAM Legal Services Ltd [2020] EWHC 2755 (QB) and noting that £87,715 was incurred over a £385 dispute (the amount deducted from a Claimant’s damages for a success fee in accordance with a CFA). Imagine the level of dentistry work you could get for the best part of £100,000…

“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.”

Short Story (Headnote)

For those short on time, or coming to the end of their coffee…

In Belsner, the Court ruled that the client had not given ‘informed consent’ to her solicitors deducting a success fee from her damages, based on the solicitors’ basic charges, rather than on the costs that were recovered from the opposing party in the main action. The decision was based on a requirement under CPR 46.9(2) for a solicitor to obtain a client’s ‘informed consent’ to an agreement to charge more than another party to proceedings. As a result of the decision, the success fee was calculated on the (fixed) costs recovered from the opposing party and the solicitors had to issue a refund to the client.

Whilst the judgment is likely to be appealed, it serves as a reminder that a retainer must clearly set out the costs that a client may be liable for beyond what is recovered from an opposing party, even if the costs are ultimately capped. A failure to do so, and to ensure that the client fully understands the implications, will result in the costs chargeable to a client being limited to those recovered from an opposing party.

Long Story

For those with a bit more time on their hands, love a good read, or are at the start of their coffee (or tea, obviously), here is some background and a more detailed synopsis.

Alternatively, skip the following few paras and jump to the “key points”…

The Claimant’s claim for personal injury, following a motorcycle accident, settled in the RTA portal for c £1,917 in damages, plus fixed costs of c £1,783 (including disbursements). The Defendant, who was instructed by the Claimant under a CFA, deducted c £386 from the damages as its success fee. The Defendant did not provide a Final Statute Bill (“FSB”) or an invoice.

The Claimant subsequently instructed checkmylegalfees.com (later merged with Clear Legal Ltd) who requested an FSB from the Defendant.

The Defendant served its FSB which totalled c £4,306 – this included base profit costs of c £2,172 and a success fee of c £386 (excluding VAT). With a Bill of c £4,306, the Defendant asserted that it could have charged the Claimant c £2,523, being the shortfall in the amount of costs recovered from the opponent in the substantive action (£1,783).

In this scenario, the Claimant would have been c £606 “out of pocket” given the damages were “only” c £1,917 (for those without access to a calculator or Isaac Newton-esq maths skills, £1,917 minus £2,523 equals £606). However, the Defendant only sought to recover c £386, i.e. capped the costs at 25% of the relevant damages.

On assessment, the District Judge assessed the Bill at c £3,104 – this included base profit costs of £1,392 and a success fee of c £209 (being 15%, as per the judgment in Herbert v HH Law Ltd [2019] EWCA Civ 527). During the assessment, the District Judge concluded that the paperwork given to the Claimant made it clear that the Defendant would seek to recover any shortfall in costs not recovered from the opposing party and decided that to require ‘informed consent’ “placed the burden too high”.

The Claimant appealed the decision on the premise that the amount allowed should not exceed the amount which could have been allowed on a between the parties assessment.

Section 74(3) of the Solicitors Act 1974 states that the amount allowed, on a solicitor client assessment, cannot exceed what the Court would have allowed on a between a parties assessment. However, CPR 46.9(2) sets out that this can be overridden by written agreement between the client and the solicitor – the question the instant case was whether this required ‘informed consent’.

On appeal, the Judge held that the requirement for ‘informed consent’ arose from the fiduciary nature of the relationship between the client and the solicitor.

“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…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.”

Whilst it was agreed that it was clear that the Defendant had told the Claimant that the agreement between them allowed the firm to charge her more than it had recovered from the opposing party, crucially it did not explain what the implications would be – particularly given the difference between the level of costs that would be recovered from the opposing party (c £500 plus VAT) and the Defendant’s estimated charges (of c £2,500 plus VAT).

“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 [opposing party], then that may have affected the Claimant’s consent to the agreement…”

The Judge held that it would not have been “an unduly onerous burden” on the Defendant to have done this – it would have involved the assumptions made for the purposes of estimated charges (c £2,500 plus VAT) and advising on what the recoverable costs might be in that case.

It was concluded that the “general terms” used by the Defendant to indicate that the Claimant might not recover all of the charges from the opposing party were “not such as to bring home to the Claimant” her potential liability – the potential liability was “so striking that it ought…to have been brought specifically to the Claimant’s attention”.

In light of the Judge’s conclusions, the Claimant was only responsible for the same level of profit costs that were recovered from the opposing party and the Defendant was only entitled to charge a (reasonable) success fee on this sum. As a result, the Defendant could only charge a success fee of £90 (15% of the costs recovered from the opposing party) and had to repay the Claimant c £296 (c £386 minus £90).

Key Points

The judgment affirms the need to ensure that a client is fully advised on the potential costs implications when entering a retainer – linking back to the delightful dentist story, I am confident my dentist would be quick to tell me the cost of any fillings (or heaven forbid) extractions; a solicitor client relationship requires an even greater level of openness.

A reminder of the key points in respect of charging clients more than what is recovered from an opposing party:

The amount allowed on a solicitor client assessment will not, normally, exceed the amount which could have been allowed on a between the parties’ assessment.

If a solicitor wants to recover costs that may not be recovered on a between the parties’ assessment, then the solicitor must tell the client that these costs may not be recovered from the opposing party.

This can only be excluded by a written agreement.

The client must understand the implications of such.

Comment

There is a lot of narrative about this case essentially suggesting the decision will open a “can of worms” or there will be an “avalanche” of claims for refunds, but one has wonder what this is predicated on – such comments suggest that there are thousands of clients up & down the country who have not been fully advised on potential costs implications at the outset. However, it is likely that most clients, certainly with those that I routinely work with, have been properly advised and there are no issues.

If, however, some solicitors do seek to rely on retainers that are not fully explained to the clients, this judgment will hopefully serve as a reminder to provide comprehensive advice on costs from the outset.

Linking back to the initial paras of this article, questions do arise in respect of the spend on this issue – in this supposedly new age of proportionality, even if there are (potentially) wider implications, can £87,715 (over c £296) really be justified?

Likewise, is the Claimant, who has presumably entered a CFA, fully aware of the spend on her £296 refund? & if so, does she believe that it is justified?

It would also be interesting to know if the Claimant, who has presumably been fully advised on all the potential costs implications, including the possibility of being liable for the Defendant’s costs of over £35,000, would have pursued the matter if her costs had not recoverable between the parties…

If you would like any input on any solicitor client disputes, please get in contact.

James Parkinson – Costs Lawyer

06.11.20

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