Andrews: Change in law might be needed
It would be “unwise” for solicitors not to reply to questions from clients about whether they had paid commissions to after-the-event (ATE) providers, the Court of Appeal has warned.
But Lady Justice Andrews said that if there was “a genuine widespread problem about solicitors flouting their professional obligations” by concealing such commissions, the approach taken by Leeds firm JG Solicitors “was not the way to go about solving it”.
She made the comments in Turner v Coupland Cavendish Ltd [1], which operates in Manchester as Gowing Law, in which she upheld the law firm’s appeal of Mr Justice Sweeting’s decision that it must answer a part 18 question about whether it had received a commission from the ATE insurer of Stephen Turner’s personal injury claim.
In a unanimous ruling, the court decided that a costs judge on detailed assessment did not have the power to carry out “any inquiries into the accuracy, let alone the lawfulness of any items on the cash account which were neither payments on account of the bill nor amounts received on behalf of the client which could lawfully be used to pay it”.
There was also no obligation on the costs judge to resolve disputes in respect of the cash account before completing the assessment.
Andrews LJ said that, given solicitors were required to inform their client if they obtained a commission or some other financial reward from the ATE insurer, the natural inference to be drawn from a solicitor’s silence was that they did not receive such a payment.
“However, that inference is not necessarily reliable. Despite the obligation to tell the client, there have been some cases in which payments by the ATE insurers to solicitors or their affiliates, which clients were not informed about, have come to light fortuitously.
“In the course of the hearing, I described the solicitors’ refusal to tell the client whether they received a commission from the ATE insurer (irrespective of whether they were obliged to do so) as ‘unattractive’. I might have added ‘unwise’.
“If they did not receive a commission, it would be simple enough to give the client express confirmation if they ask for it.
“Refusing to do so simply reinforces suspicion, and, on the face of it, would justify the client in seeking an account (for which the solicitors might end up having to pay the costs, since their refusal to answer could well be considered unreasonable).”
Nonetheless, Andrews LJ held that the solicitors’ “unedifying behaviour” did not justify the “device” used by JG Solicitors in this and other cases “to try and avoid taking proceedings for an account”, namely the part 18 request.
“As matters currently stand, for a client who suspects that their former solicitor has received secret commissions on an ATE insurance policy, there is no shortcut to commencing proceedings for an account, or complaining to the Legal Ombudsman if the solicitor refuses to answer questions on the subject.
“They cannot compel the solicitor to tell them by the device of seeking a solicitor and own-client assessment, claiming there is a dispute about the cash account (particularly when there is no reason to suppose that any of the entries in the account is inaccurate) and then making a part 18 request in those proceedings.”
Sweeting J was right to identify the unfairness of requiring the client to produce evidence that a commission was paid in order to obtain the evidence they need to prove it, especially when all the evidence is likely to be in the hands of the solicitor, she added.
“However, it is not for this court to propose a solution. I merely flag it up as something which others who are in a position to make changes to the rules or to the law may wish to consider.”
The costs generated by JG Solicitors in pursuing this “far outweigh any benefit to the former client that might have resulted from a decision in his favour”, given that the ATE premium here was £245 and any commission would likely be any more than £25.
“Therefore, just as Sir Geoffrey Vos MR observed in [the 2022 case of Belsner], the client has never had any real or economic interest in the pursuit of this costly litigation. The only people who stand to gain from it are those who have made an industry out of challenging solicitors’ costs.”
She commended the first-instance costs judge, now Senior Costs Judge Rowley, for refusing to order the firm to reply, “recognising that there was no particular reason to suppose that the solicitors had received a secret commission”.
Andrews LJ went on: “If there is a genuine widespread problem about solicitors flouting their professional obligations and concealing commissions on ATE premiums, this was not the way to go about solving it.”
James Green, managing director of JG Solicitors, acknowledged the court’s criticism but said it needed to be put in the context of its approach being expressly approved by Sweeting J on the first appeal.
There were also important parts of the judgment “which should not be overlooked”, such as the court expressly confirming “that it is incumbent on a solicitor to inform a client if they receive a commission or other financial reward from an ATE insurer” and that reform may be needed.
“So while the Court of Appeal has rejected the procedural route adopted in this case, that route had previously been approved by the High Court, and the judgment leaves the underlying fiduciary obligation on solicitors to disclose commissions and other financial rewards firmly intact.”
Erica Bedford, a Hailsham Chambers barrister who acted for the law firm, said: “This decision is likely to reshape the way Solicitors Act assessments are currently litigated. For several years, the boundaries of the statutory jurisdiction have been tested and attempts made to expand the concept of an assessment beyond arguments about ‘costs’.
“The Court of Appeal has now drawn those boundaries with real clarity and, in doing so, provided much needed guidance in this area.
“It resolves longstanding uncertainty about the relationship between the cash account as well as bringing clarity to somewhat prior opaque boundaries of the statutory assessment process. It is likely to be a decision that will be felt across the sector for years to come.”
She was instructed by costs lawyer Nick McDonnell, a director at Kain Knight. He said: “Practitioners have been facing part 18 requests built on the assertion that the cash account is in dispute, often with nothing behind the assertion at all.
“The Court of Appeal has now drawn the line clearly. Firms on the receiving end of these requests should read paragraphs 67-68 closely and should be prepared to say that questions about commission are simply not matters the costs judge has to determine in assessing the bill.”