Lumb: Disturbing trend
Personal injury solicitors who jack up their base costs to ensure they always hit the 25% cap on deductions from damages risk referral to the Solicitors Regulation Authority (SRA), a senior district judge has warned.
Richard Lumb, a former president of the Association of District Judges, said the case before him in Oxford County Court highlighted “continuing concerns” about some law firms’ approach to charging through conditional fee agreements (CFAs).
In a postscript, he highlighted the SRA warning notice on ‘no win, no fee’ agreements issued in January [1] – which expressed concern about funding arrangements that could benefit the solicitor more than the client – and said: “Solicitors who are acting in this way through their business models have been warned that the courts will remain vigilant and the next step may well be investigation by the SRA.”
The case, Spicer v Greene King Brewing and Retailing Ltd [2], was an infant approval hearing over a minor injury suffered by a four-year-old child at a pub and the deductions of the success fee and after-the-event (ATE) insurance premium from the £10,000 settlement.
“Many solicitors acting for children in personal injury cases these days have abandoned seeking to claim the deduction of success fees under CFAs,” DJ Lumb observed.
“Some do still seek a deduction and there has been a disturbing trend amongst some solicitors to sign clients up to hourly rates which are significantly higher than the guideline hourly rates provided by the SCCO [Senior Court Costs Office] and claim to have recorded time far in excess of what could be objectively considered to be reasonably incurred and reasonable in amount.
“This results in the base profit costs figure, which is the multiplicand element of the success fee calculation, being significantly higher than is reasonable.
“This inevitably draws suspicion that this practise is deliberately designed to ensure that no matter what percentage success fee the court may assess as being reasonable (often significantly less than the permissible maximum of 100%) the 25% cap on deduction from the damages will always be reached.
“Clients will seldom, if ever, complain as they have been conditioned by the solicitors to anticipate that the deduction will be 25% of the damages and they are therefore none the wiser to realise that the solicitors may have been acting in their own interests and contrary to those of the client in potential breach of one or more of the principles of the Solicitors Code of Conduct.”
The case was “always a very straightforward occupiers liability personal injury claim” that could be settled promptly once the medical evidence was obtained, DJ Lumb said. Liability was never in dispute and the case indeed settled for the sum sought by the claimant.
Manchester firm Express Solicitors’ costs were claimed at £13,316 based on 73.1 hours of recorded time and a success fee of 100%. This would be above the 25% cap, so Express sought a success fee of £2,500 plus an ATE premium of £1,120.
The judge recorded that he had been “sceptical” that a deduction of 36% of the damages was reasonable and so directed Express to provide a copy its file.
He said the claimant’s litigation friend, his mother, “didn’t really understand” what was in her witness statement “or its meaning and effect”.
The statement was “clearly a template statement and not in her own words and therefore to be viewed with some degree of caution as its contents were obviously designed to be self-serving for the solicitors about the choice of funding model and ATE insurance”.
As a result, he found that the mother did not give fully informed consent to the charging model and carried out a summary assessment on the indemnity basis.
The case was run by a grade D fee-earner with supervision from a grade B fee-earner, which the judge said was right, but they should have spent no more than 15 hours and two hours on it respectively.
The hourly rates under the CFA – £345 per hour for a grade B and £235 for a grade D – were “significantly higher” than the guideline hourly rates of £218 and £126.
DJ Lumb held the rates were not justified for such a straightforward case and that the base costs should have been no more than £3,000 in all.
The 100% success fee could not be justified as the prospects of success here “were about as close to 100% as there could be”. He set the prospects of success at 90% which, using the ‘ready reckoner’, meant a success fee of 11%, or £330 + VAT.
Further, it was not reasonable to take out ATE cover as there was no risk to insure against.
The only possible risk of an adverse costs order was in the event of failing to beat a part 36 offer “but given that approval by the court was always going to be required that risk in this case was practically non-existent and certainly didn’t justify the expense of a premium to be calculated as 10% of the recovered damages + IPT of £1,100”.
DJ Lumb concluded by allowing the deduction of £330 + VAT from the damages.
Daniel Slade, CEO (Legal) at Express Solicitors, said: “We will be recommending to the applicant to appeal this judgment as we feel that District Judge Lumb failed to give any weight to the admission being withdrawn, failed to consider risks in such type of case in proving negligence and failed to give any weights to risks associated with quantum.
“He failed to give appreciation to the level of clear written and oral explanation of the fees at the beginning of the claim.
“He also drew far too heavily on what the applicant could remember of the documents many months thereafter and swayed beyond his remit into commercial matters such as ‘some firms choose to’ and inadvertently failed to appreciate the restriction of choice his judgment seeks to impose on children, worsening their access to justice as compared with adults.”
This is not the first time DJ Lumb has criticised Express Solicitors – we reported on a similar case [3] a year ago.