Litigators who recover from clients substantial success fees not linked to individual risk must tell them other firms may charge less, the Legal Ombudsman (LeO) has warned.
It forms part of a new stress on ensuring clients understand how much they are likely to pay for pursuing their claims and provide informed consent to deductions.
The third edition of The Ombudsman’s Guide to Good Costs Service takes account of key recent court rulings, particularly last year’s Court of Appeal decision in Belsner, and introduces three new sections.
In Belsner, the Master of the Rolls, Sir Geoffrey Vos, said LeO was a more appropriate venue than the courts for dealing with complaints about “modest” solicitors’ bills in personal injury claims.
LeO stressed in the revised guide that its basic position on costs issues has not changed, namely that “a client should never be surprised by the bill they receive from their lawyer”.
The first new section on ‘Possible future costs’ said lawyers should tell clients about the costs would have to pay, as well as those they “might” have to pay. It may even make sense in certain cases to clarify the costs they will not have to pay.
“Clients must be able to make an informed decision about whether to go ahead with the work and whether they agree to the price being quoted,” the guide said.
The second new section on ‘recoverable costs and fixed costs’ highlighted the importance of clients understanding how costs recovery worked and whether they would have to pay any shortfall.
“One possible approach is capping your client’s liability to a certain proportion of damages, such as by saying, ‘You remain liable to pay any costs which we cannot recover from your opponent, but we will limit your liability to [x] per cent of the compensation you recover’.
“This can be an effective way of addressing the risk of shortfalls, so long as the capping arrangement is explained clearly at the outset.”
This connected to the third new section, on success fees and conditional fee agreements, which said that “where a lawyer intends to charge a success fee that is calculated based on risk, the reasoning behind this calculation should be provided to the client”.
If not, the ombudsman might decide that the client has not received the information they should about how their costs were generated.
“Where a lawyer intends to charge a success fee that is not based on risk, or which includes other elements alongside risk, this needs to be explained to the client clearly at the outset, and the overall costs charged must be seen to be reasonable.
“If we investigate a complaint where a firm has a policy of charging a substantial success fee in every case, regardless of risk, we are likely to ask the firm to show us that the client has given informed consent to the arrangement.
“This would include the client being made aware that other lawyers might not adopt the same approach and that lower success fees might be available elsewhere.”
The practice of firms setting success fees at a standard level irrespective of the risk in an individual case become widespread in low-value personal injury claims after the Legal Aid, Sentencing & Punishment of Offenders Act 2012 said they were no longer recoverable.
However, the 2019 Court of Appeal ruling in Herbert v HH Law raised the bar on what informed consent to this looked like.
LeO said it understood that both parties should be free to enter into contracts, including making a bad bargain, “but we will want to satisfy ourselves, when asked, that the client understood what they were doing and that they made an informed choice to proceed”.
The lawyer was likely to need to justify the arrangement in the context of providing a reasonable standard of service, the guide explained.