The possible end of court challenges to solicitors’ deductions from damages and reform of how bills are assessed are the headlines from today’s eagerly anticipated Court of Appeal ruling in Belsner v CAM Legal.
The Master of the Rolls, Sir Geoffrey Vos, said it was “unsatisfactory that solicitors like checkmylegalfees.com (CMLF) can adopt a business model that allows them to bring expensive High Court litigation to assess modest solicitors’ bills in cases of this kind.
“The Legal Ombudsman scheme would be a cheaper and more effective method of querying solicitors’ bills in these circumstances, but the whole court process of assessment of solicitors’ bills in contentious and non-contentious business requires careful review and significant reform.”
There was a linked ruling in Karatysz v SGI Legal, heard by the same bench the day after Belsner and also involving CMLF.
This concerned whether the amount of the bill was the actual amount the solicitors sought to recover in light of the 25% cap, rather than the bill for the full amount of its charges, for the purposes of the one-fifth rule in section 70(9) of the Solicitors Act 1974.
This provides that if, on assessment, the court reduces a solicitor’s bill by more than a fifth, the solicitor has to pay the costs of the assessment – if not, the client has to pay it.
Section 70(10), meanwhile, allows the court to make any order in respect of the costs of the assessment where there are “any special circumstances”.
Vos LJ said: “Firms such as checkmylegalfees.com and their clients should be in no doubt that the courts will have no hesitation in depriving them of their costs under section 70(10) if they continue to bring trivial claims for the assessment of small bills to the High Court, even if those bills are reduced on the facts of the specific case by more than one-fifth under section 70(9).
“The critical issue is and always will be whether it is proportionate to bring this kind of case to the High Court. In this case, it was not.”
Belsner focused on section 74(3) of the Solicitors Act 1974, which says the amount allowed on assessment cannot exceed what the court would have allowed as between party and party, and CPR 46.9(2), which says this can be overridden by written agreement.
Overturning the ruling of Mr Justice Lavender, the Court of Appeal held that these did not apply to cases that settled in the RTA portal without proceedings being issued, as they were non-contentious business.
But Vos LJ, sitting with Sir Julian Flaux, Chancellor of the High Court, and Lord Justice Nugee, said the distinction between contentious and non-contentious costs was “outdated and illogical”. He added: “It is in urgent need of legislative attention.”
While the question of a duty under rule 46.9(2) to obtain fully informed consent to deductions did not arise here, and the court also held the solicitor did not have a fiduciary duty when negotiating the retainer, solicitors were still under a professional duty to ensure clients received the best possible information about pricing and the likely overall cost of the case.
The key information not given by CAM was the fixed recoverable costs that the defendant’s insurers would pay within the RTA portal.
“The client was told that the solicitors estimated their base costs at £2,500 (net of VAT and disbursements), and that many such claims would settle within the RTA portal after production of medical evidence and financial losses. She was also given an estimate of £2,000 for her damages.
“Had she also been told of the level of the fixed recoverable costs, she would have been able to compare the likely recoverable costs with the amount she was being asked to agree to pay the solicitors.
“As the client submitted to us, she would then have known that she was assuming a liability to pay the solicitors five times the costs she would be getting back from the defendant.”
Vos LJ said the solicitors could not be said to have complied with the SRA code of conduct without providing that information.
He added: “In my judgment, it is wholly unsatisfactory for solicitors generally, and these solicitors in particular, routinely to suggest that their clients agree to a costs regime that allows them to charge significantly more than the claim is known in advance to be likely to be worth.
“Solicitors do not resolve this unsatisfactory state of affairs by allowing a discretionary reduction of their charges after the case is settled.”
Counsel for CAM told the court that the solicitors would not have “dreamed” of doing anything other than making a proportionate deduction from the damages.
Vos LJ responded: “In future, I hope that solicitors will not suggest CFA or other fee arrangements to their clients that allow for fees that they would not dream of actually charging.”
Nonetheless, this did not necessarily mean that the bill was unfair. As non-contentious business, the question was whether it was fair and reasonable in all the circumstances for the client to pay an additional £385.50 as a success fee on top of the £500 that was recovered in fixed costs.
“I see no reason why she should not be required to do so,” Vos LJ said. “She has filed no evidence suggesting that she is not a reasonably sophisticated client. She accepted in her points of dispute that she expected that she might have to pay some of her base costs.”
He re-assessed the total base costs and success fee payable as being £821.25 plus VAT (£500 + £321.25, the latter figure being £385.50 less VAT). This meant the client had to repay the money the High Court has ordered CAM Legal to return to her.
Dismissing the appeal in Karatysz, Vos LJ said the proper question for the court to ask in determining “the amount of the bill” under section 70(9) was, in respect of the category or categories of costs being assessed, “what is the total sum that the bill is demanding be paid to the solicitors, whether or not all or part of that total sum has actually been paid”.
Nick McDonnell, the director and costs lawyer at Kain Knight who acted for CAM Legal, said: “This decision is very much a victory for the legal profession. The judges used this case to express their view that significant costs reform is needed.
“Until then, what of the hundreds of cases brought by checkmylegalfees.com (and those brought by JG Solicitors, who operate a similar business model), currently stayed pending the outcome of Belsner? We will see.”
But he said this and the warning the court gave in Karatysz meant “surely the death knell of such challenges has sounded”.
Darren Draper, solicitor and practice manager at CAM Legal Services, said: “We expect this result will now bring some much-needed comfort and certainty to the legal profession.”
We have approached CMLF for comment.