As fixed costs expand we need answers

There was something of an anti-climax in the costs world last month. Personal injury lawyers, costs lawyers and general costs nerds such as myself were all set for a fascinating stream of online commentary as the long-awaited appeal in Belsner v Cam Legal Services Ltd finally got under way in the Court of Appeal. With at least 900 cases stayed awaiting the outcome and some major legal questions to be answered, all eyes were on this important test case. But after a dramatic first day that included some frosty remarks from master of the rolls Sir Geoffrey Vos (pictured below), plus a controversial debate on the distinction between contentious and non-contentious costs, the second day of the hearing started with a shock announcement. Vos said the appeal judges had decided the ramifications of the case were more ‘profound’ than they had realised and more time was needed. The show will go on – but not until July, when the appeal hearing will start again from the beginning. 

What is so important about this case? It is one of thousands in which personal injury solicitors have found themselves sued by former clients over the arrangements they set up to charge clients something extra, on top of what the firm recovered from the losing defendant.

The Belsner claim settled under the road traffic accident protocol before formal proceedings were ever issued. It settled for just under £2,000, and the claimant’s solicitors charged her a success fee of £385.50, as well as receiving fixed costs of £500 from the defendant. However, the terms of the law firm’s conditional fee agreement entitled it to demand a much higher sum from the client – enough to wipe out her damages completely – although the firm never tried to enforce this higher amount; and so the claimant’s fee challenge related to the £385.50 she paid.

Belsner raises three pertinent questions that the personal injury market needs the Court of Appeal to answer. The first relates to section 74(3) of the Solicitors Act 1974, which sets out that in ‘proceedings in the county court’, solicitors can only receive the costs they recover from their opponents, and cannot charge an extra sum to the client. So the first big question is whether a case that settles in the RTA portal should count as ‘proceedings in the county court’, and so be covered by this restriction.

If the answer is no, then the restriction will not apply. If yes, then all is not lost for claimant lawyers, because the Civil Procedure Rules do provide an escape from the restriction where the solicitor and client have entered into a written agreement ‘expressly’ permitting an extra payment to be charged to the client (CPR 46.9 (2)). However, in Belsner, the lower courts raised the bar and decided that ‘informed consent’ was needed for this exception to apply. Lavender J said this was due to the ‘fiduciary relationship’ between solicitor and client.

So the second big question for the appeal court is whether the client does indeed need to give ‘informed consent’ to the extra payment, and what that means. The third question is whether a solicitor is really under a fiduciary duty to a client at the point where they are negotiating their fee; or whether this special relationship does not arise until the retainer is signed and sealed. Until Belsner, the common wisdom was that the fiduciary relationship arose after the retainer began. If not, it clearly puts lawyers who want to negotiate high fees with their clients in something of an awkward position.

We will now have to wait until July for the Court of Appeal to provide answers to these important questions. In the meantime, the crowded queue of solicitor/own client disputes will continue to swell.

It is notable that Belsner is a portal claim in which fixed recoverable costs (FRCs) applied. One argument often heard in favour of FRCs is that they cut out the time spent arguing over legal costs. But as Belsner shows, that is not necessarily true. Yes, fixed costs will end the interminable sniping at detailed assessment in which the losing party argues over every hourly rate applied and unit of time charged by the winner. But with fixed costs inevitably too low to be economically viable on their own, it is the client who ends up losing out, with claimant lawyers turning to client damages to meet the shortfall. The battleground then shifts from a war between claimant and defendant lawyers, to conflicts between claimant lawyers and their former clients.

With fixed costs now due to be extended into most straightforward civil claims worth up to £100,000, and into clinical negligence claims worth up to £25,000, the Court of Appeal’s ruling in Belsner will be even more important. How the court answers the three key questions will determine whether the extension of FRCs will successfully reduce endless arguments over costs, or will simply add fuel to a booming industry that sees lawyers and their former clients pitted against one another.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.

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