Belsner takes a bite out of 'cannibal' legal industry

Any personal injury lawyer who has not been living in a box for the past few weeks will know that the Court of Appeal’s much-anticipated ruling in Belsner v Cam Legal Services [2022] EWCA Civ 1387 – along with the less famous but equally important Karatysz v SGI Legal LLP [2022] EWCA Civ 1388 – finally landed last month. With many hundreds of claims currently stayed awaiting the outcome, this was a huge moment for the low-value personal injury sector.

The result was a clear victory for PI law firms, and a blow to the ‘cannibal’ legal industry that has exploded in recent years, with law firms facing a tsunami of Solicitors Act 1974 claims by former clients challenging the amount they were charged by their original lawyers.

So are these claims now dead in the water? The short answer is yes, though the lord justices could perhaps have done a better job of nailing down the coffin. With more than 70 authorities cited in the bundles, the two judgments dealt with a broad range of points, each significant in its own right. But the appeal judges swept through the raft of issues in two succinct judgments of just 23 and 11 pages respectively.

So what exactly did the Court of Appeal decide? The most fundamental point was that claims brought in the pre-action portals should not be classed as ‘contentious business’; and so the relevant provisions in the Solicitors Act do not apply to them. That largely pulls the rug from under the feet of this type of claim, and removes arguments over whether the client gave ‘informed consent’ to depart from the Solicitors Act.

The court held that the costs in Belsner should instead be assessed under the Solicitors’ (Non-Contentious Business) Remuneration Order 2009, which requires costs to be ‘fair and reasonable’. It ruled that the Belsner costs did meet this test.

The court was not at all happy with the state of the law, however. It criticised the distinction between contentious and non-contentious costs as ‘outdated and illogical’, and in ‘urgent need of legislative attention’ – which means a rewrite of the notoriously awful Solicitors Act.

In a point that lawyers should be particularly aware of, the appeal court expressed its dislike for the common practice whereby solicitors sign clients up to agreements that potentially entitle the law firm to much bigger fees – fees that will never be charged in practice because the fee will be capped at a certain level. This is a loose nail in the coffin, with law firms that operate a retrospective cap on fees still potentially vulnerable to challenge.

In future, PI firms that operate in this way need to rewrite their retainers, and if a fee is always going to be limited in some way, that should be clearly spelt out. There is also a regulatory point to watch out for. In Belsner, the court found that while the solicitors did not need to obtain the client’s ‘informed consent’ to the CFA terms, they had failed to meet SRA obligations to ensure the client received the best possible information about the likely cost of the case, to make an ‘informed decision’.

Belsner also made it clear that solicitors do not owe a fiduciary duty to the client when negotiating the retainer, although they do owe regulatory duties in this regard. The fiduciary point could have been very far-reaching, and it is a relief that the lid has now been sealed on that particular can of worms.

Turning to Karatysz, the appeal court was clearly very unhappy that firms like checkmylegalfees.com could ‘adopt a business model that allows them to bring expensive High Court litigation to assess modest solicitors’ bills’. Then came the real surprise: it said claims of this nature should be dealt with by the ombudsman rather than the courts.

The notion of requiring parties to approach the ombudsman first does tie in with the courts’ general drive towards encouraging alternative dispute resolution. But given the number of these disputes currently queuing up outside the courts, one can only imagine that Legal Ombudsman staff must have spurted out their coffee as they read that part of the judgment. I doubt they need to worry too much, however. An ombudsman complaint will not attract the recoverable legal costs that are the lifeblood of the fee-dispute industry, and most of these claims will now surely wither and die.

Meanwhile, Karatysz could prove rather useful in broader costs disputes beyond the solicitor/client sphere. As George McDonald, junior counsel for Cam Legal Services in Belsner, told the Association of Costs Lawyers conference this month, the ruling potentially gives parties another string to their bow when arguing against paying opponents’ costs. With ombudsman services now available in many different spheres, could the argument not be made across any number of smaller civil disputes: ‘We’re not obliged to pay costs, because they should have gone to the ombudsman – see Karatysz’?

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

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