With a big extension of fixed costs for cases worth up to £100,000 in the pipeline, a recent High Court case is worthy of perusal. It neatly illustrates one of the unintended consequences of fixed costs.
The scenario in Ferri v Gill  EWHC 952 (QB) will be all too familiar to many claimant personal injury lawyers. A claim that was initially judged to be minor – and attracted a first offer from the defendants of just £1,500 – ultimately turned out to be much more significant, resulting in a final settlement of £42,000. That is well above the £25,000 damages limit for claims under the protocol for low-value road traffic accident claims, dealt with in the Ministry of Justice portal. But because the claim began life in the portal, and settled before being allocated to the multi-track, the claimant lawyers were limited to fixed costs – even though they had won damages for their client well above the portal threshold.
In the lower courts, Master McCloud took a kindly approach to the claimant lawyers, concluding that the circumstances of the case were sufficiently ‘exceptional’ to allow them to escape fixed costs. Good news for claimant solicitors – though not binding. Last month the door was slammed shut on this approach in a ruling by Mr Justice Stewart in the High Court. He spelt out that judges should not adopt a ‘low bar’ in deciding what makes a case sufficiently exceptional for fixed costs to be avoided.
There was another element to the Ferri case, which will be familiar to many. The claim was initially started in the portal by one law firm, before the client switched firms; then the second firm dealt with the case as a much higher-value claim.
Right now we are in a market where many PI departments struggling to turn a profit have sold their caseloads on to other practices. Firms that have bought these files will, all too often, see claims that the original firm started in the portal, which the second firm judges to be worth more than £25,000. The first firm may have gone down the portal track because its fee-earners lacked experience, or even because it was so cash-starved that it needed to funnel borderline claims through the portal to achieve speedier payment of costs (it is not suggested that this is what happened in Ferri). But the second firm will be stuck with the fixed portal costs unless it successfully applies to have the claim reallocated to the multi-track before it settles. Cue a well-judged Part 36 offer from the defendants, which will make it very difficult for the claimant lawyers to recoup anything more than fixed costs. The odds of the claimant firm being able to argue that the claim was ‘exceptional’ enough to warrant anything higher have lengthened considerably with the stance set out by Mr Justice Stewart.
Ferri was not the only bad news for claimant PI solicitors in recent weeks. The much higher-profile ruling of the Court of Appeal in Herbert v HH Law  EWCA Civ 527 was a blow to any PI firms that, like HH Law, adopted a model of routinely charging a 100% success fee, relying on the statutory cap to bring the percentage down to 25%.
The appeal court rejected this approach, finding that HH Law had failed to obtain informed consent from the client for the way that it set the success fee, and that it bore no relation to the actual risk in the client’s individual case. There is an argument that the blanket success fee model could in fact be considered valid, provided the client knows exactly what they are signing up to. In practical terms, however, this meticulous approach to consent will not have been followed by the vast majority of firms out there that have adopted the 100% success fee model. These firms can soon expect a knock on the door. They will open it to find a queue of former clients looking to query the deductions from their damages.
In Herbert, the appeal court reduced the 25% success fee to 15%, to reflect actual risk in what was a very straightforward claim involving a rear-end shunt. The appeal judges, as in the courts below, were unimpressed by the law firm’s attempt to argue that its success fee model was a necessary consequence of the Jackson reforms, which stripped away recoverability of success fees. Yet, in fairness to the firm, before the April 2013 watershed there was certainly a school of thought that PI firms would need routinely to charge the maximum 25% if they were to remain profitable. The lesson is that whenever individual cases come before judges, wider economic arguments will fly out of the window.
One final aspect of Herbert related to the after-the-event insurance premium charged. The court held that as the ATE premium was not a disbursement, it could not be challenged under Solicitors Act proceedings; making it harder for clients to scrutinise the level of ATE premium they have paid. Concerns already exist in the wider market over a lack of transparency in how ATE premiums are arrived at, and whether some law firms might be profiting from them. One does wonder whether this aspect of the Herbert ruling may have inadvertently thrown a lifeline to some of the less scrupulous players in the market.
Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs. For subscription details, tel: 020 7841 5523