You are a lawyer at a large City firm, and across the desk – or on the Zoom screen in your home office – a new client is about to sign on the dotted line of a retainer that will see you bill north of £500 an hour for your services. Do you have a fiduciary duty to tell them that much lower hourly rates are available at regional competitors?
Or, in a different scenario, perhaps you are arranging the terms under which you will act as a trustee for an individual. As a fiduciary, a trustee cannot profit from the trust they administer. So does this stop you from charging top whack for your services?
The conventional answer to both of these questions is no, because at the point where you are agreeing your fees, the person is not yet your client and the fiduciary relationship has not begun.
But cut to the world of low-value personal injury litigation, and the High Court has just taken a rather different approach to the issue of signing retainers, and when a fiduciary relationship begins. In Belsner v CAM Legal Services  EWHC 2755 (QB), Mr Justice Lavender dealt a blow to a law firm being sued by a former client over the terms of its retainer. The judge found in favour of the client, because the fiduciary relationship meant that she had needed to give ‘informed consent’ to the terms in question and the judge did not consider that the law firm had done enough to achieve this.
It is not hard to see why the judge was unimpressed by the terms of the retainer. As he said: ‘It is a very striking feature of the agreement being proposed to the claimant by [CAM Legal Services] that [its] estimated basic charges were five times the amount which the claimant might be entitled to recover from the insurers… and that [to meet this shortfall] she might have to pay the first £3,200 of her damages to [CAM].’
The arrangement would have left the law firm entitled to costs that would not only have gobbled up all of the claimant’s damages, but actually left her owing her lawyers more than £600. But it is worth stressing that the law firm did not in fact charge her this sum. It secured damages of £1,917 through a settlement in the MoJ’s claims portal and deducted only £386, which represented its success fee. It also recovered £1,783 in fixed costs from the insurers. So the claimant actually received £1,531 in damages.
But the judge was clearly bothered by the fact that, although the law firm never sought the sum to which it was apparently entitled, it had placed no overall cap on the costs it could recover from the client. He said: ‘It is necessary to ignore for these purposes the fact that [CAM] subsequently chose not to claim everything which it was entitled to claim by way of costs. [CAM] acted as if it… had agreed to cap the costs which it could recover from the claimant at 25% of the damages. Many solicitors agree to do this, but the defendant did not.
‘If it had been pointed out to the claimant that, while [CAM’s] estimate of costs was £2,500 plus VAT, she might recover only £500 or £550 plus VAT from the insurers, then that may… have led the claimant to ask whether her liability could be capped, or to approach a different firm of solicitors, who would cap her liability.’
So as far as the judge was concerned, the law firm had not done enough to achieve informed consent for such onerous obligations. But if it had provided the client with the safety net of knowing, for example, that she would never have to hand over more than a quarter of her damages, things might have been different.
Lavender J acknowledged that this was effectively a ‘test case’, with many other claims at stake. Clearly, any claimant lawyers who do not already cap their clients’ overall liability should seriously consider doing so; although the ruling would seem to suggest that retrospective attempts to belatedly insert a cap will be too late.
This is not the end of the road. An appeal is expected, although realistically, it may not be heard for a year. One aspect of the ruling that the appeal court is likely to address will be whether a fiduciary duty really had arisen at the point of signing the retainer. All eyes will be on the appeal judges’ answer to that question – and not just in the personal injury sector.
Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs. For subscription details, tel: 020 8049 3890