Personal injury firms have been put on high alert that any instances of fee inflation to reach the 25% cap will not be tolerated and could end up resulting in a regulatory probe.
District Judge Lumb said that the proposed deductions in Spicer v Greene King Brewing And Retailing Ltd had raised concerns about how some firms are charging clients through conditional fee agreements.
He pointed to the warning notice issued by the Solicitors Regulation Authority in January about solicitors operating on a no win, no fee arrangement and suggested that so-called ‘costs padding’ will be clamped down on. ‘Solicitors who are acting in this way through their business models have been warned that the courts will remain vigilant and the next step may well be investigation by the SRA,’ said Lumb in a postscript to his ruling.
The judge added: ‘It would appear that from time to time, and perhaps with surprising regularity, both practitioners and members of the judiciary have not applied the correct tests in dealing with these issues.’
The case concerned a costs bill presented by north west firm Express Solicitors following the settlement of a personal injury claim for £10,000.
The firm produced a schedule of costs claiming that £13,316 of profit costs had been incurred with recorded time of 73.1 hours by 18 fee earners engaged on the matter.
The CFA and risk assessment scored the percentage success fee at the maximum 100%: the firm therefore sought its maximum deduction of £2,500 (based on the 25% cap) and a further £1,120 to cover the ATE premium.
Lumb ordered an assessment, saying he was ‘sceptical’ that costs of £13,316 could have been reasonably incurred and noting that the 100% success fee was ‘obviously too high’.
As part of that assessment, the claimant’s litigation friend gave a statement to the court that Lumb said was ‘clearly a template statement prepared by the solicitors and not in her own words’. It was clear that the litigation friend did not understand what was in her statement and the details of the CFA.
The judge said another witness statement, prepared by a trainee solicitor with conduct of the claim, was not prepared in the interests of the client but was ‘more in the interests of the solicitor in seeking to persuade the court to allow the ATE premium and £2,500 success fee to be deducted from the damages and paid to them’.
He ruled that the litigation friend did not given fully informed consent to the charging model and that the rates being charged were ‘significantly higher’ than the guideline hourly rates. The case could have been handled through 15 hours of a Grade D fee earner and two hours at Grade B, leaving base costs no higher than £3,000.
There were ‘minimal risks involved’ given the admissions of liability, so the prospects of success were 90%. The appropriate success fee was therefore 11%, which left costs of £330. The ATE premium was discounted as the risk level was so low that taking out a policy was not deemed a reasonable expense.
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