The Court of Appeal has ruled that a personal injury firm was not entitled to a 100% success fee without reference to the risks of taking on the case.

Master of the rolls Sir Terence Etherton dismissed the appeal from Liverpool firm Hampson Hughes and said its charging model could not be justified.

The judge said the starting point of a 100% uplift, irrespective of litigation risk, ‘was and is unusual’ when deducting legal fees from claimants’ damages. He added: ‘I do not consider that either HH’s justification for its charging model or the 25% cap [on damages deduction] answer the point that in this country, in the context of a conditional fee agreement, the amount of a success fee is traditionally related to litigation risk.’ However, he upheld the firm’s appeal on deductions for after-the-event insurance, concluding that this cover did not qualify as a solicitor’s disbursement.

The ruling will set alarm bells ringing in the personal injury sector, with many firms having adopted the policy of setting a 100% success fee and claiming the maximum limit of 25% of total damages.

In Herbert v HH Law Ltd, the firm had secured £3,400 for the RTA victim and deducted £829 for costs and £349 for ATE insurance. The deductions were contested by the client through proceedings brought by Leeds firm JG Solicitors, which specialises in such claims.

Herbert will spook PI firms who’ve grown fat on success fees

See analysis

District judge Bellamy found no clear evidence that Herbert approved the costs incurred, and observed there was no risk assessment on the file to justify a 100% success fee. He set the uplift instead at 15%.

After Hampson Hughes’ first appeal was unsuccessful it challenged the judgment in the Court of Appeal, arguing the judge had misconstrued and misapplied the presumptions in civil procedure rules, and was wrong to characterise the ATE premium as a solicitor’s disbursement.

The firm argued that post-LASPO there was no need to individually assess the claim to formulate the success fee, and the claimant was protected by the 25% cap.

PJ Kirby QC and Robin Dunne of Hardwicke Chambers  represented Herbert. They said the consequences of the judgment will be ‘profound’ and that huge numbers of clients may now seek to recoup costs. ‘Since LASPO, many firms have used the same model as HH Law in modest claims where the individual risk was low,’ they added. ‘Unless (which is unlikely) they have advised their client when the CFA was signed that the success fee was not set on the basis of the risks of the case, the client will be able to reduce the success fee on a Solicitors Act assessment.’

James Green, managing director of JG Solicitors, said the ruling will be regarded as a milestone for consumer rights. He added: ‘The Court of Appeal has provided vitally important guidance to solicitors about the issue of obtaining ”informed consent” from the client. In our view that guidance extends beyond the charging of success fees but applies to all costs charged to a client by way of deduction from damages.’

Commenting on the judgment, Phil Thompson, a costs draftsman from HH Law Limited, said: 'This was a case that concerned important issues that affect the profession as a whole. The court’s guidance therefore was needed given the huge changes in the Civil Procedure Rules in respect of funding and costs over the past few years.

'Whilst the court did find that it was necessary to provide a greater degree of explanation to the client, to make sure that they understood that the success fee was not being calculated on the risk of their individual case, we are satisfied that lessons have already been learnt from this finding. We have continually updated our retainer documents and client billing processes to provide further clarity and certainty to clients.'