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Solicitors win latest PI costs battle, but the war goes on - Ged Courtney, Kain Knight Costs Lawyers

29/06/21. Despite the disruptions caused by the Covid-19 pandemic the appetite for claims by former clients against their solicitors continues and those who represent them continue to frame arguments in a manner which continues to evolve. The most recent reported decision comes from Mr Justice Lavender (who also heard the appeal in Belsner v Cam Legal Services Ltd) in Karatysz v SGI Lega [2021] EWHC 1608 (QB).

At first blush it is easy to see this decision as a resounding victory for the legal profession, with the Solicitor having fought off a claim by their former client and demonstrated that the sums deducted from her damages were reasonable. Whilst this decision certainty results in a few holes beneath the waterline for those seeking to bring claims such as this, in my view the main thrust of the decision is largely on its own facts and save for a couple of discreet points doesn’t necessarily bring matters much further forward. There is some useful guidance in relation to relief from sanctions in respect of the late filing of a Respondent’s Notice, but I don’t address that element of the judgement here as, even without it, this article is long enough and the decision on that issue, in any event, is very much of its facts

Ms Karatysz’s claim was pursued through the low value RTA portal and settled at stage 2. The judgement itself sets out in great detail the case history (including the detailed assessment proceedings) so there’s little need to repeat it here. It suffices to say that the Claimant recovered fixed costs from her opponent and a Bill was sent to her which sought a deduction to the Claimant’s damages of 25%. This was based on a mixture of success fee and unrecovered basic charges.

The First Hearing

The Claimant challenged the Solicitor’s bill, citing that she had not given her informed consent to be charged more than was recovered from the third party. She said that s.74(3) of Solicitors Act 1974 operated to limit the solicitors fees to the fixed costs recovered from her opponent. In the alternative, the Claimant argued that the Court could, by applying CPR 46.9(3)(c), limit the sums in the same manner as s.74(3). In his “paper assessment”, District Judge Bellamy in the County Court at Sheffield, had found that s.74(3) did apply in this case, notwithstanding Court proceedings had not been issued, but was persuaded to reverse his decision on the point at oral review.

Interestingly, District Judge Bellamy had found in the Belsner case 6 months earlier that s.74(3) did apply to portal cases, only to accept it didn’t in this case. Oddly, the County Court at Sheffield again seems to have changed tac once again and in more recent assessments finding that s.74(3) does apply to non-litigated portal cases. It is clear that some binding authority on this point would be of great assistance, but it won’t be found here.

During the course of the assessment, the District Judge had decided that 9 hours at £120.00 (£1,080.00) was a reasonable sum for the profit costs in this matter. During the course of the oral review there seemed to be some question about whether or not proceedings had been issued but the Court felt this didn’t ultimately matter. The judge found;

“5. So where does that take me in relation to this review and the thorny problem of informed consent? It remains my view, because it is supported by the judicial authority in MacDougall and Herbert, that it is not possible to rely solely upon a piece of paper exchanged between solicitor and client as express consent when matters, for example, in relation to hourly rates, time spent and success fees are being discussed.

6. It is very difficult to imagine a scenario where a lay client who is not well versed in the litigation process can be said to have sufficient information to approve, whether expressly or impliedly, without seeing an explanation. Simply to say "My hourly rate is X" is in my view not sufficient. There are no guidelines available for the lay client in relation to fixed recoverable costs, for example, and there is no real explanation for informed consent to be given. "A full and fair exposition" are the words used by Holland J, and I do not think I can improve upon those. This is a case where there is no explanation of the fixed recoverable charges. A client cannot do his own assessment of what his likely contribution is to be, particularly when the agreement is capable of interpretation, entitling the solicitor to recover all of their basic charges.

7. I, for those reasons, am of the view that the question of informed consent does require to be addressed before it can be said that any agreement can be enforced. I think I would come to exactly the same conclusion even if section 74(3) is not engaged, and, if we go, effectively, to the suggestion that under 46.9 the presumptions are there, I think it is easy to recognise that, as I indicated, for example, an hourly rate of £165 (sic) for a Grade D fee earner might be deemed to be unusual in amount when most, if not all, low-value RTA cases are dealt with by Grade D fee earners and the courts are well aware of seeing rates between £111 and £125.

8. Similarly, again with regard to the lack of information on fixed recoverable fees, that similarly impacts on any agreement that might be relied upon on (sic) 46.9(3). So, in short, save only that I might have changed my mind if I see sufficient evidence that there have been no issued proceedings on what I first said, I think the issue of informed consent is now relevant when that is being considered, 46.9 as well as 74(3)."

In short, the Court felt that informed consent was needed to charge more than was recovered from the other side, either by application of s.74(3), or on the basis that costs over and above the sums recovered, absent informed consent, would be presumed unreasonable by application of CPR 46.9(3)(c)(i)&(ii), which says costs are presumed;

(c) to have been unreasonably incurred if –

(i) they are of an unusual nature or amount; and

(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.

This restriction of the basic charges was referred to as “the limitation decision” and was appealed by the Defendant. The Claimant also sought to overturn the Court’s finding that s.74(3) wasn’t engaged but for a variety of reasons relating to the late filing of the Respondent’s Notice, this wasn’t permitted.

The Appeal

Lavender J’s judgement gives very thorough analysis of the limitation decision. The Defendant argued that the Claimant had given their informed consent to the hourly rates claimed and therefore the principle of being billed on an hourly rate basis. On an analysis of the materials, the Court formed the view that the Defendant didn’t have the informed consent of their client as to the hourly rates and the amount of work done, and therefore could not reply upon the presumptions of reasonableness that CPR 46.9(3)(a)&(b) would typically afford. Also, whilst the Defendant argued that the Claimant’s contribution was capped at 25%, the Court found that this was “an aspiration rather than a commitment”.

In consideration of CPR 46.9(3)(c)(i), Lavender J felt that the judge below was entitled to find that the hourly rates sought by the Defendant were “of an unusual nature or amount” and therefore that element of the test was satisfied. The Defendant had argued that they had told the Claimant that the sums from the other side may be lower than their fees and that this was sufficient to satisfy the second portion of the test. The Judge below had found that in order to rely on CPR 46.9(3)(c)(ii), the Solicitor must have their client’s informed consent and that had not been obtained here.

Ultimately, Lavender J found that the judge below was wrong to find that informed consent was required in this context, saying at 108;

“Mr Marven submitted that informed consent is irrelevant to CPR 46.9(c)(ii). In my judgment, that is right. The issue under CPR 46.9(c)(ii) is whether or not the solicitor told his client what is there set out. That issue concerns what the solicitor said, not whether the client agreed with or approved what the solicitor told him. That issue is materially different from the issue under CPR 46.9(2) or 46.9(3)(a) & (b), which is whether the client agreed or approved something proposed by the solicitor. The focus there is on what the client did, which is why it is relevant to consider whether the client gave informed consent to what was proposed.

The court went on to consider the effect of these findings. At para 110 the Judge states;

“In any event, even if the district judge was right in his construction of CPR 46.9(3)(c)(ii), and supposing that it was to be presumed under CPR 46.9(3)(c) that the Defendant's rate of £161 per hour was unreasonable, it does not follow that it was appropriate to limit the Defendant's base costs to the amount recovered from Aviva in respect of fixed costs. The effect of CPR 46.9(3)(c), where it applies, is to create, for the purposes of an assessment of costs on the indemnity basis, a presumption that certain costs were unreasonably incurred. Where a solicitor claims costs at an unreasonable rate, the appropriate course on assessment on the indemnity basis is usually to allow costs at a reasonable rate. Assuming that it was reasonable for the work to be done (and there was no challenge to the district judge's decision that it was reasonable for 9 hours' work to be done), it is not unreasonable for the solicitor to be paid for that work at a reasonable rate.

District Judge Bellamy had already, during his assessment, assessed the Bill and found that 9 hours at £120.00 per hour was a reasonable amount. To reduce that further to £750.00 would be contrary to those earlier findings;

“While I accept that the district judge could, for good reason, have departed from the "hours times hourly rate" method of assessing the Defendant's base costs and could, for good reason, have alighted on £900 as the reasonable amount for the Defendant's base costs (in the sense that any greater amount would have been unreasonable), I am not persuaded that that is what the district judge did.

In these circumstances, the Court allowed the Defendant’s appeal and found that the sums deducted from damages were reasonable. Crucially however, the Court found that the Court could have simply awarded a single, reasonable figure for the basic charges without reference to time spent and hourly rates, but merely found that the Judge in this case didn’t do that. Undoubtedly those representing the former clients in these cases will seek to rely on this element on the judgement in the hope of departing from the typical “hours times hourly rate” assessment procedure. Whether there is an appetite for such an approach going forward remains to be seen.

A separate and arguably more wide reaching element of the judgement related to the costs of the proceedings. Typically those representing the lay clients seek to argue that the total of the Bill is the full amount of the profit costs, vat, success fee and disbursements. At first blush this seems logical, but in many cases solicitors cap their bills at a sum equal to the amount recovered from the third party plus a percentage of the client’s damages, electing to waive the rest. The Claimant had pointed to the higher amount, arguing that by reducing this figure by 20% results in their entitlement to costs of the proceedings, even if the reduction doesn’t result in a refund at the end of the assessment. Clearly this outcome would be perverse as it would mean that a solicitor, having shown that the deduction made was reasonable, could still be ordered to pay costs. Lavender J found;

“In my judgment, the key to the issue which arises under subsection 70(9) is the construction of subsection 70(9) and, in particular, the phrase, "the amount of the bill". Since a bill of costs is a demand for payment, it is in my judgment plain that the amount of a bill is the amount demanded by the bill.

After analysing a number of historical authorities on the point he further opined;

“Nevertheless, if one asks the question, "How much was being demanded by this bill?" the answer is clear. The Defendant was merely seeking by this bill to justify its retention of the £1,116 received from Aviva and the £455.50 deducted from the Claimant's damages. The Defendant was not by this bill demanding payment of anymore, and certainly not a further £1,160.40, from the Claimant.

There has been some suggestion that the Claimant will seek leave to appeal in this matter. Clearly the limitation point is on its own facts and well-reasoned. It may be the costs element of the Judgement that the Court of Appeal will be asked to review, but that again appears to be well reasoned and permission to appeal could well be refused in that regard.

Ged Courtney is an Advocate and Senior Costs Draftsman
at Kain Knight Costs Lawyers.

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