Anyone working in the personal injury arena will, more than likely, now be aware of the recent ruling in which the recoverability of ATE Premiums and Success Fees at Infant Approval Hearings were called into question.
The case at the centre of the publicity, known officially as (1) A & (2) M (by their father & Litigation Friend MS) -v- Royal Mail Group  CC (Birmingham) 14th August 2015, concerned claims brought by two children (A&M), through their father and litigation friend (MS), for damages for personal injuries and consequential losses resulting from a road traffic accident (RTA).
Whilst the case itself was relatively straightforward, the hearing to approve the costs that followed was not; with many commentators saying the outcome is likely to reverberate across the claimant market as it challenges what has, since the Jackson Reforms, become the norm for many solicitors.
Here, PIC Costs Lawyer John Plunkett talks to us through the facts of a case which has, certainly to date, got the attention of the sector.
The solicitors in question entered into an agreement with the client to recover a 100% success fee – which we know to be capped at 25% – as well as an ATE insurance premium of £195.
The claims progressed through the RTA Portal in the usual manner and agreement as to damages was reached with the Defendant, with approval of damages being subject to the Court’s approval under CPR 21. Said damages were approved at £2,115.00 and £2,065.00, and the Defendant also agreed to pay the fixed recoverable costs of £2,014.00 for each of the Claimants.
Historically, the Solicitor would almost always simply accept the costs recovered from the Defendant; waiving any further entitlement to any other costs. All very straightforward! But since the Jackson Reforms came into force on 1st April 2013 things have, let’s say, ‘changed’ somewhat.
Fortunately the injuries sustained by the two minors were not serious and they both made a full recovery. But as passengers in a vehicle being driven by a third party, District Judge Lumb took the view that it could not be expected the Claimants had any prospects of losing a claim brought for the purposes of recovering damages.
So, back to those relevant factors! Firstly, current legislation is silent regarding the requirement to carry out a risk assessment to ascertain the likelihood of success in a case; secondly, a success fee is a contractual agreement between the claimant and their Solicitor and not something the Court would likely interfere with; and finally, under the Jackson reforms success fees and ATE insurance premiums are no longer recoverable from the defendant.
Three points that bring us nicely back around to the matter at hand.
Within the context of the case regarding the two claimants, A&M, the Judge was also minded to point out that, despite the Litigation Friend accepting there would be a liability to pay the Success Fee and ATE Premium, it was the Litigation Friend’s understanding that the same would ‘be indemnified out of the successful recovery of damages on behalf of the Claimants’.
What the Litigation Friend did not appreciate however was that in this capacity he had a potential personal liability to meet the £1,865.00 now due, as the sum could only be deducted from the Children’s damages if the Court gave permission as part of the infant approval process. Permission DJ Lumb would not grant in the absence of a risk assessment, due to the fact that he believed that the 25% sought by the Claimant’s Solicitors was too high.
In reaching this particular decision, DJ Lumb referred to the case of Beal –v- Russell  which came before Master Hurst at the SCCO. In that particularly case a CFA was entered into between the Solicitor and Claimant at a point when liability had already been admitted by the Defendant and success had been achieved.
On the basis there was no possibility of losing the claim, Master Hurst reduced the Success Fee to 5%. DJ Lumb therefore found that: “An appropriate success fee might have been as low as 5% as in Beal v Russell or possibly nothing at all’.
He went on to say that even if he was ‘satisfied’ that it was reasonable to enter into a CFA with a 100% success fee, the problems in this case ‘does not end there’. He said: “The amount of the base costs owed under the terms of the retainer between Scott Rees and MS have not been quantified”, namely because a Bill of Costs has never been prepared.
In essence, DJ Lumb was alluding to the fact that the Claimant had every right under the Solicitors Act 1974 to challenge the extent of the sums sought by the Solicitor on a Solicitor and own Client Basis; but that in order for the same to be challenged, the Solicitor would have to prepare a Bill of Costs which could be put before a Court at Detailed Assessment.
Without the Bill of Costs the Court would not be in a position to assess the reasonableness of a 100% Success Fee of costs as yet unknown.
In order, therefore, for the Solicitor to recover their outstanding Success Fee from the Children’s damages, they would be required to have a formal Bill of Costs drafted and the extent of any appropriate percentage Success Fee determined by the Court.
Turning to the ATE Premiums incurred; DJ Lumb referred to the concept of Qualified One Way Costs Shifting (QOCS) introduced by LJ Jackson. He noted that under such provisions the Claimant would only ever become liable to meet the Defendant’s costs in the event there was “fundamental dishonesty” or; the Claimants failed to beat a CPR Part 36 Offer. Such eventualities were in his view unlikely or impossible to occur – prompting him to state that the risk was therefore so negligible that ‘it would not be reasonable or proportionate to take out insurance to protect against it’.
At a recent Costs Law Reports Conference – held in London on 30th September – Nicholas Bacon QC raised a very interesting issue relating to this very matter. Scott Rees said that: ‘Should the Courts not allow the recoverability of the success fee, then two issues will arise’.
Scott Rees submitted that: ‘Firstly, that Litigation Friends would not engage for fear of bearing the costs of litigation themselves, and secondly that solicitors will not accept instructions for minors or patients as they are uneconomic to run’.
The latter relates to the rest of the broader PI arena as this would concern some of the most vulnerable members of our society as they will not have access to justice.
Although you may assume this is a one off event, it should be pointed out that DJ Lumb did make ‘further observations’ in which he made very clear that ‘As yet, there has been no guidance handed down from the Senior Courts and I am unaware that any of these cases have gone to appeal’. His closing remarks were that he hoped his ‘observations’ might be of assistance as he was ‘conscious that the same points will arise time and again in other Courts and not just where Scott Rees are acting for the Claimant’.
As costs law experts we regularly work with our clients to carry out a documentation ‘health check’, so to speak. By ensuring that costs are clearly allocated on submission to the costs judge for assessment, with evidence to back them up, it is possible to maximise success fees even in cases dealing with protected parties.
In many cases that little extra care and attention can make all the difference when it comes to the profitability of a case.
Other than this I don’t see that there is any need for immediate action or widespread panic – Short of ensuring that law firms are happy with the wording of their welcome packs, and all systems and processes are in place and up to date. Although it is fair to say that this is turning out to be a very interesting case on a number of levels (not least the question mark over who is liable to cover the additional liabilities; claimant or litigation friend?).
PIC have a team of experts available to provide assistance with cases such as this. Please do not hesitate to contact me directly at firstname.lastname@example.org or on 0117 332 8182 for further information.