I have decided to make a Tetralogy regarding the deductions from a child’s personal injury damages. consisting of:-
- Chapter 1 – ATE premiums
- Chapter 2 – Success fees
- Chapter 3 – Costs shortfall contribution
- Chapter 4 – Payments out
Success fees are probably the most common deduction from a child’s damages. I am not sure why I didn’t write about it first. Nevertheless, it is an important topic.
What is a success fee?
A success fee is an additional liability that was made available to Solicitors who entered into a conditional fee agreement to account for the additional risk they took for taking on a case, whereby the Solicitors may not get paid for the work they undertake unless their client is successful.
The client instructs a solicitor on a CFA basis, so there are no upfront payments (although the firm may request money for disbursements). If the claim is lost, then no costs are charged by the Solicitors. If successful, the success fee is raised alongside the basic charges.
The percentage of the success fee could not exceed 100%, but the success fee had to be justified, usually by attributing the percentage to the risk. For example, a case which has low risk and high prospects with an early admission is not going to attract the same litigation risk as a highly complex and contested accident with both facts and law in dispute. In order to determine this, a solicitor would carry out a risk assessment at the outset of the claim.
However, who paid that success fee has changed as a result of the Jackson reforms.
Pre 1st April 2013
The success fee was an additional liability that was recoverable from the third party upon a successful case, leading to a right to recover costs. For these reasons, a Notice of Funding had to be filed with proceedings,, otherwise the Claimant would be unable to recover the success fee from the paying party. Once the right to costs came about, the bill of costs was drafted, which would include the success fee.
The success fee was usually a percentage of the base costs. So if a Claimant’s solicitors had incurred £6,000 of costs, and the success fee was 100%, then the success fee would be £6,000. Understandably, there would be circumstance whereby the Claimant’s success fee percentage would be challenged by the paying party. The cherry on top is that any CFA entered into between the Claimant and their instructed counsel was also subject to a success fee.
However, that changed following the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), which applied to any CFA entered into on and after 1st April 2013.
Post 1st April 2013
Since LASPO, success fees are not recoverable from the Defendant in personal injury claims where the CFA is entered into after 1st April 2013. Instead, they are usually deducted from the claimant’s damages. Any deduction is restricted by the LASPO and the Conditional Fee Agreements Order 2013. Essentially, any deduction or contribution from the Claimant’s damages must not exceed 25% and cannot be deducted from anything other than from PSLA and past losses.
Claimants can challenge the costs, and in turn, the success fee, by virtue of s70 Solicitors Act 1974. However, the question comes to success fees when they are children and are subject to CPR 21.10.
Herbert v HH Law Limited [2019] EWCA Civ 527
The first question is whether the litigation friend (who has entered into the CFA in order to pursue the child’s claim) has consented to the success fee. The relevant case is Herbert v HH Law Limited.
Ms Herbert instructed HH Law under a CFA after an RTA. The CFA allowed for a 100% success fee, limited by a 25% cap on damages. The claim settled for £3,400, with the solicitors deducting £829.21 for a success fee, plus an ATE insurance premium from her damages. Ms Herbert challenged these costs under s70 of the Solicitors Act 1974, claiming she wasn’t informed about the success fee and that it was unreasonable.
The Court of Appeal stated that “approval” under CPR 46.9(3) means informed approval, which requires a proper explanation to the client. The solicitors did not demonstrate informed approval for the 100% success fee because it was set as standard without considering litigation risk. This unusual practice should have been explained. As a result, the success fee was reduced to 15%.
Duffield v WM Morrisons Supermarket Limited
HHJ Monty KC, sitting in the County Court at Central London, heard an appeal from DDJ Walton regarding the deduction of the cost of the ATE premium and success fee. This article will focus solely on the ATE premium element.
The DDJ had allowed some of the success fee, but refused the ATE premium in its entirety. The Judgment of the DDJ was short and given verbatim in the Circuit Judge’s judgment. Whilst the DDJ was willing to find that there was risk, despite the criticism of the risk assessment, he found that the appropriate deduction should be 10% based on Simmons v Castle [2012] EWCA Civ 1039, which increased PSLA general damages to account for the additoinal libailities that must now be deducted from the Claimant’s damages.
The Circuit Judge allowed the appeal on the success fee because the success fee was a contractual agreement between the Solicitors and the litigation friend. It was wrong for the Judge to use Simmons v Castle as a starting point because that was in relation to the measurement of damages, not to solicitor-client assessment of costs.
Further, the Circuit Judge referred to the approach in Herbert v HH Law as the correct approach under CPR 46.9, ensuring informed consent from the litigation friend and applying the presumption of reasonableness to costs incurred with the client’s approval, unless evidence suggests otherwise. In this case, the litigation friend understood and approved the CFA, confirming the reasonableness of the success fee.
Very similar to the approach of ATE, CPR 46.9(3) has a presumption that the costs are reasonably incurred. There is a mechanism in place to challenge the costs if there are any concerns.
How are basic charges determined for a CFA?
In most CFAs, the basic charges are determined by the hourly rates and the amount of time spent progressing the matter. Therefore, if a firm spent £3,500 on conducting the matter, then the success fee would be £3,500 at 100%. However, some firms would define basic charges as the costs that can be recovered from the third party where the fixed costs regime would apply.
This would make it easier for a client to understand the likely liability for a success fee on the basis that the fixed cost regime was prescriptive to a certain extent (for example, any costs determined by the value of damages would be speculative, but a case that settles in the MOJ portal would have a prescribed set of fixed fees.
This reduces the size of the success fee, and would not take into account any complexities that would require more time. Whilst it would be considered fairer for Claimants who would require the success fee to be paid out of their damages, it would penalise firms who did significantly more work, but did not get remunerated for that time because of the fixed costs regime.
The percentage of success fee and cap on deductions from the damages are not interchangeable
A Litigation Friend, who incurs a success fee (for example) of 75% does not have that success fee reduced to 25%, but the cap of the pool of the damages that can be deducted from is limited to 25%.
So imagine a Litigation Friend’s solicitor has settled the Claimant’s case for £6,000 for PSLA only. The amount of work undertaken is £8,000 and the success fee is 75%, equating to £2,000. The success fee maybe £2,000, but the cap is £1,500. Therefore, the cap prevents more than £1,500 being deducted from the damages.
I have had many Judge states that a ‘25% success fee is being sought’, when that is not the case and interchange damages cap and success fee when they should not.
The approval process.
CPR 21.12 dictates how deductions from a child’s damages can be made and under what circumstances. Whilst costs that are to be deducted from the damages are usually to be assessed on detailed basis, CPR 21.12(2)(c) says that the detailed assessment can be dispensed with in accordance with CPR 46.6(5):-
(5) Where the costs payable comprise only the success fee claimed by the child’s or protected party’s legal representative under a conditional fee agreement or the balance of any payment under a damages based agreement, the court may direct that—
(a) the assessment procedure referred to in rule 46.10 and paragraph 6 of Practice Direction 46 shall not apply; and
(b) such costs be assessed summarily
This means the Court can summarily assess the costs that are to be used as a basis for determining the success fee.
The Litigation Friend, in accordance with CPR 21.12, must also file a statement setting out, so far as a applicable, the following:-
(a) the nature and amount of the costs or expenses and the reason they were incurred;
(b) a copy of any conditional fee or damages based agreement;
(c) a copy of any risk assessment by reference to which any success fee was determined;
(d) the reasons why the particular funding model was selected;
(e) the advice given to the litigation friend on funding arrangements;
(f) a copy bill or informal breakdown of the solicitor and own client base costs incurred;
(g) details of any costs agreed, recovered or fixed costs recoverable by the child; and
(h) an explanation of the amount agreed or awarded for—
(i) general damages for pain, suffering and loss of amenity; and
(ii) damages for past financial loss, net of any sums recoverable by the Compensation Recovery Unit or the Department for Work and Pensions.
This ensures the basis for the success fee can be reviewed by the Judge to ensure it is compliant. As it is a contractual agreement between the Solicitor and the Litigation Friend, there is a presumption that the costs are reasonably incurred and reasonable in amount.
So how should the Court consider the success fee for the purposes of approving any payment out for the same?
The Court must start by considering whether CPR 21.12(10) has been complied with and whether the appropriate documentation has been provided. If any documents vital to determining the success fee are missing, no success fee deduction should be allowed.
If the Solicitors have defined the basic charge for the success fee calculation as their hourly rates and work in progress, then, without a breakdown of those costs, the Court cannot possibly consider whether the success fee is correct/accurate/reasonable/proportionate.
The starting point would be to consider the success fee percentage and whether there was informed consent. If there is sufficient evidence of informed consent, then the Court should not touch the success fee.
If informed consent is doubtful, then the Court must consider whether the success fee is justified by the risk assessment. If it were a blanket 100% with no consideration of the risk, then the rebuttable presumption that it was reasonable and proportionate falls away. The court can then consider the appropriate success fee.
The same approach applies to the costs incurred. If informed consent is doubtful, are the costs unusual in nature and amount to displace the rebuttable presumption? If so, the Court can carry out a summary assessment of those costs because CPR 46.4(5) can allow the costs to be summarily assessed, rather than subject to detailed assessment.
In low-value personal injury cases, these possible reductions in the success fee percentage and summary assessment of costs may very well have no influence on the deduction. If 25% of the damages is £600 and the success fee is reduced from £3,000 to £1,000, the cap is still £600 and the assessment becomes an academic exercise. However, that may not alwasy be the case.
Why should the success fee be paid out of a child’s personal injury damages?
Success fees should be capable of being deducted from a child’s personal injury damages because solicitors acting under a conditional fee agreement assume a significant financial risk in pursuing claims on a CFA basis (at their own detriment).
If the claim is unsuccessful, the solicitor receives no payment for the work undertaken and absorbs the cost of the litigation risk. The litigation friend, who is responsible for conducting the claim on behalf of the child, knowingly enters into the CFA and thereby accepts the contractual liability for the success fee in the event that the claim succeeds. The rules allow that success fee to be recovered from the child’s damages.
Allowing a reasonable success fee to be deducted from damages therefore reflects the commercial reality that solicitors must be incentivised to take on such cases, particularly where there is uncertainty as to liability or quantum.
Importantly, this does not leave the child unprotected. The Court retains supervisory jurisdiction over settlements involving minors, and there are established mechanisms, such as detailed assessment and the court’s approval process, to scrutinise costs that appear unusual in amount or nature and to ensure that only fair and reasonable deductions are permitted. However, that mechanism is where there is doubt about the informed consent.
Whilst many say that this seems unfair on the Claimant child, remember that they would have no damages at all but for the financial risk undertaken and incurred by both the Solicitors and the Litigation Friend.
Information
Alec Hancock is a practising Barrister at Magdalen Chambers in Exeter. For instructions on matters, please contact Magdalen Chambers via clerks@magdalenchambers.co.uk or by telephone on 01392 285 200.
