The deductions of success fees from damages involving protected parties has always been a tricky subject. Since the LASPO changes were brought in in 2013, litigators have found themselves having various questions and concerns about deductions of success fees involving protected parties – with some eventually making the decision to forgo any potential success fee for fear of being seen as being unreasonable by the Court.
The recent case of MNO v HKC & Anor [2022] EWHC 2919 (SCCO) saw Master Brown consider the appropriate level of success fee to be deducted from the Claimant’s damages.
In terms of the background to the case, the Claimant was very severely injured in a road traffic accident that occurred on 17 June 2013. The Claimant recovered £5.25 million in an award of immediate damages together with an order for periodical payments from the Defendants (on a capitalised basis the value of the damages payable is said to be over £9 million). The Defendants were ordered to pay the Claimant’s costs subject to detailed assessment on the standard basis.
The Order also provided that unless the Claimants’ solicitors waived their entitlement to be paid by the Claimant, any shortfall in the cost recovered inter partes as they may otherwise be entitled to under the terms of the retainer, there was to be a detailed assessment of the solicitor/client costs incurred on behalf the Claimant and of the amount which was reasonable for the Claimant’s solicitors to recover from the Claimant pursuant to CPR 46.4.
The Claimant’s Solicitor contended that the Litigation Friend had approved the success fee uplift by entering into the CFA, that this approval was informed and this in turn meant that the success fee uplift of 20% was presumed reasonable. However, Master Brown wasn’t quite in agreement of that.
The CPR provides that, as regards a claim by a Litigation Friend for costs against a Protected Party, in deciding whether the costs or expenses were reasonably incurred and reasonable in amount, the Court will have regard to all the circumstances of the case including the factors set out in rule 44.4(3) and 46.9.
Consideration was given to informed consent, however, it was the Claimant’s position that the decision in Belsner disposed of the argument that Solicitors owed clients a fiduciary duty when negotiating the terms of their retainer; that was because when Solicitors and a Client were negotiating the terms of the Solicitor’s retainer, the Client did not have any reasonable expectation that the Solicitors would not be acting in the negotiation in their own interests.
However, Master Brown was of the view that it did not matter why for these purposes consent had to be informed. There was no dispute, as he saw it, and that it was for the Court to determine what was reasonable for the Protected Party to pay having regard of the presumptions that applied in CPR 46.9 (3).
Ultimately, Master Brown said that he was required to determine the reasonableness of the costs claimed and that approval or agreement to the success fee by a Litigation Friend does not mean that the Solicitors will necessarily be able to recover that success fee – unless regarded as reasonable by the Court.
Once the Court had established it was for them to consider the reasonableness of the costs. The question then turned to the level of those costs. Master Brown highlighted that in his view, very few people would be aware of the factors that were relevant in assessing success fees in cases such as this and any explanation might need to refer to some guidance. It was felt that in the context of considering a two stage success fee it might well be said that the terms of the CJC implemented agreement (by which a first stage of 12.5% uplift leads to 100% at trial) was more likely to be regarded as usual, and that a success fee of 20% for the first stage was unusual such that there was a presumption of unreasonableness in this case. Subsequently, arguments were made regarding the two stage success fee and what was reasonable for the first and second stage (which I haven’t gone into here as that can form a different argument altogether). Subsequently, Master Brown allowed 15% for the first stage of the success fee.
What can we take from this case?
Just because a Litigation Friend signs a CFA , it does not mean that in the Court’s view, the success fee contained in the CFA will be regarded as reasonable. The Court still require an assessment of that success fee and as was shown here, that is not necessarily a formality and something Solicitors should assume will be approved. It was clear in some of the comments from Master Brown that the factors regarding that success fee were important and that is something that very often gets overlooked post LASPO given success fees are not recoverable on an inter partes basis. It is clear though, from a Solicitor own Client perspective that this is still important and that litigators should be detailing factors relating to risks when setting a success fee.