By: 22 April 2019
Success fees decision leaves bad taste

A recent Court of Appeal decision has left personal injury lawyers in no doubt about what they need to do before setting success fees, but the ruling leaves a bad taste in the mouth, writes Qamar Anwar, managing director of First4Lawyers

In Herbert v HH Law (2019, EWCA Civ 527), the Court of Appeal ruled that solicitors handling low-value personal injury claims since the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act should have undertaken individual risk assessments before setting success fees—rather than just applying 100% across the board. Unfortunately, it is another appeal court decision that fails to recognise the reality of modern legal practice.

Claimant Nicky Herbert was advised by her Liverpool law firm HH Law (better known as Hampson Hughes) to accept an offer of £3,400 for a rear-end shunt by a bus, of which £829 would be deducted as the firm’s success fee (25% of damages) and £349 for after-the-event insurance, leaving her to bank £2,222.

She accepted the offer but subsequently instructed JG Solicitors, which has become well known for its work challenging deductions from personal injury clients’ damages.

JG Solicitors argued that HH Law had failed to conduct a risk assessment justifying the level of success fee and that the 100% uplift was out of step with the fixed success fee of 12.5% under the previous costs regime for road traffic accident claims that settled before trial.

In its evidence, HH Law said that, like most of the market, it had changed its model as a result of LASPO to routinely charge a 100% success fee, capped at 25% of the damages.

The court at first instance reduced the success fee to 15%, finding no clear evidence the claimant had approved the cost to be incurred “with full knowledge”, and that there was no risk assessment on the file to justify the 100% success fee sought. This was upheld in the High Court.

Dismissing the appeal on this point, the Court of Appeal said the burden was on the solicitor to show there was informed approval of the success fee. The amount of a success fee is traditionally related to litigation risk, and HH Law had not told Herbert that her success fee was not.

This ruling will worry a lot of firms. HH Law was right to say that the model of a standard 100% success fee capped at 25% of damages has been widely adopted since LASPO, irrespective of the individual risk of a case, and they are now at risk of an avalanche of challenges by former clients. Firms that did not change their procedures after the earlier rulings in this case should be doing so immediately.

It is a frustrating decision as well. The court expressly found that all the paperwork that HH Law gave Herbert—the retainer, conditional fee agreement and a ‘what you need to know’ document—provided her with “a clear and comprehensive account of her exposure to the success fee and HH’s fees generally”.

Is that not informed enough consent? Would a client with no previous experience of the claims process expect the success fee to relate to risk? Herbert had the information she needed to ask questions of the firm about it.

The model operated by HH Law and others was adopted out of necessity because of the LASPO reforms, which put a major squeeze on profitability. If anything it harks back to the whole ‘basket of cases’ theory that underpinned the extension of conditional fee agreements back in 1998.

The decision reflects a lack of understanding about the efficient, technology-led way that law firms handling high volumes of low-value litigation need to operate nowadays. In that respect, it is similar to another Court of Appeal ruling earlier this year on Bott & Co’s flight delay practice, which is heavily automated, especially in relation to uncontested claims.

With Ryanair adopting the practice of going around Bott & Co and dealing with its clients directly, including paying them their damages, the court said the firm was not conducting litigation when the claims were not contested, and so did not have an equitable lien over the compensation. As a result, some clients did not pay on the fees that they should have done.

Speaking after the ruling, senior partner David Bott said he had hoped the court would recognise “the way the law was going” in terms of firms becoming more efficient by using technology to process matters and said it had taken a lot of investment for claims to be handled in what the court described as a “mechanical and formulaic” way.

“If I’d had 100, 10-year-qualified solicitors with pens and paper instead, it would not have been a problem,” he observed.

It may well seem to claimant lawyers that efforts to provide a valuable service to consumers while generating a reasonable profit are stymied at every turn. Access to justice is not being well served.

Qamar Anwar is managing director of First4Lawyers