Challenging success fees
The, now revoked, Collective Conditional Fee Agreement Regulations 2000 state:
“5. (1) Where a collective conditional fee agreement provides for a success fee the agreement must provide that, when accepting instructions in relation to any specific proceedings the legal representative must prepare and retain a written statement containing -
(a) his assessment of the probability of the circumstances arising in which the percentage increase will become payable in relation to those proceedings ("the risk assessment");
(b) his assessment of the amount of the percentage increase in relation to those proceedings, having regard to the risk assessment; and
(c) the reasons, by reference to the risk assessment, for setting the percentage increase at that level.”
In Various Claimants v Gower Chemicals (Cardiff County Court, 28/2/07) the paying party sought to argue that a failure to prepare a statement of reasons in accordance with Regulation 5(1) rendered the retainer invalid and all costs should therefore be disallowed. That argument was rejected on the basis that “the natural and ordinary meaning of the regulation is that there must be a provision in a CCFA that complies with the specification set out in the regulation. Regulation 5(1) does not additionally require that the prescribed provision must be performed”.
Is that an end to the story? Not quite. The ever ingenious Gibbs Wyatt Stone recently acted for the Defendant in an EL claim (Middleton v Mainland Market Deliveries Ltd (Southampton CC, 20/10/09)). The Claimant's Bill claimed a 100% success fee on the basis that the fixed EL success fees had been applied to the case when the claim was accepted under the CCFA and the matter had settled at trial. In fact, the date of the accident was such that it did not fall within the fixed success fee regime. The judge accepted that fixed success fees did not apply as a matter of law and that the Court could not simply adopt the fixed success fee figures when assessing the success fee in this case (see Atack v Lee [2004] EWCA Civ 1712).
Costs Practice Direction 32.5(1)(b) requires a receiving party to serve with his Bill:
Is that an end to the story? Not quite. The ever ingenious Gibbs Wyatt Stone recently acted for the Defendant in an EL claim (Middleton v Mainland Market Deliveries Ltd (
Costs Practice Direction 32.5(1)(b) requires a receiving party to serve with his Bill:
“a statement of the reasons for the percentage increase given in accordance with Regulation 3(1)(a) of the Conditional Fee Agreements Regulations or Regulation 5(1)(c) of the Collective Conditional Fee Agreements Regulations 2000. [Both sets of regulations were revoked by the Conditional Fee Agreements (Revocation) Regulations 2005 but continue to have effect in relation to conditional fee agreements and collective conditional fee agreements entered into before 1st November 2005]”
The Claimant in this case had served a document, prepared at the time the case was accepted, that gave a detailed analysis of the various strengths and weaknesses of this case and then stating that the success fee would be 27.5% if the claim settled pre-trial of 100% if settled at trial.
However it was argued for the Defendant that this document did not properly comply with the requirements of 5(1)(c). That section required “the reasons, by reference to the risk assessment [emphasis added], for setting the percentage increase at that level”. Because the solicitors had simply adopted the fixed success fees, they had not undertaken the “risk assessment” required by 5(1)(a). Regulation 5 is a 3-stage process. To comply with 5(1)(c) requires the earlier steps to have also been undertaken. As such, it was argued there was a breach of CPD 32.5(1)(b) and that, by virtue of CPR 44.3B(1)(d)(i), the success fee was therefore not recoverable.
This was a different argument to the one run in Gower Chemicals. That argument was based on there being a breach of the CCFA Regulations which rendered the whole retainer invalid and all costs being irrecoverable. The argument advanced in this case was not that there was a breach of the Regulations, but that there was a breach of the detailed assessment disclosure requirements and the success fee alone was irrecoverable.
The judge accepted the Defendant's submissions and disallowed the success fee.
If this decision were to be followed by other judges, a very large number of other cases would potentially be affected. A large number of “risk assessments” prepared in CCFA cases do not strictly follow the 3-stage process. Interestingly, there is a possible argument that the requirement to comply would have existed even if this was a fixed success fee case. The CCFA in place pre-dated the revocation of the Regulations (as most still do). There is nothing in CPD 32.5(1)(b) that disapplies the rule in fixed success fee cases. Although Lamont v Burton [2007] EWCA Civ 429 and Kilby v Gawith EWCA Civ 812 are authority for the proposition that the courts have no discretion as to whether to allow fixed success fees, does this extend as far as overriding the disclosure or notification requirements? If a party fails to comply with CPD 19.4(1), for example, surely they can't recover the success fee notwithstanding that it is a fixed fee case. Does this also apply to CPD 32.5(1)(b) in its current form?
In the same case, Counsel had entered into his CFA after liability had been admitted. The CFA did not put Counsel at risk in relation to Part 36 offers (despite his risk assessment being prepared on the mistaken basis that it did). Nevertheless, the fixed success fee figures had also been applied producing a claim for 100% as the matter proceeded to trial. The judge accepted that the success fee should be reduced to the 5% figure suggested in paragraph paragraph 24 of C v W [2008] EWCA Civ 1459.
Who says that legal costs isn't exciting?
However it was argued for the Defendant that this document did not properly comply with the requirements of 5(1)(c). That section required “the reasons, by reference to the risk assessment [emphasis added], for setting the percentage increase at that level”. Because the solicitors had simply adopted the fixed success fees, they had not undertaken the “risk assessment” required by 5(1)(a). Regulation 5 is a 3-stage process. To comply with 5(1)(c) requires the earlier steps to have also been undertaken. As such, it was argued there was a breach of CPD 32.5(1)(b) and that, by virtue of CPR 44.3B(1)(d)(i), the success fee was therefore not recoverable.
This was a different argument to the one run in Gower Chemicals. That argument was based on there being a breach of the CCFA Regulations which rendered the whole retainer invalid and all costs being irrecoverable. The argument advanced in this case was not that there was a breach of the Regulations, but that there was a breach of the detailed assessment disclosure requirements and the success fee alone was irrecoverable.
The judge accepted the Defendant's submissions and disallowed the success fee.
If this decision were to be followed by other judges, a very large number of other cases would potentially be affected. A large number of “risk assessments” prepared in CCFA cases do not strictly follow the 3-stage process. Interestingly, there is a possible argument that the requirement to comply would have existed even if this was a fixed success fee case. The CCFA in place pre-dated the revocation of the Regulations (as most still do). There is nothing in CPD 32.5(1)(b) that disapplies the rule in fixed success fee cases. Although Lamont v Burton [2007] EWCA Civ 429 and Kilby v Gawith EWCA Civ 812 are authority for the proposition that the courts have no discretion as to whether to allow fixed success fees, does this extend as far as overriding the disclosure or notification requirements? If a party fails to comply with CPD 19.4(1), for example, surely they can't recover the success fee notwithstanding that it is a fixed fee case. Does this also apply to CPD 32.5(1)(b) in its current form?
In the same case, Counsel had entered into his CFA after liability had been admitted. The CFA did not put Counsel at risk in relation to Part 36 offers (despite his risk assessment being prepared on the mistaken basis that it did). Nevertheless, the fixed success fee figures had also been applied producing a claim for 100% as the matter proceeded to trial. The judge accepted that the success fee should be reduced to the 5% figure suggested in paragraph paragraph 24 of C v W [2008] EWCA Civ 1459.
Who says that legal costs isn't exciting?
Labels: CCFAs, CFAs, counsel's fees, detailed assessment, Gibbs Wyatt Stone
posted by Simon Gibbs at
5:46 AM
2 Comments:
This report isn't entirely accurate. The Court found that the risk assessment did not comply solely on the basis that it did not specify the prospects of success as a percentage. The Court did not hear detailed argument on the application of fixed success fees and made no such ruling as alleged here.
Further, no detailed arguments were made with regard to the level of success fee on the soliciotr's fees.
By
Anonymous, At
28 October, 2009 18:24
I wasn’t going to publish this comment, as I don’t like being contradicted. However, I’m assuming that Anonymous was present at the hearing and probably not a member of the public (for a wet Tuesday afternoon in Southampton there were surprisingly few members of the public present at the detailed assessment). Therefore, in the spirit on openness, I’ll let this one in. With only scribbled notes and no transcript of the decision it can sometimes be hard to be 100% sure exactly what the reasoning behind a decision was (if a transcript becomes available I’ll post it) and leaves scope for different interpretation.
I agree that the decision was based on the fact that the prospects of success had not been identified as a percentage (the s5(1)(a) requirement).
The Court clearly accepted that fixed success fees did not apply (or it would have applied them).
My note is that the judge also accepted that Atack v Lee was authority for the proposition that it is wrong to apply the new fixed success fee rules to cases falling under the old regime. Given Atack was a binding Court of Appeal authority it is hard to see how a different conclusion could have been reached. This was certainly the basis for not simply applying the fixed success fees to Counsel’s fees. Admittedly, given the solicitors’ success fee was disallowed on the basis of the technical breach, any comments made as to Atack would have been obiter.
It is quite true that the judge heard no arguments, and made no findings, on the question of what level of success fee would have been appropriate for the solicitors if there had not been the breach.
By
Simon Gibbs, At
28 October, 2009 19:51
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