COSTS, CFA AND RETAINERS – UPDATES, CASES AND KEY
CFAs and Success Fees
There are now a number of new services advising clients to go back and check if their legal fees were charged correctly. A new breed of claim is from clients challenging success fees (especially in PI and clinical negligence litigation) under the Solicitors Act 1974 (section 70). This is causing a headache for the PI sector.
Solicitors in the PI and Clinical Negligence sector must be aware of these issues and plan accordingly. Contrary to popular belief there is no automatic right to charge the client the standard 25% deduction from damages under LASPO, and the success fee charged can be subject to an assessment. There may be a problem where Solicitors have charged a success fee of 25%, particularly on low value road traffic accidents, where no risk assessment was undertaken at the outset of the case.
The benefit for the lawyers running these cases to challenge success fees, is that often the loser pays the costs of the assessment and it may be only £500 or so that is challenged and it may make it uneconomical to fight. The costs of any assessment will be paid by the client unless the solicitor’s costs are reduced by more than one fifth in which case the solicitor will pay the client’s costs of the assessment process. This rule is subject to two exceptions: (i) where the assessment is on application by the solicitor and the paying party does not attend or (ii) where the court orders otherwise either as part of the order for the assessment or where the circumstances in section 70(10) apply.
CFAs and Risk Assessments
Herbert v HH Law Ltd  EWHC 580 (QB)
The client, who had been injured in a road traffic accident, had entered into a CFA with the firm which provided that, if successful, she was to pay its basic charges, disbursements, ATE premium and 100% success fee. The claim was submitted via the RTA portal and the client accepted a Pt 36 offer of £3,400 plus costs. From that sum, the firm deducted £1,178, comprising costs of £829 and an ATE premium of £349. The client then instructed her current solicitor (JG), which challenged the billed costs, contending, in particular, that the firm had not conducted a risk assessment justifying the 100% success fee.
A district judge had been right to reduce a solicitor’s success fee from 100% to 15%. The fact that the client had entered into a CFA which set out the success fee percentage did not mean that they had approved that percentage within the meaning of CPR r.46.9(3).
The court said in that case:-
‘15. I do not accept that any of those relevant factors are sufficient in addition to the circumstances of the case, the nature of the claim, and the evidence from the Claimant to justify an uplift of 100%. It is difficult to see in the circumstances of this case known to the solicitors at the time that the CFA was to be entered into that an uplift of much more than 12.5% could ever be justified. On the circumstances described by the client the facts of the case was straightforward, the nature of the injury was minor soft tissue damage and whiplash, there was no time off work, and it was likely this case would be settled for a modest amount in a short period of time.’ In the circumstances of the particular case, and allowing for the fact that the ‘modest’ disbursements were funded by the solicitors for a ‘fairly short’ period, the appropriate success fee was 15%, namely £276 plus VAT = £331.20.
Challenges are emerging to the success fees
A and M v Royal Mail Group  EW Misc B24 (CC)
The court refused an application for success fees and after the event insurance premiums to be paid out of damages obtained by children in a personal injuries settlement. The solicitors had failed to carry out a risk assessment of the prospects of winning and had failed to adequately advise the litigation friend about funding arrangements or why the funding model had been employed, or to give details of any agreed costs.
The Court said in that case:-
“In his final report Sir Rupert Jackson recommended that General Damages recovered in a case where a CFA was entered into after 1 April 2013 should be increased by 10% to compensate any Claimant for the additional irrecoverable expense of a success fee. Following the Court of Appeal decision in Simmons v Castle that enhancement has taken effect. The skeleton argument from Scott Rees in this case refers to the quote from the economic assessor to Sir Rupert Jackson’s Inquiry, Professor Paul Penn, that the increase in general damages will in the great majority of cases leave Claimant’s no worse off. That clearly demonstrates that it was not within the contemplation of either Sir Rupert Jackson or Professor Penn that the success fee would always be equivalent to 25% of the damages or indeed that that would be the norm. On the contrary it would appear that it was contemplated that the success fee would seldom be equivalent to 25% of the damages”
Risk Assessments – some tips
Some practical tips:-
Ensure each case has a risk assessment as to how the success fee was reached on each case. The risk assessment must be tailored to the facts.
Ensure the risk assessment is signed off by a senior lawyer and can be justified.
Even RTA cases should be subject to a risk assessment.
Consider whether on for example a passenger RTA needs to charge a success fee of 25%. Some Courts will only allow 5% see A & B -v- The Royal Mail Group 
If your firm is faced with a claim see section 70 – the powers are limited:-
“Where an application under subsection (2) is made by the party chargeable with the bill—
(a) after the expiration of 12 months from the delivery of the bill, or
(b) after a judgment has been obtained for the recovery of the costs covered by the bill, or (c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill.
no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit.” (emphasis added).
If the success fee changes, make sure the client is updated.
Make sure the basis and level of the success fee, is properly explained to the client at the outset of the case.
Also consider ATE on low value RTA cases – especially minor cases- is the premium reasonable as compared to the risk? The client must be advised.
QWOCS AND COSTS including disapplication of qwocs,
fundamental dishonesty, set off and exemptions
Pre-action disclosure applications are not protected by QOCS, nor are proceedings where a claimant has entered into a pre-commencement funding arrangement, which is defined in:-
A pre-commencement funding arrangement is-
(i) a funding arrangement as defined by rule 43.2(1)(k)(i) where……”
CPR 43.2(1)(k)(i) defines a funding arrangement as “an arrangement where a person has –
(i) entered into a conditional fee agreement or a collective conditional fee agreement which provides for a success fee…..”.
Important point – if you issue a PAD consider if you therefore need ATE to cover the risk of adverse costs. The default position in a PAD application is that the applicant pay the costs. Very important on non-fixed costs cases.
Exceptions to qualified one-way costs shifting where permission not required
44.15 Orders for costs made against the claimant may be enforced to the full extent of such orders without the permission of the court where the proceedings have been struck out on the grounds that –
(a) the claimant has disclosed no reasonable grounds for bringing the proceedings;
(b) the proceedings are an abuse of the court’s process; or
(c) the conduct of –
(i) the claimant; or
(ii) a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct, is likely to obstruct the just disposal of the proceedings.
Let’s look at some examples…
No Reasonable grounds for bringing proceedings
Some possible examples:-
C issues the claim without a valid cause of action.
C issues against the wrong Defendant.
C issues pleading the wrong cause of action.
NB important before issue :-
Check you have the correct Defendant.
Check you have pleaded the correct cause of action – on complex cases refer to Counsel.
Check you have a valid cause of action!
Abuse of process
The proceedings are issued with an incorrect issue fee i.e. deliberately underpaying the claim.
The claim has been issued a second time for the same cause of action after the first was struck out.
The claim is struck out for procedural irregularity such as failing to serve in time.
NB if the case is struck out, D will likely apply to disapply QWOCS.
Ensure extra attention of is paid to potential issues of strike out especially serving proceedings in time and issuing very near to limitation.
No ATE will likely cover such as costs order and will end up being borne by the firm.
QWOCS – some practical tips
Ensure the claimant is provided with a QWOCS warning at the outset in writing.
Repeat the warning at keys stages such as issuing proceedings, letter before action / CNF stages and witness evidence.
Makes sure the client understands how QWOCS operates.
QWOCs is not a free pass to issue poor cases.
Procedural compliance is very important.
Exceptions to qualified one-way costs shifting where permission required:-
(1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.
Claimant Lawyers have to be wary of the rules surrounding fundamental dishonesty. In the case of Gosling v Screwfix and Anr (unreported, 29 March 2014) at Cambridge County Court, HHJ Moloney QC ordered the claimant to pay the defendant’s costs of the action on an indemnity basis.
The Judge ruled that a personal injury claimant who exaggerated the extent of his ongoing symptoms should be denied the protection of qualified one-way costs shifting (QOCS) on the grounds that the claim was “fundamentally dishonest”.
In Bain v Zurich  the Court said:-
“What it comes to is this: what does fundamentally dishonest mean? It does not, in my judgment, cover situations where there is simply exaggeration or embellishment. It is not unknown for these courts to hear claimants who appear to have suffered injury but who, whether consciously or otherwise, overstate the extent of their injuries. Therefore, for example, commonly, a soft tissue injury of the neck or back may be said to be more severe than a court concludes it actually was. That would not be fundamentally dishonest. Equally, in the experience of these courts, from time to time, schedules of loss are presented which somewhat magnify the degree of disability, for example, exaggerating the need for help with gardening and DIY and claiming an excessive number of hours Again, generally speaking, I would not regard a schedule of loss, which rather exaggerates the claim for loss of services, to amount to being fundamentally dishonest.
Having said that, these cases are fact sensitive and there may be situations where if a claim is patently and obviously exaggerated, the sole purpose being to recover damages to which a claimant is not entitled, it may be that a judge concludes that that renders the claim fundamentally dishonest”
Qwocs and dishonesty – some tips
Ensure the client is given an FD warning at the outset and at various point in the case.
FD for qwocs exemption does not have to be pleaded, so be alive to the risks.
If the client is at risk of a finding of FD, clear and proper advice must be given.
The Court will be critical of a claimant whom runs a case where FD is found – especially where D has given an early warning they would be seeking such a finding.
If C seeks to discontinue do this as early as possible and not just before Trial. A Judge is more likely to allow C to find FD where C discontinues late in the day with no reason (where FD has been alleged).
QWOCS and multiple defendants
In Cartwright v Venduct Engineering Ltd  EWCA Civ 1654, the claimant issued proceedings against six named defendants for noise induced hearing loss (NIHL). The third defendant, Venduct, accepted that it was responsible for any liability that was established on the part of the first and second defendants.
The claimant then settled with the fourth, fifth and sixth defendants, who agreed to pay him £20,000. This was recorded in a Tomlin order. The claimant then served a notice of discontinuance in respect of the claim against Venduct.
Venduct sought its costs of £8,000 from the claimant; under the QOCS rule 44.14(1), a successful defendant can enforce a costs order up to the damages recovered by the claimant.
At first instance, Regional Costs Judge Hale in Nottingham held that the Tomlin order did not meet the requirement of the rule that such costs could only be paid from an “order for damages and interest. The schedule to a Tomlin order was not an order of the court”.
He also ruled that Venduct would have been entitled under rule 44.14, in principle, to enforce its costs order against the claimant, even though the source of the claimant’s funds was another defendant. The Court said:-
“For the reasons explained below, I consider that each of these ways of testing the underlying dispute between the parties about multi-defendant cases leads to the conclusion that the Costs Judge was correct when he concluded that Venduct were, in principle, entitled to enforce its costs order against the claimant, even though the source of the claimant’s funds was another defendant.
Let us assume that the claimant issued proceedings against two defendants, A and B, which went all the way to trial. The claimant recovered £100,000 against defendant A, but the claim against defendant B failed, leading B to incur £40,000 by way of costs. In circumstances where the claimant had freely sued B (so that a Bullock or Sanderson order was inappropriate), I can see no reason in principle why B should not recover the £40,000 from the £100,000 payable by A to the claimant.
The QOWCS regime is designed to ensure that a claimant does not incur a net liability as a result of his or her personal injury claim: that, at worst, he or she has broken even at the end of the action. In the example I have given, the QOWCS regime will have facilitated his recovery of £100,000 against A. But there is no reason why that regime should prevent B from recovering its costs out of the damages payable by A.
Any other result would give a claimant carte blanche to commence proceedings against as many defendants as he or she likes, requiring those defendants to run up large bills by way of costs, whilst remaining safe in the knowledge that, if the claim fails against all but one defendant, he or she will incur no costs liability of any kind to the successful defendants, despite the recovery of sums by way of damages from the unsuccessful defendant. That seems to me to be wrong in principle, because it would encourage the bringing of hopeless claims.
The wording of the rule is consistent with that approach. There is nothing in r.44.14(1) which suggests that the claimant’s fund (out of which the costs order will be met) is specific to the damages and interest payable by the defendant seeking to enforce the costs order, as opposed to the damages and interest payable by any other defendant. No such limitation can be discerned, and on the contrary, r.44.14(1) deals simply with orders for costs made against a claimant on the one hand, and orders for damages and interest made in favour of the claimant, on the other. The language is wide. It is clearly capable of embracing the situation in which defendant B has a claim for costs against the claimant which does not exceed the amount of the order for damages and interest made in favour of the claimant and payable by defendant A”.
Make sure that if you issue against multiple defendants there is a valid cause of action against each.
Speculative claims against more than one defendant may result in a costs order C has to pay from damages.
Before discontinuing seek no order as to costs or ask the Court to consider a Sanderson or Bullock order.
QWOCS and Discontinuing
WAYNE ROUSE v AVIVA INSURANCE LTD (2016)
The procedure to be adopted in conducting CPR r.44.16 applications where the case had been discontinued was a matter for the court’s discretion. There could be circumstances in which it was proportionate for there to be a trial to determine the issue of fundamental dishonesty. Where a claimant did not give evidence, or did not proffer any reason for the decision to discontinue, then the defendant could invite the court to draw an adverse inference.
Shaw v Medtronic Corevalve LLC & Others 
EWHC 1397 (QB)
The Fifth Defendant sought an order setting aside the Notice of Discontinuance, so as to allow the court to consider striking out the claim on the basis that the Claimant had no reasonable grounds for bringing the proceedings.
That would have the effect of bringing the matter back within the CPR 44.15(1)(a) exception to QOCS.
The judge refused, saying that:
“… the Claimant had a right to discontinue under CPR rule 38.2. It was a proper use of that power, and to be encouraged, for the Claimant to recognise … that her claim against the Fifth Defendant was not sustainable and to discontinue that claim (Paragraph 53).”
The court recognised that it had power under CPR 38.4 to set aside a Notice of Discontinuance and the authorities suggested that that should only be done if there had been an abuse of process in serving the Notice of Discontinuance. The rule itself is silent as to when the power should be exercised. The judge held that the facts here were not an abuse of process “or anything sufficient to justify setting aside the Notice of Discontinuance (Paragraph 58).”
QWOCS and set off
On a multiple claimant case, can damages of one claimant be set off against another where another C fails?
CPR 44.12 says:-
(1) Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either –
set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or
delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay
In Darini and another v Markerstudy Group
HHJ Dight considered this question. He held that CPR 44 Section II was a self-contained code and was to be contrasted to Section I of CPR 44, which necessarily created a different procedural environment for the costs of personal injury claims.
He concluded that, under the QOCS regime, a defendant can only enforce a costs order (which includes setting off of that costs order) in the manner indicated in CPR 44.14, 44.15 and 44.16, and that these rules limited the court’s discretion and the power to order set-off contained in CPR 44.12 in the context of QOCS. Because the circumstances in CPR 44.15 and CPR 44.16 were not in play, and the court was not seeking to set off costs against damages and interest, it had no power to order set-off.