UK: Belsner v Cam Legal

The decisions in Belsner v Cam Legal and Karatysz v SGI were handed down today. Robin Dunne, who appeared for the Respondent in Belsner with PJ Kirby KC and for the Appellant in Karatysz v SGI considers the implications of the Belsner judgment.

The appeals in Belsner and Karatysz will no doubt generate a great deal of legal commentary. Many in the solicitors' profession, particularly those who handle large volume low value personal injury claims will no doubt rejoice at the decisions, both of which went in favour of the respective solicitors and against the clients. Consumers of legal services may well be dismayed at the judgments. Certainly, firms who specialise in challenging solicitors' bills in these cases will be concerned.

This article will look at the likely effect of the judgment in Belsner going forward. In particular, it will look at whether once the dust has settled, PI solicitors will still be as pleased with the decision as they first thought.

What was it all about?

In Belsner, the client was injured when she was involved in an RTA as a pillion passenger on a motorbike. The solicitors issued her claim on the MOJ portal and signed her up to a CFA. That CFA provided that the firm was able to claim costs from her over those which she might recover from the opponent (which would be fixed costs in this case per CPR r.45 ). However, it did not set out what those costs would be. The CFA did not cap her costs liability in any way (save as to the success fee which was subject to the usual statutory cap). The solicitors estimated that it would cost £2,500 plus vat for base costs to bring her claim to the point where most cases of this type settled. The fixed costs at the same point would be £500.

The success fee, in this passenger RTA, was set at 100%. The firm once challenged accepted a reduction of this uplift to 15%. They also chose, at their own discretion, to only claim from Ms. Belsner £500 plus vat in respect of base costs (namely the amount of fixed costs). However, they calculated their success fee on their "full" base costs figure of £2,171.90 plus VAT (capped at 25%). Thus, they sought the sum of £385.50 for their success fee. Had the success fee been calculated on the fixed costs figure it would have been £75.

The first assessment

The client issued an application for assessment of the base costs (including the success fee). They argued that per s.74(3) of the Solicitors Act 1974 and r.46.9(2) CPR the solicitors did not obtain informed consent to charge anything over the fixed costs, because they had not told the client what those costs would be.

s.74(3) reads as follows:

Rule 46.9(2) reads thus:

The District Judge found in favour of the client on a provisional determination by paper but found for the solicitor at an oral hearing. In essence, he held that per r.46.9(2) all that was required was a written agreement which allowed for the recovery of costs in excess of the fixed costs, and not informed consent.

The First Appeal

Lavender J overturned that decision. He found that the need for informed consent arose as a result of the fiduciary relationship between the client and solicitor. As a result, he found that there had been no informed consent to pay anything over and above the fixed costs.

The Second Appeal

On the appeal to the Court of Appeal the solicitors raised multiple arguments not taken before Lavender J. In particular, they argued that because s.74(3) was concerned only with contentious business where "proceedings" are issued in the county courts, it did not apply to MOJ portal claims which settle at stage one or two (which were to be considered non-contentious costs). They further argued that a solicitor owed no fiduciary duty to a client when negotiating their retainer.

The Court of Appeal decision

The court held that costs of claims which settle at stage one or two are as it stands, non-contentious costs. As a result, s.74(3) did not apply to this claim (and as a consequence neither did r.46.9(2) or the Consumer Rights A2015).

They further held that a solicitor does not owe a fiduciary duty to a client when negotiating their fees but stated that:

The costs were re-assessed on a summary basis as non-contentious costs.

The court's criticism of the present regime

It is important to note that the Master of the Rolls accepted all of the client's arguments as to the absurd and illogical state of the present position. He stated:

As can be seen, in the Master of the Rolls' view (with which the court agreed) the court found that:

• the distinction between continuous and non-contentious costs was illogical and was in urgent need of legislative attention;
• it was not logical that s.74(3) and r.46.9(2) should apply to cases issued in the county courts but not to portal claims;
• it was unsatisfactory that solicitors were signing their clients up to retainers which allowed them to charge greater than fixed costs and that a voluntary cap ex post facto did not alleviate this situation.

It is clear therefore that there will be significant pressure to bring portal claims of this type under the umbrella of s.74(3) but that will require amendments to the Solicitors Act.

Criticism of the Solicitors in Belsner

The Master of the Rolls found that CAM Legal had failed to comply with their professional duties under the Solicitors Code of Conduct by failing to provide the best information as to costs to the client at the outset of the claim. He commented:

"Had she also been told of the level of the fixed recoverable costs, she would have been able to compare the likely recoverable costs with the amount she was being asked to agree to pay the Solicitors. As the Client submitted to us, she would then have known that she was assuming a liability to pay the Solicitors five times the costs she would be getting back from the defendant" [84]

He went on to say:

Criticisms of the client's solicitor

The Master of the Rolls also stated that it was unsatisfactory that Checkmylegalfees (who acted for Ms. Belsner) had a business model which enabled it to bring High Court litigation to assess modest solicitor's bills. It was suggested by the court that the Legal Ombudsman would be a better and more effective way of challenging bills.

Assessment of the bill

Having found the costs were non-contentious the court re-assessed them afresh using the dual test of fairness and reasonableness (they had been assessed as contentious costs by the District Judge with no objection raised by the solicitors).

The Master of the Rolls conducted a summary assessment and stated that the proper question to ask was as follows:

In the circumstances of this case the Master of the Rolls found that profit costs of £500 were fair and reasonable as was the success fee amount claimed. There was therefore no reduction to the costs.

However, the Master of the Rolls made plain that he was not assessing the costs in the "traditional way" of assessing base costs and success fee. That is important because a costs judge would assess the base costs and then the success fee would be calculated by reference to that figure. Interestingly, that would result in the original figure allowed by the District Judge.

It may concern PI solicitors dealing with these cases that, while he made it very clear that he was not setting any rule for future cases and while his methodology was opaque, the amount of fair and reasonable profit costs in a case where a client had not been told of the amount of fixed costs was £500 (namely, the amount of those fixed costs).

Implications of the judgment

It seems clear that there will now be a concerted push to update the Solicitors Act. All sides agree that it is hopelessly out of date and requires urgent attention. It is interesting to note that, in the court's view, updating should have the effect of ensuring that MOJ portal claims are captured by s.74(3) and the outdated concepts of non-contentious and contentious costs should be revised.

Of more immediate importance to solicitors is the fact that MOJ portal claims which settle before stage three are now confirmed to be non-contentious costs. I would suggest that this would come as a surprise to many firms.

What practical effect does this have? As a starting point there will be technical issues to grapple with. Almost every firm in these low value case send gross sum bills, which it appears are impermissible in non-contentious work. Until the Non-Contentious Remuneration Order is revised, (which would not normally be retrospective) it seems clear that such bills would arguably not comply with the Act and would not start the timescales for assessment under s.70.

There will also be issues raised about retainers. The Law Society model CFA is clearly written to cover contentious costs. It states on its face that it is NOT a Contentious Business Agreement. Could it be argued that it is a Non-Contentious Business Agreement? Could other CFAs modelled upon but not precisely in the same form as the Law Society model also be susceptible to such an argument?

What of the advice solicitors have provided to clients in these cases? No firm will have told their client that they will not have the benefit of the statutory protection under s.74(3) until and unless the matter goes to stage three and proceedings are issued. Would this be considered unfair?

What of clients not being told that their costs at stage one and two will be assessed under different criteria than if stage three is reached. Would it be possible to say that this would be a breach of the professional obligation to provide the best information as to costs at the outset of the retainer?

Importantly, the effect of this judgment (the conclusion of which was supported by the Law Society) is to add an additional factor that the court will take into account on assessment. In contentious costs the court simply asks whether the costs are reasonable, having regard to any of the factors (implied approval) at r.46.9(3). In these cases, the court will consider reasonableness but will also be required to consider whether the costs are "fair."

Whether costs are fair will be a matter of discretion for the assessing judge. No doubt issues such as whether the client has been told of the amount of the fixed costs would be very carefully considered by the court when fairness is dealt with. However, there will be countless other arguments that could be raised by clients which raise issues of fairness of the costs in these cases.

There is no doubt that, for these cases, assessment as non-contentious costs both adds an important hurdle to overcome and also opens up arguments that would not be entertained on a contentious costs assessment. Time will tell whether this has a practical effect on the amounts that solicitors recover.

The comments of the court as to bringing of High Court proceedings to assess modest bills are obiter. They were no part of the grounds or list of issues in either Belsner or Karatysz. It is questionable whether many clients (or indeed solicitors) would agree that the Legal Ombudsman is a more effective way of bringing disputes about bills.

In any event, there are real questions as to (i) how the court can suggest that the Ombudsman is a more effective method of disputing bills when there was no evidence before the court as to the way in which these issues are dealt with by the Ombudsman (and no consideration of how that compares with the results clients might achieve via a s.70 assessment) and (ii) how these comments sit with a regime whereby a client has a statutory right to assessment of their fees by a judge (which has existed for hundreds of years and which remained unaltered when the Ombudsman was created).

In the Karatysz v SGI case (heard by the Court of Appeal directly after Belsner) the Master of the Rolls went further stating:

"Firms such as checkmylegalfees.com and their clients should be in no doubt that the courts will have no hesitation in depriving them of their costs under section 70(10) if they continue to bring trivial claims for the assessment of small bills to the High Court, even if those bills are reduced on the facts of the specific case by more than one fifth under section 70(9). The critical issue is and always will be whether it is proportionate to bring this kind of case to the High Court. In this case, it was not." [45]

Here it is unclear whether the Court has considered the effect of the fact that, by virtue of their judgment, these costs are non-contentious costs. Per s.69 of the Solicitors Act, if the costs are wholly non-contentious (as this decision confirms that MOJ portal costs which do not reach stage three are) then the client must issue any application for assessment in the High Court. There is no ability to issue in the county court (or anywhere else) because the county court do not have the powers under s.70-71 of the Act per s.69(3). This is so even if the bill is below £5,000- (as made clear by r.67.3.).

This comment appears to suggest an additional hurdle for clients to overcome before they can have any assessment of their solicitor's costs. If the costs are relatively modest (although they may not be modest in the context of the damages recovered) then if the court is right, the client would only be able to have an assessment if they were prepared to pay the costs of doing so. That would effectively end their ability to have a judge assess their solicitor's bill.

This is an issue that may well need to be determined in another case. However, on any initial view, the comments of the court are extremely concerning notwithstanding the fact that they are obiter.

Conclusion

PI solicitors who deal with these cases will of course be pleased that the appeal has been allowed. In my view, this is not the end of the skirmishes between solicitors and clients, which arise because of the Jackson Report and LASPO. It may be that the battles move to other areas, but the battles are likely to continue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.