My blogs of December 2020 and January 2021 discussed the decision of Lavender J in Belsner v Cam Legal Services. In brief, Ms Belsner had won her action for her injuries suffered in a road traffic accident (RTA), recovering damages of £1,916.98. The terms of her solicitor’s retainer set out in a conditional fee agreement (CFA), so the firm said, were that, on a win, a success fee could be deducted from those damages, in addition to an entitlement to keep the costs payable by her opponent in settlement of their charges.
Ms Belsner disagreed. She issued proceedings under the Solicitors Act 1974 (the Act) so that the court could check the reasonableness of the charges by detailed assessment. Her case before the district judge was that she had not given “informed consent“ to the terms of the retainer because the firm had failed to give her a complete explanation about how much she might be charged on a worst-case scenario. Her criticism also extended to the estimate she had been given. Her consent and approval, she said, had not been secured:
“…following a full and fair exposition of the factors relevant to it so that the applicants, lay persons as they are, can reasonably be bound by it.”
(See the judgment of Holland J in Macdougall v Boote Edgar Esterkin.)
The district judge had disagreed. In his view, such approval was not required where the solicitor relied on CPR 46.9(2) (see below) and the retainer documentation had been sufficiently clear that the client could be charged more than the costs recovered from the opposing party. However, his decision was overruled by Lavender J, who held that the solicitor was in a fiduciary position to the client, even before the retainer had been perfected, and since her solicitor had made insufficient disclosure to Ms Belsner, she was entitled to a refund of the success fee of £385.50 plus her costs (said to be £52,575.63!). The judgment is currently subject to a second appeal to the Court of Appeal, to be heard in February 2022, with, reputedly, hundreds of similar cases awaiting the outcome.
Now we have SGI Legal LLP v Karatysz.
SGI Legal LLP v Karatysz
The facts resemble those in Belsner. This was also a low value RTA claim funded by a CFA which provided for a success fee “set at 100% of our basic charges but will be capped at 25% of the damages you recover” and, at paragraph 16.4: “We must … give you the best information possible about the likely cost of your claim for damages”.
According to SGI, who acted for Mrs Karatysz, the firm had also sent her a client care booklet setting out that the hourly charging rate was £161 for a Grade D fee earner.
On 17 March 2017, the case had settled for £1,250 damages plus fixed costs of £1,116 (including VAT), being £900 base profit costs and £216 for a medical report. SGI kept back £455.50 from the damages covering the success fee of £312.50 (25% of basic charges) and an after the event (ATE) insurance premium of £143, and sent the balance of £794.50 to Mrs Karatysz.
Like Ms Belsner, Mrs Karatysz was dissatisfied with SGI’s charges. She, too, brought proceedings under the 1974 Act. The medical report and insurance premium were not in issue, and of SGI’s profit costs, Mrs Karatysz accepted that £278 could be deducted from the damages (being the ATE premium and a success fee of £135 based on 15% of damages of basic charges), meaning that the dispute was over just £177.50.
As was the case in Belsner, the detailed assessment before the district judge revolved round the issue of whether informed consent was required under CPR 46.9 before the client could be held to the terms of the firm’s retainer. The rule provides as follows:
“Basis of detailed assessment of solicitor and client
(2) ….costs are to be assessed on the indemnity basis but are to be presumed-
(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client
(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client
(c) to have been unreasonably incurred if-
(i)They are of an unusual nature or amount and;
(ii) The solicitor did not tell the client that as a result the costs might not be recovered from the other party.”
The district judge held that informed consent was required under CPR 46.9. None had been given. The rate of £161 was “unusual” for a Grade D fee earner and Mrs Karatysz had never provided her approval to it. A fair allowance for the work was nine hours, not the 11 hours claimed, and that would be at a “usual” rate for Grade D of £120, with the costs payable being limited to the fixed amount recovered from the opponent. It followed that the £177.50 was an overcharge and fell to be refunded.
The solicitors appealed to Lavender J. They said that the rate had been agreed. However, for a reason unknown, the client care booklet was never tendered in evidence: only the CFA had been before the court and that was silent on the point.
The consequence of that, Lavender J held, was that there had been no agreement about hourly rates, still less had the firm discharged its duty to provide an estimate of its likely costs as it should have done under paragraph 16.4 of the CFA. It followed that, insofar as CPR 46.9(3)(a) and (b) were concerned, as Mrs Karatysz had not consented to the hours worked nor to the hourly rate, the question of whether she had or had not given informed consent, had not arisen. Nor did the question of an estimate, since SGI had not even given an indication of the likely costs, despite the term in the CFA that it should do so.
As for CPR 46.9(c)(ii), the sub-section was concerned with what was said to the client about unusual costs not being recoverable from another party, not whether the client agreed with or approved of what they had been told. It followed that informed consent was irrelevant under that part of the rule and the district judge had been wrong to decide that the presumption under it had arisen. What he should have done was to have allowed nine hours at £120 per hour, rather than deciding that informed consent was needed and had been left wanting. He had not explained either, why, if the presumption applied, the recoverable costs were limited to those which SGI could get back from the losing party. What the judge should have decided was that there was nothing owing by the firm to Mrs Karatysz since SGI had been entitled to charge the £455.50 retained from her damages. It followed that no refund was due and the appeal by SGI had to succeed.
Comment
Given that Lavender J went the other way in the client’s favour in Belsner, how is it possible to reconcile the two judgments?
The answer, is with difficulty!
The lifeline for SGI was that the firm had never given Mrs Karatsyz an estimate or “worst case” scenario, so the issue about whether informed consent was required, had not arisen. That was critical in getting the solicitors home, whereas in Belsner, that had been the solicitor’s nemesis: the firm had given both. It had provided an estimate which was inaccurate and had supplied the client with certain scenario information, but in neither case had that been sufficient or adequate to enable the client to give informed consent to the retainer.
That may be thought odd. Taking it to a logical conclusion, it means that the solicitor who provides a paper forest’s worth of retainer information but does not explain it fully, is at risk of losing the success fee as in Belsner, whereas the solicitor who fails in the firm’s obligation to provide any estimate, fixed fee information, or details about the hourly expense rate, will keep the success fee because the need for informed consent does not arise, as in SGI. All of this gives credence to the view that the law has come to resemble an ass so far as solicitor/client retainers are concerned, and has descended into an interrogation verging upon the ridiculous, as these two cases involving such small sums and days of judicial time have demonstrated.
At the end of the day, the question should be asked whether cases like Belsner and Karatsyz involving little of money and differences of recollection on the facts, and being fought over years after the cause of action has arisen and been settled, are helping anyone except the lawyers involved in arguing them. Each will turn on its own facts: was informed consent required in the first place, and if it was, did the client give it based upon what he or she should have been told by the solicitor? All of this requires a minute analysis of the retainer documents which is wholly out of proportion to the amounts in issue and the legal expense involved in doing so.
It will be remembered that Jackson LJ invented a proportionality test which is now embodied in CPR 44.3(5), in order to prevent litigation costs spiralling out of control. More recently, the Sir Geoffrey Vos MR has extolled the virtues of mandatory mediation.
What better examples could there be than these small solicitor-client disputes as being suitable for a proportionate resolution, by limiting them to a fixed costs regime, with an obligation to try mediation before it is possible for the former client to have his or her “day in court” at a furiously argued, and potentially ruinous, detailed assessment? The legalistic pursuit of these types of case has questionable benefits and unpredictable outcomes as Belsner and Karatsyz have shown. It is to be hoped that if and when they reach the Court of Appeal (leave has been sought in Karatysz), a decision will be given which halts them in their tracks.
(Note: the judgment also addressed who should pay the costs of the proceedings under section 70(9) of the Solicitors Act 1974, which is beyond the scope of this blog.)
