Putting it simply, work done on any non-litigation matter is non-contentious business and work done on litigation matters is contentious, as the names suggest. However, that is too simple.
Work done on potential litigation is non-contentious until proceedings are commenced, and at the point of issue, all the work becomes contentious, including the pre-issue work which retrospectively becomes contentious.
That is not as daft as it sounds as it enables parties to settle pre-issue at any time, but once the matter is issued and before the court, the control of all matters, including pre-issue costs and conduct, such as whether the pre-action protocols have been complied with, is within the court’s jurisdiction.
Even where proceedings are never issued, the Civil Procedure Rules dealing with litigation do have effect in several areas.
As well as the pre-action protocols, CPR 36.7(1) specifically provides that:
“A Part 36 offer may be made at any time, including before the commencement of proceedings.”
Until relatively recently, there was no problem about what the commencement of proceedings meant, but that all changed with the introduction of the portal system in most personal injury cases, that is a system which provides for detailed rules, and fixed recoverable costs, and has within it a provision, at Stage 3, for the matter to go before a judge and for a court fee to be paid.
For a decade now there has been debate as to whether proceedings are commenced when a Claim Notification Form is put on the portal, or at Stage 3 when a court fee is paid and the matter can go before a judge or only once Part 7 or Part 8 proceedings are issued in the County Court.
A particular issue is section 74(3) of the Solicitors Act 1974, and the associated Civil Procedure Rule 46.9(2) which regulate contentious business done in County Courts.
Section 74(3) reads:
“(3) The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.”
Paragraph 74(1) of that Act refers to the “remuneration of a solicitor in respect of contentious business done by him in the County Court.”
CPR 46.9(2) states that Section 74(3) applies “unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.”
This is a crucial provision as it means that, unless the solicitor and client have such written agreement, then the solicitor is limited to the costs recovered from the other side, and in most personal injury cases now that figure is almost nothing, as they fall within the small claims track.
Even before the introduction of the Whiplash Tariff, and the combined increase in the Small Claims Limit in Road Traffic Accident matters from £1,000 to £5,000, this was a key issue.
Clearly, the Act and the Rule apply once substantive proceedings are issued, and although only Fixed Recoverable Costs may be claimed from the other side, they are more generous than fixed costs within the portal system.
This was a key aspect of the Court of Appeal’s decision in Belsner v Cam Legal Services [2022] EWCA Civ 1387.
The High Court had held that portal business was contentious business and thus the Act and the Rule applied, but the Court of Appeal overturned that decision, holding that portal matters did not count as issued proceedings.
However, the Court of Appeal said that the current state of the law is unsatisfactory and that the distinction between contentious and non-contentious costs is “outdated and illogical. It is in urgent need of legislative attention” adding that there was no logical reason why Section 74(3) and CPR 46.9(2) should not apply to cases in the pre-action portal.
It said that it was illogical that, whilst the distinction between contentious and non-contentious survives, the CPR should make mandatory costs and other provisions for the pre-action online portals, specifically Part 36 and Practice Direction 8B, but otherwise deal only with matters once proceedings have been issued.
Section 24 of the Judicial Review on Courts Act 2022 will allow the new Online Procedure Rules Committee to make rules that affect claims in the online portals and the Court of Appeal said it would be coherent for them to make all the rules of the online pre-action portals as well as for claims progressed online.
As a result of those comments, at Paragraph 15 of the Judgment, the Civil Justice Council reopened its consultation in relation to contentious business and non-contentious business, where it had been considering these issues in any event.
It is not just in recoverable costs and informed consent that the distinction between contentious business and non-contentious business is important.
There are different rules concerning funding.
In non-contentious work, Contingency Fee Agreements are allowed, whereas they are not permitted in contentious work.
That is by virtue of Section 57(2) of the Solicitors Act 1974 which provides that in non-contentious business, the agreement may provide for the remuneration of the solicitor by a gross sum, or by reference to an hourly rate or by a commission, or percentage, or by a salary or otherwise…(emphasis added in bold).
In Section 59 of the Act, dealing with contentious business, the words “a commission or percentage” are missing.
Thus, pre-issue work, including portal work, being non-contentious, can be done on a straight contingency fee basis, and if settled pre-issue, that is that. As we have seen, the solicitor is not limited to what can be recovered from the other side, even in the absence of a written agreement.
The problem arises if the matter becomes issued, and retrospectively the pre-issue work, which was non-contentious, becomes contentious.
This problem is solved by utilising the Underwoods Method, that is:
- a Pre-Issue Contingency Fee Agreement;
- a Bridging Agreement; and
- a Conditional Fee Agreement retrospective to the beginning of the case, should the matter become issued.
Conditional Fee Agreements, which are allowed in contentious work, are a form of contingency fee in that it is allowed to charge no fee on defeat, but it is not possible to charge a straight percentage.
If the Underwoods Method is utilised, then because it envisages proceedings being issued, and the work becoming contentious, it is necessary to satisfy the provisions of Section 74(3) of the Solicitors Act and CPR 46.9(2).
Damages-based Agreements are allowed in litigation but heavily limit recovery from the other side and are rarely used outside the field of Employment Tribunal, or potential Employment Tribunal matters where they are compulsory if working on a contingency fee basis.
As there is generally no recovery from the other side in such work, the limitation on recovery of costs from the other side is not relevant.
Note that the words “or by reference to an hourly rate” in the Solicitors Act, both in relation to non-contentious and contentious work, were inserted only in 1990 by the Courts and Legal Services Act 1990.
There was no statutory recognition of charging by the hour before that – happy days which I remember well.
My view, very much in line with the Court of Appeal, is that the distinction between contentious business and non-contentious business serves no purpose now.
