Taking on a new client? How to make sure there is “informed consent” (Part 1)

That a firm of solicitors can go unpaid or earn less than it has billed for its work undertaken on behalf of a successful client, is nothing new. Since the passing of the Act for the Better Regulation of Attornies and Solicitors of 1729, which in its evolution, is now embodied in the Solicitors Act 1974, clients (or often ex-clients) benefit from special rights to ask the court to check whether bills they receive from their solicitors for professional services are fair and reasonable. There have been few alterations to the 1974 Act and its successors, although one change has been the deletion of the term “taxation” and its replacement by “assessment”, thereby removing the age old confusion that taxing costs under the Act had something to do with Her Majesty’s Revenue and Customs!

Perhaps because of this lack of updating, the 1974 Act has generated considerable business in the civil courts which shows no sign of abating. A glance at the notes in the White Book will reveal that much of the 1974 Act is still steeped in Victorian case law, which begs the question whether it is still fit for purpose in the 21st century. What is equally surprising is that there are also many modern authorities, since, in contrast to their solicitor forbears, firms now invariably have written retainers in which their terms of business are set out. That ought to have lessened the likelihood of costs disputes arising between clients and their solicitors.

If only that were true. Instead, such disputes, when they happen, are often bitter and deeply entrenched.

In fact, a written retainer is not mandatory: see Roth J’s judgment in Robinson v EMW Law LLP (at paragraph 22) for example, where the matter is one of extreme urgency so that the formalities are deferred, but where a written retainer is not obtained, there is no doubt who will lose out if there is a dispute.

In Griffiths v Evans, Lord Denning said:

“On the question of retainer, I would observe that where there is a difference between a solicitor and his client on it, the courts have said for the last 100 years or more that the word of the client is to be preferred to the word of the solicitor, or, at any rate more weight is to be given to it …. The reason is plain. It is because the client is ignorant and the solicitor is, or should be, learned. If the solicitor does not take the precaution of getting a written retainer, he has only himself to thank for being at variance with his client over it and must take the consequences.”

The default position, therefore, is that the solicitor should create a written retainer and since it is he or she who is expected to be learned in the law and writes the agreement, it might be thought that the cards will be stacked against the client when there is a dispute about fees. The reason is that today’s retainers are so detailed that they generally cover every legal nook and cranny, from who will handle the case, to rules about money laundering.

That ought to mean that in any later dispute, the solicitor is bound to win; after all, if the client receives at the outset a “client care” letter, the firm’s Terms of Business, a conditional fee agreement (CFA) where one is being used, and the Law Society’s conditions, the prospects of successfully challenging the bill must surely be limited?

Not so. Lavender J’s decision in Belsner v Cam Legal Services Ltd is testament to that, and reinforces the earlier judgment in Macdougall v Boote Edgar Esterkin that it is not enough for the client merely to say “I agree” to the terms: on the contrary, the client must also give “informed consent”. That means that where the solicitor wishes to rely on CPR 46.9(3), that…

“… 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 firm must in addition obtain the client’s informed consent to the contract of retainer based upon full disclosure of all that is relevant. Fail to do that and the solicitor will be unable to enforce some or all of its terms.

None of this was particularly important in cases funded by CFAs where the agreements were made before 1 April 2013. Until then, success fees and after the event (ATE) insurance premiums taken out to meet adverse costs on a loss were recoverable from losing parties. That changed in most types of litigation following new rules implemented to reflect recommendations made in Sir Rupert Jackson’s Report into the Costs of Civil Litigation. From then on, instead of clients having no interest in costs (because, win or lose, they never paid any), in CFAs made from 1 April 2013 onwards, the reverse was the case because the success fee became payable out of damages recovered, and not from the opponent.

There was a quid pro quo. In personal injury claims, general damages were increased by 10% as an offset and there was no longer any need for ATE insurance because of the introduction of qualified one-way costs shifting (QOCS) in section II of CPR 44. That meant that a losing claimant paid no costs unless there was fundamental dishonesty, or the claim had been struck out. However, the upshot has been that in most types of litigation funded by CFAs made from 1 April 2013 onwards, clients ironically now have much more to be concerned about (so far as the costs are concerned) if they win, than if they lose.

Ensuring that consent is informed: the facts in Belsner

How, then, does today’s solicitor ensure that, having cut down a small forest to provide the client with an Encyclopedia Brittanica sized contract of retainer, consent given to its contents is “informed”?

Back to Belsner for the answer.

The facts are almost standard in their simplicity. On 5 February 2016, Ms Belsner suffered cuts and bruises and a swelling to her right hand in a road accident. She instructed Cam to pursue a claim against the car driver in accordance with the Road Traffic Act Protocol in personal injury claims. Liability was admitted, so the insurers became liable to pay the Stage 1 fixed costs of £200 plus VAT. Medical reports were then obtained, and a Stage 2 Settlement Pack was sent to the driver’s insurers. Terms were agreed for the payment of damages of £1,916.98 plus Stage 2 costs of £300 plus VAT and disbursements of £1,237.20, so the total profit costs recovered were £500 plus VAT, in total £550.

The case was funded by a CFA. It provided for a success fee of 100% to be deducted from the damages at the end of the case which “cannot be more than 25% of your damages (inclusive of VAT)”. This was subject to a cap, in compliance with section 58(4B) of the Courts and Legal Services Act 1990 and Article 5 of the CFA Order 2013, of 25% of the total amount of any damages for pain, suffering and loss of amenity and damages for pecuniary loss, other than future pecuniary loss. Additionally, Ms Belsner was told that the basic charges (excluding disbursements) to settle most personal injury claims in a case such as hers were £2,500 but might be more if there were complex or legal issues. Overall, Ms Belsner was made aware in not less than nine places in the retainer documentation that she would be liable to pay some of the costs if (and only if) she won the case (see paragraph 72 of the judgment).

At the end of the case, Cam sent Ms Belsner £1,531.48 (being the damages of £1,916.98, less £385.50 for the success fee), and retained the fixed costs of £1,783.19 including VAT.

Ms Belsner applied for an assessment under section 70 of the 1974 Act, which was carried out by District Judge Bellamy.

He held that the rules of court permitted the allowance of a greater amount than would have been allowed on a between-the-parties assessment (thereby ousting section 74(3) of the 1974 Act, which prohibits such an allowance except where the rules of court allow), and that to read “informed consent” into CPR 46.9(3) into the rule was to place the burden on the solicitor too high where the retainer documentation was sufficiently clear.

The appeal

On appeal, Lavender J disagreed, holding that Ms Belsner had given consent but not informed consent to the deduction of any fees over and above the costs recoverable from the driver’s insurers. Accordingly, the success fee was not payable after all, and would need to be repaid together with her costs (estimated at £52,575.63, which, when Cam’s costs of £35,139.70 were added, amounted to over 225 times the sum originally in issue!).

What were Lavender J’s reasons for performing a volte face on the decision of DJ Bellamy? These will be looked at in Part 2.

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