An important update on solicitor-own client costs assessments before the 4-day weekend! This blog looks at the decision of Mr Justice Ritchie in Edwards v Slater and Gordon UK Ltd [2022] EWHC 1091 (QB).

Background

Edwards is one of 10 test Claimants (“the clients”)[1] who are challenging their former solicitors’ costs by way of a part 8 claim[2] leading to solicitor-own client costs assessments (‘SOCAs’).[3] This was an appeal from a number of case management decisions made by CJ Rowley (‘the Costs Judge’) where he:

(1) Allowed the clients’ application for disclosure of telephone calls to determine whether the Claimants gave their informed consent to the CFAs which they entered with Slater & Gordon.

(2)  Refused the solicitors’ application for security for costs or a stay;

(3) Refused the clients’ request, in the Raubenheimer group claim, to put Part 18 questions to the solicitors in relation to ‘secret commission allegations’ on ATE.

Mr Justice Ritchie dismissed the solicitors’ appeals on issues (1-3) and the Raubenheimer appeal on issue (4) was granted.[4] He did this having reminded himself at [30] that “Appeals from case management decisions have a high threshold test”.

What did the court decide?

Issue (1) – Audio Recording Disclosure & Informed Consent to the Retainer

The clients, in seeking to challenge the deductions made from their damages, asserted that the retainers were void, including, amongst others, due to breaches of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, the Unfair Trading Regulations 2008 and the Consumer Rights Act 2015. They also asserted that the CFAs were unclear regarding the deductions from their damages for unrecoverable costs. It is their case that the solicitors were not permitted to deduct any unrecovered costs from their damages due to a lack of “informed consent”.

Accordingly, the clients sought standard disclosure of the retainers and the audio recordings of the signing of the retainers and all other documents relating to the pleaded issues. They were sought pursuant to CPR 31, or alternatively pursuant to the Judge’s general case management powers. The Judge granted the disclosure.

At the root of the disclosure application appeal was the issue of whether in a part 8 SOCA the Cost Judge has power to order disclosure. Mr Justice Ritchie found that there was jurisdiction to order disclosure in Part 8 proceedings after considering the relevant sections of the Solicitors Act 1974 on SOCAs, the RTA portal and CPR Part 8, as well as the applicable case law. He pithily noted at [110] that “Procedure is the servant of justice, not the master” and that in Part 8 proceedings the court is prepared to deal with certain limited factual issues. He accordingly found that the Costs Judge’s decision was the correct one.

Issue (2) – Refusing to Grant Stay & Security for Costs

At the root of the solicitors’ appeals relating to the applications for a stay and for security for costs lay the issue of whether the retainer between CLL and each of the clients was an illegal/ unlawful/unregulated insurance contract and/or was champertous and whether CLL were impecunious.

Illegal Insurance Contract?

The Costs Judge ruled that the CLL CFA was a contract for legal services and the indemnity provision was peripheral. This was upheld on appeal, it was held that there was no illegal insurance contact as “there was no discernible premium paid by the [clients] to CLL” at [154]. Further, Ritchie J commented at [156] “It seems to me that the indemnity is more akin to a business expense used for marketing purposes than an insurance contract term. The evidence before the CJ was unopposed and to the effect that there was no ATE market for insuring ACOs in SOCAs. So CLL stepped up and took on the possible expense but not as an insurer, as a business person.”

Security for Costs & Champerty

The solicitors’ application for security for costs was against a third party: CLL, not against the clients themselves. The Costs Judge identified that the real issue was whether the CFA was champertous.  The Judge rejected the solicitors’ assertion that because, in the small minority of cases, where there was a no costs order, CLL could recover their hourly costs out of the sums recovered (capped at 20%), that recovery could be regarded as “taking a profit share from the proceedings”. He also ruled that mere recovery of costs in the SOCAs from the solicitors in a successful claim could not be regarded as a share in the clients’ winnings.

It was found by the Costs Judge that the CLL CFAs are such that CLL agreed to run the risk of a loss if the action in question failed, without enjoying any gain if the action succeeds. It was noted that no case was cited where such an agreement was held to be champertous.

Ritchie J commented at [196]: “I have considered the public interest in access to Justice for Claimants who feel aggrieved by deductions made from their damages by PI firms. I consider that it is in the public interest for claimants generally and these Claimants specifically to be enfranchised to test the way in which those fees were explained, charged, deducted and calculated.”

The solicitors’ submission that CLL was impecunious was rejected as their challenge to their listed £3 million of assets was unsupported by any evidence from a forensic accountant. It was upheld that there was no realistic evidence before the Costs Judge to found a finding of impecuniosity. Mr Justice Ritchie was also unimpressed with the solicitors arguing that part 31 of the CPR did not apply to part 8 claims but that part 25 of the CPR did apply such that costs should be ordered against the alleged third party funder: CLL.  

Accordingly, the decision not to grant a stay of proceedings or to order the clients to provide security for costs was upheld.

Issue (3) – Part 18 Requests in Relation to the ATE

At the root of the appeal over the part 18 request was the client’s (Raubenheimer’s) desire for answers from the solicitors as to the secret commissions allegedly paid by a certain ATE insurer (now in liquidation) as a result of the ATE policy taken out in his personal injury claim by the Defendant on his behalf. Accordingly, the client contended that the solicitors had, or at least appear to have, breached their fiduciary duty not to make a secret profit from their role as a fiduciary.

The Costs Judge at first instance held: “I reject the [client’s] clever, but ultimately faulted submission, that assessment of the ATE premium can occur in a SOCA through the back door route of it being listed in the Cash Account in the wrong sum and assessed there. A challenge to the quantum of the ATE premium is usually more of a Chancery matter…”

Mr Justice Ritchie overturned the decision on this issue by taking a pragmatic approach, holding at [223]:

“I do not consider that the right way to go forwards in these claims was or would be to require the Claimants to issue 150 or less part 7 claims relating to the alleged secret commissions. These commissions were very small sums. The issuing fees alone would be substantial. The better way for these issues to be dealt with would be to consider the correct Judge/transfer to the Chancery Division, at the next case management hearing after disclosure has been provided and the part 18 answers have been provided, certified by a statement of truth, and to determine the scope of the SOCA orders at the same time.”

Practice Points

• Ensure clients give informed consent – clauses in CFAs relating to deductions of unrecovered costs from damages should be very clearly spelled out and appropriately highlighted;
• Be prepared – more claims like these are likely to come, so get on the front foot;
• Arguments relating to champerty / illegality in most cases won’t be worth running;
• Look out for the Court of Appeal’s decision in Belsner v Cam Legal CA-2021-000398, to be heard on 11/12 July of this year, which will look at deductions of success fees and unrecovered costs from a client’s damages.

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This article is by Cressida Mawdesley – Thomas and was first published by Lexis®PSL on 27/05/2022

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[1]The other 140 cases are stayed pending the resolution of the lead claims. See paragraph [45] of the Judgment.

[2] Pursuant to CPR r.67.3 a claim for SOCA must be made under CPR part 8 (or in existing proceedings). See paragraph [103] of the Judgment.

[3] SOCAs are created pursuant to the Solicitors Act 1974. See paragraph [93] of the Judgment.

[4] See paragraph [224] of the Judgment.