Success fees: a word of warning

Earlier this month, District Judge Lumb gave a judgment that will send shivers down the spine of any personal injury lawyers who are routinely charging 100% success fees, without risk assessments.

This particular case (A and M v Royal Mail Group [2015] EW Misc B24 (CC) (14 August 2015)) involved an infant claim, hence the need for judicial approval of the success fee, but there are lessons to be learned here for PI claims more broadly.

In a case involving two children who were victims in a road traffic accident, the claimant law firm charged a standard 100% success fee, to be capped at 25% of damages. The firm did not conduct a risk assessment of the case before setting the success fee.

In a strongly worded judgment, DJ Lumb was clearly unimpressed with this approach, and he made a number of comments intended to guide his judicial colleagues dealing with similar cases.

The judge noted - with disapproval - that ‘it seems it has now become commonplace for solicitors to enter conditional fee agreements with clients with a stated success fee of 100%, even though the prospects of the claim being successful are virtually certain’.

Of course, the law firm was not actually expecting to receive a 100% uplift – it would never get more than 25% from the damages pot, because of the statutory cap. But worryingly for solicitors, DJ Lumb considers that even 25% will be too high in many cases – citing one pre-Jackson case (Beal v Russell, 2011) in which the Senior Courts Costs Office assessed the appropriate level of success fee in a rear-end shunt at just 5%.

What really stuck in the judge’s craw, though, was the fact that the 100% success fee was simply applied without any risk assessment of the particular case.

It is easy to understand why firms are using a standard approach to success fees, in a field of work where fees have been slashed right down to the bone and commoditisation and uber-efficiency are the only way to make these claims economically viable.

But - as many PI lawyers have been saying since the reforms were introduced in 2013, and as DJ Lumb has now made clear - the risk assessment is simply not a part of the process that can be cut out.

In the context of infant claims, the judge said: ‘It is true that the current legislation does not specify a requirement for a risk assessment [but] the Practice Direction refers to the risk assessment as being one of the documents to be produced on an application for payment of expenses from the protected party’s funds. That requirement is not consistent with any argument that a risk assessment is now redundant.

‘Indeed, if solicitors/litigation friends wish to justify proposed deductions from a child’s damages as being reasonable, then a risk assessment would be at least highly desirable as evidence in support of their arguments. The very fact that it is mentioned as one of the documents to be produced may mean that it is, in effect, a requirement.’

It seems that a realistic risk assessment really must be carried out in every case, if law firms are to give themselves the best chance of recovering their success fee; not to mention protecting themselves from complaints to the regulator or from litigation - or indeed group litigation - brought by disgruntled clients.

But regardless of whether or not a risk assessment is carried out, in infant claims at least, judges seem pretty cool on the concept of lawyers’ charging success fees at all.

As part of its skeleton argument, the claimant firm in A and M v Royal Mail had suggested that firms would not be economically able to run claims for minors or protected parties without being able to deduct success fees from damages.

On this point, DJ Lumb was pretty damning: ‘The suggestion that solicitors would not undertake the work without the enhancement of a success fee in (at least in as much as it relates to simple and straightforward cases) is unfounded by the experience of the courts in dealing with the many thousands of these cases throughout the country,’ he said.

He added: ‘On the contrary, it seems there are many solicitors who are quite prepared to do the work without a success fee. There is no compulsion on solicitors to do the work. They may choose not to do so if it is uneconomic for their firm. Other firms will do that work instead.

‘No doubt any competent solicitor would advise a prospective litigation friend that other solicitors may be prepared to accept instructions without insisting upon a success fee. Such advice would surely form part of the professional requirements in the Solicitors Code of Conduct when discussing funding arrangements with a prospective client.’

Clearly some thought is needed in terms of how to fulfil that particular requirement properly, without driving the client away.

One final aspect of interest in this case was the judge’s decision not to allow the cost of the after-the-event insurance premium, on the basis that he considered this particular case to be such a 'slam dunk' that there was effectively no risk to insure against.

That is a wholly understandable approach for a judge deciding on one individual case, and whether the cost of an unnecessary premium should be taken from a child’s damages.

But it is potentially bad news for ATE insurers, and for PI firms that may have chosen to offer insurance across all their caseload, at relatively low cost. That model only works if insurers are given a true range of cases in their basket; they want the good ones as well as the bad.

Rachel Rothwell is editor of Litigation Funding magazine