Firms must deduct 50% from damages to survive fixed costs extension

A market expert has warned that firms may have to charge at least 50% of clients’ damages once proposals for fixed costs are introduced.

Nick McDonnell, director of costs practice Kain Knight, warned that curtailing recoverable costs will force more firms to make up any shortfall from their clients.

That could lead to further disputes and arguments of the kind that have repeatedly appeared in the courts in recent months, where clients try to claim back deductions on the basis they did not consent to such a large amount being taken by their advisers.

‘With the proposed extension to FRC, the between-the-parties contribution will be much lower than any conventional costs contribution and so naturally this will increase the solicitor/client shortfall even further which will usually be paid by way of a deduction from the client’s compensation’ said McDonnell.

‘Given this likely increase, it is not unreasonable to expect that it will become necessary for clients to have to pay up to, if not more than, 50% of any compensation they receive to cover the solicitor/client shortfall in respect of unrecovered profit costs and the irrecoverable success fee.’

McDonnell explained that the solicitor/client shortfall became stark following the reduction in fixed costs in 2013 for lower-value personal injury claims.

The result of this has been cases such as Edwards and Swann, where relatively new firms such as JG Solicitors and checkmylegalfees have handled – with varying degrees of success – claims by former personal injury clients trying to recover deductions. The most high-profile of these cases, which focuses on the issue of informed consent, is Belsner, which is due for a three-day hearing in the Court of Appeal next month.

McDonnell added: ‘For firms of solicitors, who are businesses, to remain profitable, they must continue to charge their client costs on a conventional basis and with success fees (to cover the costs of those cases that lose).

‘Furthermore, the costs of operating a law firm (along with the operation of most businesses) have increased due to the pressures on the economy. Therefore, it is expected that solicitors’ charges to their clients on the conventional basis will continue to increase, thereby driving up further the solicitor/client shortfall.’

The government has already confirmed it will introduce fixed recoverable costs for most civil cases worth up to £25,000 in the fast track. It will also expand the fast track to include ‘intermediate’ cases valued up to £100,000 – effectively extending fixed costs to ‘simpler’ cases up to that value.

Implementation is expected to be next April, with a sub-committee of the Civil Justice Council currently working on the details. The CJC is also consulting on all aspects of costs, including fixed recoverable costs, until 30 September. The consultation asks what are the wider implications of the changes to FRC for the rest of the civil justice system, rather than the extension itself which has already been consulted on.

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