These two appeals were concerned with the new arrangements for financing the cost of personal injuries litigation which came into effect last year. Legal aid is now no longer available for most litigation of this type. Instead, it is possible for a claimant to enter into a conditional fee agreement ("CFA") with his solicitor under which his solicitor will be entitled to no fees at all if the claim fails, but an agreed uplift on his fees (a "success fee") if the claim succeeds. "After the event" ("ATE") insurance is also now available, which covers the claimant's liability to pay the defendant's costs if his claim fails, and the claimant is now able to include the cost of the ATE premium in the costs he is entitled to recover from the defendant if his claim succeeds.
Ever since the changes were introduced there has been disagreement between claimants' solicitors and ATE insurers on the one hand and defendants' solicitors and accident liability insurers on the other hand on four main questions. The first of these questions relates to the time at which it is appropriate to enter into a CFA and take out an ATE policy. The second is the reasonableness of the success fees charged, particularly when a claim is quickly resolved without the need for court proceedings. The third is whether claimants are entitled to recover an ATE premium at all in these circumstances. The fourth relates to the reasonableness of the ATE premiums for which claimants are seeking reimbursement by defendants when their claims succeed. The Court of Appeal was told that there are now about 100,000 cases in which the parties, or the lower courts, are waiting for an authoritative decision by the Court of Appeal on these issues.
These two appeals were concerned with claims for personal injuries suffered in road traffic accidents which were settled quite quickly without any need to bring court proceedings. In one case a circuit judge had upheld a decision of a district judge allowing a success fee of 40%. In the other a circuit judge had reduced a claimed success fee of 30% to 20%. The Court of Appeal reduced the allowable success fee to 20% in the first case and dismissed the second appeal. A further issue in the first appeal related to the amount of the ATE premium. The Court of Appeal directed an inquiry by a costs judge on the reasonableness of premiums charged for this type of insurance, and will deliver a separate judgment on this question when it has received his report.
In the present judgment the Court of Appeal now gives the reasons for its decision, announced during the hearing last month, to the effect that ATE premiums are in principle recoverable as part of a claimant's costs even though his claim is quickly resolved without the need for proceedings (see paras 42-55). It also gives its reasons for holding that it is in principle permissible for a claimant to enter a CFA with a success fee and to take out ATE insurance when he first consults his solicitor, and before the solicitor writes a letter of claim and receives the prospective defendant's response (see paras 101-116).
On the reasonableness of success fees the Court of Appeal gives some general guidance in relation to modest and straightforward claims for compensation resulting from road traffic accidents. It suggests that where a CFA is agreed at the outset in such cases, 20% is the maximum uplift that can reasonably be agreed in such a case. It stresses that it will be desirable to review this conclusion once sufficient data becomes available to enable a fully informed assessment of the position to take place (see paras 101-105).
The court
also considers that it is open to a solicitor and his client to agree a two-stage
success fee at the outset of proceedings. By way of example, an uplift might
be agreed at 100%, subject to a reduction to a maximum of 5% should the claim
settle before the end of the period fixed by a pre-action protocol. Such an
uplift would more nearly reflect the risks of the individual case. The court
suggests that once the necessary data becomes available, consideration will
need to be given to the question whether the requirement to act reasonably mandates
the agreement of a two-stage success fee in a case where a CFA with a success
fee is agreed at the outset (see paras 106-115).
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Cases Cited:
Awwad v Geraghty & Co:
[5].
Pepper v Hart:
[48].
R v Legal Aid Board ex parte Duncan & Mackintosh:
[10].