Solicitors must explain the calculation of the success fee; ATE premium is not a disbursement
Herbert -v-HH Law Limited  EWCA Civ 527
Ms Herbert, a personal injury claimant, entered into a CFA with HH Law Limited (HH) which set the success fee at 100% of basic charges capped at 25% of damages. The claim settled. HH deducted 25% from damages (being the success fee) and deducted the ATE premium. Ms Herbert challenged, contending that HH had failed to conduct a risk assessment justifying the level of success fee.
The Court of Appeal considered three issues:
- Whether, in a CFA case which provides for a success fee, it is necessary to undertake a risk assessment and charge a success fee in line with the prospects of success;
- How closely a client will be held to the bargain they struck at the beginning of a case;
- Whether the ATE premium is a disbursement (such that it may be challenged through the mechanism of solicitor/own client assessment).
Success fees and risk assessments
The Court of Appeal found that, as a success fee is traditionally calculated by reference to the risks of the case, if a solicitor proposes to charge a success fee on a different basis, the solicitor must (1) explain why the success fee is calculated in that (different) way and (2) be clear that risk plays no part in the calculation. (3) The solicitor must tell the client that the success fee is not recoverable from the opponent and must be paid by the client. If a client is told these things it amounts to informed consent.
It is not necessary for a solicitor to undertake a risk assessment and/or charge a success fee in line with the resulting prospects of success, but the solicitor must explain the calculation of the success fee. Failure to do so will be key to determining whether any challenge to it will succeed.
The CPR sets out the basis of assessment of solicitor/own client costs. Solicitor’s costs are presumed (i) to have been reasonably incurred and (ii) to be reasonable in amount if expressly or impliedly approved by the client, and (iii) to be unreasonable if they are of an unusual nature or amount and the solicitor did not tell the client that, as a result, they might not be recovered from the other side.
In the present case it was accepted that an irrecoverable success fee could be costs of an “unusual nature or amount” but HH had made it clear in the retainer that the that the success fee could not be recovered from the other side. Therefore, the third presumption (above) did not apply.
The Court was required to determine whether the ATE premium was a solicitor’s disbursement or an item incurred by HH on behalf of, and as agent for, Ms Herbert. If the former, the premium could be challenged under section 70.
The Court found that the ATE premium was not a solicitor’s disbursement. Had the Court reached a different view, HH would have become effective guarantor of the premium which could have had a wide-ranging consequence for the profession.