Automatic 100% success fees banned

By on Apr 4, 2019 | 2 comments

For many years, a large number of personal injury solicitors have automatically charged their clients a 100% success fee regardless of the risks of the case.  This has been a standard business model for many firms, with the reasoning being that this will usually lead to an automatic 25% cut of the client’s general and existing financial damages (as a result of the cap on the level of success fee in personal injury claims) in addition to any costs recovered from the other side.

The Court of Appeal has now held, in the case of Herbert v H H Law Ltd [2019] EWCA Civ 527, that this will normally be inappropriate and that any success fee should reflect the actual risks in the case (here held to be 15% for a straightforward RTA) unless the client has given “informed consent”.

In terms of CFAs already entered into, this decision is likely to open the floodgates to solicitor/own client challenges.

Going forwards, it is likely to be an uphill struggle, when entering into new CFAs, to show that the average lay client has given informed consent to a success fee that does not fairly reflect the risks of the case.

For a detailed summary of this decision, see Robin Dunne’s, junior counsel for the respondents in the appeal, article.  This also deals with the important issue of whether an ATE premium is a disbursement that needs to be included within a statute bill.

    2 Comments

  1. I don’t agree with your last comment. There is no obligation for a success fee to reflect risk between solicitor and own client, so long as the client appreciates the basis on which it is set. Why can’t a solicitor say: “you have two options – win or lose payment, or no win-no fee payment; for no win-no fee, I require a premium of 100 per cent to act on those terms. This premium is not based on risk, it is simply the consideration I stipulate for the CFA terms which I am not otherwise willing to give”? If the client chooses the latter option, why should he be able to revisit that?

    I would also comment:

    (1) The whole notion that a success fee should only reflect the pure “burning cost” of risk, and should therefore be cost neutral across a solicitor’s book of cases, was always dubious, and should never have been accepted without challenge. It’s all very well to say that a solicitor who takes on 100 CFA cases on a 100% success fee will break even so long as she wins 50, which she will do on average (assuming 50/50 risk, else adjust figures as appropriate). But suppose he wins only 40? That is obviously a real possibility, as risk assessment is inherently uncertain. If this happens, she will not be able to pay her staff, and she goes bankrupt. That’s a risk that a solicitor who refuses CFA terms would not face. The solicitor taking on the CFA work ought to be able to charge a *premium* for this sort of risk. It is not enough to break even on a theoretical basis.

    (2) A lot of solicitors will now be regretting the standard Law Soc CFA that says “this is not a contentious business agreement”. If the CFA was a contentious business agreement, the ability of client’s to attack success fees retrospectively would now be reduced. Compare the HH case to the failure of the challenge to the success fee under a non-contentious business agreement in Bolt Burdon v Tariq.

    (3) The confirmation that an ATE premium is not a solicitor’s disbursement re-ignites an issue that the courts have always ducked: on what basis does the court purport to adjust the methodology of a policy if the substituted methodology could never have been obtained by the receiving party or her solicitor in the market? The court has no power to alter the policy itself. The court can only act if the client and solicitor took out an unreasonable policy. But how can the policy be unreasonable if there was not a better alternative that actually existed in the market?

    Ben Williams

    4th April 2019

    • Following Ben’s point 1), even if the success fee in an individual case could be accurately predicted and set based on risk in such a way that it would be cost neutral, the operation of the 25% cap in some cases would mean that it’s not even possible to theoretically break even.

      A nonny mouse

      5th April 2019

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