Cap on success fee in personal injury claims

It has generally been understood that Conditional Fee Agreements in relation to personal injury claims, in proceedings at first instance, must limit the success fee that can be charged to the client to 25% of (a) general damages for pain, suffering, and loss of amenity and (b) damages for pecuniary loss, other than future pecuniary loss, net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.

This is because of a combination of s58 of the Courts and Legal Services Act 1990:

“(4A) The additional conditions are applicable to a conditional fee agreement which—

(a) provides for a success fee, and

(b) relates to proceedings of a description specified by order made by the Lord Chancellor for the purposes of this subsection.

(4B) The additional conditions are that—

(a) the agreement must provide that the success fee is subject to a maximum limit,

(b) the maximum limit must be expressed as a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement,

(c) that percentage must not exceed the percentage specified by order made by the Lord Chancellor in relation to the proceedings or calculated in a manner so specified, and

(d) those descriptions of damages may only include descriptions of damages specified by order made by the Lord Chancellor in relation to the proceedings.”

and The Conditional Fee Agreements Order 2013:

“Specified proceedings

4. A claim for personal injuries shall be proceedings specified for the purpose of section 58(4A)(b) of the Act.

Amount of success fee in specified proceedings

5.(1) In relation to the proceedings specified in article 4, the percentage prescribed for the purposes of section 58(4B)(c) of the Act is—

(a) in proceedings at first instance, 25%; and

(b) in all other proceedings, 100%.

(2) The descriptions of damages specified for the purposes of section 58(4B)(d) of the Act are—

(a) general damages for pain, suffering, and loss of amenity; and

(b) damages for pecuniary loss, other than future pecuniary loss,

net of any sums recoverable by the Compensation Recovery Unit of the Department for Work and Pensions.”

However, there is an oddity here.

s58(4B)(b) refers to “damages awarded”. Surely this means where the court has “awarded” damages. It is difficult to see how this applies where the parties have compromised the claim.

I am not aware that the term “awarded” has any definition within the Act or more generally within the CPR.

It is worth looking at whether the CPR generally treats damages being awarded as being a distinct concept from damages being agreed.

CPR 21.12(7) and (8):

“(7) Subject to paragraph (7), where the claim is settled or compromised, or judgment is given, on terms that an amount not exceeding £5,000 is paid to the child or protected party, the total amount the litigation friend may recover under paragraph (1) must not exceed 25% of the sum so agreed or awarded, unless the court directs otherwise. Such total amount must not exceed 50% of the sum so agreed or awarded.

(8) The amount which the litigation friend may recover under paragraph (1) in respect of costs must not (in proceedings at first instance) exceed 25% of the amount of the sum agreed or awarded in respect of—

(a) general damages for pain, suffering and loss of amenity; and

(b) damages for past financial loss”

CPR 21.12(10):

“(10) A litigation friend must support a claim for payment from a fund of costs or expenses by filing a witness statement setting out, so far as applicable—

…

(h) an explanation of the amount agreed or awarded for—

(i) general damages for pain, suffering and loss of amenity; and

(ii) damages for past financial loss, net of any sums recoverable by the Compensation Recovery Unit or the Department for Work and Pensions.”

CPR 45.5(6):

“(6) In paragraph (4), ‘the allowable costs’—

(a) means—

(i) the applicable costs payable to the claimant in respect of whom the damages of highest value are agreed or awarded”

Table 12 in PD 45 refers to calculating the fixed recoverable costs by reference to a % of the “damages agreed or awarded”.

Looking back at the pre-Jackson costs provisions, CPR 45.18:

“(2) A party may apply for a percentage increase greater or less than that amount if –

(a) the parties agree damages of an amount greater than £500,000 or the court awards damages of an amount greater than £500,000;

…

(c) the parties agree damages of £500,000 or less and it is reasonable to expect that if the court had made an award of damages, it would have awarded damages greater than £500,000, disregarding any reduction the court may have made in respect of contributory negligence.”

The CPR therefore clearly treats agreed damages as being distinct to damages being awarded by the court (hence the need to refer to both “agreed or awarded” rather than just “awarded”.

Does the fact s58(4B)(b) only refers to “damages awarded” mean that there is no corresponding restriction where costs are agreed?

Most CFAs adopt the old Law Society’s Model Conditional Fee Agreement wording to deal with the s58(4B) requirement:

“There is a maximum limit on the amount of the success fee which we can recover from you.

That maximum limit is 25% of the total amount of any:

(i)            general damages for pain suffering and loss of amenity; and

(ii)           damages for pecuniary loss, other than future pecuniary loss;

which are awarded to you in the proceedings covered by this agreement. The maximum limit is applicable to these damages net of any sums recoverable by the Compensation Recovery Unit of the Department of Work and Pensions. The maximum limit is inclusive of any VAT which is chargeable.

However, this maximum limit applies only to a success fee for proceedings at first instance and not to a success fee on other proceedings (such as, for example, an appeal against a final judgment or order).”

If this wording is used in a CFA, does it amount to compliance with s58(4B) (at least in relation to proceedings at first instance) but nevertheless allow the solicitor to charge a success fee that is not capped by reference to damages if the matter settles by agreement?

I suspect that this is simply a drafting error in s58(4B)(b), but it would be interesting to see this fully argued.