We are again returning to the judgment of Cost Judge Rowley in  Perrett v Wolferstans LLP [2025] EWHC 68 (SCCO).  Here we examine the claimant’s (former client’s) arguments in relation to the deduction of costs breaching the Consumer Rights Act 2015 and/or a breach of the SRA Code of Conduct.  Neither argument assisted the claimant. However, as we shall see, there were grounds for criticism of the solicitor’s omissions in explaining the deduction from costs.

“I think there is little doubt that the defendant’s provision of information to the client falls below the “best information possible” approach of the Code of Conduct. A complete absence of any indication of the costs that were likely to be recovered is sufficient to draw that conclusion. The question then is what effect does any such breach have? In Belsner the Court of Appeal upheld the solicitors’ charges even though it found the Code of Conduct had been breached. The wording of the agreement here compares well with the wording found by the Court in Herbert to be a clear exposition of the arrangements. There is no open ended arrangement because the charges to the client are limited to 25% of the relevant damages. Therefore, even though it seems likely that there would almost always be a shortfall given the limited recoverable costs in portal cases, the arrangement here cannot be criticised in the same terms as the agreement in Belsner.”

The costs judge over your shoulder – deducting costs from the client’s damages:  Webinar 29th January 2025:  booking details available here.

This webinar looks at the regulations and case law relating to the deduction of costs from the client’s damages in a personal injury claim.

• When can a deduction from damages be made?
• Protection for the client
• What must be the client be told?
• What is meant be the client “agreeing” the costs
• What steps need to be taken if court approval is needed?
• How is a “success fee” justified?
• Avoiding difficulties and potential pitfalls
• Where do things go wrong?
• When can a client ask for the bill to be assessed?
• What must you tell the client about the costs budget?
• What are the implications of going outside the costs budget?

The webinar examines the key judgments on this topic and looks at those areas that have proven to be problematic and which have led to litigation and solicitor-own client disputes. It looks in detail at the Legal Ombudsman’s guidance on Good Costs Service and the steps that lawyers have to take to comply.

THE CASE

The defendant firm of solicitors had represented the claimant in a personal injury action, they acted under the terms of a Conditional Fee Agreement.  The case settled for just over £7,000. The defendant firm wrote explaining the terms of the offer, which set out the deductions that would be made.  The claimant issued proceedings seeking an assessment of the costs that the solicitors had deducted.  The claimant’s case was that he expected to receive the damage sum without deduction, except for the ATE premium.  There was a two day hearing on preliminary issues relating to costs (the deduction in question was around £2,000).

THE ARGUMENT UNDER THE CONSUMER RIGHTS ACT 2015

Consumer Rights Act 2015

1. 1. In the second point of dispute, the claimant’s argument in relation to Consumer Rights Act 2015 (“CRA”) is described as something of a fallback position depending upon the defendant’s argument. In essence, the point of dispute states that the agreement was in reality a DBA drafted in unenforceable terms. It goes on to say that if the defendant seeks to argue that the terms of the agreement remove it from the DBA regime, the court would be asked to consider the fairness of such terms under the CRA.

1. 1. I have already dealt with why I do not accept the claimant’s argument regarding the DBA and therefore, I need to consider the claimant’s CRA argument as a result.

1. 1. In the second point of dispute reference is made to section 62 which, in bullet point form records that:

• an unfair term consumer contract is not binding on the consumer

• the term is unfair to the detriment of the consumer as a result of some absence of good faith causing a significant imbalance in the parties’ respective rights and obligations

• whether a term is to be determined as fair takes into account the nature of the subject matter of the contract by reference to all the circumstances existing when the term was agreed.

1. 1. This argument was taken by the claimant in Belsner v Cam Legal Services [2022] EWCA Civ 1387. The claimant there submitted that seeking recovery of costs over and above the recoverable fixed costs created a significant imbalance as to costs to the claimant’s detriment. However the argument that the fixed costs were the maximum sum for the client to pay was reliant upon the operation of s74(3) Solicitors Act 1974 and which did not apply in that case. As such, the argument under the CRA added nothing to the claimant’s case. Section 74(3) only applies to contentious business and so it does not apply to this case either. As such, there is no need to consider this particular provision any further.

1. 1. In his oral submissions, Mr Carlisle referred to s50 CRA which says:

“(1) Every contract to supply a service is to be treated as including as a term of the contract anything that is said or written to the consumer, by or on behalf of the trader, about the trader or the service, if –

(a) it is taken into account by the consumer when deciding to enter into the contract, or

(b) it is taken into account by the consumer when making any decision about the service after entering into the contract.

(2) Anything taken into account by the consumer as mentioned in subsection (1)(a) or (b) is subject to –

(a) anything that qualified it and was said or written to the consumer by the trader on the same occasion, and

(b) any change to it that has been expressly agreed between the consumer and the trader (before entering into the contract or later).”

1. 1. The conversation between Mr Perrett and the receptionist was relied upon by Mr Carlisle as being taken into account by Mr Perrett when entering into the CFA. On the claimant’s case, that conversation altered the wording of the contract so that the claimant was to benefit from all of his costs being paid by the defendant. Therefore, by implication, if there was any shortfall in the recovery, that would be no concern of the claimant.

1. 1. Mr Carlisle relied upon the decision of Constable J in St James v Wilkin Chapman [2024] EWHC (KB) in this context. In that case, the Judge decided that the wording in the client care letter overrode the standard wording in the CFA so that the effect was that a CFA Lite was created and the client was not liable for any shortfall in the recovery of costs. The discussion alleged by the claimant in this case as to the mechanics of the CFA are said to have the same effect as the wording of the client care letter in St James.

1. 1. Whilst there is a superficial similarity between this case (as the claimant puts his case) and St James, there are some obvious differences. In St James, the conflicting documents were provided at the same time and the argument was largely about which of those documents had primacy. Here the conversation on which the claimant relies took place before the claimant was offered CFA terms and was sent the documentation. The wording of the documentation is not in doubt, it is simply whether the receptionist said anything to Mr Perrett about the service he would receive as a client which he took into account when deciding to enter into the contract.

1. 1. Mr Perrett’s evidence was that he was looking for a no win, no fee agreement and that was what he was ultimately offered by the terms of the CFA. It is not the case that the term “no win, no fee” generally connotes a CFA Lite arrangement where the solicitors will only charge whatever can be recovered from the opponent. To the extent that the service offered was simply described as a no win, no fee agreement, whether by the receptionist or indeed Ms Barton, such representations are not in my view ones which change the terms of the documentation signed by Mr Perrett.

1. 1. For this argument to have any weight, the claimant needs to establish that it was the receptionist who described the service in the manner set out in Mr Perrett’s witness statement. For the reasons I have already given, I do not accept that the receptionist said anything more than “that’s right” and that this was an answer to a general comment regarding no win, no fee agreements. On this basis, there is no term of the contract to be taken into account in the first place.

1. 1. But if I am wrong about the conversation between Mr Perrett and the receptionist, it seems to me that s 50(2)(b) provides a different obstacle for him to surmount. When the offers were being discussed in writing and, in Mr Perrett’s evidence in a telephone call with an unknown person, the deduction from the damages was expressly considered. The agreement to the deduction followed the terms of the contractual documentation signed by Mr Perrett. Therefore, if the written agreement was amended at the time of entering into it by the preceding conversation with the receptionist, Mr Perrett subsequently expressly agreed with the change to a deduction when providing written instructions regarding the offers made / accepted and on any clarificatory telephone call.

THE ARGUMENT IN RELATION TO THE SRA CODE OF CONDUCT

Failing to comply with the SRA Code of Conduct

1. 1. The second strand to Mr Carlisle’s criticisms of the defendant’s conduct in relation to the SRA Code of Conduct concerned the information provided by it in relation to the potential costs recovery in this case.

1. 1. The third point of dispute refers to the Court of Appeal’s decision in Belsner v Cam Legal Services Ltd [2022] EWCA Civ 1387 and, in particular, paragraphs 84 to 86. Immediately before those paragraphs, there is a discussion of the current SRA Standards and Regulations (i.e. not the version applicable in this case). Although those provisions are worded differently, they still involve giving clients information in a way they can understand and should amount to the best possible information about pricing and the likely overall costs of the matter. Paragraph 84 then says:

“In this case, the Client was given most of the information she needed to make those decisions, with the exception of one vital matter, namely the fixed recoverable costs that the defendant’s insurers would pay within the RTA portal. It would have been straightforward for the Solicitors to inform the Client of the level of the fixed recoverable costs that could be recovered at stages 1 and 2. The Client was told that the Solicitors estimated their base costs at £2,500 (net of VAT and disbursements), and that many such claims will settle within the RTA portal after production of medical evidence and financial losses. She was also given an estimate of £2,000 for her damages. Had she also been told of the level of the fixed recoverable costs, she would have been able to compare the likely recoverable costs with the amount she was being asked to agree to pay the Solicitors. As the Client submitted to us, she would then have known that she was assuming a liability to pay the Solicitors five times the cost she would be getting back from the defendant. I do not think that the Solicitors can be said to have complied with [the relevant provisions] of the Code without providing that information.

85. For these reasons, the Solicitors neither ensured that the Client received the best possible information about the likely overall cost of the case, nor did they ensure that she was in a position to make an informed decision about whether she needed the service they were offering on the terms they were suggesting.

86. In my judgment, it is wholly unsatisfactory for solicitors generally, and these Solicitors in particular, routinely to suggest that their clients agree to a costs regime that allows them to charge significantly more than the claim is known in advance to be likely to be worth. Solicitors do not resolve this unsatisfactory state of affairs by allowing a discretionary reduction of their charges after the case is settled.”

1. 1. The point of dispute goes on to say that a breach of the code is a serious matter and refers to the case of McDaniel & Co v Clarke (also referred to at paragraph 58 above).

1. 1. Mr Carlisle’s submissions described the evidence given in respect of the information provided to the claimant as there being “no explanation of anything.” This had resulted in the claimant losing his rights through a lack of understanding and being told the necessary information.

1. 1. This was a trenchant description of the evidence given by Ms Barton and the documents provided to the claimant but there is a good deal of force in that criticism. The only evidence in Ms Barton’s witness statement concerns a reference to the CFA and accompanying documentation which, as described above, indicate that part or all of the costs will be recovered from the defendant but does not give any indication of the extent of any shortfall.

1. 1. When giving oral evidence, Ms Barton was asked about an estimate of £2,000 contained within the letter of 9 January 2019 which included the CFA. The estimate related to initial investigations of the injury and suggested that if the matter went all the way to trial, the likely cost would be in the region of “£15,000 or more”. In July 2019, Ms Barton estimated that the overall costs of the claim would be around £5,000. That estimate was not altered in January 2020, July 2020 or February 2021. Those letters were described as being for information purposes only and Ms Barton indicated that the specific statement that no payment was being requested at that point was included as experience had shown that otherwise she would receive phone calls requiring reassurance. She accepted that the figure of £5,000 for base costs, disbursements and VAT was not out of the norm for a case of this type.

1. 1. Mr Carlisle questioned Ms Barton at some length regarding the figures put forward, especially in terms of the fixed recoverable costs that were likely to be obtained in a portal case. Whilst she accepted that she would not normally be able to recover all of the estimated £5,000 on a portal case which concluded at Stage 2, she did not accept that the figure was “abnormal” since it had happened to her on more than one occasion. Ms Barton did not accept either that the wording of the CFA was too general to provide the claimant with specific information about his case. She accepted that the agreement was used in all cases but considered that each client would view the wording based upon the circumstances of their own case. She agreed that a partial recovery of costs was the most likely outcome and that the client was not told this save for in the CFA itself. The client was not told at any point that he was moving from potentially recovering all the costs to one where he could not expect to do so.

1. 1. As with Mr Perrett, I accept entirely that Ms Barton was seeking to assist the court and that she gave her evidence honestly. It was clear that she considered any shortcomings that there may have been in providing the client with information was more than catered for by the overriding cap in the CFA which limited the costs recoverable from the client to 25% of the relevant damages.

1. 1. Mr Marven adopted the same argument in his submissions. He said that what mattered to the claimant was the bottom line and that the communications about the deductions were clear. It was the defendant’s primary case that the entire deduction of £1,500 claimed from Mr Perrett was justified by the success fee reflecting the risks of the case. Only if the court decided that the success fee was set at too high a percentage, would there be any need at all to justify the deduction from damages by reference to any shortfall in the profit costs. Therefore, unless the success fee was significantly reduced, the entire challenge regarding the supposed shortfall in costs was irrelevant.

1. 1. In support of this approach, Mr Marven referred to the Court of Appeal decision in Herbert v HH Law Limited [2019] EWCA Civ 527 and in particular paragraph 48:

“It is important to bear in mind that the complaint of Ms Herbert on this issue is not that she should have been sent a more detailed invoice or further invoices but that she did not give her informed consent to the charging of the success fee and its amount. There is no merit in that complaint (subject to the risk point addressed below) because all the information relating to its imposition and calculation and to her exposure to HH’s fees generally, in the circumstances which occurred, was clearly set out in the documentation with which she was provided before agreeing HH’s retainer. The retainer letter said that any contribution by her towards HH’s costs under the CFA would be limited to 25% or less of her recovered damages. It told who, within HH, would have the initial responsibility for dealing with the claim and the person having overall supervision for the claim. The CFA said that, if she won the claim, she would pay HH’s basic charges, their disbursements, success fee and the ATE premium. It said that HH would use their best endeavours to recover maximum costs from the defendant and their insurers. It set out the way the success fee would be calculated, and specified that there would be a cap of 25% of the elements of damages described. The “What you Need to Know” document also stated that, if HH won her claim, she would be liable to pay HH’s basic charges, their disbursements, the ATE insurance premium and a success fee, and that a contribution towards her costs liability would be limited to up to 25% of the damages she obtained. That document also set out how the basic charges were calculated, and the hourly rate to be charged, and the imposition of VAT. Subject to the point on litigation risk and the success fee, the totality of that information provided a clear and comprehensive account of her exposure to the success fee and HH’s fees generally.”

1. 1. Mr Marven relied upon this passage as being authority for the extent of the description of the claimant’s liability generally for solicitors’ costs and not simply the success fee, albeit that in Herbert the level of the success fee was the central question. Mr Marven equated the information provided in this case with that provided by the solicitors in Herbert.

1. 1. I think there is little doubt that the defendant’s provision of information to the client falls below the “best information possible” approach of the Code of Conduct. A complete absence of any indication of the costs that were likely to be recovered is sufficient to draw that conclusion. The question then is what effect does any such breach have? In Belsner the Court of Appeal upheld the solicitors’ charges even though it found the Code of Conduct had been breached. The wording of the agreement here compares well with the wording found by the Court in Herbert to be a clear exposition of the arrangements. There is no open ended arrangement because the charges to the client are limited to 25% of the relevant damages. Therefore, even though it seems likely that there would almost always be a shortfall given the limited recoverable costs in portal cases, the arrangement here cannot be criticised in the same terms as the agreement in Belsner.

1. The matters raised by the claimant are not ones which are directly causative of any loss. Instead, they are context for the submissions regarding the agreement being a DBA in reality (which I have dismissed) and /or that the agreement is not fair and reasonable when assessed as non-contentious business (see below).