In this article we attempt to set out some advice for solicitors representing Litigation Friends, when attempting to recover a success fee from a Protected Party following the successful conclusion of litigation.
It is CPR 21 that provides the conditions to be met.
Control of money recovered by or on behalf of a child or protected party
(1) Where in any proceedings –
(a) money is recovered by or on behalf of or for the benefit of a child or protected party; or
(b) money paid into court is accepted by or on behalf of a child or protected party,
the money will be dealt with in accordance with directions given by the court under this rule and not otherwise.
- Subject to paragraph (1A), in proceedings to which rule 21.11 applies, a litigation friend who incurs costs or expenses on behalf of a child or protected party in any proceedings is entitled on application to recover the amount paid or payable out of any money recovered or paid into court to the extent that it –
(a) has been reasonably incurred; and
(b) is reasonable in amount.
Accordingly, with regard to the recovery of a success fee from a Protected Party, as per CPR 21, such deductions can only be made from a Protected Party’s damages if approved by the Court. As per CPR 21.12 the Court is only permitted to allow payment out of damages to the extent that it has been reasonably incurred and is reasonable in amount. In deciding those issues, the Court will have regard to all circumstances as set out in Rule 44.4 (3).
The Practice Direction which supplements CPR 21 states that the Witness Statement in support of the Application must set out the nature and amount of costs or expense and the reason the costs or expenses were incurred. 11.3 goes on to state that the Witness Statement must include or be accompanied by: –
- The Conditional Fee Agreement.
- The risk assessment by reference to which the success fee was determined.
- Reasons why the particular funding model was selected.
- Advice given to the Litigation Friend in relation to the funding agreement.
- Details of any costs agreed, recovered or fixed costs recovered.
- Confirmation of amount of the sum agreed or awarded in respect 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.
The baseline position here is that the success fee can only be recovered if it is deemed to have been reasonably incurred and is reasonable. The level of the success fee therefore needs to be justifiable by reference to, among other things, the risk profile of the claim. As much information as possible needs to be provided to the Court with the Application and supporting documents.
It is advisable to take note of the most recent judgement on this point;
This case involved an infant claim, hence the need for judicial approval of the success fee. The Claimant law firm charged a standard 100% success fee, to be capped at 25% of damages. The firm did not conduct a risk assessment of the case before setting the success fee. The District Judge was clearly unimpressed with this approach and made a number of comments intended to guide his judicial colleagues dealing with similar cases.
In particular, of concern to the DJ was the fact that a 100% success fee was simply applied without any risk assessment of the particular case. In the context of Protected Party claims whilst it is true that current legislation does not specify a requirement for a risk assessment the Practice Direction refers to the risk assessment as being one of the documents to be produced;
“Indeed, if solicitors/litigation friends wish to justify proposed deductions from a child’s damages as being reasonable, then a risk assessment would be at least highly desirable as evidence in support of their arguments. The very fact that it is mentioned as one of the documents to be produced may mean that it is, in effect, a requirement.”
In A v Royal Mail Group the ATE premium was deemed to have been unreasonably incurred and the District Judge refused to approve the deduction from the damages award; the success fee was awarded at 10%. The judgments in A v Royal Mail Group are of course fact specific.
What amounts to being ‘reasonably incurred and reasonable in amount’ under CPR 21.12 will depend on the facts of any given case. These proceedings arose from very ordinary facts; namely that there were uncontroversial facts, in that the Defendant was at fault and the Claimants were innocent child passengers;
This was a different scenario to the context in which applications might be made, for example, in a catastrophic PI case involving many more risks for the Claimant’s legal representative.
Given the judgement in A v Royal Mail Group it seems that the courts appear reluctant to approve the payment of success fees to solicitors from the damages of protected parties. With that in mind, and on a practical basis, it is essential that the requirements of PD21 need to be complied with in Applications for deductions, to include inter alia, providing details of the risk assessment used to determine the success fee and the advice given by the Claimant lawyer to the Litigation Friend about the funding arrangements chosen. It is essential that there is full compliance in particular with regards to the risk assessment. It is also important not to lose sight of the base line position that a success fee can only be recovered if it is deemed to have been reasonably incurred and is reasonable. The level of the success fee therefore needs to be justifiable.
Careful consideration needs to be given by the solicitor preparing the Witness Statement in support of their application to ensure that all the elements referred to in 11.3 of the PD (above) have been covered and if there are any concessions that have to be made, they are clearly outlined and if necessary a reduction in the amount of the success fee the court is being asked to consider, is made. Better, we believe, to meet any likely difficulties envisaged, head on and deal with them in the witness statement.
Whilst it might be tempting to outline in the witness statement how a success fee also represents some recompense for the solicitor’s firm funding of disbursements and WIP during the lifetime of the case, we would sound a note of caution about doing this. Under the old pre-Jackson rules this element of the success fee was called the “postponement element” and was not recoverable between the parties. Although in this scenario, you are not now recovering from your opponent but your own client, the approach in A v Royal Mail Group of applying some of the principles of pre-Jackson success fee recovery could lead the Court wanting to discount some of what you the Litigation Friend’s solicitor, are seeking to recover, on a similar basis.