The Court of Appeal (COA)’s unanimous judgment in Belsner v Cam Legal Services Limited  EWCA Civ 1387 (Belsner) (linked and heard alongside Karatysz v SGI Legal LLP  EWCA Civ 1388 (Karatysz)) was a resounding success for many in the Solicitors profession.
Shortly after being involved in a road traffic accident (RTA) and sustaining minor injuries, Ms Darya Belsner (Claimant) instructed Solicitors. The Solicitors sent their client terms of business and signed the Claimant up to a Conditional Fee Agreement (CFA) which:
- informed the Claimant that she may be liable to pay their fees in excess of those recovered from the Defendant;
- included an estimate of their likely costs in the sum of £2,500 plus VAT;
- detailed the Solicitor’s assumptions that the case would settle within the RTA portal; and
- included a success fee of 100% of the base charges (capped at 25% of the Claimant’s damages for pain, injury and loss of amenity).
The CFA did not provide information about fixed costs, nor did the Solicitors alert the Claimant that if the case settled within the RTA portal, she could only recover fixed costs (limited to £500 plus VAT) from the Defendant.
The Defendant admitted liability and damages were paid in the sum of £1,916.98 plus fixed costs of £500 plus VAT, plus disbursements. The Solicitors retained the fixed costs and paid the Claimant the damages less a success fee of £385.50 (£321.25 plus VAT).
The Claimant subsequently instructed new solicitors, checkmylegalfees.com (checkmylegalfees) to query the Solicitors’ charges and brought assessment proceedings in the High Court under section 70 of the Solicitors Act 1974 (SA 1974).
At first instance, DJ Bellamy held that the Solicitors were entitled to recover only the success fee of £385.50. On appeal to the High Court, Lavender J (Judge) allowed the appeal of Ms Belsner and permitted the Solicitors to charge only the base costs of £500 plus a success fee of £75. In this appeal, the Judge proceeded on the then undisputed basis that section 74(3) SA 1974 and the Civil Procedure Rules (CPR) Part 46.9(2) applied to RTA portal cases before proceedings were issued. The Judge also decided that the Solicitors were required to obtain the Claimant’s informed consent to charge more than the fixed costs, and this need for informed consent arose as a result of the fiduciary relationship between the client and Solicitor.
The Solicitors obtained second-tier permission to appeal to the Court of Appeal. The key question for the COA was whether the Judge was correct to decide that section 74(3) SA and CPR Part 46.9(2) applied to cases brought through the RTA portal, where no County Court proceedings were issued. The answer to that turned on whether claims made within the RTA portal were to be regarded as “non-contentious business” or “contentious business”.
In a lengthy judgment handed down by the Master of the Rolls, Sir Geoffrey Vos, and endorsed by the Chancellor of the High Court, Sir Julian Flaux and Lord Justice Nugee, the COA held that:
- costs of claims which settle at stage 1 or 2 are as it stands, non-contentious costs;
- section 74(3) SA1974 and CPR 46.9(2) do not apply at all to claims brought through the RTA portal without County Court proceedings being issued;
- no fiduciary duties are owed by a Solicitor when negotiating a CFA with a client;
- although the Solicitors were not obliged to obtain the Claimant’s informed consent to the terms of the CFA decided by the Judge, the Solicitors had failed to comply with the SRA Code of Conduct for Solicitors (the Code) in that they neither ensured that the client received the best possible information about the likely overall cost of the case, nor did they ensure that the client was in a position to make an informed decision about the case; and
- the term in the Solicitors’ retainer allowing them to charge the Claimant more than the costs recoverable from the Defendant was not unfair within the meaning of the Consumer Rights Act 2015 (CRA).
The COA reconsidered the assessment under paragraph 3 of the Solicitors’ (Non-Contentious Business) Remuneration Order 2009, which requires the Solicitors’ costs to be ‘fair and reasonable having regard to all the circumstances of the case’, and concluded the costs actually charged to the Claimant in this case were fair and reasonable.
What does the Judgment mean going forward?
1. Expect changes
Whilst the Belsner Judgment was a resounding win for Solicitors, it did highlight regulatory defects and emphasised the opinion held by many that the SA 1974 is not fit for purpose. In fact, the COA were extremely critical of the current law stating:
- the distinction between contentious and non-contentious costs was ‘outdated and illogical‘.
- it was not logical that section 74(3) SA 1974 and CPR 46.9(2) should apply to cases where proceedings are issued in the County Court but not to cases in the RTA or Whiplash portals.
Whether reform will come through changes to primary legislation, through secondary legislation (used to fill in the missing details of primary legislation), or through portal-specific rules, changes are to be expected.
2. Threat to business models
The Master of the Rolls was highly critical of Solicitors whose business models enable them to bring expensive High Court litigation to assess modest Solicitors’ bills. It was suggested that the Legal Ombudsman would be a cheaper and more effective way of challenging Solicitors’ bills. However, whether the Legal Ombudsman is a suitable alternative is yet to be determined.
3. Pay attention to your working practices
Following the Belsner Judgment there is a great deal Solicitors need to do, including but not limited to:
a. Always being mindful of the Code.
b. Always ensuring best advice is given including a best estimate of fees, a best estimate of what is expected to be recovered from the opponent and a brief explanation if hourly rates are more than the guideline hourly rates.
c. Always explaining to clients that until a claim is issued outside of the portal, the matter is non-contentious and therefore does not have the protections of section 74 (3) SA 1974.
d. Always thinking carefully before asking clients to sign retainers, especially if they allow for fees which the firm would not enforce in full or if enforced, would obliterate the client’s award for damages.
e. Ensuring yearly audits are carried out.
If you need any advice regarding the SRA Code of Conduct for Solicitors, please do not hesitate to contact a member of the employment team.