A & M v Royal Mail Group – ATE premiums and success fees under CPR 21

By Maxine Best

A and M, aged 12 and 4 respectively, brought claims in damages for personal injuries and consequential losses sustained in a road traffic accident on the 31^st July 2013. Agreement was reached with the insurers for the Defendant for both general damages and special damages through the usual minor injury claim portal process. Naturally, that agreement was subject to the ultimate approval of the Court pursuant to Part 21 CPR. DJ Lumb at the County Court Sitting at Birmingham was able to provisionally approve awards of £2115 and £2065 respectively on 14^th August 2015. In addition, the Defendant agreed to pay the fixed recoverable costs calculated in accordance with CPR Part 45. The case had progressed in the standard way up until this point.

The issue arose when the Claimants’ solicitors applied to deduct the success fees and ATE insurance premiums from the children’s damages which are no longer recoverable from the other side. DJ Lumb used the judgment to provide assistance to other judges when dealing with these such applications in the new procedural climate.

The History: a brief reminder

Via Part 2 of LASPO 2012, section 44 and 46, the Jackson reforms altered the landscape in respect of Conditional Fee Agreement success fees and insurance premiums by way of costs by providing that neither were to be recoverable from the Defendant paying party. The only remaining recourse for these costs, then, was from the solicitor’s own client.

In cases where the adult in the proceedings is a Litigation Friend acting for a person who lacks capacity (in this instance by way of age), if it is proposed that those costs sought to be paid from the child’s damages then these fall to be approved under CPR 21.12. The test the court will apply is whether the costs have been reasonably incurred and are reasonable in amount, therefore justifying a deduction from the damages.

The Outcome

According to DJ Lumb, ATE insurance premiums cannot be considered to be a reasonable expense reasonably incurred for the purposes of CPR Part 21.12:

“The Jackson reforms introduced the concept of Qualified One Way Costs Shifting (QOCS). Under these provisions Claimants only became liable for Defendants’ costs in the event that a claim is lost in very limited circumstances. Essentially full QOCS protection would only be lost if the claim featured fundamental dishonesty by the client (highly unlikely if not impossible in the circumstances of the present case and in any event if present would provide a ground for the solicitors to be no longer bound by the CFA) and partial loss of QOCS protection would only apply up to the amount of damages recovered in the event of a Claimants failing to beat a CPR Part 36 offer. Again that does not arise in this case and even if it did would represent such a negligible risk that it would not be reasonable or proportionate to take out insurance to protect against it” [Paragraph 29].

It follows that any court taking guidance from DJ Lumb’s comments will not give its approval to the ATE premiums being deducted from the children’s damages.

The Claimant solicitors failed to comply with all the requirements of paragraphs 11.2 and 11.3 of CPR PD21 by failing to provide – or even complete – a risk assessment and failing to deal adequately or at all with the advice given to the Litigation Friend, explain why the funding model was employed or detail any agreed costs. In light of this DJ Lumb was prevented from dealing with the summary assessment of the success fee and concluded a detailed assessment was necessary.

Further Observations of note

DJ Lumb was concerned with the 100% specified success fee in the two CFAs, one each on behalf of A and M. He considered on the face of it, this was a high success fee on the facts of the case, and these facts would have been in the knowledge of the Claimant’s solicitors at the time the CFA was entered into.

Whilst the current legislation does not specifically refer to the requirement for a risk assessment, the Practice Direction refers to a risk assessment as a relevant document for consideration of an application for payment of expenses from the protected party’s funds. It is clear then, that the absence of specific reference to a risk assessment in the legislation itself does not mean the need for one is redundant – in fact it would at the very least be “highly desirable” [paragraph 33] if proposing deductions from a child’s damages.

Had a risk assessment been done in the index case, it would not have supported a 100% success fee; the outcome would have been a far lower percentage, or possibly nothing at all. Whilst, in DJ Lumb’s view, the court should not interfere with the contractual term by, for instance, substituting the success fee for a lower figure, there is the very real possibility a court will not be satisfied that a 100% success fee was an expense reasonably incurred and reasonable in amount for the purposes of CPR 21.12 given the absence of any justification for such a high rate.

 

[A, M (Both by their Father and Litigation Friend) v Royal Mail Group [2015] WL 4744967]