Belsner & Karatysz – a warning for both solicitors and checkmylegalfees.com on low cost portal cases
The Court of Appeal decision in Belsner v Cam Legal Services  EWCA Civ 1387, would certainly be classed as a ‘win’ for the solicitor. However, there are still lessons to be learned and taken forward to protect solicitors from similar issues in the future.
The Belsner decision was followed by the further decision in Karatysz v SGI Legal LLP  EWCA Civ 1388 which again warned against seeking assessment of small bills. The two cases were heard consecutively by the same division of the Court of Appeal before Sir Geoffrey Vos, Master of the Rolls; Sir Julian Flaux, Chancellor of the High Court and Lord Justice Nugee.
In a nutshell, the decision in Belsner was that as the claim had settled at stage two of the RTA portal, it was a non contentious claim and thus the test in relation to the costs was whether they were fair and reasonable. They were found to be so, and the client was ordered to pay the £295.50 which had been reduced from the bill in the first instance. This is a significant win for solicitors facing these types of claim, of which there are many.
However, the Court of Appeal also took the opportunity to provide some significant, and at times scathing, commentary about the business models of firms such as checkmylegalfees.com and the way in which solicitors bill their clients.
The Master of the Rolls had this to say:
“Firms such as checkmylegalfees.com and their clients should be in no doubt that the courts will have no hesitation in depriving them of their costs under section 70(10) if they continue to bring trivial claims for the assessment of small bills to the High Court, even if those bills are reduced on the facts of the specific case by more than one fifth under section 70(9). The critical issue is and always will be whether it is proportionate to bring this kind of case to the High Court. In this case, it was not.”
However it was not just the claimant side at whom criticism was aimed. The practice of solicitors entering agreements where they would be able to charge significantly more than the claim, even if there would then make a discretionary reduction at the end, was described as ‘wholly unsatisfactory’.
They key element in the Karatysz Appeal was whether, for the purposes of the one fifth rule, the bill total was the total included in the bill, or the total sum demanded – even if some of that had been paid already. The Court of Appeal upheld Lavender J’s decision on first appeal that it was the total sum demanded. In this case that left the client liable for the full costs of the assessment and appeal process.
Again, the Court of Appeal took the opportunity to give a shot across the bows to firms whose business models were such that they were instigating High Court litigation to recover minimal amounts rather than seeking recourse through the Legal Ombusdman. These firms should be under no illusion that the courts would hesitate in depriving them of their fees if it was not proportionate to issue these cases for such minimal amounts of costs.
What have we learned?
Both Belsner and Karatysz mark significant victories for the solicitors and the criticism of firms with the checkmylegalfees.com model should bring an end to this practice of litigating over such minimal sums. However, that is not to say that there are not significant lessons to be learned by the solicitors as well.
The costs in Belsner were found to be non contentious costs and so the court did not consider the issue of informed consent. However the Court of Appeal still commented that they had not complied with SRA Code of Conduct and had not given the client the best possible information about their costs. The client had been told of the amount of likely damages and the amount of likely costs, what they had not been told, was that only £500 + VAT would have been recovered
from the defendant in relation to costs. Had the client been given this information, they would have been able to make an informed decision as to how, or whether, they wanted to proceed.
It is also not acceptable to simply send a gross sum bill of costs. In Karatysz, the Court of Appeal stated that bills should be broken down to show what is being claimed by way of profit costs, success fee, disbursements, and VAT. Further, the following information should have been provided:
(i) what sums have been paid, by whom, when and in what way (i.e. by direct payment or by deduction),
(ii) (ii) what sum the solicitor claims to be outstanding, and
(iii) (iii) what sum the solicitor is demanding that the client (or a third party) is required to pay
This is perhaps a good time to check not only your retainer, but also any bills which have been provided to your client, to ensure that they comply with these requirements.
More generally we can expect to see some changes to the rules surrounding these issues. The Court of Appeal commented that the distinction between contentious and non-contentious costs is ‘outdated and illogical’ and also that there is also no logical reason why costs in the portal should be considered differently to costs of proceedings issued in the County Court.
I deal with each of the individual cases in more detail below.
The first appeal
The claimant’s RTA claim settled at stage 2 of the protocol with £1916.98 to be paid in damages and £500 + VAT to be paid in costs, by the defendant. The solicitors retained the £500 + VAT payment and billed the claimant a success fee of £385.50, which had been deducted from the damages payment.
In the first instance, DJ Bellamy found that informed consent had not been given and limited the costs to £500 + VAT and a 15% success fee of £75 + VAT. At a further hearing, DJ Bellamy changed his view and found that the retainer had provided sufficient information to pass the bar of informed consent. He therefore allowed the charge of £385.50; though it should be noted that he arrived at this sum a in a different way.
On the first appeal, Lavender J allowed the client’s appeal, allowing the solicitors to charge only £500 + VAT and a 15% success fee (£75). The decision was based on the fact that the solicitors owed fiduciary duties to the claimant, and that they had breached that by not obtaining informed consent for the level of success fee which was charged. This negated the claim to fees under the retainer, save for the £500 + VAT paid by the defendant, and the modest success fee allowed. This decision was made on the basis that the retainer related to contentious business and so section 46.9(2) applied – requiring informed consent to the fees claimed.
The appeal to the Court of Appeal (Sir Geoffrey Vos, MR)
The issues to be addressed by the Court of Appeal were:
i. whether the agreement was a contentious or non-contentious business agreement as the claim was within the portal and proceedings had not been issued;
ii. whether informed consent was required;
iii. if informed consent was required, whether it was given by the client;
iv. whether the term allowing for payment over and above what could be recovered from the defendant was fair; and
v. the consequences of the above on the assessment of the solicitor’s costs
The Court of Appeal’s conclusions in relation to each of these issues were as follows:
i. The assessment of cost at the stage of the portal claim which had been reached, was that of a non contentious matter
ii. It was wrong to say that the solicitors owed the client a fiduciary duty in the negotiation of the retainer. Notably it was accepted that when negotiating a retainer, the client would not reasonably expect that the solicitor would not be acting in the client’s sole interests to the exclusion of their own
iii. Although the solicitors were not required to obtain informed consent they did not comply with the SRA Code of Conduct and should have given the client the best possible information about the overall costs and made sure that the client was in a position to make an informed decision about the case
iv. The terms of the retainer which allowed the solicitors to charge more than was recoverable from the defendant were not unfair
v. The assessment should be reconsidered under paragraph 3 of the Solicitors’ (Non-Contentious Business) Remuneration Order 2009 (the 2009 Order), which requires the Solicitors’ costs to be “fair and reasonable having regard to all the circumstances of the case”. In this case, the costs charged to the client were both fair and reasonable.
The Court then assessed the costs again in full. As the costs were non contentious, this was not done by way of a review of the individual items, but by an overall application of reasonableness and fairness. The total allowed was £821.25 + VAT, leaving a sum of £295.50 to be repaid by the client.
In coming to this decision the Court of Appeal provided comment on the business model of firms such as checkmylegalfees.com as well as the need for solicitors to comply with professional duties and beware of unfairly structuring retainers. It was commented that it was wholly unsatisfactory that solicitors should “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.”.
The business model of firms like checkmylegalfees.com, which instigate expensive High Court litigation, rather than querying the costs via the Legal Ombudsman, was found to be ‘unsatisfactory’.
This decision is shorter and addresses a more discrete point to that of Belsner. However, the Court of Appeal again made comment in relation to the use of the High Court for costly litigation in relation to small bills, as well as the way in which solicitors’ bills should be laid out.
The Court of Appeal dismissed an appeal against a decision in relation to the assessment of costs. The bill which was sent to the client detailed the total sum of £2731.90 for profit costs, disbursements and VAT. However this total did not actually appear anywhere on the bill and the final two lines detailed costs paid by the defendant’s insurer as £1116 and the total owed by the client as £455.50; totalling £1571.
The total amount of costs awarded was £1394. The application of the one fifth rule was such that if the bill was £2731.90, it had been reduced by 49% and so the solicitor would be liable for the costs.
On first instance, DJ Bellamy found that the amount of the bill was £2731.90. On the defendant’s appeal, Lavender J found that the amount of the bill was £1571.50, as this was the actual amount which was being demanded.
The Court of Appeal found that Lavender J had been correct in his decision and the bill total for the purposes of the one fifth rule was £1571.50. Accordingly the costs of the process were payable by the client.
As with Belsner, there was little to be gained by the client in this case. Initially she had gained just £177.50 plus the substantial legal fees which had been incurred. The decision in Belsner was referenced and criticism aimed at firms such as checkmylegalfees.com who brought expensive High Court litigation for the assessment of modest bills of costs.
In relation to the way in which the bill should be laid out, the Court of Appeal agreed with the client that certainty was needed, and bills should be properly drawn and broken down to provide the claimant with information as to “what parts of those charges are claimed by way of base costs, success fee (if any), and disbursements. The bill ought also to state clearly (i) what sums have been paid, by whom, when and in what way (i.e. by direct payment or by deduction), (ii) what sum the solicitor claims to be outstanding, and (iii) what sum the solicitor is demanding that the client (or a third party) is required to pay”.