Court of Appeal temporarily closes door on any argument that pre-action costs are contentious business

The Court of Appeal has allowed an appeal regarding the duties owed to a client by a solicitor when negotiating the terms of a retainer and has also made a determination as to the non-contentious nature of pre-issue conduct of claims.

Background

The defendant in Belsner v CAM Legal Services [2022] EWCA Civ 1387 had acted for the claimant in a personal injury RTA claim on a contingency fee agreement. The claim was intimated through the RTA Portal process and settled, without the need for proceedings, for just under £2,000.00 plus fixed recoverable costs and disbursements. In accordance with their contingency fee agreement, CAM deducted a sum of £385.50 from the damages, being within the cap of 25% of the recovered sum, as a contribution to their costs, with the balance paid to the claimant.

The claimant subsequently issued Part 8 proceedings, requesting a final statute bill from the defendant. The statute bill came to more than the level of damages. Although CAM had deducted only the £385.50, the claimant contended she had not provided informed consent and that her solicitors owed her a fiduciary duty, requiring that such consent was provided. The High Court agreed and required CAM to repay some £295 to the client.

Issues for consideration in the Court of Appeal

CAM appealed to the Court of Appeal on the questions of whether or not the claimant had given informed consent and what level of costs it was reasonable for the solicitors to charge in respect of their bill.

The appeal hearing commenced in February 2022, but was adjourned when Sir Geoffrey Vos MR queried whether section 74(3) of the Solicitors Act 1974 applies to the RTA Portal and whether pre-action work should be considered contentious business. S.74 relates to remuneration of a solicitor in respect of contentious business, and s.74(3) provides that the amount to be allowed between client and solicitor should not exceed the amount which could have been allowed between party and party.

Accordingly, if work undertaken within the RTA Portal were to be considered contentious, contingency fees for pre-action work would be unlawful.

In the past, pre-action work had always been considered non-contentious. This resulted in a widespread use of contingency fee agreements prior to the issue of proceedings, with conditional fee agreements being used only once proceedings were issued. This was, therefore, an issue the determination of which would be wide-reaching.

Accordingly, the February 2022 hearing was adjourned to allow preparation of this issue. The recent hearing, therefore, addressed two main questions:

1. Is pre-action work contentious or non-contentious business?
2. Do solicitors owe a fiduciary duty to the client when negotiating their retainer, and if so, had CAM discharged that duty?

Decision

Dealing firstly with the issue of contentious business and the relevance of s.74 of the 1974 Act, Sir Geoffrey found that, without a reform of legislation, business could not be held to be contentious in circumstances where court proceedings had not been issued. He referenced the long-held view that work undertaken pre-issue was not contentious and noted that nothing presented to the court by the claimant successfully established otherwise.

Turning to the issues in respect of which the appeal was initially brought, the Court of Appeal found that the solicitors owed the claimant no fiduciary duties during negotiation and agreement of the CFA. The court did agree that as a matter of ‘good professional practice’ the solicitors should have made the claimant aware of what she would recover if the claim settled within the RTA Portal. However, having found that s.74(3) did not apply to this case, the court focused its consideration of the solicitors’ costs on the question of reasonableness, with reference to the factors set out in paragraph 3 of the Solicitors’ (Non-Contentious Business) Remuneration Order 2009.

In this regard, Sir Geoffrey Vos MR found in favour of the solicitors, commenting:

“The question is only whether it was fair and reasonable in all the circumstances, having regard to the factors in the 2009 Order, for the Client to pay an additional £385.50 on top of what was recovered from the third party. I see no reason why she should not be required to do so.”

He continued:

‘The Solicitors capped their fees voluntarily at a fair and reasonable level after the event, even if they ought to have told the Client what she would recover by way of fixed costs in the RTA portal, and even if they ought to have agreed in advance when they entered into the CFA to the cap they later applied voluntarily.’

Accordingly, the appeal was allowed, the bill presented being found to be fair and reasonable. The Court of Appeal re-assessed the base costs and success fee payable as being £821.25 plus VAT (being £500.00 fixed costs plus £385.50, less VAT). The claimant was ordered to repay £295 to the solicitors.

Subsequent application

The impact of Belsner is already being felt, with a further Court of Appeal case already drawing from the points made. Karatysz v SGI Legal LLP [2022] EWCA Civ 1388 concerned liability for the costs of assessment under s.70(9) of the Solicitors Act 1974, which provides that the client must normally pay the costs of the assessment unless the bill is reduced by at least 20%. The question was whether, for these purposes, the calculation should be based on the amount actually charged to the client, or the amount that would have been due had the solicitors not agreed to cap the charge.

The appeal established that it is only the amount charged to the client that is relevant. This aside, the Court of Appeal reiterated sentiments expressed in Belsner to the effect that it is unsatisfactory for firms to bring claims in the High Court with a view to seeking trivial reductions to bills of costs. The proportionality of bringing such claims was questioned, with parties being encouraged to use the Legal Ombudsman scheme as ‘a cheaper and more effective method of querying solicitors’ bills in these circumstances’.

Comment

As has already been seen, Belsner had the potential to be an impactful case. Although the appeal was brought on an issue concerning solicitor-own client costs, it is the addition of the issue concerning the definition of contentious business which has attracted considerable attention to this matter.

It is of little surprise that Sir Geoffrey Vos MR came to the conclusion that pre-action work is not to be considered contentious, given that a finding otherwise would have gone against the long-standing position and would have had the effect of rendering thousands of contingency fee agreements unenforceable. However, despite coming to this conclusion, this does not mean the judiciary is content with the law as it stands. In concluding his ruling on this issue, the Master of the Rolls noted that the distinction between contentious and non-contentious is not “meaningful or logical” and is in “urgent need of legislative attention”.

>Following similar comments by the Supreme Court in Ho v Adelekun [2021] UKSC 43, concerning the suitability of Part 36 and Part 44.12 when dealing with QOCS and set off, it very much appears that the judiciary are in step with the need to update the law and procedure in this area, and there are significant changes coming down the line which will impact all areas of litigation. There are several live consultations on various litigation issues and, following the comments of the Master of the Rolls in this case, it would be of no surprise if a further consultation concerning the Solicitors Act 1974 and issues regarding retainers is published in the future.

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