The object of the fixed success fee scheme set out in CPR 45 Section III was to achieve certainty and avoid litigation over the amount of the success fee. Unfortunately (as some may have anticipated!) there are already issues in relation to when a 100% success fee may be allowed and when it may not. This article considers some of the issues that have already been explored as to when a 100% success fee may be recovered and when it may not.

Where liability is not disputed and the matter proceeds by way of disposal

This issue arises where there is no issue as to liability and judgment is entered and the matter listed for a disposal hearing pursuant to CPR 26PD.12. The question that was posed in the case of Watson –v- Gray, 8 February 2005, Unreported was whether a disposal hearing is a “trial” for the purposes of CPR 45. It may, prima facie, appear that CPR 45.15(6)(b) is clear in relation to this in stating that “a reference to a ‘trial’ is a reference to the final contested hearing or to the contested hearing of any issue ordered to be tried separately”. Nevertheless the question was conclusively dealt with by His Honour Judge Stewart QC in the case of Watson –v- Gray.

The case concerned a matter funded under a CFA which concluded at a disposal hearing. At first instance the Deputy District Judge awarded damages to the Claimant but only allowed a 25% success fee. The Deputy District Judge’s reasoning for this was that liability was never in issue and that the Deputy District Judge was not satisfied that “what is meant by a trial is a disposal hearing of this nature”. Upon that basis the Deputy District Judge was of the view that 100% success fee was too high and that 25% should be allowed.

The Claimant appealed upon the basis that the disposal was a final contested hearing and therefore 100% success fee was recoverable. The Defendant did not dispute that the disposal was a contested hearing but took issue with the word “final”. The Defendant’s submissions were rejected by His Honour Judge Stewart who confirmed that a disposal was a “final contested hearing” which actually put an end to the claim. Upon that basis it was a “trial” for the purpose of CPR 45 Section III and a 100% success fee was recoverable.

Where a claimant fails at trial to beat a Part 36 offer made by the defendant

It would seem logical that where a claimant has failed at trial to beat a Part 36 offer made by a defendant that the claimant should not recover a 100% success fee but should recover 12.5%. That is what would have been recoverable had the claimant accepted the offer of settlement as he should have done. The case of Lamont –v- Burton [2007] EWCA Civ 429 demonstrates that while the Court of Appeal agrees with this logic the CPR provides for 100% success fee in that circumstance. The facts of that case arose again out of a road traffic accident funded by a CFA where the issue of damages was concluded at a disposal hearing.

The Defendant had previously made a Part 36 offer of £1,800 on 16 August 2005 which was not accepted. At the disposal hearing on 13 September 2005 the Deputy District Judge awarded damages of £1,774.32. In light of the Part 36 offer the Deputy District Judge awarded the Claimant his costs up to 7 September 2005 and ordered the Claimant to pay the Defendant’s costs incurred since 8 September 2005. The Claimant’s costs were summarily assessed at £4,550.92. These included base costs of £1,573.20 with a success fee of 100%.

The Defendant appealed to His Honour Judge Tetlow on the basis that the District Judge was wrong to allow a success fee of 100% and should have exercised his discretion under CPR 44 to award a different percentage, namely 12.5%. This was because if the Claimant had accepted the Defendant’s Part 36 offer within the time for acceptance the claim would have concluded before trial so that the percentage increase for solicitors’ fees would have been 12.5%.

The Defendant was unsuccessful in his appeal before His Honour Judge Tetlow who agreed with Deputy District Judge Buckley and found that he was bound by the provisions of 45.16 to allow a success fee of 100%. His Honour Judge Tetlow analysed the provisions of CPR 44 and 45 and noted the mandatory nature of the obligation to award 100% success fee. He specifically noted the absence of the words “unless the court orders otherwise” in CPR 45.16 which words were present in CPR 45.15 and concluded that the rule was clear and mandatory.

Upon appeal to the Court of Appeal the Defendant argued that while the rule in CPR 45.16 was mandatory it was open to the Court to allow a different percentage by exercising the discretionary power conferred by rule 44.3. However the Court of Appeal did not accept this submission and found that while the Courts have a wide discretion under CPR 44.3 to make whatever costs order they consider appropriate that discretion does not extend to circumventing the mandatory provisions of CPR 45.

The Court of Appeal went on to say that it accepted that there may be strong policy reasons why a claimant who failed to better a Part 36 offer or payment should not be awarded a higher increase that he would have been awarded if he had accepted the offer. However there were still considerable incentive for a claimant to accept a good Part 36 offer or payment and policy reasons could not affect the clear meaning of CPR 44 and 45. The Court of Appeal accepted that the Part 36 issue was one of difficulty but held that the effect of the rules in their present form was clear and it would have to be a matter for the Rules Committee and the Civil Justice Council to consider whether to amend Part 45 to make special provision to deal with the Part 36 issue.

This case has conclusively decided the position under the current rules however it remains to be seen whether or not the Rules Committee will revisit the issue and amend CPR 45 to take account of Part 36 offers.

It seems that both claimant solicitors and defendant representatives need to be aware of this decision and its implications when considering and advising on negotiated settlements after the issue of proceedings.

The Court’s view of the purpose of the fixed success fee scheme

In the case of Lamont –v- Burton Dyson LJ stated:

“It is inherent in the scheme [under rule 45] that in some individual cases, the success fee will be unreasonably high and in others unreasonably low. But that is the price that has to be paid for achieving certainty and avoiding litigation over the amount of success fees. Rule 44 cannot be invoked to circumvent the careful structure of rule 45 and to undermine its objective of achieving certainty.”

This echoes the comments of His Honour Judge Stewart in the case of Watson referred to above at paragraphs 15 and 16 in which he states:

“The purpose to which I look when I construe these words, because I do not just construe them in a vacuum but in a modern purposive way, is that this is a regime where there will be swings and roundabouts for both sides, but by and large it is intended to be economical to take out a lot of unnecessary decision making to be fair to both sides overall, namely to claimants’ solicitors who have to speculate fees in relation to conditional fee agreements and to defendants’ insurers who have to pay uplifts where appropriate in certain circumstances….So the net result is that there are bound to be in individual cases circumstances where one might look at it and say the claimant solicitors have been fortunate there or they have been unfortunate there, but that is the rub of the green in something which has been the result of hard fought negotaiton and which is intended to have swings and roundabouts in it and where in circumstances such as the present the claimants may count themselves lucky and the defendants unlucky”.

What seems apparent is that the Courts are taking the view that the while under the fixed success fee scheme there may be certain circumstances where a success fee recovered is unduly high to relation the risk in an individual case that is the price that is paid for a simple, predictable scheme. This may be something that the Court considers when dealing with the next issue, upon which there is no case law as yet.

Where there is a settlement of damages and interest prior to the hearing but the issue of costs is decided by summary assessment at a final hearing

The situation sometimes arises where proceedings are issued for the recovery of damages and interest arising as a result of a road traffic accident or accident at work funded by a CFA and a hearing is listed to dispose of the matter. In the meantime the issues of damages and interest are resolved before the final hearing. This leaves the question of costs and it may be suggested that these are dealt with at the final hearing by way of summary assessment. In those circumstances is the claimant entitled to 100% success fee?

When looked at logically once damages and interest have been settled there is no outstanding risk to the claimant’s solicitors of failing to recover costs and it would seem illogical that simply by proceeding to an assessment of costs there should be an increase in the success fee from 12.5% to 100%. However, as we have seen from the cases above the Court’s accept that in some cases claimant solicitors may recover a success fee that is unduly high in the circumstance of a particular case.

This point is already being argued in the lower courts but no final decision has been made. The point being made by defendants is that CPR 45.16 provides for a 100% success fee where “the claim concludes at trial” and “a reference to a ‘trial’ is a reference to the final contested hearing or to the contested hearing of any issue ordered to be tried separately”. Where the Particulars of Claim plead only a claim for damages and interest “the claim” has not been concluded at trial but has been concluded by negotiated settlement. A claimant has no entitlement to costs until an order is made. The application for an order for costs and for costs to be assessed does not form part of the pleaded “claim” and therefore there is no entitlement to 100% success fee. Some of the analysis in making this issue goes to what is considered a “claim” under the CPR and where an entitlement to costs arises. Certainly where a claim for costs is not pleaded from the outset there may be some merit in the argument although it remains to be seen whether this will be accepted by the Courts. In the meantime defendant representatives may wish to keep their eyes out for cases where costs are not specifically pleaded and claimant solicitors may wish to ensure that they plead a claim for costs in all their Particulars of Claim!

Conclusion

The object of the fixed success fee scheme was to achieve certainty and avoid litigation over the amount of the success fee. The case law shows that the Court’s are attempting to uphold this principle and take a straightforward interpretation of the CPR. It would appear that all the possible arguments that can be run in relation to the interpretation of these rules have been run or are being run! No doubt eventually the situation will resolve and settle and costs arguments will move on to the next big thing. Nevertheless in the meantime both claimants and defendants need to bear in mind the cases set out above when negotiating settlements to make sure 100% is recovered where the rules allow for it.

Kirsty McKinlay
1 November 2007
Young Street Chambers

Kirsty McKinlay is a tenant at Young Street Chambers in Manchester specialising in the areas of personal injury, clinical negligence and costs.

Young Street Chambers civil clerks Paul Reeves and Rachel Campbell can be contacted by telephone on 0161 833 0489

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