Belsner judgment: costs ruling ‘a victory for legal profession’

The Court of Appeal has handed down its judgment in CAM Legal Services Ltd v Belsner [2022] EWCA Civ 1387, in what has been described as the “costs case of the decade” according to CAM Legal Services’ legal representatives, Kain Knight Costs Lawyers.

CAM Legal Services were represented by Ben Williams KC and George McDonald of 4 New Square, Kain Knight director and costs lawyer, Nick McDonnell, and Kain Knight technical manager, Ged Courtney.

The case centred around a success fee of £385.50 charged by CAM Legal services to its former client, Darya Belsner.

Belsner launched a claim against her former advisors, represented by checkmylegalfees.com, in respect of the amount of success fee had been charged by the solicitors.

At first instance, the district judge ruled the solicitors were entitled to charge Belsner the success fee of £385.50. However, at first appeal, Lavender J overturned this decision and permitted the solicitors to charge only the fixed base profit costs of £500 that had been recovered from the insurers for the defendant in the substantive road traffic accident (RTA) claim, plus a success fee of £75 plus VAT.

Lavender J had proceeded on the basis section 74(3) of the Solicitors Act 1974 and CPR Part 46.9(2) applied to RTA portal cases before proceedings were issued.

Section 74(3) (‘special provisions as to contentious business done in county courts’) provides:

“[t]he amount which may be allowed on the assessment of any costs … in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and … counterclaim”.

CPR Part 46.9(2) provides an exception to this rule:

“[s]ection 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings”.

Lavender J, in the first appeal, decided the solicitors were required to obtain the client’s ‘informed consent’ to charge more than the fixed costs recovered from the insurers for the defendant to the RTA claim. Effectively, the client had to agree to greater charges under CPR Part 46.9(2), and an agreement whose performance would involve a breach of fiduciary duty would not satisfy that provision. A solicitor, as a fiduciary, could not receive a profit from their client without their client’s fully informed consent.

The question before the Court of Appeal was whether Lavender J was right to assume section 74(3) and CPR Part 46.9(2) applied to cases brought through the RTA portal, where no county court proceedings had been issued.

That question turned on whether the claims made within the pre-action portals were properly to be regarded as ‘non-contentious business’ (as the solicitors contended), or as ‘contentious business (as the client contended).

The Court of Appeal considered five main questions:

(i) whether section 74(3) and CPR Part 46.9(2) apply at all to claims brought through the RTA portal where no county court proceedings have been issued;

(ii) whether the solicitors were required to obtain the client’s ‘informed consent’ when negotiating its conditional fee arrangement (CFA), either due to the fiduciary nature of the solicitor-client relationship or through the language of CPR Part 46.9(2);

(iii) if ‘informed consent’ was required, whether the client gave informed consent to the terms of the CFA relating to the solicitors’ fees;

(iv) whether, in any event, what can be regarded as the term in the solicitors’ retainer allowing the solicitors to charge the client more than the costs recoverable from the defendant to the RTA claim was unfair under the Consumer Rights Act 2015; and

(v) what were the consequences of the determination of these issues.

The client had accepted:

• she had freely signed a CFA retainer under which she agreed to pay personally any shortfall in the solicitors’ costs recovered from the negligent defendant;
• she had accepted she was told that the solicitors estimated their base costs at £2,500, and her damages entitlement at £2,000.

Nevertheless, she complained she was not told the fixed costs that would be recovered from the defendant were only £500; five times less than the estimated base costs, before any success fee.

The judges in the Court of Appeal decided:

(i) section 74(3) and CPR Part 46.9(2) did not apply at all to claims brought through the RTA portal without county court proceedings actually being issued;

(ii) the judge was wrong to say the solicitors owed the client fiduciary duties in the negotiation of their retainer;

(iii) the solicitors were not obliged to obtain the client’s informed consent to the terms of the CFA on the grounds decided by the judge;

(iv) the term in the solicitors’ retainer allowing them to charge the client more than the costs recoverable from the defendant was not unfair within the meaning of the Consumer Rights Act 2015; and

(v) the court would reconsider the assessment on the correct basis under paragraph 3 of the Solicitors’ (Non-Contentious Business) Remuneration Order 2009 which required solicitors’ costs to be “fair and reasonable having regard to all the circumstances of the case”. In doing so, the court found the costs actually charged to the client in this case were fair and reasonable.

The appeal from Lavender J was allowed.

The court concluded that in future, the Legal Ombudsman scheme (as opposed to solicitor/client assessments in the High Court under the Solicitors Act 1974) would be a much cheaper and more effective method of querying solicitors’ bills in these circumstances.

The court commented that the whole court process of assessment of solicitors’ bills in contentious and non-contentious business requires careful review and significant reform.

In the comprehensive, 23-page judgment, the bench criticised checkmylegalfees.com’s business model. The court said:

‘it is… that solicitors like checkmylegalfees.com can adopt a business model that allows them to bring expensive High Court litigation to assess modest solicitors’ bills in cases of this kind.’

The court’s note summarising the connected case of SGI Legal LLP v Karatysz [2022] EWCA Civ 1388, heard by the same bench the day after the Belsner hearing concluded, said:

“… firms such as checkmylegalfees.com and their clients should be in no doubt that the courts would have no hesitation in depriving them of their costs under section 70(10) [a reference to the Court finding ‘special circumstances’] if they continued to bring trivial claims for the assessment of small bills to the High Court, even if those bills were reduced on the facts of the specific case by more than one fifth under section 70(9).”

McDonnell commented: “This decision is very much a victory for the legal profession. The Judges used this case to express their view that significant costs reform is needed. Until then, what of the hundreds of cases brought by checkmylegalfees.com (and those brought by JG Solicitors, who operate a similar business model), currently stayed pending the outcome of Belsner? We will see. But with the Court’s note summarising the connected case of SGI Legal LLP v Karatysz indicating that firms like checkmylegalfees.com and JG Solicitors are unlikely to get their costs of proceedings brought to challenge ‘trivial’ sums irrespective of the outcome, surely the death knell of such challenges has sounded?”

Darren Draper, CAM Legal Services solicitor and practice manager, said: “Naturally, we are very pleased that the Court of Appeal found that we did not overcharge Ms Belsner but also that our charges were found to be both fair and reasonable.

“In recent years the claimant personal injury sector has been under tremendous pressure following major reforms that have led to significant reductions in the amount of costs recoverable between the parties. We expect this result will now bring some much-needed comfort and certainty to the legal profession.”