To deduct or not to deduct

The court is often faced ?at an infant approval hearing with an application by the claimant’s solicitors to deduct from the child’s damages an amount representing additional liabilities payable under the conditional fee agreement (CFA) entered into between ?the solicitors and the litigation friend. 

The solicitors usually want to deduct an amount representing a success fee and the after-the-event (ATE) insurance premium. That such sums are in principle deductable is without doubt, as is the fact that the court is able to deal with the amount of the additional liability by way of summary assessment (under Civil Procedure Rules (CPR) 21.12 and the Civil Procedure (Amendment No.2) Rules 2015).

25 per cent cap

What solicitors are not entitled to do is to deduct an amount representing 25 per cent of the child’s damages as of right, irrespective of the reasonableness of entering into a CFA and irrespective of the reasonableness of the success fee being claimed and the need to take out an ATE insurance premium (together with the reasonableness of the premium amount being charged). 

The 25 per cent figure is a cap: that is the maximum sum that can be deducted from the child’s damages. The success fee, however, is a percentage of the base costs payable, and not a percentage of the damages that are recovered.

I refer in this article to those low-value claims that arise out of a road traffic accident where the child was a passenger in a vehicle, such vehicle often being stationary when hit from behind by a driver who simply did not see the vehicle or who saw it too late to stop. In such cases, the risk to the solicitors ?of not winning their case is ?very low. 

While, of course, each case is fact sensitive and subject to the discretion of the court, I would have thought that the maximum most judges would allow by way of a success fee would be 10 per cent of the base costs (and that on the basis that they are satisfied it was reasonable to enter into a CFA). Courts will no doubt have regard to all the circumstances of the case and the factors set out at CPR 44.4(3) and CPR 46.9, as they are required to do under CPR 21.12(4)-(5).

ATE insurance

As for the need to take out ?an ATE insurance premium, before taking out such a policy, solicitors ought to check the availability and suitability of ?any legal expenses insurance cover attached to the insurance policy of the driver of the vehicle in which the claimant was being carried. Failure to ?do so may well result in the court finding that it was not reasonable to enter into a ?CFA (so that no success fee is recoverable) nor to take out any ATE policy (so that no ATE insurance premium is recoverable).

In a case where damages ?are less than £5,000, the success ?fee and the ATE premium must not exceed 25 per cent of ?the damages, but this is the maximum sum recoverable ?and is subject to what is set ?out above. 

Far too many solicitors are failing to appreciate this fact, and are relying upon statements signed by the litigation friend agreeing to a deduction of 25 per cent from the child’s damages. Such statements are likely to have little impact on the court, it being for the court to determine what can be deducted, not the litigation friend.

You need to satisfy the court:

• It was reasonable to enter into a CFA;

• The success fee claimed is reasonable; and

• It was reasonable to take ?out an ATE policy and the premium claimed is reasonable

District Judge Marshall Phillips sits at the Cardiff Civil Justice Centre, where he is also the regional costs judge. District Judge Phillips is also the chair of the civil committee and the costs committee of the Association of HM District Judges