KU (A Child) v LCC

Where a conditional fee agreement provides a single success fee, its reasonableness must be assessed by reference to the facts and risks reasonably known when it was made. A costs judge must not use hindsight or reduce the recoverable percentage for a later stage merely because the litigation risks subsequently diminished.

The statutory CFA scheme permits the court to reduce an unreasonable success fee to a reasonable level, but it does not permit the court to remake the agreement by allowing different rates for different periods or items of costs. Paragraph 11.8(2) of the Costs Practice Direction, insofar as it suggests such a power, is wrong.

A child brought a personal-injury claim after falling into a concealed hole on a grass verge. Her solicitors entered a Law Society model conditional fee agreement with a 100% single-stage success fee. The claim settled, and the substantive costs were agreed.

On detailed assessment, the district judge held that the 100% fee was reasonable until the council filed its defence, but reduced it to 5% thereafter. On the claimant’s appeal, Judge Stewart QC held that the district judge had no power to vary the fee by reference to later reductions in risk. The council brought a second appeal.

The Court of Appeal considered the initial reasonableness of the fee, the contractual scope of the CFA, and whether the statutory costs regime permitted different recoverable success fees at different stages.

1. The court gave declaratory answers to the issues raised. It could not alter the practical outcome because the council had not challenged the initial reasonableness of the fee before Judge Stewart QC. His order therefore remained undisturbed.

2. The 100% single-stage success fee was unreasonable when the CFA was made. Reasonableness had to be assessed by the facts and circumstances reasonably known to the solicitor at that time, without hindsight. The claim involved a concealed hole and some uncertainty about ownership, but it was straightforward and did not justify passing to the paying party the solicitor’s risk that the claim might fall within the small claims track. A reasonable single-stage fee was 50%.

3. On the identical Law Society model CFA considered in Halloran v Delaney [2002] EWCA Civ 1258, the detailed assessment formed part of the contractual “claim”. The same success fee therefore applied throughout, including the assessment proceedings.

4. The statutory and regulatory scheme contemplated one percentage increase fixed when the CFA was made. A costs judge could disallow an unreasonable fee and substitute a reasonable amount, but could not remake the agreement by applying a lower percentage after the litigation risk had fallen. Paragraph 11.8(2) of the Costs Practice Direction, insofar as it purported to permit different percentages for different periods or items of costs, had no legal force and was wrong.

5. Judge Stewart QC was correct on the issue argued before him. A solicitor may instead use a CFA which, from the outset, provides for a lower recoverable fee if the claim settles at an agreed early stage and a higher fee if it proceeds further. That contractual structure is different from a retrospective judicial reduction.

• Court of Appeal (Civil Division): Gave declaratory answers on the CFA and costs issues, but left Judge Stewart QC’s order undisturbed because the council had not appealed the initial reasonableness issue at the first appeal.
• Liverpool County Court: Judge Stewart QC allowed the claimant’s appeal from the district judge, holding that the district judge could not reduce the recoverable success fee for a later period merely because the risks had diminished.
• Liverpool County Court: District Judge Humphreys-Roberts assessed the success fee at 100% until the defence, and 5% thereafter.