C v W

A success fee under a conditional fee agreement must reflect a reasonable and rational assessment of the risks assumed when the agreement was made. The assessment must use the circumstances as they then reasonably appeared, without hindsight.

Where liability has already been admitted, the risk of complete failure is ordinarily very low. The value or complexity of the claim does not independently justify an uplift. Its effect must instead be reflected, where relevant, in the assessed probability of failure.

A term depriving solicitors of post-offer fees when a client fails to beat a rejected Part 36 offer creates a distinct risk. That risk must be assessed by reference to the likelihood, timing and financial effect of the relevant contingencies.

The claimant suffered serious injuries as a passenger in a road accident. After the defendant’s insurers admitted liability, she entered into a conditional fee agreement with new solicitors. The agreement imposed a 98% success fee and provided that, if she rejected an offer on their advice but failed to beat it at trial, she would not owe their post-offer base costs or success fee.

The personal injury claim settled for £680,000 plus costs. On detailed assessment, a district judge allowed a 70% success fee. His Honour Judge O’Brien, sitting in the Cambridge County Court, reduced it to 50%.

The defendant appealed. The central issue was how the risk assumed by the solicitors should be assessed where liability had already been admitted but the agreement exposed them to losing post-offer fees if the claimant failed to beat a Part 36 offer.

1. Appeal allowed unanimously. The 50% success fee was set aside and a success fee of 20% substituted.

2. Per Moore-Bick LJ, with whom Thomas LJ and Arden LJ agreed, a recoverable success fee must reasonably reflect the risks assumed when the conditional fee agreement was entered into. The assessment must be based on the facts and circumstances as they then reasonably appeared. Hindsight is excluded.

3. The solicitors’ calculation had gone wrong by treating the claim as carrying a conventional risk of complete failure despite the admission of liability and the claimant’s serious injuries. The possibility that the admission might be withdrawn was merely theoretical. The risk of complete failure was no more than 5%, and probably less.

4. The claim’s size did not independently justify adding 20% to the uplift. Greater value or complexity may increase the work and therefore the base costs. Any increased risk of losing should be expressed through an adjusted probability of success, rather than through a separate addition which distorts the calculation. Unidentified defendant and insurance issues likewise afforded no proper basis for an additional 10% in the circumstances.

5. The principal real risk arose from clause 5. The solicitors could lose post-offer fees if the claimant rejected a Part 36 offer on their advice and failed to beat it at trial. The assessment therefore required consideration of whether and when an offer would be made, whether rejection would be advised, whether that advice would be accepted, whether the offer would be beaten, and what proportion of total fees would then be at risk. A broad assessment based on professional experience was permissible, provided the resulting uplift fell within a reasonable bracket.

6. The possibility that the client might abandon the claim did not justify an uplift. Under this agreement, termination left the client liable for the solicitors’ costs and disbursements. Client solvency was not part of the outcome-related risk assumed under the agreement. In any event, abandonment was highly improbable.

7. It was not inherently unreasonable to enter into a conditional fee agreement after liability had been admitted. A costs judge could not reject a success fee merely because the risks were difficult to quantify. The receiving party nevertheless had to demonstrate that the fee was calculated in a way which reasonably reflected those risks. An overall failure risk of 17%, producing a 20% uplift, was fair.

1. Court of Appeal (Civil Division): Allowed the defendant’s appeal unanimously, set aside the county court’s assessment and substituted a success fee of 20%.
2. Cambridge County Court: His Honour Judge O’Brien allowed the claimant’s appeal in part and reduced the success fee from 70% to 50%.
3. Detailed assessment: The district judge allowed a success fee of 70%.