The Callery count
24 September 2001
It is difficult to say what impact the Callery v Gray decision (see box below) will have in practice, either in simple road traffic accident (RTA) cases, or in the wider field of conditional fee agreements (CFAs) generally.
The court emphasised that the decision was in the context of simple personal injury (PI) claims in straightforward road traffic cases. Although the general statement of principle, that success fees are recoverable even when the CFA is entered into at the outset, is of general application, the judgment gives no real indication of what might be a reasonable success fee in more complex cases, save that the upper limit of the acceptable range will be greater than 20 per cent.
It is doubtful whether anyone in the profession took a different view before the Court of Appeal decision. In so far as any comment is possible on the wider ramifications of the decision - having regard to the fact that the success fee is viewed by many as pure profit (whereas in fact it covers, at the very least, the cases that are lost); and to experience of the B factor uplift under the old A + B factor approach - allowable success fees might be surprisingly low.
Fifty per cent was the starting point for B factor uplifts in simple RTA cases on a scale that went to 200 per cent in legal aid cases and more in other cases; the cases had to be "exceptional" to merit a B factor uplift of 100 per cent or more. Only a handful of cases achieved 200 per cent - what little is known about these cases suggests that they were almost unique in terms of factual and/or legal complexity, public importance, quantum of damages etc. Success fees operate on a scale of 0-100 per cent; if 20 per cent for RTA cases equates with 50 per cent under the old system, allowable success fees in cases that are more complex than simple RTA claims but nevertheless straightforward in their particular area (straightforward commercial or clinical negligence or professional negligence cases) might be in the 30-35 per cent range; cases might have to be "exceptional" (using the old language) to attract an allowable success fee of 40-50 per cent, and possibly "unique" to achieve the 100 per cent mark. It is perhaps unlikely that unique or even exceptional commercial cases will be fought on a CFA basis, whatever might happen in PI or other fields. In the main, such cases go to the City or large firms outside London, and it is difficult to see these firms embracing CFAs with any enthusiasm.
The judgment states that it will "normally" be reasonable for a CFA to be concluded and after-the-event (ATE) cover to be taken up at the outset. Advocates wishing to test the limits of the decision will look to see whether the facts of any particular case take it outside the norm and whether the CFA and ATE cover can be challenged on this basis.
The judgment states that "20 per cent is the maximum uplift that can reasonably be agreed". The mark is not set at 20 per cent, but can range from 0-20 per cent. This opens up the prospect of lawyers and insurers (and in the event of dispute, costs judges) having to sub-divide cases that are by definition "modest and straightforward" into 21 (0-20 per cent) degrees of "modesty" or "seriousness" to set the correct success fee. Lawyers and insurers will eventually establish generally accepted standards, but the possibilities for dispute, at least initially, seem endless.
Callery v Gray could be a complete blessing to insurers because it gives them the scope to push down success fees. Prior to Callery v Gray, insurers worked on a scale of 0-100 per cent, and experience showed that 20-25 per cent was the generally accepted range for simple RTA cases. Now 20 per cent is the "maximum" rather than the norm. Insurers are in the driving seat. They deal with thousands of cases and this gives them the experience/statistics and clout to have a material affect on the levels that will be set in negotiations.
Insurers will benchmark success fees, probably at about the 5 per cent mark because of the court's reference to this figure in dealing with the example of a two-stage success fee. If success fees are benchmarked at around 5 per cent in negotiations, this establishes what the profession considers reasonable and becomes the standard by which costs judges must determine matters.
At 5 per cent, solicitors will have to achieve a high degree of success to make these cases viable commercially. If the average costs in a simple RTA case that settles are £2,500 and in a case that fights are £5,000 (which is probably on the low side), and success fees are benchmarked at 5 per cent (£125 per case), a solicitor must win 40 cases (40 x £125 = £5,000) to cover one case (£5,000) that is lost.
It is open to claimants to go to court to litigate the claim or the costs, but in practice, claimants who contemplated simple claims that would settle quickly without litigation might be unwilling or unable to embark on litigation, particularly where this is merely to resolve a dispute about the level of success fee payable to the lawyer. Where there is disagreement about the ATE premium, there might be a greater willingness to litigate because this has a direct affect on the money left over for the client, but it will be difficult to justify the costs of an action or an assessment of the proceedings when the dispute is only about the ATE premium. Insurers will probably be quick to agree ATE premiums where they are in line with the market and equally quick to point out where premiums are out of line with the market and therefore plainly irrecoverable. Arguments are likely to be about success fees and insurers
are likely to play the dominant role in establishing the norm.
So far as the size of the premium is concerned, this might be a decision on its own facts; however, it is likely that £350 will become the mark - premiums below £350 will creep up to the £350 mark and those above will be pushed down.
In practice, where everything but the success fee is agreed, solicitors are likely to be forced to agree a reduced success fee because the client will be unwilling to fund litigation over this issue. In the majority of cases, they are likely to have to agree the reduced fee with the client for the sake of a settlement. However, in cases where barristers are engaged on a CFA with a success fee, there may be difficulty in obtaining agreement to a reduced fee for the sake of settlement, particularly in cases where there is no established relationship between the solicitor and the barrister.
The jury is still out on the effect of before-the-event (BTE) insurance. The Court of Appeal heard Sarwar v Alam earlier this month and reserved judgment.
Insurers no doubt will now have in mind cutting through the whole issue by enlarging the scope of BTE insurance with every type of policy sold (eg household insurance), and in so doing will completely sidestep the points raised in Callery v Gray. Insurers will be in a position to flex their muscles to drive down the rates payable to lawyers acting for clients having the benefit of BTE insurance.
For the client, there is no-win, no-fee; for the lawyer, there is risk and a minimal success fee for the time being; for the insurer, it looks like a case of win-win, because allowable success fees and premiums are likely to be driven down by this decision.
Martin Farber is a barrister at 5 Stone Buildings and Richard Schaverien is a partner at Howlett Clark Cushman
|Callery v Gray: the judgment|
Callery v Gray; Russell v Pal Pak Corrugated Limited, 31/7/01, CA, Master of the Rolls Lord Phillips; Lord Justice Brooke
|Callery v Gray - a costs consultant's perspective|
In 1986, the then new costs rules introduced a system whereby lawyers could claim costs on a discretionary basis by utilising an hourly expense rate supported by a reasonable markup. It took three years for the first influential case - Finley v Glaxo (9/10/89) - to be decided. This, however, only had the weight of a Queen's Bench Division unreported case. It took another three years for Johnson v Reed Corrugated Cases (1992) to be decided. In simple terms, Johnson stated that markups for run-of-the-mill cases should start at 50 per cent, and to claim rates of 100 per cent or higher, the claims needed to be "exceptional". This case stood the test of time of the remaining seven-year history of the old costs rules.
|Callery v Gray - an insurer's perspective|
Despite the extent of the arguments and submissions sought from a number of interested parties - including the Association of Personal Injury Lawyers (Apil), the Association of British Insurers (ABI), the After the Event Insurers' Group Forum, Claims Direct, Motor Accident Solicitors Society (Mass) and the Law Society - the judgment in Callery v Gray is more remarkable for how little help it provides, than for what it does say.