Introduction to Deduction from Damages in CFA Agreements

Since the introduction of LASPO there has been an increase in the number of Solicitor/Own Client disputes which have arisen as a result of Clients challenging the Bills raised by their Solicitors for the recovery of success fees, non-recoverable ATE premiums and for shortfalls in costs recovered on an inter partes basis.

The combination of the cap on the level of success fee which can be recovered from a Client, the expansion of the fixed recoverable costs regime and the introduction of the concept of proportionality in inter partes assessments has resulted in solicitors receiving less in the way of costs. This ultimately has had an impact on the profitability of each case and has resulted in solicitors now seeking to recover the shortfall in costs in addition to a success fee.

Understanding CFA Terms and Cost Deductions

A shortfall is the difference between the total profit costs incurred by a solicitor and the actual profit costs recovered on an inter partes basis. The difference is most evident in matters where fixed recoverable costs apply because, arguably in the majority of cases, the level of fixed costs is below the actual time and costs that have actually been incurred. However, it is becoming a recurring approach adopted in matters where the fixed recoverable costs regime does not apply.

Case Analysis: St James v Wilkin Chapman LLP [2024]

That was the case in the matter of St James v Wilkin Chapman LLP [2024] EWHC 1716 (KB). This was a personal injury matter which had been successfully resolved in the Claimant’s favour and the Claimant recovered damages of £65,000.00. Wilkin Chapman raised a Bill of Costs and ultimately settled costs on an inter partes basis for £52,000.00. However, there was a shortfall of approximately £13,000 which Wilkin Chapman sought to deduct from the Claimant’s damages in accordance with the CFA terms.

Key Facts of the Case

The CFA terms included the standard terms and this would have provided authority for Wilkin Chapman to deduct the shortfall from the Claimant’s damages. However, unfortunately for Wilkin Chapman, the CFA was provided alongside a Client Care Letter which included the following term: “All your “base costs” will be recovered from the Defendant at the successful conclusion of these proceedings”.

Court’s Decision and Implications

The Court considered the funding documents and came to the conclusion that the Client Care Letter had equal weight to the CFA and that together they acted in a combined fashion to set out the terms of the agreement that had been entered into between the Claimant and Wilkin Chapman. The Court then considered whether the inclusion of the word “all” had materially changed the standard terms that were included within the CFA. The Court found that the contractual terms could not be interpreted in any other way than with the inclusion of the word “all” and that the inclusion of the word “all” was enough to change the CFA to a CFA-lite, where the Solicitor would only be entitled to deduct the success fee and agreed disbursements from the Claimant’s damages.

Lessons for Legal Professionals

It is therefore clear that making sure your CFA and Client Care Letters include the relevant terms that you would wish to rely on at the conclusion of the claim. Whilst other aspects of the solicitor/own client dispute were considered and it was unlikely that the Court would have found that Wilkin Chapman were entitled to seek the shortfall from the Claimant, the initial decision in this matter meant that the inclusion of a three letter word in the Client Care Letter cost the Solicitor approximately £13,000.00, an expensive typographical error for sure.

Get Expert Advice

Kris Kilsby is a Costs Lawyer at Paramount Legal Costs and a Council member of the Association of Costs Lawyers. For any further questions or queries about Deduction from Damages or if you are interested in further in-depth training on the topic please get in touch at [email protected].

Frequently Asked Questions

Q: What is a shortfall in solicitor costs? A: It is the difference between the profit costs incurred by a solicitor and the actual profit costs recovered from the opposing party.

Q: Can solicitors deduct costs from damages? A: Yes, but only in accordance with clearly defined CFA terms and supporting documents.

Q: How can CFA terms affect damages deductions? A: Ambiguities in CFA or Client Care Letters, such as the term "all," can limit a solicitor’s right to deduct certain costs.