SGI Legal LLP v Karatysz – Informed Consent – The Solicitor Strikes Back (Or do they?)

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Posted on: June 29th, 2021 by Brett Anderson

In the long running tranche of litigation relating to the deduction of Costs from Claimants’ Damages in the County Court, Lavender J handed down judgment in SGI Legal LLP v Karatysz [2021] EWHC 1608 (QB). Battle lines had been drawn and the first blow landed for Claimants in the County Courts everywhere following the case of Belsner v Cam [2020] EWHC 2755 (QB). The case of Belsner (previously discussed here) turns on the consent given by the Client to the deduction of costs above and beyond those recoverable from the Defendant and, most notably, whether that consent to the deductions was sufficiently informed. The Karatysz case also dealt with the issue of informed consent and at first glance it appeared to be that a blow had been landed by Solicitors in response Belsner however, once you scratch below the surface, it does not appear this case has changed too much.

The teeth of the informed consent issue are in the interpretation of CPR 46.9(2) but, owing to an error by the lawyers for Karatysz, the arguments arising under these provisions were debarred from consideration owing to the delay in filing/serving their Respondent’s notice. The same meant that the argument in the event the reasoning for the original decision, which was predicated on the application of s74(3) of the Solicitors Act rather than CPR 46.9(2), was overturned.

In so far as related to the issue of informed consent, the case was reduced to an analysis of CPR 46.9(3)(c) and whether informed consent was required from the Client to overcome the presumption that any unusual costs are unreasonably incurred and hence, not recoverable.

                 CPR 46.9(3)

(c) to have been unreasonably incurred if –
(i) they are of an unusual nature or amount; and
(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.

District Judge Bellamy, in the Court below, held that hourly rates of £161 for a Grade D fee earner was unusual in amount and, absent informed consent to incur costs at that rate (or any other rate), were held to be unreasonable, being reduced to £120/Hr. Having made that decision, DJ Bellamy reduced the costs still further (“the additional reduction”) to the level of fixed costs paid by the Defendant. Whilst the reasoning for the further reduction was not made clear, Lavender J proceeded on the basis that the decision was predicated upon there being no informed consent to incur more than what was recoverable from the Defendant and hence all excess costs beyond those recoverable inter-partes were irrecoverable from the Claimant on the operation of CPR 46.9(3)(c).

Very quickly Lavender J held that there is no requirement for informed consent in the determination of CPR 46.9(3)(c), in contrast to (a) and (b) of the same rule. Whereas (a) and (b) required the Client to provide approval, (c) merely requires the Client to be told. As a result, the decision at the first instances was overturned in principle.

The Court was then required to consider if the costs disallowed in making the additional reduction, presumed to be disallowed for want of informed consent which was not required, was reasonable or not. Lavender J held that, with DJ Bellamy having determined that on the indemnity basis, nine-hours at £120/Hr was reasonable, then this was the appropriate costs that should have been allowed on assessment, thus the additional reduction applied at first instance from the assessed £1080 plus VAT to £750 plus VAT, was reversed, allowing the Claimant’s Solicitor to recover costs from their Client above that recovered from the Defendant.

Whilst the headline is that the Solicitor has been able to recover costs above and beyond those permitted from the Defendant, notwithstanding there was no clear evidence of informed consent. The nuance of the case was that the nub of the informed consent point was not heard owing to the Claimant not putting their procedural house in order enabling them to run that argument. Had they done so, the outcome could have been quite different.

Amount of the Bill

There was also an interesting consideration of the 1/5th rule and what constituted the Bill of Costs from which the level of reduction would be assessed. There was a good summary of the authorities in this area with a decision that the starting point for assessing the level of the reductions to the Bill of Costs is the sum demanded by the Solicitor of their Client. Therefore, any offer to reduce the Bill of Costs/invoice doesn’t change the starting point. For example, if the final invoice to the client was £250,000 but the solicitor states on the invoice they’ll accept £225,000, the value of the Bill will be £250,000 for the assessment of the 1/5th rule, the reduction being an offer against the enforceable sum of £250,000.

Take Away Message

A lack of informed consent to the level of reductions of their damages in payment of irrecoverable costs needs to be clearly spelt out to the Client. This requires the Claimant to understand what fees the solicitor is likely to incur, the amount that is potentially recoverable from the Defendant and thus how much any shortfall could be. This wasn’t exhibited in this case as the Solicitor “got away with it” with the Claimant making procedural errors allowing the Solicitors off the hook.

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