Personal Injury Deductions: How much can a solicitor deduct from my damages?

I prepared a brief article on this topic a few years ago.  My writing on that topic then was triggered by coming into contact with the client of a large Manchester personal injury firm, who I shall not name, who were seeking to deduct 30% of their client’s compensation (by adding VAT on top of the statutory maximum of 25%) along with a very large legal expenses insurance policy premium.  I was so appalled by the circumstances I wrote my short blog to sort of “set the record straight”.

Yesterday however I was approached by another client of that same firm who had been subject to the same predicament, with the same firm, and who had located my article.  The main focus of my earlier article was to point out the law states the 25% deduction is inclusive of VAT i.e. you cannot charge VAT on top of the 25% to thereby take 30% of a client’s compensation.  This is what the client was facing: the firm was trying to charge him VAT on top of the 25% (along with an excessive legal expenses insurance premium).

He had both challenged the firm in question even, to his credit, referring them to The Conditional Fee Agreements Order 2013 which states:

“Article 5 provides that, in a claim for personal injuries, the success fee shall be limited to a maximum of 25% of the damages awarded for pain, suffering and loss of amenity and pecuniary loss, other than future pecuniary loss and net of any sums recoverable by the Compensation Recovery Unit, inclusive of VAT.”

Despite the 2013 Order being unequivocal, the firm in question would not listen.  The client then contacted both the Solicitors Regulation Authority and the Law Society who both confirmed the 25% was inclusive of VAT, as set out in my article and as in the 2013 Order.  Surely this was enough to make the firm in question see sense?  Unfortunately not: they remained with a robust stance: they would be taking VAT on top of the 25%, thereby taking 30% of the client’s compensation.

However, the more we spoke, the worse things became.  It transpired that not only were they attempting to add VAT on top of the 25%, they were also trying to apply the 25% to his future losses.  This is also illegal: the wording of the 2013 Order as quoted above is clear – the 25% does not apply to future monetary losses. 

Further, they were seeking to charge an eye-watering legal expenses insurance premium in excess of £2,000 for a modest value claim (a reasonable premium for that type of claim would be in the region of £400).

When the client further challenged them he was told he was on a special type of no-win-no-fee agreement that was not a traditional conditional fee agreement (conditional fee agreement is the official legal title of a regular no-win-no-fee agreement) which enabled them to both add VAT on top of the 25% and to apply the 25% to future losses as well as past losses.  I was stunned to learn of this; solicitors cannot seek to circumvent the statutory maximum of 25% (of past losses).  Solicitors have a professional and ethical duty of care to their clients, which includes full and transparent funding advice i.e. if the client had been told that with another firm he would almost certainly be granted a traditional no-win-no-fee agreement with the cap at 25% of past losses inclusive of VAT, he is likely not to have proceeded with this so-called modified agreement being offered by the firm in question.

He was also told that if he had not agreed to this eye-watering legal expenses insurance premium then he would have had to pay for all the case expenses upfront himself! 

This manner of conduct does very real harm to clients at a difficult time of their lives in which they need this financial compensation.

If we take an example:

Mr Smith has a claim worth say £50,000.  Let us say £20,000 of this claim is past losses and £30,000 future losses. 

The maximum deduction he should face would be £5,000 as the success fee (i.e. 25% of past losses inclusive of VAT) plus say an insurance premium of £400, leaving him with £44,600.

Under the terms being offered by the firm in question however he would face deductions of around £17,500 (25% of all losses, plus VAT, plus the insurance premium of circa £2,500) leaving him with only £32,500.

The client has therefore lost £12,100 as a result of what I would consider to be an illegal and wholly unethical funding arrangement practice.

So what can clients do?  There are law firms who challenge other firm’s bills so seeking advice from one of them would be an option (I do not practise costs law but am clear in my opinion that the conduct described above is both illegal and unethical) or they could look to make a complaint to the firm or one of the regulatory bodies.  

A client could also look to transfer their file of papers to another law firm to seek a fairer funding arrangement that will not leave them out of pocket.  I have taken many such cases over the past few years, from firms around the country: remember, you have a free choice as to which solicitor you wish to use and are free to transfer your file at any time (the new law firm will agree to cover the previous law firm’s costs). 

If you have been affected by any of the issues raised in this article then please feel free to telephone for a no-obligation, confidential discussion on 0161 399 1231 or info@astonknightsolicitors.co.uk.