Costs News

10 September 2015
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Switches from legal aid to CFA under scrutiny

Switching clients from legal aid funding to a conditional fee agreement backed by after-the-event insurance has come under the spotlight this week with the publication of two rulings from Costs Judge Rowley.

Both concerned clinical negligence claims where liability had been agreed. In Hyde v Milton Keynes Hospital NHS Foundation Trust[2015] EWHC B17 (Costs), the trigger point was the Legal Services Commission’s refusal to increase the funding limitation on the claimant’s certificate while negotiations over quantum were ongoing. Her solicitors switched to a CFA but did not apply to discharge the certificate. They did serve an N251 on the defendant, however.

The defendant argued that this failure meant the claimant could not recover the costs generated under the CFA, but Master Rowley disagreed. Saying this was not a case of a solicitor trying to ‘top up’ his fees from the client, he ruled: “Where a party has exhausted the costs that can be claimed under a certificate so that it is 'spent', they can in principle establish a discharge by conduct in the same manner as certificates in which all of the work up to a limitation of scope has been carried out. The effect of that discharge is to end the services funded by the LSC and enable a private retainer to fund the remainder of the proceedings.

“The notification of the new funding arrangement in form N251 satisfies the need for formality in notifying the opponent of the ending of costs protection. Mr Mallalieu [for the claimant] sought to persuade me that notification was not necessary in any event, but I take the view that it was required to deal with the costs protection aspect.”

He went on to find that it was reasonable to change funding: “It is no doubt the case that claims are often successfully concluded in a way which renders the overspend as against the certificate irrelevant. But I do not think this means that a claimant and her solicitor who keep an eye on the costs being incurred and so are aware of the limitation problem should be obliged to continue to use the certificate come what may. Parties are encouraged to consider their legal spend prospectively and, where it is clear that the available public funding is going to be insufficient, a decision to change to another option must be a reasonable step to take.”

Though the events in the case occurred around the time that the Legal Aid, Sentencing and Punishment of Offenders Act 2012 came into force on 1 April 2013, Master Rowley found that the reforms were not a feature of the solicitors’ decision.

This was in contrast to the second case of Surrey v Barnet & Chase Farm Hospitals NHS Trust [2015] EWHC B16 (Costs). Here, the claimant’s solicitors, Irwin Mitchell, had asked all case-handlers to review their legally aided cases ahead of the reforms and decide whether the client would be in a better position with a CFA and ATE funding. The fee-earner in this case decided that he would for multiple reasons.

After damages were agreed in November 2013, detailed assessment proceedings were begun and within the total costs claimed was a success fee of £57,000 and ATE premium of £51,000. The defendant argued that the decision to switch funding was not reasonable.

Of the various reasons given for the switch, Master Rowley considered the strongest to be the inevitability of the claimant having to pay a costs shortfall under legal aid, which would not happen with a CFA Lite.

He also said there was no objection to advice being provided to a client on the basis of a particular outcome being preferable, or “nudging” the client in a particular direction, adding that “there can be no criticism of a solicitor who gives cautious advice on a voyage into unchartered waters”.

But this was all predicated on the solicitor setting out the various options “fully and properly”, especially given that here the Simmons 10% uplift would have meant up to £20,000 extra in damages.

He said: “There is no evidence before me to indicate whether the claimant or his litigation friend would have considered the abandoning of up to £20,000, which was more or less guaranteed, in return for peace of mind regarding future funding.

“They may have decided that the system that had apparently worked for seven years was unlikely to break down in the final stages and they would rather have the money and risk the funding issues. They may have taken the view that QOCS protected them sufficiently not to incur an ATE premium. The possibilities for speculation are endless.

“What is certain, however, is that the Simmons damages were of significance and so should have been explained to the claimant's litigation friend so that informed consent to a change in funding could be given. The absence of any evidence from the litigation friend on this point, to my mind, speaks volumes.

“In the absence of being informed of these issues, it seems to me impossible to say that the claimant can have made a reasonable choice to change funding arrangements. Consequently, I find that the additional liabilities flowing from the new arrangements are unreasonably incurred and as such are not recoverable from the defendant.”

In both cases, he also cut the solicitors’ claimed success fees to 20%, in line with C v W; counsel’s 100% success fee in Hyde was slashed to 10%.

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