It was always going to happen that the validity of switching a client from legal aid funding to a conditional fee agreement (CFA) before the civil justice reforms kicked in on 1 April 2013, would come under scrutiny. It has taken some time but two rulings on this issue from Costs Judge Rowley have just been published.
In one, the decision to switch before the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into force was nothing more than a coincidence; in the other, it was what provoked the move.
Both concerned clinical negligence claims where liability had been agreed. In Hyde v Milton Keynes Hospital NHS Foundation Trust  EWHC B17 (Costs), the trigger 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.”
Ruling that some form of notification was needed, he decided that the form N251 sufficed.
He went on to find that it was reasonable to change funding: “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.”
In Surrey v Barnet & Chase Farm Hospitals NHS Trust  EWHC B16 (Costs), 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 after-the-event insurance 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, while “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”. What they failed to do was raise the fact that post LASPO, damages would be increased by 10%, which here would have meant up to £20,000 extra. This was “of significance” and should have been explained, said Master Rowley.
“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.”
There may not be much practitioners can do now to rectify what they should have done 18 months or more ago, so if you find yourself facing this situation, these rulings – though, of course, first instance – give a good idea of the direction of judicial thinking and allow you to plan your strategy accordingly.