When is it reasonable for a claimant to change from Legal Aid to Conditional Fee Agreement?

This was a key question asked by many civil litigation practitioners, particularly following significant changes to the Legal Aid system and prior to Jackson’s Civil Justice Reforms, which resulted in the implementation of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) bringing with it an end to recoverable success fees and insurance premiums in clinical negligence cases.

Many firms opted to review the funding of their cases with the impending changes in April 2013 and only now are we seeing guidance from the Court as to whether, in cases where funding has changed from Legal Aid to CFA, incurring additional liabilities in such cases should be considered reasonable or, whether the claimant would have been best served to have remained on Legal Services Commission (LSC) funding.

The first cases to filter through the Senior Court Costs Office (SCCO) provided a mixed verdict and were considered to be particularly case specific. In Hyde -v- Milton Keynes Hospital NHS Foundation Trust [2015] EWHC B17 (Costs), Master Rowley found that a change of funding from Legal Aid to CFA was reasonable where the claimant had reached the financial limit of their Legal Aid certificate. Notwithstanding that the Legal Aid certificate had not been discharged, this did not mean that the claimant could not recover the costs from the defendant on an inter partes basis.

The claimant changed their funding to a CFA on 25 March 2013, just days before Jackson’s Civil Justice Reforms. Whilst the timing could be considered to be significant, the decision in this case was determined on its facts and it was clear that this was not an indication that this case would give the green light to all cases where a change of funding took place prior to 1April 2013.

In this case, the solicitor tried very hard to extend the costs limitation under the certificate in order to continue to use it. In fact Master Rowley himself stated: “The claimant’s replies seek to suggest that the impending arrival of the Legal Aid Sentencing and Punishment of Offenders Act 2012 supported the decision but, I do not accept that the coming into force of LASPO was relevant in this case”.

He went on to state: “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. That is the position in this case in my judgment and so I find that the claimant was entitled to transfer to a CFA and ATE arrangement from 25 March 2013.”

The case was subsequently appealed, whereby Mr Justice Soole upheld the Master’s decision.

A second case arrived shortly afterwards, again before Master Rowley on the issue of change of funding. In Surrey -v- Barnet & Chase Farm Hospitals NHS Trust [2015] EWHC V16 (Costs)., the Master found that change of funding from Legal Aid to CFA was not reasonable.

The instructing solicitor discharged the certificate after having concerns that there was no guarantee that the Legal Aid Agency would increase the reserve to a sufficient level to fund the disbursements and profit costs for an Assessment of Damages hearing. Liability had been admitted at this point. Again, the change of funding took place in March 2013, just weeks before implementation of LASPO. Indeed the implications of a subsequent change of funding after April 2013 were taken into account. In his decision, Master Rowley stated: “The test set out above from Sarwar requires me to consider whether the claimant, assisted by his solicitor, has acted in a manner that is reasonable. The relevant action is of course the decision to change funding arrangements and so the question is whether the claimant made a reasonable choice in doing so.”

Master Rowley also distinguished the case which he had previously decided of Hyde: “The distinguishing feature between that case and this one is the completely different approach to the relevance of the costs limitation. I have said already that in this case the limitation appeared to have been ignored and was only considered when the letter to the Commission was being prepared. The wholly unsatisfactory nature of the figures used in that letter demonstrates, in my view, that there was no concern in the claimant’s solicitors’ minds about the recovery of the costs that had been incurred. Judgment on liability had been entered, quantum was being calculated and the defendant would be meeting the costs at the end. This is a very different picture from the case of Hyde even though there too judgment on liability had been obtained.”

Master Rowley was of the opinion that the implementation of LASPO was the motivating factor behind change of funding in this matter. He also went on to state: “On the facts of this case, the failure to give advice regarding the post-LASPO landscape and in particular the Simmons damages, in my view rendered the advice to be insufficient on which to found any proper or reasonable conclusion”.

This reference is to Simmons v Castle which effectively clarified the position post LASPO. This case found that where there are no additional liabilities to be recovered, the claimant would benefit from a 10% uplift to their damages, which was considered to partly compensate for the fact that claimants would now be responsible for payment of a success fee out of their damages in cases which are funded by way of a CFA post 1 April 2013.

A further case has recently been heard on the issue before Master Leonard – Arianna Ramos v Oxford University Hospitals NHS Foundation Trust [2016] EWHC B4 (Costs). In this case Master Leonard did not find the change of funding to be reasonable, nor did he think that adequate advice had been provided to the claimant.

Part of the difficulty which the claimant’s solicitor had in this case was that the CFA itself was arranged “in haste”. The claimant’s solicitor cited the LSC failing to agree to an hourly rate in excess of £180 as a reason for such a change; however it had transpired that experts’ fees for rates in excess of this had already been discharged by the claimant’s solicitors.

Ultimately Master Leonard took the view that the claimant’s solicitor advised that there was no option but to change from LSC to CFA/ATE funding “based on broad assumptions that lacked any sound foundation”.

Furthermore, the claimant was not informed of the potential costs liability for the ATE premium. Whilst the likelihood was that the claimant’s solicitors would have indemnified the claimant for the ATE premium in the unlikely event that it did fall due, there was no agreement in place to that effect.

Master Leonard concluded: “…the decision in February 2013 to abandon LSC funding in favour of a CFA/ATE arrangement was not made on the basis of adequate advice; that it was not made on a fully informed basis; that it was more to the claimant’s disadvantage than to her advantage; and that it was not a reasonable decision. It follows that the success fee and ATE premium are irrecoverable under CPR 44.4.”

In AH -v- Lewisham Hospital NHS Trust [2016] EWCA B3 (Costs), Master Campbell also reached the conclusion that the change of funding from Legal Aid to CFA was not a reasonable one. For reasons similar to those reached by Master Rowley in Surrey, the Master found that the lack of information provided to the claimant in relation to the Simmons v Castle uplift was a costly omission from the advice which had been provided by the claimant’s solicitor when the claimant was considering the benefits and drawbacks which would arise from change of funding. This change again took place in March 2013.

In Yesil v Doncaster & Bassetlaw Hospitals NHS Foundation Trust, a first instance decision, District Judge Besford ruled that the “additional liabilities flowing from the switch of funding” were “unreasonably incurred and are irrecoverable from the defendants”. Again, this decision was made against the background of Simmons v Castle advice being omitted from the advice provided to the claimant when they were advised on the advantages and disadvantages of changing funding pre-LASPO.

In Oliver Davis v Wiltshire Primary Care Trust [2016] EWHC B6 (Costs), the change of funding was not motivated by the implementation of LASPO, however the claimant was not advised of the potential risk of having to bear any shortfall on the costs of the ATE premium if it was successfully challenged in whole or part.  This left the claimant exposed to a risk that he was not advised about. Master Leonard ruled that additional liabilities would not be recovered from the defendant and that the change of funding was not in the best interests of the client.

So what do these decisions mean for solicitors who advised their clients to switch from Legal Aid to a CFA prior to the implementation of LASPO? They certainly provide little by way of encouragement for those who re-evaluated the funding position of their cases prior to LASPO. There has been little sympathy from the Courts for those who have failed to provide adequate and full advice to their clients as to the benefits and burdens which would attach to both remaining on public funding and likewise for changing funding to a CFA supported by ATE.

One would perhaps have a degree of sympathy for those who may have overlooked the Simmons v Castle advice, particularly given the extent of the numerous changes which were effecting civil litigation and to both Legal Aid and CFAs in early 2013 and the haste which was required. However, the key message to take from these cases is that the Simmons v Castle uplift was considered by the Court to be a significant advantage to remaining on public funding and in these cases, was not an unsubstantial amount of money, therefore would have been a key consideration to the client, had the information been provided.

Likewise, the failure to inform the client of their liability in respect of the cost of the insurance premium, notwithstanding any informal or working commercial arrangement for indemnity, may also render the advice provided to the client inadequate.

However, there is still scope for further clarification from the Court. In cases where full advice has been provided in respect of the liability of the ATE premium (if applicable) and the Simmons v Castle uplift, but the client nevertheless opts to transfer to a CFA in advance of the implementation of LASPO, one would assume that the change of funding should be deemed to be a reasonable one. The cases referred to above would appear to focus primarily on the adequacy of the advice provided.

Recent media reports have suggested that the NHSLA have “hundreds of further costs appeals in store” pertaining to the issue of change of client funding arrangements pre-LASPO, so we are unlikely to have heard the last of this contentious issue just yet.

I would expect to see the NHSLA taking more cases to Detailed Assessments over the coming months where there has been change of funding and I believe that some claimant firms will seek to appeal such decisions, particularly given the extent of the significance in monetary terms, which these decisions will have on their firm and resultant cash flow.

Steve Davies is a costs lawyer and a council member of the Association of Costs Lawyers. 

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Published date
08 Jun 2016

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