MOVING FROM LEGAL AID TO CFAS: THE JUDGMENTS
NB see the appeals relating to these cases discussed here
The cases surrounding the switch from legal aid to a CFA were reviewed in my post earlier this week . The full transcripts are now available (I am grateful to Aaron Vodden at Hempsons for sending me a copy of the full judgments earlier today The cases subsequently appeared on Bailli. However I was able to prepare this post much earlier as a result).
THE DECISION IN RAMOS
In Arianna Ramos -v- Oxford University Hospitals NHS Foundation Trust Master Leonard held that the decision to stop legal funding was not reasonable nor was it made on the basis of adequate advice. Consequently the success fee and ATE premium were irrecoverable against the defendant.
The defendant objected to paying the success fee and ATE premium attendant upon the claimant’s decision to change the basis of funding of her claim from legal aid to a CFA.
The claimant had changed the basis of funding in order to enable her solicitors to obtain expert evidence that the LSC would not fund. The claimant’s solicitors argued that this was necessary as there were complex issues of causation to be addressed by the experts.
FINDINGS ON REASONABLENESS
Master Leonard, held that a decision to change from LSC funding to CFA/ATE funding must have been reasonable.
“69. I have been reminded of the relevant pre-April 2013 Civil Procedure Rules and Practice Directions, applicable to this case under the transitional provisions of CPR 48.1. 70.
CPR 44.4 provided (insofar as relevant):
“(1) Where the court is to assess the amounts of costs …the court will not …allow costs which have been unreasonably incurred or are unreasonable in amount…
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue; and
(b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party….”
71. CPR 44.5 provided (insofar as relevant):
“…The court is to have regard to all the circumstances in deciding whether costs are – If it is assessing on the standard basis – Proportionately and reasonably incurred; Were proportionate and reasonable in amount…”
72. The then Costs Practice Direction provided at paragraph 11.7: “When the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into…”
73. And at paragraph 11.8:
“In deciding whether a percentage increase is reasonable, relevant factors to be taken into account may include:
(a) The risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;
(b) The legal representative’s liability for any disbursements; What other methods of financing the costs were available to the receiving party.”
74. I have also been referred to a number of authorities and decisions: Salwar v Alam  1 WLR 125, LXM v Mid Essex Hospital Services NHS Trust  EWHC 90185 (Costs); Bradley v Windsor House Group Practice (District Judge Bedford, Leeds District Registry, 10th January 2011); AMH v The Scout Association (SCCO, 28 January 2015); and Kai Surrey v Barnet & Chase Farm Hospital NHS Trust  EWHC B17 (Costs).
75. Those decisions, turning as they do on the reasonableness of a particular funding choice in particular circumstances, tend to be fact-specific but for present purposes they espouse a set of principles which I would summarise in this way. A decision to choose a CFA/ATE arrangement rather than LSC funding (where available) must have been a reasonable decision. If it was, then the additional cost attendant on that choice will (insofar as reasonable in amount) be recoverable from the paying party. If not, then CPR 44.4 will preclude recovery of the additional costs unreasonably incurred. In Kai Surrey Master Rowley also put some emphasis of the importance of a decision being made on a fully informed basis.
76. Applying those principles to the facts of this case, these are my conclusions.
77. I attach no weight to suggestions that Mr Sankey should have advised Mrs Ramos in specific terms as to what would happen should the Claimant terminate the CFA. I accept that, as Mr Sankey says, that was a remote risk.
78. I do not doubt that Mr Sankey has done his best, from his recollection of events, to assist the court. Nonetheless his evidence was on some issues inconsistent and inadequate to support the Claimant’s case.
79. According to his witness statement, Mr Sankey thought until recently that LSC funding was unavailable where a solicitor was willing to act on a CFA, so that he was in February 2013 under a positive duty to seek discharge of the funding certificate. He accepted in evidence that that was wrong.
80. That misconception undermines Mr Sankey’s evidence to the effect that he gave consideration to the real advantages and disadvantages to the Claimant of switching from LSC funding to a CFA/ATE arrangement. If he had thought he had a duty to seek discharge of the certificate in any event, comparing the relative merits of LSC as against CFA/ATE funding would have been otiose. I have concluded that an analysis of the evidence shows a full and adequate analysis of those relative merits was not in fact carried out.
81. It is evident that the change of funding was arranged in haste. That seems to have led to (admitted) error, notably the inclusion in the CFA of a success fee of 100% whereas the figure produced on Slater and Gordon’s assessment of risk was 50%. It also seems to have led to the advice given to Mrs Ramos being insufficiently thought through.
82. In advising Mrs Ramos that he could no longer work within the constraints imposed by the LSC, Mr Sankey was in effect advising her that there was no choice but to change to CFA and ATE funding. This was based upon an unequivocal statement to the effect that the LSC would not pay the Claimant’s experts more than £180 per hour and would not allow his firm to pay them at more than £180 per hour.
83. Mr Sankey repeated that statement in oral evidence but was confronted by documentary evidence that showed that it could not be entirely correct. A review of Slater and Gordon’s ledger and of the fee notes in support of the Claimant’s bill shows that Slater and Gordon had been paying experts at in excess of £180 per hour since 2010. Substantial fee notes from Professor Schapira and Miss Fernandes were met in full between July 2011 and February 2012. The most recent payment, pre-change of funding, seems to have been to Miss Fernandes who recorded, on 23 February 2013, receipt of £2400 in full settlement of a fee for a condition and prognosis report provided on 22 January 2013.
84. In other words, whatever the LSC itself was willing to pay, it was not, as Mr Sankey had told Mrs Ramos and repeated in his statement, imposing any cap on the fees experts could be paid by his firm.
85. Under cross-examination Mr Sankey was at first reluctant to concede the point but ultimately came round to a rather different position, which is that he had been concerned about the risk to his firm, on a claim that was on the cusp of service, in continuing to pay experts in full where the LSC would not be willing to reimburse that cost at more than £180 per hour should the claim prove unsuccessful.
86. This left the Claimant’s evidence on this particular point in something of a muddle. This is what I have made of it.
87. Mr Sankey’s advice to Mrs Ramos about the limits of LSC funding seems to have been based upon discussions with colleagues and LSC representatives about LSC policy following introduction of the Community Legal Service (Funding) (Amendment No.2) Order 2011. That regime applied to civil cases started from 3 October 2011 and did not have retrospective effect. Mr Sankey advised Mrs Ramos as if it did.
88. Mr Sankey indicated in oral evidence that the LSC had been limiting its exposure to payment of experts’ fees in clinical negligence cases from about 2006 by restricting the hourly rates which it would pay if the relevant fees were not recovered from an opponent. I am willing to accept that, but he confirmed that he had made no specific enquiries in relation to this particular case. He insisted that the LSC would apply a blanket rate of £180 for all experts, but his experience of LSC-funded cases was limited (this was one of only two he was conducting that the time) and again he seems to have based that understanding upon discussions with others.
89. Specific hourly rates aside, the essence of Mr Sankey’s evidence before me is that between 2006 and the introduction of new regime in 2011, the LSC had been operating a funding regime under which it was impossible to take a substantial clinical negligence claim beyond the point of service without undertaking an unacceptable financial risk. I have not been presented with the sort of cogent evidence which could justify such a conclusion.
90. Nor do I accept that Mr Sankey’s advice to his client in relation to the change of funding was based upon any considered assessment of the risk to his firm of continuing to fund expert’s fees. There is no material evidence that that formed part of his thinking at the relevant time. It was not mentioned to his client, and it was not mentioned in his witness statement.
91. My conclusion is that Mr Sankey advised Mrs Ramos that there was no option but to change from LSC to CFA/ATE funding, based on broad assumptions that lacked any sound foundation.
92. I also have concerns about the lack of advice given on the Simmons v Castle uplift. Mrs Ramos was not told that on changing funding as advised, the Claimant would sustain a loss of damages which Mr Sankey puts at up to £12,500 and the Defendant at up to £15,000. That may be compared to Mr Sankey’s estimate under cross-examination of the possible amount of costs subject to the statutory charge, should LSC funding continue, at between £4,000 and £10,000 (the Defendant puts it at a much lower figure).
93. Leaving aside that no claim against the LSC has in fact been made on this assessment, the (certain) Simmons v Castle uplift exceeds Mr Sankey’s own estimate of (possible) maximum costs payable under the statutory charge in relation to adverse costs orders. What is presented, in his witness statement, as an advantage to the client is outweighed by a disadvantage in relation to which he gave no advice.
94. This leaves the Part 36 risk, which under LSC funding could lead to a deduction from damages under the statutory charge. Mr Smith argued that there was no significant Part 36 risk in November 1990, this being a substantial clinical negligence case in which matters are usually resolved at a round table meeting and Part 36 offers prior to such meetings are rare. I have often heard that said of clinical negligence cases before, and on previous occasions I have accepted that there is substance in the point.
95. In this particular case the Part 36 risk was not specifically offered as a justification for the change in funding in Mr Sankey’s statement or (though briefly mentioned in relation to ATE cover) in his advice to Mrs Ramos in his letter of 18 February 2013. That, and this letter’s reference to the CFA/ATE arrangement being “slightly better” than LSC funding in protecting the Claimant from adverse costs orders, indicates that he did not consider the Part 36 risk to be significant at the time. In evidence he described the Part 36 risk as the “main” risk (as opposed to the risk of any other deduction from damages as a result of adverse costs orders, described by him as slim) but he confirmed that no Part 36 offer was ever made.
96. On the evidence I have concluded that the Part 36 risk, as at February 2013, was relatively small and that it did not exercise Mr Sankey to any material degree in advising Mrs Ramos. 9
7. The matters to which I have already referred seem to me to lead to the conclusion that in February 2013 the Claimant (as advised through Mrs Ramos) was like the Claimant in Kai Surrey, not in a position to make an informed choice about the change of funding from LSC to CFA/ATE and that there is sufficient doubt about the reasonableness of her decision to do so to render the success fee and ATE premium irrecoverable by reference to CPR 44.4(1) and 2(b).
98. There is a further significant reason for concluding that the CFA/ATE arrangement, far from being slightly better than LSC funding for the purpose of protecting the Claimant’s damages, was significantly worse. I say that because of another risk that was not fully addressed in the advice given to Mrs Ramos in February 2013: that of failing to recover part or all of the ATE premium.
99. The “Key Facts” leaflet, presumably sent to the Claimant at some point after 5 April 2013 when the policy documentation was completed by Slater and Gordon, emphasised the risk that the ATE premium might be challenged in part and in full; that the Claimant would have to bear the cost of the full premium if such challenge was successful; and that Slater and Gordon had a duty to advise on that “at the start”.
100. Slater and Gordon had not however given that advice at the time the decision to change funding was made. The documentation sent to Mrs Ramos in February 2013 generally gave the impression that the premium would never have to be borne by the Claimant to any extent. It would either be recovered from the opponent in the event of success or not payable at all in the event of failure.
101. The explanatory leaflet in relation to ATE insurance did qualify that by stating, of the premium, that “…we would hope to be able to recover… (it) …in full” but no advice was given in relation to the extent of the risk that this might not happen and the extent of the possible financial consequences for the Claimant, which were very substantial.
102. It is clear from Mr Sankey’s evidence that it did not occur to him to give such advice. His witness statement simply asserts that the Claimant would not have to pay the ATE premium from her damages. The ATE documentation issued by his firm in April 2013, in contrast, made it clear that she might. Under cross-examination on the point Mr Sankey indicated that the insurer would pursue any such claim though Slater and Gordon and that Slater and Gordon would not leave its client in the position of having to pay the shortfall.
103. I do not doubt his sincerity, but his assurances come after the event and are not sufficient to meet the point. Slater and Gordon were not (as the “Key Facts” leaflet issued by them, as part of the policy documentation, shows) under any legal obligation to indemnify against the risk they were advising the Claimant to take. They were under an obligation to advise on that risk, and they did not.
104. As I have observed in a similar and recent case, the mere fact that an ATE premium may be (or has been) challenged in whole or in part cannot in itself support the conclusion that it was unreasonably incurred. The possibility of a challenge is just one of the risks that (as was recognised in Howarth v Britton Merlin) must be taken into consideration when the choice is made. In this case it was not taken into consideration. The Claimant was left without advice in relation to a risk which had potentially serious financial consequences and which should have informed the decision in relation to change of funding.
105. In my view that risk was significant, because the justifications offered for the change by Mr Sankey to his client and in evidence were open to legitimate and strong challenge. The Claimant was, from the outset, vulnerable to a challenge to the whole ATE premium. Summary of Conclusions
106. For the above reasons I have concluded that 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.
AH -v- LEWISHAM
A similar conclusion was reached by Deputy Master Campbell in AH -v- Lewisham Hospital NHS Trust  EWCA B3 (Costs). Again there was a decision to switch funding. Again the issue was the reasonableness of that decision.
55 . The starting point is to decide whether the extent to which, if at all, the quality of advice given by a solicitor to his client, can be held against either or both when working out how much a paying party should pay under a costs order. If the answer to that is “not at all” if the client makes a reasonable choice, then Mr Hutton’s arguments collapse straightaway. In this context, the boldest case advanced by Mr Marven was that even if the advice was “utterly wrong”, it would still be possible in a given case for a choice to be made that was nonetheless objectively reasonable.
With respect, I do not agree with Marven. I ask rhetorically, how can a client make a choice that is objectively reasonable if the advice from which he must make his decision is ” utterly wrong”? The point might succeed if the advice was mostly wrong but slightly right and the client chose to follow the correct part, but where the whole is entirely incorrect, in my view whatever choice the client makes will be unreasonable. Were it to be otherwise, a solicitor who gave bad or incompetent advice or even advice that was improper in order that he could recover a success fee, would benefit from his own omissions and shortcomings, even if the client made a choice that it was objectively reasonable for the client himself to take. That is an answer to Mr Marven’s “identical advice” point (see paragraph 41 above). Permitting the solicitor who has given the bad advice would enable him to benefit from his own wrong if, in doing so, he could thereby recover a success fee : that is impermissible (see Algussein v Eton College  1 WLR 587). In my judgment, the adequacy of the advice is plainly a relevant factor, as it was in Sarwar. For these reasons, Mr Marven’s submission at its boldest, does not succeed : in my view, the adequacy of the solicitor’s advice to his client can have a bearing upon the amount that it is reasonable for the client’s opponent to pay in costs where he, the opponent, is the paying party.
Mr Marven’s fall-back from that submission is that if a reasonable claimant, reasonably (as opposed to unreasonably) advised, could have incurred a particular item of cost, then it follows that it is a reasonably incurred cost and therefore a reasonable cost. Thus the test is one of reasonableness. Mr Hutton also accepts that the test is one of reasonableness – see paragraph 18 above. Given this submission, I put to counsel during the course of argument that if the test was, indeed, objective, as both counsel broadly agreed that it was, that the wording used by Master Gordon Saker in LXMmight be as close to the right test as there is, in the absence of a higher authority on this point. For convenience I set out what the Master said : –
“64….it is a weighing up of which option is the best option for the claimant in the light of reasonable advice and if the CFA is a reasonable option, and it does not have to be proved that it was the best, only that it was a reasonable option, then costs are recoverable under the CFA.
65. Broadly, I would agree with that but my emphasis would be slightly different. Was the CFA and the attendant ATE policy a reasonable choice for the claimant at that time having regard to all the circumstances?”
Mr Hutton did not disagree (see his skeleton argument at 70): Mr Marven agreed, with the refinement that it only has to be a reasonable option. In view of this, I start from the position that the choice must be one that is reasonable, founded upon advice that was, of itself, reasonable, having regard to all the circumstances. For that reason it is necessary to undertake an examination of the factors which would go into making the advice reasonable, or the absence of those factors which would make it unreasonable. That is the same exercise which Master Gordon Saker undertook inLXM – see his judgement at paragraph 57. It is also the method used by the Court of Appeal in Sarwar when the merits and de-merits of BTE insurance as against ATE were considered. For that reason I cannot accept the argument advanced by Mr Marven that to do so would be to make the whole process of detailed assessment unwieldy and unworkable.
The factors addressed by Irwin Mitchell in their advice to the claimant are summarised in Ms Cumberland’s witness statement and I have repeated them in paragraphs 16 to 17 above. It is not suggested by Mr Hutton that there were any omissions by Irwin Mitchell as regards these matters save for the Simmons v Castle point. In respect of that, he is critical because no attendance notes have been disclosed and that Ms Cumberland in her evidence was “struggling to recollect” (as Mr Hutton put it) about when she had given the advice to the client over the telephone and nothing is said in the bill about these matters.
These are fair points but can be answered. First, advice about funding is not recoverable between the parties and in these circumstances, there is no reason why the dates and times of meetings with the client against which no claim for payment is made from the defendant, should be shown in the bill. Second, although I agree with Mr Hutton’s view that in giving her evidence, Ms Cumberland appeared to struggle in her recollection, that is far from establishing that she was mistaken or not telling the truth, neither of which I should make clear, were part of Mr Hutton’s case. In my judgment, Ms Cumberland deserves some credit at least for volunteering very frankly that she did not give the Simmons v Castle advice because she was not aware of the case at that time (a factor which Mr Hutton generously agreed should not be held against her when Ms Cumberland had not suggested in her evidence that the instruction to consider each of her legal aid matters had also told her about Simmons v Castle, from which it is to be inferred that the request to review her files had made no reference to the Simmons case) and that this is a point persuasive in helping me to accept her evidence that she gave the client a full exposition about changing funding, albeit the exact date when that was done she cannot now remember. Doing the best I can on the material before the court and having heard Ms Cumberland’s evidence I consider that it is more likely than not that the advice was given by telephone on or just before 27 February 2013.
I also consider that it was proper for Irwin Mitchell to give advice in relation to the LASPO changes since a forced move to an alternative method of funding post-LASPO would have meant that on a CFA, the client would have been liable for any ATE insurance and the success fee, if either or both were to be charged. It follows that I do not share Mr Hutton’s client’s view on this point that the process in March 2013 was “all about getting Irwin Mitchell a success fee” as was said during the course of argument. Whilst it is right that this was the last moment on which the change to a CFA with recoverable additional liabilities could be made, this was true for the legal profession as a whole. Accordingly I consider that it was proper advice for the claimant to be told that funding methods were being changed by statute with effect from 1 April 2013 and that if she wished to move to a CFA with recoverable additional liabilities, it was “now or never”. Accordingly, I am against Mr Hutton with regard to his submissions about the evidence.
That is not the end of the matter however. Despite the comprehensive nature of the arguments, and having decided that the adequacy of advice as between solicitor and client is a matter which can sound in the amount that a paying party can be required to pay on detailed assessment, in the end the outcome drills down into a relatively short point on the facts. Was this claimant’s choice objectively reasonable based upon the advice she was given by Irwin Mitchell, taking all relevant circumstances into account?
I conclude that it was not because it was premised upon advice that was more than merely “incomplete”, as was the case in AMH. A very significant component was missing. What the client should have been told was that “if you move to a CFA you will forfeit immediately the right to an additional 10% of the general damages you recover, which we estimate could £175,000, so as much as £17,500”. It was therefore advice that was unreasonable.
As Mr Hutton points out, we do not know what the client would have said had the Simmons advice been given. It could have been “It is worth giving up £17,500 to have the certainty that under a CFA, I will be litigating in a risk-free costs environment in which I will keep all the damages”. On the other hand, it could also have been “A settlement discussion has been opened over the telephone, an offer has now been made, we are very close, and £17,500 is a lot of money to give up. As it is, I have the protection of the legal aid certificate. Thank you for giving me this advice but let’s play it safe and stick with what we have got as it looks as though we may be able to agree terms before long”.
That is not conclusive for the defendant however because Mr Marven submits that materiality is not part of the reasonableness test and, with respect, he is critical of Master Rowley’s decision in Surrey. He contends that the limit of the test is to decide whether the cost was reasonably or unreasonably incurred. Mr Hutton’s riposte is that materiality is all. If the extra 10% would have been but a few hundred pounds, that would have been immaterial but where, as here, the sum in question could have been as much as £17,500, that was a figure to which the client would have attached significance, and was, accordingly, material. Put another way, the amount in question might have made the client’s mind up for her and was therefore material. That is the reason why the cases upon which Mr Hutton relies all focus on the adequacy of the advice and if the client relies on it, then it is material.
I agree with Mr Hutton on this issue for the reasons he has given. The Simmons v Castle point was a factor which might have tipped the balance of choice one way or the other had the claimant known about it. It follows in my view that a component which is capable of influencing an outcome must be one that is material to the decision that is taken, in the same way that one that is incapable of doing so because it is immaterial, is not. By way of example, had the extra 10% been £175 and not £17,500 it would have had no bearing on the client’s decision because it was de minimis, but where, as here, it could have been as much as £17,500, it is likely to have been a factor, if not the factor, critical in persuading the claimant whether or not to move from legal aid to a CFA. The reason? The 10% was material to her choice. I accept Mr Hutton’s submission on this point. It follows that the claimant’s decision, based as it was upon advice that was flawed in a material way, was not objectively reasonable and the claims for the success fees and ATE premium therefore fail.
Having reached my decision by the route that I have, it is unnecessary to decide whether it would have made any difference had there been a witness statement from the client to the effect that, had she been given the Simmons v Castle advice, she would still have signed the CFA. Mr Hutton submits that it is a factor in his client’s favour that the exact nature of the advice given to the client has not been disclosed (skeleton argument paragraph 71) and in the absence of anything from the claimant, it is not known what her choice would have been. Mr Marven says that since it is an objective test, it would be an unhelpful exercise to ask what the claimant would have done. If cross-examined, in all likelihood the client would have said “I would have done exactly the same as I did”, prompting the well-known expression “she would say that, wouldn’t she”.
As I say, I do not have to decide the point, but in case I am wrong I can see that there would certainly be difficulties for Mr Marven even if the claimant had served a witness statement saying that she would have made the same choice. In Cox v Woodlands Manor Care Home  3 Costs LO 327, the client was “entirely satisfied” with the damages recovered through her solicitor’s services and “dismayed” at the fact that they would go unrewarded for their endeavours on her behalf because the firm had forgotten to give her notice of cancellation of her CFA, under cancellation regulations then in force (see judgment of Underhill LJ at paragraph 17). As it seems to me, that is an example of where a client was given broadly good advice, but which was flawed in one material aspect, about which the client could not have cared less and whose concern was not for herself, but for her solicitors. Nonetheless, the solicitor went unpaid. Although not quite on all fours with the situation here, because the cancellation regulations are not in point, the case shows that even if the client is satisfied with the advice, that may not be enough. Expressed in another way, it is illustrative of the fact that the quality of the advice is capable of having a significant bearing on how much the paying party will be required to pay under a costs order, even where the client takes no issue with that advice.