Lessons in Funding: CFAs and Legal Aid

Please note a shorter concise version of this article can be found in the summer edition of Partners in Costs Magazine. If you'd like a free copy of the magazine then please contact me directly.

Any issues concerning funding is always going to a ‘thorny’ subject particularly where it causes the Paying Party’s costs liability to increase. Wherever funding changes from Legal Aid to a CFA be prepared to face challenges.

Under the spotlight recently have been a number of decisions concerning the move from Legal Aid to a CFA. Most recently the case of Yesil v Doncaster NHS Trust saw Irwin Mitchell denied the recovery of additional liabilities equating to over £105,000.00.

This is no small issue and all solicitors should proceed with caution when moving from Legal Aid to a CFA (particularly if it concerns a pre-31 March 2013 CFA).

Below I take a look at these recent cases and also some key cases from the past in order to explore the arguments for and against moving from Legal Aid to a CFA.

The Case For

AMH v The Scout Association

In this case Master Leonard determined that a Claimant who switched from legal aid funding to a CFA just before the Jackson Reforms acted reasonably.

Master Leonard made this decision despite holding that the Claimant’s solicitor had not provided enough information to the Claimant about the pros and cons of the move.

He said: "One does have the impression that the solicitor, having reached a conclusion, more or less nudged the client towards the conditional fee agreement arrangement. In saying that, I emphasise that I do not and I should not speculate as to what the thinking might have been behind that."

"Of course it has been pointed out to me that it is likely to be advantageous to a solicitor to have the client into such an arrangement but, equally, it seems to me that at that particular time, with changes in the funding regimes coming and raising real issues which did bear consideration, a solicitor would be anxious to ensure that he did not expose himself to potential complaint from a client who had not been given the opportunity to consider the funding options and to take the best option from the client’s point of view."

The Claimant’s solicitor determined that the Legal Services Commission (as it was then known) would not provide sufficient funding to take the case to Trial and that there was a possibility that the Claimant could obtain employment ending his eligibility for Legal Aid.

The Defendant challenged the change from Legal Aid to a CFA on the basis it was not a reasonable choice and sought the disallowance of the claimed success fee and ATE Premium.

Master Leonard used his discretion on the case and stated that "I am unable to accept that a choice must be unreasonable if it is not made on the best available information. I think one has to consider… whether the choice was reasonable in all the circumstances. It is… possible to make the right choice for, here, not so much the wrong reasons as an incomplete set of reasons."

Master Leonard went on to say that "So notwithstanding the fact that I do accept that the advice given was too brief and not as detailed and complete as it should have been, it does seem to me to have focused upon a genuine key issue in relation to the preservation of the client’s damages."

"The solicitor gave it in the knowledge that if he did not give that advice, it was possible that the client might lose out financially at the end of the day."

In this case Master Leonard took a common sense approach, the move benefitted the Claimant and it was therefore reasonable. Consequently Master Leonard held that the additional liabilities were recoverable inter partes.

This case acts as hope for solicitors who find that the advice they provided in relation to funding is challenged. The test of ‘reasonableness’ is something which will be seen again. In this case the important distinction is between ‘incomplete’ and ‘wrong’ advice. The latter can have serious consequences (see the section case against).

Milton Keynes NHS Foundation Trust v Hyde

Milton Keynes NHS Foundation Trust v Hyde [2016] EWHC 72 (QB) is another case whereby the Court determined that the CFA was enforceable and additional liabilities were recoverable inter partes following a change from Legal Aid.

In this case the Claimant’s legal aid was about to run out so the Claimant entered into a CFA with her solicitor to protect her position.

Master Rowley commented that "In my judgment, 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."

An important feature of this case which is referred to in the Judgment is that the Claimant’s solicitors did attempt in the first instance to persuade the Legal Services Commission to reconsider its decision (that it would not offer further funding) but were unable to do so. The CFA was entered into thereafter together with an ATE premium taken out in late March 2013.

The case of Milton Keynes NHS Foundation Trust shows that moving from Legal Aid to a CFA is possible, particularly where it can be demonstrated that reasonable steps were taken prior to the change.

Master Rowley made it explicitly clear that "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."

Later Justice Soole in Milton Keynes Foundation Trust -v- Hyde [2016] EWHC 72 (QB) upheld Master Rowley’s decision.

Lord Justice Soole commented that "in my view the position would thus be analogous to the cases where the work authorised by the certificate has been completed, the certificate is treated as 'spent' and the litigant as no longer assisted/funded. I do not accept that 'costs limitation' cases should be distinguished on the basis that the authorised work remains incomplete. What matters is that the funding is exhausted."

This case presents another scenario where it is reasonable to change the method of funding. Whilst this matter also delved into issues concerning the formalities of discharging the Legal Aid certificate, thankfully, common sense prevailed over technicalities. The key point is that where Legal Aid is exhausted or it will be insufficient then it is reasonable to take proactive steps in changing funding.

Practically speaking this is the same scenario which can be applied to BTE. If BTE is legitimately exhausted then it is reasonable to consider further funding options.

LXM v Mid Essex Hospital Services NHS Trust

In the case of LXM v Mid Essex Hospital Services NHS Trust [2010] EWHC 90185 (Costs) it was deemed reasonable for the Claimant to change from Legal Aid funding to a CFA.

In this case a clinical negligence claim was brought on behalf of a child who was born with cerebral palsy.

This was a claim which took place over 13 years. For the first 9 years of the claim it was funded by way of Legal Aid. In 2006 a CFA was entered into which allowed for a 100% success fee and an ATE Premium.

The case was dealt with by three different solicitors. The first set of solicitors were entirely covered by Legal Aid, the second set of solicitors were covered initially by Legal Aid and later a CFA, the third set of solicitors was funded entirely by a further CFA.

Liability was in dispute so the claim was listed for a split-trial. Liability was admitted four days before the Trial, subsequently judgment was entered. The claim settled for £3.7 million.

The Defendant agreed the First Solicitor’s costs (other than interest which was subsequently allowed) and also agreed the base costs of the Second and Third solicitors.

Having regard to the facts of the case Master Gordon-Saker determined that it was reasonable for the Claimant to discharge the Legal Aid certificate and enter into the CFA given the amount of advice the solicitors provided (including from Counsel). It was also noted by the Court that the Claimant would face less irrecoverable costs under a CFA. The ATE Premiums were also held to be reasonable.

The only reduction made by Master Gordon-Saker was to the level of success fee claimed. The success fee for the second solicitor was reduced to 67% and to 33% for the third solicitor. Counsel was allowed a 100% success fee as claimed as the CFA pre-dated the liability judgment.

Master Gordon-Saker stated that "I cannot say that it was unreasonable for the claimant to incur the potential additional liabilities consequent on entering into the conditional fee agreement and the after the event insurance policy as against the potential costs disadvantages of public funding."

The determining factor put to Master Gordon-Saker in this case was that so long as reasonable advice was given and the CFA was a reasonable option then it does not necessarily need to be proved that it was the best choice.

This simply reinforces the importance of the advice provided to the client. It simply cannot be understated and is a factor which features prominently.

The importance of the advice given will become abundantly clear when considering the cases against.

In addition the Claimant’s solicitors were able to demonstrate that the CFA was advantageous. Master Gordon-Saker found that "the conditional fee agreement route would be obviously more advantageous to the claimant because the only impact of costs on her damages will be the unrecovered Legal Aid costs."

Whilst Master Gordon-Saker noted that there was a tension in the terms of the Third Solicitor’s CFA and the ATE Premium (i.e. contradictory terms concerning what would be payable by the Claimant) but fortunately for the Claimant’s solicitors they were able to convince the Court that the Claimant would not be responsible for any costs (i.e. any shortfall).

This is another factor which appears throughout. The ideal scenario is one where it can be shown that adequate advice was given and that the CFA itself is a more advantageous way of funding (something which is increasingly difficult with a Post Laspo CFA).

If you can satisfy these two issues then you put yourself in the strongest possible position to recover additional liabilities.

The Case Against

Arianna Ramos –v- Oxford University Hospitals NHS Foundation Trust

In this case the Legal Services Commission would not permit the Claimant to instruct experts who charged more than £180.00 per hour and nor would it agree to the Claimant’s solicitors "topping up" the fees. The experts identified by the Claimant all charged between £250.00 and £400.00 per hour. The Claimant’s solicitor argued that he was unable to identify experts who would charge less.

The Claimant solicitor’s argument was premised on the fact that establishing causation where complex medical issues were involved and in order to maximise damages for the Claimant it was necessary to obtain evidence from "reputable, reliable and experienced experts". In other words it was the Claimant’s solicitor’s view that the Claimant was prejudiced by limit of the Legal Aid funding.

The Claimant’s solicitors made an application to discharge Legal Aid funding and set out the basis of the application on the above arguments.

Having regard to the evidence of the advice provided to the Claimant Master Leonard stated that "[his] conclusion [was] that [the Claimant’s solicitor] gave no verbal advice of any substance to [the Claimant]".

Lesson one is to ensure that the benefits and disadvantages of each method of funding is clearly explained to the client. Lesson two is to ensure that all advice is recorded, whether this be simply as a letter or a file note. Always act on the premise that your file of papers will end up in front of the Judge.

The Claimant’s solicitor in this case failed on both counts, something which the Court alluded to when reaching its decision.

Master Leonard continued his thoughts;

"I have also been referred to a number of authorities and decisions: Salwar v Alam [2002] 1 WLR 125, LXM v Mid Essex Hospital Services NHS Trust [2010] 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 [2015] EWHC B17 (Costs).

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."

Master Leonard concluded his judgment by stating 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."

Here we have an example of the importance of the advice which is given. It does leave open the question of whether adequate advice was given would it be a reasonable choice for the Claimant chose a CFA?

In principle I think the answer is yes but that is not to say that a battle would not be faced.

The problem with this matter is that as inadequate advice was given it was not possible for a reasonable choice to ever be reached. This is opposed to the guidance given in AMH v The Scout Association, however, the key decision there was that the change could be viewed as advantageous.

In short the two factors which are present in the bulk of these cases were not satisfied. It is unsurprising, therefore, that additional liabilities were disallowed.

AH -v- Lewisham Hospital NHS Trust [2016]

It is crucial to understand the facts of the claim when considering the decision reached by Master Campbell.

The judgment deals with the facts both concisely and succinctly;

"With regard to events in February and March 2013, Mr Hutton draws attention to a telephone call which had taken place on 4 February 2013 between the fee earner at Clyde & Co and his opposite number at Irwin Mitchell, in respect of which the file note had said this :-

"I asked her to think without prejudice of where her claim is really valued at, in case we can in fact do a deal now".

Mr Hutton contends that this was clearly an indication that the defendant had wanted to settle the case, but notwithstanding this entreaty, the claimant's response had been an application by Irwin Mitchell on 27 February 2013 to discharge the legal aid certificate, which had occurred two days later.

The next step taken by the defendant had been to make its Part 36 offer of £285,000 on 18 March 2013. Given that the value of the initial admission had been £25,000, this was a significant increase. Nonetheless, on 27 March 2013, the claimant had entered into the CFA with the staged success fee and had taken out an ATE policy. The following day Clyde & Co had received notice of the CFA, but it was clear that the change of funding had happened at a time when the claimant knew that the claim was likely to settle. In Mr Hutton's submission, it had been unreasonable for the claimant to have taken this step in view of these factors."

In addition representations as to the level of advice provided to the Claimant were also made. This particularly related to the 10% uplift in respect of damages set out in the case of Simmons v Castle. The Defendant argued that the Claimant’s solicitor should have advised the Claimant that by entering into a pre April 2013 CFA the Claimant would be unable to obtain a 10% uplift on damages. In this case it was argued that the 10% could have been worth up to £17,500.00 (on the facts of the claim at that time) which was far in excess of the non-recoverable shortfall afforded under the CFA-Lite.

The Claimant’s solicitor sought to argue that the advice itself was irrelevant so long as the Claimant made a reasonable choice (on point with the case of AMH v The Scout Association).

Very much akin to the Arianna Ramos case the Claimant’s solicitor was criticised for failing to provide adequate advice. Master Campbell was very blunt when he stated that "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"

Master Campbell asked whether the Claimant’s choice was objectively reasonable based upon the advice given by her solicitor. He concluded "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 [be] £175,000, so as much as £17,500". It was therefore advice that was unreasonable."

Master Campbell summed up his decision by stating as follows; "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."

The Claimant’s solicitor accepted that she had not advised the Claimant concerning the Simmons case and was open about the fact that she had no knowledge about the case when advising the Claimant.

Ignorance was no answer in this case and it highlights the importance (and burden) of not only providing advice but providing complete advice.

It is clear in this case that had the Claimant been advised concerning the Simmons case but still opted to move to a CFA then the outcome as to the reasonableness of the choice would likely have been different.

For the Claimant’s solicitor on the facts of the case the success fee and ATE Premium were disallowed.

If anything at all is taken from this case it is Master Rowley’s comment 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."

Notably the same issue occurred in the cases of Yesil v Doncaster & Bassetlaw Hospitals NHS Foundation Trust and Surrey v Barnet & Chase Farm Hospitals NHS Trust (2015) EWHC 9085 (Costs) all of which were handled by the same firm of solicitors (Irwin Mitchell). Both these cases ended in the same result with the disallowance of the additional liabilities.

Oliver Davis –v- Wiltshire Primary Care Trust

This is an unreported case but one that has been shared by DAC Beachcroft.

This case is different to the above cases as the Claimant changed from Legal Aid funding to a CFA (which allowed for an ATE Premium) in 2009. The change in funding took place prior to the receiving of the Letter of Response from the Defendant who would give admissions of breach of duty and causation.

The matter was heard by Master Leonard.

Firstly, he dismissed the Claimant’s assertion that the Defendant could have admitted liability prior to the Letter of Claim having been sent. Master Leonard made it clear that it was not incumbent on any Defendant to formulate a case against itself or to make admissions before it knew what the Claimant’s case was. Master Leonard held that it was not the Defendant’s fault that it took 3 years for the Claimant’s solicitor to serve a Letter of Claim.

Master Leonard also found that it was reasonable for the Defendant’s solicitor to request clarification concerning the Claimant’s Letter of Claim as it dealt with information which should have been present in any event.

It was further found that there was no convincing evidence that the Claimant needed an interim payment to the extent that justified the change to a CFA and ATE arrangement.

Master Leonard was also critical of the advice provided by the Claimant’s solicitor to the Claimant. He determined that at no stage was the Claimant 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.

It was determined that the switch from Legal Aid to a CFA was not a reasonable decision and nor to the Claimant’s advantage. Consequently, the additional liabilities were disallowed in full.

Post 1 April 2013

There’s a fundamental difference where a solicitor enters into a Post 1 April 2013. The abolition of the recovery of additional liabilities means that any challenges to the change in funding would likely come from either the client or a regulator. This is principally because the additional costs liabilities encapsulated under a post 1 April 2013 CFA would be payable by the client and not the Defendant.

Whilst there is no reported authority which deals with the issue of changing funding post Laspo what we can take from the above cases is that it is important to demonstrate the choice to change funding was reasonable and that proving the change was advantageous would be supportive to this.

As I’ll examine in the summary it is better to be cautious. Always ensure that comprehensive advice is provided and that all communications are documented.

If in any doubt seek advice, you don’t want to become future case law!

Summary

The conclusion to be drawn is that changing from Legal Aid to a CFA can legitimately be done.

Master Gordon-Saker in LXM provided guidance as to the test for whether moving to a CFA was reasonable.

He initially quoted the Claimant’s Counsel who stated that;

"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."

Master Gordon-Saker upon consideration of the above commented that;

"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?"

The difficulty for solicitors who find themselves in this situation is that it is not possible to retrospectively provide advice. Indeed, the idea of providing a retrospective witness statement by the Claimant was dismissed in the AH case. If inadequate advice was given at the time the change in funding occurred then this will not be assistive in proving that the choice to change the method of funding was reasonable.

It is important to go back and ensure that file management has taken place. Is the attendance note discussing funding on your file of papers, have copies of all the relevant correspondence been retained? These are all important factors in evidencing that the move from Legal Aid to a CFA was a reasonable one. Remember that on a standard basis assessment the burden proof is on the receiving party. If there is no evidence the Court will likely rule on the side of the Paying Party.

Inadequate advice (as seen above) does not automatically mean you will lose additional liabilities. The case of AMH v The Scout Association demonstrates that the Claimant simply needs to demonstrate that the choice was reasonable even if it was based on flawed advice.

AH, however, provides a stark warning, Master Campbell dealt with the issue of providing incorrect advice and was direct in his criticism; "where the whole [advice] is entirely incorrect, in my view whatever choice the client makes will be unreasonable".

As can be seen from the above cases it can be a risky business but it doesn’t mean that it can’t be done successfully.

The lesson to be learned is that you should always take your time with funding otherwise it can be costly. Should there be any doubts or concerns then don’t be afraid to seek advice.

Sean Linley is a Costs Consultant at PIC (Partners in Costs). You can contact him at sean.linley@pic.legal, or the PIC Team on 01915 008464.

More Information

I am thankful to and would recommend the following for more information on the issues discussed above;

• Gordon Exall’s fantastic blog which originally piqued my interest in this subject. His original article can be found here.
• Matthew McGrath of DAC Beachcroft whose article provided the information in respect of the unreported case of Oliver Davis v Wiltshire Primary Care Trust.
• Keoghs whose article provided guidance on the cases of Yesil v Doncaster & Bassetlaw Hospitals NHS Foundation Trust and Surrey v Barnet & Chase Farm Hospitals NHS Trust (2015) EWHC 9085 (Costs)
• For those interested in the technicalities of when a CFA can replace Legal Aid, the LegalAidHandbook provides a look at this. For anyone interested in Legal Aid the blog as a whole is worth keeping an eye on.
• I am also thankful to both Bailii and PLC who provided the transcripts referred to above.