NHS Resolution (formerly NHS Litigation Authority) Succeeds in Having £498k of Additional Liabilities Disallowed in Just Two Cases
Published 18 February 2016
NHS Resolution (formerly the NHS Litigation Authority) has successfully challenged the transfer of funding from the Legal Services Commission (public funding) to a Conditional Fee Agreement arrangement backed up by After the Event Insurance in two cases recently, which has resulted in a £498,000 saving for the public purse.
Master Leonard, sitting as a Costs Judge in the Senior Courts Costs Office, heard both cases, which involved Claimant’s solicitors transferring funding from LSC public funding to CFA/ATE funding. He has held in both cases, that the decision to abandon public funding was not reasonable and nor were the advices provided to both Claimants by their respective solicitors.
In Arianna Ramos v Oxford University Hospitals NHS Foundation Trust, a case involving Slater and Gordon Solicitors, NHS Resolution objected to paying additional liabilities (a success fee and ATE premium totalling £261,000) arising out of the decision of the Claimant in February 2013 to change her funding from LSC funding to a CFA/ATE arrangement.
The decision to change funding occurred just prior to the amendments to the Civil Procedure Rules and Practice Directions which removed the right of recoverability of a success fee (up to 100% of the base costs incurred), and the cost of ATE premiums (except for the risk of obtaining expert evidence on liability and/or causation) from the unsuccessful party.
In setting out the principles to determine the issue, Master Leonard said in the Judgment: "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."
When applying those principles to the specific facts of the case, Master Leonard concluded that:
- The Claimant's solicitor failed to carry out a full and adequate analysis of the relative advantages and disadvantages to the Claimant of switching funding arrangements;
- It was evident that the change of funding was arranged in haste (the deadline for entering an agreement to take advantage of a 100% uplift on fees was fast approaching);
- The Claimant’s solicitor had been wrong in believing that a) 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, and b) that the LSC would not pay the claimant’s expert more than £180 per hour, and would not allow his firm to pay them at more than £180 per hour;
- The Claimant's solicitor’s advice to the Claimant's mother that there was no option but to change from LSC to CFA/ATE funding were based on broad assumptions that lacked any sound foundation;
- There was a lack of advice given by the Claimant's solicitor to his client about the effects of entering into a CFA/ATE insurance arrangement, and thus foregoing the benefit of a Simmons v Castle uplift of 10% on general damages which would apply from 1 April 2013;
- The Claimant was not in a position to make an informed choice about the change of funding from LSC to CFA/ATE insurance, and that given there was sufficient doubt about the reasonableness of a decision to be able to do so, rendered the success fee and ATE premium irrecoverable under CPR 44; and
- That there was very real risk that the ATE premium would not be recovered by the mere fact that the justifications offered for the change of funding from LSC to CFA/ATE were open to legitimate and strong challenge.
The Master decided that the decision in February 2013 to abandon LSC funding was not made on the basis of adequate advice, and that it was not made on a fully informed basis; that it was more to the Claimant's disadvantage than to her advantage and it was not a reasonable decision. He ruled the success fee and ATE premium were irrecoverable as a consequence against the Defendant.
In Oliver Davis v Wiltshire Primary Care Trust, a case involving Wolferstans Solicitors, the Claimant had changed from LSC funding to CFA/ATE insurance in 2009, well before any changes to the recoverability of success fees and additional liabilities was mooted (the success fee and ATE premium totalled £237,000).
In fact, the change from public funding to CFA/ATE funding had occurred prior to service of the Letter of Response in which admissions of breach of duty and causation were made!
Master Leonard, in reaching his decision:
- Found the Defendant’s solicitor’s request for clarification of the Letter of Claim was an entirely reasonable request for information that should have been incorporated in the Letter of Claim;
- Refuted the Claimant's suggestion that the Defendant could have admitted liability before the Letter of Claim was received, as it is not incumbent on any Defendant to formulate a case against itself or make admissions before it knows what a Claimant's case is. It was not the Defendant's fault that it took three years for the Claimant's solicitors to serve a Letter of Claim;
- Found there was no convincing evidence that the Claimant needed an interim payment to the extent that justified the change to a CFA/ATE arrangement; and
- Held 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. This left the Claimant exposed to a risk that he was not advised about.
In conclusion, the Master determined the switch from public funding to a CFA backed by ATE insurance in November 2009 was not a reasonable decision, nor to the Claimant's advantage. As a consequence, he disallowed both the success fee and the ATE premium in full, which otherwise would have been payable by the Defendants.
Both these decisions handed down in the early part of 2016 highlight the need for Defendants to challenge transfers of funding from public funding to CFA/ATE insurance. In both cases, the Defendant’s solicitor placed the Claimant’s firm on notice that the transfer in funding would be challenged.
Both decisions identify shortcomings in the advice provided by Claimant’s solicitors to their clients, such as to render the transfer of funding unreasonable. Both carried potential risks to the Claimants that outweighed any benefit.
Given the financial advantages to Claimant’s lawyers in entering into pre 1 April 2013 CFAs, enabling recoverability of success fees of up to 100% of base costs against unsuccessful Defendants, there was clearly a commercial incentive on the Claimants' lawyer’s part to proceed by way of CFA/ATE.
There are still a significant number of claims that continue to proceed at present under pre 1 April 2013 CFAs. The mechanics upon which these CFAs have been entered into should continue to be scrutinised closely.
NHS Resolution was represented by Acumension and DAC Beachcroft LLP Winchester.