Court of Appeal rule switch from LSC to CFA funding pre-LASPO as unreasonable

Published 22 March 2018

In the cases of Surrey v Barnet & Chase Farm Hospitals NHS Trust (& Others) 2018 EWCA Civ 451 the Court of Appeal considered the reasonableness of costs claimed when, after liability has been admitted by the Defendant, funding of the claim has changed from legal aid (LSC) to a conditional fee agreement (CFA) supplemented by after the event insurance (ATE). In these cases it was considered unreasonable and the Claimants could therefore recover base costs only.

Why these three cases?

In each of the three clinical negligence cases the Claimant was represented by Irwin Mitchell and funded by the LSC. Liability was admitted in full or in substantial part by the Defendant, although no Part 36 offers had been made. 
 
In all 3 cases, LSC funding was discharged shortly before the April 2013 deadline for the implementation of LASPO and the Claimants entered into a CFA, which provided for a success fee. Pre-LASPO, this success fee was still recoverable from the Defendant. 

At the point in time that LSC funding was discharged, the Defendant in all three cases was, in principle, the paying party. Costs would therefore be recoverable from the Defendant at ordinary commercial rates, rather than the lower rates that the LSC would pay Irwin Mitchell if the claim failed. 

There was no objection by the Defendants to their liability to pay the Claimants' Solicitors' base fees. The objection was to the success fees and the ATE insurance premiums payable as a result of the resultant CFAs. Across the 3 claims, the combined total claimed exceeded £250,000. 

The significance of these three cases is the combination of two facts (a) at the time of the switch to the CFAs the Claimants already had LSC funding, and (b) at the time of switch the Defendants were already, in principle, the paying party.

What was the rationale behind the switch?

Various reasons were proffered by Irwin Mitchell to explain the switch from LSC funding to a CFA:

1. That the switch was made at a time when judgment for damages to be assessed had already been entered against the Defendant but no Part 36 offer had been made. Therefore that there was no guarantee that the LSC would increase the funding reserve to allow for the assessment of damages hearing. 

The Court of Appeal observed that no evidence was provided as to the costs which had been incurred, what the authorised cost limit was, what further costs needed to be incurred and how the LSC had reacted to a request for an increase in the costs limit previously. 

The Court also highlighted that the Claimant's Solicitor made the "extraordinary point" that "there was a risk to the client that there may not be sufficient funding to cover the cost of our work in the future and my client could be exposed to make up the shortfall of any costs not recovered from the Defendant".

The Court stated that this advice, which indicated that a legally aided client must make up the shortfall in his own solicitors' costs if not recovered from the other side, was tantamount to "topping up" which is unlawful. In addition, if the client had been advised that this shortfall amounted to a very substantial potential liability, that was in fact unlawful, then he had been misled into making a decision based on deeply flawed advice.

2. That there was no guarantee that the LSC would increase the scope of the costs limit and the LSC might have taken a different view on the merits of the claim.

Again the Court viewed this line of argument as suggestive of illegal "topping up" and was "seriously misleading".

3. That the costs were close to the limit of the LSC's costs authority and in order to increase the costs limit, the LSC would require a "fully costed costs plan". That would have given a likely maximum of £189,000, when the Claimant's solicitor had sought an increase to £240,000.

It was accepted by the Court that there had been a serious overestimate of the costs incurred. Further, that £240,000 was never justified, and that Irwin Mitchell did not respond to the LSC's request for a fully costed costs plan. As a final point, the LSC had properly made the point that as there were no Part 36 offers in place, it was inevitable that the Claimant would recover inter partes costs from the Defendant's insurers, NHS Resolution.

Again the Court stated that if the Claimant had been advised that they were about to reach the cost limit on the legal aid certificate and that the Legal Aid Agency had refused any application for further funding, this would be "seriously misleading.

4. That the 10% increase in general damages which would apply to a post-LASPO CFA was taken into account, but that this factor was significantly outweighed by the benefits of the pre-LASPO CFA. 

Despite this statement, it was accepted that in all three cases the Claimants' Litigation Friends were not advised (apparently through oversight) that one consequence of the switch from LSC to CFA funding would be loss of the 10% uplift in damages mandated by Simmons v Castle.

In Lord Justice Lewison's judgment he notes "the bottom line is that in each of these three cases the advice given to the client had exaggerated (and in two cases misrepresented) the disadvantages of remaining with legal aid funding and had omitted entirely any mention of the certain disadvantage of entering into a CFA. Moreover, one of the advantages of entering into a CFA was Irwin Mitchell's own prospective entitlement to a substantial success fee."

Accordingly, the Court of Appeal agreed that the switch from LSC to CFA funding was not a reasonable one and consequently, the Claimants can only recover the base fees.

Alexander Hutton QC, who acted for the Defendants commented that: “While a switch of funding was capable of being reasonable in the light of the reasons for doing so for that particular individual claimant, if a solicitor gives purely generic advice which exaggerates the downside of staying on legal aid and omits potentially material advice about losing the 10% extra general damages if entering into a pre-LASPO CFA, then the claimant is unlikely to persuade a court that the change was reasonable and thus that the additional liabilities are recoverable. I suspect a number of solicitors will be in this boat.”