England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday, 14th June, 2001

Lord Phillips MR :

This is the judgment of the Court

INTRODUCTION

1. These are applications by the Legal Services Commission ("the Commission") requesting the Court to consider the lawfulness of orders for costs made adverse to the Commission and in favour of proposed respondents where funded litigants made applications for judicial review. The issues raised are of general importance at all levels of civil litigation.
2. In all three cases before the Court applications for permission to apply for judicial review to quash orders of the Secretary of State for the Home Department ("the Secretary of State") had been refused, in the case of R v Secretary of State ex p Gunn by Carnwarth J. on 16 March 2000, in the case of R v the Secretary of State ex p Kelly by Owen J. on 10 May 2000 and in the case of R v the Secretary of State ex p Zahid Hussain Khan ("Zahid") by Sullivan J. on 4 July 2000. In each case, applications were made to the Court of Appeal. In the case of Gunn, the application took the form of a renewed application for permission to apply for judicial review. In the other two cases the applications were made after CPR 52 had come into force, so that the applications took the form of applications for permission to appeal against the decision of the Court below. The application of Gunn was heard by Buxton L.J. on 14 July 2000, that of Kelly by Buxton L.J. on 25 August 2000 and that of Zahid by Hale L.J. on 18 August 2000. In each case the application was refused, costs orders were made against the applicant and provision was made for costs to be paid by the Commission. The order in Gunn provided:

"1. this application be refused;

2. the Applicant do pay the costs, such costs to be assessed if not agreed;

3. The costs of the Applicant be assessed in accordance with Regulation 107 of the Civil Legal Aid (General) Regulations 1989;

4. AND ON the application of the Respondent for an order that its costs of this application ("the Court of Appeal Costs") be paid by the Legal Services Commission pursuant to section 18 of the Legal Aid Act 1988

THE COURT HAS DETERMINED (subject to paragraphs (B) and (C) below) that:

(i) it is just and equitable that the Court of Appeal costs be paid out of public funds; and

(ii) that the Applicant is not liable to pay any part of the Court of Appeal costs

AND IT IS ORDERED that

(A) Subject to paragraphs (B) and (C) below that the Court of Appeal costs be paid by the Legal Services Commission

(B) the operation of paragraph (A) of this order shall be suspended until the expiration of 10 weeks from the date of the seal on this order (4.30pm on xxxxxxx) and, if the relevant Area Director gives notice of objection in accordance with paragraph (C), the suspension shall continue until the objections have been heard and determined; and

(C) a copy of this order shall be sent by the Civil Appeals Office to the relevant Area Director and, unless within the said period of 10 weeks the Area Director gives notice in writing to the Civil Appeals Office that the Legal Services Commission wishes to object to the making of a section 18 order and states the grounds of objection, paragraph (A) shall take effect without further order."

3. The order in Kelly provided:

"1. this application be refused

2. the Respondent's costs of this Application by paid by the Applicant such costs to be assessed if not agreed

3. the costs of the Applicant be assessed in accordance with Community Legal Service (Costs) Regulations 2000

(4) The Court having made an order for the payment of the Respondent's costs by the Applicant, who was in receipt of services funded by the Legal Services Commission, and made no determination of the liability of the Applicant.

(5) The Court directs that, if costs are not agreed under the costs order paragraph number 2

(a) the amount to be paid by the Applicant under the above order for costs and

(b) any application for an order for the payment of costs by the Legal Services Commission under regulation 5(2) of the Community Legal Service (Cost Protection) Regulations 2000 in respect of the proceedings in the Court of Appeal

shall be determined by a Costs Judge within three months of the date of the seal of this order, namely by Wednesday 3^rd January 2001 in accordance with regulation 10 of the Community Legal Services (Costs) Regulations 2000.

(6) In the event that an application is made for the payment of costs by the Legal Services Commission,

(a) IT IS RECORDED THAT the Court was satisfied that it would be just and equitable in the circumstances of this application that provision for the costs of these proceedings should be made out of public funds and

(b) THE COURT DIRECTS that, following the determination by a Costs Judge of any amount to be paid by the Applicant and subject to its terms, the Master makes an order for the payment of the costs by the Legal Services Commission.

IT IS FURTHER ORDERED that if the Legal Services Commission make an application to this Court it is reserved to Lord Justice Buxton."

4. The material parts of the order in Zahid were to the same effect as those in Kelly.
5. In his judgment on costs in Gunn, Buxton LJ dealt first with questions not now in issue in these proceedings. These were, (1) whether a renewed application for permission to apply for judicial review should be treated as an appeal and (2) whether there was jurisdiction to make a order for costs in favour of a proposed respondent in such proceedings. While these were live issues in the case of Gunn, they do not arise in later cases, to which CPR 52 and 54 apply. Before us the Commission sensibly decided not to pursue the points.
6. In explaining his order in relation to the Commission, Buxton LJ stated:

"10. Third, I did express the view in the judgment which I have delivered this morning that this was an application which should not have been renewed to this court. I do not make this order on that basis. My view is that this order is prima facie an appropriate one whenever an application is made to the court in circumstances where it may be expected that the Secretary of State would appear and that an application fails: whether it is an application that should never have been made at all or an application that, although reasonably before the court, is in the event unsuccessful.

11. I have set those considerations out at some length because I am not aware of such an order having been made previously in this court in these circumstances; and it may well be that the Legal Aid Board will wish to raise points in connection with it.

12. The order will be that this order will not pass the seal for a period of 10 weeks, during which time it will be open to the Legal Aid Board to make application to this court for the order to be set aside or reviewed. Any such application will be reserved to myself."

7. In Kelly, Buxton L.J. adopted his reasoning in Gunn as did Hale L.J. in Zahid. Buxton L.J. has since released to the full Court consideration of the Commission's application in Gunn.

The Statutory Regime

8. Jurisdiction to make an order for the payment of costs by the Commission (then the Legal Aid Board) to an unassisted party was conferred by section 18 of the Legal Aid Act 1988 ("the 1988 Act"), following earlier statutes. Sections 18(1) to (4) provided:

"(1) This section applies to proceedings to which a legally assisted person is a party and which are finally decided in favour of an unassisted party.

(2) In any proceedings to which this section applies the court by which the proceedings were so decided may, subject to subsections (3) and (4) below, make an order for the payment by the Board to the unassisted party of the whole or any part of the costs incurred by him in the proceedings.

(3) Before making an order under this section, the court shall consider what order for costs should be made against the assisted party and for determining his liability in respect of such costs.

(4) An order under this section in respect of any costs may only be made if—

(a) an order for costs would be made in the proceedings apart from this Act;

(b) as respects the costs incurred in a court of first instance, those proceedings were instituted by the assisted party and the court is satisfied that the unassisted party will suffer severe financial hardship unless the order is made; and

(c) in any case, the court is satisfied that it is just and equitable in all the circumstances of the case that provision of the costs should be made out of public funds."

9. Under that procedure the order against the Board was made, whether at first instance or on appeal, by the Court deciding the substantive dispute between the parties. Before doing so, the Court had to determine the liability, if any, for costs of the assisted party. The practice grew of making the order an "unless" order that gave the Legal Aid Board the opportunity to appear to challenge the order.
10. On 1 April 2000, the former Legal Aid Scheme was replaced by Community Legal Service funding under Part I of the Access to Justice Act 1999 ("the 1999 Act"). The Commission took over the functions of the Legal Aid Board and the Community Legal Service (Costs) Regulations 2000, ("the Costs Regulations") and the Community Legal Service (Cost Protection) Regulations 2000, ("the Cost Protection Regulations"), made in exercise of the powers conferred by the 1999 Act, came into force on that date. Both Regulations were subject to minor amendments which came into force on 2 April 2001. Section 18 of the 1988 Act was repealed (section 106 and Schedule 15 Part I of the 1999 Act).
11. The transitional procedures are not straightforward but Mr Morgan, for the Commission, has not considered it necessary to address the Court in detail upon them because it is upon the regime under the 1999 Act that the Commission seeks guidance. The Commission is concerned less with the form of the orders of Buxton LJ and Hale LJ than with what orders it is now appropriate to make under the new law and procedure that have come into effect.

The 1999 Act

12. Section 11 of the 1999 Act provides:

"(1) Except in prescribed circumstances, costs ordered against an individual in relation to any proceedings or part of proceedings funded for him shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including—

(a) the financial resources of all parties to the proceedings, and

(b) their conduct in connection with the dispute to which the proceedings relate;

and for this purpose proceedings, or a part of the proceedings, are funded for an individual if services relating to the proceedings or part are funded for him by the Commission as part of the Community Legal Service.

(2) In assessing for the purposes of subsection (1) the financial resources of an individual for whom services are funded by the Commission as part of the Community Legal Service, his clothes and household furniture and the tools and implements of his trade shall not be taken into account, except so far as may be prescribed.

(3) Subject to subsection (1) and (2), regulations may make provision about costs in relation to proceedings in which services are funded by the Commission for any of the parties as part of the Community Legal Service.

(4) The regulations may, in particular, make provision—

(a) specifying the principles to be applied in determining the amount of any costs which may be awarded against a party for whom services are funded by the Commission as part of the Community Legal Service,

(b) limiting the circumstances in which, or extent to which, an order for costs may be enforced against such a party,

(c) as to the cases in which, and extent to which, such a party may be required to give security for costs and the manner in which it is to be given,

(d) requiring the payment by the Commission of the whole or part of any costs incurred by a party for whom services are not funded by the Commission as part of the Community Legal Service,

(e) specifying the principles to be applied in determining the amount of any costs which may be awarded to a party for whom services are so funded,

(f) requiring the payment to the Commission, or the person or body by which the services were provided, of the whole or part of any sum awarded by way of costs to such a party, and

(g) as to the court, tribunal or other person or body by whom the amount of any costs is to be determined and the extent to which any determination of that amount is to be final.

13. Thus the power to require payment by the Commission to a party for whom services are not funded by the Commission is now governed by the Regulations rather than, as under the former scheme, by the statute itself. Mr Morgan has referred to the Cost Protection Regulations as providing the substantive law and to the Costs Regulations as governing procedure. Clearly they must be considered together.

The Costs Regulations

14. The procedures for ordering costs against client and Commission are set out in Regulations 9 and 10 of the Costs Regulations, as amended:

"9.—(1) Where the court is considering whether to make a section 11(1) costs order, it shall consider whether, but for cost protection, it would have made a costs order against the client and, if so, whether it would, on making the costs order, have specified the amount to be paid under that order.

(2) If the court considers that it would have made a costs order against the client, but that it would not have specified the amount to be paid under it, the court shall, when making the section 11(1) costs order:

(a) specify the amount (if any) that the client is pay under that order if, but only if:

(i) it considers that it has sufficient information before it to decide what amount is, in that case, a reasonable amount for the client to pay, in accordance with section 11(1) of the Act; and

(ii) it is satisfied that, if it were to determine the full costs at that time, they would exceed the amount referred to in sub-paragraph (i);

(b) otherwise, it shall not specify the amount the client is to pay under the costs order.

(3) If the court considers that it would have made a costs order against the client, and that it would have specified the amount to be paid under it, the court shall, when making the section 11(1) costs order:

(a) specify the amount (if any) that the client is to pay under that order if, but only if, it considers that it has sufficient information before it to decide what amount is, in that case, a reasonable amount for the client to pay, in accordance with section 11(1) of the Act;

(b) otherwise, it shall not specify the amount the client is to pay under the costs order.

(4) Any order made under paragraph (3) shall state the amount of the full costs.

(5) The amount (if any) to be paid by the client under an order made under paragraph (2)(b) or paragraph (3)(b), and any application for a costs order against the Commission, shall be determined in accordance with regulation 10, and at any such determination following an order made under paragraph (2)(b), the amount of the full costs shall also be assessed.

(6) Where the court makes a section 11(1) costs order that does not specify the amount which the client is to pay under it, it may also make findings of fact, as to the parties' conduct in the proceedings or otherwise, relevant to the determination of that amount, and those findings shall be taken into consideration in that determination.

10.—(1) The following paragraphs of this regulation apply where the amount to be paid under a section 11(1) costs order, or an application for a costs order against the Commission, is to be determined under this regulation by virtue of regulation 9(5).

(2) The receiving party may, within three months after a section 11(1) costs order is made, request a hearing to determine the costs payable to him.

(3) A request under paragraph (2) shall be accompanied by:

(a) if the section 11(1) costs order does not state the full costs, the receiving party's bill of costs, which shall comply with any requirements of relevant rules of court relating to the form and content of a bill of costs where the court is assessing a party's costs;

(b) a statement of resources; and

(c) if the receiving party is seeking, or, subject to the determination of the amount to be paid under the section 11(1) costs order, may seek, a costs order against the Commission, written notice to that effect.

(4) The receiving party shall file the documents referred to in paragraph (3) with the court and at the same time serve copies of them:

(a) on the client, if a determination of costs payable under section 11(1) of the Act is sought; and

(b) on the Regional Director, if notice has been given under paragraph (3)(c).

(5) Where documents are served on the client under paragraph (4)(a), the client shall make a statement of resources.

(6) The client shall file the statement of resources made under paragraph (5) with the court, and serve copies of it on the receiving party and, if notice has been given under paragraph (3)(c), on the Regional Director, not more that 21 days after the client receives a copy of the receiving party's statement of resources.

(7) The client may, at the same time as filing and serving a statement of resources under paragraph (6), file, and serve on the same persons, a statement setting out any points of dispute in relation to the bill of costs referred to in paragraph (3)(a).

(8) If the client, without good reason, fails to file a statement of resources in accordance with paragraph (6), the court shall determine the amount which the client shall be required to pay under the section 11(1) costs order (and, if relevant, the full costs), having regard to the statement made by the receiving party, and the court need not hold an oral hearing for such determination.

(9) If the client files a statement of resources in accordance with paragraph (6), or the period of filing such notice expires, or if the costs payable by the client have already been determined, the court shall set a date for the hearing and, at least 14 days before that date, serve notice of it on:

(a) the receiving party;

(b) the client (unless the costs payable by the client have already been determined); and

(c) if a costs order against the Commission is or may be sought, the Regional Director.

(10) The court's functions under this regulation may be exercised:

(a) in relation to proceedings in the House of Lords, by the Clerk to the Parliaments;

(b) in relation to proceedings in the Court of Appeal, a High Court or a county court, a costs judge or a district judge;

(c) in relation to proceedings in a magistrates' court, by a single justice or by the justices' clerk;

(d) in relation to proceedings in the Employment Appeal Tribunal, by the Registrar of that Tribunal."

15. Regulation 10A empowers the Court to order a funded party to pay an amount on account of costs and Regulation 13(1)(a) permits a Regional Director appointed by the Commission to appear at any hearing in relation to which notice has been given under Regulation 10(3)(c).

The Cost Protection Regulations

16. Regulation 5 of the Cost Protection Regulations provides:

"(1) The following paragraphs of this regulation apply where:

(a) funded services are provided to a client in relation to proceedings;

(b) those proceedings are finally decided in favour of a non-funded party; and

(c) cost protection applies.

(2) The court may, subject to the following paragraphs of this regulation, make an order for the payment by the Commission to the non-funded party of the whole or any part of the costs incurred by him in the proceedings (other than any costs that the client is required to pay under a section 11(1) costs order).

(3) An order under paragraph (2) may only be made if all the conditions set out in sub-paragraphs (a), (b), (c) and (d) are satisfied:

(a) a section 11(1) costs order is made against the client in the proceedings, and the amount (if any) which the client is required to pay under that costs order is less than the amount of the full costs;

(b) the non-funded party makes a request under regulation 10(2) of the Community Legal Service (Costs) Regulations 2000 within three months of the making of the section 11(1) costs order;

(c) as regards costs incurred in a court of first instance, the proceedings were instituted by the client and the court is satisfied that the non-funded party will suffer severe financial hardship unless the order is made; and

(d) in any case, the court is satisfied that it is just and equitable in the circumstances that provision for the costs should be made out of public funds.

(3A) An order under paragraph (2) may be made—

(a) in relation to proceedings in the House of Lords, by the Clerk to the Parliaments;

(b) In relation to proceedings in the Court of Appeal, High Court or a county court, by a costs judge or district judge;

(c) in relation to proceedings in a magistrates' court, by a single justice or by the justices' clerk;

(d) in relation to proceedings in the Employment Appeal Tribunal, by the Registrar of that Tribunal.

(4) Where the client receives funded services in connection with part only of the proceedings, the reference in paragraph (2) to the costs incurred by the non-funded party in the relevant proceedings shall be construed as a reference to so much of those costs as is attributable to the part of the proceedings which are funded proceedings.

(5) Where a court decides any proceedings in favour of the non-funded party and an appeal lies (with or without permission) against that decision, any order made under this regulation shall not take effect:

(a) where permission to appeal is required, unless the time limit for applications for permission to appeal expires without permission being granted;

(b) where permission to appeal is granted or not required, unless the time limit for appeal expires without an appeal being brought.

(6) Subject to paragraph (7), in determining whether the conditions in paragraph (3)(c) and (d) are satisfied, the court shall have regard to the resources of the non-funded party and of his partner.

(7) The court shall not have regard to the resources of the partner of a non-funded party if the partner has a contrary interest in the funded proceedings.

(8) Where the non-funded party is acting in a representative, fiduciary or official capacity and is entitled to be indemnified in respect of his costs from any property, estate or fund, the court shall, for the proposes of paragraph (3), have regard to the value of the property estate or fund and the resources of the persons, if any, including that party where appropriate, who are beneficially interested in that property, estate or fund."

17. Regulation 7 provides:

"(1) No order to pay costs in favour of a non-funded party shall be made against the Commission in respect of funded proceedings except in accordance with these Regulations, and any costs to be paid under such an order shall be paid out of the Community Legal Service Fund.

(2) Nothing in these Regulations shall be construed, in relation to proceedings where one of more parties are receiving, or have received, funded services, as:

(a) requiring a court to make a costs order where it would not otherwise have made a costs order; or

(b) affecting the court's power to make a wasted costs order against a legal representative."

18. Regulation 7 has the effect of excluding the possibility of an order for costs against the Commission under the broad and general power to order costs under section 51(3) of the Supreme Court Act 1981.

The Issues

19. This application raises the following issues:

i) What role, if any, does the Court trying the substantive dispute have in determining whether an order for costs should be made against the Commission?

ii) Is there jurisdiction to make an order for costs against the Commission in favour of a body that is financed from public funds?

iii) What principles govern the test of whether it is 'just and equitable' that costs should be paid out of public funds.

What is the role of the Court?

20. The old 'unless' procedure was, so far as we have been able to ascertain, devised by the Court of Appeal in Maynard v Osmand (No 2) [1979] 1 WLR 31 - see the judgment of Lord Denning MR at pp.35-36. Under that procedure, after giving judgment in the substantive dispute, the Court would go on to make a provisional determination of (i) the amount, if any, of costs to be paid by the funded party; and (ii) whether an order should be made for costs to be paid by the Legal Aid Fund. The order would not be drawn up for 10 weeks in order to enable the Legal Aid Committee to come in and object if they wished to do so. Although this procedure was laid down in the Court of Appeal, we understand that it was subsequently adopted at first instance. Thus at first instance the trial Judge would rule on the issue of whether the unassisted party would suffer severe financial hardship unless the order was made.
21. Under the new Regulations an order against the Commission can only be made at first instance where:

i) The Court is satisfied that the non-funded party will suffer severe financial hardship unless the order is made, and

ii) The Court is satisfied that it is just and equitable in the circumstances that provision for the costs should be made out of public funds.

22. The Court which makes the order is not, however, the Court that tried the substantive dispute but a Costs Judge or District Judge.
23. The order made in the cases of Kelly and Zahid

i) recorded that the Court was satisfied that it would be just and equitable in the circumstances that provision for the costs should be made out of public funds, and

ii) directed that, following the determination by a Costs Judge of any amount to be paid by the applicant and subject to its terms, the Master make an order for the payment of the costs by the Legal Services Commission.

24. No general challenge was made by the Commission of the propriety of the Court of Appeal including such rulings in its order. The scrutiny of the Regulations made necessary by this application led us, however, to question whether it was proper for the Court of Appeal to concern itself with the question of whether it was just and equitable that an order should be made against the Commission, let alone for the Court to direct that such an order should be made. Once we had raised this matter Mr Morgan submitted that those parts of the order which had caused us concern were, indeed, outwith the jurisdiction of the Court.
25. For the Secretary of State, Mr Swift submitted that it was perfectly in order for this Court to continue to fulfil the role of determining whether, in principle, an order for costs should be made against the Commission. He contended that the wording of Regulation 10 of the Costs Regulations contemplated only a quantification of costs by the costs Judge rather than a decision whether costs should be awarded against the Commission. That accorded with traditional procedures by which the Court hearing the substance of the matter, and in the best position to consider the merits of an application, made the decision as to who was to pay the costs, leaving quantification to be determined, in the absence of agreement by a costs Judge.
26. This is an issue of some moment. The orders made in Kelly and Zahid were in the standard form now adopted by the Court of Appeal. We understand that Courts of first instance take it upon themselves to determine whether the 'severe hardship' and the 'just and equitable' requirements are met and to direct, where appropriate, that costs be ordered against the Commission. This application puts in issue the propriety of the practice of Courts of first instance just as it does the propriety of the practice of this Court.

The Regulatory Scheme

27. The new Regulations introduce a two stage process in relation to the recovery of costs in cases to which section 11(1) of the 1999 Act applies. The procedure to be followed is primarily to be derived from the Costs Regulations. The scheme is as follows.

Stage 1

28. The first stage involves the Court dealing with the substance of the dispute, which we shall call the trial Court. The role of the trial Court is as follows:

i) To decide whether to make an order for costs against a funded litigant ("the client"). (Regulation 9(1))

ii) To decide whether it is in a position to specify the amount, if any, to be paid by the client. (Regulation 9(2)).

iii) To make a costs order against the client which either

(a) Specifies the amount, if any, to be paid by the client and states the amount of the full costs, or

(b) Does not specify the amount to be paid by the client.

(Regulation 9(3) and (4))

The order is described in the Regulations as a section 11(1) costs order and is defined in both sets of regulations as a 'costs order against a client where cost protection applies'. 'Cost protection' means 'the limit set on costs awarded against a client set out in section 11(1) of the Act'.

iv) Where the order does not specify the amount to be paid by the client, to make, if it sees fit, findings of fact, as to the parties conduct in the proceedings or otherwise, relevant to the determination of that amount. (Regulations 9(6))

Stage 2

29. Stage 2 consists of the procedure to be followed to ascertain the amount of costs to be paid by the client against whom the trial Court has made an order that does not specify the amount. Stage 2 also includes the procedure for determining whether an order for costs should be made against the Commission. (Regulation 9(5)) The Regulations in relation to Stage 2 allocate certain functions to 'the Court'. Regulation 10(10) provides that in relation to proceedings in the Court of Appeal, High Court or County Court the Court's functions 'may be exercised' by a Costs Judge or a District Judge. While it is arguable that the High Court and the Court of Appeal also enjoy jurisdiction to exercise these functions we think it plain that the scheme does not envisage that they should do so.
30. Regulation 2 provides that 'Costs Judge' has the same meaning as in the CPR. CPR 43.2(1)(b) provides that 'Costs Judge' means a Taxing Master of the Supreme Court.
31. The procedure under Stage 2 is as follows:

i) The party in whose favour the costs order has been made ("the receiving party") may, within three months of the making of the costs order, request a hearing to determine the costs payable to him. (Regulation 10(2)).

ii) The receiving party may, at the same time, seek a costs order against the Commission. (Regulation 10(3)(c)). We wish to take this opportunity to emphasise a fact that we understand is not generally appreciated. The three month time limit for seeking an order against the Commission is mandatory – there is no power to extend it.

iii) The receiving party must, when making the request, file with the Court and serve on the client and the Regional Director of the Commission (if an order is sought against the Commission):

a) A bill of costs;

b) A statement of resources;

c) A written notice that a costs order is sought against the Commission.

(Regulation 10(3) and (4))

iv) The client must file a statement of resources and serve this on the receiving party and the Regional Director (where a claim is made on the Commission). (Regulation 10(6))

v) The Court sets a date for the hearing. (Regulation 10(9))

vi) The Court conducts the hearing, assesses the costs (if any) to be paid by the client and, where appropriate, makes a costs order against the Commission.

32. The Costs Regulations do not, in fact, expressly provide that the Costs Judge shall carry out the functions set out under (vi) above, but it is plainly implicit that he should. That this is part of his role is confirmed by the explicit provisions of the Cost Protection Regulations.
33. The Cost Protection Regulations set out the circumstances in which the Costs Judge or District Judge may make a costs order against the Commission. Regulation 5(3) makes it plain that it is for the Costs Judge or District Judge to be satisfied that it is just and equitable that provision for the costs should be made out of public funds and, in respect of proceedings at first instance, that the non-funded party will suffer severe financial hardship unless the order is made. In considering these matters the Costs Judge or District Judge is expressly required to have regard to the resources of the non-funded party and of his partner - Regulation 5(6).
34. We have set out the new regulatory scheme in detail because we have concluded that it is not compatible with the current practices of the trial Court. The function of deciding whether or not a costs order can and should be made against the Commission is now expressly assigned to the Costs Judge or District Judge. He cannot make such an order unless and until the prescribed formalities have been completed. It is not open to the trial Court to rule that it is just and equitable to make the order or to direct that the order is to be made before the prescribed formalities have been completed. Costs Regulation 9(6) permits the trial Court, when making a costs order, to make findings of fact relevant to the determination of the amount to be paid by the client. We consider that it must also be open to the trial Court to make any findings in relation to the conduct of the parties or facts that have emerged in the course of the proceedings that have relevance to the task to be performed by the Costs Judge or District Judge. Beyond this the trial Court should not go. It follows that, in the cases before us, this Court should not have usurped the function of the Costs Judge - in these cases the Taxing Master - in deciding that it was just and equitable to make a costs order against the Commission and to direct that such an order be made. This practice must no longer be followed, whether in the County Court, the High Court or the Court of Appeal.
35. The object of the Commission's application to this Court was not to attack the procedure adopted, but to obtain guidance in relation to the other issues that we have set out above. We propose to address those issues in order to provide that guidance.

Is there jurisdiction to make an Order for costs against the Commission in favour of a body that is financed from public funds?

36. In relation to this issue Mr Morgan focussed on the provision of Cost Protection Regulation 5(3)(d) which makes it a prerequisite of the right to make a costs order against the Commission that the Court is satisfied that 'it is just and equitable' in the circumstances that provision for the costs should be made out of public funds. Mr Morgan submitted that it was implicit in this provision that an order could only be made for the purpose of transferring the burden of legal costs from a privately funded litigant to public funds. Where the costs would in any event be met out of public funds, this essential pre-condition to making the order could never be satisfied. In support of this submission he sought to refer, under the principle in Pepper v Hart [1993] AC 593, to a ministerial statement which he contended supported his interpretation.
37. We do not accept Mr Morgan's interpretation.
38. The use of the expression "out of public funds" in Regulation 5(3)(d) of the Cost Protection Regulations does not, on the basis that costs incurred by the Secretary of State already come out of public funds, remove jurisdiction to make an order against the Commission in his favour. The "funds" contemplated in Regulation 5(3)(d) and in the expression "non-funded party" in Regulation 5(1) and 5(2) are the funds administered by the Commission. In Regulation 2, the expressions "funded proceedings", "funded services" and "non-funded party" clearly predicate Commission funding and the expression "public funds" in Regulation 5(3)(d) should also be read as referring to the funds of the Commission.
39. We do not consider the proposed reference to the Ministerial statement in the House of Commons, which led to the enactment of the Legal Aid Act 1964 ("the 1964 Act"), to be permissible in this case but it does not in any event assist the Commission's submission. Power to award costs out of the legal aid fund was conferred in section 1 of the 1964 Act. Section 1(1) empowered a Court to "make an order for the payment to the unassisted party out of the legal aid fund". Section 1(2) provided that such an order may be made only if "the court is satisfied that it is just and equitable in all the circumstances that provision for those costs should be made out of public funds". The fund contemplated in section 1(2) is clearly the legal aid fund mentioned in section 1(1). While the wording of the relevant provisions has become more elaborate in the current regulations, the purpose and effect are in our judgment unchanged.
40. Moreover, in cases before this Court under the earlier Acts, which we shall consider when we come to the next issue, jurisdiction to make an order in favour of a public body was assumed. In Maynard v Osmand (No 2) [1979] 1 WLR 31, the Law Society made submissions to the Court and in R v Greenwich LBC ex p Lovelace (No 2) [1992] QB 155 the Legal Aid Board made submissions to the Court. In neither case was it suggested that, as a matter of statutory interpretation, a costs order against the Legal Aid Fund could never be made in favour of a public body. We can detect no change in legislative intent in this respect and conclude that there is jurisdiction to make an order against the Commission in favour of a public body, even if it is a government department. There are, of course, legal entities publicly funded whose funds are much more limited than those of government departments.

What principles govern the test of whether it is 'just and equitable' that costs should be paid out of public funds?

41. Mr Morgan submitted that justice and equity did not require the transfer of money from public funds held by the Commission to public funds held by a government department. It followed that an order could not properly be made against the Commission in favour of the Secretary of State in any of the three cases with which we are concerned. This is not the first time that such an argument has been advanced.
42. The requirement that an order shall be made only if it is "just and equitable in the circumstances that provision for the costs should be paid out of public funds" dates back to the 1964 Act.
43. In Maynard, Lord Denning MR stated, at p.34:

"This is the 'just and equitable' point. The question is whether in this particular case it is just and equitable that the legal aid fund should pay the costs of the Hampshire police authority out of their funds. The fact that an unassisted party has a good deal of money does not mean that it is not just and equitable to make an order against the legal aid fund. Orders have been made in favour of building societies, insurance companies and the like. In the Court of Appeal it is often just and equitable that their costs should be paid if they have been put to expense by an unsuccessful assisted person coming to this court.

It is suggested to us that a public authority, like the Hampshire police authority, is in a different position from an insurance company or a building society because the legal aid fund receives its money from central funds (from the government) and the Hampshire police authority also received its money directly or indirectly from public funds. About a quarter comes from the ratepayers of Hampshire and about three-quarters from central funds (that is, from the taxpayer). It is said that, on that account, a public authority or a local authority is in a different position from an insurance company or a building society.

I am afraid that I cannot go with that argument at all. It seems to me that if the legal aid fund take up a case on behalf of an assisted person and put an authority to a great deal of expense in fighting it, it is often just and equitable that the authority should have its costs from the legal aid fund. It is that fund, after all, which has been responsible for the litigation and has led to all the legal costs being incurred."

44. Having considered the facts of the particular case, Lord Denning added:

"But I would not confine it to cases which involve important points of law. I think the principle should be extended so as to be of general application. It seems that whenever the legal aid fund takes up cases for assisted persons and brings another party before the courts, then, if the case fails, it is often just and equitable that the legal aid fund should pay the costs of the unassisted party."

45. In Lovelace (No 2), the applicant for an order against the Legal Aid Board under the 1988 Act was a London Borough Council. Neill LJ stated, at p 166:

"In the case of the costs incurred by the council in the Court of Appeal, however, there is no need to establish severe financial hardship. But on behalf of the Legal Aid Board a further argument was put forward which raises the fourth question I have outlined above. Thus it was submitted that it was necessary in any event for the court to be satisfied that it was just and equitable in all the circumstances that provision for the costs should be made out of public funds, and that the court could not or should not be so satisfied where the applicant was itself a public body.

For my part I would see some force in this argument if the applicant were a public body funded solely by the general body of taxpayers. But that is not this case. Although a substantial portion of the expenditure of local authorities is met out of general taxation, a further substantial proportion is met by local residents and businesses. These proceedings were made possible because the applicants seeking judicial review were in receipt of legal aid. I consider that it would be just and equitable that the council should recover the costs which they were obliged to incur in defending those proceedings. I would therefore make an order in favour of the council in respect of their costs in the Court of Appeal."

46. In re O (Costs: Liability of Legal Aid Board) [1997] 1 FLR 465, the applicant was again a local authority. Lord Woolf MR stated, at p.470G:

"If the court comes to a conclusion that in those circumstances it would make the hypothetical order for costs [what is now a section 11(1) order] then in the case of an appeal the court will usually conclude in the absence of some special circumstance that for the purposes of s 18(4)(c) [of the 1988 Act] it is just and equitable to make an order. Contrary to Mr Howard's submission a local authority, because it is a public body, is not at a disadvantage as compared with any other litigant in seeking an order against the Board,"

47. Mr Morgan submitted that these authorities were no longer authoritative. He submitted that the fact that the Court is required to have regard to the resources of the non-funded party in deciding whether it is just and equitable to make the order, cannot be reconciled with the approach of the Courts to the earlier legislation. A well-resourced public authority is not to be treated as in as good a position as a party with few resources.
48. We do not agree that the now well established meaning of "just and equitable" in this context requires change by reason of the introduction of paragraph (6). That provision applies to both sub-paragraphs (c) and (d) of Regulation 5(3). Its relevance to the exercise required in Regulation 5(3)(c) is obvious as is the newly introduced requirement under Regulation 10(3)(b) of the Costs Regulations to provide a statement of resources. Resources could, in some circumstances, be of relevance to the 'just and equitable' test and it would have been curious, as a matter of drafting, if the paragraph 6 requirement had not been extended to Regulation 5(3)(d). It does not, however, follow that the requirement was intended to modify the practice based on the authorities already cited, in relation to applications in Courts other than Courts of first instance.
49. It seems to us that this practice reflects reasoning that it will normally be just and equitable that when a costs order is made against a party who has been supported by public funds, the costs covered by the order should, insofar as they cannot be recovered from the funded party, be defrayed out of public funds.
50. We consider that the practice laid down in re O should be followed by costs judges when applications are made to them for costs against the Commission following a Court of Appeal decision in favour of non-funded parties, even if they are government departments. Costs judges should proceed on the premise that it is just and equitable that the Commission should stand behind their "client", by definition under the Regulations the individual who receives funded services, unless they are aware of facts which render that result unjust or inequitable.
51. In stating this conclusion, we are not encouraging government departments to make applications against the Commission on renewed applications for judicial review or, indeed, in other cases. We see the force in the argument that it will usually not be sensible to do so and we also note that, within their resources, the Commission have in place procedures which attempt to prevent unmeritorious renewals and other appeals. However, we confirm the power in a Costs Judge or District Judge to accede to an application for costs against the Commission made by a government department.
52. In each of the three cases before us the Secretary of State chose to appear on applications where his presence was not required by the CPR. Mr Morgan argued that in such circumstances it was not normally appropriate that a costs order should be made against the Commission. It seems to us that this will normally depend upon whether or not it is appropriate to make an order for costs against the client. In the three cases before us the Court concluded that it was and we can see no basis for disturbing that conclusion. For the reasons that we have given, however, the order made in each case went beyond the powers of the Court under the current Regulations.
53. We will hear Counsel further as to the effect of this judgment upon the orders made and what, if anything, is to be substituted for them.
ORDER: Order in terms of Judgment in accordance with the appellants' draft order, subject to dismissal of Khan's wasted costs application. (Order does not form part of approved Judgment)