England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
HIS HONOUR JUDGE ELLERAY QC (Sitting as a High Court Judge)
[2014] EWHC 4590 (Admin)

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/06/2016

Lord Justice Longmore:

Introduction

1. This is an appeal from the judgment and order of Mr Anthony Elleray QC sitting as a Deputy Judge of the High Court dated 17^th December 2014 in which he refused the claimant's application for permission to apply for judicial review of a decision of the Legal Aid Agency ("the LAA") to refuse to vary a capital contribution order assessing his contribution to his legal aid in a criminal matter.

Background

2. In or around 2011, the applicant, Mr Martin Cleland ("Mr Cleland"), was facing prosecution for being part of a conspiracy to evade duty on cigarettes. On 5^th May 2011 he applied for legal aid for representation in those proceedings. Legal aid was granted by the LAA on 2^nd June 2011.
3. At that time the relevant rules in relation to legal aid in criminal proceedings were contained in the Criminal Defence Service (Contribution Orders) Regulations 2009 ("the 2009 Regulations"). Pursuant to these Regulations those undergoing criminal prosecutions would be means-tested to ascertain whether and how much they would be required to contribute towards their defence costs. Those who were convicted could be ordered to pay for their defence costs out of their capital.
4. On 8^th June 2011 an Income Contribution Order ("ICO") was made in respect of Mr Cleland. This was varied by letter dated 15^th August 2011. Nothing now turns on the contents of this order.
5. Mr Cleland was convicted on 10^th February 2012 following a six week trial, and was sentenced on 24^th February 2012 to four years and six months imprisonment. He was released on licence on 23^rd May 2014.
6. On 28^th December 2012 a Capital Contribution Order ("CCO") was made. This was varied on 8^th March 2013 due to an error in relation to counsels' fees. A final CCO was made on 24^th September 2013 assessing disposable capital in the sum of £70,394. The total defence costs incurred amounted to £86,370.84. The CCO was calculated in the following way. The LAA added the capital in the bank accounts of Mr Cleland and his wife (said to be disclosed at the time of the application as totalling £30,050.54) to the equity in their jointly-owned property (£70,343.92). The LAA then deducted the £30,000 capital and equity allowance from that total sum, producing a total capital and equity figure of £70,394.46. To this figure was added the total amount still owed by Mr Cleland representing the unpaid amounts from the ICO order (£16,842), which resulted in Mr Cleland's maximum liability being £87,236.46. Since Mr Cleland's maximum liability exceeded his defence costs, the LAA could and did pursue Mr Cleland for them, under the 2009 Regulations.
7. Between the date that the first CCO was made on 28^th December 2012 and 14^th August 2013 correspondence ensued between the parties. During that correspondence it appeared that the bank accounts amounting to £30,050.44 included a sum of about £18,000, which was money that was originally seized by the Revenue and Customs Commissioner ("the RCC") and only later returned to Mr Cleland, and a sum of about £11,000 received by Mr Cleland as compensation for a road accident he had suffered; Mr and Mrs Cleland also maintained that they did not any longer have these amounts because Mrs Cleland said she had used those funds for ordinary expenditures since 2011 (including mortgage payments) as a result of Mr Cleland's imprisonment and the fact that she had been made redundant on 31^st August 2011. In the final letter of 14^th August she said that the LAA should have regard to hardship before the date of Mr Cleland's imprisonment on 24^th February 2012 and "even more so afterwards". The LAA then made the final CCO (said to be the fifth such CCO) on 24^th September 2013 in the sum of £69,528.84 still taking into account the amount of £30,050 said to have been in the Cleland's bank accounts at the time legal aid contribution was sought. On 7^th October Mrs Cleland referred to her earlier letter of 14^th August, challenged the final calculation of 24^th September 2013 in the CCO, requested a review and asked if she had to fill in a further form "for example … dealing with hardship". On 22^nd January 2014 Rossendales (collection agents on behalf of the LAA) wrote a letter to the appellant confirming the CCO figures. On 30^th January 2014 the LAA wrote a further letter stating that the CCO could not be varied because Mr Cleland had given no notification of any change of circumstances and could not seek a review once the capital had been spent or the case had ended. A further letter dated 20^th June 2014 reiterated the position and confirmed the decision not to vary.
8. On 19^th September 2014 Mr Cleland filed a claim for judicial review. He sought to challenge the decision which he said was contained in the 30th January or 20^th June 2014 letter. On 6^th November 2014 HHJ Worster refused permission to apply for judicial review on the papers. He took the view that, whilst it was reasonably arguable that there was a change in Mr Cleland's financial circumstances, it was not reasonably arguable that the LAA was obliged to reflect those changes in its calculations. That was because Mr Cleland had failed to notify the LAA of the changes when he was obliged to do so. The LAA was allowed to treat Mrs Cleland's resources as if they were Mr Cleland's. The respondent did not act in a Wednesbury unreasonable sense, and Mr Cleland's claim accordingly was not reasonably arguable.
9. An application for reconsideration at an oral renewal hearing was made. This came before Mr Anthony Elleray QC sitting as a Deputy High Court Judge in the Administrative Court on 17^th December 2014 who refused permission for the similar reasons to those given by HHJ Worster. He held further that the amount of the CCO had to be calculated by reference to capital available at the date of the representation order and that Mr Cleland had made no application for any review within 28 days (or at all) of the date of the CCO. On 12^th May 2015 Hallett LJ gave permission to appeal. The LAA now accepts that the judge was wrong to say that no application for a review had been made because there was in the correspondence an application to review the amount of the CCO which had been refused. The effective date of that refusal was in issue (30^th January or 20^th June 2014) but this court decided that, if necessary, time should be extended so that the real issues between the parties could be decided.

The Legal Framework

10. The provisions of the 2009 Regulations provide, in summary, as follows: Regulation 12 sets out the meaning of capital as including an interest in real property and money in a bank or building society account. Regulation 13 states that in assessing an individual's capital the authority shall include every resource of a capital nature belonging to the individual at the date of the application for a representation order, "except where it would be impracticable or unreasonable to do so". Regulation 26 states that the authority can treat resources which have been spent by the individual as part of his resources if it appears to the authority that the individual has deprived himself of resources with the intent of reducing the amount due under such an order. Regulations 27-29 then provide:-

"Duty to report change in financial circumstances

27. (1) An individual who has been granted a representation order in proceedings to which this Part applies must immediately inform the assessing authority of any change in financial circumstances of which the individual is aware, which has occurred since the application for a representation order and which might affect the individual's liability to a contribution order or the amount of such an order.

(2) Where, as a result of any such change –

(a) the individual becomes liable to make payments under an income contribution order, the assessing authority must make an order and send a copy of it to the individual;

(b) the individual is no longer liable to make payments under an income contribution order, the assessing authority must withdraw that order and notify the individual that it has done so;

(c) the amount of the individual's liability under an income contribution order is increased or reduced, the assessing authority must vary the order accordingly and sent a copy of it to the individual.

Re-calculation of income or capital following error or new information

28. (1) Where –

(a) it appears to the assessing authority that there has been a miscalculation of the individual's income or capital or an administrative error; or

(b) new information which is relevant to liability to a contribution order has come to light (whether under regulation 27 or otherwise),

the assessing authority must re-calculate the income or capital, as the case may be, and, if the individual becomes liable or is no longer liable to make payments under a contribution order or is liable to make increased or reduced payment, must make, revoke or vary the order as the case may be.

(2) Where the assessing authority –

(a) revokes a contribution order and the individual has already made a payment under the order, or

(b) varies a contribution order so as to require a lower payment, and the individual has already made a payment above the amount as varied,

the Commission must repay to the individual the amount of such payment together with compound interest thereon, from the date of the payment, at the rate of 2% a year with yearly rests.

Review of order etc.

29. (1) An individual in respect of whom the assessing authority has made a contribution order may apply to the Commission for a review of the order, on the grounds that-

(a) there has been-

(i) a miscalculation of the individual's income or capital or the cost determined under regulation 11, or

(ii) an administrative error, or

(b) the individual is suffering or would suffer financial hardship as a result of making the payments required under the contribution order.

(2) An application under paragraph (1) (a) must be made within 28 days of the making of the order.

(3) The Commission may determine a review without a hearing.

(4) On a review the Commission may confirm, revoke or vary the contribution order. …"

Submissions

11. Mrs Cleland (whose own capital counts as part of Mr Cleland's assets for the purposes of the 2009 Regulations as HHJ Worster has said) argued the case in person on behalf of herself and her husband and, in a well-ordered and impressive presentation, submitted:-

i) neither the sum of £18,000 (representing the amount frozen and subsequently repaid by Revenue and Customs) nor the sum of £11,000 (representing the compensation for Mr Cleland's road traffic accident) should have been taken into account in the CCO since the £18,000 amount had been frozen by Revenue and Customs at the time of legal aid was sought and the £11,000 amount had not then been received;

ii) once Mrs Cleland had been made redundant as from 31^st August 2011, it was inevitable that the capital available to the Clelands would be used in ordinary living expenses; Mrs Cleland had notified the LAA of the position within 28 days of the final CCO and the LAA were then obliged by Regulation 28 to re-calculate the CCO so as to allow for the fact that this erosion of capital had occurred; and

iii) although the correspondence made an application for a review of the CCO on the grounds that the Mr and Mrs Cleland would suffer financial hardship if they made the payments required by the CCO, the LAA had declined to consider that application. The claim form for judicial review, on its true construction included a claim for relief against that refusal but, if it did not, an amendment should be allowed to consider such a claim.

12. Mr Ormondroyd on behalf of the LAA submitted:-

i) Mr and Mrs Cleland either had or should be treated as having the capital of £30,000 in their bank accounts at the time when contribution were initially sought. Pursuant to Regulation 13, such amounts were to be included in the CCO

"except where it would be impracticable or unreasonable to do so;"

ii) no question of impracticability arose nor was it unreasonable to include them when, in the case of the £18,000, it had been returned and in the case of the £11,000, the motor accident had occurred in 2008 and it was reasonable to assume the compensation had been received by the time of the CCO;

iii) there had not, moreover, been the requisite immediate notification of the change of circumstance that it had become necessary to use capital for living expenses as required by Regulation 27; and

iv) no claim for relief from hardship had been contained in the correspondence and no such claim had been refused; in any event the claim form made no reference to any hardship application and the question of hardship should not now be the subject of any judicial review.

13. The appeal is an appeal against the refusal of permission to apply for judicial review. I have concluded that permission should be granted and that the case should be allowed to proceed in the Administrative Court. In those circumstances it is unnecessary and unwise to discuss the issues at any great length. The utility of this appeal is to clear the ground so that the Administrative Court can (a) distinguish the wood from the trees in a case which has generated lengthy correspondence some of which is irrelevant and (b) concentrate on the genuine issues between the parties.

Correctness of the inclusion of the money seized by the RCC and the road traffic accident compensation and Regulation 28

14. I do not consider it to be arguable that the accident compensation should have been excluded from the first CCO of 28^th December 2012. The accident had occurred on 8^th October 2008 and the right to compensation was an asset which should have been disclosed in Mr Cleland's financial statement made for the purpose of his application for legal aid. There is little evidence about the date when the compensation was paid but that does not matter. It was, in any event, received before the final CCO was made.
15. The position is a little (but not much) different as regards the money seized by the RCC. At the hearing before us, Mrs Cleland produced for the first time a letter from the clerk at the Nottingham Magistrates Court of 29^th November 2011 saying that an order had been made on that date authorising the RCC to keep the seized money for 6 months. The sum nevertheless belonged to Mr Cleland and should have been disclosed in his financial statement. The LAA were entitled to include it in their assessment of Mr Cleland's capital in the first CCO unless, pursuant to Regulation 17, it was restrained by order of the High Court or the Crown Court. There is no evidence it was so restrained. It was, in any event, returned to Mrs Cleland in June 2012 well before the date of the first CCO.
16. There was, therefore, nothing unreasonable in the LAA's including these sums in the first CCO. By the time of the final CCO of 24^th September 2013, the LAA had been informed that because Mrs Cleland had become redundant on 31^st August 2011 and Mr Cleland had begun serving his sentence on 24^th February 2012 their capital was being used to make ends meet. Can it be said that it was "unreasonable" pursuant to Regulation 13 to include those sums in the final CCO when the LAA was being told that the capital was eroded and updated financial statements up to April 2013 had been provided?
17. That is an arguable question which should be permitted to proceed. Mr Ormondroyd said that it was a complete answer that the change in circumstances had not been immediately notified pursuant to Regulation 27 but it seems to me that there are difficulties about that submission.
18. The first difficulty is that while Regulation 8(g) makes express provision for the allowance of living expenses in the calculation of income and the consequent liability to any income contribution order, no such allowance is made in the regulations relating to the assessment of capital and any consequent capital contribution order. No doubt that is because most people hope to meet their living expenses out of their income rather than their capital but if income is non-existent or dries up, the capital will be needed for living expenses. If then a person is made redundant or is sent to prison it no doubt becomes incumbent on them to notify the LAA when capital is being eroded. But what does that require? Mr Ormondroyd recoiled at the idea that every time Mrs Cleland did a supermarket shop she should notify the LAA that her capital had decreased but he was unable to put forward any other criterion for the notification he suggested should have been given under Regulation 27.
19. The second difficulty about using Regulation 27 as a complete answer is the terms in which Regulation 28 is drafted. As stated above it provides that where new information relevant to liability to a contribution order comes to light (whether under section 27 or otherwise (my emphasis)), the LAA must re-calculate the capital. The words "or otherwise" appear to contemplate that changed circumstances other than those which have been "immediately" notified under Regulation 27 are to be taken into account. Whether that is done in the original CCO or by way of formal application to vary should not matter.
20. The third difficulty is that the regulations do not in terms say that changed circumstances cannot be taken into account if they have not been immediately notified. They could easily have done so.
21. Mr Ormondroyd then submitted that regulation 28(1)(b) only required the LAA to re-calculate capital when the new information coming to light was "relevant to liability to a contribution order" and the only "relevant" information was information relating to capital resources belonging to Mr Cleland "at the date of the application for a representation order" pursuant to Regulation 13. But that is itself a doubtful construction when Regulation 28 expressly contemplates that new information can include "change in financial circumstances" in Regulation 27. In any event the question of reasonableness arises under Regulation 13.
22. I conclude therefore that Mr Cleland's proposition that the LAA was obliged to do a re-calculation in the light of the information with which it had been provided by the time of the final CCO is at least arguable and should proceed to determination.

Review under Regulation 29

23. This regulation entitles an individual to apply to the LAA for a review on grounds of (a) miscalculation or administrative error and/or (b) of the existence of financial hardship. It appears therefore that the right of review does not extend to the fact of new information which is to be dealt with under Regulation 28, although the existence of hardship may well depend on evidence of matters which did not exist at the time when capital was assessed under Regulation 13 or at the time when the CCO was made or finalised.
24. In the present case, on a fair reading of para 5 of Mrs Cleland's letter of 14^th August 2013 and page 7 of her letter of 7^th October 2013 (to which Mr Ormondroyd very properly drew out attention), Mrs Cleland did make a hardship application on behalf of Mr Cleland pursuant to Regulation 29(1)(b) on the basis that their capital had been exhausted in living expenses incurred since Mrs Cleland's redundancy and Mr Cleland's imprisonment. The latter letter expressly asked whether the correspondence sufficed or whether some form was missing "for example CRM 16 dealing with hardship". The LAA responded on 30^th January 2014 by saying that Mr Cleland had been informed by letter of 30^th June 2011 (not provided to us) that he could apply on a "CDS 16" form to explain that paying contributions would cause financial hardship. Since he had not done this "a CDS 16 form cannot be considered now as the case has ended". This January letter then relied on Regulation 26 (the deliberate deprivation of resources regulation reliance on which Mr Ormondroyd expressly disavowed before us) and again relied on failure immediately to notify changes in the Clelands' circumstances at an earlier date. To my mind that constituted a refusal to consider a properly made hardship application and it must be arguable that the application should have been considered on its merits. Late notification may be relevant if the LAA has been prejudiced in some way but may well not be a complete answer to a hardship application any more than it is a complete answer to an application pursuant to Regulation 28.
25. Mr Ormondroyd submitted that hardship was not raised in the judicial review application but only surfaced for the first time in paragraph 13 of the grounds of appeal to this court. But the claim form did refer to Mr Cleland's witness statement which itself referred to the letters of 14^th August and 7^th October 2013; the LAA's summary grounds of opposition dealt with hardship briefly in paragraph 27. In these circumstances it seems to me that the question of hardship was properly before the court and should have been considered.

Conclusion

26. I would therefore allow this appeal and permit the judicial review application of the LAA's decision letter of 30^th January 2014 to proceed on the grounds I have stated in this judgment. Although Mr and Mrs Cleland should not be over optimistic about the outcome, I would urge that both they and the LAA engage in meaningful negotiations in order to prevent yet further costs being incurred in a case where relatively small sums appear to be at stake. The stay on the capital contribution order granted by Hallett LJ should be maintained meanwhile.

Lord Justice Lloyd Jones:

27. I agree.