England and Wales High Court (Senior Courts Costs Office) Decisions

IN THE HIGH COURT OF JUSTICE
SENIOR COURTS COSTS OFFICE

		SCCO reference CL1503600 Thomas More Building, Royal Courts of Justice, Strand, London, WC2A 2LL
		2/02/2016

Master Leonard:

1. This is the assessment of the Claimant's costs as awarded against the Defendant in an order of 8 December 2014. The order provided for the Defendant to pay the Claimant's costs on the standard basis. Separate provision was made for assessment of the claimant's costs to 25 February 2013 against the Legal Services Commission ("LSC", since replaced by the Legal Aid Agency), any such assessment to be dispensed with should the Claimant's solicitors waive any claim to costs not recovered from the Defendant. I have not been asked to assess costs against the LSC, so it would appear that they have exercised that waiver.
2. The issues I have to address are the only issues outstanding on the assessment and they appear at point 1 of the Defendant's Points of Dispute. The Defendant objects to paying additional liabilities (a success fee and ATE premium) attendant upon the Claimant's decision, in February 2013, to change the basis of funding for her claim from LSC funding to a CFA/ATE arrangement.
3. The Claimant arranged for the discharge of her funding certificate, extant since 3 March 2010, with the). It was discharged on 25 February 2013. On the same date she entered into a Conditional Fee Agreement ("CFA") with her solicitors.
4. The CFA was backed by a policy of After the Event ("ATE") insurance which is dated 5 April 2013, though the insurer FirstAssist (now Burford Capital (UK) Ltd) agreed to provide cover on 26 March 2013.
5. The points of dispute characterise the decision to change funding as unreasonable and the additional costs attendant on it as unreasonably incurred and disproportionate. Alternatively they invite the court to substitute a reasonable and proportionate success fee and ATE premium.
6. The Claimant's bill had, in July 2015, been listed for assessment over two days on 20 and 21 October 2015. As the hearing date approached all issues were settled except for those I must address in this judgment. Prior to the hearing no directions had been sought or given in relation to the evidence to be considered in relation to those issues. Rather the Claimant served a short statement (from Mr Sankey, the conducting solicitor) dated 6 October 2015 defending the decision to change funding and a statement dated 12 October 2015 from Mr Burbury of Burford Capital defending the ATE premium, but conceding that it was miscalculated and recalculating it at £70,390.01 including IPT.
7. 20 and 21 October were given over to cross-examination of Mr Sankey, submissions and the production of supplementary evidence on a rather ad hoc basis. I cannot describe this as the ideal way to determine additional liabilities agreed, subject to liability, at £95,647.72 but I believe that I have all the evidence I need to reach a conclusion and I am grateful for the comprehensive submissions of Mr Edwards for the Claimant and Mr Smith for the Defendant.

The History

8. The Claimant suffered a brain injury, resulting in severe cognitive damage, in April and May 2009. She was 17 at the time. Her case was that the injury resulted from the clinical negligence of the Defendant. She instructed Russell Jones and Walker ("RJW") 24 September 2009. In 2012 RJW merged with, and was renamed, Slater and Gordon LLP. By February 2013 Slater and Gordon evidently still used some standard RJW-branded documentation in advising its clients, though nothing turns on that.
9. Mr Sankey initially took instructions through the Claimant's mother, Mrs Raquel Ramos, and continued to do so at the Claimant's request after she reached the age of 18 in December 2009. A neuropsychologist instructed on her behalf reported that she was able to litigate but she could do so only with significant support from her family with making decisions.
10. A letter of claim was written on 15 December 2011. Breach of duty was admitted by the Defendant on 14 May 2012 and a letter of apology tendered. Some alleged breaches of duty were not (initially) admitted and significant causation issues remained to be addressed, but an LSC report and case plan prepared by the Claimant's solicitors and dated 24 May 2012 described the claim's prospects in these terms: "Excellent. Breach of duty is admitted and substantial causation is admitted".
11. The claim was settled in full at a joint settlement meeting on 27 November 2014.

Mr Sankey on the Change in Funding

12. This is the substance of Mr Sankey's witness statement. He says that at the time of the change in funding in February 2013 there were still complex issues of causation to be addressed by experts in neurosurgery, neurology and rheumatology. The question was the extent to which the Claimant's condition had been worsened by the Defendant's breaches of duty and to what extent she would have in any event suffered damage as a result of a serious underlying infection. The same experts needed to address condition and prognosis and further expert evidence was required on condition, prognosis and quantum from experts in neuropsychology, care and physiotherapy (among others).
13. The Legal Services Commission would not, he says, permit the Claimant to instruct experts who charged more than £180 per hour and it would not agree to the Claimant's solicitors "topping up" the fees. The medical experts on whom he proposed to rely for evidence on causation were Helen Fernandes, Neurosurgeon, Professor Anthony Schapira, Neurologist and Dr Ashtok Bhalla, Rheumatologist, all of whom charged between £250 and £400 per hour. From experience he knew that they would not agree to work at LSC rates. The alternative to instructing them was to find alternative experts who charged less but he had been unable to identify experts, particularly in neurosurgery, neurology and neuropsychology, who would charge less.
14. Given that the prospects of establishing causation where complex medical issues were involved and of maximising damages for his client would depend on obtaining expert evidence from reputable, reliable and experienced experts, he took the view that the claim should not be prejudiced by having to rely on experts who charged no more than £180 per hour.
15. In addition, with LSC funding his client would probably have had to make a contribution towards her costs from damages because of the operation of the statutory charge. It was likely that there would be some costs reasonably and properly incurred by his firm which would not be recoverable from the Defendant, which his firm would not waive and which would be deducted from damages.
16. As an alternative more advantageous to his client, Mr Sankey proposed a "CFA lite" arrangement under which there would be no deduction from damages whatsoever for costs incurred after it was entered into. Basic costs, the success fee and disbursements would be met by the Defendant. It would be necessary to take out "After the Event" ("ATE") insurance to cover the risk of failing to recover disbursements and paying any adverse costs orders. However the premium would be recoverable from the Defendant and his client would not have to pay it from her damages.
17. There would be no constraints on the hourly rate he could pay experts and he would not have to seek authority from the Legal Services Commission for any work he regarded as necessary and reasonable to progress the claim.
18. In summary he saw significant advantages to his client in switching from funding by the Legal Services Commission to a Conditional Fee Agreement and there were no disadvantages.
19. In his statement Mr Sankey also said that Legal Services Commission funding was not available where a solicitor was prepared to act under a Conditional Fee Agreement. Given that he was prepared at that stage to do so he had a duty to notify the Legal Services Commission and to seek discharge of the certificate. On giving evidence he immediately withdrew that, admittedly erroneous, assertion.
20. He goes on, in his statement, to consider the possibility of a post-1 April 2013 CFA and to weigh against the irrecoverable deduction from damages it would entail against the 10% uplift in damages provided for in Simmons and Castle [2012] EWCA Civ 1039. I will come back to that.

Written advice on the Change of Funding

21. On 18 February 2013 Mr Sankey wrote to Mrs Ramos proposing the change from LSC to CFA/ATE funding. His letter incorporated this advice:

"As you are aware, the claim is currently funded by the Legal Services Commission. The terms under which the Legal Services Commission funds claims has made it progressively more difficult to conduct claims properly. The principal difficulty is one of funding. The Legal Services Commission requires me to instruct experts who charge no more than £180 per hour and will not agree to us "topping up" the fees - paying the higher rates that experts charge and only claiming £180 from the Legal Services Commission. None of the experts I have instructed to date charge as little as £180 per hour. I therefore cannot work within the constraints of the Legal Services Commission.

On the other hand, there is alternative funding available in the form of a Conditional Fee Agreement. In broad terms this is an agreement under which this firm only charges for work undertaken if the claim succeeds (which is highly likely to). We are then entitled to charge a "success fee" which will be an increase on our basic charges paid for by the Defendants which relates to the degree of risk the firm is taking in progressing the claim under a Conditional Fee Agreement. Given that liability has been admitted, that risk is quite modest.

I will also need to take out insurance. This will cover the cost of incurring expenses and failing to recover them from the Defendants and also if for any reason the Court orders you to pay the Defendant's costs. Although this is unlikely, it is possible at some stage that they could become entitled to recover some costs if, for instance, they made a settlement offer which we did not accept and then failed to beat.

In simple terms under a Conditional Fee Agreement, neither you nor Arianna will pay any costs whether the claim succeeds or not and there will be no deduction from damages. This is in fact slightly better for Arianna than current funding where it is possible that the Court would order some of the costs, for instance of dealing with the Legal Services Commission, to be paid by Arianna to this firm from her damages but not order the Defendants to pay those costs.

I am therefore enclosing an application to discharge the certificate and also a Conditional Fee Agreement. Please would you kindly sign and return the Conditional Fee Agreement to me. I have not dated the Conditional Fee Agreement and will date it once the Legal Aid Certificate is discharged".

Other Documents Sent to Mrs Ramos in February 2015

22. Apart from the CFA and the form of authority to discharge, the letter would appear to have been accompanied by a number of other documents. An engagement letter dated (Friday) 15 February 2013 but on the evidence sent with the letter of (Monday) 18 February, enclosed detailed terms of business and cross-referred to a standard leaflet explaining CFA and ATE funding.
23. After a brief explanation of CFA and ATE funding, the leaflet explains the "CFA lite" arrangement:

"We know that our clients often worry about the cost of making a claim. We are able to offer you a solution that means you can pursue your claim in complete confidence that - win or lose – it will cost you nothing."

24. Under the heading "ATE Insurance" the leaflet incorporated the following information:

While we won't charge you if your claim is unsuccessful, you could still be left with a large costs bill from the defendant. In order to ensure you aren't at risk of having to pay any bill incurred we will secure an insurance policy on your behalf (in the absence of any alternative funding) to make sure you're protected. We will arrange the policy at no cost to you.

We will take out a policy which offers competitive premiums that we would hope to be able to recover in full. We have arrangements with insurers that give us full authority to take on your case. We will consider the level of cover appropriate for your situation and ensure it will give you total costs protection.

The insurance policy premium doesn't need to be paid until the end of your case, and if you are successful the payment will be met by the defendants. If your case is unsuccessful, the premium is self-insured so you won't need to pay for it or any other costs".

25. As to disbursements the leaflet gave this advice:

"…we are also obliged to provide information on disbursements we incur on your behalf as part of your case. These may include, but aren't limited to, fees paid to experts for expert reports, court fees, or any fees paid to barristers for representing you. Again, these costs will be claimed against the defendant insurer and not you. We will consult you before incurring any substantial disbursement, and in particular before instructing any barrister on your behalf."

26. Under the heading "Costs upon termination of the CFA by RJW" the leaflet said:

"Your lawyer will review your claim from time to time to assess the prospects of success. If the prospects of success fall below 50% we may have to terminate the CFA and ATE policy. If this does happen, you won't have to pay anything towards our costs."

27. In contrast the leaflet explains, in fairly standard terms, the client's responsibilities and explains:

"As long as you are able to uphold your responsibilities during your claim as set out below, we are able to cover you for all the legal costs related to the investigation and pursuit of your claim…"

28. It warns that if a breach of those responsibilities leads to the claim being abandoned by RJW:

"…you will become responsible for costs incurred on your claim until that point. You may also have to pay the other side's legal costs. If this happens we will give you details of the costs that you are liable to pay and of your rights to have those costs fairly assessed."

29. Another document which would appear to have been sent to Mrs Ramos at that time was a "disclosure statement" explaining that the CFA was an insurance proposal form authorising RJW to take out a policy on the Claimant's behalf under a delegated scheme and that the scheme entitled RJW to take a share of the premium. It incorporated this advice:

"Naturally we very much hope that you will win your claim. However, some claims do fail. An After the Event insurance policy is there to protect you against the risk that you might have to pay your opponent's or any other legal costs in the event that you are unsuccessful…

If for any reason you are unsuccessful in your claim, then so long as you have complied with your agreement with us and the terms of the insurance policy, then you will not have to worry about paying your opponent's costs. What is more, you will not have to worry about meeting the cost of the premium for the insurance policy or indeed any of the other costs which we have to incur on your behalf known as "disbursements". These are the costs we incur to progress your claim such as medical records and medical reports. The insurance policy will cover both the insurance premium itself and also your disbursements in the event that you lose. As you know, we do not get paid if you lose".

30. The CFA of 25 February 2015 is a Slater and Gordon "CFA lite" incorporating a success fee of 100%. It is consistent with the terms of the RJW guidance documentation accompanying it. It also specifically reserves the right, should the Claimant terminate the agreement, for Slater and Gordon to be paid basic charges and, should they choose to await the outcome of the claim, the success fee.

Oral Advice on the Change of Funding

31. The application for discharge was dated 20 February 2013 and signed by a solicitor. It includes the following wording:

"Alternative funding is available in the form of a Conditional Fee Agreement. The case relies heavily upon expert evidence from experts…Our experts' charges exceed £180 per hour and we are not prepared to compromise the claim by instructing cheaper expert in whom we do not have confidence…"

32. It would appear that Mrs Ramos had received the letter of 18 February and authorised the application to discharge by that date. The CLS funding certificate was cancelled on 25 February and the CFA, signed by both parties, bears the same (printed) date. However there is little evidence available to show exactly what transpired between 18 and 25 February. Under cross-examination Mr Sankey thought that the CFA was signed before being dated, though he was unsure.
33. An attendance note dated 25 February 2013 records a call in from Mrs Ramos to Mr Sankey, to report that she would be having surgery on Thursday (which would have been 28 February) and that she then would be in hospital for 3 or 4 days. It is timed at 12 minutes, most of which time appears to have been dedicated to medical matters. The reference to funding is very brief: "She has received the CFA. Explained the CFA funding. I may not be able to get the change done by the end of March but I will do my best."
34. I have not found it possible to piece together a clear and complete sequence of events from this information, but the point is to identify the reasoning behind the change and the advice given in respect of it.
35. The attendance note of 25 February 2013 is the only record that could be identified before me of any discussion between Mr Sankey and Mrs Ramos about the change of funding. It emerged in the course of the hearing that at the time of preparing his witness statement, Mr Sankey had been unable to trace any attendance note at all, but he said that he recalled speaking to her in detail at the time and explaining his advice. Mrs Ramos was, he says, a nurse: an intelligent woman actively engaged in her daughter's claim. She had a good understanding not only of the medical but also the legal issues. They spoke regularly by telephone to discuss developments and she reflected carefully at every stage on what was in her daughter's best interests.
36. In evidence before me Mr Sankey recalled a conversation with Mrs Ramos upon which he gave more detailed advice on funding issues than the attendance note of 25 February 2012 suggests, but he was unable to produce any record of the discussion or to recall any details of its content.
37. As I have mentioned, in Mr Sankey's witness statement he makes reference to the 10% uplift in damages provided for in Simmons and Castle for cases in which a Claimant had not entered into a CFA before 1 April 2013. He puts the value of the uplift at between £10,000 and £12,500, and compares it with the disadvantages of a post-1 April 2013 CFA arrangement.
38. Mr Sankey says that his oral advice to Mrs Ramos in 2009 was along the lines set out in his witness statement, but I do not think that can be right of Simmons and Castle because he was not advising Mrs Ramos of the relative merits of CFA arrangements before and after 1 April 2013. In evidence he indicated that he had made that particular comparison in his witness statement as a response to correspondence from the Defendant on costs, which would have come long after 2009.
39. Under cross-examination Mr Sankey admitted that he was unsure whether he had discussed Simmons and Castle with Mrs Ramos. It is for the Claimant to establish on the balance of probabilities that he did, and the evidence offered in support of that proposition is not adequate to do so.
40. My conclusion is that Mr Sankey gave no verbal advice of any substance to Mrs Ramos beyond that incorporated in the documentation I have described.

The ATE Documentation

41. The ATE policy is dated 5 April 2013, though the inception date is shown as 25 February 2013. As the documentation was not completed until 5 April, it follows that it was sent to the Claimant after that date.
42. The policy is a FirstAssist Legal Protection "Pursuit" policy under which the premium is calculated at 79% of insured "Expenses" (expenses and disbursements "reasonably and properly incurred by the solicitor" but excluding the fees of counsel acting under a CFA) and opponent's costs. It is a direct contract with the Claimant as the insured, who must pay the whole premium as long as the "outcome of the Legal Proceedings is a Success."
43. Success is defined in the Policy Schedule as: "The claim for damages is finally resolved in favour of the Insured whether by a court decision or where an offer is received which the Insured's solicitor advises should be accepted or any other offer accepted." The Part 36 risk is met by provisions for partial success.
44. Among the conditions on the policy schedule are that the premium is payable by the insured even if the opponent delays or defaults in payment of any judgment or settlement. The insurer has a lien over any monies received up to the value of the premium and the solicitor may not pay to the insured any money subject to that lien until the premium has been paid. The Policy will terminate if either the insured or the solicitor terminates the CFA. The policy may also be cancelled in certain circumstances, notably where the insured does not follow the solicitor's advice on progressing the case, settlement or discontinuance or does not follow the insurer's recommendations with regard to settlement. In the event that the policy is terminated or cancelled, the insurer "is under no obligation to make any payment".
45. "Key Facts" notes attached to the policy appear to be tailored for the RJW/Slater and Gordon policy under an "Insurance Services Agreement Delegated Authority" ("ISADA") arrangement which I will consider in more detail below. They emphasise a number of matters, including these:

"You must not settle or discontinue the action without our prior written consent…

We would specifically highlight your obligation to work with, and follow the recommendations of, Russell Jones and Walker…

It is important that you understand that your opponent can challenge the level of the premium under any ATE policy, or whether ATE cover should have been taken out at all, something which your solicitor will have had a duty to advise you about at the start…Whatever the courts decide is payable by your opponent, you are responsible for paying the whole premium to us. This may mean you have to pay part or all of the premium out of your own funds."

The Defendant's Submissions on the Relative Merits of LSC and ATE/CFA Funding

46. Mr Smith for the Defendant points out (and it is not in issue) that the prospect of LSC funding being withdrawn was, in February 2013, minimal and that there was no difficulty with funding limits. He argues that the Claimant's choice to change funding was unreasonable for the following reasons.
47. The Simmons and Castle uplift was not discussed with Mrs Ramos. She was therefore unaware that a switch from LSC funding to a CFA/ATE arrangement entailed the loss of (in the event of success) a guaranteed sum in additional damages, which the Defendant puts at £15,000 rather than the £10,000-£12,500 suggested by Mr Sankey. This, argues Mr Smith, was in breach of the requirements of the Solicitors' Code of Conduct 2011, as in force at the time, which required that the client be in a position to make an informed choice about the options available to them.
48. The sole reason given in evidence for the switch in the advice to Mrs Ramos and Mr Sankey's statement is that the LSC would not fund experts' fees at in excess of £180 per hour. That is not accepted by the Defendant. The LSC first introduced limits on experts' hourly rates with for cases started after 3 October 2011. Those provisions were not retrospective and they did not apply to a certificate issued in March 2010.
49. Nor is there evidence to support the assertion that the LSC would not allow Slater and Gordon to "top up" fees. On the contrary, the evidence indicates that RJW/Slater and Gordon had been doing precisely that since first instructing experts in 2010.
50. Mrs Ramos was given no advice in relation to the Claimant's exposure should there be, on the claim succeeding, a shortfall in recovery of the ATE premium.
51. Had the Claimant decided to move firm at any point, if legal aid continued then a certificate could be transferred to another firm. In contrast any CFA signed with a new firm after March 2013 would have incorporated irrecoverable additional liabilities which the client would bear out of their damages.
52. Further, the Claimant would have been liable to Slater & Gordon for all costs incurred. This would have included a clearly inappropriate 100% success fee, of which the lay client would not be in a position to challenge. There might have been little risk of a change in solicitors, but the Claimant should have been informed about this issue and that if she did decide to change
    solicitors then her ATE premium could be terminated automatically
    under the policy exclusions.

The Claimant's Submissions on the Relative Merits of LSC and ATE/CFA Funding

53. The Claimant points out that if there had been an interlocutory costs order against the Claimant and/or a successful Part 36 offer by the Defendant entitling them to their costs from 21 days after it was made, that (it is accepted) might have resulted in an order under the principle approved under Lockley v National Blood Transfusion Service [1992] 1 WLR 492 to set off such costs against the amount ordered to be paid to the Claimant. With ATE insurance, that risk was removed.
54. The CFA/ATE arrangement also removed the likelihood of any further deduction from damages, under the statutory charge, for costs properly incurred but irrecoverable from the Defendant. It freed the Claimant from the bureaucratic requirements of the LSC to get approval for major steps: it was a more flexible and attractive arrangement.
55. In relation to the risk of a Lockley order the Defendant responds that, but as was stated in Lockley by Scott LJ (at page 497) such a set off is likely to have been a set off of the Defendant's costs of that interlocutory hearing or short period more than 21 days after the Part 36 offer against the much larger costs due to the Claimant - a "costs against costs" order.
56. In fact that has happened in this case. The Claimant has agreed to set off the costs payable to the Defendant from two applications dated 31 July 2014 and 8 October 2014.
57. As for the statutory charge, Mr Sankey insisted, under cross-examination, that Slater and Gordon would seek to recover such costs from the client's damages but in the bill of costs they have plainly waived any such claim. There is no legal aid element to the bill and no legal aid assessment is being sought.

The Date of the ATE Policy

58. Mr Smith raised in submissions a specific point that had not been raised in the Defendant's points of dispute. I allowed that on the basis that the issue was, given the matters the court already had to address, inescapable and on condition that the Claimant have an adequate opportunity to address it. Another entirely new, secondary point in Mr Smith's written skeleton concerning the form of the insurance schedule and its compliance with the pre-1 April 2013 Civil Procedure Rules and Practice Directions was not, according to my record of the hearing, pursued before me. In any event, given the conclusions I have reached I will not need to address it.
59. This is the argument that I did hear. Mr Smith points out that the insurance schedule, as served with the Claimant's bill of costs, is dated 5 April 2013, raising a concern that the ATE contract of insurance was made after 1 April 2013 so that the premium, by virtue of 58C of the Courts and Legal Services Act 1990, is irrecoverable. I will address that point now.
60. Mr Burford's statement of 12 October 2015 was not (and could not have been) tailored to address that particular point. He describes in broad terms the "Insurance Services Agreement Delegated Authority" ("ISADA") scheme agreed between FirstAssist and RJW in December 2007 and continuing under Slater and Gordon. He confirms that FirstAssist accepted the Claimant's case into the ISADA scheme on 25 March 2013 and confirmed that to Slater and Gordon on 26 March 2013, at which point he says Slater and Gordon were required to issue the insurance policy documentation under the terms of the scheme. He says they did so on 26 March 2013 and describes the policy as "incepted" on that date.
61. First Assist distinguishes between "inception" (commencement) and "administration" (formalisation) of the policy, but I do not find that distinction particularly helpful. The date of "inception" is, on the policy terms, fixed at 25 February 2013 so it is not a guide to the effective date of the contract of insurance. Instead I have attempted to identify the sequence of events, which seems to have been as follows.
62. The risk was proposed to FirstAssist by Slater and Gordon on 12 March 2013. The proposal was assessed and reviewed by FirstAssist on 21 March 2013. On 25 March 2013 Mr Burford confirmed to his colleagues that the case could be covered under the ISADA scheme. That was confirmed by email to Slater and Gordon by email at 10.26 am on 26 March, but the policy documentation was not finalised by Slater and Gordon until 5 April 2013.
63. These are my conclusions as to whether this is a pre-1April 2013 policy.
64. Before 1 April 2013, section 29 of the Access to Justice Act 1999 enabled the recovery of ATE premiums under orders for costs by a party to proceedings who had "taken out" an insurance policy against the risk of liability for costs. Since 1 April 2012, section 58C of the Courts and Legal Services Act 1990 (as amended) has prevented recovery of such premiums by a party who has "taken out" such a policy.
65. Section 58C does not have retrospective effect, so the question is whether the Claimant "took out" a policy before 1 April 2013. In my view she did. On her behalf her solicitors sought cover under the ISADA scheme and the insurer confirmed cover by email at 10.26am on 26 March 2013. From that point the Claimant was insured.
66. Although subjective intentions are not to the point, in my view FirstAssist and, through her solicitors, the Claimant intended to and did arrange for the Claimant to have a policy of insurance in place before 1 April 2013. The terms of the policy, the date and level of cover and the method of calculation of the premium payable were all agreed on 26 March and were not made contingent upon any event, including reduction to writing. The insurer was at that point contractually committed, as was the Claimant who through her solicitors had agreed to pay the premium.
67. Evidently Mr Burford assumed that Slater and Gordon would prepare the documentation immediately, but that was administrative work, delegated to Slater and Gordon by FirstAssist under the terms of the ISADA scheme. It did not create the contract.
68. For those reasons I have concluded that this is a pre-April 2013 ATE policy and that there is no statutory bar to recovery of the ATE premium under the order for costs.

Conclusions on Reasonableness

69. I have been reminded of the relevant pre-April 2013 Civil Procedure Rules and Practice Directions, applicable to this case under the transitional provisions of CPR 48.1.
70. CPR 44.4 provided (insofar as relevant):

"(1) Where the court is to assess the amounts of costs …the court will not …allow costs which have been unreasonably incurred or are unreasonable in amount…

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue; and

(b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party…."

71. CPR 44.5 provided (insofar as relevant):

"…The court is to have regard to all the circumstances in deciding whether costs are –

If it is assessing on the standard basis –

Proportionately and reasonably incurred;

Were proportionate and reasonable in amount…"

72. The then Costs Practice Direction provided at paragraph 11.7:

"When the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into…"

73. And at paragraph 11.8:

"In deciding whether a percentage increase is reasonable, relevant factors to be taken into account may include:

(a) The risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur;

(b) The legal representative's liability for any disbursements;

What other methods of financing the costs were available to the receiving party."

74. 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, 10^th 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).
75. 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.
76. Applying those principles to the facts of this case, these are my conclusions.
77. I attach no weight to suggestions that Mr Sankey should have advised Mrs Ramos in specific terms as to what would happen should the Claimant terminate the CFA. I accept that, as Mr Sankey says, that was a remote risk.
78. I do not doubt that Mr Sankey has done his best, from his recollection of events, to assist the court. Nonetheless his evidence was on some issues inconsistent and inadequate to support the Claimant's case.
79. According to his witness statement, Mr Sankey thought until recently that 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. He accepted in evidence that that was wrong.
80. That misconception undermines Mr Sankey's evidence to the effect that he gave consideration to the real advantages and disadvantages to the Claimant of switching from LSC funding to a CFA/ATE arrangement. If he had thought he had a duty to seek discharge of the certificate in any event, comparing the relative merits of LSC as against CFA/ATE funding would have been otiose. I have concluded that an analysis of the evidence shows a full and adequate analysis of those relative merits was not in fact carried out.
81. It is evident that the change of funding was arranged in haste. That seems to have led to (admitted) error, notably the inclusion in the CFA of a success fee of 100% whereas the figure produced on Slater and Gordon's assessment of risk was 50%. It also seems to have led to the advice given to Mrs Ramos being insufficiently thought through.
82. In advising Mrs Ramos that he could no longer work within the constraints imposed by the LSC, Mr Sankey was in effect advising her that there was no choice but to change to CFA and ATE funding. This was based upon an unequivocal statement to the effect that the LSC would not pay the Claimant's experts more than £180 per hour and would not allow his firm to pay them at more than £180 per hour.
83. Mr Sankey repeated that statement in oral evidence but was confronted by documentary evidence that showed that it could not be entirely correct. A review of Slater and Gordon's ledger and of the fee notes in support of the Claimant's bill shows that Slater and Gordon had been paying experts at in excess of £180 per hour since 2010. Substantial fee notes from Professor Schapira and Miss Fernandes were met in full between July 2011 and February 2012. The most recent payment, pre-change of funding, seems to have been to Miss Fernandes who recorded, on 23 February 2013, receipt of £2400 in full settlement of a fee for a condition and prognosis report provided on 22 January 2013.
84. In other words, whatever the LSC itself was willing to pay, it was not, as Mr Sankey had told Mrs Ramos and repeated in his statement, imposing any cap on the fees experts could be paid by his firm.
85. Under cross-examination Mr Sankey was at first reluctant to concede the point but ultimately came round to a rather different position, which is that he had been concerned about the risk to his firm, on a claim that was on the cusp of service, in continuing to pay experts in full where the LSC would not be willing to reimburse that cost at more than £180 per hour should the claim prove unsuccessful.
86. This left the Claimant's evidence on this particular point in something of a muddle. This is what I have made of it.
87. Mr Sankey's advice to Mrs Ramos about the limits of LSC funding seems to have been based upon discussions with colleagues and LSC representatives about LSC policy following introduction of the Community Legal Service (Funding) (Amendment No.2) Order 2011. That regime applied to civil cases started from 3 October 2011 and did not have retrospective effect. Mr Sankey advised Mrs Ramos as if it did.
88. Mr Sankey indicated in oral evidence that the LSC had been limiting its exposure to payment of experts' fees in clinical negligence cases from about 2006 by restricting the hourly rates which it would pay if the relevant fees were not recovered from an opponent. I am willing to accept that, but he confirmed that he had made no specific enquiries in relation to this particular case. He insisted that the LSC would apply a blanket rate of £180 for all experts, but his experience of LSC-funded cases was limited (this was one of only two he was conducting that the time) and again he seems to have based that understanding upon discussions with others.
89. Specific hourly rates aside, the essence of Mr Sankey's evidence before me is that between 2006 and the introduction of new regime in 2011, the LSC had been operating a funding regime under which it was impossible to take a substantial clinical negligence claim beyond the point of service without undertaking an unacceptable financial risk. I have not been presented with the sort of cogent evidence which could justify such a conclusion.
90. Nor do I accept that Mr Sankey's advice to his client in relation to the change of funding was based upon any considered assessment of the risk to his firm of continuing to fund expert's fees. There is no material evidence that that formed part of his thinking at the relevant time. It was not mentioned to his client, and it was not mentioned in his witness statement.
91. My conclusion is that Mr Sankey advised Mrs Ramos that there was no option but to change from LSC to CFA/ATE funding, based on broad assumptions that lacked any sound foundation.
92. I also have concerns about the lack of advice given on the Simmons v Castle uplift. Mrs Ramos was not told that on changing funding as advised, the Claimant would sustain a loss of damages which Mr Sankey puts at up to £12,500 and the Defendant at up to £15,000. That may be compared to Mr Sankey's estimate under cross-examination of the possible amount of costs subject to the statutory charge, should LSC funding continue, at between £4,000 and £10,000 (the Defendant puts it at a much lower figure).
93. Leaving aside that no claim against the LSC has in fact been made on this assessment, the (certain) Simmons v Castle uplift exceeds Mr Sankey's own estimate of (possible) maximum costs payable under the statutory charge in relation to adverse costs orders. What is presented, in his witness statement, as an advantage to the client is outweighed by a disadvantage in relation to which he gave no advice.
94. This leaves the Part 36 risk, which under LSC funding could lead to a deduction from damages under the statutory charge. Mr Smith argued that there was no significant Part 36 risk in November 1990, this being a substantial clinical negligence case in which matters are usually resolved at a round table meeting and Part 36 offers prior to such meetings are rare. I have often heard that said of clinical negligence cases before, and on previous occasions I have accepted that there is substance in the point.
95. In this particular case the Part 36 risk was not specifically offered as a justification for the change in funding in Mr Sankey's statement or (though briefly mentioned in relation to ATE cover) in his advice to Mrs Ramos in his letter of 18 February 2013. That, and this letter's reference to the CFA/ATE arrangement being "slightly better" than LSC funding in protecting the Claimant from adverse costs orders, indicates that he did not consider the Part 36 risk to be significant at the time. In evidence he described the Part 36 risk as the "main" risk (as opposed to the risk of any other deduction from damages as a result of adverse costs orders, described by him as slim) but he confirmed that no Part 36 offer was ever made.
96. On the evidence I have concluded that the Part 36 risk, as at February 2013, was relatively small and that it did not exercise Mr Sankey to any material degree in advising Mrs Ramos.
97. The matters to which I have already referred seem to me to lead to the conclusion that in February 2013 the Claimant (as advised through Mrs Ramos) was like the Claimant in Kai Surrey, not in a position to make an informed choice about the change of funding from LSC to CFA/ATE and that there is sufficient doubt about the reasonableness of her decision to do so to render the success fee and ATE premium irrecoverable by reference to CPR 44.4(1) and 2(b).
98. There is a further significant reason for concluding that the CFA/ATE arrangement, far from being slightly better than LSC funding for the purpose of protecting the Claimant's damages, was significantly worse. I say that because of another risk that was not fully addressed in the advice given to Mrs Ramos in February 2013: that of failing to recover part or all of the ATE premium.
99. The "Key Facts" leaflet, presumably sent to the Claimant at some point after 5 April 2013 when the policy documentation was completed by Slater and Gordon, emphasised the risk that the ATE premium might be challenged in part and in full; that the Claimant would have to bear the cost of the full premium if such challenge was successful; and that Slater and Gordon had a duty to advise on that "at the start".
100. Slater and Gordon had not however given that advice at the time the decision to change funding was made. The documentation sent to Mrs Ramos in February 2013 generally gave the impression that the premium would never have to be borne by the Claimant to any extent. It would either be recovered from the opponent in the event of success or not payable at all in the event of failure.
101. The explanatory leaflet in relation to ATE insurance did qualify that by stating, of the premium, that "…we would hope to be able to recover… (it) …in full" but no advice was given in relation to the extent of the risk that this might not happen and the extent of the possible financial consequences for the Claimant, which were very substantial.
102. It is clear from Mr Sankey's evidence that it did not occur to him to give such advice. His witness statement simply asserts that the Claimant would not have to pay the ATE premium from her damages. The ATE documentation issued by his firm in April 2013, in contrast, made it clear that she might. Under cross-examination on the point Mr Sankey indicated that the insurer would pursue any such claim though Slater and Gordon and that Slater and Gordon would not leave its client in the position of having to pay the shortfall.
103. I do not doubt his sincerity, but his assurances come after the event and are not sufficient to meet the point. Slater and Gordon were not (as the "Key Facts" leaflet issued by them, as part of the policy documentation, shows) under any legal obligation to indemnify against the risk they were advising the Claimant to take. They were under an obligation to advise on that risk, and they did not.
104. As I have observed in a similar and recent case, the mere fact that an ATE premium may be (or has been) challenged in whole or in part cannot in itself support the conclusion that it was unreasonably incurred. The possibility of a challenge is just one of the risks that (as was recognised in Howarth v Britton Merlin) must be taken into consideration when the choice is made. In this case it was not taken into consideration. The Claimant was left without advice in relation to a risk which had potentially serious financial consequences and which should have informed the decision in relation to change of funding.
105. In my view that risk was significant, because the justifications offered for the change by Mr Sankey to his client and in evidence were open to legitimate and strong challenge. The Claimant was, from the outset, vulnerable to a challenge to the whole ATE premium.

Summary of Conclusions

106. For the above reasons I have concluded 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.