England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/01/2016

Mr Justice Soole:


1. This is an appeal by the Defendant ('the Trust') against the decision of the costs judge Master Rowley dated 1 July 2015 that the Claimant ('Mrs Hyde') was entitled to recover the costs of her clinical negligence action against the Trust via a Conditional Fee Agreement ('CFA') with her solicitors Ashton KCJ ('Ashton'). Master Rowley rejected the Trust's submission that the CFA was unenforceable in circumstances where a Community Legal Services ('CLS') funding certificate for the action had never been discharged by CLS.
2. The claim arose out of Mrs Hyde's emergency admission to the Trust's hospital in February 2008. A public funding certificate was first issued on 10 July 2008. Mrs Hyde thereafter changed solicitors twice and the certificate was transferred to Ashton in October 2009. The Trust admitted liability in July 2012. In August 2012 the Trust made a settlement offer of £150,000. This was considered inadequate and so it was necessary to prepare for trial on quantum. Judgment for damages to be assessed was entered on 11 September 2012. On 12 October 2012 the Court granted leave to rely on the evidence of 5 experts.
3. The certificate was in the usual way subject to costs limitations. For the purpose of its work on quantum Ashton sought an increase from the existing costs limitation of £25,000, pursuant to 'Stage 5 (Quantum Investigations)' of the clinical negligence funding check list. In early November 2012 the LSC increased the limitation by £18,000 to cover the cost of the 5 experts.
4. By letter of 8 November 2012 Ashton advised LSC that the increase was insufficient to bring the case to a conclusion. The LSC replied (20 November) that the figure was based on a 50% apportionment of the maximum (£36,000) which it would normally authorise under the 'Stage 5' checklist for 8-10 experts and there was no sufficient or compelling reason to show that this was inadequate. In reply (20 December) Ashton reiterated its view that previous solicitors had spent £14,000 to no effect; and said that there would be sufficient funds if that sum could be 'wiped or allowed for'. On 1 February 2013 the LSC replied that it could not do that nor were there any sufficient grounds to authorise a retrospective increase in cost limitation.
5. Ashton thereafter undertook a case review which concluded that the cost of the work which had been done by the three firms of solicitors was 'approaching' the £43,000 limit and that public funding was therefore insufficient to complete the case. Having undertaken a risk review they were willing to proceed on the basis of a CFA. On about 13 March 2013 they advised Mrs Hyde accordingly. On 25 March the CFA was entered, in terms expressed to include 'the work that has been done since our initial instructions of 20^th March 2013'. Ashton concluded a CFA with Counsel on 20 March, Counsel having signed on 15 March. By Notice of Funding (Form N251) dated 26 March Ashton advised the Trust of its CFA and the associated ATE policy. On 1 April the legislative changes in respect of recovery of CFA success fees and ATE premiums came into force. In November 2013 the claim was settled at the Trust's increased figure of £325,000 excluding CRU.
6. The issue arises from the fact that Ashton never applied for or obtained a discharge of the funding certificate. In consequence the Trust contends that in contravention of sections 10(1) and 22(2) of the Access to Justice Act 1999 ('the 1999 Act') the CFA was a private retainer running concurrently with public funding and entirely unenforceable. The Trust accepts that the position would have been saved by a provision (I am told, commonplace) in the CFA that 'no work is covered under this agreement until after discharge of the legal aid certificate'; but this CFA contained no such term.
7. Having reviewed the statutory material and authorities Master Rowley rejected the Trust's arguments on this essential basis :

   'In my judgment, where a party has exhausted the costs that can be claimed under a certificate so that it is 'spent', they can in principle establish a discharge by conduct in the same manner as certificates in which all of the work up to a limitation of scope has been carried out. The effect of that discharge is to end the services funded by the LSC and enable a private retainer to fund the remainder of the proceedings'

   para.30.
8. He also rejected the Trust's further argument that, in any event, it was not reasonable for Mrs Hyde to change from public funding to a CFA : paras. 41-45. There is no appeal from that decision.
9. The starting point must be the provisions of ss.10(1) and 22(2) of the 1999 Act.
   Section 10(1) provides that :

   'An individual for whom services are funded by the Commission as part of the Community Legal Service shall not be required to make any payment in respect of the services except where regulations provide.'

   Section 22(2) provides that

   'A person who provides services funded by the Commission as part of the Community Legal Service or Criminal Defence Service shall not take any payment in respect of the services apart from –
   (a) that made by way of that funding, and
   (b) any authorised by the Commission to be taken.'

10. The mischief to which these provisions are directed can be drawn from Merrick v. Law Society [2007] EWHC 2997 (Admin) which was based on similar provision in ss. 15(6) and 31(3) of the predecessor Legal Aid Act 1988. Mr Merrick was subject to disciplinary proceedings for transferring £10,000 from client to office account at a time when the client enjoyed legal aid. The essence of the charge was that he was guilty of 'topping up' his remuneration from public funds: per Gross J at para. 3. In upholding the finding of breach and the sanctions the Court observed that the Act '…provides for the remuneration of solicitors to be dealt with through or via the LSC. There is no question of any payment arrangements being entered into directly between the client and the solicitor' (para.33); that it was a 'fundamental rule…that solicitors, acting for legally aided clients, are not entitled to look to that client for payment.' (para.54); and that the client's consent was irrelevant (para.48). The Court also noted the statement in the Legal Aid Handbook 1998/99 which, having dealt with topping-up added 'Solicitors and counsel may, of course, charge privately for work carried out before the issue and/or after the discharge of a legal aid certificate.' The Trust points to the significance of the certificate.
11. The Court in Merrick also referred to the decision in Littaur v. Steggles Palmer [1986] 1 WLR 287 where the Court of Appeal noted the potential forms of abuse of legal aid which such provisions were designed to prevent. These include the case where 'The hypothetical solicitor might seek to be paid more by some device than he will receive, or has received, from the legal aid fund for the work which he did under the certificate.' (per Ackner LJ at p.293F-G).
12. On this basis the Trust contends for a general principle that any private retainer entered into at a time when the public funding certificate has not been discharged by the LSC is unenforceable; and hence cannot rise to a liability for costs on the paying party. The Trust acknowledges two exceptions to such a principle but submits that the categories of exception are closed.
13. The first is where the scope of the work authorised by the certificate has been completed. In that case the certificate is treated as 'spent' without the need for a formal discharge of the certificate. Thus in Turner v. Plasplugs Ltd [1996] 2 All ER 939 the certificate did not extend to the issue of proceedings but such further work was carried out for the client on a private basis. The other side prepared and served a defence and when the action was discontinued sought their costs thereof. Mr Turner failed in his attempt to rely upon the undischarged certificate in order to obtain costs protection under s.17 of the Legal Aid Act 1988. Sir Thomas Bingham MR stated : 'There was strictly no need to discharge the certificate. It was spent. Everything it authorised had been done.' (p.943c; see also p.945h). In other words Mr Turner ceased to be an 'assisted' person from the date when the work authorised by the certificate had been completed.
14. I observe that in such a case there was no question of the solicitor being guilty of abuse of the legal aid system. He had completed his work under the certificate. On the contrary it was the client who was seeking to take advantage of the absence of formal discharge in order to obtain costs protection.
15. Likewise in Littaur the solicitors had completed the work which was authorised under the certificate. There was again no formal discharge of the certificate. The solicitor carried out further work on a private basis. The client unsuccessfully sought to take advantage of the undischarged certificate in order to defeat his solicitor's claim for fees. Ackner LJ stated that this argument '…suggests the fallacious proposition that someone cannot be pronounced dead until it is established that he or she has been buried.' (p.292H).
16. The Trust's second category of 'exception' is where the client dispenses with his solicitors and acts in person. The point at which he thereby ceases to be an assisted party has been a matter of some legal debate, but it is not dependent on the formal discharge of the funding certificate.
17. Thus in Burridge v. Stafford [2000] 1 WLR 927 the client Mrs Stafford parted company with her solicitors shortly before trial and conducted the trial as a litigant in person. She lost the action. The certificate was not discharged until 6 weeks later. She sought costs protection on that basis. Lord Woolf MR rejected the argument that she remained an assisted party until the date of discharge or the date on which the discharge was notified to the other party. Referring to the decisions in Turner and Littaur he said that 'By analogy…it seems to me that the existence of a legal aid certificate is merely evidential': p.934h. He held that she ceased to be an assisted person from at least the date that she started to act in person; and noted the importance of a party to litigation knowing at any particular time whether the opposing party was an assisted person : p.935b-c.
18. In Mohammadi v. Shellpoint Trustees Ltd [2010] 1 All ER 433 Briggs J emphasised the latter point (para.29) and held that the client Mrs Mohammadi ceased to be a legally assisted person once the firm which had ceased to act for her had communicated that fact to the solicitors for the opposing party, even if a period of time then elapsed before she took active steps as a litigant in person: para. 25.
19. Consistently with his submission that these were the only two permitted exceptions to a rule which requires formal discharge of the certificate Mr Sachdeva QC argued that an assisted party who transferred her instructions to new solicitors under a private retainer would continue to be an assisted party until there had been a formal discharge of the funding certificate. If so, the litigant would in the meantime enjoy costs protection against the other side.
20. In my view this cannot be right, since (i) the authorities demonstrate that discharge of the certificate is merely evidential (ii) in such a case there can be no question of 'topping up' or other abuse by the solicitor on the certificate. Furthermore some recent observations of the Court of Appeal point the other way.
21. Thus in Rayner v. The Lord Chancellor [2015] EWCA Civ 1124 Mrs Murphy instructed a firm (Ismail) who obtained a funding certificate for litigation against a Mr Rayner. In May 2010 she decided to retain another firm (Smithfield) who did not have a legal aid contract. They applied to the LSC for an 'exceptional case' contract but in the meantime entered into a CFA with her. On 18/19 May 2010 notices of the change of solicitor and of the CFA were served on the other side. The certificate in favour of Ismail was never withdrawn. However it was amended on 1 September to identify Smithfield as the supplier. She lost the action and Mr Rayner claimed his costs against the Lord Chancellor (as successor to the LSC) under the relevant statutory provisions in favour of the successful non-funded party. One question was whether Mrs Murphy was a funded party during the 'hiatus period' between 19 May and 31 August 2010. The Master held that she was not, on the essential basis that in that period she had ceased to instruct Ismail : para.7.
22. Mr Rayner's appeal was lodged out of time. Before the Judge the point became academic because of Mr Rayner's success on a separate argument. The Judge refused permission to appeal on grounds of lateness but also indicated a 'provisional view' that in the light of the decisions in Burridge and Mohammadi Mrs Murphy ceased to have costs protection on the date (19 May) when the change of solicitor was notified. On that basis the Master's decision was correct : para. 61. The Court of Appeal refused Mr Rayner permission to appeal the Judge's decision on lateness. However two members of the Court stated their 'inclination' to agree with the Judge's provisional view on the substantive point : Underhill LJ (para.64); McCombe LJ (para.75).
23. Mr Sachdeva QC of course emphasised that these remarks were obiter and brief. However in my view they provide further confirmation that (i) formal discharge of the certificate is merely evidential and (ii) in such a case there can be no question of 'topping up' or other abuse by the solicitor on the certificate.
24. Mr Sachdeva QC also contended that where a funding certificate was in force the retainer of the solicitor could only be terminated by the LSC. This argument was based upon the provisions of the Funding Code under the 1999 Act which Code contains Criteria (Part 1) for deciding whether to fund or continue to fund services and associated Procedures (Part 2).
25. Section 15 of part 1 is headed 'Withdrawal of Funding'. It permits withdrawal of funding on grounds which include the consent of the client (para.15.5(iv)) and where the case has been disposed of or the work has been completed (15.5(v)).
26. Under the associated Procedures (Part 2) there is power to revoke or discharge the certificate (para. 51.1). Then by 51.2 :

    "Where a certificate is revoked or discharged no further services may be provided under it from the date of the notice of discharge or revocation and the retainer of the solicitor shall cease in accordance with Regulations". (emphasis provided).

27. I understand the relevant Regulation to be Reg 4 of the Community Legal Service (Costs) Regulations 2000. This is headed 'Termination of retainer where funding is withdrawn' and sub-reg (4) provides: "The solicitor's retainer shall not terminate until he has complied with any procedures under the Funding Code that require him to send or serve notices."
28. Para. 55 then contains a 'show cause' procedure involving the service of a notice upon the client and the opportunity to say why the certificate should not be revoked or discharged. The procedure does not apply in circumstances which include the completion of the work and the consent of the client : 55.2.
29. When the certificate is revoked or discharged notices must be sent to the solicitor and client : 56.1. If proceedings have commenced the solicitor must in turn serve notice on the Court and all other parties : 56.4.
30. Mr Sachdeva QC then turns to section 22(1) of the 1999 Act which provides that :

    "Except as expressly provided by regulations, the fact that services provided for an individual are or could be funded by the Commission as part of the Community Legal Service…shall not affect –
    (a) the relationship between that individual and the person by whom they are provided or any privilege arising out of that relationship…" (emphasis added).

    Applying the exception in s.22(1) he submits that the effect of Regulation 4(4) is to exclude the right which the client would otherwise enjoy to terminate the retainer. In this respect he points to the provisions which expressly permit the LSC to revoke or discharge the certificate with the consent of the client.
31. Ingenious as it was I reject this argument without hesitation. The Funding Code simply provides powers and procedures for the LSC to revoke or discharge the certificate. If the certificate is revoked or discharged, the Code and Regulations stipulate the consequence (subject to service of notices) that in those circumstances the retainer is terminated. However they do not provide an exhaustive code for termination of the retainer nor otherwise exclude or restrict the respective rights of each party (i.e. client and solicitor) – preserved by s.22(1) - to terminate; which, in the case of the client, is a right to do so at will. It would require the clearest language to achieve that remarkable consequence.
32. However this is all subject to the protection against abuse which ss.10(1) and 22(2) afford to the assisted party.
33. My conclusion from this analysis is that :
    (1) the relevant underlying purpose of ss.10(1) and 22(2) is to protect the funded client from abuse;
    (2) the formal discharge of the certificate by the LSC is not necessarily determinative;
    (3) the enforceability of a private retainer entered during the currency of a certificate is not confined to cases in the two categories identified by the Trust.
34. I turn to the facts of this case. The evidence demonstrates that by February/March 2013 the funding was approaching exhaustion and the LSC had made it clear that there would be no more. Ashton reviewed the position and concluded that the quantum stage, involving 5 experts, could not be completed on a funded basis and that the only way forward was via a CFA. They so advised Mrs Hyde. In my view Ashton's conclusion and advice were entirely reasonable and proper.
35. Like Master Rowley I reject the Trust's suggestion that Ashton should have proceeded to carry out the work which the certificate authorised (i.e. Stage 5 quantum) and taken the risk that they would not recover their costs and disbursements if the claim was unsuccessful, e.g. if the ultimate award of damages was less than the Trust's previous offer. Their retainer was subject to the availability of funding and there was no reason why they should be expected to carry out work beyond the obligations which the retainer imposed.
36. Turning back to the effect of ss.10(1) and 22(2) in this situation, I first consider the position if the evidence were that the funding limited by the certificate had in fact been completely exhausted by the date of the CFA.
37. In that circumstance my conclusion is that Mrs Hyde would, as a matter of fact and law, no longer be 'an individual for whom services are funded by the Commission' (s.10(1)) and Ashton would no longer be 'A person who provides services funded by the Commission' (s.22(1)). Furthermore, in the absence of funding, there would be nothing to 'top up'.
38. In my view the position would thus be analogous to the cases where the work authorised by the certificate has been completed, the certificate is treated as 'spent' and the litigant as no longer assisted/funded. I do not accept that 'costs limitation' cases should be distinguished on the basis that the authorised work remains incomplete. What matters is that the funding is exhausted.
39. Accordingly in such a case ss.10(1) and 22(2) provide, subject to one qualification, no obstacle to the client and solicitor entering a private retainer for the work which would have been carried out under the certificate if the funding had not been exhausted.
40. The qualification arises from the decisions in Burridge and Mohammadi. In the light of those cases I accept that notice of the new funding arrangement, i.e. the private retainer, must be given to the other parties to the litigation and that the client will continue to be treated as funded until that moment.
41. Is the position different in the present case where the authorised funds were 'approaching' exhaustion and the solicitor reasonably concluded that the necessary work could not be carried out without alternative funding? In my judgment it is not. Whilst the correct and wise procedural course would have been to obtain a discharge of the certificate, the position was in substance the same as if the authorised funds had been completely exhausted. The funds were approaching exhaustion, the LSC had refused further funding and the case could only proceed if alternative funding were obtained. In these circumstances, as Master Rowley rightly held (paras.18, 28) there was no question of an attempt to 'top up' nor of any other form of abuse of the system.
42. In the conclusion of his judgment Master Rowley, echoing Mr Mallalieu's submissions, stated that the certificate had been 'discharged by conduct' : paras. 39; also 22, 23. I accept Mr Sachdeva QC's argument that only the LSC can formally discharge the certificate; the solicitor and client cannot do so. In this case the certificate remained in existence. However that was a matter of procedure – to adopt Ackner LJ's metaphor, a burial certificate. As a matter of substance and subject to notice being given to the other side, the funding had come to an end and Ashton and Mrs Hyde were entitled to enter a private retainer.
43. In the light of these conclusions there was no concurrency of public funding and private retainer save for the one-day interval between the CFA being entered (25.3.13) and the date/service of the N251 Notice (26.3.13). Since notice of a change in funding arrangements cannot be issued and served any earlier than the date on which the arrangement is complete I would disregard the interval in this case as de minimis. However if that is wrong I must deal with Mr Sachdeva QC's further submission that a private retainer entered during any period of concurrency is entirely unenforceable, i.e. even in respect of work carried out and costs incurred at a time when there is no such overlap with public funding. In consequence he submits that the overlap of one day renders the CFA entirely unenforceable.
44. I disagree. In my view the effect of ss.10(1) and/or 22(2) is that the solicitor cannot recover costs under a private retainer for work carried out during any period of concurrency. Without concurrency there can be no 'topping up'. It would require the express language of unenforceability, e.g. as in s.58 of the Courts and Services Act 1990, to have the drastic effect for which the Trust contends.
45. After the hearing Mr Sachdeva QC supplied the decision of the Court of Appeal in Stacy v. Player [2004] EWCA Civ 241 and submitted that this provided authority for his proposition. In that case there was a total overlap between the successful claimant's legal aid funding and the private retainer. Accordingly there could be no recovery of any costs incurred under the latter. The question was whether the claimant could nonetheless recover his costs pursuant to the legally-aided retainer. Overturning the Judge, the Court of Appeal held that he could. In my view the case provides no support for the Trust's proposition.
46. Mr Sachdeva QC further submitted that the N251 Notice was materially incomplete and therefore ineffective in notifying the funding change. I disagree. The Notice makes quite clear that there is a new funding arrangement in place, namely the CFA entered on 25.3.13, supported by an ATE policy entered on 26.3.13.
47. The appeal is against the Master's decision that the CFAs (solicitors and Counsel) are unenforceable. For all these reasons, which largely reflect the Master's judgment and Mr Mallalieu's submissions, I would dismiss the appeal.
48. I should record my gratitude to Master O'Hare for his assistance in sitting with me as an assessor. The content of the judgment is of course my own.