When is the decision to switch funding reasonable?

It was always going to happen that the validity of switching a client from legal aid funding to a conditional fee agreement (CFA) before the civil justice reforms kicked in on 1 April 2013 would come under scrutiny. It has taken some time, but two rulings on this issue from Costs Judge Rowley have just been published.

In one case, the decision to switch before the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into force was nothing more than a coincidence; in the other, this was what provoked the move.

Reasonable decision

Both concerned clinical negligence claims where liability had been agreed. In Hyde v Milton Keynes Hospital NHS Foundation Trust [2015] EWHC B17 (Costs), the trigger was the Legal Services Commission’s (LSC) refusal to increase the funding limitation on the claimant’s certificate while negotiations over quantum were ongoing. Her solicitors switched to a CFA but did not apply to discharge the certificate. ?They did serve an N251 notice ?of funding on the defendant, however.

The defendant argued that this failure meant the claimant could not recover the costs generated under the CFA, but Master Rowley disagreed. Saying this was not a case of a solicitor trying to ‘top up’ fees from the client, he ruled: ‘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.’

Ruling that some form ?of notification was needed, ?he decided the N251 form sufficed.

He went on to find that it was reasonable to change funding: ‘Parties are encouraged to consider their legal spend prospectively and, where it is clear that the available public funding is going to be insufficient, a decision to change to another option must be a reasonable step to take.’

Set out options

In Surrey v Barnet & Chase Farm Hospitals NHS Trust [2015] EWHC B16 (Costs), the claimant’s solicitors, Irwin Mitchell, had asked all case handlers to review their legally aided cases ahead of the reforms and decide whether the client would be in a better position with a CFA and after-the-event (ATE) insurance funding. The fee earner in this case decided that the client would, for multiple reasons.

After damages were agreed ?in November 2013, detailed assessment proceedings were begun, and within the total costs claimed were success fees of £57,000 and an ATE premium of £51,000. The defendant argued the decision to switch funding was not reasonable.

Of the various reasons given for the switch, Master Rowley considered the strongest to be the inevitability of the claimant having to pay a costs shortfall under legal aid, which would not happen with a ‘CFA lite’.

He also said there was no objection to advice being provided to a client on the basis of a particular outcome being preferable, or to ‘nudging’ the client in a particular direction, while ‘there can be no criticism of a solicitor who gives cautious advice on a voyage into unchartered waters’.

But this was all predicated ?on the solicitor setting out the various options ‘fully and properly’. What the solicitor failed to do was raise the fact that, post LASPO, damages would be increased by 10 per cent, which here would have meant up to £20,000 extra. ?This was ‘of significance’ and should have been explained, said Master Rowley.

‘In the absence of being informed of these issues it seems to me impossible to say that the claimant can have made a reasonable choice to change funding arrangements. Consequently, I find that the additional liabilities flowing from the new arrangements are unreasonably incurred and as such are not recoverable from the defendant.’

There may not be much practitioners can do now to rectify what they should have done 18 months (or more) ago, ?so if you find yourself facing this situation, these rulings – although they are, of course, at first instance – give a good idea of the direction of judicial thinking, and will allow you to plan your strategy accordingly. SJ

Sue Nash is chairman of the Association of Costs Lawyers @CostsLawyers www.associationofcostslawyers.co.uk