CONDITIONAL FEE AGREEMENTS: SWITCHING FROM LEGAL AID IS REASONABLE
the High Court allowed appeals against three decisions from different first instance courts, all of which had held that the success fee and ATE premium were not recoverable in circumstances where the claimant’s funding arrangements have been changed from legal aid to a Conditional Fee Agreement coupled with After-the-Event insurance shortly before those items became irrecoverable as a result of the Jackson Reforms which came into force on 1 April 2013.
The law is that if a Conditional Fee Agreement was entered into before that date then the success fee remains recoverable whenever the case ends and if an After-the-Event insurance premium was incepted before that date then that too remained recoverable whenever the case concludes.
However where there is such an arrangement, known as a pre-Jackson Funding Arrangement, then the client does not get the 10% increase on general damages under the principles set out in Simmons v Castle  EWCA Civ 1039 &  1WLR 1239 and nor do they enjoy the protection of Qualified One-Way Costs Shifting.
Irrespective of when the actual cause of action arose a claimant who does not have a pre-Jackson Funding Arrangement does get the 10% Simmons v Castle uplift and does enjoy Qualified One-Way Costs Shifting, although Qualified One-Way Costs Shifting only applies in personal injury cases, but all of these cases were personal injury ones.
In each case here the Conditional Fee Agreement was what is generally known as “CFA Lite”, that is that the client’s liability to pay was limited to the amount of costs recoverable from the other party with the balance being absorbed by the solicitors. In other words, the client kept all of the damages.
It was accepted that in none of the cases had the claimant been advised that the change from Legal Aid to a Conditional Fee Agreement would result in the loss of the 10% Simmons v Castle uplift. The court said:-
“There has been no suggestion that this was anything other than an oversight and I have been told, and I accept entirely, that appropriate advice was given to the Litigation Friends as soon as the oversight was appreciated (and indeed before the issue was raised in the various costs proceedings) in case they should wish to pursue this matter further.”
Here Mr Justice Foskett, a full High Court Judge, sitting with the Senior Costs Judge Gordon-Saker said that there was no previous authority on this matter. He held that:-
- “Each costs judge placed too much weight on the suggested analogy with the need for informed consent in the context of medical treatment. The issue was simply whether the additional liabilities were reasonably or unreasonably incurred. That question should be determined by applying the “Wraith test”: an objective test, applied in the particular circumstances of the claimant. Properly applied, that test enabled a costs judge to decide whether the failure to mention the 10% uplift would be likely to have made any difference to the decision to transfer from legal aid to a CFA, without the need for evidence from the claimant.
- Although the 10% uplift should have been mentioned, the failure to do so was a matter between the claimant and his solicitors. It was no concern of the paying party. Detailed assessments should be kept as straightforward as possible. They should not involve wide-ranging inquiries into the decision-making processes between claimants and their solicitors.”
The court held that the fact that there would be a 10% increase in general damages was, in the context of these cases, a minor issue. The court pointed out that in, for example, the Surrey case the additional 10% general damages would amount to £19,000.00 and although that may be a significant sum in its own right it was part of an overall settlement of £7,165,255.00 and therefore represented just 0.026% of the total.
This had to be considered when looking at the question of whether a reasonable claimant or Litigation Friend in that situation would hold out for obtaining such a tiny percentage increase of the total sum rather than to have the uncertainty of the possible effects of the statutory charge, the possible effect of a Part 36 offer and possible delays that might be overcome by being answerable to an ATE insurer rather than the legal aid authorities.
In one of the other cases the Simmons v Castle increase amounted to just under 0.4% and in the third case around 5%.
The court held that when looked at in this way no reasonable claimant or Litigation Friend would hold out for such a marginal improvement on the overall settlement compared with the benefits of being on a CFA rather than being in receipt of Legal Aid.
The courts should not need to call witnesses at assessment hearings. Matters should be capable of being resolved, if at all possible, without the need for evidence.
Interestingly the court had this to say about solicitors making commercial decisions about funding to assist themselves:-
“…He [counsel for the paying party] accepted that the pre-1 April 2013 system was designed to reward solicitors in cases where the success fees were payable for those cases where costs were not recovered, but suggested, as I understood him, that the timing of the transfer to a CFA in each of these cases meant that this was not the motive. As to that, he may be right, but for my part I do not see why that could not have been the motive and, if it was, that there was anything wrong about it. If the solicitor was “playing the system” within the prevailing rules, I have difficulty in understanding why there was anything wrong about it such that complaint could be made at the costs assessment stage.”
The court also said:-
“99. The principles and practice to be applied to this issue if it arises should, in my judgment, be informed by the need to ensure that detailed assessments of costs do not become an arena for a wide-ranging inquiry into the decision-making processes as between the claimant (usually, through his or her litigation friend) and his or her solicitors. Inevitably, any such inquiry would involve a number of logistical problems, one being the privilege accorded to communications between a litigant and the litigant’s legal adviser. There was a distinctly unhappy period in the early stages of CFAs during which defendants sought to challenge (and indeed in some cases did so successfully) the validity of the CFAs entered into by reference to the adequacy of the advice received prior to the entry by the claimant into the relevant CFA. It is worth recalling it briefly.
- The Conditional Fee Agreement Regulations 2000 imposed obligations on solicitors to inform clients of certain matters before entering into a CFA. A material breach of the regulations rendered the agreement unenforceable: see Hollins v Russell  EWCA Civ 718. On detailed assessment paying parties would seek to establish that the solicitors for the receiving party had failed to comply with the regulations, that the CFA was thereby unenforceable and that the receiving party, not being liable to pay his own solicitor’s costs, could not recover them from the paying party. This was part of the “costs war” described by Sir Rupert Jackson in section 5(iv) of Chapter 3 of his Preliminary Report.
- The issue of whether the solicitors had complied with the regulations became the subject of witness statements produced for the detailed assessment hearing. Statements would be produced from the solicitor and also from the lay client. This could include the widows of deceased husbands and the parents of severely disabled children. Master Gordon-Saker has advised me that there were occasions he recalls when paying parties required such witnesses to attend to be cross-examined. An example from his own experience was Puksis v Brumby  EWHC 90095 (Costs) in which the defendant required the mother and litigation friend of a claimant who had suffered severe head injuries in a road accident to attend court to be cross-examined about the inquiries that the claimant’s solicitor had made as to the existence of other means of funding the claim. In an intervention during the hearing of these appeals, Master Gordon-Saker characterised the period prior to the Conditional Fee Agreements (Revocation) Regulations 2005, which stopped this type of challenge for CFAs concluded after 1 November 2005, as “the bad old days”.
- Without sacrificing entirely the possibility of a proper challenge to a changed funding arrangement that is demonstrably improper or seriously prejudicial to a defendant for no good reason, any return to such days must be resisted strongly. Master Rowley said in Surrey (see paragraph 51 above) that the absence of any evidence from the Litigation Friend in relation to the 10% uplift “speaks volumes”. I do not, of course, possess anything like his experience in these matters and, accordingly, I differ from his view with considerable diffidence. However, I would be inclined to be less robust in my attitude to this particular omission. The claimant’s litigation friend was his mother (and thus the mother of a severely disabled child) who would doubtless have been relieved that the claim for her son had been resolved satisfactorily when the settlement was finally approved by the court. She will have walked away from that hearing thinking that she could forget the litigation and get on with the life that she and the rest of her family had to contemplate. The putting forward of any statement by her in relation to this issue may have led to a request that she should give evidence at the costs hearing. If that occurred it really would be a return to the “bad old days” and one wonders what truly useful evidence on the issue in question she could possibly have given.
- Detailed assessment hearings should, in my judgment, be kept as simple and straightforward as possible so that the Costs Judge can focus upon and deal with (robustly if necessary) the real issues concerning the costs sought that traditionally arise. It must, in my view, be a wholly exceptional case where, for example, the litigation friend of the kind I have identified should ever be required to attend to relive one decision made in the litigation that probably did not seem a particularly difficult or important one at the time…”
At paragraph 110 of the judgment the court gave guidance as to how such matters should be dealt with in future.
“The practice in future
- The procedural framework for the way in which what I have termed the “Simmons v Castle 10% issue” should be dealt with in future is summarised as follows:
- In any case in which the claimant changed funding from Legal Aid to a CFA in the period from 26 July 2012 (the date of the first judgment in Simmons v Castle) to 1 April 2013, the claimant’s solicitors should state in the narrative to the bill whether or not before the CFA was entered into the claimant or his/her Litigation Friend was advised of the 10% uplift. The solicitor’s certificate that the bill is accurate will apply to that statement.
- The court will go behind that certificate only if there is a genuine issue as to whether what is stated is accurate. In the event that there is a genuine issue, that should be raised in the points of dispute and the reasons for the issue explained clearly. If the court accepts that a genuine issue has been raised, the question of whether or not advice was given should be resolved at the detailed assessment hearing either by production of the claimant’s solicitor’s attendance note of the advice or by a short witness statement from the claimant’s solicitor. It should never be necessary to adduce evidence from the claimant or the litigation friend. Furthermore, it is difficult to anticipate any circumstances in which it would be helpful for the claimant’s solicitor to be required to attend for cross-examination.
- If in a case where the advice was not given the defendant wishes to argue that the change from legal aid to a CFA was unreasonable, that argument must be raised in the points of dispute. In the event that the argument is pursued, the claimant’s solicitor should indicate the actual or presumed value of the 10% uplift in the replies together with any reasons relied on as to why the change was reasonable. To the extent that it may not be apparent from other material, the claimant’s solicitor should also indicate the capitalised value of the agreed award or of the award of the court following a contested hearing.
- If the issue falls to be determined at a detailed assessment hearing, the Costs Judge should endeavour to reach a decision based on the arguments raised in the points of dispute and replies without any need for further evidence. Evidence as to what the claimant may or may not have done had the advice been given will not be helpful, given that the question for the court is whether the decision was reasonable in the way set out in this judgment. It would only be in the most exceptional case, where there is some suggestion of impropriety, that any oral evidence from any party should be considered. The Costs Judge should give careful directions concerning the reception of such evidence if it should be necessary.”