Source: https://tmcls.co.uk/xde-v-north-middlesex-university-hospital-nhs-trust/
Timestamp: 2020-06-03 20:00:50
Document Index: 370810915

Matched Legal Cases: ['EWCA ', 'UKHL ', 'art 36', 'art 36', 'art 36', 'art 36', 'art 36']

Court Of Appeal Upholds Decision To Disallow £1m Additional Liabilities Following Funding Switch
The Court of Appeal has upheld the decision of both Master Rowley (costs judge) and Jay J on appeal to disallow additional liabilities in the form of success fees (for both solicitors and counsel) and ATE premium claimed in the sum of £1,078,972.72.
The decision centered on the reasonableness of the appellant’s decision to change funding from legal aid to a CFA and application of the decision in Surrey v Barnet and Chase Farm Hospitals NHS Trust [2018] 1 WLR 5831.
It had been held by Jay J that the solicitors had made no “obvious effort” to keep within the original funding agreement and were themselves culpable for the state of affairs which had resulted. Furthermore, the decision to discharge the certificate had been taken “without any discussion as to the appropriateness of the change” with the Litigation Friend.
“[w]hat can only be described as a half-hearted attempt to increase the certificate limit for a further short period … was made as a prelude to inviting the LSC to discharge the certificate…. it was incumbent on the solicitors to ensure that the case was run within the contractual costs limits: there was no evidence before the court to show how this case was ever expected to be funded within those limits.”
Giving the lead judgment on this second appeal Coulson LJ rejected an argument that a CFA was “an objectively preferable method of funding, and so obviously superior to legal aid” and that the actual reasons for the change did not matter. Nor did he accept that matters which did not form part of the decision making process could be taken into account in determining whether the switch was reasonable:
“the alleged superiority of CFA-lite, whatever the actual reasons for the change, was not an argument that was advanced before Master Rowley either. It appeared to arise for the first time in the Grounds of Appeal from the decision of the Master. It was rejected in short order by Jay J… The court cannot properly evaluate the reasonableness of the choice without having regard to what the client was told and why, what the background circumstances were, and whether any advice given was erroneous or self-serving. Moreover, it would be impractical to expect, at least as a matter of routine, that the costs judge or the district judge dealing with a costs assessment to embark on a significant counterfactual exercise in which the merits or otherwise of entirely hypothetical reasons for the change, thought up after the event and so not considered at the time, could be relied on to justify the reasonableness of the change that was actually made.”
He identified the actual reason for the change in this case, thus:
“The actual reasons for the change were found to be BBK’s unreasonable failure to limit their spending within the parameters imposed by the LSC. This was part of a wider monitoring issue at the firm. When they sought further funds, they did so in a way that Master Rowley described as “half-hearted”. They decided, without obtaining the instructions of the litigation friend, that they would move to a CFA-lite. Master Rowley found that, in all of this, they had behaved unreasonably. That finding of fact is not appealed.”
“there is no evidence here that, had the appellant’s litigation friend been advised about the features of CFA-lite in advance of any change, he would have chosen to discharge legal aid, which had been running for five years without any apparent problem, and switch to this new system. Nobody can say what the litigation friend might have done, other than perhaps to ask: “If CFA-lite is so marvellous, why have I been funded by way of legal aid for five years?” On that basis, therefore, the appellant has not discharged the necessary burden of proof: she has not shown on the facts that the change to CFA-lite was reasonable.”
XDE V NORTH MIDDLESEX UNIVERSITY HOSPITAL NHS TRUST [2020] EWCA CIV 543
In disputes about the recoverability of additional liabilities where funding has changed from legal aid to a CFA, what matters is the reasonableness of the decision to change funding. The court must look at the reasons that the client had for deciding to change funding, to see if they were reasonable in the particular circumstances of the case. That involves the examination of the advice given by the solicitors. It would be impractical to expect a costs judge or district judge dealing with a costs assessment to embark on a significant counterfactual exercise in which the merits or otherwise of entirely hypothetical reasons for the change, thought up after the event and so not considered at the time, could be relied on to justify the reasonableness of the change that was actually made.
CONDITIONAL FEE AGREEMENT : SWITCH FROM LEGAL AID TO CFA : PRE LASPO CFA : ADDITIONAL LIABILITIES : SUCCESS FEE : ATE PREMIUM
Surrey v Barnet and Chase Farm Hospitals NHS Trust [2018] 1 WLR 5831
Wraith v Sheffield Forge Masters; Truscott v Truscott [1998] 1 WLR 132
Solutia v Griffiths [2002] PIQR P16
Sarwar v Allam [2002] 1 WLR 125
EPX v Milton Keynes NHS Foundation Trust [2019] EWHC 1508 (QB)
AB v Mid Cheshire Hospitals [2019] EWHC 1889 (QB)
YZ v Gloucestershire Hospitals NHS Foundation Trust [2019] 4 WLUK 550
XDE V NORTH MIDDLESEX UNIVERSITY HOSPITAL NHS TRUST (LEGAL AID TO CFA FUNDING SWITCH) | KEY OBSERVATIONS AND FINDINGS
The decision in Surrey
“Nowhere is it said that the general approach and guidance in Surrey was predicated on the basis that it applied only to cases where the Simmons v Castle uplift point arose. Neither can that be inferred from the language used. On the contrary, Jay J found at [58] that “the references to a ‘level playing field’ in this context cannot be read as factoring in a consideration which could not apply across the board…Lewison LJ was not limiting this statement to CFAs which post-dated 1 April 2013 and therefore attracted the benefit of the uplift”. I agree.” [45]
“I consider that Mr Hutton was right to submit that the approach in Surrey was not limited to cases where the Simmons v Castle uplift applied. It was setting out an approach which started with the general equivalence of legal aid and CFA-lite (which was what was meant by the expression “level playing field”), before then going on to look at the individual circumstances. Surrey therefore is of general application in cases where the reasonableness of a decision to change funding is in issue, and of particular application where the change was from legal aid to a CFA.” [49]
“The judgment in Surrey was predicated on the basis that the decision to change funding is a decision of the client, albeit advised by his or her solicitor. The court must look at the reasons that the client had for deciding to change funding, to see if they were reasonable in the particular circumstances of the case. That obviously involves the examination of the advice given by the solicitors because in most cases it will be that advice which informs the decision.” [50]
Does it matter what the client was told?
“the authorities confirm the principle that what matters when considering reasonableness are the actual reasons for the incurring of the costs in question, and that where this involves a change in funding or a change in the firm instructed, the court generally puts out of account matters which were not part of the decision-making process.” [53]
“it seems to me that this is important as a matter of practical costs assessment. The court cannot properly evaluate the reasonableness of the choice without having regard to what the client was told and why, what the background circumstances were, and whether any advice given was erroneous or self-serving. Moreover, it would be impractical to expect, at least as a matter of routine, that the costs judge or the district judge dealing with a costs assessment to embark on a significant counterfactual exercise in which the merits or otherwise of entirely hypothetical reasons for the change, thought up after the event and so not considered at the time, could be relied on to justify the reasonableness of the change that was actually made.” [55]
The reasons for change in this case
“The actual reasons for the change were found to be BBK’s unreasonable failure to limit their spending within the parameters imposed by the LSC. This was part of a wider monitoring issue at the firm. When they sought further funds, they did so in a way that Master Rowley described as “half-hearted”. They decided, without obtaining the instructions of the litigation friend, that they would move to a CFA-lite. Master Rowley found that, in all of this, they had behaved unreasonably. That finding of fact is not appealed.” [58]
“there is no evidence here that, had the appellant’s litigation friend been advised about the features of CFA-lite in advance of any change, he would have chosen to discharge legal aid, which had been running for five years without any apparent problem, and switch to this new system. Nobody can say what the litigation friend might have done, other than perhaps to ask: “If CFA-lite is so marvellous, why have I been funded by way of legal aid for five years?” On that basis, therefore, the appellant has not discharged the necessary burden of proof: she has not shown on the facts that the change to CFA-lite was reasonable.” [59]
“To put this case at its simplest, Master Rowley found that BBK had gone over the LSC budget and that Ms Trask knew that she would not get an increase in that budget because she could not show a good reason for the increase. As a result, she changed funding. It therefore follows that that change in funding was unreasonable.” [60]
“In one sense, that is the end of the appeal. Master Rowley adopted the right legal test and reached a conclusion on the evidence (as to the unreasonableness of the decision to change funding and the actual reasons for it) which was plainly open to him. However, in deference to Mr Williams’ submissions about the obvious superiority of CFA-lite, I go on to consider the two issues arising out of that argument, which was not raised before Master Rowley.”
The alleged superiority of CFA-Lite
“Mr Williams maintained that CFA-lite was obviously superior to legal aid and that, because of that obvious superiority, it was unnecessary for the appellant to do any more to justify the change in funding. I have considered that submission carefully but, in my view, it fails at every level.” [62]
“The first point to make is that it is a position which is contrary to the views of the three costs judges in Surrey. Each of them said that there was little to choose between the two funding regimes. So they would all have had to have been wrong if the appellant was right and CFA-lite was obviously superior.” [63]
“Secondly, of course, the alleged superiority of CFA-lite was never articulated as being the reason for the change in funding made here. It played no part in the decision-making process.” [64]
“Thirdly, when the time came to consider a change of funding, the alleged superiority of CFA-lite was not the reason put forward for the change. Both in their dealings with the LSC, and belatedly with the appellant’s litigation friend, BBK never articulated such an opinion.” [65]
“Fourthly, … the alleged superiority of CFA-lite, whatever the actual reasons for the change, was not an argument that was advanced before Master Rowley either. It appeared to arise for the first time in the Grounds of Appeal from the decision of the Master. It was rejected in short order by Jay J” [66]
“it does not seem to me that the argument as to the superiority of a CFA-lite gives the appellant a way round her difficulties on the facts. But since the point has been argued by leading counsel, it is I think appropriate to express a view as to whether, if this argument had been part of the decision-making process, or if it had been run before Master Rowley, it has any merit. In my view, for the reasons set out below, it does not.” [70]
What if the “superiority” of a CFA-Lite had formed part of the decision making process?
“… it seems to me that, in any comparison exercise, what might be said to be the elephant in the room needs to be addressed, namely the reason why the funding in this case took the course that it did, and then changed when it did. In my view, BBK had a very good reason for changing from a CFA to legal aid in 2007. Moving to legal aid, at the outset of a potentially complex case meant that, win or lose, BBK would be paid. That was a beneficial arrangement when a large but potentially difficult clinical negligence case was getting underway. 5 years, an admission of breach and many experts later, it would have become clearer that the claim was more likely to be successful. That may have seemed a good time for BBK to lose the restraints of legal aid and change to an arrangement that gave them a success fee as well. It is not therefore unfair to say that changing to CFA-lite at that point potentially allowed them to have their cake and eat it too.” [87]
“For all those reasons, I agree with Mr Hutton that, even taking the points raised by Mr Williams at face value, as far as the appellant herself was concerned, it was far from obvious that CFA-lite was a superior funding system compared to legal aid. On any view, it was not so much better that, contrary to the authorities I have cited, the appellant did not need to explain the reasons for changing funding and to justify that decision as reasonable.” [88]
“In one sense, the proof of the pudding is in the eating. BBK advised the appellant at the time that she “will be broadly in the same position” under a CFA as she was under legal aid. I agree with that advice; so she was. A CFA meant that BBK were potentially in a better position, but they did not advise the appellant of that, and it is in any event immaterial for present purposes. For these reasons, I reject the underlying premise of Mr Williams’ submissions, that CFA-lite was, in fact, obviously superior to legal aid.” [89]
Can a hypothetical reason ever trump the actual reasons for a change in funding?
“Whilst it seems to me that it would be wrong in principle to rule out entirely a factor that played no part in the decision-making process, it seems to me that an argument based upon such a factor faces two very high hurdles. The first is the weight of the authorities noted above, which stress again and again the importance of the actual reasons for the change in funding. The second is the unlikelihood of such a situation arising in practice; the more obvious the reason for a change in funding, the more likely it is that such a reason will have occurred to the claimant’s solicitors at the time. If the so-called ‘obvious ‘reason did not occur to them or feature in their advice, that may well be because it was not so obvious, after all.” [90]
“For the reasons set out above, I would dismiss this second appeal. The decision in Surrey appears to have worked well in practice. It stresses that, in general terms, there is little to choose between legal aid funding, on the one hand, and a CFA-lite arrangement on the other. In disputes about the recoverability from the paying party of additional liabilities where the funding has changed from the former to the latter, what matters is the reasonableness of the decision to change funding. That inevitably highlights the actual reasons for the change. On the particular facts of the present case, Master Rowley found that the reasons for the change were unreasonable and disallowed the success fee and the ATE premium. Jay J agreed with that, and so do I.” [92]
XDE V NORTH MIDDLESEX UNIVERSITY HOSPITAL NHS TRUST (LEGAL AID TO CFA FUNDING SWITCH) | FULL CASE DETAILS / THE DECISION
This was a second appeal following the decision by Master Rowley, upheld by Jay J, to disallow on assessment certain “additional liabilities”, namely the success fees of solicitors and counsel and the ATE insurance premium.
These additional liabilities were claimed at £1,078,972.72 (out of a total bill of £2.4 million odd).
The appeal raised issues as to the reasonableness of the appellant’s decision to change funding from legal aid to a CFA and, in particular, arguments as to the application of the decision in Surrey v Barnet and Chase Farm Hospitals NHS Trust [2018] 1 WLR 5831 (“Surrey”).
In Surrey, Lewison J set out the general starting point:
“29. In each of our three cases, the costs judges considered the pros and cons of funding by legal aid as opposed to funding by a CFA-lite plus ATE insurance. At an abstract level there was something to be said for each method. In AH Deputy Master Campbell held at [49] that there was “no advantage or combination of advantages which makes one choice more compelling and irresistible than any other…” In Yesil DJ Besford held at [75] that “the decision is finely balanced if one approaches the issue from a level playing field.” In Surrey, I think that Master Rowley reached the same conclusion, although he did not summarise his conclusion quite so pithily. Between [79] and [93] Foskett J also conducted a balance sheet assessment, at a generic level, of the pros and cons of each funding method. I agree with Mr Hutton QC that a generic high-level assessment of the pros and cons of the two methods of funding does not answer the question whether costs were reasonably incurred in the particular case under consideration. While the judge was, understandably, trying to give general guidance, I do not consider that the question whether a change in funding method was reasonable is a question to be answered at the macro level. As Lord Scott put it in his dissenting speech in Callery v Gray [2002] UKHL 28, [2002] 1 WLR 2000 at [114]:
“The correct approach for costs assessment purposes to the question whether an item of expenditure by the receiving party has been reasonably incurred is to look at the circumstances of the particular case. The question whether the paying party should be required to meet a particular item of expenditure is a case specific question.”
30. Mr Williams QC argued that since there was nothing much to choose between funding by legal aid and funding by CFA-lite plus ATE insurance, it followed that either choice was a reasonable choice. It therefore followed that the costs incurred in entering into the CFA-lite and the ATE policy were reasonably incurred; and that the costs judges were not entitled, let alone required, to examine the reasons for the switch. I do not agree. The court is required to take into account all the circumstances of the case. That means the particular case under consideration: not some generalised description of similar cases, as Solutia makes clear. Moreover, the burden of proof, in the case of an assessment on the standard basis, lies on the receiving party. Accepting for the sake of argument that there is a “level playing field” and that there was not much to choose between funding by legal aid and funding by CFA, the fact is that in each of the three cases the claimant already had chosen legal aid. If there is not much to choose between the two methods of funding, and the claimant decides to switch to a funding method that is far more disadvantageous to a paying party, I consider that the paying party is at least entitled to ask the question: why did you switch? In those circumstances I consider that it is up to the receiving party to justify his choice; and that entails examining the reasons why the choice was made.”
He then examined the receiving party’s reasons for changing funding in each of the three cases. Thus:
(a) In Surrey, although the solicitor had asserted that there was no guarantee that the LSC would increase the limitation on costs, there were no details of the costs that had been incurred, what the authorised costs limit was, and what further costs needed to be incurred. The solicitor had also given misleading advice in suggesting that any shortfall might be “topped up” by him personally [34]-[36].
(b) In AH, the evidence was similar (even down to the suggestion of illegal “topping-up”) although, as previously noted, that was the case where causation had not been accepted [37]-[38].
(c) In Yesil the solicitor stated that she took into account the risk of failing to beat any CPR Part 36 offer as well as the potential for a 10% uplift, but it was accepted that she had not mentioned any of that to her client. The calculation as to the costs incurred to date was seriously overstated, as was the estimate of likely future costs [39]-[46].
In each of the three cases in Surrey the claimant’s litigation friend was not told that the change from legal aid to a CFA before 1 April 2013 would disentitle him or her to the Simmons v Castle uplift.
In both Surrey and AH, the costs judges had found that it was impossible to say what the decision would have been had that information been provided, so the inevitable doubt that arose had to be resolved in favour of the paying party.
More widely, since liability had been admitted in all three cases and causation in two, the adverse risks to the claimants on costs were no more than possibilities, whereas the forgoing of the uplift was a certainty.
In conclusion, Lewison LJ said:
“60. The bottom line is that in each of the three cases the advice given to the client had exaggerated (and in two cases misrepresented) the disadvantages of remaining with legal aid funding; and had omitted entirely any mention of the certain disadvantage of entering into a CFA. Moreover, one of the advantages of entering into the CFA was Irwin Mitchell’s own prospective entitlement to a substantial success fee. In those circumstances I consider that DJ Besford was correct in saying at [81]:
“Where one of two or more options available to a client is more financially beneficial to the solicitor, the need for transparency becomes ever greater.”
61. This a reflection of the fundamental principle of equity that where a person stands in a fiduciary relationship to another, the fiduciary is not permitted to retain a profit derived from that fiduciary relationship without the fully informed consent of the other.”
The judge reinstated the decisions of the three costs judges disallowing the success fees and ATE insurance premiums.
There were three grounds of appeal. Namely that:
the judge had been wrong to take as his premise the broad equivalence of CFA-lite funding and legal aid funding;
Surrey had been based on a comparison between the two funding systems which assumed the loss of the Simmons v Castle uplift and so was of no application to the present case; and
because CFA-lite was “an objectively preferable method of funding”, and so obviously superior to legal aid, the actual reasons for the change in funding were irrelevant.
In respect of the first and second grounds of appeal it was maintained for the Claimant that “the level playing field” can only have existed in Surrey because the court had factored into the equation the fact that the Simmons v Castle uplift would not be available to the three claimants once they had switched to CFA lite. It was said that, in a case like this, where that issue did not arise (because Simmons v Castle had been decided after the change in funding in the present case), Surrey was of no application.
The third ground of appeal gave rise to an issue as to whether, on the evidence before the court, CFA-lite was so obviously superior to legal aid.
For the Claimant it was said that the actual reasons for the change did not matter and that, since CFA-lite was so obviously superior to legal aid, the fact that this superiority was not expressly highlighted by the solicitors (“BBK”) at the time did not mean that the appellant could not rely on it to demonstrate the reasonableness of the decision to change.
For the Defendant it was argued that on a proper analysis of Surrey, the court used the expression “level playing field” to describe a general comparison between legal aid and CFA-lite, and the point about the Simmons v Castle uplift was a specific issue, for consideration on the individual facts of each change in funding under review. It was therefore maintained that Surrey set out the general approach to be taken in all cases involving a change of funding, including this one.
Inn respect of the third ground of appeal it was submitted that the actual reasons for change (as opposed to a theoretical reason which played no part in the decision-making process) were the only relevant criteria.
LORD JUSTICE COULSON:
39. I have found it convenient to deal with these grounds of appeal by reference to four sequential issues. Issue 1 addresses the broad equivalence between legal aid and CFA-lite referred to in Surrey. Issue 2 concerns the importance of the actual reasons for the change in funding. Issue 3 concerns the alleged superiority of CFA-lite over legal aid. And Issue 4 addresses Mr Williams’ submission of principle that, if there is a good objective reason for the change in funding, even if it played no part in the decision-making (and was therefore hypothetical), then that can always ‘trump’ the actual reasons for the change.
40. As is often the way in costs cases, each side sought to encapsulate their respective cases by reference to an underlying ‘jury point.’ So, on the appellant’s side, it was argued that the entire debate was artificial because, if the appellant had signed up with BBK to a CFA-lite arrangement from the outset, there could be no argument that, at least in principle, the success fees and the ATE insurance premium were recoverable. The suggestion was that the appellant (or more properly the appellant’s lawyers) should not be penalised merely because, for whatever reason, the type of funding was changed part way through the litigation.
41. The respondent’s point was to the effect that the entire dispute had only arisen because the appellant’s solicitors had been found by Master Rowley to have acted unreasonably in failing to keep within the restrictions of the legal aid certificate and had been forced to change the type of funding as a result. He said that it would be wrong to reward BBK for the unreasonable conduct which necessitated the change, by allowing them to recover the additional liabilities which came with CFA-lite.
42. It is not, I think, appropriate to give a final view about the merits or otherwise of these arguments. They cannot be decisive of the issues on appeal. Moreover, they both have some superficial attraction, largely because costs disputes regularly throw up such intractable illogicalities. But I should say that I am sympathetic to Mr Hutton’s underlying submission. To paraphrase Lewison LJ in Surrey, the paying party, namely the respondent in this case, is entitled to ask: ‘why did you switch?’ Here the answer to that question is BBK’s unreasonable conduct: without it, the change in funding would never have been made and there would never have been a success fee to argue about. If there is an argument that BBK can recover that success fee and ATE premium, it would suggest that, somewhere along the line, there is a flaw in the reasoning.
43. By contrast, the problem with Mr Williams’ jury point is that it begs the obvious question. If a CFA-lite arrangement was so obviously superior to legal aid, and if such an arrangement had been in place at the outset this debate could not have arisen, then one has to ask why a CFA-lite arrangement was not in place from the outset or, even more pertinently, why the appellant changed to legal aid from the original CFA which was in place, only to change back again some years later. I checked Ms Trask’s witness statement before the appeal hearing, but no answer appeared to be provided to that fundamental question. Mr Williams conceded that during argument. I volunteer the obvious reason for that in paragraph 86 below, but it does not assist BBK on this appeal.
6. ISSUE 1: THE BROAD EQUIVALENCE IDENTIFIED IN SURREY
44. I have set out [29] and [30] of the judgment of Lewison LJ in Surrey. Both Master Rowley and Jay J found that the approach and guidance set out there, to the effect that there was a broad equivalence between legal aid and CFA-lite, was of general application in assessing the reasonableness of the costs consequences of a change from one funding regime to another. In my view, both Master Rowley and Jay J were right to reach that conclusion.
45. It is clear that those paragraphs in Surrey were intended to be of general application.
Nowhere is it said that the general approach and guidance in Surrey was predicated on the basis that it applied only to cases where the Simmons v Castle uplift point arose. Neither can that be inferred from the language used. On the contrary, Jay J found at [58] that “the references to a ‘level playing field’ in this context cannot be read as factoring in a consideration which could not apply across the board…Lewison LJ was not limiting this statement to CFAs which post-dated 1 April 2013 and therefore attracted the benefit of the uplift”. I agree.
46. This level playing field is, of course, merely the starting point. That is not to say that the Simmons v Castle uplift was not a relevant factor to be taken into account when the circumstances of the change in funding in each individual case were looked at. Indeed, the uplift was found to be a relevant factor in two of the Surrey cases.
47. But in the third case, Yesil, although the Simmons v Castle uplift was present, it formed no part of the district judge’s reasons for disallowing the success fee and the ATE premium: see [47] of Lewison LJ’s judgment in Surrey. In that case the success fee and the ATE premium had been disallowed because the solicitors had erroneously advised the client that they had exceeded the LSC costs limitation, and so had no choice but to discharge legal aid: see [44] and [46]. As a result, the disallowance of the success fee and the ATE insurance premium in Yesil was not based on the Simmons v Castle factor.
48. In my view, that analysis fatally undermines the appellant’s argument that the approach in the three Surrey cases applied only to circumstances where the Simmons v Castle factor was present. It manifestly did not.
49. Accordingly,
I consider that Mr Hutton was right to submit that the approach in Surrey was not limited to cases where the Simmons v Castle uplift applied. It was setting out an approach which started with the general equivalence of legal aid and CFA-lite (which was what was meant by the expression “level playing field”), before then going on to look at the individual circumstances. Surrey therefore is of general application in cases where the reasonableness of a decision to change funding is in issue, and of particular application where the change was from legal aid to a CFA.
7. ISSUE 2: THE REASONS FOR THE CHANGE
50. The judgment in Surrey was predicated on the basis that the decision to change funding is a decision of the client, albeit advised by his or her solicitor. The court must look at the reasons that the client had for deciding to change funding, to see if they were reasonable in the particular circumstances of the case. That obviously involves the examination of the advice given by the solicitors because in most cases it will be that advice which informs the decision.
51. There is nothing new or controversial about that. It is consistent with the approach in Wraith v Sheffield Forge Masters; Truscott v Truscott [1998] 1 WLR 132; and Solutia v Griffiths [2002] PIQR P16. The relevant passages from those cases were all cited in Surrey and it is unnecessary to set them out again. It is sufficient to note that in Truscott, the reasonableness of the change to a firm called ATC was not judged by reference to ATC’s particular experience of professional negligence cases, “because that was not why Mr Truscott consulted them”; whilst in Solutia, a claim for personal injury due to pollution by a chemical works, the deputy high court judge’s decision to overturn the costs judge’s refusal to allow the higher costs of Leigh Day was upheld, because the costs judge had failed “to take account of those special features of the case which were material to the decision to instruct Leigh Day”. Those features included Leigh Day’s expertise in cases of that kind and their particular knowledge of other cases involving the same chemical works, which had all been part of the claimants’ decision to instruct them in place of the previous firm.
52. Mr Williams sought to rely on Sarwar v Allam [2002] 1 WLR 125, although that case was concerned with a very different issue, namely the reasonableness of a passenger recovering his ATE insurance premium after successfully suing the driver of the car in which he was travelling at the time of the accident. This court said that the premium was recoverable and rejected the argument that the passenger should instead have relied on the driver’s existing insurance (which had not been a possibility considered by the solicitors at the time). Mr Williams argued that this case provided some support for the proposition that matters not referred to at the time could still be taken into account when assessing the reasonableness of a particular item of cost. I disagree with that. Sarwar was a very different kind of case, and the conclusion was that something which had not been considered at the time (the availability of the driver’s own insurance) was not a reason why the ATE premium should be disallowed as unreasonable.
53. In my view,
the authorities confirm the principle that what matters when considering reasonableness are the actual reasons for the incurring of the costs in question, and that where this involves a change in funding or a change in the firm instructed, the court generally puts out of account matters which were not part of the decision-making process.
54. I also note that in Surrey the appellants endeavoured to argue that the actual reasons for the change might be irrelevant. That was rejected by this court: see [30], where Lewison LJ said that what mattered was not “some generalised description of similar cases,” but “the particular case under consideration”.
55. Furthermore,
it seems to me that this is important as a matter of practical costs assessment. The court cannot properly evaluate the reasonableness of the choice without having regard to what the client was told and why, what the background circumstances were, and whether any advice given was erroneous or self-serving. Moreover, it would be impractical to expect, at least as a matter of routine, that the costs judge or the district judge dealing with a costs assessment to embark on a significant counterfactual exercise in which the merits or otherwise of entirely hypothetical reasons for the change, thought up after the event and so not considered at the time, could be relied on to justify the reasonableness of the change that was actually made.
56. I acknowledge that some caution is always necessary when considering whether an earlier decision of this court has been of subsequent practical assistance. But the authorities identified by Mr Hutton in paragraph 49 of his skeleton argument do seem to me to provide support for his contention that the approach in Surrey (as set out above) has been applied clearly and effectively in subsequent cases. Thus, by way of example:
(a) In EPX v Milton Keynes NHS Foundation Trust [2019] EWHC 1508 (QB) Stewart J applied Surrey and upheld the decision of the costs judge that the decision to change funding from legal aid to a CFA was unreasonable on the facts.
(b) In AB v Mid Cheshire Hospitals [2019] EWHC 1889 (QB), Dingemans J (as he then was) applied Surrey and held that the decision to change from legal aid was reasonable on the facts. He stressed at paragraph 44 that “the decision of the Regional Costs Judge was not a generic decision which would apply to every catastrophic brain injury case where there is a need for experts but a reasonable decision made in the light of a serious dispute between experts on causation…” It is also to be noted that, in AB, the judge said at [41] that there was evidence that the LSC had sought to retrofit a subsequent legal aid funding structure (and therefore rates) to a case to which it did not apply. It is not clear how important that was to the judge’s overall reasoning but in any event, that was not the case here, for the reasons I have explained.
(c) In YZ v Gloucestershire Hospitals NHS Foundation Trust [2019] 4 WLUK 550, Senior Costs Judge Gordon-Saker applied Surrey, looked at the particular facts of the case surrounding the change in funding and concluded that “the potential liability of the Claimant under the statutory charge would be no different from the potential liability under a CFA”. He found on the facts that the change of funding had not been shown to be reasonable.
57. Accordingly, I consider that the importance of the actual reasons for change was emphasised in the cases decided before Surrey and restated by Lewison LJ in his judgment in that case. This has led to an approach which has been followed without difficulty in subsequent cases. I therefore accept Mr Hutton’s submission on the second issue.
58. The practical common sense of that approach can be tied back to the facts of the present case.
The actual reasons for the change were found to be BBK’s unreasonable failure to limit their spending within the parameters imposed by the LSC. This was part of a wider monitoring issue at the firm. When they sought further funds, they did so in a way that Master Rowley described as “half-hearted”. They decided, without obtaining the instructions of the litigation friend, that they would move to a CFA-lite. Master Rowley found that, in all of this, they had behaved unreasonably. That finding of fact is not appealed.
59. In addition,
there is no evidence here that, had the appellant’s litigation friend been advised about the features of CFA-lite in advance of any change, he would have chosen to discharge legal aid, which had been running for five years without any apparent problem, and switch to this new system. Nobody can say what the litigation friend might have done, other than perhaps to ask: “If CFA-lite is so marvellous, why have I been funded by way of legal aid for five years?” On that basis, therefore, the appellant has not discharged the necessary burden of proof: she has not shown on the facts that the change to CFA-lite was reasonable.
60. To put this case at its simplest, Master Rowley found that BBK had gone over the LSC budget and that Ms Trask knew that she would not get an increase in that budget because she could not show a good reason for the increase. As a result, she changed funding. It therefore follows that that change in funding was unreasonable.
61. In one sense, that is the end of the appeal. Master Rowley adopted the right legal test and reached a conclusion on the evidence (as to the unreasonableness of the decision to change funding and the actual reasons for it) which was plainly open to him. However, in deference to Mr Williams’ submissions about the obvious superiority of CFA-lite, I go on to consider the two issues arising out of that argument, which was not raised before Master Rowley.
8. ISSUE 3: THE ALLEGED SUPERIORITY OF CFA-LITE
62. Mr Williams maintained that CFA-lite was obviously superior to legal aid and that, because of that obvious superiority, it was unnecessary for the appellant to do any more to justify the change in funding. I have considered that submission carefully but, in my view, it fails at every level.
63. The first point to make is that it is a position which is contrary to the views of the three costs judges in Surrey. Each of them said that there was little to choose between the two funding regimes. So they would all have had to have been wrong if the appellant was right and CFA-lite was obviously superior.
64. Secondly, of course, the alleged superiority of CFA-lite was never articulated as being the reason for the change in funding made here. It played no part in the decision-making process. On the contrary, BBK must have regarded legal aid as the proper funding method because they advised the appellant’s litigation friend to switch away from a CFA to legal aid in 2007, and were then happy to take legal aid funds for the maintenance of this case for the best part of 5 years, down towards the end of stage 2. At no point during that 5 year period did they suggest that CFA funding, which they had moved away from, was obviously a much superior system to the one to which they had changed.
65. Thirdly, when the time came to consider a change of funding, the alleged superiority of CFA-lite was not the reason put forward for the change. Both in their dealings with the LSC, and belatedly with the appellant’s litigation friend, BBK never articulated such an opinion. If BBK had thought that, then they would have said so, because it provided them with an easy way out of the difficulties they had got themselves into over the legal aid budget limit. I do not accept that in some way the alleged superiority of CFA-lite somehow “went without saying” so it did not need to be articulated either to the LSC or to the appellant or her litigation friend.
66. Fourthly, that conclusion is only confirmed by the fact that the alleged superiority of CFA-lite, whatever the actual reasons for the change, was not an argument that was advanced before Master Rowley either. It appeared to arise for the first time in the Grounds of Appeal from the decision of the Master. It was rejected in short order by Jay J. I refer in particular to [61] and [64], set out at paragraphs 22 and 23 above.
67. Of course, in any particular case, the overriding objective at CPR r.1.1 may require an appeal court to consider matters which were not argued below. Moreover, Mr Hutton properly concedes that, since this is a point of law, there was no prejudice to the respondent in the point being taken before Jay J and on this second appeal. But the fact that this issue was not raised until the first appeal is perhaps an important pointer to the weight – or lack of it – which it should be given.
68. Fifthly, I note that this argument, as to the alleged superiority of CFA-lite, was unsuccessfully raised by Mr Williams in Surrey. Lewison LJ noted at [71]:
“71. Mr Williams developed an argument to the effect that in a quantum only case (such as these three cases) a litigant whose claim is funded by a CFA-lite and ATE insurance is in a commanding position. He is immune to costs risks, whereas his opponent may face a crushing burden of costs. That imbalance puts pressure on a defendant to settle a case early and, moreover, has the consequence that offers of settlement are higher. He referred in this connection to Sir Rupert Jackson’s description of such litigants as “super-claimants”. There are two problems with this argument. The first is that it formed no part of the decision-making process. In other words this was not one of the reasons for the switch. The second is that this argument was not run before the costs judges and was not the subject of a Respondent’s Notice. In addition, of course, it is always open to a claimant to make a Part 36 offer, however his claim is funded, which exerts its own pressure on a defendant.”
69. In my view, Mr Hutton is therefore right to maintain that the submission that CFA-lite was so obviously superior to legal aid (which, as I have said, underpins Mr Williams’ appeal in this case), is a re-run of an argument which was rejected in Surrey. Moreover, the same two reasons which led Lewison LJ to conclude that there were problems with this argument – namely that it formed no part of the decision-making process and had not been run before the costs judges – apply equally to the present case.
70. For all these reasons, therefore,
it does not seem to me that the argument as to the superiority of a CFA-lite gives the appellant a way round her difficulties on the facts. But since the point has been argued by leading counsel, it is I think appropriate to express a view as to whether, if this argument had been part of the decision-making process, or if it had been run before Master Rowley, it has any merit. In my view, for the reasons set out below, it does not.
71. As I have already noted at paragraph 55 above, it does not seem to me to be an efficient use of limited civil justice resources, to expect district judges and costs judges to become involved in detailed comparisons between different forms of funding and to consider purely hypothetical matters which formed no part of the actual reason for the change. That would only serve to give costs disputes of this kind an even worse reputation for complexity than they already have.
72. The specific reasons why I do not accept that a CFA-lite was obviously superior to legal aid can be summarised by reference to the five alleged advantages of CFA-lite relied on by Mr Williams, and a number of additional matters.
73. First, Mr Williams noted that legal aid involved a deduction from any damages because of the statutory charge, whilst CFA-lite did not. That is not entirely accurate. CPR 46.4 provides that there must be an assessment of any costs claimed against a protected party such as the appellant in the present case, and the Practice Direction gives examples of where this will not be necessary, including where the protected party has waived their right to claim further costs other than those recovered between the parties. Furthermore, as I have already said, YZ v Gloucestershire, which also involved protected parties, suggests that it is most unlikely in practice that any shortfall would be charged to the client under legal aid. Mr Williams accepted that unrecovered costs which might otherwise be deductible under the statutory charge are usually waived in cases involving children or protected parties.
74. Secondly, Mr Williams said that by reference to Section 11(1) of the Access to Justice Act 1999, which applied to this case, legal aid only provided limited protection against adverse costs orders. But that is a purely theoretical state of affairs, described by one of the costs judges in Surrey as “fanciful or not problematic”. I agree with Mr Hutton that the chances of a costs order being enforced against a severely brain-damaged woman with supportive expert evidence is properly regarded as fanciful.
75. Thirdly, Mr Williams submitted that legal aid provided little protection against the adverse consequences of failing to beat Part 36 offers to settle, because any post-offer costs awarded to a defendant would be deductible from the claimant’s damages. This ended up being Mr Williams’ principal point in support of the obvious superiority of a CFA. But I do not accept his analysis.
76. I note that the issue was addressed in Surrey at [53]. Lewison LJ found that:
“[It involved] four cumulative risks: (i) the risk that the defendant makes a Part 36 offer at some stage before the case is settled; (ii) the risk that, on the advice of his solicitors, the claimant rejects that offer; (iii) the risk that, having rejected the offer, the case goes to trial; (iv) the risk that at trial the claimant fails to beat the offer”.
These four cumulative risks were not considered or evaluated in the present case. More widely, we were told that, on the current statistics, fewer than 1% of clinical negligence claims ended in trials, so it follows that the chances of all four risks eventuating in any given case are nugatory.
77. I acknowledge that offers were made in the present case, but they concerned liability percentages, not quantum, so they were not going to have a detrimental effect on the appellant’s costs (because at trial, liability was either going to be 100% or not established at all). The offers were not accepted, and the appellant went on to achieve a better result (98%/2%) than was reflected in those offers. So it is quite impossible to say that, on the facts of this case, a potential liability to costs deductions was of any relevance at all.
78. I accept Mr Williams’ general submission that (even though there were no quantum offers here) a claimant in a large clinical negligence case like this has to be very careful of a well-judged Part 36 offer, because of the costs risks if it is not accepted. But a claimant funded through a CFA is, in reality, in much the same position as a claimant funded by legal aid when faced with a well-judged offer: if that claimant is advised to take the offer but refuses to do so, in all probability the funding (however provided) will cease. A legally aided claimant will find the funding withdrawn; a claimant with ATE insurance will have to look at the small print, but may find himself/herself paid out to the limit of the insurance and left to continue themselves, or (as Mr Williams said was more likely) may find that their cover was terminated or withdrawn. The only practical difference that may arise is when the claimant is advised to reject the offer and then fails to beat it at trial: then a legally aided claimant may be at risk of deductions whilst a claimant with a CFA would not be. But for the reasons I have given, this will arise so rarely that it cannot be a general reason to suggest that one system of funding is so obviously superior to the other.
79. Fourthly, a similar point is made by Mr Williams about the costs of interlocutory disputes. In my view that is an entirely unrealistic factor, given that it was not a reason in the present case put forward for the change of funding and there was no evaluation of how, on the facts of this case, it could have had any relevance, particularly given the size of the claim.
80. Fifthly, Mr Williams pointed out that a claimant who only makes a partial recovery of costs in their legal aid case will also see substantial deductions from damages because the unrecovered costs will be deducted and repaid to the legal aid agency. Again, I consider that to be theoretical, certainly in the present case, given that this was a multi-million pound claim which was either going to succeed or fail. It was not a case in which a partial costs order was going to be made.
81. Furthermore, contrary to Mr Williams’ submissions, I consider that there was a positive advantage of legal aid which was particularly apposite in the present case. As Jay J found at [71] of his judgment, there was a measure of budgetary control imposed as a result of the legal aid arrangement which was a benefit to the appellant. BBK had accepted a contract with the LSC and had been provided with a costs budget in the sum which they themselves had requested. If they had wanted more, they could have sought it, in accordance with the LSC rules to which they had agreed. Master Rowley considered that the outcome of the present dispute might have been different if BBK had run the case properly and reasonably in accordance with the LSC’s rules.
82. In my view, this was a clear benefit of the legal aid regime. It is ironic that, just as civil legal aid has ceased to be available for much of the work it used to fund, the sort of control of costs that used to be exercised by the LSC has now been introduced in a much wider range of civil cases, through the mechanism of cost-budgeting. These days, the civil courts require all solicitors to keep a tight control on the costs which they are incurring, in part so as to protect their own clients from overspend. It might fairly be said that, when on legal aid, the appellant already had that advantage, without what some see as the additional paraphernalia that goes with costs budgeting. It was an advantage which was dissipated in the present case but that was not the appellant’s fault (the fault lay with BBK). It remained an advantage to her which did not arise out of the CFA- lite arrangements.
83. Accordingly, I do not accept Mr Williams’ submission that the change in funding was an obvious benefit because, as he put it, “it freed the appellant from the LSC’s financial control.” Control of the costs being incurred was in everyone’s interests, including those of the appellant.
84. During the hearing, there was some debate about whether it was appropriate in any comparison exercise to recognise that, at least as a matter of theory, under the CFA-lite regime, the appellant was liable to reimburse BBK for the sums (in excess of £1 million) now in issue: that is why they are identified as “additional liabilities”. Mr Hutton said that this was something which should be taken into account when legal aid is compared with CFA-lite because, although he accepted that the sums would never be paid by the appellant, what mattered was whether the costs – including these items of cost – had been reasonably incurred. He acknowledged that there was a conceptual difficulty inherent in the application of the indemnity principle in this sort of situation. Mr Williams said simply that the liability should be ignored because it could never arise.
85. In my view, this liability cannot be a deciding or even significant factor in any comparison exercise, because it is not a liability that will fall to be paid in practice. But there is some force in Mr Hutton’s submission that, if the court is considering whether the costs were reasonably incurred, these liabilities should not be left entirely out of account. On that basis, it is therefore a downside of CFA-lite. At the very least, it is another reason why the comparison exercise should be considered as producing a broadly level playing field, as identified in Surrey.
86. Finally, it seems to me that, in any comparison exercise, what might be said to be the elephant in the room needs to be addressed, namely the reason why the funding in this case took the course that it did, and then changed when it did. In my view, BBK had a very good reason for changing from a CFA to legal aid in 2007. Moving to legal aid, at the outset of a potentially complex case meant that, win or lose, BBK would be paid. That was a beneficial arrangement when a large but potentially difficult clinical negligence case was getting underway. 5 years, an admission of breach and many experts later, it would have become clearer that the claim was more likely to be successful. That may have seemed a good time for BBK to lose the restraints of legal aid and change to an arrangement that gave them a success fee as well. It is not therefore unfair to say that changing to CFA-lite at that point potentially allowed them to have their cake and eat it too.
For all those reasons, I agree with Mr Hutton that, even taking the points raised by Mr Williams at face value, as far as the appellant herself was concerned, it was far from obvious that CFA-lite was a superior funding system compared to legal aid. On any view, it was not so much better that, contrary to the authorities I have cited, the appellant did not need to explain the reasons for changing funding and to justify that decision as reasonable.
88. In one sense, the proof of the pudding is in the eating. BBK advised the appellant at the time that she “will be broadly in the same position” under a CFA as she was under legal aid. I agree with that advice; so she was. A CFA meant that BBK were potentially in a better position, but they did not advise the appellant of that, and it is in any event immaterial for present purposes. For these reasons, I reject the underlying premise of Mr Williams’ submissions, that CFA-lite was, in fact, obviously superior to legal aid.
9. ISSUE 4: CAN A HYPOTHETICAL REASON EVER TRUMP THE ACTUAL REASONS FOR A CHANGE IN FUNDING?
89. It follows from my analysis of Issue 3 that Issue 4 does not arise for decision: having undertaken the comparison exercise, I have concluded that CFA-lite was not so obviously superior to legal aid that it should lead to a reversal of the analysis set out under Issues 1 and 2. In those circumstances, it is unnecessary to give any sort of definitive answer to the question as to whether a hypothetical trump card could ever displace the actual reasons for the change in funding. However, having heard argument about it, I would wish to add this.
90. Whilst it seems to me that it would be wrong in principle to rule out entirely a factor that played no part in the decision-making process, it seems to me that an argument based upon such a factor faces two very high hurdles. The first is the weight of the authorities noted above, which stress again and again the importance of the actual reasons for the change in funding. The second is the unlikelihood of such a situation arising in practice; the more obvious the reason for a change in funding, the more likely it is that such a reason will have occurred to the claimant’s solicitors at the time. If the so-called ‘obvious ‘reason did not occur to them or feature in their advice, that may well be because it was not so obvious, after all.
91. Perhaps the highest that the objective element can be put is to be found in the words of Latham LJ in Solutia, where he said at [16]:
“…whereas it is clear that the test must involve an objective element when determining the reasonableness or otherwise of instructing the particular legal advisers in question, none the less that must always be a question which is answered within the context of the particular circumstances of the particular litigants with whom the court is concerned.”
92. For the reasons set out above, I would dismiss this second appeal. The decision in Surrey appears to have worked well in practice. It stresses that, in general terms, there is little to choose between legal aid funding, on the one hand, and a CFA-lite arrangement on the other. In disputes about the recoverability from the paying party of additional liabilities where the funding has changed from the former to the latter, what matters is the reasonableness of the decision to change funding. That inevitably highlights the actual reasons for the change. On the particular facts of the present case, Master Rowley found that the reasons for the change were unreasonable and disallowed the success fee and the ATE premium. Jay J agreed with that, and so do I.
93. I agree with both judgments.
LORD JUSTICE LEWISON:
94. I, too, would dismiss the appeal for the reasons given by Coulson LJ. But since much of the debate concerned my judgment in Surrey, I would like to add a few words of my own. First, there are obvious dangers in the author of a judgment having to interpret it; not least because of the temptation (with hindsight) of an interpretation which reflects what the author would have liked to have said rather than what he did say. Second, I am glad that Coulson LJ interprets the judgment in Surrey as he does, because that is the way I interpret it myself. Third, the comparison between a CFA-lite and legal aid referred to in Surrey at [29] was an evaluation carried out by experienced costs judges at an “abstract” or “generic” level. It was not an evaluation based on the facts of any particular case or, indeed, type of case. Fourth, I agree with Coulson LJ not only that the costs judges were entitled to come to that conclusion, but that their conclusion was right. Fifth, although the submissions on both sides ignored what Coulson LJ has called “the elephant in the room”, he is right to reveal it. It is a feature of cases like these which, if ignored, is likely to result in vastly increased financial liabilities falling on the NHS.
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