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Great care required when considering changes in funding

The decision to change the method of funding in any matter has been one which is fraught with numerous pitfalls for a number of years, and certainly no less so following the inception of the latest and most comprehensive changes to funding post LASPO on 1 April 2013. Now, in a recent ruling, Master Rowley has highlighted the continuing importance of ensuring that any such changes are both adequately and thoroughly considered, explored and discussed with the client before being put into effect.

The matter of Kai Surrey (a minor) v Barnet & Chase Farms NHS Trust [2015] EWHC B16 (Costs) involved a Claimant who had been born in December 2004 and, during birth, had suffered serious brain damage. A claim was brought against the Defendant with funding being provided under a Legal Aid Certificate granted in 2006 and, whilst liability was initially denied, following a round-table meeting shortly before a liability trial, liability was agreed on a 70/30 basis in favour of the Claimant and the liability agreement approved by the Court in March 2012.

Discussions continued between the parties thereafter in respect of quantum and, in mid to late March 2013, the Claimant’s Legal Aid certificate was discharged and a CFA with an ATE policy were entered into, with the Claimant’s Litigation Friend’s concurrence. The claim continued and was ultimately compromised at a further round-table meeting in August 2013, with the Court providing its approval to the agreement in November 2013.

In January 2014, the Claimant commenced Detailed Assessment of their costs, including a success fee of £57,119.40 and an ATE premium of £50,681.78 and main issue raised by the Defendant was as to whether it was reasonable for the Claimant to discharge their Legal Aid Certificate and enter into the alternative method of funding and incur further, additional liabilities of £109,968.02 as a result of the same.

The Claimant fully accepted that the decision to change the method of funding was one which had the consequence of incurring further substantial liabilities, however contended that very detailed consideration had been given to the decision which fully justified the change.

Evidence was given to the Court by the Claimant’s solicitor, Irwin Mitchell, that they had required all fee earners to review their case-loads in good time before the reforms were to be implemented to ascertain whether any of their clients funded under Legal Aid would be in a more favourable position if that funding were to be changed to a CFA with ATE funding. Further, and as a consequence of this, detailed consideration had been given to the instant matter, to include

  • that the matter was a complex, high value matter in which, whilst liability had been agreed at the time at which the change took place, there was a real risk that if negotiations failed at the subsequent round-table meeting the Legal Aid Agency could not be guaranteed to increase the reserve sufficiently to continue pursuing the matter to an assessment of damages hearing;

  • had the Legal Aid Agency not increased the reserve, then there was a risk that the Claimant and their Litigation Friend would have been unable to fund the matter further to an assessment of damages hearing and could, potentially, be liable for any shortfall in costs;

  • that recent cuts in the Legal Aid budget and funding generally did not militate towards any guarantee that funding under that scheme could be guaranteed for the life of the claim;

  • that the operation of the “statutory charge” and the fact that Legal Aid funding did not provide any protection against the Part 36 costs risk, nor any adverse interlocutory costs orders, could potentially affect the Claimant’s level of damages due to any costs unrecovered from the Defendants;

  • if the aforementioned concern had not been realised before 1 April 2013 and action taken, there would have been no option thereafter but to enter into a post-LASPO CFA which would have had the effect of the Claimant recovering less damages than he would have been able to with a pre-LASPO CFA (as the Claimant would have been liable for any success fee being deducted from their damages);

  • that the Claimant’s Litigation Friend had been made fully aware of the pending changes coming into force on 1 April 2013 and had been fully appraised of the advantages and disadvantages of CFA funding; such that

  • they could enter into, at that time (as no Part 36 offers had been made), a CFA in the basis that the Claimant could be guaranteed to receive 100% of their damages as all costs and disbursements would be fully funded and indemnified, either under the CFA or the ATE policy, provided that they fully complied with the terms and conditions of the CFA

and for these reasons, the Claimant had been offered a CFA-lite with ATE policy.

Of these reasons, Master Rowley found the most compelling the be benefit to the Claimant that if they continued under the Legal Aid Certificate, they would inevitably have to fund any shortfall in costs, a situation which would not arise under the CFA-lite and ATE provisions. Further, there was nothing objectionable in advising or “nudging” a client to pursue a particular method of funding as while “…there can be no criticism of a solicitor who gives cautious advice on a voyage into unchartered waters”.

In considering the advice provided to the client by Irwin Mitchell, the Master however found that “…the failure to give advice regarding the post LASPO landscape and in particular the Simmons damages, in my view rendered the advice to be insufficient on which to found any proper or reasonable conclusion” and that the failure to provide advice “…fully and properly…” as to the 10% uplift on damages which would come into force post-LASPO, and the consequence of increasing the Claimant’s damages by up to £20,000.00, did not provide the “informed consent” required.

Providing his judgement, the Master noted

“There is no evidence before me to indicate whether the claimant or his litigation friend would have considered the abandoning of up to £20,000, which was more or less guaranteed, in return for peace of mind regarding future funding”

“They may have decided that the system that had apparently worked for seven years was unlikely to break down in the final stages and they would rather have the money and risk the funding issues. They may have taken the view that QOCS protected them sufficiently not to incur an ATE premium. The possibilities for speculation are endless.

“What is certain, however, is that the Simmons damages were of significance and so should have been explained to the claimant’s litigation friend so that informed consent to a change in funding could be given. The absence of any evidence from the litigation friend on this point, to my mind, speaks volumes.

“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.”

Once again this judgement emphasises the imperative to both fully and properly provide thorough advices to clients regarding the various pros and cons of the various methods of funding, and the penalties which can be imposed for any aspects which may be wholly innocently overlooked.

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