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Legal aid and CFAs: uncomfortable bedfellows? A view about Hyde v Milton Keynes Hospital NHS Trust

The legal maxim “hard cases make bad law” is attributed to US Supreme Court Justice Oliver Wendall Holmes and has proved to be every bit as durable as its author (Holmes fought for the North in the American Civil War and retired from the bench 70 years later in 1932 aged 90!). In Hyde v Milton Keynes Hospital NHS Trust, Davis LJ referred to it when giving the judgment of the court: having commented that the NHS Trust’s case could “… scarcely appeal to any sense of the merits”, he declined to accept the outcome urged on him by its counsel, that to dismiss the NHS Trust’s appeal would be to make bad law simply because its case was “hard” (as in distinctly unattractive).

None of this is new. As Lord Neuberger commented at the time of the Brexit appeal last December “… we [judges] have taken an oath to decide cases according to the law and if we don’t do that, we’re not worthy of the name of judges.” He gave an example: a child had lost a large inheritance due to a solicitor’s incompetence. “Anyone would have wanted to find for the child”, he said, “but I didn’t – I had to rule according to the law. I didn’t like doing it, but judges do that every day”.

What was it that made Hyde “hard”? The answer was the unhappy co- existence of legal aid and private funding. In simple terms, when a solicitor takes on a case supported by legal aid, the client cannot also be a paying client, even if the amount of the public funding is insufficient to run the claim in the way that both would like. For example, if it is felt that leading counsel should be brought in, but authority for that step is refused by the Legal Aid Agency (LAA), the solicitors cannot accept instructions to brief the leader if that would involve payment to them or to counsel in any shape or form.

The authority for that is section 10(1) and section 22(2) of the Access to Justice Act 1999, which make it clear that:

“… where a person is publicly funded, that person cannot be required to make, and a person providing services funded by the Legal Services Commission [LSC, now the LAA] cannot (unless authorised by the LSC) take any payment for services provided apart from that made by way of public funding. The ultimate rationale is to avoid abuse of the client and of the legal aid system. Consequently “topping up” is prohibited”.

(Extract from the NHS Trust’s submissions; paragraph 21 of the judgment.)

The problem in Hyde was that although the claimant had recovered £325,000 damages for clinical negligence plus her costs, her solicitors had earlier advised her that the case could not be concluded for the amount authorised for costs by the LSC and that the Commission had refused to increase the funding limitation. For that reason, they had both agreed to enter into a conditional fee agreement (CFA) so that the action could be pursued to a successful conclusion without legal aid, which it was.

Unfortunately, “for whatever reason” (as Davis LJ put it in paragraph 1), the legal aid certificate was never discharged, so Ms Hyde was, for the period that the CFA was in place, both a client on legal aid and a privately paying client; therefore, her solicitors were in breach of sections 10(1) and 22(2). That meant that, at least so far as the NHS Trust was concerned, the CFA was unenforceable and it had no liability to indemnify Ms Hyde for any costs which she was liable to pay under it, including the success fee and after the event (ATE) insurance premium.

By the time that the case reached the Court of Appeal, the NHS Trust had tempered its position to the extent that it accepted that the solicitors should at least receive their base costs. That was because if the CFA was ineffective, then in the absence of a formal discharge, Ms Hyde’s solicitors were deemed to have continued to have operated under the legal aid certificate. However, that would still have meant that the success fee and ATE premium would be irrecoverable and although to Davis LJ, such an outcome did not “appeal to a sense of the merits either” (paragraph 25), if that was the consequence of the statutory scheme, hard case or not, that would have to be the judgment of the court, wherever the justice or fairness of the situation lay.

Fortunately for the solicitors, the Court of Appeal disagreed with the NHS Trust. Although one potential advantage of its argument was clarity and certainty, the reality was that the law was, as set out in paragraph 39, “… flatly against an inflexible conclusion that a party in all cases is necessarily to be regarded as a legally aided person until, or at least in the absence of, a formal discharge of the certificate.” The crux was at paragraph 45:

“As a matter of reality and substance… the CFA had for all purposes replaced the previous funding. The crucial fact was not in my view, the solicitor’s own assessment that the work thus far done had reached, or was approaching, the limit set by the LSC. That would not of itself, I accept, cause the certificate to be spent. That, however, was simply the motivation for, and the reason for, what was as I see it, the crucial fact: namely the entering into the CFA. The absence of a certificate of discharge in such circumstances was evidential not conclusive… It is quite plain, as the costs judge found on the facts of this case, that the CFA was designed and understood to supersede for all purposes the public funding of the claim…There was no prospect of topping up in such circumstances”.

So the solicitors were fortunate in Hyde that the Court of Appeal was able to find that legal aid and the CFA could co-exist, albeit as somewhat uncomfortable bed fellows, so that they could be paid. Two and a half years after Master Rowley gave the first judgment in the case on this point, the matter will now go back to him to complete the detailed assessment. But Hyde will not be the last word on legal aid and CFAs co-existing. Another case is Surrey v Barnet and Chase Farm Hospitals NHS Trust which, with two other matters, AH and Yesil, went on appeal to Foskett J on 1 July 2016.

The facts are slightly different to those in Hyde: in each case the claimants had legal aid, but, mindful of impending changes to the Civil Procedure Rules (CPR) in force from 1 April 2013, under which additional liabilities ceased to be recoverable from opponents in most types of litigation, all switched to CFAs on the basis that it was “now or never”. Unfortunately, on making the change, no advice was given by the solicitors that they would thereby lose the additional 10% uplift on general damages under Simmons v Castle, so when the claims were settled (with costs), each claimant received rather less than would have been the case had they remained on legal aid.

On detailed assessment, the NHS trusts took what may also be described as a “hard case” point: they argued that the changed funding arrangements were not reasonable and that, accordingly, the success fee and ATE premiums in each bill should be disallowed, even though the switch had meant that they had paid out less in damages than would have been the case had the claimants remained on legal aid.

Before two costs judges (including the writer in AH) and a district judge, that submission succeeded. Speaking for myself, (as Lord Neuberger had found in his child inheritance case), I did not like deciding the point that way because the solicitors had worked hard and effectively on the claim, but the direction of the law and the authorities drove me to take a “hard case” decision: this could not be a matter where the heart ruled the head: there would be no success fee and somebody, who would not be the NHS Trust or the claimant but probably the solicitors, would also have to pay the ATE premium out of their own pocket.

Fortunately for the solicitors, the trio of decisions which had all gone against them, were overturned by Foskett J, but his word might not be the last. The Court of Appeal will hear an appeal from his judgment on 27 November 2017 and if it is reversed, this could be another situation of a hard case leading to an outcome that may be correct in law, but which fails to do justice and fairness all round. Whichever way it goes, it will be further evidence that legal aid and CFAs really do not make comfortable bedfellows. Hyde and Surrey are both testament to that.

Kain Knight Colin Campbell

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