KAI SURREY (A Child and Protected Party, by his Litigation Friend, AMY SURREY) v BARNET AND CHASE FARM HOSPITALS NHS TRUST, AH (A Protected Party, by her Litigation Friend, XXX) v LEWISHAM HEALTHCARE NHS TRUST, MEHMET YESIL (A Child and Protected Party, by his Litigation Friend, ALISAN YESIL) v DONCASTER AND BASSETLAW HOSPITALS NHS FOUNDATION TRUST [2018] EWCA Civ 451
The appeal concerned three clinical negligence claims within which it was alleged that very serious injuries had been caused to the Claimants through the negligence of the Defendants. The issue raised on the appeals from Foskett J (sitting with Senior Costs Judge Gordon-Saker as assessor) was the approach that the Court should take in deciding whether costs are reasonable or unreasonable in a case where, after liability has been admitted, the funding of the claim changed (at the client’s request) from funding by legal aid to funding under a conditional fee agreement (a “CFA”) supplemented by a self-funding after the event insurance policy (“ATE insurance”). In each case at first instance the success fees and ATE premium had been disallowed but these decisions were overturned by Foskett J on appeal. The Defendants subsequently appealed to the Court of Appeal.
In each of the three cases, the Claimant’s Solicitors changed funding from a Legal Aid Certificate to a CFA shortly before the LASPO changes came into effect on 1 April 2013. By the time the legal aid certificate was discharged in all three claims the Defendants had accepted liability and were in principle the paying party, although in the AH case there was still an important issue about causation to be resolved.
In Surrey, the switch from legal aid to a CFA-lite was made at a time when judgement for damages to be assessed had already been entered against the Defendant; and no Part 36 offer had been made. The main reason given for changing funding was that there was no guarantee that the LSC would increase the reserve to a sufficient level to fund the assessment of damages hearing.
In AH attention was drawn to the fact that although breach of duty had been admitted, causation had not; and that the bulk of the claimed damages was dependent on a favourable finding on causation. It was stated that there was no guarantee that the LSC would increase the scope of the costs limit; and that the LSC might have taken a different view on the merits of the claim.
In Yesil the reasons for the change were set out in a witness statement made after Master Rowley’s decision in Surrey, so the Solicitor concerned eschewed those reasons which he had held to be bad reasons and instead advised that she had calculated costs incurred so far at legal aid rates as £92,000 as against a costs limit of £94,000. Her perception, therefore, was that the costs were close to the limit. She had asked the LSC for an increase in the limit to £240,000 to cover the full costs of the action. The LSC replied that it was “inevitable that you will be recovering your costs inter partes from the other side.” However, the LSC did not refuse outright. Instead it said that if costs could not be contained within typical limits it would require a “fully costed costs plan”. That would have given a likely maximum of £189,000. The Claimant’s Solicitor also said she had considered that there was a Part 36 risk and that she had taken into account the 10 per cent increase in general damages which would apply if Legal Aid remained in place (though there was no evidence that the Claimant was advised of the same). In this case, however, she was of the view that the 10% uplift was significantly outweighed by the benefits of a pre LASPO CFA.
What was common to all three cases was that the Claimants were not informed by the solicitors (apparently through oversight) that one consequence of the change from legal aid funding to CFA-lite funding was that the Claimant would lose the benefit of the 10 per cent uplift in damages mandated by Simmons v Castle. In both Surrey and AH, this point was a critical factor. Each of the costs judges in those two cases held that it was impossible to say what decision would have been made if that information had been given. There was therefore a doubt about whether the decision was reasonable, which had to be resolved in favour of the paying party. The success fees and ATE premiums were therefore disallowed.
The bottom line was 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 pre LASPO CFA, namely the loss of the 10% uplift on damages which would have been recoverable had they remained with Legal Aid.
In the Court of Appeal Lord Justice Lewison was of the view that the Judge had misdirected himself in considering that if advice had been given to the Claimants regarding the potential loss of the 10% uplift the Claimants would have switched to CFA’s in any event. Whether or not they would have done so was a question of fact. It was not known whether or not the Claimants would have still proceeded to enter into CFA’s. LJ Lewison also observed that the judge did not explain why in his view the Claimant’s entitlement to the 10% uplift on general damages would have (or could have) delayed any settlement on the facts of the particular cases. A further flaw in the Judge’s reasoning was that a possible delay in achieving settlement was not a reason that any of the Claimants advanced as justifying the switch in funding methods.
The Judge also appeared to take into consideration an argument developed before him 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. However, this consideration formed no part of the decision-making process adopted by the Solicitors in each case and as a result it was not one of the reasons for the switch. Furthermore, this argument was not run before the costs judges at first instance 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.
In the circumstances LJ Lewison concluded that the Judge when overturning the decisions of the cost masters at first instance had taken into consideration matters which were not relevant and had therefore misdirected himself. The appeals were therefore allowed and the findings of the masters at first instance were restored.