The Court of Appeal has found for NHS Resolution (NHSR) in three test cases over the reasonableness of solicitors switching clients from legal aid to conditional fee agreements (CFAs) ahead of the introduction of LASPO.
NHSR said the ruling to overturn the decision of Mr Justice Foskett saved it £270,000 in these three cases – all run by Irwin Mitchell – and potentially millions more in other cases where clients were switched.
The three cases – Kai Surrey, AH and Yesil – all involved medical negligence victims who were switched from legal aid to CFAs shortly before 1 April 2013, when LASPO restricted the right to recover success fees and after-the-event insurance premiums.
The Court of Appeal ruling in Simmons v Castle sought to counter the effect on damages with the 10% uplift.
At first instance, Irwin Mitchell lost the right to recover the success fees and insurance premiums because it was held that they failed to advise on the 10% uplift before switching clients from legal aid.
However, on appeal, Foskett J, sitting with the Senior Costs Judge Master Gordon-Saker as assessor, overturned these decisions.
He was clear that he wanted to avoid a return to the “bad old days” of the costs wars in the early 2000s, and ruled that in each case staying on legal aid and claiming the 10% would only have achieved a marginal gain.
Giving the unanimous ruling of the Court of Appeal, Lord Justice Lewison said “the real issue is not the advice as such, but the reasons why the receiving party made the choice that he did”.
He said: “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,” Lewison LJ said.
“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 [in Yesil] was correct in saying: ‘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.’”
He agreed with Foskett J that the analogy all three costs judges made to the 2016 Supreme Court ruling over informed consent to medical treatment, Montgomery v Lanarkshire Health Board, was a “distraction”.
Foskett J criticised the weight the costs judges gave to the analogy. Lewison LJ said: “Even if that were a fair criticism (and I do not think that it is), it does not amount to saying either that the costs judges took into account an irrelevant consideration; nor that their decisions on the facts were outside the ambit of reasonable decisions open on the facts of the three cases.
“In questions involving the exercise of a discretion, questions of weight are questions for the primary decision maker: not for an appeal court… I do not consider that the judge applied the right test to his appellate role.”
Foskett J was not entitled to interfere with the evaluative judgment of the three costs judges, the court found.
NHSR said there were potentially millions of pounds of savings waiting the wings after this decision. Chief executive Helen Vernon said: “We welcome the Court of Appeal’s decision in this case which shows how important it is for claimants to be properly informed when it comes to their legal costs.
“Having detected this issue and taken the decision to challenge it through the higher courts, we were able to save significant sums for the NHS whilst ensuring that claimants receive the compensation they are entitled to.”
In a statement, Irwin Mitchell said: “Over five years ago, we advised a small proportion of our legally aided clients who had medical negligence claims to switch from legal aid to a [CFA] ahead of unprecedented law reforms…
“This allowed our clients to pursue their cases to a successful conclusion unfettered by any (existing or future) restrictions around legal aid and without having to make any contribution to legal costs (as the [CFAs] pre-dated the change in the law) and many have since recovered many millions of pounds in compensation to provide for their long term needs
“The Court of Appeal is critical of our advice in three individual cases but we remain of the view that the switch was reasonable and in the best interests of those clients as the High Court agreed back in 2016.
“We are considering our position on appeal.”
Lewison LJ found other faults in the High Court ruling. He said Foskett J was wrong to say that the 10% point was determinative in Yesil and so “because he mischaracterised those conclusions, he gave no reasons for disagreeing with them”.
Lewison LJ added: “In my judgment DJ Besford’s conclusions were fully justified on the evidence that he had; and I consider that the judge was wrong to reverse him.”
The 10% uplift was determinative in the other two cases, but the Court of Appeal said Foskett J got the appeal test wrong.
“The judge’s approach casts on the paying party the burden of showing that the decision would have been different. By contrast, the costs judges’ approach casts on the receiving party the burden of showing that the decision would have been the same.
“Since not only does the burden of proof rest on the receiving party, but also any doubt is to be resolved in favour of the paying party, I consider that the costs judges’ approach was right, and the judge’s was wrong.”
Foskett J was also wrong to compare the overall damages claim and the 10% uplift: “The right comparison was one between the amount of costs for which the individual claimant might have been liable on the facts of the particular case, balanced against the amount of the… uplift, as DJ Besford correctly held.
“If costs for which a claimant would be potentially liable (either because of a failure to beat a part 36 offer or because of the operation of the statutory charge) would have been absorbed by the Simmons v Castle uplift, then if the risk eventuates the client is no worse off. If it does not, then the client is obviously better off.
“But since the one is a risk and the other is a certainty, the comparison cannot fairly be made without assessing the seriousness of the risk on the facts of the particular case. The judge did not perform that exercise, even in a ‘broad way’.”