High Court overturns trio of cost judge rulings over “failing to advise properly” on CFA switches

Foskett: no return to bad old days

Foskett: no return to bad old days

The High Court has overturned three high-profile costs rulings in which Irwin Mitchell lost the right to recover success fees and insurance premiums from defendants after failing to advise on the 10% uplift in general damages before switching clients from legal aid.

Mr Justice Foskett, sitting with the Senior Costs Judge Master Gordon-Saker as assessor, 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.

The three cases – Kai Surrey, AH and Yesil – all involved medical negligence victims who were switched from legal aid to conditional fee agreements shortly before 1 April 2013, when LASPO restricted the right to recover success fees and after-the-event (ATE) insurance premiums. The Court of Appeal ruling in Simmons v Castle sought to counter the effect on damages with the 10% uplift.

Foskett J ruled that while the 10% issue should have been mentioned to the litigation friends in each case, “the failure to do so should, save in very exceptional cases, be a matter for discussion and consideration between the claimant and/or his litigation friend and the solicitors: it is not a matter that should be of concern to the paying party”.

He said that each of the costs judges involved – Master Rowley, Deputy Master Campbell and District Judge Besford, a regional costs judge – paid too much attention to last year’s Supreme Court ruling over informed consent to medical treatment, Montgomery v Lanarkshire Health Board, and by analogy the extent to which a reasonable litigation friend would attach significance to the 10% uplift.

Further, he noted that had the claimants signed up to a CFA-Lite from the outset ,there would have been no complaint from the defendants – so why should “changing to a CFA-Lite at some stage down the line be any different?” Also, had Parliament wanted to prevent solicitors from switching in this way, it could have included some kind of ‘anti-avoidance’ provision in LASPO.

Foskett J ruled that the 10% must be considered in relative, rather than absolute, terms: “A costs judge is perfectly entitled, possibly using his or her experience of other cases or their experience from days in practice, to ask and, in most cases, answer the question of whether the omission to refer to the 10% uplift would have made any difference to a reasonable claimant or his litigation friend in the circumstances prevailing in that case without receiving evidence on the issue.

“However, this question should be seen from the perspective of asking whether a reasonable claimant or reasonable litigation friend, in the circumstances prevailing in the case, would see the possibility of obtaining X +10% of X rather than X in the context of the overall global settlement [his emphasis] as a matter that would prevent the change to a CFA.

“In Surrey, taking £19,000 as the value of the 10% uplift and the capitalised value of the settlement as £7,165,255, the question is whether a reasonable claimant or litigation friend in that situation would hold out for obtaining an increase of 0.026% of that sum rather than to have the uncertainty of the possible effect of the statutory charge, the possible effect of part 36 offer and possible delays that might be overcome by being answerable to an insurer rather than the LSC.

“Whilst it would be possible to try to quantify those matters, the reality is that a solicitor would almost certainly put them forward in a broad way and invite the claimant or the litigation friend to approach the issue accordingly.

“When looked at in that way, I do not believe that any reasonable claimant or litigation friend would hold out for such a marginal improvement on the overall settlement. In Yesil the percentage increase would be just under 0.4% (taking £24,000 as the 10% uplift). In AH it would be somewhat higher at 5%.

“However, that case was, as I have said, extremely tragic and I cannot believe that the claimant’s litigation friend would have wanted anything other than a quick and simple resolution and would not have seen an additional £17,500 as worth pursuing.”

The judge emphasised “the need to ensure that detailed assessments of costs do not become an arena for a wide-ranging inquiry into the decision-making processes as between the claimant (usually, through his or her litigation friend) and his or her solicitors…

“Without sacrificing entirely the possibility of a proper challenge to a changed funding arrangement that is demonstrably improper or seriously prejudicial to a defendant for no good reason, any return to such [cost war] days must be resisted strongly.”

An Irwin Mitchell spokesman said: “We welcome this judgment, which confirms that we acted reasonably and in the best interests of our clients, which has always been  our primary focus. The advice we gave was during a period of unprecedented reform in the legal sector but, if we were in the same position now with the same set of clients, we would give the same advice again.

“The NHSLA has already settled a substantial number of similar cases with us and this judgment now sets out clear directions for how similar remaining cases should be approached. We hope the NHSLA will engage with us to resolve outstanding cases as soon as possible.”

An NHSLA spokesman said: “We share District Judge Besford’s view as expressed in his judgement at first instance in Yesil that ‘It is inconceivable that a client would not consider the option of an additional 10% uplift on general damages a material factor. The omission to raise this factor, even if the claimant immediately rejected it, seriously calls into question the adequacy of the advice given… 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’.

“The NHSLA continues to receive costs claims where there has been a switch of funding, involving millions of pounds of additional liabilities and we are carefully studying this lengthy judgment with a view to applying for leave to appeal.”

Foskett J laid out a four-step procedure for dealing with cases where the 10% issue is live: stating in the bill whether advice was given; the court only going behind this if there is a “genuine issue” as to whether this is accurate, to be resolved by production of either the claimant’s solicitor’s attendance note or a short witness statement from the solicitor; where the advice was not given the argument over reasonableness must be raised in the points of dispute; and finally the costs judge should try and reach a decision based on the arguments raised in the points of dispute and replies without any need for further evidence.

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