Claimant solicitors funding advice increases their costs at the expense of clients’ damages

In 2012, the Court of Appeal declared in Simmons v Castle [2012] EWCA Civ 1288 that, “with effect from 1 April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, or (v) mental distress, will be 10% higher than previously, unless the claimant falls within section 44(6) of LASPO.”

Whilst Section 44(4) of LASPO Act 2012 abolished the recoverability of success fees from unsuccessful parties, Section 44(6) allowed their recovery if the conditional fee agreement (CFA) was entered into before 1 April 2013.

Together these provisions meant that on claims commenced before but settled after 1 April 2013, a claimant would receive a 10% uplift in general damages provided that it was not funded under a CFA providing for a success fee. Similar provisions in LASPO Act 2012 applied to the abolition of the recoverability of ATE premiums.

Many enterprising claimant solicitors rushed to sign new claimants up to CFAs before the deadline in order to maximise their own costs. Others went further and sought to change the funding used by existing clients to a CFA in order that they could recover a success fee in addition to costs.

But what is the effect on a claimant pursuing a claim, where liability has been admitted, who is asked by his solicitor to change funding from legal aid over to a CFA prior to 1 April 2013?

In Surrey v Barnet & Chase Farm Hospitals NHS Trust (2015) EWHC 9085 (Costs), the claimant suffered serious brain damage at birth in December 2004. In 2006 the claimant obtained legal aid funding to pursue the claim. Liability was agreed in February 2012 and the claim settled in August 2013. In March 2013, Irwin Mitchell solicitors had advised the claimant to change funding from legal aid to conditional fee agreement and take out an ATE premium. The claim then settled five months later in August 2013.

Within the total costs claimed was a success fee of £57,119.40 and an ATE premium of £50,681.78. The defendant argued that the claimant's decision to change from using legal aid to a CFA / ATE funding in March 2013 caused costs of £109,968.02 to be unreasonably incurred.

The court was asked to determine whether it was reasonable for the claimant to change the funding of his case from legal aid to a conditional fee agreement and to recover the success fee. The claimant’s solicitor gave evidence at the assessment hearing and related to the court that: “all "case handlers" were asked by partners in Irwin Mitchell to review their legally aided cases in light of the forthcoming changes being brought into effect by the Legal Aid, Sentencing and Punishment of Offenders Act 2012.”

The claimant’s solicitor reviewed the case and considered this case met "the provisions for a funding switch" and so, having taken the Litigation Friend's instructions, "and explaining the reasons for my advice" she applied to discharge of the legal aid certificate. The claimant argued that the decision to change funding was reasonable and the £109,968.02 in additional costs was reasonably incurred. The defendant argued that by entering into a CFA before 1 April 2013, the claimant denied himself an uplift of up to £20,790 in damages.

The court found that the additional costs were unreasonably incurred and were not recoverable from the defendant. The court stated that: “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. 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.”

One could be forgiven for viewing this as an isolated case. However, the same issue arose in Yesil v Doncaster & Bassetlaw Hospitals NHS Foundation Trust which was heard on 13 and 16 October 2015. The claimant was born by emergency Caesarean Section in 2006 with cerebral palsy. Irwin Mitchell solicitors obtained legal aid to pursue the claim in 2007 and liability and causation were admitted by April 2011. A change from legal aid funding to CFA/ATE funding occurred in March 2013 and the claim was settled on 19 February 2014. Irwin Mitchell on behalf of the claimant sought costs, including a success fee of £55,522.56 and an ATE premium £50,681.78. The defendant argued that the claimant's decision to change from using legal aid to a CFA and ATE arrangement in March 2013 had caused costs of £106,204.34 to be unreasonably incurred.

The claimant’s solicitor gave evidence that in light of the impending changes through LASPO, fee earners were asked by the partners to conduct a funding review to identify in respect of existing clients any potential adverse effect. In February 2013, the claimant’s solicitor sought to increase the legal aid funding. The legal aid board rejected the proposal and asked for a fully costed proposal stating that: “We are aware that Irwin Mitchell is increasingly seeking funding beyond the parameters set out in the Clinical Negligence Funding Checklist and I have now received a number of applications for huge increases in the contract price in stages 5 and 6 which have been previously covered, liability has already settled and it is inevitable that you will be recovering your costs inter parties from the other side.”

The claimant solicitor subsequently advised the claimant to enter into a CFA and applied to discharge the legal aid certificate. It was conceded that whilst aware of the 10% uplift in damages, the claimant’s solicitor did not give specific advice or have specific instructions from the claimant on this point. The claimant argued that the decision to change funding was reasonable and the £106,204.34 was reasonably incurred. The defendant argued that by entering into a CFA before 1 April 2013, the claimant denied himself an uplift of circa £28,000 in damages.

The court found that the additional liabilities flowing from the switch of funding were unreasonably incurred and are irrecoverable from the defendant. The court said: “In my judgement 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. Irwin Mitchell would appear to have been not so much ‘leaning’ one way, as giving advice tailored to a decision they had already made. 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.”

Two cases may be considered a coincidence, but a third raises the question of whether the firm is placing its financial benefit over that of their clients’ interests? On 12 January 2016, the Senior Courts Costs Office handed down judgment in AH v Lewisham Hospital NHS Trust. The claimant developed sepsis and adult respiratory distress syndrome after an operation in September 2008. The claimant obtained legal aid in March 2010 and the defendant made a partial admission in January 2011.

The legal aid certificate was discharged by the claimant’s solicitor in February 2013 and CFA/ ATE funding was entered into in March 2013. The claim settled in September 2013 and Irwin Mitchell on behalf of the claimant sought costs, including a success fee of £36,738.72 and an ATE premium £18,881.78. The defendant argued that the claimant's decision to change from using legal aid to a CFA and ATE arrangement in March 2013 has caused costs of £55,620.50 to be unreasonably incurred.

The claimant’s solicitor gave evidence that the firm was concerned that claims were “vulnerable to the adverse effects of LASPO.” Having conducted a funding review to identify in respect of existing clients any potential adverse effect, the claimant was advised to change to CFA /ATE funding.

The Court decided that, based upon the advice, the claimant’s choice was unreasonable and the success fees and ATE premium could not be recovered from the defendant. The court concluded that the decision to change funding was unreasonable because a very significant component of the advice was missing. The court said: “What the client should have been told was that "if you move to a CFA you will forfeit immediately the right to an additional 10% of the general damages you recover, which we estimate could be £175,000, so as much as £17,500". It was therefore advice that was unreasonable.”

Comment

It is clear from the evidence that the partners in Irwin Mitchell requested their case handlers conduct a review of the funding of legal aid in clinical negligence cases. In each case the case handlers reviewed the funding position and advised the claimant to change to CFA/ATE funding. In each case, they omitted to advise on a fundamental issue, namely that a change to CFA/ATE funding would result in the claimant losing a 10% uplift in general damages of between £17,500 and £28,000.

In each case, the court found that the omission was significant or material so as to make the funding decision unreasonable.

One can be forgiven for concluding that one of the principal reasons for the review was to ensure that the maximum amount of costs were gained through success fees by converting claims to CFA funding and in that context it is difficult to overlook the fact that, on just these three cases alone, if successful, Irwin Mitchell would have recovered success fees of £149,380.68 and ATE premiums of £112,412.18 making a total of £261,792.86.