The Supreme Court Costs Office
No. 25 of 2005
Howarth –v- Britton Merlin Limited
27 September 2005
His Honour Judge Inglis (sitting with an Assessor)
In this case, the bill of costs was assessed by a Costs Judge sitting as a Deputy District Judge of the Lincoln County Court.
The claimant (C) suffered injuries at work and instructed solicitors to bring a claim against the defendant (D) his employers. The first firm of solicitors obtained legal aid for such a claim but, by mistake, commenced proceedings against a company which was not C's employer and which was not named in the legal aid certificate. When this, and another mistake, was realised, the first firm of solicitors invited C to seek independent advice. His instructions and his legal aid certificate were both transferred to the second firm, C's current solicitors. By this time the limitation period for C's claim against D had expired. C's current solicitors advised C to discontinue the action against the wrong defendant and bring new proceedings against D. The action against the wrong defendant was later discontinued with an order for costs made against C, which costs were paid by the professional indemnity insurers of the first firm of solicitors.
C's current solicitors took the view that, because of the ruling in Bridgewater v Griffiths (2001 1WLR524), the legal aid certificate was now spent and they applied for its discharge and a legal aid assessment of the costs incurred by the first firm and some minor costs which they had incurred. The bill was assessed by the court and the legal aid assessment certificate was later paid by the Legal Services Commission. In respect of the fresh action against D C entered into a conditional fee agreement with his current solicitors which provided for a success fee. Because of the view they had taken about legal aid, C's current solicitors did not inform him that legal aid was available. Some months later C obtained ATE cover costing £7,057 (paid by the professional indemnity insurers of the first firm of solicitors). The claim proceeded to trial but, on the first day, D agreed to pay damages of £87,000 and costs.
At the detailed assessment the Costs Judge rejected arguments that the legal aid certificate was not available for C for use in the second action. He therefore held that, in failing to advise C that legal aid was available, the solicitors had failed to comply with CFA regulations 2000, Reg 4(2) D ("whether other methods of financing those costs are available and if so, how they apply to the client and the proceedings in question…"). He further held the departure to be materially adverse to the protection of C, thereby rendering the CFA unenforceable. Similarly, he held that the ATE premium was not recoverable: C could and should have used legal aid instead. In the alternative he held that, if the ATE premium was recoverable the reasonable sum to allow was £2,500.
On appeal C repeated his arguments that, in all the circumstances, the legal aid certificate was not available for use by C against D for the following reason: by submitting a bill for assessment, C's solicitors had irrevocably elected to treat the certificate as applying to the action taken against the first defendant (i.e. against the wrong defendant). Regulation 46(3) of the Civil Legal Aid (General) Regulations 1989 states "a certificate shall not relate to more than one action, cause or matter……" Therefore, he argued, the legal aid certificate could not apply to the second action. By that stage legal aid was no longer available for personal injury claims and therefore any fresh application for legal aid would have failed. In the alternative it was argued that, there had been a departure from the CFA regulations, it was an immaterial departure only: the potential financial disadvantages were minimal given the size of the damages awarded to him and anyway were offset by the benefits he enjoyed by not proceeding by way of legal aid (reduced bureaucracy), no delay on receiving damages pending detailed assessment and (because of ATE cover) better cost protection than would have been forwarded by section 11 of the Access of Justice Act 1999).
As to the ATE cover counsel argued that the sum assessed by the costs Judge as reasonable ought to be allowed whether or not the CFA was enforceable. Reliance was placed on paragraph 11.7 of the Costs Practice Direction ("when the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appeared…. When the funding arrangement was entered into…."). If C's argument as to the lack of legal aid cover succeeded, C's purchase of ATE cover was plainly reasonable. Even if C's non-use of legal aid was not reasonable, legal aid had in fact been discharged several months before the ATE cover was purchased. At the time of its purchase ATE cover was the only form of cost protection available to C.
His Honour Judge Inglis dismissed the appeal. He upheld the costs Judge's decision that legal aid was available for this action. The case law relied upon by C (Bridgewater –v- Griffiths 2001 WLR524 and Pearce –v- Ove Arup Partnership Limited 2004 EWHC 1531) was not in point. In both of those cases the two actions commenced having both been taken against the same defendant, the defendant whose name appeared on the legal aid certificate. In this case the action taken against the first defendant (i.e. the wrong defendant) fell wholly outside the scope of the legal aid certificate. Although it may be possible that, in some circumstances, an election may be made where two actions have been brought, in this case the claimant's solicitors had made no true election. There was only one action which could have been brought within the scope of the legal aid certificate, the second action. It followed that, by failing to mention the availability of legal aid to C for the second action, C's current solicitors had departed from the CFA regulations. The Judge was not persuaded that the financial disadvantages the CFA brought to C were outweighed by the financial and other advantages the CFA were said to have over legal aid. Not using legal aid made C liable to pay disbursements insofar as these were not paid by D unless he successfully sought a solicitor and client assessment so as to avoid them. It also exposed him to liability for interest upon a disbursement loan but, since that was very small (under £53.00) this additional liability was not by itself significant. By agreeing to pay a success fee which included 5% in respect of the deferment element, C was liable to pay 5% of the base costs, i.e. a sum of £1,800. That by itself was a substantial disadvantage. C would also be liable to pay both base costs and allowed success fees in respect of any profit costs which were disallowed as between litigants unless he successfully applied for a solicitor and client assessment to avoid those costs. C also had at least notional liability to pay the difference between the insurance premium paid and the insurance premium allowed. There was a substantial risk that, now the full facts were known, the professional indemnity insurers of the first firm of solicitors might seek to set aside their agreement to indemnify him for this expense. The judge did not accept that the substantial disadvantages outlined above could be avoided by the courts assessing costs between litigants. In any event to do so would merely increase the disadvantage to see as between solicitor and client. The advantages said to outweigh the disadvantages did not in fact do so. The freedom from bureaucracy, if it existed, was a benefit to the solicitor not the client. It was unreal to suggest that the cost protection provided by the ATE cover was better than the cost protection provided to legally aided litigants under section 11 of the Access of Justice Act 1999. Although the receipt of damages without waiting for the delay of detailed assessment was valuable its value did not exceed the extra burdens the CFA placed upon C.
The Judge also disallowed the appeal as to the recovery of the ATE premium. The costs Judge had exercised his Judgment as to whether the premium should have been incurred and held that it should not. Although, at the time it was purchased, no other form of cost protection was available to C, the costs Judge felt that the responsibility for that misfortune should fall upon C rather than D. The costs Judge's ruling on that question could not be categorised as wrong.
In the result, C was entitled to recover from D only those disbursements already paid (which amounted to £15,000). The costs of the detailed assessment and the appeal were awarded to D. As these exceeded the costs in favour of C, C's current solicitors undertook to pay any sum certified as payable by C.