MOVING FROM PUBLIC FUNDING TO CFA: NOT A REASONABLE STEP IN THIS CASE

NB see the appeals related to these issues discussed here

This blog has already reviewed several of the cases where the courts have considered the reasonableness of moving from public funding to a conditional fee agreement.  The issue is significant because the reasonableness of the decision determines, to a large extent, whether the defendant is liable to pay an additional liability and the insurance premium. For the most part claimants who switched to public funding are not doing well.  The case of Davis -v- Wiltshire Primary Care Trust [2016] EWHC B6 (Costs) is another one where the claimant came to grief.

KEY POINTS

  • The decision to move from public funding to a CFA with an additional liability and an after the event premium was not, in the circumstances of this case, reasonable.
  • The success fees and insurance premium were not recoverable from the defendant.

THE CASE

The minor claimant was pursuing a clinical negligence action.  A CFA was entered into.  The additional liability sought was 67% for the solicitors and the premium was £93,938.51. An earlier public funding certificate had been discharged on the solicitor’s advice that the claimant would be better off funding the matter by a CFA.

THE JUDGMENT
  1. From the authorities and decisions referred to by Mr Williams and Mr Munro I have derived these principles. A decision to choose a CFA/ATE arrangement rather than public funding (where available) must have been a reasonable decision. If it was, then the additional cost attendant on that choice will (insofar as reasonable in amount) be recoverable from the paying party. If not, then CPR 44(4) will preclude recovery of the additional costs unreasonably incurred.
  2. Mr Munro and Mr Williams agreed before me that the receiving party may act reasonably in his own best interests whether or not that increases the burden on the paying party. Applying that test, whether or not a given decision was reasonable will turn on the facts of the particular case. A comparison of the advantages and disadvantages attendant on each funding method, for the person making the choice, is likely to be necessary because consideration of those advantages and disadvantages may inform a reasonable choice. Inadequate advice on those advantages and disadvantages may lead to an unreasonable choice being made. It does not follow that if inadequate advice was given, the choice must have been unreasonable. The question will be whether the choice was reasonable in all the circumstances prevailing at the time it was made.
Delay
  1. I should say that I have been invited by Mr Munro to review a case plan on Wolferstans’ files, which were filed with the court before the hearing, but I take the view that it is right for me to determine this issue only on the basis of the evidence served and seen by both parties.
  2. I have insufficient evidence before me to reach any conclusion about alleged delay before September 2009, and so Mr Munro’s submissions based on the suggestion that Mrs Davis was being derived of a chance to address past and possible future delays fall away.
Retrospective Success Fee
  1. I do not believe that there is much substance in the point about the retrospective success fee. Although the wording of the CFA does not make it clear, I do not believe that Wolferstans were ever in a position to, or ever had any intention of claiming a retrospective success fee except for the short period between the discharge of the certificate and the signing of the CFA. That is not unreasonable.
The Claimed Tactical Advantages of the CFA and ATE Policy
  1. I accept that Wolferstans thought that they could protect Oliver’s best interests by putting the CFA/ATE arrangement in place. I have concluded however that Wolferstans’ enthusiasm for the arrangement was such as to render their advice on the issue one-sided and to overlook some potential disadvantages to Oliver. I will explain my reasons for that conclusion.
  2. The main ground upon which the Defendant takes issue with the switch from public funding to the ATE/CFA arrangement is its timing. The CFA was entered into after three and a half years of public funding, after the letter of claim had been written but before the Defendant had had a chance to respond formally within the protocol period. The ATE policy followed almost two months later, but still before the Defendant’s response was received.
  3. On Mr Parford’s evidence his advice to the client in November 2009 was prompted first by the LSC’s refusal to fund work on quantum until the issue of liability had been resolved and second by the Defendant’s indication that a response could not be prepared until the case against it had been clarified, in particular to identify the latest time at which it was said Oliver could have been delivered safely and without harm. He says that he saw this as an indication that a prompt response would not be forthcoming at a time when the client needed an interim payment and the LSC would do nothing to assist in working toward that until liability had been established. He also says that entering into a CFA allows for the issue of proceedings against a Defendant which is dragging its feet in responding, whereas the LSC will not authorise that.
  4. I find myself unable to accept these justifications. The Defendant’s request for clarification seems to me to have been an entirely reasonable request for information that should have been incorporated in the letter of claim. The request was made promptly, and it was reasonable to suggest that the protocol period should be extended from the point when that information, which was at the heart of the Claimant’s case, was given. None of this gave any good reason to suppose that the Defendant would delay in providing its formal response in a case where, as Mr Parford acknowledges, it could have been expected to have made its own investigations. In fact the Defendant had made its own investigations, and it did not delay.
  5. Mr Parford emphasises that the decision whether to use public funding or a CFA/ATE arrangement for a given client is determined in particular by the willingness or otherwise of a defendant to make early admissions of liability, but in this case he did not first give the Defendant a chance to do that within the protocol period. His suggestion that the Defendant could have admitted liability before the letter of claim was received has (with respect) no substance: it is not incumbent on any defendant to formulate a case against itself or make admissions before it knows what a claimant’s case is. It is not the Defendant’s fault that it took three years for that to happen.
  6. I am not persuaded that Oliver’s need for an interim payment justified the change to a CFA/ATE arrangement. There is no evidence from Mrs Davis herself in relation to Oliver and the family’s financial needs and such evidence as there is not adequate to justify the conclusion that it was necessary, in November 2009, to instruct quantum experts immediately if those needs were to be met. It is also difficult to reconcile the stated urgency, and the strategy said to have been adopted to meet it, with the very slow progress made subsequently. Certainly it does not seem that a change of accommodation was a pressing need. If it had been, Mrs Davis would not have allowed matters to be put back for so long in the hope of purchasing a particular house.
  7. Of more significance is that full advice on the possibilities of meeting any immediate financial and practical needs does not seem to have been given. Mr Parford does not offer any effective challenge to Mr McGrath’s evidence to the effect that once liability had been admitted a request for a substantial interim payment to meet immediate needs could and would have been entertained within weeks of the admission of liability without the need for further expert evidence. On the evidence offered by Wolferstans this might well have been a solution to many if not all immediate needs and it was not mentioned to Mrs Davis.
  8. I am not aware of any obstacle to receiving a substantial interim payment without delay after the admission of liability (and I agree that Dr Miles’ report would have established the need for that) followed by a further, more substantial payment when expert evidence was complete. Mrs Davis was advised on the basis that expert evidence would be needed before any interim payment could be needed, which was not the case. Oliver’s needs and potential short-term solutions were not adequately explored.
  9. Mr Parford also justifies pressing on with expert evidence on quantum in order to minimise delay overall. However the evidence of Mr McGrath (which I prefer, as it tends to be more precise and forthright than Mr Parford’s) is that the great majority of catastrophic clinical negligence cases are publicly funded and that once liability is established perfectly adequate progress can be and is made with public funding, both in relation to interim payment and final resolution.
  10. Once the arguments about delay fall away (and to my mind they do) the question becomes whether there is merit, in a given case, in incurring costs on quantum evidence before it is known whether liability will be established. At the time Mr Parford put the chances of doing so at 60%, leaving a 40% chance that the cost of obtaining expert quantum evidence would be wasted.
  11. Mr Parford says that in an unspecified number (but on the evidence, a minority) of clinical negligence cases, liability and quantum must be addressed together. What Mr Parford does not say is that this was, in November 2009, seen as one of those cases. Presumably that would not have been known until the letter of response was received, so the point does not assist him in justifying the instruction of quantum experts before then. If however Mr Parford did believe that quantum evidence would be needed in any event, the LSC could have been told that. I have seen nothing to suggest that if it were demonstrated that quantum evidence would be needed in any event, the LSC could not have been persuaded to fund it without delay. As it was the LSC simply objected to a potential waste of costs.
The November 2009 Advice
  1. The reasoning which I have been unable to accept was incorporated into the advice given to Mrs Davis in November 2009. The attendance note of Ms Williams’ telephone conversation with Mrs Davis on 10 November 2009 indicates that Mrs Davis had formed the impression that the Defendant was deliberately dragging its feet and that the LSC was going to acquiesce in that, so delaying the prospect of an interim payment to meet Oliver and his family’s immediate needs. None of that was a fair reflection of the position, but Wolferstans did not correct her misapprehensions. Wolferstans rather advised Mrs Davis that her concerns could be addressed by changing to CFA/ATE funding.
  2. The letters of 10 November 2009 reinforced this incorrect perception of delay by the Defendant, tolerated by the LSC. They did not explain the obvious logic behind the LSC’s reluctance to incur potentially irrecoverable cost on expert quantum evidence. They gave the impression that progress toward an interim payment depended entirely upon obtaining expert evidence as soon as possible, which was not the case. The possibility of obtaining an interim payment for immediate needs without such evidence seems to have been overlooked.
  3. The second letter of 10 November incorporated a statement to the effect that financial limitations imposed by the LSC would be “quite likely” to prevent Wolferstans from properly managing Oliver’s claim. Even if I did not accept Mr McGrath’s evidence to the effect that the great majority of cases of this kind are managed perfectly well on public funding (and I do) I would have difficulty in accepting that statement.
  4. Nor am I convinced by Mr Parford’s evidence defending the advice in those letters that LSC restrictions on fees would hamper the choice of appropriate experts. He has not contradicted Mr McGrath’s evidence that at least three of the quantum experts he instructed regularly act in publicly funded cases. I cannot accept a suggestion by Mr Williams that one must distinguish between liability and quantum experts for those purposes. I have no evidence to support that. Given that in 2009 the great majority of catastrophic clinical negligence claims were publicly funded, the problem cannot have been as severe as Mr Parford suggested to Mrs Davis, to the extent that it existed at all.
The ATE Premium
  1. The decision to enter into a CFA and to take out ATE cover was in this case one effectively indivisible decision. For that reason the CFA and the ATE arrangement stand or fall together. I cannot accept Mr Williams’ submission that the ATE premium can justified in any event because of the Part 36 risk. It was just one of the factors to be considered. I accept Mr McGrath’s evidence that the Part 36 risk (again, not challenged to any real effect) was in this case a relatively small risk comparable to the possibility of, for example, a split or percentage costs order.
  2. It does seem to me that the CFA was rushed through without giving thought to first setting up ATE insurance and arranging a CFA with counsel. Mr Parford seems to have been entirely confident that he could arrange both, and in due course he did, but the position might have changed had a strong letter of response denying liability been received before either or both were in place. I do not know the terms of the delegated authority scheme referred to by Mr Parford but a strong letter of response would hardly be something an insurer would ignore. I have already accepted that Wolferstans had agreed to, and could, bear all unpaid disbursements but I do not believe that they were anticipating, in a contested case, bearing all the fees of counsel unwilling to act under a CFA and I have no idea whether they would have been able to do so, at least without Mr Parford’s partners being persuaded that they had no choice.
  3. More significantly, it seems to me that Mr Parford overlooked a danger to Oliver attendant on a challenge to the ATE premium.
  4. It was accepted before me that Oliver’s liability (though his Litigation Friend) to pay the ATE premium is a personal liability owed directly to the insurer. It is not a disbursement subject to any “ring-fencing” arrangement by virtue of the CFA or the November 2009 letters. Mr Parford has instead given evidence to the effect that he had good reason to believe that no challenge would be made to the ATE premium; that in the unlikely event that a successful challenge was made, the insurer would, for sound commercial reasons, accept the reduction itself rather than demand payment of the irrecoverable part from Oliver; and that Wolferstans would cover it if necessary.
  5. Mr Parford’s evidence does not in my view meet the point. His evidence in relation to an agreement by the NHSLA not to challenge the calculation of a “Pursuit” premium is entirely lacking in specifics and inadequate to establish its existence. It also sits oddly with his example of an NHSLA challenge to such a premium after 2013.
  6. Even if any such agreement had been made it would not have precluded any challenge whatsoever to an ATE premium. That is because the calculation of the premium may not be the issue. I have myself on assessment reduced at least one ATE premium where the calculation was not challenged but one of the factors incorporated into the calculation (the assessment of the prospects of success) was. The agreement referred to by Mr Parford would not in any event have justified the assurance he takes from it.
  7. Evidently Mr Parford assumed, in 2009, that the ATE insurer would bear any premium shortfall in any event. I can understand the basis for that assumption based on his personal experience of the way in which ATE insurers operate and the obvious potential difficulties for insurers attendant upon seeking to recover from the assured any part of a premium that had been judged to be unreasonable.
  8. The fact is however that ATE insurers do, for equally obvious reasons, reserve the contractual right to seek payment of the full amount of an ATE premium and there is no guarantee that they will not exercise that right. If an ATE premium is challenged (as in this case) on some ground other than that it is unreasonable in amount, an insurer might take the view that it has no good reason to waive its rights.
  9. It is notable that despite an indication that evidence from the insurer would be obtained, I have seen nothing from the insurer in this case to confirm that it would be willing to waive any part of its contractual rights.
  10. More was at stake than a challenge to the amount of the ATE premium. As Mr Munro says, there was at least the possibility of a percentage costs order under which only part of it would be recoverable. Further, Wolferstans, in recommending a change at this particular point, seem to have overlooked the likelihood that the Defendant would (as, predictably, it did) object to the change and would (as, predictably, it has) object, on assessment, to the ATE premium in its entirety.
  11. I do not suggest that the mere possibility of a future challenge to an ATE premium can render it unreasonable to switch from public funding to a CFA/ATE arrangement. It is just one of the risks (as in Howarth v Britton Merlin) to be taken into account. Nor does the Defendant seek to rely upon its own challenge to the ATE premium to argue that the premium must, being open to challenge, have been unreasonably incurred. That would be an entirely circular argument.
  12. The point is that this particular case the timing of the change was such as to make a challenge to the entire ATE premium more likely than not and that there were in the circumstances sound reasons to anticipate that such a challenge would succeed. In LXM v Mid Essex Hospital Services NHS Trust any potential challenge to any part of the premium was (in effect) addressed by including the ATE premium in the “ring-fencing” arrangement. Here, it was not.
  13. In summary, in following the advice given by Wolferstans in November 2010 Oliver (through Mrs Davis) undertook a personal liability to pay a substantial ATE premium in circumstances where it might well be wholly or partly irrecoverable, leaving him with a very substantial potential reduction to his damages.
  14. I do not doubt Mr Parford’s sincerity when he says now that Wolferstans would bear the shortfall should the ATE premium be successfully challenged, but that does not assist him. First, no such assurance was given at the time. The issue was not addressed. Mr Parford’s advice to the effect that Oliver’s damages would be completely ring-fenced was not a guarantee or an indemnity in relation to the ATE premium. It was no more than advice which overlooked a risk to which Oliver would be exposed.
  15. Second, I am unable to accept that Wolferstans would, as a matter of course, fully indemnify their client against an ATE liability of in the region of £100,000. That is the sort of issue that may be referred to insurers. Mr Parford does not suggest that he discussed and agreed anything to that effect with his partners at the time. Nor would he have done, given that the possibility that they might have to so did not occur to him. As far as I can see he is speaking only for himself.
  16. For those reasons I have concluded that Mr Parford was wrong to advise his client on the basis of an assumption that the ATE premium would be immune from challenge or that Oliver would not have to bear any shortfall. Mrs Davis should have been told that there was a risk that the ATE premium might be challenged, and what the consequences of that would be for Oliver.
  17. The argument that the CFA/ATE arrangement was in all the circumstances advantageous to Oliver seems to me to be fatally undermined by this omission. The key advantage of the arrangement, obviously of great importance to Mrs Davis, was that Oliver’s damages would be “ring-fenced”. They were not.
  18. The Part 36 risk was (I have accepted) relatively small. The likely amount of any adverse costs orders that might have reduced Oliver’s damages under the statutory charge was limited. The ATE risk seems to me to have been more substantial than either.
Other Weaknesses in the “Ring Fencing” Arrangement
  1. There were other breaches in the “ring-fencing”, which I believe Mr Parford overlooked. I should say that I attach much less weight to them, and on their own they would probably not be decisive, but they do form part of the overall picture, they have been raised by the Defendant and I should address them.
  2. I agree with Mr Williams that on the authority of Jones v Wrexham Borough Council I should read the CFA not in isolation but together with Mr Parford’s letters of 10 November 2009. On that basis his 10 November 2009 letters can add to the express terms of the CFA of 26 November 2009. To my mind however they do not displace them without making some express provision to that effect.
  3. I am not persuaded by Mr Williams’ argument that the “bespoke terms” of the 10 November letters displace the “standard” Law Society terms incorporated in the CFA. The CFA terms are what they are. The letters of 10 November 2009 explain what will happen if the relationship between solicitor and client continues to the end of the claim, successful or unsuccessful. They do not address what will happen if the relationship is terminated by either party, or Mrs Davis does not accept Wolferstans’ advice. The CFA does.
  4. Nor does it seem to me that the ATE policy’s terms are, as Mr Williams argues, ex post facto. Wolferstans cannot on the one hand rely on its key terms (for example to indemnify Oliver against the Part 36 risk) and on the other hand say that other terms are ex post facto and irrelevant. It was up to Mr Parford to make good on his promise to obtain ATE insurance. This policy must be taken to be the best he could get, so he must bear responsibility for its weaknesses as well as accepting credit for its strengths.
  5. Between them the CFA and the ATE policy do provide for certain circumstances in which Oliver would be left with a personal liability for costs and disbursements. I am sure that that was never Mr Parford’s intention but that was the contractual position. I take the view that, in November 2009, the risk of such circumstances arising can properly be described as minimal or even speculative, but it would have been appropriate to advise in respect of it.
  6. The point also has some bearing on the autonomy claimed as an advantage of a CFA/ATE arrangement. To my mind Mrs Davis was not, by switching from public funding to the CFA/ATE arrangement, really gaining autonomy: she was passing a degree of control from the LSC to Oliver’s solicitors and ATE insurers.
  7. Because of the conclusions I have reached I am also unable to accept Mr Williams’ argument in relation to the costs of assessment. Wolferstans are not simply representing their own interests in these detailed assessment proceedings: they are defending an ATE premium which falls outside their “ring-fencing” arrangement. I have made an order for costs against the Claimant, not Wolferstans. I appreciate that they may well choose to indemnify him, but that was not part of the arrangement entered into in 2009. Again, the “ring-fencing” was not complete.
  8. For the reasons I have given, I have concluded that the decision made in November 2009 to switch from public finding to a CFA, backed by ATE insurance, was not a reasonable decision, nor to Oliver’s advantage. The success fee and ATE premium must be disallowed.

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