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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Legal Aid Area No 1 (London) Appeal Committee v McCormick [2000] EWHC Admin 351 (26 May 2000) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2000/351.html Cite as: [2000] EWHC Admin 351, [2000] 1 WLR 1804 |
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Case No CO/5099/98
IN THE HIGH COURT OF JUSTICE QUEEN S BENCH DIVISION
CROWN OFFICE LIST
Royal Courts of Justice
Strand
Friday 26 May 2000
The Applicant in this case was an Executive director of Atlantic Computers plc. He held that position during the take-over of that company by British and Commonwealth Holdings in 1988. Unfortunately that transaction resulted in both companies being placed in administration. Thereafter the Applicant faced four separate sets of legal proceedings. He was prosecuted and acquitted of insider dealing; he was the subject of an application for disqualification as a company director made by the Secretary of State; and he was sued in two civil actions arising out of the take-over. All these proceedings have now come to an end.
Between 28 February and 24 July 1996 he made four applications for legal
aid. By that stage he had apparently exhausted his own resources and borrowed
some £125k towards his legal costs. These applications were granted. In
late 1996 the Applicant took out a loan from Barclay's Bank of £7,500. He
says that this was used to repay at least in part two loans he had entered into
to help finance his legal cases. He had borrowed £25000 from his daughter
and £5,514 from a company called Cross Medical Ltd. The money he obtained
from Barclays was, he claims, used to repay his daughter £2,500 and the
company £5,000. His daughter apparently needed money to carry out certain
repairs on her house. The Applicant says that the offer of the loan from
Barclays was unsolicited. He also said that he had passed on information about
the loan to his then solicitor, and assumed she would tell the legal aid
authorities if it was required.
In February 1998 an investigation into the Applicant's eligibility for legal
aid was carried out by the Legal Aid Board's Special Investigation Unit (the
"SIU"). The Applicant voluntarily disclosed the loan in the course of that
investigation when asked about his financial details. Following the
investigation, the Applicant's legal aid certificates were revoked on the 7
September 1998 by the Board's London Area Director, and an appeal to the
respondent Committee was dismissed on the 6 November 1998. The effect of the
revocation was to render the Applicant liable not only for future costs but
also retrospectively for all the legal costs he had incurred. That sum is very
large, possibly amounting to some half a million pounds. In any event, it will
make the Applicant bankrupt.
The Respondent's decision.
The decision to revoke the certificates was made pursuant to Regulation 78 of
the Civil Legal Aid (General) Regulations 1989. It provides as
follows:
Power to revoke or discharge for abuse of legal aid
(1) Subject to paragraph (2), the Area Director may revoke or discharge a
certificate where, as a result of information which has come to his knowledge,
whether by a reference from the court under regulation 68 or otherwise, it
appears to the Area Director that the assisted person has-
(a) in relation to any application for a certificate (whether for the same or
different proceedings), made an untrue statement as to his financial resources
or has failed to disclose any material fact concerning them, whether the
statement was made or the failure occurred before or after the issue of the
certificate and notwithstanding that it was made or occurred in relation to an
application to another area officer; or
(b) intentionally failed to comply with these Regulations by not furnishing to
the Area Director or the solicitor any material information concerning any
matter other than his financial resources; or
(c) knowingly made an untrue statement in furnishing such information.
(2) No certificate shall be revoked or discharged under paragraph (1) by reason
of any such mis-statement or failure as is referred to in paragraph (1)(a) if
the assisted person satisfies the Area Director that he used due care or
diligence to avoid such mis-statement or failure.
The Committee concluded that the loan which the Applicant had failed to
disclose constituted a "material fact" concerning the Applicant's financial
resources within the meaning of Reg. 78(1)(a). They also expressly considered
and rejected the submission that he had acted with due care and diligence under
Reg. 78(2). As to the appropriate sanction, the Committee said this:
"The Committee considered it was appropriate for all the certificates to be
revoked having considered counsel's representations regarding the potential
bankruptcy. It did not consider that the probability of bankruptcy, the
appellant's liability to pay legal costs to date and his potential liability to
pay costs of other parties to the action was sufficient to prevent the exercise
of the Committee's discretion to revoke certificates.
The Committee further considered whether it was appropriate to discharge rather
than revoke the certificate, but considered that non disclosure was
sufficiently serious to warrant revocation."
Grounds of Review
Originally a number of grounds of appeal were advanced, but only two grounds
have been pursued before me. First, it is alleged that the Committee erred in
law in concluding that the failure to disclose the loan constituted a failure
to disclose a material fact within the meaning of Reg.78. Second, it is
submitted that the Committee wrongly approached the question whether revocation
was an appropriate sanction and, in concluding that it was, reached a decision
which was Wednesbury unreasonable. I shall consider the two matters in turn.
Did the matters constitute a material fact?
It is plain from the Regulation that the assisted person is not obliged to
disclose every fact but only a material fact. (It is not alleged in this case
that any untrue statement was made.) However, that obligation arises whether
the matter occurs before or after the issue of the certificate. What does the
concept "material" mean in this context? Mr. Beloff Q.C. for the Applicant
submitted that whether the word was given its ordinary meaning (and his primary
argument was that it ought to be), or whether it was treated as a legal term of
art, a fact was material only if it actually affected the assisted person's
eligibility for legal aid; if it neither affected his entitlement nor the
amount of any contributions he might have to make, then it was immaterial and
there was no obligation to disclose the fact at all. Mr. Beloff relied upon the
decision of Evans L J. in Jones v Chief Adjudication
Officer[1994]1WLR 62. That case concerned the construction of section
53(1)(a) of the Social Security Act 1986 (now repealed). This provided as
follows:
"(1) Where it is determined that, whether fraudulently or otherwise, any
person has misrepresented, or failed to disclose, any material fact and in
consequence of the misrepresentation or failure-(a) a payment has been made in
respect of a benefit to which this section applies..... the Secretary of State
shall be entitled to recover the amount of any payment which he would not have
made....but for the misrepresented or failure to disclose."
The learned judge said this:
"The printed heading to form B1 refers to information "which the department
needs to work out your benefit." That may be a sufficient and convenient
definition of "material fact" for all practical purposes when applying section
53."
Mr. Beloff says that Jones is similar to this case since it involved the
award of a benefit. However, I do not see that this approach assists his
argument. It seems to me that, following Evans L.J.'s approach, the information
about the loan would indeed be required to work out the Applicant's entitlement
since it is part of the financial information from which his means are
determined. The fact that it may not affect an entitlement already determined
does not mean that it is irrelevant to the working out of the entitlement.
Mr. Beloff also relied upon a decision of the Privy Council in Mutual
Life Insurance Company of New York v Ontario Metal Products Ltd.
[1925]A.C.344 in which, in the context of an insurance case, the word
"material" was construed as meaning any factor which actually would have
affected the decision of a reasonable man.
Lord Salvesen, giving judgment for the Privy Council said this:
"....it is a question of fact in each case whether, if matters concealed or
misrepresented had been truly disclosed, they would, on a fair consideration of
the evidence, have influenced a reasonable insurer to decline the risk or to
have stipulated for a higher permium"
However, I gain little assistance from this case since the concept was
construed in a particular statutory context (in that case the Ontario Insurance
Act)
The respondents submit that even on the applicant's approach, the applicant
fails on the grounds that the information withheld would indeed have affected
the applicant's contribution. I return to consider that point below. More
importantly, the respondents submit that the applicant's construction of
"material" is incorrect. Ms. Lang Q.C. submits that the proper test is that
formulated by Collins J. in R v Legal Aid Board, ex parte John
Doran (Transcript, 3 July 1996) and followed by Laws J. in R v
Legal Aid Committee, ex parte Parsons (Transcript, 17 November 1997).
Collins J. said this:
"There has been some argument as to the meaning of and the test that should be
applied in relation to what is material. I have already indicated that, in my
judgment, materiality does not depend and cannot depend upon whether the
material in fact makes any difference. It seems to me that a fact is material
for the purposes of regulation 78 if it is something which is capable of
influencing the thinking of a reasonable legal aid official when assessing
resources for the purposes of the grant or refusal of legal aid. That has to be
judged objectively. It is not what the applicant believes to be material or
even believes to be capable of being material...."
I confess that I do not wholly understand what "influencing the thinking" means
in a context where the assessment of resources is concerned. Such assessment is
in part a matter of putting a value on assets and partly a matter of
arithmetical calculation. The receipt of any capital sum by the assisted
person, or any change in income, however small, would surely "influence the
thinking" when assessing resources since it would actually change the sum so
calculated. Small changes may not influence the thinking in respect of any
entitlement to legal aid itself, but they must affect the thinking in
connection with the actual calculation of resources.
The potential ambiguity in this analysis is demonstrated by the submissions
of the respondent in this case, who were relying on the definition. At one
point Ms. Lang contended that it obliged the applicant to provide any financial
information that was not de minimis, thereby giving the word "material" little
significance, equating it with anything other than de minimis; at another, she
said that a fact was material if it might influence the legal aid board in
deciding whether to underwrite the litigation. This seems to me to be a wholly
different test, closer to - but still different from - the approach urged upon
me by Mr. Beloff.
In support of her contention that any change in circumstances should be
notified, Ms. Lang relies upon the judgment of Beldam L.J. in the Court of
Appeal in Regina v Legal Aid Board, ex parte Parsons [1999] 3 All E.R 347,
353
when he said this:
"In my view Laws J. was right to describe the relationship between an applicant
for legal aid and the Board as one requiring the utmost good faith on the part
of the applicant."
Later he said this:
"In my view the position of the Legal Aid Board is comparable to that of an
insurance company induced to underwrite a risk when there has been a failure on
the part of the insured to disclose a matter which would influence the mind of
the prudent underwriter in deciding whether to underwrite the risk and if so on
what terms. There seems to me to be a close parallel in the position of the
Board who have to decide whether to underwrite costly litigation by the use of
public funds."
Both parties accept that his Lordship was not intending to draw a precise
analogy with insurance law, and in my view that is clearly right. However, the
Respondent says that this analogy supports their contention that any change in
circumstances should be disclosed (save perhaps for de minimis changes) and
that "material" should be construed accordingly. Ms. Lang further supports this
construction by relying upon the fact that on the means assessment form it is
stated that :
"I understand that I must tell you immediately if there are any changes in my
or my partner's financial circumstances".
Similarly, the wording on the back of the legal aid certificate says:
"If your income or outgoings change, or your capital increases, write and tell
the Legal Aid Area Office immediately".
It is to be noted, however, that Beldam L.J.'s analogy with insurance
principles focuses on whether the information might affect the decision to
undertake the risk, which is rather different to the question whether it would
affect the assessment of resources.
During the course of argument my attention was drawn in passing to reg. 11 of
the Civil Legal Aid (Assessment of Resources) Regulations 1989,
and it was agreed by the parties that this may have some bearing on the
construction question. Accordingly I gave the parties the opportunity to make
written submissions on this and any other similar regulations. This they have
done. Regulation 11 provides as follows:
"The person concerned shall forthwith inform the Area Director of any change in
his financial circumstances which has occurred since the original assessment
was made and which he has reason to believe might affect the terms on which the
certificate was granted or its continuance."
In the course of these further submissions my attention was also drawn to
Regulation 66 of the Civil Legal Aid (General) Regulations i.e. in
the same set of regulations as the relevant regulation 78. This imposes a duty
on an assisted person to notify his solicitor of any change in circumstances in
similar terms to the duty imposed to notify the officer under regulation 11:
"The assisted person shall forthwith inform his solicitor of any change in his
circumstances or in the circumstances of his case, which he has reason to
believe might affect the terms or the continuation of his certificate"
Although regulation 11 is found in a different statutory instrument to
Regulation 78 they came into force at the same time and were made pursuant to
the same statutory power, namely section 34 of the Legal Aid Act. In any event
regulation 66 is found in the same regulations. Accordingly, Mr. Beloff
contended that the legal aid scheme should be construed harmoniously, and one
set of regulations should not be construed in isolation from the others. Ms.
Lang submitted that no assistance was to be obtained from these regulations,
and that regulation 78 should be construed in a self contained way. She also
submitted that there would be difficulties if one construed regulation 78 by
reference to regulation 11. In particular, she contended that the position of
someone making an untrue statement would be different to that of someone who,
after the grant of a certificate, failed to disclose a change in circumstances
where he did not have reason to believe that it might affect the terms or
continuation of his certificate. I do not see anything odd about that. It seems
to me that any statement made to the legal aid authorities must be accurate,
and the applicant for legal aid must ensure that no statement made is untrue.
Sometimes it will be untrue because of a failure to disclose some material
financial information. But once proper and accurate statements have been given,
the question of what further information is required thereafter can in my view
perfectly sensibly be made to depend upon whether the applicant has reason to
believe the that information might affect the eligibility or level of
contributions.
Accordingly, I prefer the argument of Mr. Beloff. It seems to me that the legal
aid scheme should be assumed to be structured in a way which is internally
self-consistent. It would be bizarre, as well as being grossly unfair, to
specify with particularity the circumstances in which an assisted person should
report a change in his or her financial position, as regulation 11 does, and
yet penalise that person under regulation 78 even although the assisted person
has done precisely what regulation 11 requires.
Accordingly, on this approach to the construction issue, the duty to inform the
Board of a change in circumstances will arise whenever the applicant has reason
to believe that the change might affect either the continuation of his
certificate or the terms on which it would be continued. To link this to the
language of regulation 78, a fact will be material within the meaning of that
provision whenever the applicant has reason to believe that it might
affect- not would affect- either his eligibility or his level of
contributions. This of course imposes a fuller obligation to disclose than that
for which Mr. Beloff was contending: it is enough that the assisted person has
reason to believe that it might make a difference, not that it necessarily
would do so. The test will be an objective one; if objectively viewed there is
reason to believe that the information might make a difference, then it must be
disclosed even although the applicant may not appreciate that fact.
It seems to me that this provides a sensible principle for determining
when an assisted litigant should be required to provide information of changed
circumstances. Moreover, I do not consider that it is inconsistent with the
duty of good faith referred to by Beldam L.J. in the Parsons case. It is
true that it imposes a narrower duty than the Board seeks to impose in the
documents it issues, but in my opinion it is clear that the Board cannot by its
actions alter the meaning or effect of the statutory provisions.
Should the information have been disclosed in this case?
In my opinion it is plain that the information about the loan was such that
the applicant had reason to believe that it was capable of affecting either his
eligibility or his contributions. Mr. Beloff contended that the Committee must
be taken to have accepted that disclosure would not in fact have made any
difference to the position. He relies upon a witness statement from Richard
Briden, a barrister who was a member of the Appeal Committee, and who stated
that the sum of £7,500 was "significant notwithstanding that the financial
eligibility apparently would not be altered". Ms. Lang submitted that Mr.
Briden was referring only to eligibility itself and not the possibility that
the amount of any contributions from the applicant might have been affected.
Nowhere does Mr. Briden say this, and I would accept, as Mr. Beloff submits,
that I should assume that the view of the Committee was that in fact the
disclosure would have made no difference. Had I accepted Mr. Beloff's
construction of "material", it would follow, as Mr. Beloff submitted, that the
information was not material and that accordingly there was no breach of
regulation 78.
However, whilst in the event the information withheld may have made no
difference in fact, I do not believe that the applicant had reason to believe
that it was not capable of making a difference. First, his counsel representing
him before the Committee accepted that it might possibly have affected the
amount of any contributions the applicant would have to make. Second, the
amount of the loan was significant in legal aid terms given that, certain
exceptions apart, a person is only entitled to retain a small amount of capital
if legal aid is to be awarded in full. Finally,
the applicant has sworn an affidavit in these proceedings in which he said
that he had passed information about the loan to his previous solicitor on the
assumption that she would pass it on to the legal aid board if necessary.
Plainly that indicates that he himself recognised that the information might be
relevant for the Board to know. Whilst his own perception is not strictly
relevant to the objective question whether he did in fact have reason to
believe that the information should be disclosed, it does strongly reinforce
the common sense view that it should.
The sanction
For the reasons I have given, I am of the clear opinion that the applicant
ought to have disclosed the loan to the Board. It was a material fact that he
was obliged to inform the Board about, and his failure to do so attracted the
application of regulation 78, which I have set out above. This is found in Part
X of the regulations headed "Revocation and Discharge of certificates".
Regulation 76 deals with discharge on financial grounds, and regulation 77 with
discharge on the merits. Discharge under the regulations may arise where the
Area Director receives information from the assisted person or elsewhere which
causes him to reassess the grant of the legal aid certificate unfavourably.
Revocation is not available under these provisions. Regulation 78 is headed
"Power to revoke of discharge for abuse of legal aid". It is clear that the
Area Director who finds that an applicant has provided untrue financial
statements or withheld material facts has three options: to do nothing, to
revoke the certificate or to discharge it. Regulation 74(2) identifies the
distinction between revocation and discharge: the former operates
retrospectively so that it is as if the certificate had never been granted; the
latter operates only from the date of discharge so that the certificate remains
valid in respect of earlier expenditure.
In the ex parte Doran case referred to above, Collins J. commented that
if an applicant reasonably believed that a matter was not material, and did not
disclose it for that reason, then he would not be likely to be penalised under
regulation 78 at all. In the Parsons case at first instance Laws J.
indicated that he was not sure that Collins J's approach on this point was
correct, and in the Court of Appeal in that case Beldam L.J. said that he
shared the reservations of Laws J. (see p. 353 a-b.) As he pointed out, the
powers under regulation 78 apply both to negligent as well as intentional
non-disclosure. In the Parsons case itself a certificate was
revoked when the applicant had failed to reveal that he had some £3,700 in
the bank, notwithstanding that the Committee accepted that there had been no
deliberate intention to deceive it. The applicant did, however, have personal
use of the money. The Court of Appeal held that the Committee was entitled to
reach that decision, and that the court should not interfere with the decision
unless it could be attacked as unreasonable on ordinary public law grounds.
The reasons for the decision to revoke in this case were given by Mr. Briden
in his affidavit. He has pointed out that the particular Committee in this case
was highly experienced and that it considered carefully both the possibility of
revocation and discharge, having first satisfied itself that it would not be
appropriate to do nothing. The Applicant submitted that the way in which the
Committee had expressed itself in its approach to the question of sanctions, in
the passage I have set out above, suggests that the Committee had approached
its task by assuming that revocation was appropriate unless there was a good
case to impose the more lenient sanction of discharge. Mr Briden expressly
denied this. He said that the Committee had concluded that the sums involved
were significant, notwithstanding that the applicant had told the Committee
that he had used the loan to pay off other creditors. Furthermore, it was the
applicant's choice to obtain the loan to satisfy some of his creditors.
Mr. Beloff submits that these reasons do not justify the harsh sanction of
revocation. He says that unlike, for example, the Parsons case, the
applicant was no better off as a result of the loan: he had simply replaced two
creditors by one, namely the bank. Indeed, insofar as he now had additional
interest payments to make to the bank, he was worse off. He also makes the
point that the applicant did not dishonestly seek to withhold the information
and that he had disclosed it voluntarily to the SIU when he was asked for
information. He contends that neither of these factors is specifically referred
to by Mr. Briden, as factors favouring the applicant, yet they are, he says,
highly material to the proper exercise of discretion. In addition, the
consequences of the decision to revoke are, says Mr. Beloff, particularly
severe in this case given the enormous costs already incurred by the date of
revocation. He reminds me in particular of the decision of the Court of Appeal
in R v Metropolitan Borough Council ex parte Hook [1976]1 W.L.R.
1052 where a sanction wholly disproportionate to the offence was quashed by the
court, and submits that here the sanction was disproportionate to an extent
amounting to Wednesbury unreasonableness. Ms. Lang, for her part, contends that
the decision was one which the Committee was entitled to reach, and that I
should not substitute my opinion for that of the Committee even if I were
minded to disagree with the Committee.
In my opinion, in determining which sanction is appropriate it is highly
relevant for the Committee to consider the degree of culpability. In order to
do this, it should ask itself whether the applicant has deliberately and
dishonestly deceived the legal aid authorities by choosing to conceal
information, or whether the failure to inform was an innocent, albeit
negligent, oversight. In considering this question it may be relevant whether
the applicant has personally benefited from the non disclosure. Whilst there
will plainly be cases where conduct short of the deliberate and deceitful
withholding of information can justify revocation, as the decision of Beldam
L.J. in the Parsons case makes clear, it is in my opinion still
important to bear in mind that the regulations have not considered revocation
to be the appropriate sanction in every case where the duty to disclose has
been infringed. Accordingly, in my view if the Committee is going to revoke a
certificate notwithstanding the lack of deliberate concealment, it should
identify the factors which justify that step being taken. In this case Mr.
Briden says in his affidavit that the Committee concluded that the
non-disclosure in this case was considered to be a serious non-disclosure, but
the only factor expressly relied upon to justify that conclusion was the size
of the loan. It is not clear either from the decision itself or the affidavit
of Mr. Briden whether the Committee did indeed accept that the applicant had
not deliberately sought to conceal the information. If they concluded that he
had deliberately concealed it, or even that this was the only reasonable
inference to draw given the size of the loan, then the decision to revoke is
plainly justified. Similarly, if they considered that the fact that he had
obtained the loan of itself suggested that his financial circumstances must be
better than he had revealed (and there is some suggestion in Mr. Briden's
affidavit that they may have reasoned in that way) then that also might lead
them, after appropriate further inquiries, to question the good faith of the
applicant. If, however, they accepted his submission that there had been no
intention deliberately to conceal the information, and that he had not
benefited from the loan in any way, these are factors that ought to be put
clearly in the balance in the applicant's favour when deciding which sanction
is appropriate. In my judgment the Committee cannot simply leave those issues
in the air since their resolution in Mr. McCormick's favour could be beneficial
to him. At the very least they would need to make it plain that in their view,
even if satisfied that the applicant's explanations were entirely truthful,
they would still treat the failure to disclose as sufficiently serious to
warrant revocation. I do not believe that they have done that in this case.
It follows that the reasons given by the Committee through Mr Briden raise
serious doubts about whether they did take into consideration all potentially
relevant factors when determining which sanction to impose. In particular, if
they had accepted the applicant's explanation for the non-disclosure, or were
prepared to assume in his favour that his explanation was true, then in my
judgment they would have had to weigh those features on which he laid emphasis
against their reason for treating the non-disclosure as being sufficiently
serious to justify imposing the sanction of revocation. They do not appear to
have done that. I am left with the uneasy suspicion that the Committee may have
harboured doubts about the veracity of the applicant's account and have been
influenced, if only subliminally, by those factors. In my opinion fairness to
the applicant required the Committee to seek to resolve those issues. If the
decision to impose revocation is based on a belief that there was a deliberate
intention to mislead the authorities, then in my view that should have been
made plain. For these reasons I quash the decision of the Committee and remit
the matter for reconsideration.