England and Wales High Court (Administrative Court) Decisions

1. There was procedural impropriety and unfairness in the manner in which the appeal was conducted and in particular the FRC failed to give the claimant an opportunity to deal with the conclusions which led to the appeal being dismissed.

2. In reaching the conclusion to dismiss the appeal the FRC made a number of errors.

3. The “Guidance: Exercise of Devolved Powers” (“GEDP”) issued in March 1999 applied by the FRC insofar as it dealt with the costs benefit test was ultra vires section 15(3)(a) of the Legal Aid Act 1998.

4. If the GEDP was intra vires, the FRC applied the cost benefit test as if, once the test had not been met, there was no discretion to do otherwise than dismiss the appeal.

The legal aid scheme as set out in the Legal Aid Act 1988, the Legal Aid Handbook, 1998/99 and the “Guidance: Exercise of devolved powers GEDP”.

“The Board takes the view that guidance on the factors to be taken into account when exercising a discretion may help to minimise variations and it is concerned that discretionary decisions should be both justifiable and consistent.”

“This guidance sets out the way in which the Legal Aid Board interprets and applies the statutory merits test for civil legal aid. It is not the intention of this guidance to set out rigid or legally binding rules as to how the test must be applied. The statutory tests are widely drawn and each application will be considered on its own merits. The statute provides a wide discretion to consider all the circumstances of the case which make it reasonable or unreasonable to grant legal aid. The intention of the guidance is to ensure that within the context of that wide discretion the Board achieves the best possible degree of consistency of decision-making, whether decisions are made by the Board’s area offices, by area committees on appeal or by franchisees acting under powers delegated to them by contract.”

“(b) a person may be refused civil legal aid if in the particular circumstances of the case it appears to the Board unreasonable that he or she should be granted civil legal aid (section 15(3)(a) [of the Act]). This is known as the ‘reasonableness test’.”

“The Board will seek to apply both limbs of the merits test in a way that is consistent with the purpose of legal aid, namely that publicly funded representation should be provided with a view to helping persons who might otherwise be unable to obtain representation on account of their means. Legal aid does not exist to support cases which the client would not sensibly bring, even if he or she had the means to do so. The Board therefore applies what is known as the private client test, namely that in general legal aid will only be granted in circumstances where a client of moderate means paying privately would be advised to litigate.

The notional private client being advised must be taken to be a person with adequate means to meet the probable costs of the proceedings, but not with over-abundant means, so that paying the costs would be possible, although something of a sacrifice. The private client approach is well established in practice and case law.

The private client test is a guiding principle, rather than an absolute rule. Sometimes the nature of the case may make it difficult or impossible to compare the position of the applicant to a private client of adequate means, e.g. where the issue is entitlement to a means tested benefit (see para. 7-03.10 below). Where a case does not satisfy the private client test, legal aid will usually be refused either on the legal merits test or the reasonableness test or both. Most of the guidance set out below can be seen as applications of the private client approach.”

“Litigation can be uncertain, so that any attempt to restrict legal aid to certainties or near certainties would be a denial to many applicants of an opportunity to obtain justice. The aim therefore must be not to be over-cautious, but not to grant legal aid for cases unless there is a reasonable prospect of success.”

“The reasonableness test in section 15(3) provides that a person may be refused civil legal aid if in the particular circumstances of the case it appears to the Board unreasonable that he or she should be granted legal aid. This is a wide and general test under which the Board can take into account all the factors which would influence a private client considering taking proceedings. Strictly, the reasonableness test is not a test at all, as it places no positive onus on the applicant. However, in practice the Board will always consider the reasonableness of the application before it is granted and must consider all questions of fact or law arising in the action, cause or matter to which the application relates and the circumstances in which the application was made (regulation 28).

…

The discretion under section 15(3) is wide on its face but there are well recognised circumstances in which the test is particularly relevant, and the most common cases are set out below.”

“Legal aid may be refused if the benefits to be obtained in any proceedings do not justify the likely costs. The question for the Board is whether the game is worth the candle (ex parte Angell, above). Cost benefit is one of the most important factors for a private client considering litigation. It is therefore a very important factor for the Board to consider, although it is not the sole factor, or necessarily the decisive one. It is something to put into the scales, together with the prospect of success and other relevant information.

There is no absolute right or wrong way to approach cost benefit. In money claims where costs usually follow the event one approach is as follows:

(a) Estimate costs of taking the claim to a contested first instance trial (costs here, of course, include any counsel’s fees, disbursements and VAT).

(b) Estimate amount recoverable if claim succeeds (taking into account any likely reduction due to contributory negligence or otherwise).

(c) Estimate prospects of success and prospects of successfully enforcing any order made against the other side.

If likely recovery is greater than likely costs, the application would not be refused solely on cost benefit grounds but these factors would be weighed together with the assessment of the merits. The extent to which the recovery exceeded costs would be a relevant factor if the merits were not particularly strong or if there were other factors casting doubt on the reasonableness of the application, such as uncertainty as to whether any order made could be enforced.

…

… However, the additional incentive of seeking to recover costs already expended might be an important consideration for the private client and therefore might justify the grant of legal aid, especially if the merits are strong and the costs already incurred are substantial compared to the cost of proceeding to trial. By contrast, if the merits are not strong, it is unlikely that a grant of legal aid will be justified, merely in the hope of recovering costs already expended.”

“The guidance given does not eliminate decision-makers’ discretion but requires it to be exercised justifiably in the way set out in paragraph 1.2 (above). Where the guidance states that legal aid (or ABWOR) is likely to be granted, it should be relatively easy to justify a grant but difficult to justify a refusal. Where it states that legal aid (or ABWOR) is unlikely to be granted or is likely to be refused, it should be relatively easy to justify a refusal but difficult to justify a grant. If it states that legal aid (or ABWOR) will not be granted then a grant will not be justified. These terms are an indication to the franchisee that the Board will need to see more or less information to demonstrate that the decision to extend, grant, or refuse was an appropriate exercise of the devolved powers in the circumstances of the case.” (24A)

“The guidance in this document is only rarely expressed in absolute terms. For example, guidance on civil legal aid is generally expressed as ‘legal aid is likely to be granted’ or ‘legal aid is unlikely to be granted’. This is because most of the decisions to be made in exercising the devolved powers are discretionary. However, the use of these positive and negative phrases indicates the outcome which is likely to be reached and justifiable. Nonetheless, the particular facts of certain cases may make it justifiable to grant or to refuse even where the guidance suggests that such a decision is unlikely to be justifiable. Each time a franchisee exercises a devolved power they must ensure that the reasons justifying the decision are set out in the subsequent application to the Area Office or on the costs claim, and are clear from the file.”

“A consistent quality of decision making does not rule out taking account of the particular facts of individual cases or the context in which they arise. For example, local authorities may differ in their willingness to take proceedings in the magistrates’ courts to stop a nuisance, leaving the individual to take the necessary proceedings themselves. Similarly, police forces may differ in their willingness to become involved in disputes between neighbours or partners. There might also be problems which result from dealing with a particularly difficult solicitor on the other side. It is right to take such factors into account, and on occasion they may justify different decisions, or actions, in otherwise similar cases. Area Offices will normally be fully aware of such local practice and will act accordingly.”

“2.3.3.1 Where a limitation is to be removed to allow the issue of proceedings, or to take further steps in the proceedings thereafter, the legal merits test and reasonableness test will again be applied. As part of the latter, the cost benefit test will be considered and, where the action includes a claim for damages, the matrix set out at 2.3.3.3 below will be used.

When proceedings are to be issued (or a certificate amended to take further steps thereafter) the solicitor will be in a position to discuss with, and advise the client as to, estimates of three key pieces of information: the predicted amount of any damages if proceedings are successful or the financial value of any property in dispute in the case (A); the prospects of success (P); and the estimate of costs (C).

2.3.3.2 Any estimate of costs should include all costs incurred to date, and those which would be incurred if the matter proceeded. If reasonable prospects of settlement exist, they may be taken into account in arriving at the figure, unless proceedings have already been issued and the application is for an amendment of the certificate which will allow the case to be taken to trial in which case the estimate must include trial costs. The ‘C’ figure should consist of estimated profit costs (at legal aid rates with enhancement where appropriate) and estimated disbursements including counsel’s fees. VAT should be excluded. Further key information guidance, relating to A (damages or value) for claimants, and P (prospects of success) for defendants) is provided at paragraph 2.3.4 below.

2.3.3.3 An amendment to remove a limitation to allow proceedings to be issued or subsequent steps in the proceedings to be taken is likely to be granted in a civil non-family case which includes a claim for damages or other property, if consideration of the key information (i.e. A, P and C) produces a result on a risk based assessment in the following ranges:

2.3.3.4 If the ratios in the above matrix are not satisfied, then the solicitor will need to justify why, in the circumstances of the case it is nevertheless reasonable for legal aid to continue. This will include situations where there are considerations, in addition to damages or the amount in dispute, which make it reasonable to assume that a private client of moderate means would continue to fund the case. This is likely to include situations where, for example, the client’s home or livelihood are at serious risk, or there is some other remedy, such as an injunction, which is of equal or greater importance than the issue of damages.”

Chronology

“(i) Counsel’s fees: £2,000/£3,500 plus refresher of £1,000 plus VAT

(ii) Expert accountancy fees: £4,000 plus VAT

(iii) Professional costs of: £5,000/£7,000 plus VAT to end including:

(a) conference with Counsel

(b) conferences with client in preparation for the hearing

(c) preparation of witness summons and liaison with approximately 15 witnesses

(d) preparation of Court bundles and attendance on client, etc.

(e) attendance at hearing (1 day solicitor – 2 days clerk)

(f) attendances on the First and Second Defendant and all other miscellaneous attendances”.

It will be noted that no estimate of the trial length had been included, although (iii) (e) suggests a possible estimate of a 3 day hearing, with the clerk not being present on the first day. It would not be known to the reader with any degree of precision how many refreshers might be payable and whether the accountancy fees might be higher because of the anticipated length of the trial.

“it appears that the cost of the action would be out of proportion to any benefit likely to be obtained.”

It was also stated that insufficient information/documentation had been given and reference was made to the fact that RCPC had not supplied counsel’s opinion or a solicitors report.

“Further it is considered that the costs benefit matrix is no longer met. It is noted that in the Commission’s letter of the 28^th June 1999 costs were already in excess of £25,000. In solicitor’s CLSAPP8 dated 19^th September 2000 costs incurred are described as being between £23,000-£29,000. In the CLSAPP8 dated 29^th January 2001 the costs incurred to date are again given as between £23,000-£29,000. Costs to trial are estimated at £53,621. Damages are assessed at £60,000-£65,000 and prospects are described as moderate. Using these figures the Costs Benefit ratio, which states that in a moderate case damages must exceed costs by at least 2 times, is not met.”

“I cannot of course comment in any meaningful way on the costs incurred by my solicitors past or present, but I am somewhat surprised by the figure of £25,000 given as those costs incurred up to 1999. I say this for the following reasons:-

1. My ex-solicitors failed to gather in the evidence or the witness statements, this I did alone and at my own expense in an effort to speed things up and to save costs.

2. My ex-solicitors failed to appreciate, understand or act upon the quantity and quality of the evidence already made available to them. This evidence includes incontrovertible evidence that the Defendants were engaged in a number of illegal activities including, but not limited to, deceiving and defrauding the Inland Revenue and HM Customs & Excise. I understand that my present solicitors now fully appreciate the true facts [which are supported by original documentation produced by the Defendants themselves] and who shall write to you under separate cover.

3. In August 1999, my ex-solicitor admitted before a witness, that he had failed to conduct the case properly or speedily and unnecessary costs had been incurred.

4. In the 4 years my case was with my ex-solicitors, there had been no movement in the case meaningful or otherwise.

5. As the LSC knows, or should know, that my present solicitors hold a legal aid certificate to investigate the negligence of my ex-solicitors in their conduct of this case and are prepared, if matters so warrant, to bring proceedings for same.

I cannot therefore see how 4 years of [admitted and witnessed] inactivity and negligence can amount to £25,000. The LSC knows full well that I changed solicitors because of the many failures of my ex-solicitors.”

“The Committee are referred to the Unit’s letter asking the applicant to show cause for the specific reasons for discharge and the areas of concern for the Unit.

Costs to date – 23,000/29,000

Costs to include settlement – 42,621

Costs to include trial – 53,621

Damages – 60,000/65,000

The above information has been extracted from solicitor’s APP8 dated 29^th Jan 2001. In which they are also seeking an authority to instruct accountants to prepare a report at an hourly rate of £260 with a total fee to produce the report estimated at £4930.

NB Payments on Account which may include interim bills amount to almost £36,000.

Previously the certificate had a cost condition of 40k, the replacement certificate has a costs limitation of 11k. It therefore appears that solicitors estimate of costs incurred to date are on the low side and it is expected that this will effect the final costs figure as well.”

“1. While the Funding Review Committee was prepared to accept that the Assisted Person may have “reasonable to good prospects” (see Counsel’s Advice contained within his letter of 16^th February 2001) of success in the proceedings and that it was appropriate to apply the matrix ratio on the basis of damages exceeding costs by a ratio of at least 1:5 to 1, it nevertheless concluded that the costs to trial would be greater than Counsel’s most recent estimate of what the Assisted Person could expect to be awarded at trial namely £40,000 to £60,000 maximum (see paragraph 31 of Mr. Clive Rawlings’ written Advice of 9^th January 2001).

2. The Funding Review Committee believed that the costs estimate to and including trial of £53,975 (which sum includes the costs and disbursements of Cooke Matheson) is far less than the actual costs would be. Not having a costed case plan for consideration, the Members had to rely upon their joint expertise and in doing so concluded that the costs would not be less than £69,235. This sum is made up thus:-

Costs to-date £41,200

Preparation for trial and conduct of matter until then 50 hours)

Attendances 10 hours) £ 5,250

Letters and telephone calls 10 hours)

Add 50% mark up £ 2,625

Counsel’s Brief fee £ 5,000

Counsel’s Refreshers x 3 £ 3,000

Conferences £ 2,000

Solicitors attendance at trial £ 2,160

Expert (Accountant) £ 8,000

£69,235 Exc. VAT

3. It should be noted that the Funding Review Committee had differing and in part confusing figures before it regarding costs to-date and on its instructions the Committee Clerk sought and obtained clarification from the Assisted Person’s Solicitors recorded in her handwritten note which was referred to the Assisted Person both before and after the Funding Review Committee’s questions had been answered by Mr. Weaver. It was stated that the costs estimate of £53,975 included £26,000 paid to the former Solicitors whereas the actual figure paid by the Legal Services Commission was £36,000 allowing for disbursements paid to Russell Cooke and/or Counsel of £2,500. Thus £33,500 was spent before the Assisted Person’s present Solicitors had his Certificate transferred to them and their costs up to 26^th January 2001 were £5,200. This miscalculation added weight to the view of the Funding Review Committee that in the round the costs projection of the Assisted Person’s new Solicitors was inaccurate. Moreover since that date further substantive work has been required of them (eg. a Case Management Conference, a lengthy meeting with the Assisted Person on 16^th February 2001 etc.).

In the context of making an assessment of what the costs were likely to be in prosecuting the claim to trial, the Funding Review Committee were invited by the Assisted Person to discount by an unspecified percentage part of the costs that had been paid to the former Solicitors on the grounds that they had been negligent. As a matter of principle the Funding Review Committee approached this issue by reference to the Guidance contained in paragraphs 7-03.5 – 7-03.8 on pages 119/120 of the Legal Aid Handbook 1998/9 viz the estimated costs as defined of taking the claim to a contested first instance trial. In the light of the fact that the monies had already been paid out to the former Solicitors and further that there was no information as to the amount by which their costs should be reduced, the Funding Review Committee concluded that it would be inappropriate to apply a discount.

5. If the Assisted Person has suffered loss as a consequence of his former Solicitors having been negligent, that loss can and should be the subject of separate proceedings which might in turn provide the Assisted Person with a remedy.

6. In assessing the likely damages were the Assisted Person to be successful at trial, the Funding Review Committee relied on the assessment of Counsel set out in his Advice of 9^th January 2001 at paragraph 31 but noted that no provision for interest had been made. Nevertheless the Assisted Person raised the question of interest when addressing the Funding Review Committee and hence it felt that it was necessary to make an assessment in this regard. Having allowed for this, the Funding Review Committee concluded that the maximum that the Assisted Person might recover at trial would be £84,000 (Counsel’s maximum of £60,000 plus £24,000 of interest).

7. It should be noted that the Assisted Person urged upon the Funding Review Committee a higher damages figure namely one of £88,000 exc. of interest. However the Funding Review Committee was unimpressed by the Assisted Person’s representations in this regard and noted that as recently as last week he had been prepared to make a Part 36 Offer in the sum of £25,000.

8. It follows that when applying the matrix requirement of likely damages exceeding costs by 1 to 1:5, the test is not satisfied.”

Grounds 1 and 2- alleged procedural impropriety and unfairness and alleged errors in calculation

“17. The Claimant at great cost to himself attended the said hearing. The Claimant was not foretold of the questions he was expected to answer nor was he provided with any papers upon arrival save a single sheet titled “Committee Agenda Note” contained in “AT1”. The Claimant had expected that he would be required to satisfy the Committee about particular facts in the substantive case. At the hearing the Claimant was asked detailed questions on the expenditure of his first solicitors about which he knew very little. He was also asked question about his second firm of solicitors’ expenditure about which he knew very little. In failing to give the Claimant an opportunity to know and to prepare for the hearing the Committee/Commission acted unfairly. …

…

19. There was much confusion at the hearing as to what had been expended by the first firm of solicitors with several very different figures being mentioned. The Claimant was first told the £25,000 had been paid to his former solicitors, then that figure revised to £29,000 and finally £36,000. This was the first time that the Claimant was told that any money had been paid out nor were any details provided to the Claimant by the Committee. The Claimant had a direct interest in what monies were paid as it had a knock-on effect to the damages he was claiming which might be prejudiced by the payout. The Claimant was therefore deprived of an opportunity to preserve or maintain his interest.

…

24. By way of a letter dated the 27^th February 2001 [the decision letter] the Funding Review Committee informed the Claimant that the “test is not satisfied”. In that decision letter the Committee accepted that the Claimant had good prospects of success and that the Claimant might recover £84,000 but rejected the Claimant’s lawyers estimates of the costs to completion [£6,000]. The letter stated that the costs benefit ratio of 1:1.5 had not been met. At no time was the Claimant informed that such a “matrix ratio” existed let alone what it was. In any event, even if the Claimant had known of the “matrix ratio”, he was powerless to effect anything. It is unfair to deny the Claimant of his access to Court because of a failure of the Commission/Board/his solicitors to keep him informed or to properly regulate the funds available given that the Claimant could do nothing.”

Ground 3-ultra vires

Ground 4- the FRC applied the cost benefit test as if, once the test had not been met, there was no discretion to do otherwise than dismiss the appeal

“However, the additional incentive of seeking to recover costs already expended might be an important consideration for the private client and therefore might justify the grant of legal aid, especially if the merits are strong and the costs already incurred are substantial compared to the cost of proceeding to trial. By contrast, if the merits are not strong, it is unlikely that a grant of legal aid will be justified, merely in the hope of recovering costs already expended.”

“5.15 We also considered whether the case should be allowed to proceed to trial on the basis of the additional incentive of seeking to recover costs already expended. This had been raised in Mr Toth’s counsel’s letter of 16 February 2001 [Bundle, p. 35] and also by Mr Toth at the hearing [Bundle, p. 47]. However we concluded that the merits of case were not sufficiently strong (i.e. that they were towards the “reasonable”, or 60% end of the “good to reasonable” scale) to justify proceeding to trial on this basis, in the light of the fact that to bring the case to trial would to cost over half as much again as had already been spent.”

“5.16 The FRC also had in mind whether a more limited form of legal aid might be granted, such as leave to obtain a further expert’s report, but again we took the view that the merits of the case were not sufficiently strong to make this extra expenditure worthwhile. The report would only have gone to the issue of likely recovery, and not to the issue of the merits of the case. We took the view that we would not advise a privately paying client in Mr Toth’s position to throw more money at the case at this stage, even to the extent of obtaining an expert’s report.

5.17 We also had evidence before us in the bundle prepared for the hearing consisting of an opinion written by Mr Toth’s counsel, Clive Rawlings, on 9 January 2001, marked "KGS3” and referred to at paragraph 17 of my earlier statement. This opinion indicated that even on Mr Toth’s assessment of the maximum value of the share capital of Icesport, which formed the major part of his claim, his claim was only worth between £40,000 and £60,000. There was no indication in Mr Rawlings’ advice that an expert was likely to differ from Mr Toth’s assessment of the likely value of the claim by revising it upwards. Even if expert evidence had been obtained, therefore, at a minimum cost of £4,000 plus VAT (Bundle, p. 18), it would have been unlikely to indicate that Mr Toth’s likely recovery was at more than the £84,000 at which we had estimated it.”