The Court of Appeal gave guidance on how solicitors for a legally-aided clients can preserve the possibility of a waiver of the statutory charge in a case of wider public interest.
R (on the application of DANIEL FAULKNER) v DIRECTOR OF LEGAL AID CASEWORK [2018] EWCA Civ 1656
LEGAL AID : SIGNIFICANT WIDER PUBLIC INTEREST : STATUTORY CHARGE
This was an appeal brought by a former prisoner, Mr Faulkner, against the dismissal of his claim for judicial review of the Legal Aid Agency’s refusal to waive the statutory charge in a case where he had secured damages against the Parole Board for £6,500, but had been ordered to pay their costs following an appeal and cross appeal to the Supreme Court. He argued that the statutory charge would have the effect of eroding the entirety of his damages, which would be in breach of his human rights under ECHR.
The grant of public funding for the purpose of Mr Faulkner’s appeal to the Supreme Court was made before the commencement of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 regime. It was, therefore, a “pre-commencement” case for the purposes of Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Consequential, Transitional and Saving Provisions) Regulations 2013 and Part 1 of the Access to Justice Act 1999 (the “1999 Act”) and all orders, regulations, guidance, directions or authorisations made or given under the 1999 Act, in so far as they were in force immediately before 15th April 2013, applied.
The “statutory charge” was to be found in section 10(7) of the 1999 Act. It provided as follows:
(7) Except so far as regulations otherwise provide, where services have been funded by the Commission for an individual as part of the Community Legal Service—
(a) sums expended by the Commission in funding the services (except to the extent that they are recovered under section 11), and
(b) other sums payable by the individual by virtue of regulations under this section,
shall constitute a first charge on any property recovered or preserved by him (whether for himself or any other person) in any proceedings or in any compromise or settlement of any dispute in connection with which the services were provided.
The purpose behind the statutory charge was set out at paragraph 2.1 of the Statutory Charge Manual issued by the Legal Aid Agency in April 2014 as follows:
The statutory charge is designed to:
(a) put legally aided individuals as far as possible in the same position as successful non?legally aided individuals (who are responsible at the end of their cases to pay their own legal costs if their opponent in the litigation does not, or is unable, to pay them). The statutory charge converts legal aid from a grant into a loan. (See Davies v Eli Lilly & Co [1987] 3 All ER 94 at 97 to 98.)
(b) ensure that legally aided individuals contribute towards the cost of funding their cases so far as they are able; and
(c) deter legally aided individuals from running up costs unreasonably by giving them a financial interest in how much money is being spent.
The discretion to waive the statutory charge in cases of wider public interest was contained in Regulation 47 of the Community Legal Service (Financial) Regulations 2000 (as amended) (the “2000 Regulations”). The 2000 Regulation applied to proceedings which are of “significant wider public interest”. It was in the following form:
(2) Paragraph (3) applies where:
(a) the Commission funds Legal Representation in proceedings which it considers have a significant wider public interest; and
(b) the Commission considers it cost-effective to fund those services for a specified claimant or claimants, but not for other claimants or potential claimants who might benefit from the litigation.
(3) Where this paragraph applies, the Commission may, if it considers it equitable to do so, waive some or all of the amount of the statutory charge.
“Wider public interest” for the purposes of regulation 47(2)(a) is defined as meaning: “. . . the potential of proceedings to produce real benefits for individuals other than the client (other than any general benefits which normally flow from proceedings of the type in question).”
For cases funded after 31 March 2013, section 10(7) is replicated in similar terms in section 25 Legal Aid, Sentencing and Punishment of Offenders Act 2012. The provisions in relation to waiver of the statutory charge in cases of significant wider public interest are now found in Regulation 9 of the Civil Legal Aid (Statutory Charge) Regulations 2013/503 as follows:
Waiver of the statutory charge in cases of significant wider public interest
(1) The Lord Chancellor may, where the Lord Chancellor considers it equitable to do so, waive all or part of the amount of the statutory charge, if the following conditions are satisfied –
(a) The Director was satisfied, in determining that a legally aided party qualified for legal representation, that the proceedings had a significant wider public interest; and
(b) The Director in making the determination took into account that there were other claimants or potential claimants who might benefit from the proceedings.
“Significant wider public interest” is defined in Regulation 9(2) as having the same meaning as in the Civil Legal Aid (Merits Criteria) Regulations 2013. At Regulation 6 of those Regulations, it is stated that:
a case is of significant wider public interest if the Director is satisfied that the case is an appropriate case to realise—
(a) real benefits to the public at large, other than those which normally flow from cases of the type in question; and
(b) benefits for an identifiable class of individuals, other than the individual to whom civil legal services may be provided or members of that individual’s family.
14. It is common ground that the discretion whether to waive all or part of the statutory charge under regulation 47(3) arises at the end of the case because it is only at that stage that the statutory charge itself arises. If the client has been successful and obtained a full costs order it is very unlikely that a statutory charge will arise. Furthermore, it is common ground that the purpose of the waiver is to avoid the injustice which might otherwise arise were the litigant in a “test case” to bear the greater risk and additional costs involved in obtaining a decision in relation to the point in issue. 13.
15. It is also accepted that the discretion in regulation 47(3) only arises if the requirements of regulation 47(2) have been satisfied. The question is whether they can be satisfied after the end of the litigation in which the statutory charge would apply unless the discretion to waive is exercised. The Judge decided that it was clear that the requirements in regulation 47(2) must be satisfied at the beginning or during the case and not after its conclusion. He held as follows:
“27. . . . Looking at the language of the regulation, it seems to me to be abundantly clear that the draftsman intended, even if he did not express himself at all well, that the decision as to whether, first, the proceedings had a wider significant public interest and, second, and more importantly, whether other cases should be funded in a different way has to have been made either at the beginning or during the course of the case. There is simply no other logical linguistic interpretation to be derived from this regulation. To my mind that is put beyond doubt by its replacement, Regulation 9 of the Civil Legal Aid (Statutory Charge) Regulations 2013 (SI 2013/503). In that, the language makes it absolutely clear beyond any doubt that the waiver decision is made at the end of the case but that the conditions precedent occur either at the beginning or during the course of the case.
28. To my mind the difference between the two regulations does not demonstrate, as Mr Southey submits with a certain amount of force it has to be said, that the later regulation was changing the earlier regulation. To my mind the later regulation was clarifying the ambiguous meaning of the earlier regulation.”
16. I agree with the Judge that despite the fact that the discretion under regulation 47(3) arises at the end of the case, the criteria in regulation 47(2), the fulfilment of which are a prerequisite to the exercise of the discretion, must be satisfied at the beginning of the case or, at least, during it. In my view in the light of the way in which “significant wider public interest” is defined for the purposes of sub-sub-paragraph (a), by reference to the “potential” to produce real benefits for individuals other than the immediate client, the criterion in (a) must have been satisfied before the end of the litigation. The use of “potential” connotes a prospective exercise. Such a conclusion is consistent with the express wording of sub-sub-paragraph (b) and with regulation 47(2) read as a whole. It seems to me that the exercise or consideration with which that sub-sub-paragraph is concerned cannot be carried out after the litigation has come to an end and the litigation and accordingly, the funding in question is complete. The Commission (now the Legal Aid Agency) is required to consider whether to fund the specified claimant, in this case, Mr Faulkner, rather than other claimants or potential claimants of legal aid, who might benefit from the litigation. Inevitably, the decision to fund one case rather another or others cannot occur after the funding has already taken place. It seems to me that the use of the present tense rather than the past tense in both regulation 47(2)(a) and (b) is consistent with that interpretation.
17. In fact, the version of the LSC Manual, which was the published guidance available when Mr Faulkner originally applied for legal aid, is consistent with this approach. It provided where relevant, as follows:
“5.6 Financial Conditions
. . .
2.The Commission’s aim is to ensure that issues with a significant wider public interest are brought to the court for determination in the most cost effective way. Often this will mean funding an individual test case to resolve the issue, even if the damages alone in that test case would not make it cost effective in itself. If the case is complex and not all issues are resolved in the client’s favour, it is quite likely that a public interest test case would have significant irrecoverable costs. In the normal event these would not come out of the client’s damages. The powers under regulations 38(9) and 47 above exist to ensure that such a client is not unduly penalised in relation to the client’s own contribution or damages through having been chosen as the test case.
3. Even though it will be made clear from the outset that a case is being funded as a test case, the formal discretion as to the statutory charge will only be exercised at the conclusion of the case when damages have been recovered. The existence of the limited power to waive the charge under the above regulation does not diminish the responsibility of solicitors to seek to maximise the recovery of costs from the other side in a successful public interest case. The Commission would be unlikely to waive any amount of the charge if a case was settled without recovery of costs simply in the expectation that the waiver would apply.
4. Where contributions or the statutory charge are waived under the above regulation, it will not necessarily be waived in full. The aim of the regulation is to put the test case client in the same position as an individual claimant, who might still have some contribution or irrecoverable costs.”
Although the LSC Manual was amended in 2010, paragraph 5.6 remained the same.
18. As I have already mentioned, I also agree with the Judge that the consideration or evaluation of the factors in sub-sub-paragraphs (a) and (b) can take place during the litigation. As Mr Southey submitted, there may be cases in which it only becomes clear during the proceedings that they have a significant wider public interest and that it would be cost-effective to fund those proceedings and not other claimants or potential claimants who might benefit from the litigation. That was not the case here. It is accepted that the consideration and evaluation required under regulation 47(2)(a) and (b) was not undertaken at any stage during the litigation.
19. It cannot be correct, as Mr Southey suggested, that just because Mr Faulkner’s case proceeded to the Supreme Court and a difficult point of law was adjudicated upon and as a result, it became easier to advise clients in the future, that the criteria in regulations 47(2)(a) and (b) can be satisfied in retrospect and it remains open to the Legal Aid Agency to exercise the regulation 47(3) discretion at this stage. If that were sufficient, a great many cases which reach the Supreme Court would be treated automatically as satisfying the regulation 47(2) criteria. It is important to bear in mind that the Legal Aid Agency is required to conduct the necessary evaluation both of the significance of the litigation it is being asked to fund or is funding and the likely effect of that litigation on other cases which it is being asked to fund. The Legal Aid Agency is required to consider, therefore, whether to fund one case and not another or others. That evaluation cannot be conducted retrospectively. The circumstances in which regulation 47 is likely to be relevant is where there are a large number of similar cases in relation, for example, to product liability, which the Legal Aid Agency is being asked to fund at or around the same time and which all raise the same or similar issues and in relation to which a “test case” is chosen. Regulation 47 might also be relevant where the very nature of the case for which public funding is sought is such that it has a wider public interest, such as judicial review of a public authority. Nevertheless, in the latter example, it is still necessary to satisfy regulation 47(2)(b) which requires the Legal Aid Agency to consider whether to fund those proceedings rather than others.
20. In my view, therefore, to the extent that the old regime applies, where a case may be of wider public interest, in order to preserve the possibility of waiver of the statutory charge, should the need arise, it is essential that solicitors for a would-be legally aided client expressly ask the Legal Aid Agency at the point at which public funding is sought, to engage with the requirements of regulation 47(2). They should request an express decision as to whether the case in question has “significant wider public interest” and fulfils the criteria in regulation 47(2)(a) and (b). They should seek an express indication that the case has potential to produce real benefits for individuals other than the immediate applicant for funding and that it would be cost-effective for the Agency to fund the proceedings in preference to those of other applicants or would-be applicants who might benefit from it. They ought also to renew that application and/or to confirm the status of the litigation, if, for example, they seek to confirm funding to proceed to the Supreme Court.
21. This is all the more so under the present regime. Sub-sub-paragraphs (a) and (b) of regulation 9(1) of the 2013 Regulations provide expressly that the criteria in (a) and (b) have to have been met when it was determined that the legally aided party qualified for legal representation. Mr Southey no longer submits that those regulations are of assistance to the proper interpretation of regulation 47 of the 2000 Regulations, other than to point out that if one wanted to make clear that it was necessary to meet the criteria at the beginning of the litigation one could easily have done so. I agree. However, it takes the matter no further forward.
22. I therefore conclude that the requirements of regulation 47(2) cannot be considered and satisfied in retrospect and that therefore, the Legal Aid Agency was not in error in failing to do so and in refusing to waive the statutory charge in this case pursuant to regulation 47(3).
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Toby Moreton
QOCS: Qualified One Way Costs Shifting in Multiple Defendant Cases