Recently, discussions took place between Costs Lawyers regarding substituting funding arrangements, in particular, where the case is legally aided.
For funding agreements entered into prior to the implementation of the Jackson reform on 1 April 2013 success fees and ATE premiums were recoverable from the Defendant. Therefore switching funding from legal aid to a CFA could be viewed as a means of maximising profits. In the case of Surrey v Barnet & Chase Farm Hospitals NHS Trust  EWHC B16 (Costs) the Claimant suffered a severe brain injury and was represented by a Litigation Friend. The matter was initially funded by legal aid. The Claimant’s Solicitor instructed all fee earners to review the cases and establish whether Claimants would be in a better position with a CFA and ATE, in light of the Jackson reforms shortly coming into effect. On the Solicitor’s advice, the Legal Aid Certificate was replaced with a CFA and ATE premium. Following settlement a substantial success fee and ATE premium in the sum of £51,000 were claimed from the Defendant. The Defendant raised an issue regarding the changes to the funding arrangement and the reasonableness of the same. The Defendant argued that only the Claimant's Solicitors benefited from the switch in funding discussed further on in this article.
Similar arguments have arisen in instances where Counsel was instructed and signed a CFA just before the changes were brought about by LASPO, but carried out no work until after 1 April 2013.
Since 1 April 2013 success fees and ATE premiums are largely irrecoverable between the parties, apart from in limited circumstances. However, it is still a requirement that the Claimant be fully advised as to all funding options, to include both the positive and negative implications, for the arrangement.
The Test of Reasonableness
In the case above it was noted by Master Rowley that the Litigation Friend had not been fully informed of all the positive and negative implications of the change in funding arrangement. Master Rowley found that the Claimant would benefit from not being required to pay a costs shortfall had they remained under legal aid funding, which was at risk of occurring in the event they failed to beat their Part 36 offer, a condition of the CFA. However, the clause regarding the loss of the 10% uplift on his damages by changing to a CFA was not fully and properly explained to the Litigation Friend. Therefore the decision to change the funding arrangement was seen as unreasonable. It was found that the Litigation Friend had not made her decision based on full knowledge and thus the success fee and ATE premium were not recoverable from the Defendant.
In the case of Hyde v Milton Keynes Hospital NHS Foundation Trust the Claimant brought a clinical negligence claim against the Defendant which was funded by a Legal Aid Certificate. During the proceedings the Legal Services Commission ("LSC") refused to increase the funding limitation on the Claimant's certificate. Her solicitors attempted to persuade the LSC to change its decision but were unable to do so. Consequently, the Claimant and her Solicitors entered into a CFA and took out an ATE policy.
The Judge agreed that it was enough for the Solicitor to have considered that the work required to be done could not realistically be completed within the funding limit allowed for by the LSC.
The Judge was of the opinion that the merits and demerits of entering into a CFA rather than using legal aid in accordance with the case law up to and including LXM v Mid Essex Hospital Services NHS Trust  EWHC 90185 (Costs) did not apply to this case. It was clear that exhaustion of the legal aid funding meant that the Claimant's only alternative option was a CFA and ATE. The Judge commented:
“Parties are encouraged to consider their legal spend prospectively and, where it is clear that the available public funding is going to be insufficient, a decision to change to another option must be a reasonable step to take. That is the position in this case in my judgment and so I find that the Claimant was entitled to transfer to a CFA and ATE arrangement from 25 March 2013.”
Further cases in support of the Reasonableness Test:
Simmons v Castle  EWCA Civ 1039 – The Claimant lost the additional 10% of his damages by entering into CFA prior to 1 April 2013. The Solicitors failed to provide appropriate advice to the Claimant. In the appeal it was decided that the Claimant could not recover both the success fee and 10% on top of his damages. The success fee only was applicable to this case.
AMH v The Scout Association  – The Claimant was not fully informed of the consequences of switching to a CFA. It was not thoroughly explained that the Claimant would lose a 10% uplift on his damages. However, the loss was so insignificant compared to the risks of not signing a CFA that despite the advice being poor, the decision made by the Claimant and his Solicitor was found to be reasonable and the additional liabilities were deemed to be recoverable.
In the case of LXM v Mid Essex Hospitals Services the claim was split for liability and quantum. Also, during the life of the claim the Claimant was represented by three separate firms of solicitors. The matter became very complicated and substantial work dealing with legal aid funding was required, but not recoverable inter parties. Appropriate advice was provided to the Claimant to switch to a CFA. Master Gordon-Saker reached the conclusion that “Bringing a claim with public funding has advantages and disadvantages and bringing a claim under a conditional fee agreement has advantages and disadvantages. But for the defendant's objections in this case, the conditional fee agreement route would be obviously more advantageous to the claimant because the only impact of costs on her damages will be the unrecovered Legal Aid costs in Leigh Day's bill.” The decision to proceed with the CFA was found to be reasonable.
The case of Mcdaniel v Clarke  EWHC 3826 (QB) emphasised the effects discussed above. In this case the Solicitor was awarded nil for costs due to failure to properly advise the Claimant on alternative methods of funding.
In conclusion, it should be noted from the examples above that it is vitally important to provide the Claimant with a comprehensive and detailed explanation of funding options in all circumstances. Failure to do this could lead to extreme costs consequences as represented in the case of Mcdaniel v Clarke. Each and every qualified lawyer should make sure that they provide appropriate advice to the Claimant.