Court of Appeal win expected to save NHS millions in legal costs
NHS Resolution has successfully appealed three test cases concerning the recovery of legal costs where claimants changed their funding from legal aid…
S v Barnet and Chase Farm Hospitals NHS Trust; AH v Lewisham Healthcare NHS Trust; Y v Doncaster and Bassetlaw Hospitals NHS Foundation Trust  EWCA Civ 451
NHS Resolution has successfully appealed three test cases concerning the recovery of legal costs where claimants changed their funding from legal aid to conditional fee agreements and after-the-event insurance after liability had been admitted. The decision has saved the NHS £270,000 in legal costs with potential savings expected to run into the millions when further cases are considered.
The landscape of litigation funding was changed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) which aimed to reduce the costs of litigation. Under the LASPO reforms, claimants who enter into funding agreements on or after 1 April 2013 are not able to recover success fees or insurance premiums from paying defendants. To ensure that claimants were not prejudiced by the reforms, LASPO provided that claimants should benefit from a 10% uplift to their general damages to enable them to pay the success fee from their damages. This 10% uplift is not available to claimants who entered into a funding agreement before 1 April 2013.
In the months prior to 1 April 2013, NHS Resolution became aware that an increasing number of clinical negligence claimants were changing their funding arrangements following advice from their solicitors. Claimants who had initially received legal aid discharged their legal aid certificates and entered into conditional fee agreements (“CFAs”) with their solicitors and took out after-the-event (“ATE”) insurance to fund their claims. This change in funding meant that the claimant’s solicitors would be entitled to recover a success fee from NHS Resolution if the claim was successful and NHS Resolution would also be liable for the ATE insurance premium.
The claimants in each of the three test cases followed this same pattern and each of the claims was successful. NHS Resolution challenged the recovery of the success fees and ATE premiums on the basis that the costs were unreasonable. NHS Resolution argued that the claimants had not been correctly advised as the switch was not in the claimants’ best interests due to the fact that operating under a CFA would mean that they could not benefit from the 10% uplift in general damages. The contested costs totalled close to £270,000.
At first instance, the costs judges in each case found that the costs had been unreasonably incurred and should not be allowed under CPR 44.4. The three rulings were overturned by Mr Justice Foskett in the High Court. NHS Resolution appealed to the Court of Appeal for clarification on the issue.
Court of Appeal
The issue before the Court of Appeal was whether the success fees and insurance premiums were reasonably incurred costs when the claimants had changed their funding from legal aid to CFAs after liability had been admitted. The Court of Appeal unanimously allowed the appeals.
Costs would not be automatically unreasonable simply because the chosen option was more costly than the alternative. The court had to assess the facts to determine why the costs were incurred and whether this decision had been reasonable.
In order to assess the reasons for the change in funding, the court considered the advice given to each claimant by their solicitors. The Court of Appeal found that each of the solicitors had not correctly advised their clients. The advice given had been incorrect, exaggerated, and seriously misleading. Two of the solicitors had wrongly advised their clients that if they chose to continue with legal aid and the aid was not sufficient to fund the entire claim, they could be personally liable to pay for the shortfall themselves. In one case, the solicitor also incorrectly told her client that the Legal Aid Agency had refused an application for further funding when this simply was not the case. None of the solicitors advised their clients that switching to a CFA would mean that they would lose the benefit of the 10% uplift to their general damages.
It was impossible to determine whether the claimants would have made the same decision to switch to CFAs if they had been presented with all of the material facts. However, the relevant test was not whether the claimants would have made a different decision if presented with all the facts, most notably the certain loss of the 10% uplift, but whether they could have made a different decision. The decision to switch from legal aid funding to a CFA plus ATE insurance was considered to be unreasonable.
In a press release sent out by NHS Resolution, NHS Chief Executive Helen Vernon said: “We welcome the Court of Appeal’s decision in this case which shows how important it is for claimants to be properly informed when it comes to their legal costs. Having detected this issue and taken the decision to challenge it through the higher courts, we were able to save significant sums for the NHS whilst ensuring that claimants receive the compensation they are entitled to.”