B e f o r e :
THE HONOURABLE MR JUSTICE SCOTT BAKER
| || OLIVER FISHER (a firm)||Claimants|
| ||- and -|
| ||LEGAL SERVICES COMMISSION||Defendants|
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
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Official Shorthand Writers to the Court)
Paul Staddon (instructed by Oliver Fisher Solicitors) for the Claimants
Jeremy Morgan (instructed by Policy and Legal Department, Legal Services Commission) for the Defendants
HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
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Mr Justice Scott Baker:
- The Claimants seek judicial review of a decision of the Defendants, finally affirmed on 3 October 2001, to defer payment of their taxed profit costs of £16,077.38 earned while acting for a legally assisted litigant.
- For many years it has been the law that the Legal Services Commission, and before it the Legal Aid Board, has a first charge on any property that is recovered or preserved for a legally aided litigant in proceedings that it has funded. This statutory charge presently arises by virtue of Section 16(6) of the Legal Aid Act 1988.
- Regulation 90(1)(a) of the Civil Legal Aid (General) Regulations 1989 (the 1989 Regulations) places an obligation on an assisted person’s solicitor (a) forthwith to inform the area director of any property recovered or preserved for the assisted person and send him a copy of the order or agreement by virtue of which the property was recovered or preserved; and (b) subject to certain matters to which it is unnecessary to refer, pay all moneys received by him under the terms of the order or agreement made in the assisted person’s favour to the Board.
- The problem in this case arises from the fact that the Claimants failed to notify the Defendants, the Legal Services Commission, that their Client had preserved property namely 46 Edgerton Gardens, Seven Kings, Ilford.
- The circumstances that led to this situation are as follows. 46 Edgerton Gardens and another property, a warehouse, were subject to a mortgage in favour of Habib Bank. Habib Bank brought an action against the assisted person, Mrs Aziz, and her husband who was separately represented, claiming, among other things, possession of 46 Edgerton Gardens. The proceedings were settled by agreement in the form of a Tomlin order on 7 January 1999. The order was in the usual form staying all further proceedings except for the purpose of carrying the agreed terms into effect. There was to be a legal aid taxation of Mrs Aziz’s costs. The agreed terms were:
i) Mrs Aziz to pay Habib Bank on or before 31 January 1999 £150,000 in full and final settlement of its claims against her.
ii) On receipt of that sum Habib Bank would cause to be removed its legal charge over 46 Egerton Gardens dated 5 May 1989 in full and final settlement of Mrs Aziz’s claims against Habib Bank.
iii) Further on receipt of that sum Habib Bank would release Mrs Aziz from personal guarantees dated 7 November 1990 whereby she guaranteed payment of monies owed by a company called A. Faris Limited.
- Mrs Aziz did pay £150,000 to Habib Bank, but not until 23 December 1999. Thereafter the Bank did release its charge either on the same day or soon after.
- The Defendants have conceded for the purposes of the present case that the Claimants’ obligation to report did not arise until they became aware of the removal of the legal charge. I can see that it is at least arguable that the obligation arose much earlier when the Tomlin order was agreed, in January 1999, but it is unnecessary to explore this.
- The next event of significance was on 4 January 2000 when the Claimants advised Mrs Aziz that the action was completed and that the costs would be registered as a second charge against the property. On the same date a costs draughtsman was asked to prepare a bill of costs.
- On 7 February 2000 the Claimants applied to have the legal aid certificate discharged. Nothing was said about the equity in 46 Edgerton Gardens having been preserved.
- The Claimants had, in the early stages, taken over the case from another firm of solicitors, Adams & Co, and therefore they too had some interest in the taxation of costs. On 11 July 2000 Mrs Aziz’s bill was taxed in the sum of £19,827.78.
- It is said that on 24 August 2000 the Claimants submitted to the Defendants the form CLS Claim 1 together with an explanation of what had happened. However, no document is provided to substantiate this and the CLS Claim 1 form is stamped with the apparent receipt date of 13 September 2000. What appears to have happened is that the Admin 1 form was sent by the Claimants to Mrs Aziz on 5 September 2000, signed and returned by her and then transmitted with the CLS Claim 1 arriving at the Defendants on 13 September 2000.
- The CLS Claim 1 bears the following handwritten endorsement in the section headed “Details of monies/property awarded:”
“No property awarded,
statutory charge applies as
we prevented possession”
The CLS Admin 1 in the section headed “Details of money/possessions recovered or preserved” has in handwriting the words:
“Preserved property at 46 Edgerton Gardens, Seven Kings, Ilford, Essex.”
The value is recorded as £200000.00. There is a request for delay in paying the statutory charge because Mrs Aziz is living in the property as a home for herself. The Claimants have certified the information as correct against a date of 5 September 2000. The client’s declaration is signed and bears the same date.
- It therefore seems reasonably clear that the Defendants were told for the first time on 13 September 2000 that property had been preserved for the assisted person whereas the Claimants should have furnished the information long before together with (per Regulation 90) a copy of the Tomlin order of 7 January 1999.
- On 14 October 2000 the Defendants unsuccessfully sought to register a caution against the property in order to secure their statutory charge. The reason they were unsuccessful was that the assisted party was in the process of selling the property and a prospective purchaser had, on 22 September 2000, lodged an official search with the land registry. The effect of this was to create a period during which the prospective purchaser’s application to register title or charge the property was given priority. The property was transferred to a third party on 23 October 2000 and the Defendants learned on 9 November 2000 that they had been unable to register their charge. Meanwhile on 19 October 2000 the Defendants paid the Claimants their profit costs of £16,077.38. A small part of this belonged to Adams & Co.
- The Defendants say that it can take up to six weeks for their regional offices to process applications for registration of the statutory charge. This is because of the large number of charges that are to be registered. In a case of known urgency more immediate action can be taken. The Defendants had no knowledge of urgency in the present case and in the event the regional office submitted the request to register four weeks after receipt of the relevant information. Thereafter the Defendants tried unsuccessfully to discover the whereabouts of the assisted party to make good its loss.
- The next event of significance was that the Defendants wrote on 5 April 2001 saying the Claimants’ profit costs had been deferred by a virtue of Regulation 102 of the 1989 Regulations following their breach of Regulation 90. The letter concluded:
“I must therefore confirm your profit costs in this matter have been deferred. They are only deferred and can be reinstated if you are able locate the assisted person recover sufficient funds from the assisted person to cover the statutory charge or obtain a signed contractual charge over a property which provides adequate security for our charge. Counsel’s fees and the disbursements are not deferred although any recovered funds will first be applied to those costs.”
- The machinery the Defendants followed was this. They simply deducted £16,077.38 from the next cheque due to the Claimants. As regular undertakers of publicly funded work the Claimants were in the habit of receiving payments from the Defendants on a once or twice monthly basis of whatever was due to them. The Defendants appear to have overlooked the fact that part of the money belonged to Adams & Co.
- Regulation 102 of the Regulations which is headed “Deferment of solicitor’s profit costs” provides:
“Where an assisted person’s solicitor has failed to comply with any provision of these Regulations and, as a result of his default or omission, the fund incurs loss -
(a) the appropriate area committee may defer payment of all or part of the solicitors profit costs in connection with the proceedings to which the certificate relates until he has complied with such provisions; and
(b) if the Board refers the conduct of the solicitor to the Solicitors Disciplinary Tribunal and the solicitor is disciplined, the Board may retain any sum, payment of which has been deferred under sub-paragraph (a), in accordance with the finding of the Tribunal.”
- The fundamental question is whether the Defendants had any statutory power to do what they purported to do in April 2001 namely deduct £16,077.38 from other monies that were then lawfully payable to the Claimants and treat it as a deferral of payment within the meaning of Regulation 102. There is an obvious difficulty because the Defendants had already paid the Claimants this sum the previous October. But what if they had not paid the Claimants?
- The starting point is Regulation 90, which imposes an obligation on a solicitor to take the required action forthwith. If the action is not taken forthwith there is a breach of the Regulations. If the solicitor does furnish the necessary information and documents to the Commission eventually, but does not do so sufficiently promptly to meet the forthwith requirement, his action may mitigate the breach of the Regulation but he does not put himself in the position of not having broken the Regulation. This is in contradistinction to Regulation 90(1)(b), which envisages a continuing breach remediable by payment of the appropriate monies. Thus in the present case by reporting late the Claimants were in breach of Regulation 90; they should have reported forthwith.
- The opening words of Regulation 102 require two conditions to be satisfied before the remainder of the Regulation is triggered. Those conditions are:
i) failure to comply with any provision of the Regulations; and
ii) loss to the fund in consequence.
- Because the Claimants failed to meet the requirement of reporting forthwith imposed by Regulation 90, the first of the two conditions is satisfied. By April 2001 the second condition had also been satisfied because the failure to report resulted in the charge not having been registered in time to provide the necessary security. Both the assisted person and her asset have disappeared.
- It may be a matter of some debate at what precise moment loss was caused to the fund because it was only at that point that the discretion given by Regulation 102 to defer payment could be exercised. This seems to me to be at the earliest 22 September 2000, the date on which the prospective purchaser lodged an official search with the land registry. From then onwards, as I understand it, there was nothing the Defendants could have done in practical terms to recoup their costs on the sale of the property.
- It might be said that as at 22 September 2000 it was not clear whether there was a loss to the fund and that it only became clear with the subsequent sale of the property. Had the sale not gone ahead the Defendants would have been able to register the charge and would consequently have suffered no loss. Although the Defendants applied to register their charge on 14 October 2001 they only learned on 9 November 2000 that they were unable to do so. Thus they were unaware when they made the costs payment on 19 October that there was a problem about registering the charge. Whether, therefore, the second condition in Regulation 102 had been met when the Defendants paid the Claimants their profit costs in October 2000 is in my judgment a matter of some doubt.
- Leaving aside for a moment the difficulty caused by the fact, that the money had already been paid, it is beyond doubt that the two conditions were satisfied by April 2001. Accordingly the operative part of Regulation 102(a) was triggered and the area committee was on the face of it entitled to defer payment of the Claimant’s profit costs until they complied with Regulation 90. However, Regulation 102(a) appears to have been drafted so as to envisage that any failure by a solicitor to comply with the regulations is capable of remedy. Hence the use of the expression “defer payment” (as opposed to retaining any sum in Regulation 102(b)) and also the use of the expression until he has complied with. It is argued that as the Claimants’ breach is incapable of remedy there is no power to defer payment. The use of the word defer envisages that payment will be made at some point in the future. Deferral can only be for a finite period of time; it cannot be forever. In my judgment the regulation is badly drafted, but I am inclined to the view that payment may be deferred indefinitely. The purpose of the regulation is, after all, to make sure that the fund does not suffer loss because of a solicitor’s breach of the regulations. In this case the Defendants made it clear that the Claimants would be paid their costs if and when the fund was put in as good a position as if they had registered their charge. Accordingly, but for the fact that the Defendants had already paid the Claimants, they would have been entitled to defer payment in April 2001.
- I reject the submission of Mr Staddon, for the Claimants, that Regulation 102 cannot bite on the facts of the present case because his client has now complied with the requirement to report and that a deferral cannot be indefinite, albeit I accept the likelihood is that the money will never be recovered from Mrs Aziz and therefore the Defendants will never end their deferral of payment. In my judgment, however, it is possible to construe Regulation 102(a) as applying both to irremediable breaches and remedial ones. There remains the difficulty, however, that the Defendants had already paid the Claimants’ costs before they purported to defer them.
- Returning to 19 October 2000, even on the assumption that the Defendants’ area committee could have deferred payment under Regulation 102 it did not do so. What actually happened was that the Defendants paid the Claimants the profit costs that they had earned in the course of the litigation. As I have mentioned the £16,077.38 included some money that was due to Adams and Co, the Solicitors who had acted for the assisted party earlier in the litigation. The Defendants now agree that Adams & Co should be paid the money due to them. The Defendants say the reason they did not defer payment in October 2000 was because they did not know they were unable to register their charge.
- It seems to me that the fundamental difficulty faced by the Defendants is that they could not defer payment of the Claimants profit costs after they had already paid them. They had indeed paid them six months before. I am unaware of any provision in the regulations that permits the Defendants to recoup a payment earlier made by reallocating the money to another case. Purporting to do this did not create a situation in which the costs were unpaid and could therefore be deferred. In short, a payment that has already been paid cannot be deferred.
- Solicitors doing publicly funded work are paid on a monthly or twice monthly basis monies that are due to them whether on account or after final assessment, but the payments are allocated to what is due in particular cases. In the present case, the Defendants sought to reassign the money paid in respect of Mrs Aziz’s case to some other case where payment was due. They then purported to defer payment of the profit costs in Mr Aziz’s case under Regulation 102. In my judgment they had no power to make the so called reassignment. Once money has been properly paid that is the end of the matter. It is of interest to note that Regulation 100(8) contains an express provision enabling recovery of overpayment of payments on account. There is no similar provision to justify recovery of the payment in this case.
- When I put to him in argument what I perceived to be this insurmountable difficulty, the response of Mr Jeremy Morgan, for the Defendants, was that the £16,077.38 was paid under a mistake of fact because: “the Legal Services Commission had no reason to believe there was a loss to the Fund.” However the Defendants never claimed the return of the money on this basis and mention of mistake of fact figures neither in their grounds for resisting the claim nor in Mr Morgan’s skeleton argument. As the editor of Halsbury’s Laws of England Fourth Edition Reissue points out in volume 40(2) para 1332, a Claimant who confers a benefit on another under a mistake of fact may be able to bring a restitutionary claim to recover the value of the benefit so conferred on the other party. But the law on the recovery of benefits conferred under a mistake is in the process of evolution and the cases are not easily reconcilable.
- The mistake in the present case was not the classical liability mistake. The Defendants did not pay the costs believing they were liable for them when in fact they were not. There was no doubt that £16,077.38 was the appropriate sum due by way of taxed profit costs. The mistake was, at the highest, lack of knowledge entitling the Defendants to exercise their statutory discretion under Regulation 102 and defer payment of the money. I say at its highest because it seems to me at least possible that at the moment the £16,077.38 was paid the fund hadn’t incurred any actual loss, the actual loss only occurring on completion of the sale when the money that ought to have been secured by the charge would, had it been secured, have come into the Defendant’s hands. Regulation 102 does not entitle the Defendants to defer payment just because the solicitor has failed to comply into some provision of the Regulations; there must also have been a consequential loss.
- Had the case been advanced on the basis that the Defendants were seeking to recover £16.077.38 paid under a mistake of fact then this issue could have been fully considered in the light of the evidence; but it has not. What is said is that mistake of fact is the justification with hindsight for allocating the money sought to be recovered to another case.
- Mr Morgan submits that notwithstanding any argument about the right to recover the payment because it was made under a mistake of fact Section 4(1)(b) of the Legal Aid Act 1988 gives the Defendants a statutory power to operate a running account. This however does not in my judgment give a right to relocate or move money that has been earned and paid in case ‘A’ to case ‘B’ or to recoup money.
- In my judgment the Defendants have no right to recoup or reallocate the money already paid either pursuant for any provision in the regulations or at common law as money paid under a mistake of fact. The problem in the present case has arisen because the regulations are defective. Mr Morgan submits that if I do not find in his client’s favour the result will be to cause delay in payment of solicitors’ profit costs whilst careful checks are undertaken to ascertain whether there are grounds for exercising the discretion to defer payment given in Regulation 102. I seems to me, however, that the simple solution is to redraft the regulations imposing on a solicitor an obligation to repay any profit costs he has received in a case where he has broken the regulations and the Commission has suffered loss as a result.
The Defendants’ decision as ultimately confirmed in their letter of 3 October 2001 to defer payment of the Claimants profit costs under Regulation 102 of the 1989 Regulations is unlawful and will be quashed. In the circumstances the Defendants owe the Claimant £16,077.38 and I will hear argument as to any consequential orders.
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MR JUSTICE SCOTT BAKER: For the reasons given in the judgment, which has been handed down, this application succeeds.
MR HOWARD: My Lord, I appear in place of Mr Staddon. The remedy, we submit, ought to include a money judgment or an order for payment of a sum. There is a difficulty, in that we still do not know, or it is still not a matter of agreement, how much of the £16,077-odd belongs to the previous firm, Adams & Co.
MR JUSTICE SCOTT BAKER: That ought to be pretty easy to sort out, should it not?
MR HOWARD: It should, yes. It has been a matter of debate in correspondence for months but no final figure has emerged. The one we are supporting is just over £6,000. The one that the Legal Services Commission have mentioned begins with a five. It is actually to my disadvantage to maintain the larger figure because the smaller figure --
MR JUSTICE SCOTT BAKER: It is ridiculous. This is something you ought to be capable of, with two people sitting down and looking at the taxed bill.
MR HOWARD: My Lord, that is right. My difficulty is that my instructing solicitor is not here. I am told by my clients that they were informed that the judgment was being brought forward from 2 o'clock, but my instructing solicitor would have the answer to these questions. My learned friend and I have agreed that perhaps the best approach we can adopt is to agree the principles and for you Lordship to indicate the principles whilst we do not agree, the actual figures to be worked out later. It is not simply a question of agreeing the figures from the bill because there is also the question of whether Adams had payment on account.
MR JUSTICE SCOTT BAKER: Oh, I see.
MR HOWARD: So, it is a simple exercise but it is not something we can do in court.
MR JUSTICE SCOTT BAKER: I would not be minded to make a money judgment in this kind of case, even if I had the power to do so.
MR HOWARD: Your Lordship clearly could make a quashing order and the question is how far beyond that you can go.
MR JUSTICE SCOTT BAKER: Quite. Well, ultimately, of course, one, I suppose, could make a mandatory order but, with people like the Legal Services Commission, I am quite certain this will be resolved.
So what would you like me to do then? Simply give liberty to apply?
MR HOWARD: Unless your Lordship formulated a mandatory order in such terms as were general enough to cover the the situation.
My learned friend is also seeking interest, and I will not resist that. My Lord, it is 400 dates from 5th April last year to this morning. I have done a calculation on the basis of £16,077.38 and also on the basis of the letter, some of which we support but the Legal Services Commission have not yet agreed.
MR JUSTICE SCOTT BAKER: If I simply make a quashing order and give both sides liberty to apply, then the matter could be resolved without coming back to court.
MR HOWARD: My Lord, yes.
MR JUSTICE SCOTT BAKER: Would that be sensible?
MR HOWARD: Yes. I also ask for costs.
MR JUSTICE SCOTT BAKER: Yes. I do not suppose that Mr Morgan can resist that.
MR MORGAN: I do. I resist it strongly. The application that I make is that there will be no order for costs. My Lord, you will recall the way in which the argument developed in this case. The other side are the claimants. They choose the battle ground and --
MR JUSTICE SCOTT BAKER: They missed the best point.
MR MORGAN: They missed the best point and they chose a series of points upon which your Lordship found against them.
MR JUSTICE SCOTT BAKER: Yes.
MR MORGAN: We prepared the case and resisted the claim on the basis of the battle ground chosen by them and were successful, in all but one small respect at least, the question of whether or not the matter might later go to the Solicitors' Disciplinary Tribunal.
In those circumstances, my Lord, my submission is that the correct order is that there be no order, and your Lordship is fully aware that, under the CPR, issue-based costs orders are much more in vogue.
MR JUSTICE SCOTT BAKER: Yes.
MR MORGAN: And the net result is that we won all the battles but we lost the war. It may be reasonable, my Lord --
MR JUSTICE SCOTT BAKER: There is not a lot of underlying merit in the case anyway, is there?
MR MORGAN: No, that is right. My Lord, the other point is this: you may recall specifically raising with Mr Staddon (inaudible) before the claimant, but the answer is -- and whether he took the point about the (inaudible), and you pointed out it was not in his skeleton. And he said no, he did not --
MR JUSTICE SCOTT BAKER: I do not think he really saw it.
MR MORGAN: It is entirely, with respect, your Lordship's point which won them the case, and in those circumstances my submission is it would be going too far for me to ask for costs, having been unsuccessful on the issue.
MR JUSTICE SCOTT BAKER: Now I think rather more about it I think there is some considerable force in what you are saying. Well, Mr Howard, what do you say about that?
MR HOWARD: I obviously do not know what was said on his feet by Mr Staddon but I do see that it is in the skeleton argument attached to the claim form. What the defendant did here was not to defer payment but to recoup payment and then to retain it. And also in the detailed grounds: it has clawed back the claimant's property costs in the sum of -- what the defendant is doing in substance is punishing the claimant for breach of the regulations, by confiscating the profit costs it had already paid. So, it was foreshadowed, even if, on his feet, counsel did not identify the point. There is no criticism for taking the point on deferment -- and your Lordship found that the regulations are clumsily drawn -- and taking such a point could not possibly be "conduct" within the meaning of rule 44.3. And what is clear in rule 44.3 is that the general rule is the unsuccessful party will be ordered to pay the costs of the successful party. We have succeeded. The argument may have been extended by other points being taken but it still was dealt with in a single day.
MR JUSTICE SCOTT BAKER: I think this is a case for some compromise and I am inclined to give you half your costs, on the basis that there was quite a lot of other material that came into the case that really was not very relevant at the end of the day. But you did succeed, albeit on the ground that was not at the forefront of your argument. Do you want to say any more about that, Mr Morgan?
MR MORGAN: My Lord, no.
MR JUSTICE SCOTT BAKER: Thank you very much. No doubt some redrafting will go on of the regulations, will it, now?