Frost v James Finlay Bank Ltd.

On 8 August 2002 the Defendants, James Finlay Bank Limited ("the Bank"), issued an application to the Supreme Court Costs Office by which they sought an Order that the Legal Services Commission ("LSC") do pay the Defendants costs of the appeal to the Court of Appeal in this action and that the amount of costs payable to the Defendant by the Claimant and by the LSC be determined because by Order of the Court of Appeal dated 23^rd May 2002, it was ordered (inter alia) that: -.

Formal Directions for service of the application were made by me on 12 August 2002 and I am satisfied that the relevant documentation was served on the Claimant pursuant to Regulation 10 of the Community Legal Service (Costs) Regulations 2000. The appropriate documentation was also served on the LSC and on 25 October 2002 the LSC informed the Supreme Court Costs Office that the Commission consented to an order being made and wished to be heard on quantum only.

The LSC duly served Points of Dispute on the Defendants Solicitors in which they raised the following general point.

This bill includes substantial costs incurred prior to the grant of public funding to the Respondent (the Claimant) on 26 November 2001 to cover the appeal. The LSC can only be responsible for costs incurred by the Appellant (the Defendant) on that part of the proceedings which are funded proceedings [Regulation 5(4) of the CLS (CP) Regulations 2000; S v S (unassisted party’s costs) (1978) 1 All ER.]

This is the preliminary issue that I am asked to decide. I have heard submissions from Angela Turpin, the costs draftsman instructed by the LSC, and from Mr Michael McParland of Counsel representing the Defendant. As there appears to be different descriptions of the parties in the documentation I will refer to the Defendant/Appellant/Bank thought this judgment as "the Bank" and the Claimant/Respondent/Mrs Frost as "the Claimant".

On 21 August 1996 the Claimant was issued with a legal aid certificate in which the scope of the certificate was described as being:

There was a limitation to obtaining further evidence and counsel’s opinion, that limitation never appears to have been removed.

There then appears to have been a further extension to the certificate which provided:

There appears to be a number of limitations including costs limitations. The first limitation was a limitation up to exchange of statements and obtaining counsel’s opinion and this limitation was removed on 28 March 2001. There was a second limitation which was limited to all steps up to and including trial/final hearing and any action to implement (but not enforce) the judgment or order. That limitation was effective as from 28 March 2001.

I am told that in 1996 the Claimant commenced proceedings against the Bank in the Chancery Division of the High Court. During the early part of the proceedings the Bank successfully applied for the Claimants Statement of Claim to be struck out. The Court of Appeal eventually overturned this decision and the case was allowed to continue. I note that there is no reference in any of the limitations to the Claimant’s legal aid certificate or to the scope of that certificate dealing with that appeal to the Court of Appeal. Nevertheless the action proceeded to a seven-day trial in April 2001 before Mr Justice Hart. Judgment was reserved and on 25 June 2001 Mr Justice Hart delivered his judgment in favour of the Claimant on liability. There remained outstanding an assessment of damages and the question of costs and the matter was adjourned until 3 October 2001 to enable the parties to make representations about costs. During this period the Bank to formulated an application for permission to appeal.

On 3 October 2001 Mr Justice Hart made a costs order in favour of the Claimant and, after hearing submissions from both parties, gave the Bank limited permission to appeal. Counsel for the Claimant opposed the Bank’s application for permission to appeal.

No further step was taken with regard to the assessment of damages pending the appeal to the Court of Appeal. On 31 October 2001 the Bank filed notice of appeal against the judgement and effected service on the Claimant’s solicitors. On 26 November 2001 the scope of the Claimants legal aid certificate was extended as follows:

On 28 November 2001 the Claimant served a Respondent’s notice seeking to cross appeal part of the order of Mr Justice Hart.

On 24 and 25 April 2002 the Court of Appeal heard the appeals and delivered judgment on 23 May 2002 when they allowed the Bank’s appeal.

The Court of Appeal made the following orders with regard to costs:

Ms Turpin referred me to a number of Regulations: COMMUNITY LEGAL SERVICE (COSTS PROTECTION) REGULATIONS 2000. ("the CP Regulations")

Regulation 46(1)

Ms Turpin referred me to CP Regulation 5(2) and stated that a costs order can only be made against the LSC where costs protection applies. Until the legal aid certificate was extended on 26 November 2001 to permit the Claimant to be represented on an appeal to the Court of Appeal the only funded proceedings for which costs protection applied were the proceedings in the Chancery Division. Ms Turpin submitted that those proceedings came to an end on 3 October 2001 as the scope of those proceedings were then exhausted and that until the 26 November 2001 the Claimant was no longer funded. The consequence of that was that CP Regulation 5(4) applied in that the costs incurred by the Bank before 26 November 2001 could not be attributable to that part of the proceedings which were funded proceedings. The proceedings only became funded proceedings in the Court of Appeal after 26 November 2001 and as the only costs that were being sought against the Legal Services Commission were in respect of the costs of the Court of Appeal it could only be those costs as from 26 November 2001 that the LSC were obliged to pay.

Ms Turpin further submitted that Regulation 46 of the Civil Legal Aid (General) Regulations 1989 was quite clear in that a legal aid certificate could not cover any costs of the Court of Appeal until it had actually been extended. Consequently, pursuant to CP Regulation 3(3) costs protection can only apply to costs incurred in relation to proceedings which, as regards the client, are funded proceedings and can only apply to costs incurred after the issue of the certificate. As regards to the client the proceedings in the Court of Appeal were not funded proceedings prior to 26 November 2001 and therefore costs protection could not apply.

Ms Turpin also referred me to the case of S v S [1978] 1 AER 934 and said that the relevance to that case is that the statement of the law made by the Court of Appeal in that case is now embodied in paragraphs 5(2) and 5(4) of the CP Regulations 2000. That case was of course distinguishable from the present case in that in S v S, the unsuccessful assisted party was not legally aided at all until immediately before the trial, whereas in this case the unsuccessful assisted party was legally aided throughout the proceedings.

In summary therefore Ms Turpin submitted that there was no costs protection in respect of the Court of Appeal costs until the date of the amendment of the Claimants legal aid certificate, consequently the LSC was not obliged to pay any appeal costs incurred prior to that date.

Mr McParland had represented the Bank throughout the proceedings and was therefore extremely familiar with the factual aspects.

Mr McParland submitted that the basic philosophy of the statutory policy introduced by the Legal Aid Act 1964, which gave the courts the power to award a successful non-assisted appellant costs against the Legal Aid Fund, was set out by Lord Diplock in the case of Megarty v D J Ryan Limited (No.2) [1982] AC 81 at page 103:

Mr McParland also referred me to other authorities in support of the basic statutory policy.

He also said that there was no authority over the last 38 years to support the contention that is now being advanced by the LSC that the costs of the Court of Appeal should only run from the date of the extension of the legal aid certificate to cover the costs of the appeal to the Court of Appeal. He said that it was clear that the LSC could not be liable for the costs of the appeal before a legal aid certificate was actually granted. He referred to the decision in S v S and quoted from the Court of Appeal judgment which stated:

Mr McParland submitted that this did not apply to the present case as at all times the Claimant was in receipt of a legal aid certificate that covered the whole of the proceedings.

Mr McParland stated that contrary to what Ms Turpin has submitted the proceedings were still subsisting even after the date of the trial on 3 October 2001 in that there still had to be the assessment of damages to be dealt with. This was not proceeded with pending the Bank’s appeal to the Court of Appeal but there was no question of the legal aid certificate being extinguished or exhausted and at all times up to the 26 November 2001 the Claimant was in receipt of funded services by virtue of having been granted a legal aid certificate in August 1996.

Mr McParland stated that he had to carry out a considerable amount of work prior to 3 October 2001 in order to formulate his application for permission to appeal. Having been granted permission to appeal Mr McParland then had to prepare the notice of appeal and skeleton argument in accordance with CPR 52 and the relevant notices were served on the Claimant’s solicitors on 2 November 2001. Throughout this time the Claimant was in receipt of a legal aid certificate. The legal aid certificate could not be extended to deal with the Court of Appeal until after those documents had been served on the Claimant’s solicitors. Throughout that time the Claimant was in receipt of funded services.

Mr McParland referred to the actual wording of the extension to the legal aid certificate which covered the costs of the Court of Appeal from which it was expressly stated:

With regard to Regulation 5(4) Mr McParland submitted that that regulation only applied to a situation where the client received funded services in connection with part only of the proceedings. In this case she was receiving funding throughout the proceedings.

Consequently Mr McParland submitted that the LSC had failed to satisfy the court that there was any authority in support of their contentions.

In my judgment this issue has to be decided upon the interpretation of the relevant Regulations. In my view the philosophy behind the statutory policy would be relevant if I was being asked to decide whether it was just and equitable to make an order against the LSC. This is not the issue. The LSC has by the letter of 25 October 2002 consented to an order being made against it and only wished to be heard as to quantum. This quantum issue is whether they should be obliged to pay the Court of Appeal costs prior to the date that the Claimants legal aid certificate was amended to cover representation in the Court of Appeal.

The issue seems to me to be as to whether or not costs protection as defined by the Community Legal Service (Costs Protection) Regulations 2000 applies. The relevant regulations are regulations 3(3) and the various definitions contained in the interpretation regulation no.2.

Under Regulation 3 costs protection shall only apply to costs incurred in relation to proceedings which, as regards the client, are funded proceedings. Ms Turpin says that the Court of Appeal proceedings were not funded proceedings until such time as the amendment to the certificate was made on 26 November 2002.

The definition "funded proceedings" means proceedings in relation to which the client receives funded services, or that part of the proceedings in which the client receives funded services.

"Funded services" means services which are provided directly for a client and funded for that client by the Commission as part of the Community Legal Service under Sections 4 to 11 of the Access to Justice Act 1999.

"Proceedings" include proceedings in any Tribunal which is a court as defined in this paragraph.

I am satisfied that costs protection applies. Prior to 26 November 2001 the Claimant was receiving funded services as defined by the Regulations. On and before 3 October 2001 "as regards the client" the Claimant was in receipt of a legal aid certificate. She was being funded and therefore costs protection applies.

To come to any other decision would in my view create a number of anomalies. Firstly, Mr McParland informs me that the Claimant’s counsel strenuously resisted his application for permission to appeal. Ms Turpin tells me that strictly speaking the Claimants counsel was not funded to oppose the application. If that is correct a situation could arise whereby no successful assisted claimant could ever oppose an application for permission to appeal unless they had obtained a prior extension to the legal aid certificate. They could not apply for such extension until they knew whether an application for permission to appeal is being made, and they cannot know that until judgement is given in their favour.

The second anomaly would be that it is unlikely that the Legal Services Commission would ever extend a certificate to include representation on an appeal until the assisted person had been served with notice of appeal. Under the provisions of CPR the notice of appeal should be accompanied by a skeleton argument. If the LSC’s position was correct then it would mean that there could never be a case in which an ultimately successful non-assisted appellant could ever recover the significant costs of preparing the notice of appeal and skeleton argument from the Legal Services Commission pursuant to the statutory regulations. That clearly cannot be the intention of the regulations, or, in my judgement, the effect.

I have therefore decided that I find for the Bank in respect of the preliminary Point of Dispute and that their bill can include the costs incurred prior to the extension of the Claimant’s legal aid certificate on 26 November 2001.

On receipt of this draft judgment the parties are to apply to me for the matter to be restored for formal delivery of this judgment at which time I will listen to any further applications and if necessary give directions regarding the detailed assessment of the Bank’s bill.