The Lord Chancellor v Charles Ete and Co & Ors

The Lord Chancellor as successor to the Legal Services Commission (“LSC”) brings a claim for the recovery of payments on account made to a firm of solicitors, Charles Ete & Co (“the Firm”) under the legal aid scheme. The claim was brought in the High Court. The Defendants are firstly the Firm, secondly Mr. Charles Ete and thirdly Ratookumar Manorbhai Patel. At all material times the Second and Third Defendants were partners in the Firm.

The Third Defendant did not appear at the trial and Mr. Ete stated that he was unaware of the Third Defendant’s whereabouts. But on 22 July 2013 the Firm sent an Acknowledgment of Service on behalf of all three Defendants. At that point the Firm became the solicitor on the record, representing not only the Second but also the Third Defendant (CPR 42.1(1)). It has not been suggested that that formal position has changed since then. The Third Defendant has not communicated with the Court about his participation in these proceedings but from the record he is represented by the Firm.

During the trial the Defendants’ case was presented by Mr. Ete as the representative of the Firm and therefore continuing to act on behalf of all three Defendants. He is a solicitor with some nineteen years experience as an advocate. He was directly involved in the matters which are the subject of this litigation.

The Firm had contracts with the LSC to carry out both civil and criminal legal aid work for clients. The claim for recoupment of payments on account (“POA”) relates entirely to work carried out under a civil contract in respect of family proceedings. From 2009 the LSC became increasingly concerned as to the large number of certificated civil cases in which the Firm had not submitted final bills so that a reconciliation could be carried out between the POAs and a final assessment. Bills for a substantial number of cases had been promised by the Firm on a number of occasions and still not produced. The LSC were also concerned about the large amount of POAs compared to the Firm’s work in progress as well as its accounting procedures. An on-site audit of the Firm was carried out on 31 October and 1 November 2011 continuing on 7 and 8 December 2011. This resulted in two reports containing some serious criticisms of the Firm’s billing practices. The reports were sent to the Firm.

As a result of these investigations and the Defendants’ failure to provide adequate information, sanctions were imposed. On 4 November 2011 a contract notice suspended payment of future POAs for profit costs (but not disbursements). On 19 January 2012 the LSC sent a notice to the First Defendant to terminate the contract for family work. On 27 January 2012 the Firm instituted a contractual review in respect of that decision. On 2 March 2012 the Contract Review Body (“CRB”) conducted an oral hearing and on 9 March 2012 it issued a decision confirming the termination of the contract.

On 27 January 2012 the LSC issued the first of its letters notifying the Firm that it was exercising its powers to recover POAs. This process culminated in a letter from the LSC dated 24 July 2012.

On 15 June 2012 an on-site audit took place at the Firm’s offices in respect of work carried out under the crime contract. This audit was carried out by a different Auditor from the person who had audited the Firm in 2011. The Auditor recommended termination of the crime contract. On 4 July 2012 the LSC sent a notice to the First Defendant terminating its crime contract. On 26 July the Firm asked for a review of that decision by the CRB. Following a hearing the CRB decided to uphold the termination of the crime contract.

The Claimant issued his claim in the High Court on 11 July 2013. It relates solely to recovery of POAs for family law work and interest thereon. In an updated version of its Schedule of loss “A” the Claimant seeks repayment of £795,183.69, plus interest down to the date of judgment at the rate of 4% per annum. The Defendants deny that any circumstances arose entitling the Claimant to recover the POAs, whether under the contract or as a restitutionary claim. Moreover, in their Response to the Claimant’s Schedule A the Defendants say that the total amount of the work they have carried out exceeds the value of the POAs and therefore say they are owed by the Claimant £455,480.30 plus interest.

On 20 March 2013 the Firm had already brought a claim against the LSC in the Central London County Court. At that stage the only relief sought was a declaration that the civil contract had been wrongfully terminated on the grounds that there had been no evidence to support the LSC’s conclusion that there was a substantial risk to the legal aid fund because of the POAs made to the Firm. No claim for damages was made at that stage.

On 9 May 2013 the District Judge ordered the Claimant to file Particulars of Claim compliant with CPR 16.4. Amended Particulars of Claim were filed on 23 May 2013. The Firm alleged that both the civil and crime contracts had been wrongfully terminated because, in breach of the Unfair Terms in Consumer Contracts Regulations (1999 SI 1999 No 2083) and the Commercial Agents (Council Directive) Regulations 1993, the LSC had failed to give an adequate period of notice to terminate the contracts. It was said that three months should have been given. On that sole basis damages were claimed for alleged wrongful termination, but eventually this allegation was withdrawn by Mr Ete at the trial. By contrast, the Firm did not criticise or dispute any of the findings made in any of the Auditors’ reports.

In paragraph 16 of its Particulars of Claim the Firm alleged that during 2010 it had wrongfully been omitted by the LSC from the rotas for the Duty Solicitor Scheme in criminal matters, giving rise to a claim for loss of income of “up to £30,000”. It was also contended that, the LSC being a public body, the CRB’s review of the decisions to terminate had been tainted by breach of natural justice because it had included LSC officials and so its decisions to uphold termination of the contracts should be “set aside”.

On 13 August 2013 the Defendants filed a defence and counterclaim in the High Court proceedings brought by the Lord Chancellor. They alleged that the civil contract had been wrongfully terminated, because of the inadequate length of the notice period given (relying upon unfair contract terms legislation) and the breach of natural justice involved in the composition of the CRB (paragraphs 7 and 10). The only monetary claim made in relation to the crime contract was once again the alleged loss said to have arisen from the non-inclusion of the Firm in the Duty Solicitor Scheme (paragraph 9).

The defence and counterclaim also stated that losses had been incurred by the Firm by virtue of (a) the LSC’s decision on 4 November 2011 to suspend POAs in respect of profit costs under the contract for family work and (b) delays by the LSC in the payment of final bills submitted to them (paragraph 13). It has to be said that the Defendants have never supplied particulars (let alone specific evidence) in relation to either of these matters and in those circumstances it would have been impossible for the Lord Chancellor to respond. Mr. Ete merely made generalised assertions during the hearing about the effects on the financial circumstances of his Firm of alleged delays in the payment of final bills and the decision to suspend payment. These matters have not been pursued by him in any detail whatsoever and it would be impossible for the Court to reach any proper conclusions on them.

The only possible reference to the crime contract in the 2013 defence and counterclaim is to be found in paragraph 9. It is somewhat unclear but at most it only referred to the alleged inadequacy of the notice termination period for that contract. In particular, there was no allegation that the LSC did not have grounds for terminating the crime contract. As noted in paragraph 10 above this allegation was withdrawn at the trial.

On 16 October 2014 Master Yoxall ordered that the Firm’s claim in the Central London County Court be transferred to the High Court and should be tried together with the Lord Chancellor’s claim in that Court. In this way the two matters came before me for a trial beginning on 18 January 2016.

On 8 December 2014 the Defendants filed an amended defence and counterclaim in the original High Court proceedings. That document still did not contain any allegation that the Claimant had lacked grounds for terminating the crime contract.

Evidence from both sides was exchanged by way of written statements in the middle of 2015. The witness statements filed on behalf of the Defendants did not contain any criticisms of the Auditors’ reports, nor was it suggested that the LSC had not had any grounds for terminating the crime contract. Nevertheless when the Defendants served a Schedule of Loss in support of their counterclaim on 3 June 2015, items one to three related to alleged losses concerning the crime contract.

Paragraph 11 of the Claimant’s skeleton for this hearing stated that no claim in damages had been put forward by the Defendants for wrongful termination of the crime contract. In paragraph 18 of their skeleton the Defendants said that that was incorrect, but without indicating where they had set out a basis for alleging wrongful termination of the crime contract. Unfortunately Mr. Ete was unable to assist on this during the hearing. But Miss Nicola Rushton, counsel on behalf of the Claimant, was able to locate the brief passage in paragraph 9 of the defence and counterclaim filed in the original High Court proceedings in which it was vaguely suggested that the notice period for termination had been inadequate.

During the trial I gave Mr. Ete an opportunity to set out in writing the case he now wished to advance for claiming damages in relation to the crime contract. He produced a proposed amended defence and counterclaim. Some amendments related to the civil contract and therefore fell outside the scope of the opportunity given to Mr. Ete. He did not attempt to explain why he should be allowed to amend the Defendants’ case on the civil contract at this stage and he did not pursue that matter. As regards the crime contract, the proposed amendments sought to advance for the first time a challenge to the contents of the Auditor’s report and the recommended grounds for termination upon which the LSC had relied. The Claimant objected to these amendments because the matters alleged had not been raised before, adequate particulars had not been given and evidence produced by the Defendants to support this new allegation. Plainly the Claimant had had no opportunity to obtain and file evidence relating to these matters, or to secure the attendance of the Auditor concerned with the crime contract. For these reasons I refused to allow the amendments concerning the crime contract. Mr. Ete did not ask the Court to consider allowing the other amendments contained in his draft pleading. At the same time Mr. Ete confirmed orally to the Court that he only wished to pursue two points in relation to the termination of the crime contract:

In his closing submissions Mr. Ete confirmed that he was no longer relying on the Unfair Contract Terms Acts 1977 or the 1993 or the 1999 Regulations in order to contend that the notice period for termination had been inadequate for either the civil or crime contracts. It therefore follows that the Defendants’ pleaded basis for seeking damages for a wrongful termination of the crime contract fell away. In addition to the two points set out in paragraph 18 above, in his closing submissions Mr. Ete also sought to raise a third point, namely the matters relied upon by the Claimant do not fall within the scope of the contractual terms for termination. There is also the claim for damages for non-inclusion on the rota for the Duty Solicitor Scheme.

The damages sought under the Defendants' counterclaim have been set out in a Schedule dated 3 June 2015 and comprise loss of income from the wrongful termination of the Crime contract, the loss of income for non-inclusion on the Duty Solicitor, the balance of the fees due to the Firm on civil legal aid certificates (see paragraph 8 above) and damages for wrongful termination of the civil legal aid contract. These losses are said to amount to £2,849,354.27, on which the Defendants seek interest at 4% per annum to the date of judgment (instead of the rate of 8% previously claimed).

There has been some confusion on the part of both parties as to which documents should be treated by the Court as the relevant contracts for the purposes of the issues in this case. Ultimately they reached agreement. For civil work Charles Ete & Co operated under the “General Civil Contract” from about 2005 until 31 March 2007 when that contract expired. Although some of the civil legal aid certificates were granted before that contract expired, it is agreed that there is no need for the Court to consider its terms. From 1 April 2007 the Firm operated under the Unified Contract (Family and Housing). In part A of the standard terms for the Unified Contract clause 1.31 stated that where the contract replaced a previous contract the terms of the 2007 document would apply to all work in progress and claims to be assessed from the commencement of that new contract. It was to be treated as a seamless continuation of the previous contract. It appears that the duration of the Unified Contract was extended by the LSC on more than one occasion. Ultimately on 21 October 2011 the LSC gave notice to the Firm that its Unified Contract would be extended so as to expire on 31 January 2012. Consequently, the decisions taken on 4 November 2011, 19 January 2012 and 27 January 2012 firstly to suspend POAs, secondly to terminate the civil contract and thirdly to recoup an initial tranche of POA sums were taken under the terms of the 2007 Unified Contract. In fact the first recoupment was not carried out until 1 February 2012. Recoupment referred to the application of debit to a Firm’s account with the LSC; it does not imply that the sum involved was actually recovered.

It will be noted that although the LSC’s letter of 19 January 2012 gave 28 days’ notice of the termination of the Unified Contract expiring on 16 February 2012, the Unified Contract would expire by effluxion of time in any event on 31 January 2012. However, a letter dated 20 January 2012 from another department within the LSC informed the Firm that it had been successful in its tender to deliver family legal aid services under a new 2012 Standard Civil Contract (Family and Housing) to commence on 1 February 2012. The letter enclosed contract documentation for signature along with the relevant Standard Terms and Specification. The LSC signed its counterpart of this new contract on 25 January 2012 and Mr. Ete also signed a copy of the contract on behalf of the Firm. Why a new contract should have been entered into by the LSC given the findings of the audit is unclear, but no point is taken by the Defendants about that. During the hearing it was agreed by the parties that the notice to terminate could only have been given by the LSC on the supposition that contractual relations needed to be brought to an end by that method. Clause 1.27 of the new contract stated that it replaced the previous contract in relation to fees, remuneration and other related matters. The clause provided once again for a “seamless continuation of the previous contract”, which meant (inter alia) that “any notices issued (and any audits and assessments) under the previous contract(s) have effect under this contract” and “any appeals or applications for review under the previous contract(s) continue under this contract and any consequent decisions have effect under this contract”.

Miss Rushton submits that (a) when the notice to terminate the civil contract was given on 19 January 2012 the only contractual provisions which could have been relevant were those contained in the Unified Contract and (b) although that notice purported to terminate the relationship after the date when the Unified Contract would have ceased to exist (at the end of 31 January 2012), nonetheless the new contract had not come into existence yet and therefore as at 19 January 2012 the provisions for the termination of that new contract could not have been relied upon. In my judgment Miss Rushton is correct. But fortunately it is not suggested by either side that any part of the case hinges upon points of this kind. Primarily this is because it is common ground between the parties that the relevant contractual provisions are in all material respects identical, comparing the contracts in force before and after 1 February 2012. There is also no dispute that for the purposes of dealing with the issues concerning termination, this judgment may focus upon the relevant provisions contained in the Unified Contract. As for the action taken by the Claimant to recoup POA, the relevant steps began on 1 February 2012 and it is also common ground that the issues between the parties should be resolved by reference to the contract in force as from 1 February 2012, namely the Standard Civil Contract.

As to the crime contract, the Firm operated under a Unified Contract (Crime) from July 2008 until it expired by effluxion of time on 13 July 2010. From 14 July 2010 the Firm then operated under a new Standard Crime Contract until that contract was terminated by 28 days’ notice given by letter dated 4 July 2012, which notice expired on 1 August 2012. For the issues arising from the Defendants’ counterclaim, the claim for loss of rota payments and the termination of the crime contract, the relevant provisions are to be found in the Standard Crime Contract which began in 2010.

The family work which the Firm was authorised under the Unified Contract to carry out is referred to as “certificated work” or “licensed work”. Such work is to be distinguished from the carrying out of small, bulk work in the early stages of litigation before the issue of a certificate in a specific case, known as “Controlled Work”. The claim made by the Lord Chancellor includes a very small amount of £1,017.57 in respect of a net overpayment relating to Controlled Work. However the vast bulk of the Claimant’s claim is for the repayment of POAs under legal aid certificates in licensed work cases.

There is no dispute between the parties as to how the scheme for licensed work cases operated. After carrying out work under a legal aid certificate, the solicitor could apply to the LSC for up to 75% of any profit costs and 100% of any disbursements already incurred to be paid as a POA. At the end of each case the then “final conducting solicitor” had the responsibility to prepare a final bill which would include their own costs, counsel’s fees and any costs of solicitors previously engaged on that case. The final bill would be assessed either by the Court or by the LSC. If assessed by the Court the solicitor would then submit his final claim for costs to the LSC. If, however, the assessment was to be carried out by the LSC, the application for assessment as well as the claim for final costs would be made at the same time. Either way, the final claim for costs would be submitted by the solicitor to the LSC using a form known as “Claim 1”. The LSC would then balance the amount of the finally assessed costs (separately for each solicitor and counsel) against all POAs previously received. If the POAs were less than the final bill allowed on assessment then a further payment would be made to the solicitor. If, however, the POAs totalled more than the final payment assessed, then the amount of the overpayment would be due from the solicitor or counsel, as the case may be to the LSC. It is to be noted that in this case claims for POAs in respect of counsel’s fees and their final reconciliation with assessed costs were the subject of separate claims by counsel themselves.

A valuable exposition of the POA system and the circumstances in which recoupment might become appropriate was given by Cranston J in Legal Services Commission v Loomba [2012] 1 WLR 2461. POAs for legal aid work were introduced in order to assist cash flow for lawyers carrying out such work. There was a recognition that, whereas private client work could be charged on a pay as you go basis, legal aid payments might not be due until some considerable time after a certificate had been issued. Initially POAs were only available for disbursements, but in 1983 they were extended to profit costs and counsel’s fees. With the coming into effect of the Legal Aid Act 1988, the scheme was placed on a statutory footing (paragraph 10). By the Civil Legal Aid (General) (Amendment No 2) Regulations 2002 Regulation 102B was inserted into the Civil Legal Aid (General) Regulations 1989 so that “where for whatever reason a solicitor has been paid an amount greater than that to which he is entitled, the commission may recover the excess either by way of repayment by the solicitor or by way of deduction from any other sum which may be due to him” (paragraph 14).

When a POA was processed the LSC’s computer would input the amount of the POA as a credit to the account of the relevant solicitor. At that stage there would be no assessment of the sum claimed because that would only take place at the stage when the final bill was submitted (paragraph 15 of Loomba). The transaction would automatically be recorded on a statement sent by the LSC to the practitioner. According to the evidence in the Loomba case, it had become the practice within the profession to refer to this document as a “BACS statement”, even though it had nothing to do with the payment system operated by banks. BACS statements would be sent to the practitioner’s address so that each time a credit or debit was entered onto the LSC’s computer, the solicitor would receive up to date information on the state of his account (paragraph 16). When a final bill was submitted together with a Claim 1 form the caseworker would credit the solicitor with the total amount allowed either by the Court or the LSC on the detailed assessment and then debit (or set off) all POAs previously made to the solicitor in that particular case. This process known as recoupment ensured that the lawyer would receive only the amount assessed as properly due. A similar procedure was followed using a Claim 2 form where the conducting solicitor was prepared to accept the costs recovered from another party in the litigation in full satisfaction of their claim for fees (paragraph 18).

From 1991 onwards concern was growing that some solicitors were not properly accounting to the then Legal Aid Board for POAs. There was difficulty in establishing which cases were active and which were dormant. Moreover, solicitors which did not report the up to date position were able to retain POAs for many years without accounting for their final costs (see paragraph 19). To deal with the problem the LSC set up an Unrecouped Payments On Account (“UPOA”) team in 2001 (paragraph 21). At that stage all legal aid lawyers received information as to the process for recoupment which would be followed by the LSC if no final bill had been received within a certain time. The Firm would need to respond to a questionnaire about the case. If there was no response from the Firm after a reminder letter had been sent, the LSC would make a “nil assessment” by discharging the certificate or closing the case and entering a zero value bill on the solicitor’s account that would have the effect of automatically recouping all the payments made into the account (paragraph 22). In 2001 the LSC also issued UPOA Guidance which gave further explanation as to how the LSC would react according to the way in which a solicitor responded. For example, if the solicitor failed to respond to the request for information it might be reasonable to conclude that his silence implied that no further work was required on the case and in the absence of a final bill that there should be no claim on the legal aid fund. Moreover, “where the solicitor failed to provide information the Commission might conclude that the certificate was effectively dead.” (paragraphs 23 - 24).

From the outset it was made plain that even if a nil assessment was entered on the account and recoupment of POAs took place, the LSC would nevertheless accept a subsequent bill for assessment. Where money was repayable by a solicitor on a particular case the LSC would debit the amount and subtract it from any sums due to the solicitor under other certificates. If, however, the overall balance showed that the solicitor owed money to the LSC then they would recover the sum due from the solicitor. The LSC acknowledged that in some cases a claim for costs might not be supportable from a file because it had been either lost or destroyed, but the LSC said that in such circumstances they would accept the financial ledger for the case and contemporaneous evidence of time recording in order to prove the costs incurred (paragraphs 26 - 27). As regards BACS statements Cranston J held that according to common professional usage these documents were regarded as being not only debit notes but also payment demands where amounts remained outstanding to the LSC (paragraph 75).

In Loomba Cranston J held that the LSC was entitled to recoup POAs on the basis of nil assessments by three routes. First, he accepted that the LSC could rely on section 4(1)(b) of the Legal Aid Act 1988 which empowered it to do anything “which is calculated to facilitate or is incidental or conducive to the discharge of its functions…” He held that a nil assessment could facilitate the discharge of the LSC’s functions or be incidental to those functions because the LSC was bound by section 6(2) of the 1988 Act to pay out of the legal aid fund only sums properly due. Under section 15(7)(b) payments “properly due” are those authorised by the Regulations. A POA is a payment on account of an ultimate liability, and if that ultimate liability turned out to be less than the POA, or if the solicitor received payment of his or her ultimate liability from another source, the amount was repayable:-

“If a solicitor could defer indefinitely ascertainment of the ultimate liability, the result would be that he or she could keep the payment on account. That would frustrate the clear purpose of the regulations in permitting payments on account which … was to assist lawyers’ cash flow. It clearly is facilitative of, and incidental and conducive to, the functions of the Commission in administering the fund to be able to ensure that, where payments on account have been made, they are recouped if the solicitors have expressly, or by conduct, evinced an intention not to submit a claim for their final costs for assessment. Accordingly, section 4(1)(b) must be read as enabling the Commission to assess the final costs at nil.” (see paragraph 50).

Section 4(1)(b) of the 1988 Act has since been replaced by section 3(1) of the Access to Justice Act 1999 which is in all material respects to the same effect as the preceding provision.

Second, Cranston J accepted that regulation 102B(2) of the 1989 Regulations empowered the LSC to reclaim payments on account made to solicitors to which they were no longer entitled (see paragraph 61 to 63). Third, he also accepted that a claim could be made by the LSC for the recovery of POAs as a restitutionary claim. He held that that common law basis was not excluded by the statutory regime (see paragraphs 64 to 69). The Judge also recorded that, even in cases where a nil assessment is made, the LSC is prepared to review and where appropriate vary that assessment, if the solicitor produces a proper claim for costs albeit late (paragraph 77). In the present case the Claimant has made it clear to the Defendants that it would follow the same approach.

Mr. Ete confirmed in his evidence that at least from 2009 onwards, the period with which this case is concerned, he was well aware of the policy and practice of the LSC and the action it was taking for nil assessment and recoupment of POAs.

Clause 17.6(c) of the Unified Contract Standard Terms stated that the cumulative amounts of POA for profit costs could not exceed 75% of the amount of the profit costs which have been incurred by the solicitor.

Clause 7.3 required the Firm to have a case management system meeting the LSC’s specifications in accordance with Annex E to the Standard Terms. Annex E required the Firm to have an appropriate IT system incorporating (inter alia) the following:

“- A time recording system for all matters and cases;

- An up to date record of the value of your work in progress (including disbursements shown separately) on each matter and case; and

- An up to date record of the total costs of each matter and case.”

Annex E also stipulated that “in order for an IT system to be appropriate the information recorded on it must be capable of being quickly processed and retrieved.” Clause 8.2 of the Unified Contract stated (inter alia) “You must maintain an up to date running record of costs and disbursements incurred for each matter and case, otherwise you will be unable to demonstrate compliance with this contract.” Clause 7.7 required the Firm to “Record and report all data and information required by the contract promptly and accurately and in accordance with this contract.”

Clause 8.16 of the Civil Specification for the Unified Contract provided that in cases where costs are to be assessed by the Court, detailed assessment proceedings must be commenced within the time specified in the Civil Procedure Rules. Clause 8.17 of the same Specification provided that all claims for assessment and payment by the LSC had to be submitted within six months of the “right to claim” accruing and then defined the circumstances in which the right to claim would accrue.

During the period when the Firm was receiving POAs it was liable to the provisions for recoupment contained in clauses 18.2 to 18.9 of the Unified Contract. In summary, clause 18.2 enabled the LSC to issue a notice requiring the repayment of any “overpayment or mispayment” made to the Firm, or where the Firm was in breach of the contract and as a result the LSC had incurred or would incur a financial loss, or where the Firm had failed to submit a claim for costs as required by the contract after having received a POA in respect of the same matter. Clause 18.3 defined an “overpayment or mispayment” as including (inter alia) “(d) the amount of any payment on account in excess of any Maximum POA Limit”. Under clause 18.5 a payment on account which had been made during the course of the contract was to be repayable to the LSC in a number of circumstances which included “(c) we have requested information from you about the case and you have failed to provide it to our reasonable satisfaction within 14 days”. These and other provisions of the Unified Contract were replicated in the Standard Civil Contract which came into force on 1 February 2012.

The action taken by the LSC to recoup POAs paid to the Firm was taken under the Standard Civil Contract pursuant to clauses 14.12 and 14.13. 14.12 enabled the LSC to issue a notice of assessment or a notice of debt in connection with contract work which had the effect of making the amount specified in it payable to the LSC if (inter alia) “(a) we have made an ‘overpayment or mispayment’ to you; or (b) …… you have breached this contract and, as a result of the breach, we can demonstrate that we have incurred (or will incur) a financial loss; or (c) where you undertake civil contract work, you have failed to submit a claim, as required by this contract, after having received a payment on account from us in respect of the relevant matter or case.” Clause 14.13 defined an “overpayment or mispayment” as including:

“(b)

where payment has been made in respect of a matter or case, the amount of any subsequent reduction on assessment;

(c)

where payment has been made in respect of a matter or case, any sum which we are not required to pay (or you are not entitled to be paid) for some or all of the work that you have carried out;

(d)

any payment specified as such in the Specification.”

Clauses 6.29 and 6.30 of the Specification to the Standard Civil Contract enlarged the definition of “overpayment or mispayment” under clause 14.12 so as to include under clause 6.30 the following alternative circumstances in which a POA would become repayable to the LSC:

“(a)

three years having lapsed since the date of issue of the funding certificate for the case in respect of which the payment on account was made;

(b)

three months have elapsed since the case ended;

(c)

we have requested information from you about the case and you have failed to provide it to our reasonable satisfaction within 14 days;

(d)

…”

Clause 6.31 provided that if the Firm became aware that any of the events set out in (inter alia) clause 6.30 had occurred, then they should notify the LSC of that within fourteen days so as to enable the latter to adjust the Firm’s account and if necessary to require repayment. Clause 6.32 provided that “Before seeking repayment in respect of an overpayment or mispayment under paragraph 6.29, we will give you an opportunity to state why we should not do so. If you have made out good reason why we should not do so, then we shall not seek repayment.”

Clause 26.5 of the Standard Civil Contract also provided that “When this contract ends all ‘overpayments and mispayments’ (as described in clause 14) become repayable to us and we may assert our rights in clause 14.11.” I accept the submission of Miss Rushton that if the contract for family work was lawfully terminated, then this clause enabled the LSC to recover any “overpayment or mispayment” as defined in clause 14 without having to comply with the requirement in paragraph 6.32 of the Specification to the Standard Civil Contract that the Firm be given an opportunity to explain why recoupment should not take place.

Clause 30 of the Unified Contract set out the various bases upon which the contract could be terminated by either party. The letter dated 19 January 2012 from the LSC giving formal notice of termination of the contract relied upon clause 30.9(a). That provision applies where “We [the LSC] receive a Report and consider that termination is required to protect the clients or us from possible serious harm or to protect public funds or clients’ interests”. The letter relied upon the Auditor’s reports following the on-site audits between 31 October and 8 December 2011. However, in its decision letter dated 9 March 2012 the CRB upheld the termination of the civil contract on the basis of clause 30.9(g) and not 30.9(a). It pointed out that in a letter from the LSC dated 8 February 2012 the Firm had been made aware that the CRB might consider the appropriateness of termination pursuant to clause 30.9(g).

Mr. Ete rightly pointed out that the term “Report” meant for the purposes of clause 30.9(a) “A Report (written or oral) about you or your personnel from an organisation that may carry out an Official Investigation” (see clause 1.1 with emphasis added). Mr. Ete submitted persuasively that the Auditor of the civil contract, Caroline Winch, could not be treated as an “organisation” and that the term “Report” has not been defined so as to include the LSC as an organisation. It would appear that the term is directed at an organisation external to the LSC. He reinforces that submission by referring to the definition of “Official Investigation” in clause 1.1. That definition does include the LSC generally but does specifically include its “Investigation Section” where that department is investigating “suspected serious breaches of this contract”. That indicates that the LSC is not otherwise included with the term “organisation”. The Claimant does not suggest that the Investigation Section was involved at any stage in this matter. Although Miss Rushton did not concede that clause 30.9(a) was not applicable here, she did not press the point. For the reasons set out above I am not satisfied that the LSC would have been entitled to rely upon clause 30.9(a) in this case.

Clause 30.9(g) applies where the Firm has “committed a Fundamental Breach” referring to the definitions of Fundamental Breach in Annex H. The Claimant’s case on its entitlement to terminate the civil contract essentially relied on this position. The CRB decided to uphold that termination on the basis that Fundamental Breaches B and C were established. The definition of Fundamental Breaches in Annex H falls under four limbs. Breach A is concerned with a single provision that is so important that the breach justifies termination. Fundamental Breach D is concerned with dishonesty. Neither of those provisions applied in the present case. Fundamental Breach B is defined as:

“More than one breach which, together, are so serious that termination is justified.”

Fundamental Breach C is defined as:

“One or more breaches, from which we may reasonably infer that performance will continue to be so substandard as to justify termination.”

Paragraph 2 of Annex H provided that “termination for Fundamental Breach B will normally be justified in such cases even if the Supplier takes corrective action….”.

The continuity provision in clause 1.27 of the Standard Civil Terms which replaced the Unified Contract in this case as from 1 February 2012 had the effect that the notice of termination dated 19 January 2012 continued to operate under the terms of the replacement contract.

It is convenient at this point to deal with a number of submissions made by Mr. Ete on the lawfulness of the termination of the civil contract. First he submits that the letter of 19 January 2012 was not a valid notice to terminate the contract because it was merely a reply to a representation which he had made to the LSC by letter dated 6 January 2012. He did not elaborate on this and seek to justify his proposition. True enough the response from the LSC did begin by setting out its consideration of the representations which Mr. Ete had made under the “informal reconsideration” procedure set out in the Unified Contract. For the reasons set out in the letter the LSC considered that Mr. Ete had not supplied sufficient grounds to justify altering the earlier recommendation to terminate the contract for family work. The letter then went on to set out the basis upon which the contract would be terminated and the reasons for that decision having regard to the findings of the Auditor and the representations made by Mr. Ete. There is nothing in the contractual terms, nor any legal principle which could prevent a letter responding to representations in an informal review against the termination of the contract from going on to give a valid notice of the termination of the contract. The letter dealt with both of these aspects in terms which were perfectly clear. It made no legal difference that one letter, rather than two, was sent in order to deal with both aspects. The termination was legally certain and clear. Mr Ete did not suggest otherwise to the Court. There is nothing in the first point raised by Mr. Ete.

Secondly he submitted that the CRB was not entitled to substitute a different ground, namely clause 30.9(g) for the provision previously relied upon in the formal notice to terminate, namely clause 30.9(a). It is common ground between the parties that this argument turns upon the correct construction of clause 32.21 of the Unified Contract. This provides:

“Our Legal Director or the CRB’s determination (as appropriate) may e.g. allow the formal review, dismiss the formal review, make a different decision, give directions to the Regional Office or recommend that a fresh decision is made after a specified period. For the avoidance of doubt our Legal Director and the CRB’s determinations are our decisions.”

Mr. Ete submitted that if, for example, the CRB wished to substitute corrective action for the termination of a contract, they would not be able to remake the decision themselves but would, as he put it, have to send the matter back to the official who took the original decision with a direction to make a fresh decision himself substituting corrective action for termination. I do not accept this submission. In my judgment Mr. Ete is confusing a contractual process which is to be operated in accordance with the terms of the Unified Contract with legal proceedings in the Court by way of judicial review or appeal. Mr. Ete says that the procedure laid down by the Unified Contract is simply a process of review and not a redetermination. Nevertheless this process of review is one which according to the express terms of clause 32.21 gives the CRB a broad range of options. Depending upon the material before the CRB and the conclusions they come to, that body is entitled to give directions to the regional office as to what action should be taken or alternatively they may recommend that a fresh decision is made by the relevant official. But that is not all. The CRB is given an express power to make a different decision itself. Therefore Mr. Ete was driven to submitting next that the phrase “a different decision” does not include substituting a different ground of termination for one which had been relied upon by the official who took the initial decision. The ordinary meaning of the words used in the contract do not support that submission. They do not distinguish between the different types of decision which may be made. In my judgment it is possible, for example, for the CRB to reach the view that a less serious outcome should be imposed than termination. They could decide in an appropriate case to substitute corrective action. The contract has not been drafted so as to require an alternative decision to be retaken in all cases by the officials who dealt with the matter originally rather than by the CRB; that would have made no sense. I have reached the firm conclusion that the Unified Contract does allow the CRB to substitute a different ground for termination. The process before the CRB is not quasi-judicial or akin to a tribunal. Instead it is an internal process of review within the LSC itself.

Third, Mr. Ete submits that the decision of the CRB was in breach of natural justice and therefore, as he put it, should be set aside by the Court because the panel which conducted the hearing on 2 March 2012 included an employee of the LSC. I note that the panel also included a nominee of the Law Society. I am satisfied that the composition of the panel accorded with the terms of clause 32.13 of the Unified Contract. Mr. Ete has not submitted otherwise. I also accept the submission by Miss Rushton that the concept of natural justice or procedural fairness is irrelevant in this context. Although the LSC was a public body, the CRB was not acting or purporting to act as an independent tribunal. Instead it was acting in its capacity as an internal reviewing body pursuant to the terms of the Unified Contract. The suggestion by Mr. Ete that the Court should consider setting aside the decision of this body indicates once again that he is confusing the private law, contractual procedure to be followed by the CRB with processes governed by public law and amenable to judicial review. In any event, even if this issue is considered in a public law context, it is well established that procedural unfairness can be cured by a reconsideration of the matters in issue by a superior body. In this case the Defendants are disputing the lawfulness of the termination of a civil contract in the High Court. In these proceedings it has been possible for the Defendants to challenge the factual basis upon which the decision to terminate the family contract was reached, to call evidence on that issue and to ask the Court to reject the criticisms made of the firm, or to conclude that the circumstances of the case fall outside the clauses permitting termination of the contract. For these reasons there is no merit in the breach of natural justice allegations. My conclusions inevitably mean that there is no merit either in Mr. Ete’s submission that the CRB’s decision upholding the termination of the crime contract was tainted by a breach of natural justice.

Fourth, Mr. Ete submitted that the termination of the civil contract did not comply with clause 24 of the Standard Civil Contract. He relied upon clause 24.1(b) which provides that where a supplier persistently breaches the contract then the LSC is not required to provide the supplier with written notice of each breach. Here, he said the breaches had not been persistent, the sole consequence being that the LSC had not been entitled to take action to terminate the contract for family work (page 7 of Mr. Ete’s closing submissions). For the purposes of that provision the phrase “persistent breach” is defined as meaning either three breaches of the same term in 24 consecutive months or six breaches of the contract in 24 consecutive months. Mr. Ete complained that it had not been demonstrated by the Claimant that breaches of the same term or breaches of the contract had persisted over a period of 24 consecutive months. The submission is misconceived because this provision is simply directed at whether the LSC is obliged to give written notice of each breach, but the Defendants have not suggested that the LSC failed to comply with its obligation to give notice of the breaches relied upon. The 24 consecutive months rule is not used by clause 24.1(b) to delimit the circumstances in which a sanction can be imposed under the contract, including the sanction of termination. That is plain from reading clause 24.1 as a whole. It commences with the words “we may apply any sanction:” and also includes “(a) if you have materially breached this contract or any other agreement between you and us from time to time” or “(c) if we are entitled to suspend or terminate this contract or any other agreement between you and us from time to time” or “(d) where any other term of the contract states that we may apply a sanction”.

For completeness, I note that Mr. Ete is relying on a provision contained in a contract which so far as the Firm is concerned was in force from 1 February 2012. Clause 29 of the Unified Contract contained a similar set of provisions in respect of contract sanctions, but the Court was not shown any parallel provision in the Unified Contract which depended upon the “24 consecutive months” principle. At all events it is unnecessary for the Court to resolve any issue as to whether the termination in this case was governed strictly by the terms of the Unified Contract or by the terms of the Standard Civil Contract which came into force on 1 February 2012 for the reason I have given already, namely that the provision in the Standard Civil Contract upon which Mr. Ete relies is only concerned with the narrow point of whether the LSC need not give written notice of each breach. Mr. Ete has not relied upon clause 24.1(b) of the Standard Civil Contract for that purpose whether in any of his pleadings or in his closing submissions where he relies upon this clause. Moreover he fails to refer to clause 24 as a whole and to appreciate the specific purpose for which subparagraph (b) has been inserted. His submission completely ignores subparagraphs (a), (c) and (d) and I reject it.

What then are the remaining issues for the Court to determine in respect of the Defendants’ counterclaim for damages for wrongful determination by the LSC of the civil contract? It must have been plain to the Defendants that the decision to terminate and the confirming decision of the CRB rested upon the highly adverse findings of the Auditor in her two reports of 2011. It is remarkable that the pleadings by the Defendants fail to engage with those findings. The contemporaneous correspondence from Mr. Ete did not contain any effective refutation of those findings, including supporting material to demonstrate why the Auditor’s conclusions were incorrect. Even Mr. Ete’s witness statement in these proceedings dealt with only some aspects of the Auditor’s report and in a highly superficial manner. Notwithstanding the considerable amount of documentation provided to the Court in at least 18 bundles, the Defendants have still failed to grapple with the detail of the serious findings made against them in the Auditor’s report and endorsed in the termination decisions of the LSC.

In this judgment I will review the contemporaneous correspondence and deal with the points which have been raised during the hearing. In the light of those matters I will also address Mr. Ete’s submission that the matters relied upon by the LSC did not justify termination under the Unified Contract as fundamental breaches. He complains additionally that the LSC failed to consider requiring the Firm to take corrective action instead of terminating the contract. However he has failed to point to any provision of the contract which might have obliged the LSC to require corrective action to be taken instead. On the submissions made by the parties to the Court in my judgment the issue on this part of the case is simply whether on the evidence there were fundamental breaches which entitled the LSC to terminate the contract.

On 14 April 2009 the LSC’s UPOA team wrote to the Firm. The letter stated that the Commission was reviewing the Firm’s outstanding POAs. The letter enclosed guidance explaining the background to the request for information and a list of the Firm’s certificated cases. The Firm was asked to state the position on each case by 26 May 2009 using the LSC’s list, indicating whether cases were live or completed and, if the latter, the date by which a final bill for costs would be sent to the Commission.

The Firm responded on 22 May 2009 with their replies for each case on the LSC’s schedule. For the most part the Firm stated that final bills would be submitted during the period July 2009 to December 2009. The Firm must have appreciated that the LSC would have taken that response to indicate that those cases were completed, otherwise a final bill would not be prepared. In a minority of cases very brief comments were given to suggest that litigation was still ongoing, a typical example being “directions appointment”. The LSC responded on 27 May 2009 to say that the Commission had updated its records with the information provided by the Firm and that it would carry out a check at a later date on cases where the Firm had stated either that a bill was to be submitted or that the case was ongoing.

On 8 March 2010 the LSC wrote again to the Firm stating that the check had been carried out. A list was enclosed showing all cases where a bill was due and the Firm was asked to clarify the position in each case and indicate the date when it was anticipated the bill would be submitted. The firm was also asked to provide an update of the current position for each case, which in 2009 it had said was ongoing. The letter concluded:-

“Using the case lists enclosed please submit your response to me by 5 March 2010. If you fail to do so I will unfortunately have no choice but to close the remaining cases and recoup the outstanding payments on account.”

It must therefore have been plain to the Firm from that stage, if not earlier, that the LSC was prepared to recoup payments on account if satisfactory and reliable information was not provided by the Firm. On 11 March 2010 the Firm responded enclosing a revised report. In its letter the Firm stated that they had had to retrieve some of the files from “a previous costs drafter” who had been unable to complete the bills for his own personal reasons. The letter said “we have sent the files to a new costs drafter hence the revised date. The other matters are pending and we have indicated the stages accordingly.” In the majority of cases the Firm stated that bills would be submitted to the LSC during the period from July to November 2010. Once again it must have been plain to the Firm that it was representing to the LSC that those cases had been completed. In a minority of cases the Firm sought to indicate that the matters were still live by such brief descriptions as “further hearing for directions” or “follow up work”. The letter also gave the clear impression to the LSC that the only reason why bills had not already been submitted already in accordance with the timescales given in 2009 was because of a difficulty they had experienced with a former costs draftsman. The Firm did not suggest that a bill had not been submitted because a case had, or might, become alive again, or because of any financial difficulties in being able to pay for the services of a costs draftsman. The Firm’s clear statements were reinforced by its reliance upon the services of a new costs draftsman, giving confidence that the bills would be submitted to the LSC within the revised timescales indicated. The LSC responded on 17 March 2010 stating that it had updated its records in accordance with the information supplied by the Firm. The letter concluded by saying: “With regard to cases that are “awaiting bills”, please ensure you submit all bills by the dates you have indicated.”

On 19 January 2011 the LSC wrote again to the Firm saying:

“Further to the previous correspondence regarding your outstanding payments on account I note that we are still waiting to receive your bills on a number of cases. I enclose a copy of the relevant case list. Please can you ensure your bills are submitted by 10 February 2011 or at least provide me with a clear indication as to when they will be sent. It appears that you intended many of these matters to have been billed last year. Unfortunately if I do not hear from you then I will need to start closing some of these cases and make the appropriate recoupments.”

The Firm responded on 9 February 2011 saying that the reasons for revising the date for sending the bills to yourselves were because some had been sent to the Court for assessment and some were subject to queries on counsel’s fee note. The letter was accompanied by a schedule in respect of the Firm’s cases but I note that in only one instance was it stated that a bill had been sent to the Court for assessment and that in no case did the schedule indicate that there was an issue with regard to counsel’s fee note. The letter continued:-

“Some of the bills are also still with the costs drafters. The costs drafters have informed us that they currently have backlogs and they are dealing with them. We therefore ask that you allow the revised estimated time. It may be that some of the bills will come before the estimated date.”

That paragraph plainly indicated two things. Firstly it was represented once again to the Commission that bills were being prepared by the costs draftsman for cases which had concluded. It was not suggested that any of these cases had become active at some point during the two year period between 2009 and 2011 or that they might revive. Secondly, the LSC was told once again that the revised time estimates took into account the workload of the costs draftsman. The Firm’s schedule gave revised time estimates that nearly 40 bills would be submitted between May and September 2011. The letter concluded:-

“Meanwhile we have given mere estimates of the dates below. Therefore, please do not close the files as we are making efforts to get the bills assessed as quickly as possible.”

The LSC responded on 10 February 2011 by a letter stating:-

“I note the problems you are having in getting your bills drafted and manoeuvred through the assessment process so I will re-diary your outstanding cases for a few months for the time being. I will recheck the situation periodically to ensure the bills are being received and I note that you will keep me informed.”

In July 2011 Caroline Winch, an Auditor employed by the LSC, was asked to carry out an audit of the Firm. It appears from emails at that time that the Firm had 54 outstanding cases. Initially the audit was to take place on 31 October and 1 November 2011. It was to cover the 2007 Unified Contract for family work. I accept on the evidence that the Firm would have had at least two weeks’ notice of the audit and that they received with that notice a copy of the Audit Plan prepared by the Auditor, informing them of the materials they would need to prepare in advance and the issues which would be addressed. The Audit Plan stated that:-

“The Legal Services Commission has a responsibility to ensure that public money is appropriately spent regarding the provision of Legal Aid. Where claims are made upon the Legal Aid Fund, claims have to be made in accordance with this specific requirements of the Contract. Charles Ete and Co Solicitors have Contracts which permit them to provide advice to clients in the family and crime categories of law. The Firm therefore have a responsibility to ensure that clients are eligible to receive publicly funded advice and that all claims by the Firm, on the fund, are accurate.”

The purpose of the audit was stated to be:-

“…to seek reassurance that Charles Ete and Co Solicitors are reporting claims accurately and are more generally meeting the requirements of their Contract. The audit will involve discussions with members of staff…, a review of files and a review of standard documentation.”

The Audit Plan stated that the Firm needed to provide for the first day of the audit (inter alia) “a full summary/statement setting out overall WIP figures for all publicly funded certificated cases” and “full ledger/account print outs and WIP/Running record of costs” for 20 listed cases where Legal Aid certificates had been granted between April 2004 and February 2011, but in most instances between 2004 and 2008. The Plan also required the Firm to provide the files for the cases of George, Jones, Eisemoghie and Begum and Mativa for day one of the audit. The Firm was warned that further files from the list of 20 cases might be requested during the audit. The Plan attached a report by the LSC on the Firm’s POA, showing all the certificates which it currently held and listing the POA balances where claims had been made against the Legal Aid fund. The Firm was asked to review the report before the audit and to confirm whether matters shown as live remained current and where matters had concluded to report the stage reached in billing (e.g., whether with costs draftsmen for the preparation of a bill or submitted to the Court or LSC for assessment). The Firm was also required to produce information at the beginning of the audit relevant to the accuracy of claims submitted and compliance with supervisory requirements.

The Auditor’s visit took place as arranged on 31October and 1 November 2011. The Firm did not ask for any further time in which to prepare for that visit. Her report was provided to the LSC and to the Firm in early November 2011. In her summary recommendation the Auditor said:-

“Due to the Firm’s inability to provide accurate and up to date financial information, it was not possible to complete the checks required to gain an assurance that the Firm is complying with Contracts in place. The Firm was unable to demonstrate that the payments on account for which it is responsible had been properly claimed and are being properly retained. For this reason I recommend that a Contract Sanction be applied under Clause 29 of the Unified Contract (Civil) 2007 (Standard Terms 2007), suspending further payments on account of profit costs, for a minimum period of six weeks.”

The report added that it had been reviewed by one of the LSC’s Audit Managers who had approved that recommendation.

The primary focus of the audit had been on POAs for family certificated work. The first part of the report dealt with POA and IT requirements. The findings included the following:-

The report identified further action needing to be taken. In particular, a further audit was to be conducted at the Firm in approximately six weeks’ time to evaluate the Firm’s claiming process for POAs and to determine (inter alia) whether the figures provided to support POA claims were generally accurate, and whether the financial/accounting systems used by the Firm to maintain records of costs and activity on publicly funded cases are accurate and up to date. In addition the Firm was told that it would have to ensure that accurate and up to date ledgers and running records of costs would be available together with any files requested for inspection and that where files were said to be either with a costs draftsman or the Court for assessment of costs, the Firm would have to provide verification.

The second part of the report turned to delays by the Firm in billing on Legal Aid matters. In summary, the report’s findings were as follows:-

The Auditor’s report has set out the further action that was required to be taken:-

The third part of the Auditor’s report dealt with reporting and claiming by the Firm. It was noted that 3 claims had been duplicated so as to amount to 6 claims. The report advised that 3 duplicate claims should be nil assessed.

The fourth part raised issues on supervision of staff and the review of files in legal aid cases, and required further steps to be taken by the Firm.

Appendices to the report recorded details of the information which the Auditor had obtained from those files which had been produced to her, including details of the duplicate claims made by the Firm. Those records should have enabled the Firm to check at that stage the accuracy of certain key findings in the Auditor’s report and to challenge those findings with alternative evidence if they were in a position to do so.

On 4 November 2011, the LSC sent a contract notice to the Firm in which breaches of contract were identified arising from the findings of the first audit report. The addendum to the notice plainly stated that the breaches at that stage comprised the following:-

On 11 November 2011, the Firm sent a letter to Mr. Ronan Kelly, an Audit Manager with the LSC. One of the main objects of this letter was to request Mr. Kelly to consider lifting the sanction on POA payments for profit costs. The letter said that the sanction would exacerbate the cash flow problems already being experienced by the Firm. As to the findings in the Auditor’s report, the Firm suggested that the WIP figure which had been supplied of £1,949,620.37 did not include work on non-certificated cases, such as immigration work. [However, I note that that assertion was contradicted by the concession subsequently made in the Firm’s letter of 6 January 2012, where it was accepted that the figure did wrongly include non-certificated work, including private immigration work and “legal help”.]

The Firm’s letter of 11 November 2011 acknowledged that running records of costs had been provided for only 3 out of the 20 cases notified in advance by the Auditor. The letter said that the information required would be provided:-

“Some were produced and more time was requested to produce the others, the Auditor agreed to give more time, these will be provided in the time given.”

In the light of that statement, the LSC was entitled to expect that when the Auditor returned to the Firm in December 2011, all the requested details would be provided. The letter accepted the allegations of over-claiming in relation to POA in the following terms:-

“In respect of over-claiming, we believe this to be an error of the system, or a mistake as to the applicable rate; corrective measure will be taken to ensure the correct rates are used and the system updated.”

It is to be noted that at no stage did the Firm identify the errors which it had uncovered or the specific corrections it had applied. Nor was this matter covered in the evidence produced by the Firm before this Court.

With regard to the timing of the second stage of the audit, the Firm said:-

“We welcome a new date for further audit as the Auditor has stated we welcome dates in December 2011. We ask that we be given adequate time to obtain the information and documents needed and the information and documents needed should be clear and precise and if any alternative is requested this be made clear with proper notice given.”

It is apparent that the Firm appreciated the urgency of the situation and did not suggest that a further audit during December would pose problems because of the approaching Christmas period. That contradicts Mr. Ete’s evidence during the trial when he relied upon the Christmas period as a reason for the Firm failing supply the information required during the second stage of the audit.

On 22 November 2011 Mr. Joe Cowley, another Audit Manager with the LSC, wrote to the Firm. He stated that he had approved the first audit report prepared by Caroline Winch. He took some care in this letter to set out the concerns which the LSC had at this stage and to ensure that the Firm was fully aware of what it would need to provide at the second stage of the audit so as to enable Miss Winch to check that payments had been properly claimed and retained in accordance with the Legal Aid scheme. In summary, his concerns were as follows:-

The LSC’s letter dealt with the report the Firm was required to produce on outstanding legal aid cases, distinguishing between “open” and “closed” cases. For open cases, the Auditor would want to see a sample of the client file(s) and an up to date running record of costs, to check whether the file was readily available, when the last activity on the case took place, whether the running record of costs was accurate and up to date, and whether any claims for POA had been made in line with the scheme rules. “For the avoidance of doubt, please be aware that the Auditor may wish to check files and a running record of costs for any open case, not just those you were asked to produce at the last audit”. For closed cases, the Auditor would need to determine where the case files were located, and to check whether the Firm had done the work necessary to send the case to a costs draftsman, or the bill was presently being drawn up but not yet submitted or, the bill had been sent to the LSC or a Court for taxation or assessment or whether, for whatever reason it was not possible for the Firm to not bill the case at the time. Once again the Firm was required to provide verification of any assertion that a case was in the hands of a costs draftsman or a Court for taxation purposes.

The final paragraph of the letter stated:-

“I’ve written at some length because, as I am sure you realise, I regard the payments on accounts position as being one which poses potentially serious risks to the Legal Aid fund and to the Firm’s status as a contracted provider. I hope that at the forthcoming audit you will be able to demonstrate those concerns are unfounded.” (emphasis added)

The Court has not been shown any evidence to suggest that the Firm got in touch with the LSC or the Auditor at that point to indicate that it did not understand what information it was required to provide or that it would be unable to comply by the time of the audit in December 2011.

On 23 November 2011 Mr. Kelly responded to the Firm’s representations in its letter of 11 November 2011, in the LSC’s “informal reconsideration” of the sanction suspending payment of POAs imposed on 4 November. After referring to findings in the audit report, Mr. Kelly stated:-

“In order to fulfil our duty to protect public funds I consider that the decision to suspend further payments to you was fair in the circumstances.”

The letter also took into account concerns which Mr. Cowley had expressed in his letter of 22 November. It should also be noted that the Firm was informed that the second stage of the audit would take place during the first two weeks of December. I note that it was not suggested by the Firm even at this stage that it would be unable to comply with the LSC’s requirements within the timescale given.

The second stage of the audit took place on 7 and 8 December 2011. The Auditor’s report was sent to the Firm on 13 December 2011. The report recommended that the Firm’s contract for family work be terminated with 28 days’ notice pursuant to Clause 30.9 of the Unified Contract Standard Terms and that payment of any further POA should continue to be suspended. Those recommendations were in due course approved by one of the LSC’s Audit Managers. During the second stage, the Auditor interviewed Mr. Charles Ete and also Mr. Roland Ojo (a self-employed data entry clerk).

The first part of the report dealt with POA and IT requirements including time recording. The Auditor’s findings included the following:-

The second part of the report dealt with delays in billing. The findings of the Auditors included the following:-

It is important to note that Appendix 1 which the Auditor compiled from the documents provided by the Firm set out information against each Legal Aid case such as the POA amounts that had already been paid and the total value of the work which had been carried out according to the Firm, as well as the last date when there was any record of work having been carried out. In my judgment it is plain that if the Firm disputed any of the Auditor’s findings, it had a good opportunity at that stage to refute them by producing evidence.

The Firm responded to the second report by the Auditor in a letter dated 6 January 2012. Much of the letter is taken up with points which are not pursued by the Defendants in these proceedings. For example, it was wrongly asserted that pursuant to Clause 30, the LSC had been required to give 6 months’ notice to terminate the contract rather than 28 days.

The letter also suggested for the first time that the Firm had been unable to supply the information required at the second stage of the audit owing to the impending Christmas holiday period. I interpose to make the obvious points that the Auditor’s second visit had taken place towards the beginning of December and that in any event that could not have prevented the Firm from supplying any information it had to refute the findings of the Auditor in the subsequent review procedure conducted between January and March 2012

The Firm’s letter criticised the Auditor’s findings regarding the total work in progress figures which the Firm had given her. Firstly, it was said that on 31 October and 1 November 2011 it was the Auditor who had asked for categories of work omitted from the total value of work figure. That was a bad point to take because it disregarded the Auditor’s initial request for a total WIP figure for certificated cases only; those were the relevant cases to be addressed. Secondly, the Firm criticised the Auditor and the LSC for using a POA figure which allegedly included payments made to other firms of solicitors before certificates had been transferred to the Firm. However, it did not identify those other firms or the payments involved to enable the assertion to be checked and, insofar as might be justified, the figure for POA adjusted.

The letter also stated that “the Firm has started billing its files and has been billing its files and has set a target date of 18 months to clear a substantial backlog of the bills”. That sentence is consistent with earlier letters from the Firm in 2009, 2010 and 2011 which had treated a substantial proportion of the Firm’s certificated cases as already concluded.

The Firm said that in respect of the 16 out of 20 cases where running records had disclosed excessive claims for POA, the errors had been corrected, but the Firm had been unable to do this before the second stage of the audit because of time constraints. The Firm said that they should be given adequate time to complete this process of reconciliation. But it does not appear from any subsequent correspondence that any steps were taken by the Firm to bring these errors and corrections to the attention of the LSC or, indeed, to show the Court how they had been taken into account by the Firm in either its response to the Claimant’s schedule of loss (updated schedule A) or in the Defendants’ own schedule of loss in support its counterclaim.

As for excessive levels of file reviews, the Firm stated that in a 2004 audit the LSC had said that the Firm had not been carrying out sufficient file reviews and consequently it had taken corrective action in this respect. The letter said “if the Auditor is now recommending that we have done more than enough, then we will take this on board and reduce same” (emphasis added). In my judgment, that response was, to say the least, disingenuous. The figures quoted by the Auditor from the Firm’s records obviously called for the extent of the file reviews which had been claimed by the Firm to be justified. The Firm’s response indicates that it was not in a position to say that all of the review work had been necessary, if indeed it had taken place. Whether or not those figures could be justified plainly lay within the knowledge of the Firm and it was the Firm’s responsibility at this stage to put forward any justification that it was able to. It made no attempt to do so in this letter or indeed subsequently, not even at the trial.

In the letter of 6 January 2012 the Firm accepted that there had been errors in the client ledgers as set out in the Auditor’s report. It was said that those matters had been corrected but no further detail was given to demonstrate that that was so. The Firm made no attempt to refute the Auditor’s point that it had been impossible for live checks to be carried out against the Firm’s computerised records. As for the additional alternative checks carried out against the Firm’s own total cost figures, the letter stated that the Firm was unaware as to which of the 36 out of 88 cases the Auditor had been referring to. It was said that if the information were to be requested and the Firm given adequate time then it could be provided. Once again this appears to have been disingenuous because the relevant data had been set out in Appendix 2 to the Auditor’s report. The Defendants did not suggest, nor did it appear to me, that that information was insufficient to enable the Firm to understand the point being made by the Auditor.

As to the point made in the Auditor’s second report that no supporting information had been retained by the Firm for each POA claim, whether a computer-generated running record or a manual costing, the Firm stated that manual running costs were now available and claimed that they had been reconciled with computer printouts and errors corrected. It was said that the running records of costs which the Firm had provided to the Auditor were uncorrected versions and that corrected versions “are now available”. However, the Firm does not appear to have taken any steps to supply this information to the Auditor or to the LSC, either under cover of this letter or subsequently during the review process. If the information really had been available, there was no good reason for the Firm not to provide it to the LSC and to explain why the Auditor’s conclusions should not be accepted. It should have been a straightforward matter for the Firm to do this but there is no evidence before the Court that it took any such step. From this it appears that the Firm did not accept its contractual obligation to provide reliable accounting evidence so as to demonstrate that its claims for POA had been well justified, both at the time when the payments had been claimed and subsequently so that the retention of those payments continued to be justified. The letter even went so far as to claim that no warning had ever been given to the Firm that its contract might be terminated, which was plainly incorrect.

As to the Auditor’s findings on delays in the billing of concluded cases, essentially the response in the Firm’s letter was that the delay had been caused by some fee earners who had left with some files (apparently a reference to six cases identified by the Auditor) and “a costs drafter who kept some of our files for some period without completing the bills and had travelled out of the country. For some time, we did not have access to the files, and therefore could not complete the bills”. It is to be noted that that response was consistent with the approach which had been taken by the Firm from 2009 onwards, namely that many of the certificated cases for which the Firm was responsible had in fact been concluded. The letter did not suggest, as did Mr. Ete in his evidence to the Court, that the Firm treated a significant proportion of its cases as not concluded because of a possibility of the litigation springing into life again.

On 19 January 2012 Mr. Kelly responded on behalf of the LSC to the Firm’s letter of 6 January. He carried out a review of the decision to terminate the contract under the LSC’s “informal reconsideration” procedure. He stated that the Firm’s representations did not provide the LSC with a sufficient justification for overturning the recommendation to terminate the contract. The letter gave formal notice to terminate the Unified Contract 2007 in respect of family work pursuant to clause 30.9(a). He added that the breaches of contract identified posed a significant and immediate risk to the Legal Aid Fund justifying termination of the contract. He said that the Firm had been given sufficient time following the Auditor’s first visit to provide the missing information so as to provide the necessary assurance that the terms of the contract were being complied with. However, even at the subsequent visit in December not all of the information requested had been made available. The Firm had been “afforded every opportunity to provide evidence to justify that your work in progress figure is accurate but this was not forthcoming. The findings of the audit were based on a review of a substantial number of files and I hold that the over-claim rates were significant i.e. 80% on running records of costs (20 files) and 40% on unsupported POA claims”. He added that there was an immediate risk to the Legal Aid Fund because there was no assurance that the current work in progress would cover the POAs received by the Firm for which it was responsible. Mr. Kelly pointed out that the Firm could request a formal review of his decision.

On 27 January 2012 Mr. Cowley wrote to the Firm. He pointed out that he had been the audit manager who had approved the recommendation made by the Auditor in December 2012 that the family contract should be terminated “because of the seriousness of the issues raised at the audit”. He referred to the notice to terminate letter which had been sent by Mr. Kelly and correctly pointed out that if following a formal review, the decision to terminate were to be upheld, “the payments on account outstanding to us become repayable”. He then went on to consider the alternative possibility that following a formal review the decision to terminate might not be upheld. In that event, he said “it does still seem to me to be necessary to manage what would appear to be the substantial risk to the Legal Aid Fund arising from the payments on account made to you and your Firm’s persistent failure to submit final bills for the work done”. He continued:-

“To manage that risk I have decided to recover the payments on account made to you on two categories of case; first I intend to make recoveries on a group of seven cases which in February 2011, you told us would be billed before May 2011. Unfortunately your assurance that bills would be forthcoming has not been realised. It is now nearly one year since we received your letter, but bills have not yet been received. Secondly, I intend to recover the payments on account made on those six cases which you were unable to produce at audit, because the files had been removed from the Firm by one or more of your previous employees.”

He enclosed a schedule of the 11 cases to which he was referring and said that in these cases the Firm’s costs would be provisionally assessed as nil. Nonetheless it was pointed out that if the Firm was able to submit a bill in any of these cases, then the LSC would re-open the matter and assess a claim for costs in the usual way and if any money were found to be payable then at that point the sum would be credited to the Firm’s account. Thus, the LSC followed the practice described by Cranston J in the Loomba case.

The Court was shown the BACS statement dated 1 February 2012 (bundle volume 5 page 1304) which debited £111,621.52 from the firm’s account to reflect the nil assessments on the 13 cases in the first batch of recoupments.

On 27 January 2012 the Firm wrote to the LSC’s Legal Director, asking for a formal review of the decision to terminate their 2007 Unified Contract for family work. The letter made virtually the same points as those that have been set out in the Firm’s letter of 6 January 2012. It is most surprising that despite the letter from Mr. Kelly of 19 January 2012 which had rejected the points made in the earlier letter, and despite the expectation that the Firm would supply additional information in order to respond to the Auditor’s criticisms, no such further information was supplied with this letter. In one additional paragraph, the Firm disputed for the first time that the Auditor had reviewed 142 cases. It was said that the Auditor had not asked for 142 matters and that she would not have been able to have reviewed such a number of cases within the two day period of her second visit. However, the criticism failed to read the Auditor’s report correctly. The Auditor had referred to additional checks of profit cost POA claims she had carried out using the “total cost for all cases” information supplied to her by the Firm. She made it plain that she was referring to the information that she attached to her report as Appendix 2. For that exercise it had not been necessary to review 142 files. From the data recorded in Appendix 2, the extent to which the Firm had over claimed POA relative to the 75% ceiling can be seen. The response in the letter of 27 January 2012 is fallacious and demonstrates one of many failures by the Firm to respond to the very clear findings which the Auditor’s reports contained. The correspondence from the Firm gives the distinct impression that after all the time which had elapsed by the end of January 2012 the Firm simply did not have any real basis for refuting those findings.

On 2 February 2012 the Firm responded to the LSC’s letter of 27 January regarding the first tranche of recoupment. The letter enclosed a schedule giving the Firm’s comments on each of the 13 cases the subject of recoupment. For the 2 cases involving Adam Barton, the 2 cases involving Daniel Barton, the case of Juliet George and the case of Oluwoke Olubaji, it was said that the final bills would be submitted on or before May/June 2012. For the 6 cases where files were said to have been removed by former employees, the Firm estimated that final bills would be submitted on 3 cases during the period June to August 2012. As regards the remaining three other cases, it was said that the Firm would give an update on the progress in dealing with the matter of billing in April 2012.

On 6 February 2012 Mr. Cowley responded to the Firm’s letter dated 2 February. He confirmed that in relation to the 13 cases the subject of recoupment the Commission would accept any bills that the Firm would send and that they would be processed in the normal way. He said that there was nothing in the manner in which the LSC was managing the Firm’s account that would prevent the Firm from submitting final bills to the Commission. He rejected the Firm’s second request, namely that the recoupment of POA should be reversed simply because of the Firm’s assurance that bills would be provided later on in 2012. He pointed out that in most cases the assurance that the Firm was then giving hardly differed from that given some 12 months previously, but the bills in question still had not been received by the LSC. He added, however, that in view of the significant number of cases which the Firm had stated had been sent either to the costs draftsman or for detailed assessment to the Court, he would reconsider the request that some, or all of the recouped payments be restored to the Firm’s account if the Firm were able to provide evidence in relation to all outstanding bills. The evidence he asked for was:-

In a letter dated 8 February 2012 Mr. Cowley informed the Firm that in the review process the CRB might be asked to consider upholding the termination of the Firm’s contract by reference to a different provision in the Unified Contract namely clause 30.9(g) instead of clause 30.9(a). On the same date the legal department of the LSC notified the Firm that the review would be dealt with at a hearing before the CRB on 2 March 2012. The letter enclosed a report which had been prepared by the LSC for the CRB together with a bundle of relevant documents. The Firm was informed of its rights to make a written response (including a skeleton argument if represented by counsel) and to attend or be represented at a hearing for the making of oral representations.

On 8 February 2012 the Firm wrote to the Legal Director of the LSC asking that the decision made by Mr. Cowley on 27 January 2012 to recoup POAs in the 13 cases should be reviewed by the CRB.

The hearing duly took place on 2 March 2012 and the CRB issued its decision by letter dated 9 March 2012. The Review Body decided to uphold the termination of the family contract pursuant to the terms of the 2007 Unified Contract (and also the 2012 Standard Civil Contract pursuant to the “continuity clauses”). The CRB decided that the Firm was in breach of clause 30.9(g) of the Contract Standard Terms because fundamental breaches B and C had been established on the basis that there was evidence of “numerous breaches of clause 8.2 and clause 17(6)(c) of the Contract Standard Terms as well as Annex E. The CRB added that “there is evidence of numerous breaches of paragraph 8.16 of the 2007 Unified Contract Specification”. The Firm was notified that it could not start any new cases from the date of the letter and could not carry out any Remainder Work in respect of existing cases, save to facilitate an orderly transfer of such matters to alternative firms of solicitors up to and including 6 April 2012. The CRB added that “in view of the serious nature of the contract breaches and having particular regard to the findings in relation to supervision, the contract review body excludes Charles Ete from being a Supervisor of Contract Work” under any of the LSC’s civil contracts. The decision letter noted that it had had the benefit of oral representations from counsel and Mr. Ete on behalf of the Firm as well as from the LSC. However I note that the Court has not been shown any skeleton supplied by counsel nor has any evidence been given as to the submissions which counsel may have made on behalf of the Firm.

In its decision the CRB stated that it:-

“… accepted the contents of the Audit Report (30 October 2011) and the Supplementary Audit Report (7 and 8 December 2011) as accurate in terms of the audit activity and the findings. Their decision was that the Audit Report and the Supplementary Audit Report confirm serious contract breaches over a long period of time which puts the legal aid fund at risk both historically and going forward were the Contract not terminated. In these circumstances they did not accept a central theme of your argument which was to the effect that in terminating the Contract too much emphasis had been placed on technical matters and too little on other factors such as the work undertaken by the Firm. The Contract Review Body considered that termination of the Contract was proportionate and reasonable in all the circumstances. The sum held by you in respect of Payments on Account, in excess of one million pounds, was not properly accounted for and therefore represented a substantial risk to the legal aid fund. The Contract Review Body did not consider that directing corrective action was an appropriate alternative to termination. There was a future risk to the legal aid fund were you permitted to continue because it was clear from the evidence that Work in Progress was not accurately recorded. There was evidence that Work in Progress figures were inflated.”

The CRB also concluded:-

“Your assertion that six weeks between the initial audit and the second audit was inadequate was considered but was not accepted. The contractual requirement was to demonstrate compliance with the Contract at the first audit pursuant to clause 8 of the Contract Standard Terms. In any event the Contract Review Body accepted the evidence of Toni Harvey firstly that six weeks was the maximum period that could be safely allowed given the serious nature of the Contract breaches that had been identified and secondly that the six week period represented a concession because there was sufficient evidence to terminate the Contract following the first audit.

The Contract Review Body considered your representations in relation to the Work in Progress figures but it was satisfied that you had not been able to provide an accurate figure. They did not accept that there were errors in either Audit Report and considered it was abundantly clear that you held in excess of one million pounds in respect of Payments on Account which you were unable to properly account for pursuant to the terms of your Contract. This, they considered, represents a substantial risk to the legal aid fund and justifies termination.

Your point in respect of payments to other firms was noted but the Contract Review Body accepted the evidence of Toni Harvey that this accounted for a very small proportion of the sum outstanding.

There was further concern that such figures as you did have were not accurate in terms of what would eventually be allowed on taxation or assessment. In this regard it was noted that you did not dispute the inaccuracies identified in 16 out of 20 pre-requested files audited on 8 December 2011 or that 36 files of the 88 files provided contained Payment on Account Claims not supported by the work recorded.

The Contract Review Body did not accept that it was unfair to raise excessive file reviews, which were included as Work in Progress figures, as reason to question the accuracy of the figure for Work in Progress overall. On the file of James referred to in the Supplementary Audit Report 51 file reviews had been recorded at 120 minutes per review. This was clearly charging for time which was not chargeable and which could in no circumstances be reasonable.

The Contract Review Body noted the points you made in relation to individual files but concluded that even if they were accurate they did not assist you. The overall position was clearly one of multiple breaches of Contract which had first been identified in October/November of last year and the position was little improved at the date of the hearing. The Contract Review Body were satisfied the “Outcome” of the audit of “Certificated Matters, Payments on Account… and IT requirements, including Time Recording” detailed in the Supplemental Audit Report was fair, and accurately recorded the position.

In relation to “Certificated Matters, Delays in Billing” in the Supplemental Audit Report the Contract Review Body were satisfied that there had been serious breaches of Contract in this regard which were not adequately dealt with in your representations. There was clear evidence of a substantial failure to bill files in accordance with the Contract over a prolonged period.

Finally, the Contract Review Body considered the position in relation to supervision detailed in the Audit Report dated 30 October 2011 and 1 November 2011. They were satisfied that the breaches of Contract detailed in the Audit Report in this regard were appropriately recorded and that the situation detailed represented a serious breakdown in the arrangements for Supervision.” (emphasis added)

The decision letter of the CRB also rejected a number of other points which had been advanced on behalf of the Firm but which were not pursued in the written submissions for, or at the hearing of, this claim.

On 14 March 2012 the Firm wrote to the Legal Director stating that it disputed the findings of the CRB. The letter repeated the representations that had been made that the hearing by the CRB had been unfair and in breach of the rules of natural justice because the Body included staff from the LSC. That apart, the letter simply made a number of generalised assertions, including that cases for which POAs been recouped had been transferred to other solicitors and that payments had been made to other solicitors. However, even at this stage the Firm provided no details in support of these matters to the LSC. I should also record that no specific information or evidence regarding these assertions was presented to the Court at the trial.

On 15 March 2012 Mr. Cowley wrote again on behalf of the LSC to the Firm. He pointed out, correctly, that following the decision of the CRB to confirm the termination of the Firm’s contract for family work, the payments on account attaching to the Firm’s legal aid account had become repayable to the LSC in their entirety. He therefore attached a schedule of civil certificated cases attributable to the Firm. The schedule showed the total amount of POA paid in each case. The letter said that in order to enable the LSC to manage finances properly, the Firm needed to report to the LSC on each of the cases providing the details specified. For cases said to be with a costs draftsman the LSC required production of a letter from the draftsman confirming which cases (identifying the legal aid certificate number) had been lodged with him for billing and when the provisional bill was likely to be drawn. For cases said to be submitted to the Court for detailed assessment or to the LSC for assessment the Firm was required to provide details of any Court involved and the date on which the submission had been made together with the bill as drawn. For cases said to have been sent to another solicitor for completion, the Firm was required to identify for each case the date when it was transferred and the name of the solicitor to whom the file had been sent. For any other remaining cases the Firm was required to state whether or not the file was available to it and if not the reasons why, whether legal work on the case was continuing or had been completed, and if the work had ceased whether a bill for the work done would be prepared and submitted within the next three months. Mr. Cowley reminded the Firm that it had been asked to provide this information or similar information in the Commission’s letter of 6 February 2012 so as to enable a review to be carried out of a number of payments already recouped from the Firm’s account. Unfortunately, despite the assurance given by the Firm in an email of 16 February that “the information was being gathered and would be sent soon” nothing had been received. Accordingly Mr. Cowley stated that the information was required within 14 days.

The Firm replied on 19 April 2012 enclosing a schedule which was said to contain the information requested by the LSC. The letter said that bills as drawn would be sent via the document exchange. The schedule identified such matters as files then in the course of being transferred to other solicitors and also cases where bills had been sent to a costs draftsman.

In the meantime on 11 April 2012 a case worker at the LSC had written to the Firm (volume 7 of the Court bundles page 2016) enclosing a list showing 45 cases for which the Firm was to give an update. It was pointed out that in many of these cases bills ought to have been submitted in accordance with statements made by the Firm some time before. The letter specified the up-to-date information which was required, of a similar nature to earlier requests. A clear warning was given to the Firm that “as you have previously indicated that bills would be submitted on the many cases and these have not materialised, I will add to your dates [i.e. the Firm’s revised estimated dates for submission of bills], sufficient time for the LSC to process the claims and after that time, if the bills are not paid and if I can see no trace of receipt or rejection of the claims, then I will take steps to recoup all payments on account on a stage basis …”. The Firm replied on 8 May 2012 giving its position on each of the cases set out in the LSC’s schedule of 45 matters.

The schedule which had been supplied by the Firm on 19 April 2012 required some analysis so that effective monitoring could take place. Mr. Cowley therefore responded to the Firm on 27 April 2012, enclosing the list of cases which the Firm had sent on 19 April but grouped into nine categories. For each category Mr. Cowley set out the action which the LSC intended to take.

Category one related to cases said to be with the Firm’s costs draftsman. The letter pointed out that the LSC had still not received a letter from the costs draftsman confirming the cases which had been lodged with him. The LSC stated:-

“Given the circumstances, the time that has elapsed and the ongoing failure to report, I am now of the view that it would be inappropriate to rely on the assertion that the cases said to be with the costs draftsman are actually resting there and are in the course of being billed, even if a statement to that effect from the draftsman is forthcoming. I intend to ask our payments on account team to recoup the payments on account made.”

It is to be noted that the LSC had not been sent any updated information on the timescale for the submission of bills produced by the costs draftsman.

The second category related to cases being transferred to other solicitors. The LSC stated that the cases would be reviewed again in two months’ time. At that stage the LSC would then recoup the POAs made on any certificate which did not appear to have been reassigned. The third category related to cases it was said had already been transferred to other solicitors, mainly Blackwhite Solicitors. For those cases the LSC said it would check its database to determinate whether or not the legal aid certificates had been reassigned. Where that did not appear to have happened, the LSC would write to the firm for confirmation as to whether or not they had the case. The LSC would recoup POAs on any case where it appeared the change of solicitor process could not properly be completed.

Category four comprised cases sent to the LSC for payment. That category comprised only five cases. The LSC said that they would review that category in two months’ time and would recoup POAs made in any of those cases which had not by then been settled by payment of the final bill. Category five related to cases where it was said a bill had already been paid. The LSC said that it would review those cases and if there was any sum still outstanding owed to the LSC it would be recouped.

Category six comprised 10 cases which were said to be matters awaiting taxation by the Court. The LSC said it would review those cases again in two months’ time and seek a further report from the Firm if necessary.

Category seven comprised six cases where the Firm had stated that although the bill had been drawn up it had yet to be submitted, i.e. the drawn bill was still with the Firm. For those matters the LSC required the Firm to submit the bills without further delay and said that it would review those matters again in two months. Category eight comprised two cases where either no legal aid had been granted or the case was not proceeding. The LSC inferred from this that a bill was unlikely to be forthcoming in these cases and accordingly POAs which had been made could be recouped. There were three “other” cases listed in category nine. Once again the LSC said that the matters would be reviewed in two months’ time.

Category one of the LSC’s list comprised 53 cases which the Firm had said were with the costs draftsman. On 9 May 2012 the Firm’s costs draftsman wrote to the LSC stating that he had 51 named files from the Firm for the preparation of bills. Unfortunately the letter gave no information whatsoever as to when the bills would be prepared and sent to the LSC. Moreover, the LSC were not told when the costs draftsman had received the files. His list differed from the category one list prepared by the LSC from the information supplied by the Firm on 19 April 2012, and some cases previously notified by the Firm did not appear on the cost draftsman’s list.

On 21 May 2012 the LSC wrote to the Firm stating that it had been decided that the LSC could not allow any further extension of time for the submission of claims in respect of outstanding cases because the Firm had already had a considerable amount of time to bill cases but had failed to do so. Consequently the LSC said that it would be taking steps to close down files, which would result in the recoupment of any POAs paid. However, that would not prevent the Firm from submitting a bill of costs at a later date provided that it did so within a reasonable period of time. The BACS statement for 28 May 2012 shows further recoupments being applied to the Firm’s account. This second tranche of recoupments continued on 1 and 11 June, and by the end of that stage the total debit said to be owed by the Firm to the LSC was £536,016.67.

The BACS statements during this period show only a small number of final bills submitted. In the case of Oluwaremi a final bill was submitted and the case closed. However, the total amount owing to the Firm on the final bill was less than the POAs which had previously been made. Consequently the adjustments in the BACS statement for 21 May 2012 showed the debit owed by the Firm to the LSC increasing.

On 25 June 2012 the BACS statement shows a further adjustment because a final bill in the case of Chintu had been processed. On this occasion the final amount due to the Firm exceeded the size of the POAs they had previously been paid and so the debit owed by the Firm to the LSC was reduced. These statements show how in practice, if the Firm submitted final bills, its account with the LSC could be reconciled and any over or underpayments relative to the POAs previously made dealt with.

Mr. Cowley wrote once again to the Firm on 24 July 2012 as the result of having reviewed the steps taken by the Firm to deal with the POAs issue since 27 April 2012. The letter stated:-

“At present there is a debit balance on the account, reflecting the fact that payments on account as itemised in my last letter have been recouped. The amount shown as being owed to the Commission stands at £534,486.

Since April we have processed only two claims for costs from your Firm arising from work done under civil certificates. The total value of claims processed was under £10,000.

The fact that only two claims have been made does not appear to be commensurate with your earlier assurance that a significant number of claims were being prepared by your costs draftsman or your assertion that you would be able to discharge any liability to the Commission by submitting bills to us. Put bluntly, the assurances you have provided to us, both recently and in the preceding years appear to have been entirely unreliable.

I enclose a report that shows the value of payments on account still outstanding on cases that have not yet been claimed for (in other words, cases where we have not received a final claim for costs nor yet recouped the payments on account made). The total value of the payments outstanding is £524,567 (but of course some of those payments have been made to previous solicitors or to counsel).

To secure the Commission’s financial position I now intend to ask our finance team in Leeds to seek to reconcile the finances in these remaining cases, by settling counsel’s accounts and those of previous solicitors with them and by recouping from your account the other sums due to us. I will write to you again to confirm the balance due to us when this exercise has been done. After that your correspondence should be with our Debt Recovery Team.”

The third and final main tranche of recoupments of POAs based on nil assessments can be seen from the BACS statements dated 30 July 2012. They show that as a result the debit owed by the Firm increased from £534,863.45 to £977,616.74. On 3 August 2012 Mr. Cowley wrote to the Firm enclosing the BACS statement which confirmed the then current position.

On 6 August 2012 the Firm wrote to Mr. Cowley stating that the figures which had been supplied were:-

“totally disputed. As I indicated before they contain figures in respect of certificates and files which have been transferred to other providers by the LSC. We were asked to send our files to them which we have done. They are therefore not our responsibility as we have since sent the files to those providers. I note you also carried over amounts which related to those files including amount paid to other former solicitors and counsel totally separate from us. We were never a party to such payments, we never authorised them and are therefore not liable to same”.

But, once again, the letter did not give any examples of such files or any specific amounts to illustrate the assertions being put forward. I should also add that during the course of the trial no such material was shown to the Court.

On 17 August 2012 Mr. Cowley responded as follows:-

“I think there are a number of ways in which you have misinterpreted my previous letters.

1.

I accept (and have always accepted) that you dispute our calculation of the amount owing to us. You have however failed to provide evidence to support your position, despite being given numerous opportunities to do so by the Auditor who carried out the audit of your civil work and the Contract Review Body that heard (and dismissed) your appeal.

2.

The recoupment of the payments on account in issue were all made against certificates attaching to your account at the point at which the recoveries were triggered. Put another way, the certificates in these cases had not then been assigned as you suggest, to other providers.

3.

Any amount paid to former solicitors on account became your responsibility when the certificate in the case was assigned to you. Under the contract you have a duty to conclude cases properly, which extends to a duty to bill or make reports on each case when the client’s retainer ceased.

4.

Amounts paid to counsel have not been recouped from your account. We are resolving any issues in relation to these payments directly with counsel.” (emphasis added)

The Firm replied on 24 August 2012 to the effect that they had never failed to provide evidence. They claimed that the evidence had been provided but it seemed to have been ignored by the LSC. However, I have to repeat that none of this so-called evidence was shown to the Court. I should add that during the trial Mr. Ete on behalf of the Defendants did not dispute the accuracy of the statements made by Mr. Cowley in points 2, 3 and 4 of his letter of 17 August 2012, whether in point of law or fact. Put shortly, Mr. Cowley explained that the recoupment had been properly carried out on certificates which at the time of recoupment had not been assigned to other providers. That particularly important point was not disputed during the course of the trial. During cross-examination Mr. Ete agreed that his Firm would not have transferred files to other solicitors during the course of 2012 following the termination of the family contract where work had been completed. It is to be recalled that the Firm was not allowed to continue carrying out legal aid work beyond April 2012. Therefore where certificates remained with the Firm because the files were not transferred to other solicitors, the corollary is that work on those cases had been completed and of course these were cases where final bills had been required to be submitted.

On 16 April 2012 the LSC notified the Firm that an on-site audit would take place on 15 June 2012 in relation to the Firm’s criminal legal aid work. On 30 April 2012 the LSC sent the Audit Plan to the Firm. This audit was carried out by Liz King and Delith Ward, who had not taken part in the earlier audit for civil legal aid work. The Audit Plan clearly stated that the purpose of the on-site audit was to seek reassurance that the Firm was reporting claims accurately to the LSC in accordance with its 2010 Standard Contract. The Plan specified the matters that would be covered during the audit and the files that should be submitted in advance of the meeting to the Auditors for review.

The Auditor’s report of the audit on 15 June 2012 was sent to the Firm on 4 July 2012. The Auditor’s overall conclusion was that the crime contract should be terminated with 28 days’ notice because the Firm had committed a fundamental breach of the relevant contractual provisions and/or had committed material breaches of the contract as set out in the report. Requirements for supervision and that claims submitted to the LSC should be accurate and reasonable had been breached. The Auditor referred to “repeated breaches of the contract as detailed in the findings in the body of this report in relation to over claims and misclaims which pose a significant risk to the legal aid fund”. The report was accompanied by Appendices which recorded a large number of defaults. The letter dated 4 July 2012 notified the Firm of the termination of its crime contract.

On 26 July 2012 the Firm required an informal review to be carried out. In his letter Mr. Ete said:-

“We request that I be served with the alternative recommendation made by the Auditor, in that during the audit, we were informed that they would recommend that certain corrective measures be carried out by us if their manager recommends our contract to continue”. (emphasis added)

The decision to terminate the crime contract had been taken by Mr. Kelly. The informal review was carried out by Mr. Cowley and his decision was given by letter dated 31 July 2013. He said:-

“Your letter suggests that you have been provided with one of two audit reports and that an ‘alternative’ report makes a different recommendation from that in the report you have. I think there is a misunderstanding here. The report you have is the ‘final’ report and the report on which we will rely should you wish to make a formal appeal. Mr. Kelly made his decision to terminate the contract on the basis of the evidence in reports sent to him by the Auditor. Having made that decision he sent you the report with his letter of 4 July; taken together the two documents set out the evidence he considered and the grounds for his decision. He will have removed from the report sent to you any reference to ‘corrective action’ because of course the decision to terminate the contract had the effect of making any such reference redundant.”

On 12 August 2012 the Firm requested a formal review by the CRB of the decision to terminate their crime contract. The hearing before the CRB was set for 11 January 2013. On 10 October 2012 the LSC sent to the Firm a copy of the so-called “alternative” audit report which it had asked to see. The email stated:-

“Please note at the outset that this was the report that was sent to the audit manager which included possible corrective action if his decision was not to terminate. This was an internal report and in the event he decided to terminate your crime contract and corrective action was deemed not appropriate. As a result, the report you received, which was the final report, confirmed the findings and audit manager’s decision to terminate.”

At the hearing before the CRB the Firm provided a skeleton argument in which they reiterated their objection to the composition of the three-member panel because two of its members were LSC officials. The skeleton also raised a “challenge” that the decision to terminate had “removed” reference to corrective action. The decision to terminate was criticised as having been “Wednesbury unreasonable” because Mr. Kelly had failed to take into account a possible recommendation to take corrective action.

The CRB issued its decision by letter dated 1 February 2013. It rejected the allegation of breach of natural justice as follows: “The CRB is an internal LSC review body, as confirmed by … clause 27.22, and is not intended to be independent”. With regard to the second challenge, the CRB accepted from the evidence that the clear recommendation of the Auditor had been for the termination of the contract. The report had contained details of corrective action in the event that the recommendation to terminate was not accepted. However, because that recommendation was accepted, Mr. Kelly had removed the references to corrective action in the final version of the report. With regard to the seriousness of the contract breaches, the CRB stated that the Firm “has provided no positive evidence to disprove the findings in the audit report. In the absence of evidence to the contrary the CRB concluded, on the balance of probabilities, that the contents of the audit report are correct and present an accurate picture of the Appellant’s compliance with the terms of the Crime Contract. The CRB found no reason to doubt the contents of the audit report”. Consequently the CRB upheld the Auditor’s findings on breaches with regard to such matters as non-compliance with supervisor requirements and the failure to have an IT system providing an up-to-date record of the value of the work carried out. The CRB concluded in summary that, “despite Mr. Ete’s assertions to the contrary”, the audit report contained an accurate summary of the findings of the audit, the contract breaches identified gave rise to a right to terminate the Crime Contract as described in the notice to terminate, and the CRB were satisfied that the decision to terminate that contract was reasonable and proportionate, having regard to the nature of the contract breaches.

I now turn to summarise evidence given by witnesses which has not already been referred to in this judgment under six headings:-

In his witness statement Mr. Ete said that the Firm had a very effective filing system and that their work and bills were done on time “except for a few delays from Court or some cost drafters, nevertheless there were delays in the processes when bills had to go through Courts and eventually to the LSC”. He said in paragraph 5 that he was present when the Auditor, Miss Caroline Winch, attended at the Firm’s premises and carried out the audit. He claimed that she did not treat the Firm fairly at all in that, “the very first day she arrived, without warning she stopped all payments to the Firm, thus starving the Firm of funds. At that time, she had not even begun to look at any file”. I reject this assertion. It is plainly contradicted by contemporaneous documents. The Auditor’s report made it plain that it was her function to make recommendations. In her report she did make a recommendation for suspension of POAs for profit costs. That recommendation was considered and accepted subsequent to the carrying out of the first stage of the audit by an audit manager, namely Mr. Cowley. The contract notice for the suspension of POAs was not sent until 4 November 2011.

The Firm responded to the imposition of this sanction by letter dated 11 November. The Firm stated that it had been taken by surprise by the decision to suspend payment of POAs. But the letter did not suggest that the Auditor had announced that the suspension would be imposed at the beginning of her visit or indeed at any stage during her visit, let alone before she had started to examine any files or information. There was no suggestion in the letter that the Auditor had prejudged matters before commencing the audit. If she had behaved in that way, it plainly would have been a matter of concern to the Firm being audited and they would have been expected to have raised it as a matter of urgency before proceeding to the second stage of the audit. They did not do so. After the Firm had received the Auditor’s second report and the indication that the Family Contract would be terminated, they wrote a letter to the LSC on 6 January 2012. It was on page 3 of this letter that for the first time the Firm suggested that the Auditor had made a decision to suspend payment of POAs even before looking at any of the materials which had been requested prior to the first audit and that this had happened on the first day of her visit.

When Miss Winch came to be cross-examined by Mr. Ete, he suggested to her instead that on the first day of her initial visit she had recommended the termination of the Firm’s contract, rather than simply suspension of further POAs. This was an early example during the trial of Mr. Ete exaggerating the Defendants’ case. At all events both suggestions were contradicted by the contemporaneous written evidence.

The Defendants relied upon the witness statements given by Catherine Heslop (the office manager) and by Dorothy Coetzee (the assistant office manager) in which they purported to state that Miss Winch stopped payments of POAs when she first attended the office. However, when Miss Heslop came to give oral evidence she said that she had no direct knowledge of what had happened during the audit and that the content of her witness statement on that matter, including paragraph 7, had been based on what Mr. Ete had told her. Likewise Mrs Coetzee said that it was Mr. Ete who had told her that the POAs had been suspended during the audit. The only additional point she made on this aspect was that on the first or second day of the initial audit she had tried to input a disbursement into the LSC’s system and the system would not accept it. This evidence cannot support the allegation made against the Auditor. It simply related to the payment of disbursements, whereas the clear evidence from the documentation is that the only suspension imposed following the Auditor’s visit was one which related to POAs in respect of profit costs. Assuming Mrs Coetzee’s evidence to be correct on the non-payment of the disbursement, I conclude that that must have been attributable to some other cause, perhaps a problem with the quality of the data which the Firm was seeking to input or perhaps a system problem.

In paragraphs 14, 16 and 17 of her witness statement Miss Winch makes it plain that she did not recommend a termination of the contract during her first visit or that she had stopped payments to the Firm before commencing the audit. Instead it was her recommendation, after having carried out the first stage of the audit, that further POAs for profit costs be suspended. When asked about this in cross-examination, she denied making any recommendation for termination on the first day of her visit. That was the only point that was put to her.

In the light of all the evidence I have read and heard, I unhesitatingly reject the allegations made in various ways against the Auditor that on the first day of the visit, before commencing the audit, she recommended the imposition of any sanctions, let alone imposed any sanctions herself. I accept her account that instead, at the outset of the audit, she would have explained to the Firm possible audit outcomes, but that would not be decided by the LSC until the conclusion of the audit and would be based on the findings arrived at as a result of the audit.

Returning to the witness statement of Mr. Ete, it is remarkable that he says so little about the numerous and specific findings adverse to the Firm contained in the Auditor’s reports. This is consistent with the approach generally taken by the Firm in its correspondence to the LSC following receipt of the Auditor’s reports and in its representations to the CRB. Although the Firm had not previously taken the various opportunities presented to it to attempt to refute the findings of the Auditor, the proceedings in the High Court presented the Defendants with an excellent opportunity to do just that. But on the key points upon which the LSC’s decisions to recoup POAs and to terminate the contract were based, the Defendants did not take this opportunity.

In paragraph 15 of his witness statement Mr. Ete asserted that the Firm had always had an IT system that was “in total compliance”. He suggested, as he did in cross-examination of Miss Winch, that the LSC had been incorrect to allege that the Firm did not have an IT system. Of course that was never the issue taken up by the LSC. Instead the Auditor’s report set out in some detail the defects in the IT system. In paragraph 16 of his witness statement Mr. Ete said this:

“We had properly run files for each matter, in fact our files were commended by the Law Society Practice Standards Unit and as stated we passed the external peer review organised by the Claimant. These were all reviews based on files we were asked to provide. For the Claimant to then say that we did not have well run files was again misleading. The Claimant merely invented that reason (in addition to its other reasons which were false), in a bid to maliciously, wrongly and unfairly terminate our contracts.”

But Mr. Ete there neglected to point out that the peer review to which he was referring was in fact for the Crime Contract and as long ago as 2007. It was not a review in respect of the Civil Contract, nor indeed contemporaneous with the matters which the Auditor was considering. I will return to the other reviews upon which Mr. Ete relied subsequently in this judgment.

For present purposes it is particularly relevant to note that Mr. Ete was alleging that the Auditor’s findings in her report amounted to fabrication on her part. He repeated this allegation in his cross-examination of her. He also stated at paragraph 15 that “the Claimant’s Auditor made various general statements as reasons to terminate our contracts without particularising them”. The witness statement then proceeded to deal with the contract review hearing and Mr. Ete’s allegations of breaches of natural justice. It is apparent from my summary of the Auditor’s reports and their appendices that the Auditor’s conclusions were not generalised or lacking in particulars. The reports gave proper notice to the Firm of the Auditor’s adverse findings and the material upon which they were based, such that the Firm had a proper opportunity to produce any evidence it had to contradict them if it could. Even in his witness statement Mr. Ete effectively refused to deal with the substance of those findings and the evidence upon which they had been based.

Not surprisingly, in view of the serious allegations being made by the Defendants against the Auditor, the Claimant took steps to locate Miss Winch, who had in the meantime left their employ. They relied upon a witness statement obtained from her, responding to the allegations. Mr. Ete asked that she be ordered to attend the trial for cross-examination if the Claimant were to be allowed to rely upon the witness statement. Master Yoxall made an order on 4 December requiring the Auditor to attend for cross-examination. It was to be expected therefore that Mr. Ete would cross-examine Miss Winch on the accuracy and reliability of her findings in her reports and to put any material which might contradict those findings. In fact there was no cross-examination by Mr. Ete at all on the contents of the second of the Auditor’s reports and the cross-examination on the first of the reports for the most part did not engage with the substance of the findings contained therein. When Mr. Kelly and Mr. Cowley came to give their evidence about the decisions to terminate the Family Contract and to recoup POAs, they made it clear that they had relied, not surprisingly, on the work which had been undertaken by the Auditor. Consequently, they stated that they had not reviewed for themselves the evidence underlying the Auditor’s findings, which evidence she had inspected on site in the Firm’s office. Nevertheless Mr. Ete attempted to challenge the evidential basis for the Auditor’s findings through those two witnesses. Plainly that was a pointless exercise. Any challenge of that nature ought to have been put by Mr. Ete to the person who examined the evidence during the audit, the Auditor.

In cross-examination Miss Winch stated that she worked for the LSC between 2008 and 2014. In response to cross-examination she said that she left the LSC when she accepted an offer of voluntary redundancy. She was then asked about her qualifications and in particular whether she was qualified as an accountant or as an Auditor. Ms Winch said that she had three degrees, but none of those related to accountancy or auditing. She explained that instead she had received in-house training at the LSC to enable her to examine the accounts of firms of solicitors and their compliance with contractual requirements in order to act as an Auditor. She said that she had carried out between 30 and 40 audits, beginning in January 2010. She said that typically she would carry out two audits a month or 24 a year. So it would follow that by the time she came to visit the Firm’s premises she would have already carried out in the order of 18 or more audits. It will be apparent from the nature of the contractual terms and the POA system which Miss Winch was being asked to audit, that the subject matter of her exercise was not particularly complex. She gave her evidence in a very clear and careful manner and was not contradicted in any material respect, particularly with regard to the contents of her reports. I conclude that she was sufficiently trained and experienced to carry out the audits in this case.

I turn to the few points in the first audit report which were challenged in cross-examination by Mr. Ete. He challenged the Auditor’s finding that the Firm had been unable to provide an overall WIP figure for certificated matters. He pointed to the total value of work figure of £1,949,620.37 and said that from that figure it was possible to deduce a WIP. However, as became apparent subsequently from Mr. Ete’s letter of 6 January 2012 and the cross-examination of his own evidence, the figure of £1.949m upon which he relied had to be corrected because it included matters which were not certificated and other irrelevant items. It follows that the Auditor’s criticism in her first report was correct on this point.

The Auditor was challenged on one point relating to 3 cases for which the firm had produced running costs records (third bullet point on page 3 of the report). But the cross-examination did not challenge the more fundamental finding by the Auditor (in the same bullet point) that the Firm failed to provide such records for the 17 other cases notified to them in advance. As regards the second part of the finding, namely that the total value of work shown did not support the profit costs POA that had been claimed, Mr. Ete said to Miss Winch in cross-examination that she had lied about this, simply on the basis that she had not retained copies of the documents that had been produced to her by the Firm. She denied the accusation. It was a thoroughly bad point which should never have been put. First, the Firm has never suggested that it retained copies of the documents it supplied to the Auditor in order to refute what had been stated by the Auditor. Second, the details were in fact recorded by the Auditor in Appendix 1 to her first report and were available to be checked by the Firm when they received that report. There was no challenge to that Appendix. Third, when cross-examined Mr. Ete accepted that the finding was correct (paragraph 182 below). For completeness I should add that although in paragraph 26 of his skeleton Mr. Ete pointed to the running costs copied at pages 1393 to 1623 of volume 6 of the Court bundle, and suggested that these running costs had been shown to the Auditor, he explained during the trial that in fact those documents had been generated as recently as 2015, as part of the Defendants’ disclosure to support its loss of profits claim. They were not the documents that were produced by the Firm to the Auditor in 2011 when the audit was being carried out.

I conclude that Mr. Ete’s attack on the integrity of the Auditor was wholly unjustified.

As I have already set out in this judgment, the Auditor’s first report set out the further actions which the Firm needed to undertake. There was no challenge in cross-examination to the appropriateness of requiring those steps to be carried out.

The Auditor was challenged by Mr. Ete about the appropriateness of the recommendation in her second audit report that the family contract be terminated, albeit not the findings which led to that recommendation. Miss Winch responded that notwithstanding the gap between the two visits to enable the Firm to supply the necessary information, POA profit costs had been over-claimed or were not justified in a substantial number of cases.

My overall conclusion is that Miss Winch was an honest and reliable witness and that none of her audit findings were undermined. In my judgment those findings are reliable for the purposes of these proceedings. In this context I also had regard to the evidence given by Mr. Ete when he was cross-examined, to which I will refer below, and also the remaining evidence of the witnesses called for the defence.

Miss Heslop, the office manager, told the Court that she was not responsible for submitting bills and that she was not aware of whether bills were submitted on time. Mrs Coetzee, the assistant office manager, told the Court that she helped on administrative matters by, for example, assisting Mr. Ete in the organisation of files, organising the diary, answering the phone and general clerical work. She said that she was not involved in compiling the claims for costs. She simply typed covering letters. She added that she could not say whether bills were submitted on time. Mr. Kingsley Gbenoba, a freelance legal clerk with a law degree, said that he had not been involved in billing cases, nor the provision of billing or case information by the Firm to the Auditor for the audit. Mrs Mary Enang is currently the compliance officer for the Firm and a partner. She is a qualified family law solicitor. During the period September 2011 to March 2012 she was a voluntary worker at the Firm. During that period she said that she had been working generally two days a week for the Firm. She sometimes assisted clients with cases but she was not involved in billing or the provision of billing or case information by the Firm to the Auditor for the audit.

The last of the witnesses called by the defence was Mr. Roland Ojo. He is a data entry consultant. During the relevant period he used to work at the Firm for two days a week. He explained that he is not a costs draftsman and therefore when Mrs Coetzee and Miss Heslop stated in their witness statements that he was, he accepted in cross-examination that they had been wrong on that point. Paragraph 2 of his witness statement gave the impression that he was involved in the inputting of data into the Firm’s IT systems for its work generally. However, in cross-examination he explained that he had only been involved with “controlled work”, not “certificated work”. He explained that controlled work was limited to work at an early stage in a case before the grant of a legal aid certificate. He added that he was not qualified to deal with certificated work. He accepted that because he did not deal with certificated work, whereas the audit related to that very category, he could not say whether the Firm’s billing was on time for that category of cases. Accordingly, Mr. Ojo’s statement in paragraph 4 of his witness statement that “the Firm had a very effective filing system and their work and bills were done on time” was of no real value to the defence at all.

In paragraph 5 of his witness statement Mr. Ojo, like other witnesses who had preceded him, purported to say that the Auditor had not treated the Firm fairly because on the very first day when she arrived to conduct the audit she stopped all payments to the Firm, thus starving the Firm of necessary funds. However, it was only during cross-examination that Mr. Ojo became aware for the first time that in fact the Auditor had visited the Firm in two stages. Mr. Ojo explained that he only saw the Auditor in December 2011. That could only have been referable to the second stage of her audit. Accordingly, paragraph 5 of his witness statement, referring to the suspension of the payments of POAs, could not have been correct. It was at that point that Mr. Ojo told the Court that in fact he had been told by Mr. Ete that all payments to the Firm had been stopped. As with other witnesses called for the defence, this part of the evidence, although it appeared to come from the witnesses themselves, in fact only came from Mr. Ete. These repeated attempts by Mr. Ete to influence the content of the witness statements upon which the Defendants relied is something I bear in mind when I assess the reliability of his evidence to the Court.

With regard to the Auditor’s second report, Mr. Ojo said that he could not recollect whether at that stage the Auditor had asked for additional live checks to be undertaken. He was therefore not in a position to contradict the Auditor’s finding that Mr. Ojo was unable to access any live records on Lawmaster during that audit and for that reason the live checks she had intended to carry out had to be aborted. The defence called Mr. Ojo in order to give evidence that the Lawmaster system had been working effectively. However, this evidence was pointless for two reasons. First, in his own evidence in cross-examination, Mr. Ete accepted the accuracy of the following finding by the Auditor in her second report:-

“As at initial audit CE stated that there had been problems with … Lawmaster systems, including a system crash in December 2010. Owing to cashflow issues, the Firm do not have current access to Lawmaster support services. CE indicated that running records of costs may be inaccurate because of IT system problems encountered.”

Second, Mr. Ojo himself said in cross-examination that the last time he could recall relying upon the assistance of Lawmaster’s service department to solve an IT problem was in 2010. So there is no evidence to contradict the statement made by Mr. Ete to the Auditor that there had been a system crash involving the Lawmaster software in December 2010, the Firm did not have access in 2011 at the time of the audit to Lawmaster support services and according to Mr. Ete the running records of costs might be inaccurate because of IT system problems. At one point in his evidence Mr. Ete suggested that because of the difficulties the Firm had experienced with Lawmaster, it had invested in a second piece of software provided by Peapod. However, at page 4 of her second report the Auditor recorded that Mr. Ojo had told her that Peapod was not maintained or utilised for publicly funded work. That statement by Mr. Ojo was not contradicted in evidence before the Court by Mr. Ojo or indeed by Mr. Ete.

The decisions to recoup POAs were made by Mr. Cowley. In cross-examination by Mr. Ete, Mr. Cowley said that although in point of fact the first decision to recoup had been made after the service of a notice to terminate the Family Contract, that termination had not been necessary in order to enable the LSC to make the recoupments. Indeed his letter of 27 January 2012 made it plain that there was the possibility of the CRB taking a different decision on termination, and therefore he had gone on to explain why it was necessary in any event to recoup POAs in order to manage the substantial risk to the legal aid fund arising from the Firm’s persistent failure to submit final bills for the work done. He explained that the sanction imposed in November 2011 had only a limited effect in this context because only related to the suspension of future POAs on profit costs and did not deal with the substantial amount of POAs already received by the Firm. Mr. Cowley explained the concerns that he had had at the time. He said that, firstly, the Firm was responsible for accounting for a high level of money on account. Even after allowing for the nature of the work undertaken by the Firm (which included proceedings involving children), there was an uncharacteristically high average level of POAs per case. Secondly, there had been substantial delays in the submission of bills which posed a risk to the legal aid fund for the reconciliation of POAs with final bills showing the amounts properly due. There was a serious risk of the POAs being excessive and yet not recoverable until the final bills had been assessed. Thirdly, there was evidence that the WIP information from the Firm was unreliable. Mr. Cowley described this as an “unholy mix”. He said that he had written to Mr. Ete to set out the concerns which the Firm needed to address and did not make at that stage a final decision to recoup all payments on account, but gave the Firm an opportunity to deal with those points.

Mr. Ete asked Mr. Cowley to look at what was said to be an extract from a document issued in 2011, produced by Mr. Ete, recording the outcome of an inspection on behalf of the Law Society (page 307 of volume 2 of the Court Bundle). Under the heading “Books of account” the extract reads: “The books of account were in compliance with the Solicitors’ Accounts Rules in all material respects”. Mr. Ete’s witness statement gave no evidence as to the ambit of this inspection, nor did he explain it in putting the document in cross-examination to the witness. The witness responded that he relied upon the audit reports prepared by Miss Winch. She was an experienced Auditor and the findings she set out were serious enough to cause him to be so concerned about the Firm’s position as to require recoupment action to be taken.

Mr. Ete suggested to Mr. Cowley that if a solicitor were to claim POA at a level higher than the financial limit placed upon a certificate, the system would reject his claim. Mr. Cowley responded that self-evidently the financial limit on the certificate would not prevent a solicitor from making an excessive claim for POA compared to the work actually carried out, but within that limit.

Mr. Ete relied upon paragraph 12 of his own witness statement, in which he referred to an example, the case of Denton Barnaby, where the Firm accounted to the LSC for a substantial payment which it had received from the opponent in that matter. Mr. Ete pointed out that this was a case where the sum of money due to his Firm had exceeded the POAs which the Firm had previously received. He suggested that this supported the Firm’s response to the LSC’s Schedule A of Loss, namely that there were many instances where the Firm has been due fees over and above the POAs which it had received. Mr. Cowley made three responses. First, the LSC has never made any allegation against the Firm that it failed to account for payments received from other parties in certificated cases. Second, the Denton Barnabypayment had been made to the LSC long after the action taken to recoup POAs which had been paid to the Firm before the beginning of 2012. The decisions to recoup had been based on entirely different matters already referred to. Third, in re-examination Mr. Cowley confirmed that the receipt of the cheque for a sum in excess of £44,000 had been taken into account in the Claimant’s Schedule A calculations (see page 1370 at tab 48 of volume 5 of the Court Bundle). Accordingly, it is plain to me that the example put by Mr. Ete did not address the findings in the Auditor’s reports that there had been over-claiming by the Firm in many other cases of POAs relative to the Firm’s profit costs actually incurred.

Mr. Ete put an allegation in paragraph 13 of his witness statement to Mr. Cowley: “The Claimant then further went on to retain fees due us from some other firms or from bills submitted. An example of fees retained on matter conducted by Grazing Hill Solicitors details of which we disclosed with our disclosure bundle”. Although the witness statement said that this was not exhaustive, I assume that Mr. Ete put forward what he considered to be a good illustration of the Defendants’ case. In fact he was referring to a letter from Grazing Hill Law Partners dated 27 June 2014. The letter, addressed to the Legal Aid Agency, concerned the case of Malik Matouk. It stated that the claim for payment of fees had been processed by the LAA in June 2014. This was a case for which Grazing Hill had been the final conducting solicitors. The file had been transferred to that Firm at some stage, presumably in 2012. The letter pointed out that Charles Ete & Co had acted under the same certificate between November 2011 and February 2012. Charles Ete were complaining that they had not received the payment which had been claimed by Grazing Hill on their behalf from the LAA. The letter recorded that on 25 June 2014 the LAA had told Grazing Hill that they had processed all payments on the certificate and that Charles Ete had been paid the amount due to them independently on their “bank account”. But it was pointed out that Charles Ete had confirmed on 27 June 2014 that they had not received any of the sum due to them, which was said to be £3,544.70. In re-examination Mr. Cowley pointed out that in the Claimant’s updated Schedule A it can be seen that on 12 June 2014 this sum of money had indeed been processed by being credited to Charles Ete & Co on their BACS statement in the usual way. That explains the reference in Grazing Hill’s letter to Charles Ete & Co’s “bank account”. Of course, no physical payment had been made in that amount to Charles Ete & Co simply because their account with the Claimant still showed a very large debit, owing to the recoupment of POAs and the ongoing failure of the Firm to submit final bills for assessment on matters for which they had remained the final conducting solicitor. Accordingly, I am satisfied that the Claimant had properly accounted for this credit in favour of the Firm and that the point taken by Mr. Ete was bad.

In cross-examination Mr. Cowley denied that the LSC had relied upon its general experience of problems with other firms of solicitors over POAs in order to justify the termination of the family contract held by the Firm. He also denied that he had accepted the Auditor’s report “hook, line and sinker”. He said that he had relied upon other information to which he had referred, including the fact that the legal aid certificates were more than four to five years old and the fact that bills had not been presented as had been promised on more than one occasion.

I found Mr. Cowley to be a reliable witness. His evidence was not contradicted in any material respect, whether in cross-examination or by any other evidence in chief. I accept the contents of his witness statement and his further evidence as summarised above.

I turn to consider other evidence from Mr. Ete which is relevant to the recoupment issue.

He was cross-examined about the seven cases referred to in the LSC’s letter of 27 January 2012, where his Firm had promised (on 9 February 2011) that final bills would be submitted by May 2011. He accepted that the dates given in his letter of 9 February took into account the backlogs which the then costs draftsmen were experiencing.

In May 2009 Mr. Ete had stated that two cases for Adam Barton would be billed by October and November 2009. In March 2010 Mr. Ete gave a revised estimate for the billing of these matters of July 2010, which took into account the Firm’s decision to instruct a new costs draftsman in the meantime. Although in February 2011 the Firm stated that the Adam Barton bills would be submitted by May 2011, by January 2012 that had still not been done. In May 2009 Mr. Ete had stated to the LSC that final bills in two cases for Daniel Barton would be submitted by November 2009. Those time estimates were revised again in 2010, and in February 2011 the Firm said that the final bills would be provided by May 2011. In January 2012 the LSC made a nil assessment for both of these cases on the basis that no bill had been submitted even by that stage. In cross-examination Mr. Ete simply said that he was unsure whether final bills had been submitted. As to the case concerning Juliette George, in May 2009 the Firm had said that the final bill would be submitted by September 2009. In March 2010 Mr. Ete said that the bill would be submitted by September 2010. In February 2011 he then said that the bill would be submitted by May 2011. Mr. Ete was asked in cross-examination whether he accepted that in January 2012 a nil assessment had been made for that case because the bill had still not been submitted. He merely answered that he did not know whether a bill had then been submitted. In May 2009 Mr. Ete had told the LSC that the final bill for the case of Olubaji would be submitted by November 2009. No bill was submitted during 2010 and in February 2011 the Firm told the LSC that it would be sent by May 2011. Once again Mr. Ete did not know whether the bill had been submitted by his Firm by January 2012. However, he accepted that on 1 February 2012 the LSC had made a nil assessment for this case and recouped all POAs paid because they had not received any bill.

Mr. Ete accepted that he did receive the BACS statement for the Firm dated 1 February 2012 showing the nil assessments and recoupments, and that if he had thought at that stage that the Firm had submitted bills in these cases, he would have said so at the time. He did not.

In May 2009 Mr. Ete had stated that the final bill for the case of Sheril Waller would be submitted by September 2009. In March 2010 he said that the bill would be submitted by July 2010. In February 2011 he said that the bill would be sent by May of that year. It was not until 5 October 2011 that the Firm submitted a bill for this case. However, there is no dispute that on 6^th December 2011 the LSC had to reject the bill because it encompassed the whole of the costs for the case whereas the Firm had been obliged to breakdown the costs so as to identify separately those which had been incurred after the case had become registered as a High Costs case on 8 February 2007. The LSC helpfully suggested that instead of redrawing the bill entirely, the Firm only needed to resubmit two sets of pages six and seven of the form so as to show the pre-contract costs and post-contract costs separately. It was also pointed out, referring back to a letter from the LSC dated 13 August 2008, that the Firm had used the wrong hourly rate in the computation of the fees being claimed. The letter would have been received by the Firm at around the time when the second stage of the audit was taking place and it should therefore have been obvious to the Firm that their errors in the claims they had submitted should be corrected as soon as possible. Mr. Ete did not suggest that this would have been a difficult task to carry out. The Court was not shown any response to this letter, certainly not one before the decision on 27 January 2012 to recoup the POAs on this case. Mr. Ete did not refer the Court to any material to indicate that the Firm had corrected the errors in the bills after the 1^st February 2012 which could have enabled the LSC to carry out a reconciliation for this matter.

The cross-examination of Mr. Ete also dealt with cases the subject of later recoupments of POAs. In May 2009 the Firm had told the LSC that it expected to submit a final bill in the case of Ronke Tejaiye by September 2009. In fact, by 2012 no bill had yet been submitted. In cross-examination Mr. Ete’s only explanation for this was that the case was still live and was transferred to Blackwhite Solicitors. He said every single Tejaiye file was transferred to other solicitors. However, this particular case appeared on the list of 51 cases referred to by the Firm’s costs draftsman Mr. Udugda in his letter of 9 May 2012 to the LSC as one of the cases for which he was preparing bills. The cost draftsman had sent that list in order to deal with a long outstanding requirement by the LSC in respect of cases which the Firm had sent to its cost draftsman for final billing. This particular Tejaiye case was on the LSC’s “category one” list (letter of 26 April 2012) as the result of information which had previously been supplied by the Firm to the LSC. The category one cases were distinct from categories two and three because the latter did relate to cases being transferred to other firms of solicitors because they were still “live”. On the basis of the contemporaneous documentation from Mr. Ete to the LSC and the letter from the costs draftsman in 2012, there was therefore no basis upon which he could properly assert in cross-examination that the reason why a final bill had not been submitted on this case three years after it had been promised in 2009 was because the matter was still live. Mr. Ete’s evidence on this point was unreliable. It also exemplifies Mr. Ete’s willingness, observed on several occasions during the trial (as well as in correspondence), to make assertions, oblivious to accuracy or truth, in order to avoid criticisms of him and his Firm.

Mr. Ete was also cross-examined about other similar cases. In May 2009 the Firm had stated to the LSC that the final bill in Yadalieu Davies would be submitted by August 2009. By 2012 that bill had yet to be submitted. Here also, because of the information given to the LSC by the Firm in 2012, it appeared in the category one list of cases. Similarly, in May 2012 the costs draftsman said that this was a case for which he had been asked to prepare a final bill. In other words the case had been completed. In May 2009 the Firm had said that the final bill for the case of Origbo would be submitted by September 2009. That too was on the category one list of cases in April 2012 where a final bill had still to be submitted 3 years later. In May 2009 Mr. Ete’s Firm had said that the final bill for the case of Campbell would be submitted by November 2009. That case also was included in the category one list of cases produced in April 2012 where no bill had previously been submitted.

In summary the LSC said that of the 26 cases contained in the category one list, 18 were cases where bills had been promised by the Firm for submission in 2009. Mr. Ete was asked specifically about the statement made by the Firm in March 2010 that bills in the cases of Olubaji and Davies would be submitted by November 2010. His response was that at the time he believed that the cases had been concluded but “that did not rule out the possibility” of this changing subsequently. The way in which that answer was couched in the negative suggests that Mr. Ete did not have any reason to suppose that those cases might become live matters again. Moreover, the Defendants did not put any evidence before the Court to show that bills were not submitted in 2010 or subsequently, because the situation had changed and that these cases, or other cases, had become live once again. There was no evidence of the Defendants writing to the LSC to point out any such changes. In any event, in February 2011 Mr. Ete wrote to the LSC to indicate that final bills for the Olubaji and Davies cases would be submitted in May and July 2011 respectively. At the time of the LSC’s letter of 27 April 2012 the Firm was still representing that the Davies case was with the costs draftsman for assessment and the Olubaji case was with the Court for taxation because the cases had been concluded. Mr. Ete’s evidence that he “could not rule out the possibility of things changing subsequently” had not prevented these steps from being taken and in my judgment they did not amount to a credible explanation for the Firm’s failure to take them earlier. I do not accept that Mr. Ete genuinely believed this explanation himself. In these respects also he showed himself to be an unreliable witness.

To draw matters together Miss Rushton cross-examined Mr. Ete on page 6 of the Auditor’s second report in which she recorded from the document provided to her by the Firm during her visit in December 2011, that in relation to 150 certificated cases, only 25 were said by the Firm to be ongoing at that stage, 14 matters had been lodged with the Court for detailed assessment and 77 matters were reported as being with the cost draftsman for preparation. Accordingly, on the Firm’s own figures approaching two thirds of the certificate cases had been concluded. Mr. Ete simply said that he could not verify that these were the figures which had in fact been supplied to the Auditor. Albeit that he has known since December 2011 that the figures are said to have been taken from the Firm’s own documents, and they were not challenged in his contemporaneous correspondence, Mr. Ete did not put forward any alternative figures. In my judgment it is plain from this evidence, once again, that Mr. Ete and the Firm have failed to engage with the adverse findings made by the Auditor in her reports, especially the second report, and likewise have failed to engage with these matters in preparing for the trial in this case.

To put matters into context, it is important to recall that at the stage when the LSC sent its letter of 27^th April 2012, giving further warnings as to the action it might take in respect of the Firm, the total amount “recouped” thus far was only just over £100,000, a relatively small proportion of the total amount which was “recouped” subsequently. Even then the Firm had not yet been obliged to repay that amount to the LSC. It had only been debited to the Firm’s account with the LSC. Furthermore, the LSC had been asking for final bills to be submitted in a large number of cases from 2009 onwards. In response to the question whether the obligation had been on the Firm to have the final bills prepared and submitted, Mr. Ete simply answered “that may well be”. However, far from taking this opportunity to attempt to rectify the failure to submit final bills between 2009 and early 2012, Mr. Ete had to accept that between 27 April and 24 July 2012 the Firm submitted only 2 further bills for assessment which together amounted to less than £10,000 in total.

There was a continuing theme running throughout the drafting by Mr. Ete of the Defendants’ pleadings and written submissions and in his oral evidence. Mr. Ete said that it had been financially impossible for the Firm to advance the preparation of final bills for concluded cases following the suspension of the payment of POAs and then termination. Of course this explanation only relates to the period following the suspension decision on 4 November 2011 and the termination decision on 19 January 2012. It does not account for the very considerable delay in the submission of bills for the period running from at least early 2009 until late 2011. But Mr. Ete also asserted secondly that the Firm faced cashflow problems during that earlier period because the LSC had delayed payment of bills which had been taxed or assessed. In this context he relied upon one letter from the Firm dated 11 November 2011 which had referred to 11 cases for which bills had been submitted “since April 2011” (indeed the Waller bill had only been submitted in October 2011). There was no attempt by Mr. Ete to produce reliable evidence that this was an ongoing problem for the Firm from 2009 onwards, or to show by evidence the extent of the delays alleged how they had impacted upon the Firm’s actual cashflow position during the period to 2009 to 2011. In any event his second assertion does not address the simple fact that for the 150 or so certificated cases at the time of the audits in November to December 2011, bills had not been submitted for assessment in the vast majority of cases.

When Mr. Ete came to give his evidence in chief he relied upon examples of running costs disclosed by the defence in 2015 in a small number of cases to illustrate how he had prepared the Defendants’ Schedule responding to the Claimant’s Schedule A. The examples of running costs upon which he relied were contained in Volume 6 of the Court bundle at tab 49 and also in Bundle B, one of 5 additional bundles which Mr. Ete produced when he was giving his evidence in chief. In his updated version of the Defendants’ Schedule responding to the Claimant’s Schedule A, it was contended that the running costs for profits and disbursements which had actually been incurred by the Firm were considerably greater than those previously taken into account by the LSC when dealing with claims for POAs, and therefore instead of the Firm being liable for the repayment of POAs as claimed by the LSC, there was a large balance due from the LSC to the Firm of £491,918.72.

Mr. Ete accepted that the Defendants’ Schedule was not based for the most part upon any final bills which have been presented to the LSC or to the Court for assessment or taxation. At first he said in evidence once again that this was because of the financial impossibility of the Firm funding the costs of having the bills prepared by a cost draftsman. He said that generally it was necessary for the Firm to make an upfront payment on account of the cost draftsman’s fees of up to 50%, leaving the residue to be paid when the Firm received payment from the LSC. In other words, Mr. Ete sought to give the impression that the Firm had been unable to afford these upfront payments.

However, subsequently when Mr. Ete was being cross-examined on the accuracy of the Defendants’ Schedule he gave a very different version of events. He said for the first time that most of the Firm’s files had been passed to the costs draftsman, that they had already prepared the bills, but that they would not release them until they had been paid. No evidence was produced to support this assertion. Nothing was said by Mr. Ete as to whether his Firm had made any part payment of the fees of the cost draftsman. According to Mr Ete’s earlier evidence, the cost draftsman would not expect to be paid 50% or more of their fees (i.e. the residue) until the bills had been submitted for assessment and payments made by the LSC to the Firm. If the agreed upfront payments had been made by the Firm, the costs draftsman would have been acting in breach of his retainer by refusing to release the bills he had prepared. But Mr. Ete did not suggest that the costs draftsman was acting in that way. The only other possibility was that the costs draftsman had prepared the final bills without any up-front payment for his fees from the Firm. Either way, Mr. Ete was unable to offer any explanation as to why it would make sense for the cost draftsman to do all the work of preparing the bills in a substantial number of cases and then refuse to release those bills for assessment. That stance would simply prevent the cost draftsman from being paid, or fully paid, for the work he had done, and would make no sense, a fortiori where he had received no upfront payment at all. This leads me to doubt whether any significant work has been done on billing by the costs draftsman. If that is so, then this was a blatant attempt to mislead the Court. At the very least Mr. Ete’s change in his evidence (a) revealed him to be a wholly unreliable witness on an important issue for the defence to the recoupment claim and (b) means that I can place no weight on his assertion that from 2009 onwards, or from the suspension of POAs, the LSC made it financially impossible for the Firm to have final bills prepared for concluded cases.

The Claimant’s schedule A relates solely to recoupment of POAs paid to the Firm in respect of certificated family matters. The schedule does not include any recoupment of POAs payable in respect of Counsel’s fees. The schedule shows the value of the sum recouped split between profit costs and disbursements. It also shows whether the transaction operated as a credit or debit when entered on the Firm’s BACS. Column H identifies the date when each POA was originally made. Column K identifies the date when the recoupment took place. Column L identifies the nil assessments. Column N identifies the date when the Legal Aid certificate was originally issued. Column O gives an interest calculation in respect of each recoupment. The schedule calculates interest at the rate of 8% per annum. In her closing submissions Miss Rushton confirmed on behalf of the Claimant that it would instead be seeking interest at the rate of 4% per annum, being the rate which was awarded in the Loomba case. At that point Mr. Ete stated that he did not dispute a claim for interest based on 4% in respect of any sums found to be due to the Claimant. The schedule also shows where credits have been applied as a result of bills being submitted for taxation or assessment. The sub total for the debits on the schedule of £945,912.05 and the sub total for the credits shown on the schedule is £150,728.36. The net difference between the 2 sums and the claim shown on the schedule is therefore £795,183.69.

The Claimant submits that the Defendants’ response to the Claimant’s schedule A is not a proper set-off and is unreliable for a number of reasons. First, it is accepted by Mr. Ete that he has not provided full running costs for each of the cases dealt with in the Defendants’ response. Second, as I have explained, the Defendant has not provided any bill based upon those running costs which could be the subject of an assessment. Third, it is accepted by Mr. Ete on behalf of the Defendants that they would only be entitled to be paid by the Claimant the Firm’s taxed or assessed costs, as to which there is no evidence. Fourth, if bills have indeed been prepared by the cost draftsman, no credible reason has been given for the non-production of those bills to the Claimant, or indeed the Court. The Defendants have had a lengthy opportunity within which to present the bills for assessment and, if the Claimant’s establish their entitlement to recover the amount shown in the updated version of schedule A, it would be improper for the Defendants’ unsupported schedule simply to be sent for assessment of damages under the current proceedings. Fifth, the Claimant submits that his submissions are reinforced by serious and obvious flaws in the information presented in the schedule. He suggests that the Response document from the Defendants and the Defendants’ own schedule of loss, are so flawed as to be unreliable documents. I deal with those matters below.

Christopher Adkins, a senior case worker with the Claimant, gave evidence about the Claimant’s records for the Firm’s account (contained in volume 5 of the Court bundle) and the compilation of the Claimant’s Schedule A of loss and damage. During cross-examination by Mr. Ete, Mr. Adkins confirmed that the Business Objects Report (in tab 46 of volume 5 of the Court bundle) related only to cases for which the Firm remained the final conducting solicitor. This schedule therefore did not include cases transferred by the Firm to other solicitors. The Claimant’s case is that his schedule of loss contained in Updated Schedule A contains only POAs which were paid for the benefit of the Firm. No evidence to the contrary has been produced during the trial in respect of any case listed in Schedule A. Indeed the Court was told that the Defendants’ Response to that schedule adopts the same figures in respect of POAs made to the Firm.

In his letter of 27 January 2012 Mr. Cowley stated that he had been the Audit Manager who approved the Auditor’s recommendation that the family contract be terminated. In cross-examination Mr. Cowley confirmed that that statement was correct. It also accords with paragraph 18 of his witness statement, where he added that his primary concerns arising from discussions with the Auditor and her report were that the Firm’s accounting procedures were “grossly defective”. “The Firm could not justify claims made for POAs to the LSC, there was evidence to suggest that inflated and unjustifiable claims had been made, and delays engendered by the Firm’s poor billing practices had prevented and were preventing the LSC from properly balancing the finances in a significant number of cases”.

Pursuant to the request made by the Firm on 6 January 2012, an informal review of the decision to terminate the contract was taken by Mr. Ronan Kelly. He summarised the process followed in that review in paragraphs 17 to 20 of his witness statement. In his letter of 19 January 2012 Mr. Kelly upheld the decision to terminate. In his cross-examination Mr. Kelly stated that he had not been involved with the Firm or with the partners prior to the audit process. He said that his review of the decision to terminate the contract had been based upon the review of the Auditor’s reports. The original records and other documents examined by the Auditor were not matters which other LSC officials would look at. They relied upon the audit process to examine the necessary records on-site. Mr. Kelly said that he had assessed the audit report and the recommendations it made by considering such matters as the severity of the breaches and the Auditor’s reasoning and that he also examined the report to see how it had dealt with the points being raised by the Firm and for any inconsistencies in the report. He denied the suggestion made by Mr. Ete that the contract had been terminated in order to enable POAs to be recouped. He said that the termination of the contract had been necessary to protect the Legal Aid Fund because of the breaches of contract identified. He drew attention to the Firm’s inability to produce evidence supporting work in progress and the insufficiency of the work carried out on the files to support the POAs which had been claimed. Because of the seriousness of those concerns Mr. Kelly stated that he had not found it necessary in his reply of 19 January 2012 to respond specifically to a complaint made by Mr. Ete in his letter of 6 January 2012 that there had been a delay on the part of the LSC in payment of bills which had been submitted by the Firm to it “since April 2011”. He denied the suggestion that the LSC’s process had been flawed because of a failure to consider requiring corrective action to be taken by the Firm rather than the LSC terminating the contract. This had not been a case where merely requiring corrective action would have been sufficient.

Mr. Ete returned to the complaint in his letter of 11 November 2011 that 11 bills had been sent to the LSC since 2011 but the Firm was still awaiting payment. However, the list included the Sheril Waller case the bill for which had only been submitted to the LSC as recently as 5 October 2011 and which was rejected by the LSC on 6 December 2011 for reasons which have not been challenged. Mr. Kelly added that these 11 cases did not relate to any of the 20 matters in which the Firm had been asked to provide full ledger/account print outs and WIP/running records of costs at the first stage of the audit. For 17 out of those 20 cases records were not produced during that first stage and even by the end of the second stage the evidence showed excessive claims of POAs and other serious accounting errors. They included the high volume of file reviews on 2 cases which Mr. Kelly regarding as “completely unjustified”. In answer to Mr. Ete, Mr. Kelly stated that Auditors are instructed to make recommendations. He accepted that on occasions an audit plan may contain possible outcomes. It was suggested to Mr. Kelly that there had been no such notice of possible sanctions in the present case and therefore the Firm had been ambushed. Mr. Kelly denied that. He said that during the opening meeting the Auditor would have explained the range of potential outcomes which might emerge from the audit.

In his evidence in chief Mr. Ete challenged the seriousness of the breaches which had been alleged against the Firm. He said that up until the audits carried out in 2011 there had no blemish on the Firm’s record. In paragraph 16 of his witness statement he relied upon the fact that files kept by the Firm had been commended by the Law Society Practice Standards Unit and the Firm had previously passed an external peer review carried out on behalf of the LSC. To support these points Mr. Ete produced as an exhibit extracts from certain reports. First he relied upon a summary of a visit carried out on behalf of the Law Society to the Firm on 18 and 19 July 2005, about 6 years before the audit the subject of these proceedings. The summary stated as follows;-

“It was apparent that Charles Ete and Co has a strong service ethic. The files I reviewed were, in general, well organised and managed. I would also mention that I was impressed by your attitude and obvious commitment, as well as by the cordiality and helpfulness of all your colleagues.”

No further details were produced to the Court from this report in order to enable a better understanding to be gained as to the purpose and scope of this monitoring exercise. When Mr. Ete gave evidence in chief, he referred to a letter from the Law Society of 27 July 2005 (in his additional bundle E). Perhaps the letter was in fact sent on 27 August 2005 because it responded to a letter from the Firm dated 18 August relating to the monitoring visit in July of that year. The letter stated:-

“I was pleased to learn that you have taken all the steps necessary to address the required actions in my visit report. Thank you for doing that promptly.”

The Defendants have not produced the letter of 18 August or any evidence as to what those actions were or why they were necessary. It is difficult for the Court to give any significant weight to material of this kind without the Defendants producing material to show what the ambit and purpose of the inspection was and the extent to which, if at all, it relates to the matters which were investigated during the audit in 2011.

Mr. Ete also relied upon very short extracts from untitled documents which apparently related to inspections carried out on behalf of the Law Society in 2009 and 2011. In each case the extract simply said under the heading “books of account”

“5.

The books of account were in compliance with the solicitors’ account rules in all material respects”.

In his new bundle E Mr. Ete included a letter from the Solicitors Regulation Authority dated 17 August 2011 which related to the 2011 “investigation under the Solicitors Accounts Rule 1998 and the Solicitors Code of Conduct 2007”. The extract from the letter states:-

“I refer to my attendance at your offices on 10 February 2011 and on subsequent occasions. I have now concluded my report which I am enclosing.”

Mr. Ete suggests that considerable weight should be attached to material relating to inspections carried out in 2011 insofar as they suggested compliance with standards, in contrast to the findings of the Auditor in her reports in that same year. However, Mr. Ete has not produced any parts of those reports which set out in any detail the matters which had been investigated and the conclusions reached so as to demonstrate how those matters could undermine the findings of the Auditor. It is not even clear that each of these documents was investigating the same areas of performance or conduct. For example Mr. Ete relied upon a document in his bundle E entitled “Reporting Accountants Checklist” under the “SRA Accounts Rule 2011”. The checklist enables the reporting accountant to indicate (inter alia) whether any breaches were discovered under a number of headings, which include book keeping systems, postings to ledger accounts, and receipts and payments for client money. The document explains that the items in the checklist have been tested so as to satisfy the requirements for examination under rules 38-40 of the 2011 Rules. Those rules are concerned with proper accounting of client money as opposed to the Firm’s office account. By contrast the Auditor’s inspection on behalf of the LSC was concerned with the adequacy and reliability of records kept for compliance with the requirements of the Legal Aid Scheme, including the accurate recording of work carried out, work in progress and the making of proper claims for POAs. The material in Mr. Ete’s bundle E was not put to the Auditor in cross-examination so that she might be asked whether it had the potential to affect the findings she had reached. Given also the nature of the material I have described, I do not attach any significant weight to it for the purposes of undermining or contradicting the findings contained in the Auditor’s reports.

In cross-examination Mr. Ete accepted that the audit plan had warned the Firm that the purposes of the on-site audit included checks on whether claims for POA were being reported accurately. In relation to the Auditor’s first report Mr. Ete accepted that the Firm had been asked to produce a total figure for WIP on certificated cases. He asserted in evidence that the figure of £1.949m provided to the Auditor had been a WIP figure solely for certificated cases and thus the Firm had complied with the requirement. But then Mr. Ete had to accept that in his letter 6 January 2012 he had stated that the Firm had wrongly included in that figure matters such as private immigration work and legal help (i.e. pre-certificate work). His own letter therefore contradicted the criticism he had previously made of the first audit report in his letter of 11 November 2011. This and other examples indicated Mr. Ete’s willingness to make assertions in order to contradict a finding or findings of the Auditor without checking source material to see whether his position was tenable.

When Mr. Ete was asked whether he accepted that at the first audit the Firm had produced running records for only 3 out of 20 cases he responded “I am not going to say whether everything was given as requested”. He then had to accept in cross-examination that by contrast in his letter of 11 November 2011 he had in fact accepted the accuracy of the Auditor’s finding as regards the production of only 3 sets of running records and had gone on to ask for more time within which to produce to the LSC running records for the remaining 17 cases. Mr. Ete also had to accept that even in relation to the 3 cases where running records had been produced, the total value of the work carried out did not support the POAs claimed. He also accepted that in 2 of the cases incorrect public funding rates had been used to calculate the value of the work done. He therefore accepted that the Auditor’s findings set out in the third bullet on page 3 of her report were accurate. At this stage, therefore, Mr. Ete accepted the accuracy of those findings in the report, whereas in his earlier cross-examination of the auditor he had accused her of fabricating those very findings (see paragraph 142). When he cross-examined the auditor Mr. Ete must have known the truth of the matter and so his conduct was, to say the least, deplorable.

As to the allegation in paragraph 5 of his witness statement that the Auditor had stopped payments on account on the first day of her audit and even before getting down to the substance of the audit (and the repetition of that allegation to other witnesses called on behalf of the defence), Mr. Ete was unable to explain how his assertion could sit with the fact that the contract notice was only sent out on 4 November 2011 after the first stage of the audit had been completed.

In paragraph 6 of his witness statement Mr. Ete asserted that Miss Winch had not looked at all the files she claimed to have examined but had probably only looked at 1 or 2. But he had to accept that on the Auditor’s findings the Firm had only produced running records for 3 cases in the first stage of the audit and the Auditor had appended her notes to the same effect. Mr. Ete also accepted that he had said to the auditor that there had been significant delays in the Firm billing out of certificated cases. He did not challenge the figures given by the auditor that of the 105 cases listed on the incomplete review produced by the Firm only 23 had been identified as ongoing.

As to the auditor’s finding in her second report that the running records of costs eventually produced by the Firm revealed over-claiming of POA in 16 out of 20 cases (an 80% over-claiming rate), Mr. Ete said “I do not believe the finding was correct” but he then added “I have not checked the 20 cases before saying this”. He then accepted that the Auditor’s report was accompanied by a schedule of information collated from the information produced by his Firm on the 20 cases. He stated that he had checked the content of that Appendix when he received the report. He also accepted that in his letter at the time of 6 January 2012 he had not made any criticism of this finding by the Auditor but had stated that the running records of costs had errors in them which could not have been corrected before the audit but had subsequently been corrected. Mr. Ete said he did not recall whether the corrections had been sent to the Auditor or to the LSC. In my judgment this evidence of Mr. Ete was unreliable, indeed evasive.

The correspondence in 2012 did not identify any of the errors nor did it say whether or not the corrections which apparently had been identified supported the Defendants’ position on POA, so as refute some or all of the Auditor’s criticism. If those corrections had had that effect there would have been no credible reason for the Firm or Mr. Ete not to have shown that material to the LSC, or indeed the CRB. Alternatively, if following the correction of the errors, the position still remained that claims for POA could not be supported and had been excessive, then the Defendants failed to tell the LSC that. The Defendants in correspondence simply asked for time in order to reconcile the running costs notwithstanding their assertion that the errors had already been corrected. It is most surprising that the Defendants have not produced any documents to identify the errors which the Defendants claim they discovered and the corrections that they claim to have made in 2012.

In relation to the Auditor’s finding that the Firm had made excessive claims for “perusal of files”, and in particular had claimed 51 file reviews each lasting 2 hours on one case where records showed no other work being carried out over a two year period (between 2009 and 2011), Mr. Ete’s only answer was that the Firm had in the past been criticised for not reviewing the cases of clients sufficiently. He added “maybe we increased the figure too much”. Plainly the figure could not have been increased “too much” if it related to work which had actually been carried out unless Mr. Ete was implying that the work had been carried out but to an unnecessary extent. Either way, this was not a genuine, honest stance for him to take.

I turn to consider the reliability of the Response by the Defendants to the Claimant’s schedule A. This Response does not dispute the quantum of POAs paid by the LSC in the past. Nor is there any dispute by the Defendants that the recoupments based on nil assessments equates to the total amount of those POAs. Instead, the Response by the Defendants to schedule A purports to set out the total amount of work carried out by the Firm for each of these cases. It claims to be based upon running records of costs, but as I have indicated it is not based upon bills prepared by a cost draftsman, let alone ones which have been subject to assessment. In cross-examination of Mr. Ete a number of examples were put to show that the schedule is not a reliable document in any event. Mr. Ete told the Court that he had been solely responsible for producing the Response document, using information from running record costs which had been generated in 2015 by an assistant. In these circumstances, the examples also go to the reliability of Mr. Ete’s evidence as a witness.

In the case of Catherine Nassalli, the Response document stated that the Firm had carried out work to the total value of £15,890. On the other hand the Response also stated that the Firm had received POA for this case which in total amounted to £15,300, or in other words 96% of the amount of work carried out. The Firm had therefore breached the maximum ceiling of 75% for POA to a very considerable extent. In addition, in the Defendants’ bundle of documents the running record of costs produced for this case showed that the total value of the work in fact carried out was only £7,378.61. The Court was told that that figure did not include VAT. But even with the addition of 20% for VAT the resultant figure would only amount to £8,853.60, a figure which is only about 55% of the total amount of work alleged to have been carried out according to the Defendants’ Response document. The Response document purports to demonstrate that on this case the Firm has been underpaid to the tune of £590. But according to the running records upon which the Defendants’ Response document is based, the POAs obtained and retained by the Firm involved an overpayment getting on for £8,000.

No doubt recognising the seriousness of his position, Mr. Ete then suggested that the running costs upon which he was relying for this particular certificate were incomplete in that there were additional pages which must have been omitted from the Court bundle. I reject this suggestion. First, the running record produced to the Court does not appear to be physically incomplete, whether examined in isolation or in comparison with other similar documents in the Bundle. Second, it includes work done during the year 2012 up to 5 July 2012 (on which date a perusal for 15 minutes is recorded). Third, Mr. Ete stated that he believed that this was a file which he had been obliged to transfer to another Firm of solicitors in 2012. I have no doubt that Mr. Ete then realised that his explanations did not stand up. He then said that he could not go further into this aspect because the file had been passed to the costs draftsman. It was at this point that Mr. Ete said for the first time that most of his files had not only been passed to the costs draftsman but that the latter had prepared bills in respect of them. He then added that those bills would not be released until the fees of the costs draftsman had been paid. I have already dealt with the unreliability of this wholly unsupported evidence.

Mr. Ete then tried another tack. He said that he wanted to check the Claimant’s figure for the POAs already paid to the Firm on the Nassalli case. He said that he wanted to do this in order to see whether the figure in the Defendants’ Response schedule of £15,300 needed to be corrected. He persisted in this point, albeit that the Claimant’s counsel intervened to say that their figure was indeed the same as Mr. Ete’s for POAs in this case. When examined the documents did indeed show that the figures were the same and also that the BACS statements issued by the LSC for 30 July 2012 (vol.5 of the Court bundle tab 45, page 1320) confirmed that on that date the LSC had recouped in total POAs on this case of £15,300. He had to accept that the only purpose of his asking for the figure to be checked during the hearing was simply to see whether his own Response schedule could be corrected by reducing the amount he had stated to have been the POA paid, so that he could overcome the criticism that his Firm had improperly claimed POAs in excess of the 75% cap. This evidence demonstrated Mr. Ete’s own lack of confidence in the reliability of the Response schedule he had prepared. Worse still, this ploy on his part made the assumption that his Response schedule was otherwise correct in putting forward a figure of £15,890 as the total value of the work which had been carried out and continued to ignore the major discrepancy between that figure in the Response document and the running costs schedule upon which it had apparently been based, which showed that the maximum value of the work actually carried out was no more than £8,853 including VAT. In summary, this example reinforced firstly the reliability of the auditor’s finding that there had been over-claiming of POA and secondly my conclusion that the Defendants have not produced records either to the auditor or to the Court which can be treated as reliable.

Mr. Ete was asked about the Monty Scamp case which was one of the 20 cases which the auditor asked to inspect at the on-site audit. The Defendants’ response to schedule A claims that the total value of the work carried out on this case was £15,812. However the running costs document produced by the Defendants upon which their Response document is based shows that the total running costs amounted to no more than £12,355.78. Even allowing for the addition of VAT, the Response document is materially inconsistent with the evidence upon which it purports to be based. In addition the running costs schedule shows that no work has been done on this case after 2005 apart from an alleged perusal for 25 minutes in November 2011. It is therefore not open to suggest in this case that there are pages missing from the Defendants’ bundle.

Mr. Ete was asked about the case of Adam Barton, for which his Response document claims that the work actually carried out had a total value of exactly £12,000. The Response says that the POA which has been paid for this case amounted to only £3,525. Accordingly the Defendants purport to claim the difference of £8,475. But the Defendants’ running costs document upon which the Response is based show that the total work carried out has a value of only £5,247.06. Mr. Ete could not explain this further discrepancy, but he suggested once again that perhaps he had missed out updated documents. Once again this suggestion is untenable. The Response to schedule A was served on 2 June 2015 and must have been produced before that date. The running costs schedule upon which the Response was based was disclosed by the Defendants in March 2015 and indicate that the last pieces of work were carried out in 2007. The running costs records for this particular case for Adam Barton show that the counterclaim has been exaggerated.

In the case of Clara Baiyi the Defendants’ Response document alleges that the total work carried out amounted to £12,251.30 and that the total amount of POA received was only £7,755.15. In this instance therefore the Defendants counterclaim £3,641.15. However, even from the documents which the Defendants produced to the auditor during her December 2011 visit it can be seen that the value of the total work done was only £4,938.34 at that stage and that the last entry shown for work done was dated 2 March 2010 (see Appendix 1 to the auditor’s report). In fact the POA recorded by the auditor from information produced by the Defendants at that stage was shown to be £9,667.90. This figure also appears in the Claimant’s schedule A. This indeed was one of the 16 out of 20 cases listed in appendix 1 to the report of the second audit where it was apparent that POA had been over claimed. The running costs record disclosed by the Defendants and upon which their response document has been prepared, purport to show only an extra four entries for work carried out after 2 March 2010. None of that further work was done after the end of 2010 or after the auditor’s visit to the Firm in late 2011. The extra four entries amount in total only to £237.37 including VAT and so cannot explain the inconsistency between £4,938.34 (the total work figure given to the auditor by the Defendants at the second audit visit) and £12,251.30 (in the Defendants’ Response to schedule A). In their Response document the Defendants counterclaim £3,641.15. But in fact the POA paid to the Defendants of £9,667.90 is nearly £5,000 greater than the total value of all the work done by the Defendants as shown to the auditor. In this case, therefore, once again the Defendants not only claimed in excess of the 75% cap for POA but they also claimed POA way in excess of the work which they can show they carried out. For this and the other cases of over-claiming of POA recorded by the auditor in her second report there has been no attempt by the Defendants before the CRB or subsequently to challenge the figures used by the auditor or to justify their own figures disclosed in 2015.

The Defendants’ schedule is divided into three parts, namely Crime
Contract, Civil Contract, and Financial Statement. Under the Crime Contract the schedule contains three heads of damage. The first head relates to the sum of £34,200 as the amount said to be due because of the Claimant’s failure to include the Firm on the rota for the Duty Solicitor Scheme over a period of six months during the year 2010-2011. This was based upon a standard monthly payment of £5,700. The second head is a claim for £342,000. This relates to the Duty Solicitor Scheme income which the Defendants say they would have been able to earn over a period of five years if their crime contract had not been terminated. This figure again is based upon a monthly payment of £5,700. The third head of damages amounts to £229,245.84. Here the claim is for the loss of representation orders over a five year period resulting from, it is said, the wrongful termination of the crime contract. The claim is calculated by assuming that there would have been representation orders granted at the average rate of three a month over the five year period and that each such case would have attracted a fee of £6,022.94 together with disbursement income of £345.00.

The second part of the counterclaim relating to the Civil Contract is simply the amount of £455,480.30 carried across from the Defendants’ Response to the Claimant’s schedule A. It is said to represent the balance due to the Firm in respect of family matters covered by legal aid certificates reflecting both the profit costs which the Firm claims it has earned as well as the POAs which had previously been paid to the Firm. I have dealt with the evidence on that computation in the preceding section of this judgment.

The third part of the Defendants’ schedule, Financial Statement, comprises four heads of loss. Head five is a claim for loss of profits taken from the Firm’s profit and loss account in the sum of £1,695,125.00. This is said to represent the gross income which the Firm could have expected to earn of £339,025 per annum over a period of five years if, as is alleged, the civil contract had not been wrongfully terminated by the LSC. Head six concerns injury to feelings and effect of termination on Defendants’ standard of living in the sum of £66,000. This figure has been arrived at by taking the sum of £33,000 and multiplying it by two to represent a loss claimed on behalf of two partners, that is to say both the Second and Third Defendants. No legal authority has been cited by Mr. Ete to support any entitlement to claim damages of this nature in the circumstances of this case. Head seven is a claim for £11,103.13 being sums due to expert witnesses in the case of Bartkowski. The eighth and final head relates to staff redundancy payments for Kathy Heslop and Mrs Coetzee in the sum of £16,200. Taking all eight heads of damage together the sum claimed is £2,849,354.27 to which interest has been added, using a rate of 8% per annum, amounting to £227,948.34, to arrive at a grand total claimed by the Defendants of £3,077,302.61.

When cross-examined about the schedule Mr. Ete accepted that he had signed a statement of truth at the foot of the document. He then accepted that the figures for loss of profits claimed in fact represented gross income rather than net profit after deduction of expenses. For example, under head five Mr. Ete accepted that the figure for gross income of £339,025 was taken directly from the Firm’s profit and loss account for the year ending 31 March 2010. That figure was arrived at by starting with gross income of £467,242 and then deducting costs of sales referable to sub-contractors, interpretation fees, counsel fees, Court fees and professional fees so as to arrive at a gross profit figure of £339,025. Mr. Ete accepted that the claim he had put forward under head five did not take into account the expenses which it had been necessary to incur in order to earn that level of gross income or gross profit. In that financial year those expenses totalled £296,119. They included amongst other things professional indemnity costs of £99,000, rent of £51,597 and wages of £51,977. The net profit for the Firm in that year after deducting those expenses and bank charges was only £38,168. Therefore this head of the claim alone was grossly inflated by using an unadjusted gross profit figure which was nearly nine times larger than the net profit figure in the accounting year used as the basis for the claim. Similarly, heads one and two for losses relating to the Crime Contract were based upon a figure contained in a letter from the LSC of 8 March 2010. The figure of £5,700 was stated to be a Standard Monthly Payment from April 2010. There is no dispute that this was a gross figure. There was no reason to think that the basis upon which head three has been computed was any different.

Having accepted that the loss of profit figures which he had advanced under head five were based upon an annual gross income of £339,025 from the profit and loss account for the year ending 31 March 2010, Mr. Ete accepted that that figure included income relating to crime work. He therefore conceded that the loss of profit claim would have included both rota payments made to the Firm in respect of its membership at that stage of the Duty Solicitor Scheme and representation orders in criminal matters. Mr. Ete reacted by suggesting momentarily that the gross profit figure he had used related to the period during which his Firm had been wrongly omitted by the LSC from the rota. However, Mr. Ete’s case is that that omission occurred in the financial year 2010-2011 whereas his claim is based on figures for the financial year 2009-2010. He therefore accepted that there was double-counting in the Defendants’ schedule between heads two and three and head five. In this respect also the claim has been grossly inflated.

Mr. Ete then accepted that the gross profit figure of £339,025 used in his computation of the loss under head five also included private work having nothing to do with the allegedly wrongful termination of the contracts for legal aid work. He accepted therefore that the sum of £68,000 per year, representing gross profit for private work, should be deducted from his computation over a five year period.

In the Claimant’s Counter-schedule (dated 30 July 2015) it was made plain that the Defendants’ schedule of loss was seriously defective because it was based upon gross rather than net profit and because it included income from private work. Indeed, in a business of this size and nature these errors were so obvious that it I find it difficult to see how Mr. Ete could have put forward the Defendants’ schedule of loss as an honest and genuine estimate for the purposes of the counterclaim. Once the Claimant’s counter-schedule was served on the Defendants it must have been obvious to Mr. Ete that in these respects “the game was up”. At that stage he ought to have filed a revised schedule of loss reducing the amounts claimed substantially.

In paragraph 5.3 of the counter-schedule the Claimant suggests that the average net profit per annum derived from the three accounting years preceding the termination of the contracts, that is to say the years ending March 2009, March 2010 and March 2011, amounted to £41,793. If that figure were to be applied over a period of five years the loss of profits claimed would have been in the order of £200,000 rather than under head five the sum eight times larger of £1,695,125. Of course that exercise puts to one side the double counting from heads two and three of the Defendants’ schedule of loss.

The Claimant then submits that in any event the LSC was entitled to terminate the Firm’s contracts on a no fault basis by giving six months’ notice, of which the Firm had the benefit of one month in any event. Mr. Ete accepted that the LSC would have been entitled to serve six months’ notice without identifying any breaches of contract (see for example clause 25.3 of the 2010 standard terms applicable from 1 February 2012). His only response was to say that in fact this step had not been taken by the LSC. As is shown in paragraph 5.4 of the Claimant’s counter-schedule, applying the average net profit figure of £41,793 per annum for a period of only five months would result in a maximum loss of profits claim of £17,414.

The improper exaggeration of the claim and double counting renders the Defendants’ schedule completely unreliable. The Defendants’ defaults are so egregious that even if the Defendants could establish liability on their Counterclaim, (a) the schedule of loss is so unreliable that it would have to be rejected and (b) it would not be a proper use of the court’s resources for the second, third, fourth and fifth heads of claim to be sent off for an assessment of damages, so that the Defendants may have “another bite of the cherry”. Fundamental flaws in the schedule were pointed out to the Defendants in 2015. They had a proper opportunity to put forward a revised, genuine claim and they failed to take it at the right time.

A witness statement was provided by Amy Munton, a crime finance team manager with the Legal Aid Agency. From her checks of the records still held by the Agency she accepts on behalf of the Claimant that neither Mr. Ete’s Firm nor Mr. Ete were included on the duty solicitor rotas for London during the period July to December 2010. Mr. Ete relied upon a letter dated 26 September 2010 from his Firm to the LSC’s duty solicitor contract section, stating that Mr. Ete had still not been included in the rota published on 16 September 2010. The letter asked for confirmation as to when he would be included. Neither party has produced any reply from the LSC to that letter or given any evidence about whether any such reply was sent and if so its content (but see Mr. Ete’s email of 29 December 2010 in paragraph 208 below).

Miss Munton produced a letter dated 26 March 2010 from the LSC to Mr. Ojo. The letter referred to a tender which Mr. Ojo had prepared on behalf of the Firm for the 2010 Standard Crime Contract and announced that the Firm had been successful in being awarded a contract to provide publicly funded criminal defence services from 14 July 2010 on the terms and conditions set out in the contract. The letter stated explicitly:

“Please also note that where you have been awarded membership of any Duty Schemes, you will need to complete a CDS12 form(s) and return these to us by 4pm on 30 April 2010.” (emphasis added)

Miss Munton also produced the crime contract which was awarded to the Firm. Attached to the contract is an Annex bearing 26 March 2010 as the date of issue. Section A of the Annex is headed “authorised CDS work”. The document identifies the “classes of work” which the Firm was authorised to undertake, namely “criminal investigations and criminal proceedings with prison law”. Under the heading “duty schemes” no entry was made in the Annex. Reading the Annex together with the covering letter of 26 March 2010 it appears that not all firms which had been awarded a crime contract were also awarded membership of a duty scheme, but where such membership of a duty scheme had been awarded then the matter would be noted in part A of the Annex to the contract. The letter stated unequivocally that the contract had been awarded to the Firm “on the terms and conditions set out in your contract for signature (including Annex) attached – this includes the classes of work you can perform and, where applicable, duty schemes on which you qualify” (emphasis added).

Reading those documents together it is plain that the Annex did not include the Firm under any duty schemes. From these documents the non-inclusion of the Firm on the duty rotas should have been obvious at this point. Moreover, even if the Firm had thought that it had been awarded membership of a Duty Scheme it ought to have taken note of the clear statement in the letter that the Firm would have to complete and submit CDS12 forms by 30 April 2010. In paragraph 5 of her witness statement Miss Munton adds that the records held by the central team indicate that the Firm “did not have a crime contract for duty solicitor work”. She has also located a “list of issues” dated 30 September 2010 which includes this statement: “Charles Ete – failed to apply for duty and failed to raise it for long period – likely to refuse membership” (see paragraph 7). The need for a member of a duty solicitor scheme to submit a CDS12 form is confirmed by an e-mail from Mr. Ete himself dated 29 December 2010, in which he stated:

“… please remember to include me in the new rotas as I was missed out on the last one. This has caused our Firm grave financial hardship, I have since sent in my CDS 12 on time as was requested. The new ones were sent since 11 October 2010. Far before the November 2010 dateline.” (emphasis added)

I infer from that that by December 2010 the Firm had been accepted as a member of the duty solicitor scheme, albeit that the manner in which that was achieved has not been dealt with in evidence produced by either side. More to the point, this e-mail confirmed Mr. Ete’s acceptance at the time that he needed to complete a CDS 12 form in accordance with the explicit requirement to that effect contained in the LSC’s letter of 26 March 2010 to the Firm.

In the light of this material the Claimant’s case on this point was very simple. The non-inclusion of the Firm and of Mr. Ete on the rota of duty solicitors in the second half of 2010 is simply attributable to their failure to follow the correct procedures initially for having that work included within their contract and subsequently by completing the necessary forms on time.

In her submissions Ms Rushton pointed to a number of provisions contained in the Specification for the 2010 Standard Crime Contract. Clause 1.3 contains a number of definitions which apply throughout the document. “Scheme” and “duty solicitor scheme” means “a duty solicitor scheme operating under this contract covering one or more magistrates’ Courts or police stations”. “Duty solicitors” means “a person who has previously been a member of a Scheme under the Duty Solicitor Arrangements 2008 or an earlier version of those Arrangements …”. “Duty Solicitor Arrangements 2008” mean “the Duty Solicitor Arrangements in force prior to this contract start date and which cease to have effect from this contract start date”. Clause 6.63 of the Specification also provides that “the Duty Solicitor Arrangements 2008 cease to have effect from the Contract Start Date”. Clause 6.10 provides:

“You must apply for your Duty Solicitors to undertake Duty Solicitor Work on a Scheme by completing a CRM12 form for each of them by the deadline notified by us on our website. A properly completed CRM12 will allow that duty solicitor’s name to be entered on the Rota or Panel of the Schemes you are a member of and will result in your being allocated duty slots on that scheme.”

Given that the term “duty solicitor” was defined specifically to mean a person who had previously been a member of a scheme under the earlier 2008 Arrangements, it is plain that 6.10 required the appropriate forms to be submitted to the LSC for approval in respect of such solicitors, who would have included Mr. Ete. In addition it is to be noted that Clause 6.2 provided: “you may only apply to join Duty Solicitor Schemes when you submit an application as part of the Tender Document for Contract Work”.

When Mr. Ete was cross-examined on day five of the trial, that was Friday 22 January 2016, he maintained that when the Firm submitted its tender in March 2010 for the new contract it did not apply to be on the duty scheme, because it was already on that scheme. For the same reason he insisted that there had been no need for any forms, such as CRM12 forms, to be filled in. His stance was that there was no need to apply, because in effect the duty scheme status previously awarded would be carried forward into the new scheme under the 2010 contract. Those assertions were flatly contradictory to the terms of the 2010 scheme according to the extracts cited above. Mr. Ete did not refer to any other parts of the contract or any other material to support his position. Mr. Ete also asserted that when in early 2011 he had been reinstated on the rota as a duty solicitor, it had not been necessary for him to submit any form. That assertion is contradicted by Mr. Ete’s e-mail of 29 December 2010, to which I have already referred.

Mr. Ete also sought to argue that the absence of any specific reference to duty schemes to which the Firm belonged in the Annex to the contract was of no significance because the classes of work specified, namely “criminal investigations and criminal proceedings with prison law”, included work under the duty scheme. Irrespective of whether Mr. Ete is correct on this point, his argument does not overcome the specific requirements in the contract that the tender documents should include an application to join the Duty Solicitor Scheme and that the other required forms should be completed. Nor does his argument address the evidence in the Annex to the contract document which contained no mention of any membership of a duty scheme, consistent with there not having been an application made at the time of the tender.

The Defendants’ last witness, Mr. Roland Ojo, was due to give evidence at the end of day five. Unexpectedly, however, towards the end of day five Mr. Ete announced that Mr. Ojo was not then available to give evidence, but was then making his way back to Court from an appointment outside London. The only practical course was for his evidence to be adjourned to the following Monday, 25 January.

In his evidence in chief Mr. Ojo added substantially to his witness statement, which had been exchanged in 2015. He said that he had been involved in tendering for new contracts and had assisted in applying for the 2010 crime contract on behalf of the Firm. He said it was possible to complete the tender documentation without completing CRM12 forms but that at the time when the LSC subsequently released those forms on its website he did submit them on behalf of the Firm. He said that on the LSC’s website he submitted details of the duty solicitors involved at the Firm and the geographical areas applied for. He said that when Mr. Ete had been missed from the rota of duty solicitors in 2010 he was summonsed to his office to explain why that had happened. He added that when Mr. Ete was subsequently put back on the rota Mr. Ojo did not complete any additional form in respect of Mr. Ete. I note two points. First, the Firm has not produced a copy of its submitted tender documentation. Second, Mr. Ojo’s evidence was not specifically directed to the requirement in Clause 6.2 of the Specification. He did not state that the documents he completed included an application to join the Duty Solicitor Scheme in accordance with that provision. That is of some significance given that in paragraph 5 of her witness statement Amy Munton says that the tender information in 2010 indicated that Charles Ete & Co did not have a crime contract for duty solicitor work.

In re-examination Mr. Ojo was referred to the definitions of “classes of work” contained in the Specification for the 2010 crime contract and asked to explain what would be covered by the term “work conducted at the police station”. He replied quite simply “advice and assistance to clients at a police station”. He then added that not all firms authorised to conduct such work would also be members of the duty solicitor scheme. That answer was also consistent with the text of the Annex to the Firm’s crime contract dated 26 March 2010 which showed that, although it was authorised to carry out work related to “criminal investigations”, it was not a member of a duty scheme.

In this part of the judgment I draw upon my review of the documents before the Court and the evidence given by witnesses, together with the findings I have already expressed, in order to set out my conclusions on the remaining issues raised by the parties.

The normal expectation is that where a case has been concluded a firm of Solicitors will want to have a final bill prepared as soon as possible so that they may recover from the legal aid fund any difference owing to them between their properly assessed costs and POAs previously received. Where a Solicitor does not follow that expected course and no reliable, sufficient explanation is provided for substantial delays in providing final bills, then it may be appropriate to infer an unwillingness on the part of the Solicitor to comply with his billing obligations. In some cases that unwillingness may also be linked to a risk or likelihood of the final account showing that money is owed by the Solicitor to the legal aid fund.

From at least March 2010 it must have been obvious to the Defendants that the LSC was considering the recoupment of POAs made to the Firm because of delays in the submission of final bills, unless a proper explanation based upon reliable information was given by the Firm (paragraphs 56 to 57). The Firm must also have appreciated from the information it supplied to the LSC in 2009, 2010 and 2011 that the Firm itself was treating a substantial number of cases as having been completed so that final bills should be submitted. It was not suggested in correspondence with the LSC that any of the cases might become live again. The time estimates given by the Firm for the submission of bills took into account the workload of the costs draftsman involved. The Firm repeatedly failed to have final bills prepared for nearly all of the cases in which it had said that bills would be submitted during the period 2009 to 2012 (see paragraphs 54 to 60, 66 to 67, 71, 75 to 77, 81, 86, 91, 96 to 97, 102, 105 to 122 and 151 and the schedules accompanying the correspondence referred to).

In the present case the delays in billing were very substantial indeed. The period examined began in 2009, but many of the legal aid certificates were granted well before then. Where information was provided by the Firm to the Auditor, her report recorded dates when work was last undertaken on a case, which in many instances was substantially before December 2011. By that stage out of 150 certificated cases for which it was responsible the Firm claimed only 25 to be ongoing and nearly two thirds had been concluded (p.6 of Auditor’s second report and paragraph 166 above). Yet by 24 July 2012 only two further bills had been sent to the LSC for assessment amounting to less than £10,000 in total (paragraph 167).

I find that Mr. Ete’s explanations for the delays in billing, whether in correspondence or in evidence, lack any credibility. He sought to lay the blame for billing at the door of other parties, whether the LSC, or costs draftsmen, or lawyers who had removed files, so as to claim that the Firm had not been unwilling to submit final bills on concluded cases.

The main reason relied upon by the Defendants repeatedly was that it had been impossible for the Firm to afford the costs of having bills prepared because of cashflow problems caused by delays in payment or other errors on the part of the LSC. The only evidence to support this point came from Mr. Ete. However, he negated his own evidence on this argument, when he unexpectedly revealed in the middle of being cross-examined that bills had indeed been prepared by a costs draftsman (paragraphs 168 to 171). The contradictions between the two accounts Mr. Ete gave are so serious as to cast grave doubts on his credibility, not only as a witness, but also specifically as the Partner in the Firm responsible for giving reliable information to the LSC on when final billing would take place. I therefore reject Mr. Ete’s repeated claims that the Firm had been unable (rather than unwilling) to have final bills prepared because of financial constraints.

I would add that by the end of 2011 the Firm had received well in excess of £1m as POAs. The LSC’s decision in November 2011 related only to future claims for POAs. Although the LSC decided between January and July 2012 to “recoup” POAs previously made, the Firm has not yet repaid any of those monies to the LSC or its successor. Hence the need for the claim brought by the Claimant. The Defendants have not produced any reliable evidence at all in support of their assertion that financial constraints prevented the Firm from having final bills prepared, let alone constraints caused by defaults or errors by the LSC.

From time to time Mr. Ete has sought to blame a costs draftsman for delays. However, no evidence was given to show which draftsman had been responsible for delay, the reasons for the delay, the cases affected and for how long, and what steps were taken by the Firm (and when) in order to address any such problem. In any event, as Mr. Ete himself said, the solution was for the Firm to remove cases from any costs draftsman who was failing to provide bills in good time. It is said that that step was taken some time before March 2010 (paragraphs 57 and 91) and it is possible that that happened once again when files were transferred to Mr. Udugba. But from as far back as March 2010 (at the least) the threat of recoupment for delays in the submission of final bills was hanging over the Firm (paragraph 56). Any suggestion it could not find a costs draftsman to complete final bills before the autumn of 2011 or January 2012 in those cases where LSC has entered a nil assessment in order to recoup POAs is wholly lacking in credibility.

In its first decision to recoup dated 27 January 2012 the LSC took action in respect of 13 cases. Mr. Ete had no good explanation for the delay in the submission of bills in the first 7 cases. Initially he had said bills would be provided in 2009, then 2010 and ultimately (in the letter of 9 February 2011) in 2011 (see paragraphs 159 to 161). In the case of Sheril Waller a bill promised for September 2009 was submitted just over 2 years later, but even then the bill had to be rejected because of an elementary flaw, and it has not been suggested that the matter has been rectified (paragraph 162). I would add that, similarly, Mr. Ete had no proper explanation for the Firm’s failure to submit final bills on other cases which were the subject of the LSC’s two subsequent recoupment decisions (paragraphs 163 to 165).

The remaining 6 of the 13 cases dealt with in the LSC’s letter of 27 January 2012 were those cases where the Firm had stated that files had been removed by previous fee earners. Mr. Ete’s point had been recorded in the Auditor’s first report issued in early November 2011. But by 2 February 2012 the Firm was saying that bills in three of these cases would be submitted by August 2012 and an update given on the remaining three. No real explanation has been given by the Defendants as to why it could not have taken effective action to recover files earlier. Neither Mr. Ete’s witness statement, nor his evidence in chief, nor the Firm’s correspondence with the LSC condescended to detail. In the absence of such evidence, and in the context of the Firm’s longstanding delays in billing for completed cases, there is no proper justification for treating these 6 cases differently from the other recoupment cases.

Mr. Ete himself revealed the improper approach taken by the Firm when, in relation to the cases of Olubaji and Davies, he stated that in 2010 he believed that the cases had been concluded, but “that did not rule out the possibility” of the position changing subsequently. At times Mr. Ete also made this point in relation to family work cases more generally. For the reasons given in paragraph 165, the effect of Mr Ete’s evidence on the Olubaji and Davies cases was to cast serious doubt on his credibility, not only as a witness, but also specifically as the Partner in the Firm responsible for giving reliable information to the LSC on when final billing would take place.

The wholly unreliable explanations put forward by Mr. Ete lead me to the conclusion that the Defendants were plainly unwilling to submit final bills when cases were concluded and those bills ought to have been submitted. Mr. Ete represented the Firm in its dealings with the LSC on this issue.

In these circumstances, I accept that Mr. Cowley’s explanation of the LSC’s concerns about risks to the legal aid fund in relation to a large amount of POAs and the reconciliation of bills was well-founded (paragraph 151). In addition he was entitled to rely upon the Auditor’s findings as indicating that there was a serious risk of a future reconciliation showing that the POAs previously claimed had been excessive. Although it is not necessary to my conclusions on liability, I would add that a possible, if not likely, explanation for the Firm’s unwillingness to have final bills prepared is that they suspected that little additional money would become payable to them, or even that the Firm might become liable to repay some of the POA monies they had received.

For these reasons I am satisfied that the Claimant is entitled to recover POAs made to the Firm in accordance with Loomba and section 3(1) of the Access to Justice Act 1999. The Firm evinced an intention not to submit final bills for assessment by its conduct, the supply of unreliable information as to when billing would take place and the giving of explanations for the non-submission of bills which are wholly lacking in credibility.

I am also satisfied, that in the alternative, the Claimant’s claim succeeds on the basis of restitution (Loomba paragraphs 64 to 69). The Defendants say that because income tax, VAT, counsel’s fees, court fees and other disbursement have been paid, they have “changed their position” in relation to the POAs received and so have a defence to a restitutionary claim (Lipkin Gorman v Karpnale Ltd (1991) 2 AC 542). Mr. Ete produced documents to support payments made on three items. The Claimant did not take issue with these items in point of fact.

Instead, Ms. Rushton submits that, as a matter of legal principle, no change of position occurred here. The POAs were advanced to the Firm on the basis that, although the Firm and its partners would obviously be liable for VAT, income tax, fees and other disbursements, nonetheless (a) if the POAs claimed were found to be excessive then that excess would be recoverable and (b) the contractual and legal framework provided for nil assessment if the Firm failed to submit, or delayed in submitting, final bills. Thus, it is said that there has been no change of position. The Defendants’ liability for taxes and expenses always co-existed with a liability to repay POAs to the LSC in the circumstances described above (see also Cressman v Coys of Kensington (Sales) Ltd [2004] 1 WLR 2775, paras 21 and 41). I accept the Claimant’s analysis. I also agree that to the extent that taxes have been overpaid because of the recoupment action taken by the LSC then it has been a matter for the Defendants to seek any appropriate repayment from HMRC. It is not suggested by the Defendants that that remedy is not available owing to delay on the Claimant’s part. I also understand that the LSC has dealt with POAs for Counsel’s fees separately from the POAs paid to the Firm.

The Claimant is also entitled to recover POAs under the terms of the Standard Civil Contract as set out in paragraphs 39 and 40 above. On the last day of the hearing (25 January 2015) the Claimant added four columns ((w) to (z)) to his Schedule A to show how each of the recoupment cases related to the provisions in the contract which had been pleaded. Column (w) relates to cases where more then 3 years had elapsed from the grant of the legal aid certificate by the time the claim was issued (clause 6.30 (a) of the Specification to the Standard Civil Contract). Columns (x) and (y) related to information requested by Mr. Cowley or by his colleague Ms Ward in correspondence between March and April 2012 and that information was not provided to the LSC’s reasonable satisfaction within 14 days (clause 6.30(c) of the Specification). The Firm’s responses were unreliable, a fortiori when read in the context of the information which it had supplied to the LSC during the period 2009 to 2011 (e.g. as to when bills would be submitted) which had also been unreliable (paragraph 15.1 of Claimant’s submissions). Column (z) relates to cases where the Firm had failed to submit a final bill (or proper final bill) within 3 months of the case ending (clause 6.30(b) of the Specification and clause 14.20(c) of the Standard Civil Contract). In relation to column (z), the Claimant asks the Court to infer that cases had been concluded where statements had been made by the Firm that final bills would be submitted in 2009, 2010, 2011 and/or 2012. It is also said that the Court should give no weight to Mr. Ete’s statement that he could not rule out the possibility of a case becoming live again in the future (paragraph 226 above).

It is therefore apparent that the 4 columns all related to matters which the Claimant had pleaded and which had been discussed during the trial. Moreover, if the Defendants had truly engaged with the issues raised by the Claimant’s pleadings, these were matters for them to address themselves in any event for each legally aided case. Indeed, they should already have been considered by the Defendants on an ongoing basis from the date when each legal aid certificate was issued and from 2009 onwards. Mr Ete said that he would need time to consider any response to the Schedule. Ms Rushton told the Court that it had taken her 7 hours to prepare. Obviously little time would be needed to check column (w). The other columns had been drawn from material in the Court bundles and already referred to.

I therefore decided to allow the Defendants until close of play on 27 January to respond. Their response served that evening did not deal with the subjects covered by the four columns. Instead it simply indicated the whereabouts of case files without any explanation as to why that should be relevant, given that the four columns had been compiled from material in the Court Bundles. I gave the Defendants a further opportunity to apply for an extension of time for making their response to the four columns and/or to explain why the hearing should be reconvened. On 29 January Mr. Ete replied that he did not wish to make any further submissions and was not asking for any further hearing to take place.

In the circumstances I accept the information given by the Claimant in columns (w) to (z) of Schedule A. The approach taken accords with the evidence I have summarised above and my findings on the Defendants’ failures to submit final bills at the appropriate time or to give any reliable explanation for these failures.

Paragraph 15.5 of the Claimant’s closing submissions points out that there was only one case which did not fall within any of columns (w) to (z). However, that certificate was discharged on 5 February 2013 and by the time the claim was issued, more than 3 months had elapsed without a final bill being submitted and so the POA was repayable under clause 14.12(c). Mr. Ete has not disputed that point. I accept the Claimant’s submission on this.

I also accept the Claimant’s submission that because the civil contract was properly terminated in February 2012, a contention which I accept below, the POAs are recoverable by the Claimant in any event.

For the reasons given in paragraphs 172 to 174 above I accept the Claimant’s updated schedule A as an accurate quantification of the POAs recoverable and I reject the set-off advanced by the Defendants in their Response to Schedule A. For the additional reasons in paragraphs 188 to 194, the Defendants’ Response is so unreliable that no weight can be placed upon it all. I am also satisfied from the evidence and explanation of Schedule A that where bills have been presented to the LSC (or its successor) and assessed any appropriate credits due to the Firm have been applied.

Paragraph 44.4 of the Claimant’s skeleton explained that Schedule A includes a net deficit of £1,017.57 in respect of “controlled work”. The Defendants have not disputed the inclusion of that figure.

From the evidence set out above I draw the following conclusions: -

I also conclude that (i) the breaches of contract identified above were so serious as to justify termination within Fundamental Breach B and (ii) that the LSC could reasonably infer that the Firm’s performance would continue to remain substandard (Fundamental Breach C – see paragraph 44 above). Paragraph 2 of Annex H to the Standard Terms confirms that termination is normally justified for Fundamental Breach B, even if corrective action is possible. Mr Kelly explained in his evidence that corrective action would not have been sufficient in this case (paragraph 176). Given the seriousness of the breaches and their ongoing nature, I agree with him.

The evidence shows, for example, over-claiming to a substantial extent in a substantial number of cases. The breaches were not confined to a short period of time. The breaches in different cases took place over a prolonged period of time. The failure to have final bills prepared and submitted was persistent in a substantial number of cases over several years. The failure to record information accurately is capable of constituting a Fundamental Breach B (see example 2 in Annex H). It was plainly essential for the Firm to have a system which could record and produce accurate running records of costs. But the evidence showed that from late 2010 onwards the Firm did not have an IT system which satisfied that requirement (see paragraph 150 above). Furthermore, the cross-examination of Mr Ete on the Defendants’ Schedule of Loss (for which he had signed a statement of truth) revealed serious overclaiming of POAs in the period leading up to 2011, both POAs in excess of the 75% cap and even the work actually carried out (paragraphs 188 to 194 and 196 above).

The breaches of the contractual terms cited have been both flagrant and persistent and fully justified the termination of the contract. It follows that the Counterclaim in respect of this aspect must be dismissed.

The Defendants do not challenge the conclusions of the Auditor on the crime contract. Indeed, the CRB’s decision letter dated 1 February 2013 noted that the Firm had put forward “no positive evidence to disprove the findings in the audit report.” The Auditor found, and the CRB accepted, that Mr Ete had undertaken insufficient work under the Duty Solicitor Scheme between April 2011 to March 2012 (during which period he was on the rota) to qualify as a Supervisor in accordance with the self-declaration form he had completed. Alternative bases for qualification as a Supervisor were also rejected. That constituted a Fundamental Breach. In addition, it was found that there was no proper system in place for recording work carried out and time spent, and there was evidence of misclaiming in relation to fees. These constituted “material breaches” sufficient to justify the sanction of termination. The breaches were detailed in the notice to terminate dated 4 July 2012.

Mr Ete’s contentions on this part of the case have been identified in paragraphs 19 to 20 above.

I accept the reasoning of the Auditor, the LSC and of the CRB as to why termination was justified for the breaches identified. Mr Ete sought to argue from clause 24.1(b) of the Standard Terms that termination was not permissible unless the breaches had been “persistent” (as defined) over a 24 month period. He misread the contract. First clause 24.1(b) is only one of the possible routes to termination of the contract. Other routes are provided within clause 24.1 and within clause 25. The LSC had not relied upon the “persistent breach” provision. They relied (inter alia) upon Fundamental Breach.

I reject the assertion by Mr Ete that the LSC had been obliged to require corrective actions to be taken rather than terminate the contract. The terms of the contract did not provide any support for Mr Ete’s contention.

I reject the breach of natural justice point for the reasons set out in paragraph 49 above.

It follows that the Counterclaim for wrongful termination of the Crime contract must be dismissed.

From the evidence summarised in paragraphs 205 to 215 I find that the Firm and its solicitors were not included in the rota between July and December 2010 (as claimed) because the Firm failed to apply to join the Duty Solicitor Scheme under the 2010 Standard Crime Contract when it submitted its tender documentation and because it failed to submit forms required by that contract. It has not been shown on the balance of probabilities that the Firm was omitted from the rota for the 6 month period in question because of any failure on the part of the LSC.

Although I have dismissed the Counterclaim on the liability issues, I should add that, for the reasons set out in paragraphs 195 to 204 above I would dismiss the Counterclaim in any event.

There will be judgment for the Claimant in the sum of £795,183.69. The Defendants’ Counterclaim is dismissed. It also follows that the First Defendant’s Claim transferred from the Central London County Court to the High Court must be dismissed.

At 15.14 on 15 February 2016 the Claimant applied by email for orders for costs and interest. The Claimant relied upon his Part 36 offer dated 26 October 2015, in which he offered to settle the claim and counterclaim, and also the First Defendant’s claim in the County Court, for a payment by the Defendants to the Claimant of £700,000 (including interest), plus costs to be assessed on the standard basis if not agreed. The letter warned the Defendants of the orders that would be sought (in effect under CPR 36.17) if the offer was not accepted within 21 days and the Claimant obtain a judgment equal to or more advantageous than the offer.

The 21 day period expired on 18 November 2015. On 16 November the First Defendant rejected the Claimant’s Part 36 offer and made a counter-offer by repeating its own earlier Part 36 offer sent by letter dated 15 November 2013. The Defendants proposed that the debits or nil assessments applied in the Firm’s BACS statements should be “lifted” or reversed, that the Defendants should be given a minimum of 36 months within which to submit bills on certificated matters, that those bills should be paid within a reasonable time following assessment and that the contracts for family and crime work be restored forthwith.

The Defendants were given an opportunity to reply to the Claimant’s application. They made no response and did not ask for any extension of time for making a response.

Given the conclusions I have reached, plainly the Claimant has obtained a judgment against the Defendants which is more advantageous to him than his Part 36 offer and the provisions of CPR 36.17(4) apply. The Claimant is entitled to the orders he seeks under those provisions unless it would be unjust to make any or all of them, having regard to the matters set out in CPR 36.17(5). I do not consider that there are any circumstances which would make it unjust to make the orders sought. The Defendants have not attempted to suggest otherwise. The Claimant made a reasonable offer within about 3 months from the exchange of most of the evidence and just under 3 months before the trial was due to start. It was a genuine attempt to settle the proceedings. The Defendants’ Part 36 offer was wholly unrealistic, having regard to the auditor’s findings and their implications for recoupment of POAs and termination of the contracts and the continuing failure of the Defendants to advance material evidence to contradict those findings despite having had good opportunities to do so.

I will therefore make the orders sought by the Claimant, namely for interest on the judgment sum at 4% pa to 17 November 2015 and at 10.5% pa from 18 November 2015 to 18 February 2016 (amounting to £133,275.44 in total); the Claimant’s costs in relation to the High Court proceedings brought by the Claimant and the proceedings commenced in the County Court by the First Defendant be paid by the Defendants on the standard basis down to 17 November 2015 and from the following day on the indemnity basis; interest on the Claimant’s costs incurred from 18 November 2015 at 10.5% pa; and an “additional amount” of £64,759.18 pursuant to CPR 36.17(4)(d) comprising 10% on the first £500,000 of the judgment sum awarded (£50,000) and 5% on the balance of £295,183.69 (£14,759.18).

The draft of this judgment was made available to the parties by an email sent at 10.56 on 11 February. The parties were asked to submit any consequential applications in writing by 4pm on 15 February. In an email sent at 10.49 on 15 February 2016 Mr. Ete asked for permission to appeal “the whole judgment, costs, and interest”. However, his application did not set out any grounds of appeal or deal with either of the tests for granting permission. Accordingly, an email from the Court at 16.16 on 15 February pointed out these omissions and gave Mr. Ete the option of making any further submissions on paper or orally at the handing down of the judgment on 18 February. He was required to produce any further submissions in writing by 1pm on 16 February. Mr. Ete produced grounds of appeal at 16.17 on 16 February and suggested that the time allowed was “rather short” but he did not ask for any further extension of time. The Claimant responded on 17 February.

I refuse the application for permission to appeal on the basis that it does not have any real prospect of success and there is no other compelling reason why an appeal should be heard.

Ground 1 appears to be referring to witnesses for the defence other than Mr. Ete. The court’s assessment of the reliability of his evidence has been explained in some detail. The judgment does not suggest that the other witnesses were disbelieved. Instead it records their acceptance that they did not have personal knowledge of matters relevant to the key issues and had given evidence based upon what they had been told by Mr. Ete (see e.g. paras. 133 and 147 to 150).

Ground 2 complains that the Court has read into the evidence matters upon which no evidence was given. Only one example is given. Plainly it was relevant to record Mrs. Coetzee’s oral evidence that she had been told by Mr. Ete that the auditor had suspended POAs during the audit. She was unable to give any independent evidence on the point (para. 137). In this judgment I have not rejected her evidence that the LSC’s system did not accept the claim for a disbursement which she tried to input. But given the clear evidence contradicting Mr. Ete’s assertion about what the auditor did (paras. 130-2 and 134-5), it was open to the court to infer that if the claim had been rejected, that must have been for another reason unconnected with the auditor.

Ground 3 complains of unfair interruptions of Mr. Ete when he was cross-examining the Claimants’ witnesses. Mr Ete raised this point at one particular stage in the proceedings when he was cross-examining Mr. Kelly. The Claimant’s evidence began on day 2. From early on witnesses said that they were having difficulty in understanding some of the questions that they were being asked to answer. In some instances I agreed and explained what I understood the questions to be. Mr. Ete accepted that assistance. On Day 2 I also explained to Mr. Ete that if any findings in the auditor’s reports (or related correspondence) were disputed by the Defendants, then he should consider raising those matters in cross-examination. Specifically Mr. Ete was reminded that he had not put any questions to the auditor to challenge the findings in her second report and might wish to do so. Nonetheless, Mr. Ete did not challenge those crucial findings during his cross-examination of the auditor (see para. 145 above). It was also pointed out to Mr. Ete that he should consider whether he had a proper basis for suggesting to the auditor that she had fabricated findings in her first report (see also paras. 142 and 182 above).

When subsequently Mr. Kelly came to be cross-examined by Mr. Ete, the witness made it plain to him that he had not examined himself the underlying evidence upon which the auditor had relied when compiling her reports. Instead he had reviewed those reports. Notwithstanding that clear answer Mr. Ete continued to ask the witness questions about the basis for the auditor’s findings. I pointed out to Mr. Ete that he had not raised those points in cross-examination of the auditor and should have done so, and that it was pointless to put such points to Mr. Kelly in view of his earlier answers (the grounds of appeal have not challenged para. 139 above). Mr. Ete made no attempt to explain why he had not pursued such question in his cross-examination of the auditor. He did not apply for the auditor to be recalled. I indicated that Mr. Ete should not continue with that particular line of questioning. Mr. Ete then objected to the “interruption” of his questioning and indicated that he did not wish to continue his cross-examination of Mr Kelly. He was given the opportunity to carry on with his questioning but he declined to take it. Mr. Ete then cross-examined Mr Cowley without raising any similar complaints. In view of the length of some of the cross-examination Mr. Ete was asked not to repeat matters which had already been covered with a witness.

Ground 4 is unarguable. Paragraphs 8 to 18 and 20 of the judgment explain how the Defendants did not put forward in their pleadings (or in evidence exchanged before the trial) any allegation that the termination of the crime contract had been wrongful on grounds which Mr. Ete sought to pursue at the trial. For that reason he was asked to set out any new points on the termination of the crime contract as draft amendments so that the Court could receive submissions on whether he should be allowed to rely upon them. Paragraph 19 explains why the draft amendments were not allowed. In any event Mr. Ete confirmed at that stage that he only wished to pursue the two points recorded in paragraph 19. As paragraph 20 notes, he subsequently added a third argument. All three of those points have been dealt with in the judgment.

Ground 5 is unarguable. The amendments to the Claimant’s Particulars of Claim simply brought the figures on loss into line with his updated Schedule A. The Defendants did not object to those amendments. The Defendants’ proposed amendments to the Defence and Counterclaim raised new allegations about wrongful termination of the crime contract and were not a response to the amendments to the Particulars of Claim.

Ground 6 alleges that the Court failed to carry out some unexplained “balancing act” and is wholly unclear. It is not a proper ground of appeal to assert that the findings were “totally one sided” without explaining why those findings are open to challenge on appeal.

Ground 7 is unarguable for the reasons given in paragraph 49 of the judgment.

Ground 8 is unarguable. The judiciary are independent of the Lord Chancellor. The Claimant was entitled to pursue the claim for recoupment as the successor to the LSC through the Courts.