Legal aid statutory charge Part 3: avoidance and evasion

Legal aid advice: statutory charge and separate proceedings

 

So far, on the subject of legal aid and the legal aid statutory charge, this series has looked at (1) HRA damages and legal aid: a Pyrrhic exercise; and (2) legal aid statutory charge and care proceedings. The next question is: what are the duties of the solicitor and of barristers towards the legal aid fund? And, especially, is there any question of lawyers abusing the fund if they take separate proceedings to recover Human Rights Act 1998 (‘HRA’) damages and the charge cannot thereby operate on those damages?

 

A legal aid lawyer’s job is not unlike that of a tax specialist accountant. It is legitimate for an accountant to help clients to minimise their tax: that is tax avoidance. Tax evasion (eg declaring a false income), by contrast, is illegal. It is the same for lawyers. Lawyers may not, as Lord Denning MR put it in Manley v Law Society [1981] 1 WLR 335, CA, ‘manipulate the destination [of damages or property] so as to avoid the statutory charge’ (348E). His successor Lord Donaldson MR in Watkinson v Legal Aid Board [1991] 1 WLR 419, [1991] 2 FLR 26, CA told solicitors that they should not apply for a certificate to be amended if they could equally well apply for a fresh certificate, and thereby avoid the charge for their clients. The question here is what is manipulation (ie Manley evasion), and what legitimate (ie Watkinson good practice).

 

Duty to the legal aid fund; duty to the Treasury

 

So it is with tax advice: it is not for the accountant to arrange for a client to pay as much tax as possible, any more than a legal aid lawyer must cause his/her client needlessly to forego money for the benefit of the legal aid fund; but neither accountant nor lawyer can advise their client illegally to evade payment where it is legitimately due to the Treasury.

 

Manley was followed by Clark v Clark (No 2) [1991] 1 FLR 179, where Booth J commented on the duty of a solicitor to act independently of counsel; and in so doing she stressed the three duties of a legal aid lawyer: to the court, to the client and to the legal aid fund:

 

As a general rule, a solicitor is entitled to rely upon the advice of counsel properly instructed, and in doing so he will be absolved from a personal liability for the costs of his actions. But, as May LJ observed in Davy-Chiesman v Davy-Chiesman [1984] Fam. 48 at p.64, this does not operate so as to give the solicitor an immunity in every case. He expressed it thus:

‘A solicitor is highly trained and rightly expected to be experienced in his particular legal fields. He is under a duty at all times to exercise that degree of care, to both client and the court, that can be expected of a reasonably prudent solicitor. He is not entitled to rely blindly and with no mind of his own on counsel’s views.’

In my judgment, those words apply as much to the duty of care owed by a solicitor to the … the Legal Aid Fund as to his client and to the court.

 

Manley v Law Society

 

In his inimitable prose, Lord Denning MR described the facts of the case:

 

Some 10 years ago the plaintiff invented an “echo sounder” by which large ships could tell if they were getting into shallow water. He got the Marconi International Marine Co. Ltd. interested in it. They agreed to exploit it if it came up to their requirements. But it failed to come up to their requirements. So they refused to go on with it. He alleged that they were guilty of a breach of contract. He claimed damages, huge damages, because of the loss of profit that he said he would have made. He also claimed to be reimbursed the money he had spent in developing his echo sounder. It came to £30,000 or more. He borrowed it from the banks and had charged his house as security for it.

The plaintiff had no money of his own to bring an action. So he applied for legal aid and got it…. He started an action in 1972 against Marconi.

 

Eventually the action was settled. Marconi was ready to pay £40,000 to get rid of it altogether, rather than incur the expense of fighting the case over 30 days against a legally aided plaintiff. The lawyers came to an arrangement where a fund in the joint names of Dr Manley’s and of Marconi’s solicitors would buy his debts and no money would go through the hands of Dr Manley. There was nothing on which the charge could bite and Dr Manley’s debts would be cleared. The Law Society was asked to approve this deal, but could not give a clear answer in the short time available. That was not the way to look at the compromise said Lord Denning MR (with whom Ormrod and O’Connor LJJ agreed):

 

… The court should always look for the truth of the transaction. It should not let itself be deceived by the stratagems of lawyers, or accountants. It should not allow them to pull the wool over its eyes. It should not allow them to dress up a transaction in clothes that do not belong to it.

Now the plain truth of this transaction is that the £40,000 was to be used to pay off the plaintiff’s debts. Kennedys were to supply particulars of his debts…. To my mind, once we pull aside the curtain of words, and the supposed rights, the truth is that this £40,000 was to be used to pay off the plaintiff’s debts at his request. It is, therefore, the subject of the statutory charge in favour of the legal aid fund. When money is paid to a party, or at his request to his creditors, it is plainly “recovered … for him” within Legal Aid Act 1974 9 (6).

 

The legal aid fund received what there was to cover the costs charged to it by Dr Manley’s lawyers (around £17,000) and he had what was left to pay his debts which had by then worked out at £48,000.

 

Solicitors must not ‘blindly’ follow counsel

 

In Clarke (No 2) (above) complex enforcement proceedings were issued by sequestration (the husband was in the US). This was on counsel’s advice. At a point in the proceedings counsel advised a course which would deprive the Legal Aid Board of capital, and therefore of fuel for the charge, where some cash was coming in from the husband’s assets. The Legal Aid Board was kept informed by the solicitor, but there came a time when he must rely on his own high training and experience (see quote from Davy-Chiesman above). Booth J explained this:

 

But the scheme to rewrite the sequestration order was of a very different nature. Once it had been mooted, it should have been very clear to the solicitor that the result it was intended to achieve conflicted directly with the duty which he himself owed to the Law Society and to the Legal Aid Fund…

 

The duty to the fund was personal to the solicitor; and s/he cannot ‘blindly’ follow counsel:

 

That duty constituted a personal obligation upon him, as the wife’s nominated solicitor, to protect the Legal Aid Fund. Whatever the advice of counsel, he remained responsible at all times to the Law Society. He was bound to report what it was proposed to do on her behalf, as indeed he did. In my judgment, his duty to the Law Society continued so long as he remained the nominated solicitor on the wife’s legal aid certificate and the certificate was not revoked or discharged. Where, as here, the action which was proposed, and which was followed, placed the solicitor as a legally assisted party’s solicitor in a position which directly conflicted with a duty of care he owed to the Legal Aid Fund, it would have required the clearest authorisation from the Law Society if he were to be absolved from that duty. No reliance upon counsel, however compelling the advice, could have absolved him from that duty.

 

The full passage from May LJ in Davy-Chiesman v Davy-Chiesman [1984] Fam 48 at 63-64, [1984] 1 WLR 291 (which was reported in the Times reports under the headline: ‘Solicitors should not blindly follow counsel’) is:

 

… a solicitor is in general entitled to rely on the advice of counsel properly instructed. However, this does not operate so as to give a solicitor an immunity in every such case. A solicitor is highly trained and rightly expected to be experienced in his particular legal fields. He is under a duty at all times to exercise that degree of care, to both client and the court, that can be expected of a reasonably prudent solicitor. He is not entitled to rely blindly and with no mind of his own on counsel’s views. Thus if, despite counsel’s advice that the circumstances postulated by regulation 68(1) [for reporting to the Law Society] do not obtain, he (the solicitor) remains of the view that they do, then he continues under a duty to report that view.

 

Separate legal aid certificates: the solicitor’s lien

 

So where does that leave the solicitor who sees that HRA damages, if claimed in care proceedings, will be merely swallowed up by the costs in the legally aided case? The ‘victory’ will be worthless, literally; and the only people to gain will be the lawyers for their efforts in transferring a few thousand pounds from a local authority to the legal aid fund.

 

The first thing is to imagine is that, as the solicitor, you are acting for the client on a non-legal aid (ie private) basis. This would not be in care proceedings, since legal aid is always available for that. However, imagine a case in which an unmarried client (Mary) is not financially eligible for legal aid, but instructs you to take domestic violence proceedings. After two court hearings in the Family Court the case is concluded and an order for costs assessed at £4,500 is made against her former cohabitant (Frank). Your costs are £5,000. You have a bill for £1,000 for contact discussions and advice over this, alongside a mediated contact agreement. Your total unpaid costs are £6,000.

 

Separately you act for Mary on a further retainer to claim a share in the couple’s former home. It is in Frank’s sole name, but he agreed that Mary should have a half share (a constructive trust). She estimates to be worth £80,000. She pays you £2,500 on account to cover £1,500 for the short-fall on the earlier work (if Frank pays) and £1,000 on account of constructive trust proceedings. You have to issue proceedings under Civil Procedure Rules 1998 in the county court claiming a declaration. Ultimately the case is settled on terms that Frank will pay Mary £60,000 and £8,000 towards her costs. For the civil proceedings your costs are now £12,500). You are owed £16,000 by Mary (you’ve been soft with her knowing she will receive the money from the house) of which £12,500 is owed by Frank.

 

You ask Mary for a charge on her agreed share, which share Frank has agreed to express as a charge on his house till he pays; or she can enforce. You want a charge on her charge. She is evasive about signing a charge. Solicitors Act 1974 s 73 says:

 

73 Charging orders

(1)   … Any court in which a solicitor has been employed to prosecute or defend any suit, matter or proceedings may at any time –

(a)declare the solicitor entitled to a charge on any property recovered or preserved through his instrumentality for his assessed costs in relation to that suit, matter or proceeding;…

 

Only assessed costs can be charged, and the court must declare the availability of the charge; but otherwise the terminology is – in effect – exactly the same as the charge under Legal Aid Sentencing and Punishment of Offenders Act 2012 s 25(1). So you apply in the constructive trust proceedings (CPR 1998 Part 23) for assessment of your bill to Mary (now approaching a total of £17,000 net of the £2,500 she has paid). The judge assesses the amount you claim and you enter a charge against Mary’s charge.

 

But – and this is the main point of the story in relation to separate legal aid – do you imagine the court will allow you to assess and charge the unpaid domestic violence costs against property recovered in the trust case? I am as sure as I can be, not. It is a separate retainer, and wholly separate proceedings. I would expect a costs judge to say you are limited to detailed assessment on the costs which arose in the constructive trust proceedings (£12,500 and to declare accordingly under Solicitors Act 1974 s 73) – that is, where property was recovered or preserved with your help (your ‘instrumentality’). And it is that same point which applies, I believe, to ‘separate’ care and HRA proceedings?

 

Legal aid statutory charge: solicitor’s lien

 

Many questions which crop up in legal aid statutory charge cases can be answered by seeing it – subject to statutory exemptions under Civil Legal Aid (Procedure) Regulations 2012 – as much the same as the Solicitors Act 1974 s 73 solicitor’s lien. This works both ways.

 

In Manley, for example, as soon as you ask the question: would a solicitor or barrister settle a case on terms that they knew that everyone – except them – was to be paid. Of course not. Looked at that way the Manley settlement terms were bound to fail. But in Mary’s case, in the opposite direction, her solicitor could not expect the costs judge to say, ‘there, there, you didn’t get enough costs on account, so I’ll give you a charge for whatever is due from that claimant (ie Mary) to your firm’. The judge would assess your bill for the work which applies under the CPR 1998 proceedings, and leave you to sue for the rest and charge that as well when you’ve gone through the separate charging order process for those costs.

 

Imagine that the HRA damages claim are the domestic violence proceedings, and the care proceedings are the constructive trust proceedings. They are separate; or in my opinion – see Legal aid statutory charge and care proceedings – they should be. You get paid, all being well, by the local authority on the HRA case; though if there is any shortfall on your costs in the HRA proceedings the legal aid charge will, of course, apply to the damages for that short-fall. The care proceedings are a separate retainer. Legal aid costs and a charge for those proceedings on the HRA damages should have nothing to do with one another, in my opinion.

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HRA damages and legal aid: a Pyrrhic exercise?

Human Rights Act 1998 claims and care proceedings

 

A controversy is developing between two Family Division judges – mostly Cobb J and Keehan J – over whether the legal aid statutory charge applies to damages recovered by children and their parents under Human Rights Act 1998 (‘HRA’) s 8. The Lord Chancellor (ie Legal Aid Agency) does not seem to know which way to jump. In P v A Local Authority [2016] EWHC (Fam) she said the charge applied, and lost; and in H (A Minor) v Northamptonshire County Council & Anor [2017] EWHC 282 (Fam) she decided it did not. Both were cases of Keehan J).

 

The problem arises in particular in relation to claims following care proceedings (though it could arise in other family proceedings where the public authority is Child Support Agency, or HM Courts and Tribunal Service (for delay in court proceedings) or LAA itself). In cases where the local authority have breached a European Convention 1950 right (eg taking a child away in breach of respect for family life: HRA and Art 8; as happened in a third case CZ (Human Rights Claim: Costs) [2017] EWFC 11, Cobb J) the parties may go on to claim a court declaration that a local authority have acted unlawfully (HRA ss 6 and 7). If the court thinks the public authority have behaved in a way which they regard as unlawful, then the court can go on to order them to pay damages to a claimant (HRA s 8(1)).

 

A parent and child(ren) will have legal aid in the care proceedings (it is always, for practical purposes, automatic in care proceedings). In addition – and separately, as will appear – they may each have legal aid for their damages claim.

 

Legal aid statutory charge

 

This is all relatively straightforward (save for an issue to be dealt with on another day: that family courts have no power to award damages or to deal with civil proceedings so should not be dealing with these cases: HRA s 8(2)); save that the LAA come into it. They have granted legal aid for the care proceedings and exercise their statutory charge on damages claimed in the HRA proceedings. In some cases, they say (eg in this instance the claimant is a 6 month old child) something like the following:

 

  • You (the child) have had legal aid for the care proceedings and your lawyer’s bill is (say) in excess of £10,000;
  • Your HRA damages awarded by the family courts are £7,500; and the local authority agree they’ll pay your costs on the HRA claim.
  • £7,500 is less than £10,000 in your care proceedings, so we’ll keep it; and, though the court said you should have the cash and your costs on the HRA proceedings, you will have nothing. (Your lawyers will be paid and – on that example – all you have done is to increase your barrister’s and solicitor’s 2017 income. For you it is a Pyrrhic victory: ie you’ve got nothing for all the trouble you suffered.)

 

Solicitor’s lien for costs from property recovered or preserved ‘in the proceedings’

 

So how can this be? It is an old rule of law that if a solicitor acts in a case (the same doesn’t necessarily apply to barristers) and s/he recovers or holds onto property or money for a client, the solicitor can take the fees for acting in the case – the ‘proceedings’ – from the money recovered; or charge it – like a second mortgage – on the property. This applies to ordinary civil proceedings, or to legal aid cases; and it is now known as ‘the statutory’ charge.

 

Recent cases where the statutory charge has applied in legal aid cases are the following. As can be seen the Lord Chancellor – who is responsible for the LAA which runs legal aid – are as follows:

 

  • P v A Local Authority (above) where the LAA had said, in separate HRA damages proceedings (for which they refused legal aid) and which followed funded wardship proceedings, that the charge applied. Keehan J said no.
  • CZ (above) where a HRA damages claim was said by Cobb J, on application by the LAA, to attract the charge for the parallel care proceedings.
  • H v Northants (above) late in the proceedings, the LAA conceded that the charge did not apply, where they had issued a separate certificate for the damages proceedings.

 

When can the statutory charge apply?

 

The statutory charge has been part of legal aid legislation since the earliest Legal Aid Act 1949. It puts the Lord Chancellor in the same position that lawyers would be under the solicitor’s charge.

 

The legal aid charge is defined by Legal Aid Sentencing and Punishment of Offenders Act 2012 s 25(1) as follows:

 

(1) Where civil legal services are made available to an individual under this Part, the amounts [due to Lord Chancellor] are to constitute a first charge on – (a) any property recovered or preserved by the individual in proceedings, or in any compromise or settlement of a dispute, in connection with which the services were provided (whether the property is recovered or preserved for the individual or another person).

 

To define whether the charge applies four questions must be asked. These are extracted from Hanlon v The Law Society [1981] AC 124 (the Law Society was then responsible for legal aid); thought Hanlon seems not to have been referred to in any of the above four cases. Hanlon related to the charge under Legal Aid Act 1974 s 9(6); but for all material purposes the charge is defined in the same way in s 25(1), so Hanlon can be treated as the law today.

 

In Hanlon a nurse petitioner (represented throughout by the then Nicholas Wall) had legal aid for matrimonial proceedings where she had also been involved in defended divorce and custody proceedings; and in which she (famously at the time: Hanlon v Hanlon [1978] 1 WLR 592) secured an outright transfer of her former matrimonial home. How much of the costs applied to the charge; and could the Law Society postpone its operation? Of the second question, the House of Lords said they had a discretion to postpone. On the first, the following issues arose:

 

Does the statutory charge apply in legally aided proceedings?

 

(1) What are the ‘proceedings’? – The starting point for definition of the extent of the charge is: what is the scope of the legal aid certificate (ie the proceedings which it covers, and see Lord Scarman in Hanlon v Law Society at 186G-H). The scope of a legal aid certificate is akin to the solicitors’ retainer for work to be done for a client. If there are separate proceedings (eg for ‘civil proceedings’ under HRA 1998 s 8(2) (below)) then different principles for definition of s 25(1)(a) ‘proceedings’ apply.

 

(2) What is ‘the property’? – ‘Property’ is any property or money (eg a lump sum in matrimonial proceedings or damages) which was in issue between the parties in the proceedings (or included as a ‘compromise or settlement’ (s 25(1)(a)) of any proceedings: Van Hoorn v The Law Society [1984] FLR 203).

 

(3) Was the property in issue in the proceedings (or part of a ‘compromise or settlement’ of the case)? – Whether the charge applies to particular property turns on whether or not it was in issue in the proceedings for which the certificate was granted (Watkinson v Legal Aid Board [1991] 2 FLR 26 CA). ‘What has been in issue is to be collected as a matter of fact from pleadings, evidence, judgment and/or order’ (per Lord Simon in Hanlon v Law Society at 180H). It is the proceedings (ie the lis) between the parties which defines the proceedings. In the case of HRA 1998 s 8(1) damages cases, the lis is between the claimant (parents and/or child) and the local authority; and the costs (subject to the ‘separate proceedings’ point below) can be the costs only in the ‘civil proceedings’.

 

(4) Was the ‘property recovered or preserved’? – Property is only ‘recovered or preserved’ if it is in issue in, or part of a compromise of, proceedings: ‘A person recovers or preserves in legal proceedings only what is in issue between the parties’ (Lord Scarman in Hanlon at 187G). Property is recovered if a person takes proceedings to convert it to his own use – eg a property adjustment order (Curling v Law Society [1985] FLR 831, CA); property is preserved if a person successfully resists a claim to his property – eg an order for sale or (Parkes v Legal Aid Board [1997] 1 FLR 77, CA).

 

Separate proceedings; civil proceedings

 

Only proceedings which are covered by a legal aid certificate are subject to the charge (Hanlon v Law Society (above)). So what happens where – as under review here – care proceedings and HRA 1998 damages are involved? Can the statutory charge apply to costs in the children proceedings, attaching to the HRA damages? Yes says Cobb J (CZ (above)); no said the Lord Chancellor in H v Northants (above). Taking account of Hanlon v Law Society the question turns on whether there are separate proceedings. This is not an issue which has been addressed clearly by the family judges.

 

But why are ‘family judges’ dealing with all this at all? HRA 1998 s 8(1) and (2) says that the court can award such damages ‘within its powers as it considers just and appropriate; but ‘(2) … damages may be awarded only by a court which has power to award damages… in civil proceedings’. Family courts have no power to deal with non-family ‘civil proceedings’ (the types of case they can take on are listed in Senior Courts Act 1981 Sch 1 para 3). In Anufrijeva v Southwark London Borough Council [2003] EWCA Civ the Court of Appeal said applications should be made in the Administrative Court; but certainly it must be under Civil Procedure Rules 1998).

 

As I read HRA s 8(1) and (2), family courts judges should not be dealing with these cases at all. Legal aid for care proceedings in the family courts is one thing. Legal aid for damages should be in a separate court under CPR 1998. Proceedings should be by separate judicial review application in the Administrative Court.

 

Statutory charge and HRA damages in ‘separate proceedings’

 

If the steps derived from Hanlon v Law Society are followed; and the proceedings are indeed separate – which, in the case of a damages claim under HRA s 8, they must be – then damages are exempt from the statutory charge for care proceedings. It can arise only to the extent there is any short-fall between costs payable by the defendant and what is paid by LAA for the legal services.