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.

FAMILY LAW, LEGAL AID – AND A BRAVE NEW WORLD FOR MEDIATION

Silence of the family law legal aid lambs

The three headlines below appeared one above the other in the e-version of Law Society’s Gazette on Christmas Eve. In combination they say a lot for the state of family law – and perhaps of family lawyer’s leadership (such as the Law Society, Resolution and Family Law Bar Association) – at the start of 2015:

• ‘Grayling faces new year test over legal aid’ (the first headline) relates to the achievement of the criminal lawyers to challenge and, by oral interim hearing (an achievement in itself) to seek to persuade the High Court to suspend the tender process: a decision is expected on 30 December 2014.

• ‘Exceptional case legal aid’ relates to R (ota Gudanaviciene & Ors) v The Director of Legal Aid Casework & Ors [2014] EWCA Civ 1622 and the clutch of immigration cases which successfully – and privately (ie no help from representative bodies) challenged the Lord Chancellor’s Guidance on exceptional case determinations (ECD) under Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPOA) s 10(3).

• And then ‘Representation slumps in family law’. That legal aid has been reduced so substantially was to be expected; but how, in truth, has it come to be so bad for financially eligible family law clients and their would-be lawyers; and how is it that representative bodies have done so little of real assistance to help their members and their members’ clients? Why, for example, is there no family law equivalent – yet – of Gudanaviciene?

Resolution’s resolution of legal aid negotiations

In relation to the headlines above, the following points arise:

(1) Gudanaviciene and ECD – so yes, where was a Resolution (or Law Society) challenge alongside Gudanaviciene (though Law Society was there for us when JG (see below) was in issue)? ECD affects family law cases quite as much as immigration cases; yet where is Resolution teaching on human rights, Law Society support for court challenge, or FLBA advocacy to rubbish the unlawfulness of the Lord Chancellor’s Guidance? If it is there, I have not heard about it. Family law cases were successfully applied for in 8 ECD cases over the early period of LASPOA 2012. Is that not testimony to the pusillanimity of many family law legal aid lawyers and their representative bodies?

(2) Statutory charge – one of the sillier 2012/3 ‘reforms’ to legal aid was that Ministry of Justice jettisoned the vast majority of its banking arm, which at times of very low interest rates was netting the tax-payer a cool 8% per annum, a massive lift on what you or I would get at Santander (even allowing for the cost of administering it). We all knew that much legal aid was only a loan, waiting for the statutory charge to bite and the tax-payer to cash-in its 8% per annum simple interest. And any associated private law children and domestic violence cases would be tacked on. I wonder what the family lawyer negotiators said to the Ministry of Justice about that at the time; and what net loss there has been to the Ministry of Justice from losing (a) that nice little uplift on interest charges and (b) the statutorily charged bits of litigation (eg child arrangements fights) which will not now be charged because financial remedy work is not legally aided.

(3) Challenge to the Lord Chancellor – on any of the above subjects, or indeed any other, Resolution has taken no active part. (Unlike the Law Society, Resolution took no open part in the family law legal aid case of JG v Lord Chancellor and ors [2014] EWCA Civ 656 so far as I know: even I sent some notes on a couple of points to the silk used by Law Society, at his request). I would guess that many of its legal aid members – and many more would have legal aid, if a statutory charge challenge had been mounted – would have liked Resolution to take the fight to the Government; but if your main negotiators are mediator this will leave your negotiations in a compromised position; one hand at least strapped behind the collective back.

The legal services order gap

For, so it is: one of Resolution’s main negotiators was Dave Emmerson OBE (he accepted a gong from the Government, and sought to represent lawyers against its latter emanation Ministry of Justice). I taught legal aid with Dave just after LASPOA came in (in May 2012). He told us all – to camera – that he thought LASPOA had finally introduced the interim lump sum in family proceedings (originally in a schedule to Family Law Act 1996: now but not then repealled). I later asked Dave where he found this provision. Silence.

I suspect he meant the new legal services orders in LASPOA ss 49-54 which, for present purposes, introduce a new s 22ZA into Matrimonial Causes Act 1973 to enable certain applicants in financial remedy proceedings to apply to the court for the other party to pay part or all of their costs. (The common law provides an equivalent provision in the form of costs allowances in other forms of family proceedings.) As far as I know none of the usual suspects above – Resolution, Law Society etc – provided any immediate education or other help to its members on the legal services order and costs allowances subject, certainly as it was being introduced in April 2013. (By that time most of Resolution National Committee had still not found out that the family court had then reached the statute book: per Crime and Courts Act 2013 Sch 10.)

Resolution and the Law Society (and, the Bar Council, I am sure) negotiated – no doubt with gusto, nay ‘resolution’ – in the run-up to LASPOA. But, there is surely a real conflict in the same organisations – especially the mediation-obsessed Resolution – espousing the parallel mediation route; whilst simultaneously – as must be the inevitable consequence – rejecting the litigation route. For litigation is a route which many of its members and their clients must tread. I doubt this conflict has been, in any realistic way, debated by – for example – the Law Society or Resolution (it did not crop up at Resolution’s 2014 AGM).

Mediation in 2015: nothing to do with legal aid or Ministry of Justice

I appreciate that much of Resolution’s efforts are to ‘#keepitoutofcourt’: to stop its member’s clients going to court. However, facts must be faced:

• There is a real issue about lawyer litigators (like me and lots of other Resolution members) working too closely, in formal business terms, with mediators. The conflict inherent in having mediators and litigators as partners in the same firm must be debated, at least.
• The failure of Resolution to come near its strap-line – ‘First for family law’ (ie the ‘law bit’) – would be laughable were it not so serious. Most of Resolution’s golden fresh eggs are hatched out on mediation projects; yet its first responsibility – it could be argued – should be to its law and court roots. The rule of family law suffers as legal aid dwindles; yet the Resolution chair adopts an approach to the law of ‘privilege and confidentiality “for dummies” (sic: see Resolution review of November 2013)’. On law Resolution members said to be ‘dummies’.
• Not every person whose family breaks down manages to settle their case out of court.

‘First for family LAW’

And so this note comes full circle. Mediation is nothing directly to do with the courts (save with consent orders in marriage etc cases). It is to do with family break-down which may – just may – involve court and litigation. Yet where family breakdown cannot be resolved by agreement – domestic abuse may make this difficult in a substantial proportion of cases, for example – court, certainly at the outset, may be inevitable. Then the ‘#keepitoutofcourt’ concept, to many court customers, sounds as if it comes from another world.

And in that real litigation world, real law, and the rule of law, and human rights and EDCs and all the inconvenient aspects of life which litigation has to pick up, come into sharp focus. ‘Black-letter’ law – a term derided by many Resolution members – becomes what keeps people protected (the lawyer’s true role; and why he or she must know the law) from wrong-doing by public authorities and by other parties to their family breakdown process.

In logic mediation and litigation must be kept separate; though like prophylactic and invasive medical treatment the mutual understanding of their practitioners is important. In 1978 when we first went to see the then Solicitor General, we though conciliation – as mediation was then called – would be state-funded, probably by the Home Office (divorce court welfare was part of probation in those days: there was no Ministry of Justice then and the Lord Chancellor had no budget to speak of). And yes, there was reckoned to be a strong law/court aspect to mediation then; though the thrust for implementation of Finer (Report of the Committee on One-Parent Families July 1974 Cmnd 5629 chaired by Sir Morris Finer) came at first mostly from social workers not lawyers.

In 2015, 40 years after Finer, mediation must be parallel, not parasitic. The complementary roles of mediation and of litigation must be clearly defined; and generally mediation – in all real senses – should surely be prior? If mediation is so often in-house to lawyers – that is, under the same professional roof – separation of the distinct family breakdown roles will be difficult.

Parallel roles, separate funding

And in 2015, who really sees sense in mediation as the poor relation, and being umbilically linked to courts and litigation, or in any way funded, by the Ministry of Justice? Who, in logic (as opposed to tired old faut de mieux inertia) sees mediation as anything to do with courts and HMCTS and the Lord Chancellor? Is that not – in truth – a contradiction of what mediation seeks to achieve? It is a little like trying to eradicate smoking; but giving medical care for former smokers to the tobacco industry (not the most happy analogy; but I hope it illustrates the point?).

In the brave new lawyer-free – but law court parallel – world which it demands, mediation should have nothing to do with the tired old Ministry of Justice. And it should have nothing directly to do – if conflict rules apply – with lawyers’ practices and their important, but separate, litigation worlds (save a full and educated understanding of that world; but that is a subject for another day).

Legal aid, support for a real rule of family law and tax-payer banking measures (where property is in issue) will remain in the litigation world (the ‘telegrams and anger’ world, where mediation does the ‘only connect’ of Howards’ End: EM Forster). The world of courts and the Ministry of Justice and the newly politicised semi-literate Lord Chancellor is not a world for mediators. And negotiations for legal aid will be by people – like the criminal lawyers – who are willing to point a writ (well, a judicial review claim form) at the Lord Chancellor rather than allowing his and his department’s political voraciousness (Grayling is an ambitious political pole-cat, in the Tebbit mould) to exclude them.