Mr Justice Cranston:
INTRODUCTION
- This case involves three claims listed together as test cases. All three claims concern moneys which the Legal Services Commission ("the Commission") asserts are owing to it by solicitors as a result of legal aid payments to them on account of work being undertaken for clients in civil cases. The Commission contends that the claims are authorised by law. Since it concedes that there is no express legislative power to make the claims, its argument raises some difficult issues of statutory interpretation. If the claims cannot be legislatively justified the Commissions advances other legal bases for them, including restitution. The defendants contend that there is no legislative authorisation for the Commission's actions, and in any event the claims are defeated by various defences. They also submit that the Commission's claims fail for public law reasons including the unfairness with which they have been pursued.
- There is no need to traverse the full procedural history of these claims. It is sufficient to explain that the Ulasi and Simon Carter claims began in the County Court. The Ulasi trial had begun in the Central London County Court in September 2010 before HH Judge Paul Collins CBE, but shortly after it had commenced, an adjournment was sought. In granting an adjournment Judge Collins sensibly ordered that because of its character as a test case, it should be transferred to be heard in the High Court along with the Simon Carter claim (which was also pending in the Central London County Court). The Loomba claim was already pending in the High Court. Following transfer of the two county court claims to this court, Wyn Williams J ordered that all three claims be heard together. A number of other claims raising the same issues have been stayed by order or by agreement pending this judgment.
- The hearing began on 21 November 2011. For the defendants Mr Susman QC indicated that he did not wish to cross-examine any of the Commission's witnesses. Accordingly I made an order under CPR 32.5(1) dispensing with the requirement of oral evidence. The hearing thus began on the basis of unchallenged evidence and submissions. On the third day of the hearing it was discovered that the Court of Appeal was shortly to give judgment in a test case, addressing the limitation period relevant to this type of claim. Consequently this hearing was adjourned. The Court of Appeal handed down judgment in Legal Services Commission v Henthorn [2011] EWCA Civ 1415 on 30 November 2011. The current hearing was resumed and completed on 7 December 2011.
BACKGROUND
Civil legal aid: an overview
- Although now replaced by the Access to Justice Act 1999 ("the 1999 Act") the relevant statute in this case is the Legal Aid Act 1988 ("the 1988 Act"). All the certificates in this case were issued under that Act. The 1988 Act replaced earlier consolidating legislation, the Legal Aid Act 1974. Part II of the 1988 Act established the Legal Aid Board to administer the scheme. Like the earlier legislation the 1988 Act was essentially an enabling Act and much of the substantive legislation was contained in regulations. Relevant in that regard were the Civil Legal Aid (General) Regulations 1989 SI 1989 No 339, as amended ("the 1989 Regulations"). The relevant parts of the 1988 Act and the 1989 Regulations continue to apply in respect of legal aid certificates issued before the coming into force of the 1999 Act. By reason of paragraph 2(1) of schedule 14 to 1999 Act, all rights and property of the Legal Aid Board were transferred to the Legal Services Commission on 1 April 2000. For convenience the term "Commission" is often used in this judgment to cover both the Board and Commission.
- Section 4 of the 1988 Act conferred wide powers on the Board, including a wide incidental power in sub-section (1)(b) to do anything:
"(b) which is calculated to facilitate or is incidental or conducive to the discharge of it functions."
Section 6 of the 1988 Act obliged the Board to establish a legal aid fund. Sections 6(2) and (3) provided for payments from that fund:
"(2) Subject to regulations, there shall be paid out of the fund –
(a) such sums as are, by virtue of any provision of or made under this Act, due from the Board in respect of remuneration and expenses properly incurred in connection with the provision, under this Act, of advice, assistance, mediation or representation;
…
(3) Subject to regulations, there shall be paid into the fund –
… (b) any sum awarded under an order of a court or agreement as to costs in any proceedings in favour of any legally assisted party which is payable to the Board …"
As regards civil legal aid, section 15 of the 1988 Act governed payment for legal representation for those qualifying for it. Sections 15(6)-(7) covered the Board's obligation to pay legal representatives. In the absence of a contract with them, the Board was to make such payments as authorised by regulations made under the Act: s. 15(7)(b).
- The operation of the legal aid scheme at the relevant time as regards individual clients and practitioners is succinctly summarised by Lord Neuberger MR in his judgment for the Court of Appeal in the Henthorn case [2011] EWCA Civ 1415. Relevant in our case is the position with solicitors.
"11. A person who wished to obtain legal representation had to be granted a legal aid certificate ("a certificate") and, once it was granted, he or she became an "assisted person". An assisted person was, at least in principle, free to choose a solicitor, who was to be subject to the same obligations to the assisted client as would have applied had the instructions been private save for any specific exception provided for by the statutory scheme - see section 32 of the 1988 Act. One way in which the contractual relationship between solicitor and client was altered by the grant of legal aid was under section 9(5) of the 1988 Act, which provided that the assisted person was not required to pay his or her solicitor any charge or fee, save for any contribution provided for in the Regulations. Similarly, under section 31(3), the solicitor was not entitled to take any payment in respect of that representation other than as paid by the Commission or as authorised by the 1988 Act or by the Regulations.
…
13. The Commission could, and usually did, impose conditions limiting the ambit of the certificate and requiring further approval before any limitation could be amended. Costs incurred by an assisted person's legal representatives in those cases could only be paid for out of the Legal Aid Fund ("the fund") if they had been incurred during the currency of a valid certificate."
- The early part of the 1989 Regulations fleshed out the details of the system of legal aid certificates. Revocation and discharge of certificates was dealt with by regulations 74-86. Part IX was entitled "conduct of proceedings". Under regulation 70(1) solicitors were required to give the Commission such information regarding the progress and disposal of proceedings to which a certificate related as may be required. Solicitors had the obligation to report completion of the case under regulation 72.
- Part XII of the 1989 Regulations covered costs. It is necessary to return to some aspects below. At this point it is pertinent to note that both the Commission and the court could assess costs. Regulation 105 dealt with the former. In the latest version of regulations 105(2), 105(2A) and 105(3), costs were assessed by the Commission where the solicitor's or counsel's retainer had been determined before proceedings had begun and there had been no subsequent change of representation under the certificate; where proceedings had begun and the total claim for costs did not exceed £2,500; and where proceedings had begun and the total claim for costs exceeded £2,500 and there were special circumstances where a detailed assessment would be against the interest of the client or would increase the amount payable from the fund. Regulation 105(3A) set a time limit for a solicitor to apply for assessment, namely three months from the termination of the retainer (where there had been no proceedings) or from the event giving rise to the duty to carry out an assessment. Regulation 105(10) laid down a sanction where a solicitor failed to comply with the time limits.
"(10) Where a solicitor or counsel has failed to comply with the time limit in paragraph (3A), the costs shall be assessed and the Area Director shall consider what, if any, reduction is reasonable and proportionate in all the circumstances; provided that costs shall not be reduced unless the solicitor or counsel has been allowed a reasonable opportunity to show cause in writing why the costs should not be reduced."
- Assessment of costs by the court was necessary where there had been a judgment; the acceptance of a payment in; or termination of the retainer through discharge or revocation of certificate in such circumstances as to require a detailed assessment: regulation 107. The regulation did not itself provide a time limit for the application for costs to be assessed, but under CPR 47.17(1) and (2) that is three months from the order for legal aid assessment or from the discharge or revocation of the certificate. (The same period applied under RSC, O. 62, r. 29(1) and CCR, O.38, r, 20(1).) Assessment by the court was also required whenever it was or might be necessary for the court to assess inter partes costs: regulation 105(12). In those circumstances, as a matter of practice, the inter partes and the legal aid costs were assessed at the same hearing. Regulation 106A dealt with the position where the assisted person was entitled to be paid costs by the other side and these costs had been not only been agreed but paid. If the solicitor or counsel wish to claim any further costs from the Commission, the solicitor was to apply for these further costs to be assessed, either by way of detailed assessment (if the costs, including counsel's fees, exceeded £2,500) or by way of assessment under regulation 105 (if the costs did not exceed £2,500). Under regulation 108, if the solicitors for an assisted client entitled to be paid costs by an opponent failed to have those costs assessed, the Commission could authorise the making of an application for assessment.
Payment on account
- Payment on account in relation to legal aid work was introduced to assist cash flow for legal aid lawyers. There was a recognition that, whereas private client work could be charged on a pay as you go basis, legal aid payment might not be recoverable until some considerable time after a certificate had been issued, often long after the case was concluded: D. Lyn Devonland, Practical Legal Aid, 5th ed, 1993, 272. Payment on account was initially confined to disbursements, but in 1983 extended to profit costs and counsel's fees. With the coming into effect of the 1988 Act the scheme was placed on a legislative footing.
- Under the 1989 Regulations solicitors with conduct of a case for which a legal aid certificate had been issued were able to apply for a payment on account of profit costs and disbursements under regulations 100(1) and 101(1). Regulation 100(1) provided for payment of account of profit costs.
"A solicitor acting for a client under a certificate to which this regulation applies may submit a claim to the Commission on a form approved by the Commission for the payment of sums on account of profit costs incurred in connection with the proceedings to which the certificate relates."
From financial year 1995-1996, the maximum payment on account for each claim was 75 percent. Regulations 100(3) and 100(4) then set out the time limits in which application for payment on account, and the payment itself, could be made.
- Without prejudice to regulation 100, regulation 101(1) covered payment on account of disbursements, but also of profit costs where the proceedings to which the certificate related continued for more than 12 months, it appeared unlikely that an order for detailed assessment would be made within the following 12 months, and delay in the detailed assessment of those costs or fees would cause hardship to the solicitor. Regulation 101(2) provided that, without prejudice to regulation 100, payment on account could be made to a solicitor where the relevant proceedings had concluded, or the solicitor was otherwise entitled to have costs determined by way of assessment. Accordingly, a payment on account in respect of profit costs could be made either under regulation 100(1) or regulation 101(1).
- Once the work had been undertaken for which payment on account under regulation 100 had been made, regulation 100(7) imposed a duty on solicitors to submit their costs for detailed assessment or assessment under regulation 105. Similarly, regulation 100(8) imposed an obligation on solicitors to repay the balance where after assessment the payment on account was found to exceed the final costs of the case.
100. Payment on account
…
"(7) The making of a payment under this regulation shall not release a solicitor from any obligation under these Regulations to submit his costs and counsel's fees for detailed assessment or assessment under regulation 105 on conclusion of the case.
(8) Where, after detailed assessment or assessment under regulation 105, payments made under this regulation are found to exceed the final costs of the case, the solicitor or counsel (if any) shall, on demand, repay the balance due to the fund and, where the total costs exceed any payments made under this regulation, the balance shall be paid from the fund."
- There was no counterpart to regulations 100(7) and 100(8) where a payment on account was made under regulation 101. However, in 2002, regulation 102B was introduced into the 1989 Regulations. It conferred on the Commission a general power to recover moneys, including a payment on account, to which solicitors were not entitled. That could be by means of a direct claim or by way of a deduction from other money due to them.
Recoupment of losses and excesses
….
"(2) 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."
- The practice for payment on account was that after a legal aid certificate had been issued a solicitor would complete a form, usually a form "Claim 4", and send it to the legal aid regional office for processing. A similar process applied to counsel. A caseworker in the regional office would process the form by entering the amount to be paid on the so-called Corporate Information System ("CIS"), the Commission's main computer system. When the details of the payment were inputted the amount of the payment on account would automatically be credited to the so-called legal supplier account of each solicitor or counsel. At that stage there was no assessment of the sum claimed, since this took place at the stage of the final bill.
- When a credit or debit was entered or generated on the CIS system, the transaction would automatically be recorded on a so-called BACS statement sent to the practitioner. The BACS statement was sometimes referred to as a debit note or payment demand when the balance was in the Commission's favour. There was uncontradicted evidence before me that ordinarily solicitors refer to this document as a BACS statement, even though it was not necessarily what would be expected from the well known payment system, the Bank Automated Clearing System. The BACS statement was sent to the practitioner's address recorded on the CIS system. Thus if a credit or debit was entered onto CIS the solicitor was supplied with details of the credits and debits in a BACS statement showing details of what had been entered onto the CIS system.
- As a matter of administrative practice claims for costs at the conclusion of a case were made on either a Claim 1 or a Claim 2 form. The forms were submitted to the Commission's regional office, together with such supporting material as the Commission required. A Claim 1 form was used where no costs had been paid by the assisted person's opponent. It was used both where costs had been the subject of detailed assessment by the court and where the solicitor was applying for the Commission to assess costs under the 1989 regulations. A Claim 2 was used where costs had been met in part or in full by the assisted person's opponent. It could be used either after a court assessment or as a claim for assessment by the Commission. If the claim was for costs to be assessed by the Commission the case-worker would consider the claim and supporting material, make an assessment and enter the result on the CIS system.
- In the case of a Claim 1 the caseworker would credit each solicitor and counsel on CIS with the amount allowed by the court or the Commission, then debit all payments on account previously made to the respective supplier accounts. This process, known as recoupment, ensured that the lawyers retained only the amounts assessed as properly due. The Claim 2 form could also be used to report where the lawyers were prepared to accept the inter partes costs recovered in full satisfaction of their claims for fees, so that no claim would be made on the legal aid fund. In this way the Commission would be notified of the position and any payments on account debited to the lawyer's account to prevent double recovery. If a Claim 2 form was submitted, and no legal aid only costs sought from the fund, in practice the Commission would debit from the final conducting solicitor's account the amount of any payments on account paid to the final conducting solicitors, any previous conducting solicitors and counsel. The final conducting solicitor would be responsible for paying the balance of any fees due to any previous conducting solicitors or counsel.
Recoupment and nil assessment
- Concern grew within the Legal Aid Board that solicitors were not properly accounting to it for payments made to them on account. In March 1991, for example, Mr Steve Orchard, the chief executive of the Legal Aid Board, wrote to the Lord Chancellor that there were weaknesses in the control of cases once a payment on account had been made. The then system of control required solicitors to submit a progress report on each case once a year. Mr Orchard informed the Lord Chancellor that in two thirds of cases the solicitor failed to respond to the initial request, and a chaser resulted in responses in only ten percent more cases. Thus the Board had difficulty in establishing which cases were active and which dormant. In addition, solicitors who did not report were able to keep the payments on account for many years without accounting for their final costs. The problem persisted into the new millennium.
- The failure of solicitors to answer for the payments made to them on account was attributable to various factors. The law firm might have closed down voluntarily, or as a result of regulatory intervention by the Law Society. There might have been incompetence on the part of the solicitors, or at least those employed to keep the books. It might be that the costs had been assessed by the court, or were likely to be assessed by the court or the Commission, in an amount less than the payment on account received. With payment on account set at 75 percent of the sums billed this was not an uncommon outcome of the assessment process. In this event the solicitor would decide to truncate the process by simply retaining the payment on account. Another reason might be that the solicitor had received agreed inter partes costs from an unsuccessful opponent. By not informing the Commission that the case was over, the solicitor would be able to keep both the payment on account and the full costs, at least for the time being. While there were one or two cases of established fraud of this sort, the Commission has not asserted that any inference of fraud is to be drawn from the mere fact of not reporting.
- The failure of solicitors to account properly for moneys advanced to them was sometimes discovered by a Commission caseworker. Action could then be taken on the individual account. However, the extent of the problem led the Board, and later the Commission, to conduct several large scale exercises where lawyers were required to report on older cases, if there had been a payment on account some time previously, but no indication that the case was active. These were called "unrecouped payments on account" ("UPOA") exercises. The UPOA exercises were not just about recovering money but for government accounting purposes, to reduce the amount outstanding on the legal aid accounts for dormant cases.
- The UPOA exercises relevant to these claims first began in 2001. In the March 2001 edition of Focus, sent by the Commission to all legal aid lawyers, an article "Recouping Payments on Account in 2001" explained the recoupment exercise. Where a payment on account had been made 18 months previously, but no final bill received, firms would need to respond to a questionnaire. Recoupment would eventually occur, it was explained, in the event of no response being received after a reminder letter. There would then be a "nil assessment", described as follows:
"[The Commission] will discharge the certificate and/or close the case by entering a zero value bill that will automatically recoup the payments made on account."
The Focus article continued that a timely response would prevent unnecessary recoupment.
- In association with a training day for Commission staff engaged in recoupment in early 2001, a document entitled "UPOA Guidance" was prepared. It explained that generally each firm would receive a list of certificates and a standard questionnaire to be returned with a bill or other relevant documentation. A response would be requested within 42 days. The standard covering letter would read:
"I regret that, in view of the age of the payments outstanding I will require your response within 42 days of this letter ... In certificated cases, I will assume that discharge is appropriate. If discharge takes place, and no final bill has been processed, the case will be closed on the basis there is no claim on the fund. Any outstanding payments on account will then be recouped. If such action is inappropriate, it is important you return form UPOA/2 detailing the current position for each certificate or other payment."
A second letter would be sent as a reminder requiring a response within 21 days. In default of a reply to the latter, Commission staff would discharge the certificate or close the cases by entering a zero value bill (nil assessment). That would automatically recoup any payments on account. Where there were responses they were to be dealt with in different ways, depending on their nature. For example, where practitioners chose the response "No action taken and no claim on the fund", if satisfied that this were the case the Commission staff were to discharge the certificate and "nil assess" the costs by recouping the payments on account. But other responses triggered different actions.
- The UPOA Guidance continued that, where post was being returned due to the firm changing address or ceasing to trade, the Law Society should be contacted for a forwarding address. Difficult issues arose where a firm was taken over. Where the solicitor failed to provide information the Commission might conclude that the certificate was effectively dead. If the solicitor failed to respond to the request it was reasonable to conclude that silence implied no further work was required and, in the absence of a final bill, that there would be no claim on the fund. The guidance said that the Commission could therefore discharge the certificate by closing the file and processing a final bill of zero value (a nil assessment). While the Law Society advice was that practitioners could destroy a file six years after the conclusion of a case, a file could not be treated as completed when a solicitor had omitted to seek assessment of costs as obliged by regulations 100(7)-(8) of the 1989 Regulations. In practice, if a solicitor did contact the Commission after an initial failure to respond, the Commission would accept a bill for assessment, even if a nil assessment had taken place.
- As part of the national UPOA exercise in June 2002 the Commission produced a "question and answer" leaflet as a guide for lawyers entitled "Civil Certificates and Payments on Account". It stated that the Commission's intention was to progress the reconciliation of accounts and recover, where appropriate, improperly retained payments on account. In asking for information about cases where its records showed cases as being "open", it was not making a demand for repayment. It would analyse the information to determine, on a case by case basis, whether a payment was due or whether any money paid on account was now recoverable. Where money was recoverable, the Commission would seek to recover it by agreement and, if necessary, in line with an agreed payment plan. Normally, having notified a lawyer of its intention to do so, the Commission would debit the account with the amount to be recovered. A recovery would occur because the sum due would be subtracted from any amount payable when next a payment was made. If it was not possible to make a recovery in this way, the Commission would consider alternative repayment options.
- The leaflet addressed the question of the situation if the lawyer could not produce a file to justify a claim for costs.
"Where it is impossible to support a claim for costs with the file, because it has been lost or destroyed for example, we will consider a claim made without the file if as a minimum, the financial ledger for the case and contemporaneous evidence of time recording can be produced. If these are sufficient to demonstrate that the payment on account made was reasonable we will not seek to recover the amount paid, but any claim for additional costs will be refused."
The leaflet continued that where a file was not available, and there was insufficient alternative evidence to demonstrate that the payment on account was reasonable, any claims for costs would be nil assessed and the payment on account would be recoverable. Late claims would attract a discount. The Commission might agree to assess costs in cases where proceedings had commenced, and the total claim exceeded £2,500, even though normally that would be subject to detailed assessment. The leaflet concluded:
"If however, we face a refusal to cooperate or to provide necessary information within a reasonably allowed time, we believe our statutory duty obliges us to make nil assessments and recoveries or, under CPR rule 47.8, to seek to have detailed assessments made through the court."
- In the August 2006 edition of Focus, an article entitled "Outstanding Payments on Account" contained an explanation for lawyers of the Commission's approach with older cases. When asked for a report on a case, the solicitor could confirm that there was to be no claim on the fund (in which case payments on account became repayable) or submit a claim for costs, supported by a file. The Commission acknowledged that in some older cases firms had found it impossible to support a claim for costs with the file, because the file has been impossible to find or has been destroyed. In recognition of this, and in the absence of a file,
"[w]e will consider a claim made without the file if, as a minimum, the financial ledger for the case and contemporaneous evidence of time recording can be produced as an alternative. If these are sufficient to demonstrate that the payment on account made was reasonable, we will not seek to recover the amount paid, but a claim for additional costs will be refused."
THE PRESENT CLAIMS
- In broad terms the claims before me arise because the solicitors concerned acted for clients under legal aid certificates issued under the 1988 Act. The solicitors were the final conducting solicitor, even if other solicitors had acted for the clients at an earlier stage. The Commission made payments on account of the work undertaken for clients through the legal aid supplier accounts which the solicitors had with it. Except in one case each of the solicitors did not submit a final bill and claim for costs to the Commission. In the manner described earlier in the judgment the Commission therefore made a nil assessment on each solicitor's legal aid supplier account and recouped the payments on account previously made from those accounts. No allegation of fraud is made by the Commission in relation to any of these defendants.
- At a practical level Mr Susman QC for the solicitors underlined to me that the relevant payments on account to them dated back ten, in some cases, twenty five years. Two of the solicitors' practices had ceased by the time the Commission purported to recoup the payments on account. As for the third, the firm had undergone significant changes and case holders had moved on or left. In many of the cases there was no surviving solicitor's file, or what survives was fragmentary. The reality of a legal aid practice was that the storage of files beyond the six year period recommended by the Law Society was a luxury which could not be afforded. Thus, said Mr Susman QC, the defendants' position was simply that the difficulties in establishing what did or did not happen would not exist if the Commission, as he cryptically put it, had "got on with it" at the time, in other words, had made inquiries of these solicitors as to what had occurred in a timely manner after the payments on account were made.
Loomba & Co
- Mr Sham Loomba closed his practice in mid 2001. The Commission continued to send post and BACS statements to his firm's old address. The post was returned and eventually, in August 2004, the Commission ceased sending letters to that address. Prompted by an inquiry from counsel in early 2004, who sought payment of his costs in a matter briefed by Loomba & Co, the Commission decided to pay counsel directly and recoup the firm's payments of account for the matter, given that there had been no reply to its letters. There were then further recoupments in November and December 2007 as a result of a national UPOA exercise. Inquiries with the Law Society having drawn a blank, the debt recovery unit of the Commission found a possible address for Mr Loomba in mid 2006, through a search on the website 192. com.
- The Commission's debt recovery unit later discovered Mr Loomba's home address from a simple Internet search. In response to a bland letter from the Commission's debt recovery unit in mid June 2006, Mr Loomba telephoned almost immediately and explained that he had closed his practice over 5 years previously and all legal aid certificates had been discharged. He was told that there was a debit amount on his supplier account and outstanding payments on account. He had a liability to the Commission and needed to submit bills on the outstanding certificates, otherwise his liability would increase. A copy of the June statement of unrecouped payments on account was faxed to Mr Loomba, who did not reply.
- Unfortunately the address for Mr Loomba, which the Commission's debt recovery unit had discovered, was not transferred onto the CIS system. Thus Mr Loomba did not receive the standard warning letter before his account was debited through the recoupment of payments on account. A BACS statement was generated on 7 November 2007. Eventually the debt recovery unit wrote to Mr Loomba in January 2008, to request the payment of an outstanding amount of some £205,884. Mr Loomba instructed solicitors and the Commission agreed to defer enforcement action.
Ulasi & Partners
- Ngozo Blessing Ulasi practiced as Ulasi & Partners until 2001, when the firm was closed. Relevant in this case are payments on account made for three clients only. There were five legal aid certificates in all, three issued in relation to one of these clients. On 27 October 2006, the Commission sent letters to Ms Ulasi informing her that counsel had contacted the Commission regarding the payment of her fees in relation to the client for whom the three certificates were granted. Each letter noted that no bill had been submitted by Ms Ulasi for the certificates and she was asked to confirm whether it was her intention to submit a bill in each case.
- Ms Ulasi responded at some length on 12 November 2006, stating that a bill of costs had been submitted in the case for which one of the certificates had been issued, but that it had been severely reduced by the taxing master. The costs in respect of the two other cases with regard to that client had been disallowed because the court took the view that legal aid should not have been granted. Ms Ulasi explained that no further costs above that paid under the certificate were recoverable. That was surprising, she wrote, since both solicitor and counsel had done considerable work on the case and thus both had made a loss. As regards counsel's position in that case, she said that it was being investigated. That would take time.
- As a result of an unrecouped payment on account assessment in January 2007 the Commission nil assessed Ulasi & Co for the three clients. A BACS/debit statement of 5 February 2007 showed that there was a debit of some £29,900 on the Ulasi account. The debt recovery unit requested the money. Ms Ulasi wrote on 21 May 2007, stating that she owed the Commission nothing and asking for an explanation: why was it considered she did owe money, six years after the firm had closed? The Commission responded by enclosing a print-out and asserting that the fact that the firm had closed six years previously did not affect her liability.
- Three years later, in August 2010, Ms Ulasi disclosed a legal aid assessment certificate dated 10 October 2001 in one of the cases, where legal aid only costs had been assessed in the sum of £3,779.49 profit costs, and £401.30 for disbursements. The Commission is prepared to credit to her the sum allowed on that certificate.
Simon Carter and others (Howell-Jones and Partners)
- At the time this firm had a legal aid practice various payments on account were made to it. Ultimately, the Commission made nil assessments in relation to matters where no final bill was submitted. The first nil assessment in relation to payments on account occurred in 2004 regarding a client named Rainsbury. On 6 February 2004, the Commission sent Howell Jones a letter asking for a report on the case. In the absence of a response, the letter read, it would be assumed that no claim would be lodged and any payments on account would be deducted. Howell-Jones responded on 12 February 2004, indicating that there would be no further claim on the legal aid fund. Consequently a nil bill was processed and the payments on account previously made under that certificate were recouped.
- Further nil assessments were made in May 2007. They originated with a letter the Commission sent to the firm dated 9 August 2006. Enclosed with the letter was a financial reconciliation report setting out all the legal aid certificates where payments on account had been made but where the firm had submitted no final bill. The firm was requested to return the report within 21 days, setting out the outcome in respect of each certificate. The coding to be used was four fold: (1) file can be closed and, if relevant, payment on account recovered; (2) claim for costs being drafted; (3) work on case complete and costs recovered in full; and (4) work on case continuing. The letter explained that upon return of the report the Commission would calculate the financial position on the account. If there were an outstanding balance due to the firm, the Commission would pay that balance; if there were an outstanding balance due from the firm, the Commission would seek to recover it.
- About eight weeks later, on 2 October 2006, after it had received a reminder letter and requested an extension of time, the firm returned the report marking the cases with the different outcome codes. Of the 29 cases on the list, 24 were marked with outcome (1), 4 with outcome (2), and one with outcome (4). The covering letter explained that the files were old and that the firm had not carried out legal aid work for many years. The letter added:
"I do not feel it is fair or proper for LSC to expect us to repay these amounts after so long and I was pleased to read recently that LSC will look at old cases on an individual basis with a view to offering assistance to solicitors."
- On 19 October 2006 the Commission sent a letter enclosing the leaflet "Civil Certificates and Payments on Account", outlined earlier. Over the next months there followed various exchanges of letters, when the firm promised a reply as to whether it intended to make any claims on the outstanding matters it had identified in the report it had returned earlier. The firm made several requests for more time to respond, which were granted. There was a letter dated 6 February 2007, which said that once the certificates were closed it would not be possible for the solicitor to submit a bill. However, that letter was wrongly sent by a caseworker and its phraseology not repeated.
- Finally, on 14 May 2007, the Commission wrote that unless it received a reply within 7 days it would recoup the payments on account for all the cases. Not having received a response, the Commission assessed the amount on each of the certificates as nil and recouped the payments on account. There was a BACS/debit statement to that effect on 24 May 2007, which showed an increase in the debit balance to some £25,000, indicating that about £19,000 had been recouped.
- Further correspondence followed. On 9 July 2007 Howell-Jones wrote in relation to one of the cases involving a Mr Byrne. It enclosed a claim 2 form, indicating that no claim was being made on the Fund since costs had been met by the other side. The letter read:
"We are holding funds in this case and would like to clear this case with you. Would you please let me know how much is required and I will send you a cheque."
The letter then asked for an explanation of the increase in the debit balance. The Commission replied immediately, explaining that, in the absence of a reply from the firm, it had recouped payments on account to counsel in the Byrne matter and that the firm would need to account to counsel for fees. It also explained the recoupment of the £19,000 from the firm.
- On 20 August 2007 the firm asked for a fuller explanation. A response followed the next day, 21 August 2007, enclosing the 2006 financial reconciliation code, the outcome codes, and the cases where payments on account had been made but no final bill ever received from the firm. In that letter the Commission invited the firm to submit any bills or advise if bills had been assessed in cases where recoupment had been made but should not have been. The letter explained the recoupments made. Over 10 weeks later, on 2 November 2007, the firm asked for a further explanation. Again the Commission responded promptly, and again the Commission invited the firm to submit further information: if a file had been destroyed, the Commission would accept other evidence, and if the firm demonstrated that a payment on account was reasonable it would repay what it had recouped from the firm. On 22 January 2008 the firm asserted that it had attempted to sort matters out, that it was short of information, and that maybe there were files in its archive. Over the following months the correspondence continued in desultory fashion, with the firm failing to explain why recoupment should not have taken place.
COMMISSION'S STATUTORY CLAIMS
- The Commission concedes that there is no express power under the 1988 Act or 1989 Regulations to nil assess and thereby recoup payments on account. However, it claims this power to nil assess under both section 4(1)(b) of the 1988 Act and under regulation 105 of the 1989 Regulations. In its submission this power can be used where a solicitor has received agreed inter partes costs and either reported, or it is to be inferred, that there will be no further claim on the fund. It also claims to be entitled to nil assess where a solicitor has failed to respond to a demand by the Commission under regulation 70(1) for a report on the progress of proceedings, or where the Commission has been unable to require a regulation 70(1) report because, for example, the firm has been closed and not notified a new contract address. If it cannot impose a nil assessment the Commission submits that it can still recoup payments on account under regulation 102B, even though the payments predate that regulation's making in 2002.
Section 4(1)(b)
- The Commission contends that it has the power to nil assess and recoup payments on account to these defendants under section 4(1)(b) of the 1988 Act. As we have seen, that section conferred on the Board very wide incidental powers. By reference to a range of authorities Mr Susman QC submitted on behalf of the defendants that section 4(1)(b) did not enable the Commission to nil assess these defendants. That was not because a power to do this would not facilitate, or be incidental or conducive to, the discharge of the Commission's functions. Rather it was because, as matter of statutory interpretation, section 4(1)(b) was robbed of this effect by the making of the 1989 Regulations. In support of his submission Mr Susman QC invoked, first, two authorities where section 4(1)(b) had been specifically considered, R(Machi) v Legal Services Commission [2001] EWCA Civ 2010; [2002] 1 WLR 983 and Oliver Fisher v Legal Services Commission [2002] EWHC 1017 (Admin).
- In Machi the question was whether the Commission had a power under section 4(1)(b) to suspend work to be done under a legal aid certificate pending consideration of its discharge for an unreasonable refusal of an offer of settlement. The 1989 Regulations provided a power to suspend and revoke an emergency legal aid certificate and to discharge a full certificate in cases of abuse. At first instance Ouseley J held that, in the light of the regulations, section 4(1)(b) could not be regarded as containing a general power to suspend. On appeal the majority of the court (Sedley and Waller LJJ) held that the regulations were a complete code for the revocation and discharge of legal aid certificates: [20], [45]. Sedley LJ reasoned that while the regulations were not an aid to the construction of the Act, the statute was nevertheless "given shape and definition by regulations which spell out in interlocking form the specific ways in which the wide statutory powers may be exercised." [21]. If there were no form of control in the regulations one might well conclude that these were not intended to be comprehensive, "and that the general powers of management in the statute retained a residual effect": [24]. That was not so, and in the circumstances there was no room for a residual fund of powers, such as the powers of suspension, within the generality of section 4(1) or 15(4): [28]. Simon Brown LJ dissented: the power under section 4 was not ousted by the regulations [55]-[56].
- In Oliver Fisher the solicitors had, in breach of the regulations, not informed the Commission in time that the legally aided client had preserved property when an action against her by the bank was settled. There was no legal aid taxation of her bill and the solicitors submitted a Claim 1 to the Commission. The Commission had therefore paid profit costs to the solicitor. Six months later they sought to recoup the amount by deducting it from other moneys lawfully payable to the solicitors. The Commission argued that it was entitled to do this because of its power under regulation 102 to defer payment when a solicitor breached the regulations. It could therefore defer indefinitely the payment of the profit costs and deduct it from the moneys due on other unrelated cases. Scott Baker J held that the Commission faced the fundamental difficulty that there was no provision in the regulations permitting it to defer a payment already made or to recoup a payment earlier made by reallocating the money to another case: [28]. As to section 4(1)(b), Scott Baker J said this:
"[Counsel for the Commission] submits that … Section 4(1)(b) of the Legal Aid Act 1988 gives the defendants a statutory power to operate a running account. This however does not in my judgment give a right to relocate or move money that has been earned and paid in case 'A' to case 'B' or to recoup money:" [33].
In the course of his judgment Scott Baker J also said that the regulations were defective and the simple solution would be to redraft them: [34]. In the result, regulation 102 B was introduced.
- In Mr Susman QC's submission Scott Baker J's approach in Oliver Fisher was in accord with the approach of the courts to comparable provisions, for example, the Local Government Act 1972, section 111(1). That well known provision confers on a local authority the power to do anything "which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions". Morgan Grenfell & Co Ltd v Sutton LBC (1996) 95 LGR 574 (CA) concerned the Housing Associations Act 1985, which empowered a local authority to give guarantees in relation to registered housing associations. A local authority guaranteed a bank loan for an unregistered housing association. The Court of Appeal held that section 111(1) could not be relied on to support the guarantee, which was consequently ultra vires. Peter Gibson LJ, with whom the other members of the court agreed, adopted the proposition of counsel that:
"Where Parliament has expressly enacted provisions which define the means by which local authorities are to carry out their functions, section 111(1) of the Act of 1972 cannot be relied upon in support of performance of those functions by other means not expressly empowered by the relevant provisions:" (p. 584).
It was inconceivable that Parliament had ever intended by section 111 to confer the power to incur a financial obligation where it had so clearly, and in such detail, regulated a local authority's power to grant financial assistance (p. 584).
- Morgan Grenfell was cited with approval by Pill LJ in R (Risk Management Partners Ltd) v Brent LBC [2009] EWCA Civ 490, [2010] PTSR 349 in the course of an extensive review of that and other authorities on the interpretation of section 111(1): [53]. The further appeal to the Supreme Court in that case ([2011] UKSC 7; [2011] 2 AC 34) did not concern this point, a subsequent statute having given the local authority express power to do what it had done in setting up a mutual insurance company.
- Let me begin with the uncontested territory, the ambit of section 4(1)(b), putting to one side the 1989 regulations. The argument must be as follows. To nil assess in the circumstances of these defendants would be to facilitate the discharge of the Commission's functions or would be incidental to that. That follows because the Commission 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 were those authorised by the regulations. A payment on account was a payment on account of an ultimate liability, and if the ultimate liability turned out to be less than the payment on account, 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, as I have said, was to assists 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.
- Now introduce the 1989 Regulations. In my view Mr Susman QC's submissions in this regard must be seen against the background of Lord Lowry's speech in Hanlon v The Law Society [1981] AC 124, referred to by Sedley LJ in Machi:
"Where the Act provides a framework built on by contemporaneously prepared regulations, the latter may be a reliable guide to the meaning of the former:" 194B.
Hanlon is binding authority: regulations are an aid to the construction of an Act if "contemporaneously prepared". That accords with constitutional principle. If Parliament, in passing a Bill, knows of the putative regulations to be made under it when enacted, the Parliamentary intention behind the Bill is formed with that background knowledge. The regulations are thus a reliable guide to the meaning of the Act. Later regulations made under the Act will be formulated by the executive. If Parliament has a role in relation to them it will be to approve or reject them as a whole. By exercising the power delegated by Parliament to make such regulations, the executive can in no way alter the intention behind the enabling Act. Those regulations made by the executive can have no bearing on what an Act means.
- Hanlon was cited as an authority by Lord Browne-Wilkinson in Deposit Protection Board v Dalia [1994] 2 AC 367, who held that regulations can only be used as an aid to construction where they are "roughly contemporaneous with the Act being construed". All the other law lords agreed. The House of Lords rejected the notion that regulations made four years after the Act could be used as an aid to construction, particularly where they had been "rushed through to counteract an identified mischief". In R (Mehari) v Home Secretary [1994] QB 474, Laws J used the Immigration Rules as an aid to construction of a statute. The Immigration Rules in question took effect on the same date as the Act under consideration came into effect: see p. 483F-G. Laws J said:
"Its position is analogous to, though not identical with, that of a statutory instrument which may be prayed in aid to construe main legislation, where it is clear that the two are intended to form an overall code:" 486B.
No challenge was mounted to that view, the only submission being that the Immigration Rules should not be taken into account during the period within which they might yet be disapproved by either House of Parliament. Laws J rejected that submission. In my respectful view, Laws J's approach is correct in recognising that the Act and the regulations must be part of the same legislative cloth.
- Machi can be read consistently with Hanlon, since the regulations were regarded by the majority as full and explicit in relation to revocation and discharge of legal aid certificates. The regulations under consideration in that case either were, or were treated, as though they had been present from the inception of the scheme of the 1988 Act. In as much as Sedley LJ suggested obiter that there is a wider principle to that established in Hanlon, I must respectfully disagree for the reasons I have given. Oliver Fisher is distinguishable, focusing on the ambit of regulation 102 and the power to recoup by deferring payment indefinitely. Scott Baker J's brief remarks on section 4(1)(b) were made without, it seems, detailed consideration. The Morgan Grenfell line of cases are miles from the present issue; they turn on the interpretation of section 111 of the Local Government Act 1972 in the light of other legislation, not regulations made under that Act. In earlier times Morgan Grenfell would have been characterised as an application of the maxim specialia generalibus derogant.
- In the light of Hanlon the regulations made under the 1988 Act may be a guide to the meaning of the Commission's powers under section 4(1)(b) if contemporaneous with its enactment. For that purpose it is not permissible to have regard to later amendments to the regulations. Although I would not have thought it a forgone conclusion, Mr Morgan QC for the Commission accepted that the 1989 Regulations, in their original form, were contemporaneous with the 1988 Act.
- My reading of these Regulations is that they lack very significant building blocks in constituting a power to nil assess. In the original 1989 Regulations there was the power to call on solicitors for a report on the progress of a case under regulation 70(1). Regulation 100(7) obliged solicitors to submit their costs for taxation or assessment at the conclusion of a case, notwithstanding a payment on account. Under regulation 100(8) solicitors had to repay a consequent favourable balance to the fund when demanded. As mentioned earlier, regulation 101 did not contain the counterparts to regulations 100(7) and 100(8). Regulation 102(a), considered in Oliver Fisher, enabled the Commission to defer payment of profit costs in connection with proceedings to which a certificate related, if solicitors failed to comply with the Regulations and the fund suffered consequential loss. Regulation 102B was certainly not contemporaneous with the 1988 act, so must be ignored. In their 1989 version regulation 105 contained a limited power for the Commission, and regulation 107 the power of the Court, to assess costs. An assessment under these provisions was a precondition to the operation of regulations 100(7) and 100(8): Henthorn, [27]-[28], [32]-[33]. In its contemporaneous form in 1989, regulation 105 did not contain the time limit of 105(3)(A) or the sanction for failure to comply with the time limit now in 105(10).
- All of this is a far cry from the power of the Commission to nil assess and recoup payment where it infers that there is no further claim on the fund after the payment of inter parties costs or there is no regulation 70(1) report on the progress of a case. So in my view nothing in the contemporaneous regulations casts any doubt on the Commission's power under section 4(1)(b) of the 1989 Act to recoup payments on account made to a solicitor by making a nil assessment on the firm's supplier account in such circumstances. For the reasons already given, section 4(1)(b) on its face is wide enough to enable the Commission to initiate and carry out an assessment where it is necessary to do so in order to prevent solicitors from retaining sums to which they are not entitled.
Regulation 105
- Since the Commission has been successful in its section 4(1) submissions, there is strictly speaking no need for me to address other issues. However, the matters were fully argued and it may be helpful to express my views.
- Mr Morgan QC for the Commission contended that there was a power to nil assess under regulation 105. The power to nil assess under the current version of that regulation made sense, in Mr Morgan QC's submission, whether or not proceedings had been issued, and whatever the value of the costs. It could not be against the interest of the assisted person and followed in the special circumstances where it was not possible to obtain a response from the solicitor. The Commission was entitled to infer that the time limit under regulation 105(3A) for solicitors to apply for assessment had passed where they had apparently closed down, the certificate had not been transferred to a new firm and there had been no regulation 70(1) report. That inference could also be drawn where more than three months had elapsed after the solicitors had indicated that the file could be closed, that a claim for costs was being drafted or that work on the file was complete and costs recovered in full. There was a failure to comply with the time limit for assessment not only when a claim was submitted late but also when there had been no claim at all. In those circumstances, in the absence of any information from the solicitor, it was reasonable and proportionate to assess the costs at nil since the Commission had no means of knowing what costs would be allowed if a claim were submitted.
- All of these are big steps. There is the initial difficulty for Mr Morgan QC that regulation 105 was premised on the solicitor taking the initiative and making the application for an assessment. The time limits in regulation 105(3A) were measured from when specific events occurred. Thus it was not simply a matter of drawing an inference that the time limits had been exhausted – Mr Morgan QC's submission – but also assuming that the solicitor had made the application for an assessment. Regulation 105(10) enabled the Commission to assess the costs, and reduce those where solicitors had failed to comply with the time limits. However, that power was premised on an application for assessment ultimately being made. It is no surprise that the purpose behind regulation 105(10), when it was introduced in 2002, was said to be to address late claims for civil certificated work: Focus, December 2002. Under regulation 108 the Commission could act in the absence of an application for assessment, but that applied in the limited case of there having been proceedings, costs having been ordered or agreed to be paid to a client, and no application for taxation having been made.
- However desirable it may be from the Commission's standpoint for it to be able to nil assess these defendants, and others in a similar position, my conclusion is that regulation 105 does not contain that power. Significant recasting of regulation 105 is demanded to achieve Mr Morgan QC's desired interpretation. It is simply not possible to do that within the approach the courts adopt to statutory interpretation. There is no other regulation which confers the power to nil assess on the Commission.
Regulation 102 B(2)
- Introduced in 2002, regulation 102B(2) empowers the Commission to recover moneys from solicitors to which they are not entitled, including by deductions from other moneys due to them. It was a direct response to the Oliver Fisher case: [2002] EWHC 1017. Mr Morgan QC submitted that even if there was no power to nil assess, the Commission could reclaim the payments on account under this regulation. The contention advanced by the defendants was that regulation 102 B(2) could not have retrospective effect for certificates discharged or payments on account before 31 December 2002, the date it came into force. Mr Morgan QC responded that the Commission was not attempting to apply regulation 102B(2) retrospectively.
- To my mind even if regulation 102B(2) affected events prior to 2002 it would not be objectionable on retrospective grounds. A well established definition of retrospective legislation is that which takes away or impairs vested rights acquired under existing law, which creates a new obligation, which imposes a new duty or which attaches a new disability in respect of a past event: see Odgers, The Construction of Deeds and Statutes, 4th ed, 1956, 197-8. In my view regulation 102B(2) cannot be regarded as attaching any of these prejudicial consequences to a past event. A payment on account is a payment on account of a liability. If it transpires that there is no liability, or the liability is less than the payment on account, there is an inchoate obligation to repay.
- In any event, the presumption against retrospectivity is based on a presumption of fairness: L'Office Cherifien Des Phosphates v Yamshita-Shinnihon Steamship Co Ltd [1994] 1 AC 486, 525 A-D. There is no unfairness in asking a solicitor to repay a payment on account held in circumstances where it ought to be repaid. Solicitors knew the basis on which it was paid and have always had both a duty to have costs assessed and a duty to repay once that took place.
COMMISSION'S PRIVATE LAW CLAIMS
- For the Commission Mr Morgan QC advanced several private law bases for these claims should his submissions on the 1988 Act and 1989 Regulations fail. At the very outset I indicated that any contentions of a fiduciary duty between the Commission and the solicitors was hopeless; Mr Morgan QC did not advance any authority to support the contention during the course of the hearing.
- That left restitution. In this respect Mr Susman QC did not contest the principle of a restitutionary claim but submitted that the Commission could not advance it because it was impliedly excluded by the statutory remedy which the 1988 Act and 1989 Regulations offered. Even if incomplete the remedies these conferred were intended to be exhaustive. He invoked in support the decision in R (Child Poverty Action Group) v Secretary of State for Work & Pensions [2011] 2 AC 15, [2010] UKSC 54. There the Supreme Court concluded that the Secretary of State could not make restitutionary claims for the repayment of benefits paid pursuant to an incorrect award, since the history and nature of the benefits scheme was such that the only powers of recovery were given by the statute, incomplete though they may be.
- Child Poverty Action Group demands careful consideration. The issue was the recovery of overpayments through an incorrect award of benefits. Section 71 of the Social Security Administration Act 1992 provided expressly for the recovery of incorrect awards where these resulted from misrepresentation or the non-disclosure of a material fact. That did not cover instances of overpayment as a result of official mistake. The House of Lords concluded that section 71 provided an exclusive code for recovery of overpaid benefits and there was no scope for restitution. Lord Brown's reasoning was, firstly, that
"[13] … when section 71 was enacted, there was a division of functions between the adjudication of awards and their payment. Since the Secretary of State paid the benefit awarded pursuant to a statutory duty, there could be no question of his having made a mistake of fact or law in making the payment. Thus … section 71 and its predecessor sections created a power of recovery when otherwise there would have been none. This explains too why section 71 contains no express exclusion of any common law right of recovery: there simply was none and it is hardly surprising that no such exclusion was inserted in 1998 when the adjudicatory and payment functions merged."
- Secondly, it was inconceivable that Parliament would have left a restitutionary remedy in place when the section 71 route laid down a detailed process for recovery: [14]. The clear Parliamentary intention was that only those who themselves brought about overpayments should be liable to reimburse them and that in their cases reimbursement should be made easily enforceable: [15].
- Lord Dyson adopted similar reasoning but addressed the second point at greater length, i.e. if the Secretary of State had a restitutionary claim had the legislation excluded it? The differences between a statutory and common law remedy may be so substantial that they demonstrate that Parliament could not have intended the common law remedy to survive the introduction of the statutory scheme. However, a court should not be too ready to find that a common law remedy has been displaced because it is always open to Parliament to make the position clear by stating explicitly whether the statute is intended to be exhaustive: [34].
"[34] … The question is whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme and therefore could not have been intended to coexist with it."
A powerful reason for supposing that Parliament intended the statutory code to be exclusive was the chaos which would result with two overlapping schemes for recovery: [35].
- Applying Child Poverty Action Group to the facts of this case, a restitutionary remedy would not be excluded on the first ground in Lord Brown's and Lord Dyson's judgments. The Commission has always had the responsibility for both determining applications for payments on account and reconciling solicitors' accounts later. Thus the Commission would have a restitutionary claim, unless the statutory scheme for recovery could not have been intended to coexist with it. In my view the statutory scheme for the recovery of payments on account did not, by implication, exclude a restitutionary claim. That is because, for the reasons I have given, it was far from being exhaustive. Section 4 (1)(b) is an incidental power. Under the regulations there are clear lacunae through which, by failing in their statutory duties to report and submit their costs to assessment, solicitors can derive an undeserved windfall. A restitutionary remedy would not be inconsistent with the statutory scheme and survives the 1988 Act and 1989 Regulations.
DEFENCES
- For the defendant solicitors, Mr Susman QC raised a number of defences if, as I have held, the Commission is able to claim for the payments on account which were made to them.
Deed of settlement
- On 2 April 2008 a deed of settlement was entered between the Ministry of Justice, the Commission and The Law Society to compromise litigation brought by the Law Society. The Deed of Settlement provided in clause 8.1 as follows:
"8.1 LSC and [the Ministry of Justice] agree that from the date of this Deed in respect of any case in relation to which:
8.1.1 no payment has been made by LSC to the legal aid provider or former legal aid provider since 31 March 2002; and
8.1.2 there has been no activity on the legal aid certificate since 31 March 2002; and
8.1.3 the total payments on account do not exceed £20,000 net of VAT; and
8.1.4 no agreement has been made by the legal aid provider or former legal aid provider to repay to or to allow LSC to recoup payments on account made prior to 31 March 2002 or no debit note or debit to a BACs statement has been sent by LSC before 1 April 2008 in the absence of agreement
(each 'an historic case'), LSC will not act to recover any payments on account made by LSC in that case."
- On behalf of Mr Loomba and Mr Carter, Mr Susman QC submitted that the deed of settlement precludes action by the Commission against them. Each of the cases where repayment for a payment on account is claimed from those defendants is an historic case within the meaning of clause 8.1. First, in none of the cases has a payment been made by the Commission to those defendants since 31 March 2002. (Such payments have been made to Ms Ulasi, which is why this defence is not pursued on her behalf). Second, in none of the cases has there been activity on the legal aid certificate since 31 March 2002, since this means legal work done under a legal aid certificate, not entries on the supplier account made unilaterally by the Commission. Third, in none of the cases do the total payments on account exceed £20,000 net of VAT in respect of any such historic case. Fourth, in none of the cases has any agreement been made between those defendants and the Commission to repay to or to allow the Commission to recoup payments on account made prior to 31 March 2002. Mr Susman QC added that tentative suggestions in correspondence do not make an agreement nor, for that matter, do they constitute an affirmation of liability or a waiver of a limitation defence. Fifth, in none of the cases was a debit note or debit to a BACS Statement sent by the Commission to either of these defendants before 1 April 2008.
- In my view these defendants would be entitled to enforce clause 8.1 of the deed of settlement against the Commission pursuant to the Contracts (Rights of Third Parties) Act 1999, section 1(1)(b), since their right to do so was not specifically excluded by it. However, Mr Susman QC's submission fails in relation to the fifth point, that relating to the debit note/BACS statement. In his submission a debit note is a document with the heading debit note, or at least the function of informing someone that a debit is being made to an account. It is the opposite of an invoice. A statement of account with a series of debit entries is not a debit note within the meaning of the deed of settlement, merely a document which records the making of debit entries. As Mr Susman QC put it, it is no more a debit note than a credit entry on a statement of account is an invoice. The Commission had never identified any document that can properly be described as a debit note within the meaning of the deed of settlement, as opposed to a statement of account. Moreover, there has been no debit to a BACS statement. BACS is the electronic transfer system, the Bank Automated Clearing System for funds payable to a solicitor. If there was no transfer of funds, concluded Mr Susman QC, it was not a BACS Statement.
- In my view debits to BACS statements have been sent in all these cases before 1 April 2008, as required by the deed. Those statements themselves constitute debit notes. Ordinarily, the test for construing the words of the deed of settlement would be what a reasonable person would have understood the parties to be using the language to mean, having the background knowledge which would have been available to them: Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 (HL), [2009] UKHL 38, [34] per Lord Hoffmann, Rainy Sky SA v Kookmin Bank [2011] UKSC 50 [14]-[30] per Lord Clarke (with whom the other members of the court agreed). But that test gives way where words have a special or customary meaning among a particular group of people. There are many authorities where evidence of that meaning has been held to be admissible as an aid to construction: see Sir Kim Lewison, The Interpretation of Contracts, 5th edn, 2011, [5-09]-[5-10].
- As indicated earlier in the judgment the documents generated by the Commission are referred to among the profession as BACS statements. The three terms, BACS statement, debit note and payment demand are used interchangeably. Clause 8.1.4 of the deed is, in my view, referring to these statements. Thus the deed has no application to the claims against any of these defendants and the Commission is not prevented by it from making claims against them.
Public law defence: fettering discretion
- There is no issue that the Commission was entitled to adopt a policy on the recoupment of payments on account. As a body administering substantial amounts of public money, with the statutory duties outlined, it was perfectly lawful for it to formulate and apply such a policy. Where Mr Susman QC took issue with the Commission was in what he contended was the unlawfully rigid manner in which the policy was applied. In every case in which no communication was received from the solicitor it was assumed that the work authorised by the certificate had been completed and that there should then be a nil assessment. This procedure was followed in every case with which these actions are concerned. That was even where counsel had undertaken work on the case, with the inevitable inference that the solicitor had also done so, so that no assumption needed to be made. Such a uniform and rigid rule, that in every such case there should be a nil assessment, was accordingly rendered unlawful: R (Venables) v Home Secretary [1998] AC 407, 496 G-497 C, per Lord Browne-Wilkinson.
- To my mind there was no fettering of discretion on the Commission's part. The Commission's policy in relation to the unrecouped payments on account exercises was set out in the articles in Focus and the information leaflet summarised earlier in the judgment. Those articles represented the approach set out in the document "UPOA Guidance", with its guidelines for staff. On its face the policy was far from being rigid in character. Further time could be given in appropriate cases for the lodging of a final bill. As well, in appropriate cases the Commission was willing to consider bills prepared on the basis of inadequate or incomplete information. Even in cases where a nil assessment had been made, it was prepared to review and, if appropriate, vary the assessment if the solicitor produced a proper claim for costs, albeit late. As outlined in the August 2006 edition of Focus case-workers engaged in following up certificates with outstanding payments on account were able to accept evidence, such as time-recording printouts, where solicitors who had not submitted a bill no longer had their file.
Public law defence: procedural flaws etc.
- Mr Susman QC also submitted that the making of the nil assessments in these cases was unlawful as an arbitrary, unprincipled and unreasonable abuse of power, and in breach of natural justice. That was because it proceeded upon the unwarranted assumption that the original claim to the Commission had been submitted without the work having been done and without the disbursements having been made. There was no allegation against any of the respective defendants that any claim for a payment on account, when made, was for any reason unjustified or exaggerated. The appropriate assumption was that more work had been done than was remunerated by means of the payment on account, which was no more than 75 per cent of what was certified by the solicitor to be due. Allowance needed to be made for the work done and the disbursements made. The Commission proceeded without any investigation to see what had happened in any particular case, whereas its own files in these three actions demonstrated, at the very least, that considerable work must have been done by the respective solicitors. For example, the Commission took no account of any payment on account of counsel's fees or any other disbursement as being of itself proof that some solicitor's work must have been carried out in progressing the case to the point where instructions needed to be sent to counsel.
- The Commission's approach also took no account of the realities of conducting legally aided civil litigation, for example, the minimal prospect of recovering costs from an opponent in the case of a family law injunction. Since the Commission had no evidence that the work had not been done, or disbursements not incurred, there was no realistic prospect that any client would have had to make payments to the Commission from damages or costs recovered. In any event the nil assessments were not lawfully made because no proper notice was given to the defendant before the end of the 21 day period within which a review might have been sought pursuant to regulation 105(4) of the 1989 Regulations.
- Furthermore, submitted Mr Susman QC, the making of nil assessments after a delay of many years was a breach of public law principles since in many, if not all of the cases, the whole file was almost certainly no longer available. It was very expensive, and for a legal aid solicitor working on tight margins very onerous, to retain a file for more than 6 years after the case was concluded. Quite reasonably the respective defendants no longer have any actual recollection of the details of the file relating to any particular case. That made it extremely difficult to deal with queries made by the Commission years after the conclusion of the case. Furthermore, some work on the case might have been privately funded, the firm may have merged with another firm or may have closed, and the fee earner and support staff concerned may have moved on.
- My response to these submissions can be brief. The 1989 Regulations set out what was expected of legal aid practitioners when receiving payments on account. The Focus articles, which reflected the internal "UPOA Guidance", explained clearly what was entailed in the recoupment exercises. No action would be taken until a failure to respond to a second letter requiring the practitioner to report on cases where payments on account had been made. As set out in the "question and answer" leaflet, and in the August 2006 Focus article, if a practitioner did not have the file other evidence would be accepted. That same, fair approach, was what occurred in practice with these three defendants. There was the hitch with Mr Loomba's address but the fact is that he should never have closed his practice, and certainly not destroyed his legal aid files, without checking that he had rendered a final bill to the Commission, and without providing it and the Law Society a forwarding address: see Henthorn, [39]. The same applies to Ms Ulasi, although she left a contact address with the Commission. As we know Ms Ulasi was eventually able to produce a legal aid assessment certificate from 2001 in one of her cases, which will reduce her liability to the Commission. As for Simon Carter and his partners, the Commission patiently pursued inquiries with them over many months. It replied promptly to the firm's letters; the firm was given latitude but failed to deliver. In no way can it be said that the Commission breached its public law duties in conducting the recoupment exercise in relation to these defendants.
Human rights
- Mr Susman QC contended that the nil assessments were also in breach of the human rights of these defendants. That was because the Commission did not respect their proprietary interest in retaining the profit costs they had earned. That was in breach of Article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms. In my view these payments on account never fell within the protection of the article since they did not become their property in an unqualified way. As items of property they were subject to the limitation that they were paid on account of an ultimate assessment of entitlement. The defendants only had the right to keep them where they complied with the conditions under which they had been received. Once the time came when it became clear that they had abandoned any intention to have their costs assessed and report to the Commission, they had no right to keep the payments: Aston Cantlow v Wallbank [2003] UKHL 37; [2004] 1 AC 546 [72], [91-2] and [171]. Any Article 6 claim fails for the same reasons given in relation to the natural justice point.
CONCLUSION
- When Henthorn was handed down in the course of the present hearing it was evident that it had implications for some of the ways these claims were presented. Mr Susman QC made clear that he wished to reserve certain points for the Supreme Court, should matters reach that level. As well, the Commission conceded that it would have to abandon at least one of its claims given the time from which the Court of Appeal in Henthorn decided the limitation period runs. Subject to these points, however, the Commission in my judgment is entitled to recoup the payments on account in the manner it has pursuant to the incidental power in section 4(1) (b) of the 1988 Act.
