R (Gunn) v Secretary of State for the Home Department (R (Kelly) v Secretary of State for the Home Department, R (Zahid Khan) v Secretary of State for the Home Department)

Where costs are ordered against a publicly funded litigant, the court deciding the substantive dispute determines the litigant’s liability but does not decide whether the Legal Services Commission must pay the balance. That question belongs to the costs judge or district judge after compliance with the prescribed procedure.

The Commission may be ordered to pay costs to a publicly financed body, including a government department. Following appellate proceedings, the usual premise is that it is just and equitable for the Commission to stand behind its funded client for costs which cannot be recovered from that client, unless particular facts make that result unjust or inequitable.

Three funded applicants unsuccessfully sought permission to pursue judicial review proceedings against the Secretary of State. Single Lord Justices ordered costs against the applicants and made provision for the Legal Services Commission to meet costs which the applicants could not pay.

The Commission asked the Court of Appeal to consider those orders and provide guidance under the scheme introduced by the Access to Justice Act 1999, the Community Legal Service (Costs) Regulations 2000 and the Community Legal Service (Cost Protection) Regulations 2000. The issues were which court could determine the Commission’s liability, whether a publicly financed body could obtain such an order, and how the requirement that payment be just and equitable should be applied.

1. Disposition. The Court held that the orders in all three cases exceeded the powers of the court deciding the substantive applications insofar as they determined that payment by the Commission was just and equitable and directed such payment. The court invited submissions on the replacement orders. Khan’s wasted costs application was dismissed.

2. Allocation of functions. The new regulations establish two stages. At the first stage, the court deciding the substantive dispute determines whether to make a protected costs order against the funded client. It determines the amount payable by the client where it has sufficient information and may record relevant factual findings. At the second stage, a costs judge or district judge determines any unresolved liability of the client and whether the Commission should pay the remaining costs. The substantive court may make relevant findings about conduct or facts emerging during the proceedings, but it must not decide that payment by the Commission is just and equitable or direct that such an order be made.

3. The receiving party must request the second-stage determination within three months of the protected costs order. That limit is mandatory and cannot be extended. The prescribed bill, statement of resources and notice to the Commission must accompany the request where applicable.

4. Publicly financed receiving parties. The expression “public funds” in regulation 5(3)(d) means the funds administered by the Commission. It does not exclude an award to a party whose own expenditure is publicly financed. A costs judge or district judge therefore has jurisdiction to order payment to a public body, including a government department.

5. Just and equitable requirement. The established approach was not displaced by the requirement to consider the receiving party’s resources. Following an appellate decision for a non-funded party, the costs judge should proceed on the premise that it is just and equitable for the Commission to stand behind its funded client for costs which the client cannot pay, unless known facts make that result unjust or inequitable. The practice in re O (Costs: Liability of Legal Aid Board) [1997] 1 FLR 465 was followed, including where the receiving party is a government department.

• Court of Appeal: In [2001] EWCA Civ 891, the full court held that the earlier orders had exceeded the substantive court’s functions by determining and directing the Commission’s liability. It invited submissions on the orders to be substituted and dismissed Khan’s wasted costs application.
• Court of Appeal, single Lord Justices: The renewed application in Gunn and applications for permission to appeal in Kelly and Zahid were refused. Costs orders were made against the funded applicants, with provision for payment by the Commission.
• High Court: Carnwath J, Owen J and Sullivan J respectively refused permission to apply for judicial review in Gunn, Kelly and Zahid. No neutral citations are stated.