Cavaliere v Legal Services Commission

A statutory charge securing publicly funded legal costs may attach to property recovered through a third-party insurer where the recovery depends upon a judgment obtained with legal aid. The statutory scheme need not expressly provide for transfer of the charge. The judgment debt is a chose in action impressed with the charge, and the recovered settlement may be subject to a constructive trust where it represents payment towards that debt. The court must consider the substance of the recovery and the equitable consequences, rather than treat the separate statutory route against the insurer as severing the charge.

The claimant obtained judgment against a company, after legally aided proceedings for breach of contract and negligence, but the company entered liquidation. She then pursued the company’s professional indemnity insurers under the Third Parties (Rights Against Insurers) Act 1930 and accepted £165,000 in settlement. The Legal Services Commission claimed that its charge covered the recovered sum, including £46,222.27 in publicly funded costs.

The claimant sought a declaration that the Commission had no charge because the insurer claim was separate from the legally aided proceedings. The issue was whether the statutory charge, or an equivalent trust obligation, applied to money recovered through that insurer claim.

1. Disposition. The claimant’s declaration was refused. She held £46,222.27 on trust for the Legal Services Commission, which was entitled to payment of that sum.
2. Section 16(6) of the Legal Aid Act 1988 applies to property recovered or preserved in the legally aided proceedings. The judgment obtained against Attia was a chose in action and was subject to the Commission’s first charge for the costs incurred in obtaining it.
3. The claim against Equitas was legally distinct from the original proceedings. Nevertheless, the judgment was an essential prerequisite to using the 1930 Act, because the insured’s liability had first to be established: Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363. The settlement represented part payment towards the charged judgment debt.
4. General principles concerning charges and equitable assignments supported treating the charged judgment as held for the Commission to the relevant extent: Durham Brothers v Robertson [1898] 1 QB 765 and Walter v Sullivan Ltd & J Murphy & Sons Ltd [1955] 2 QB 584. It was inequitable for the claimant to retain the benefit of publicly funded expenditure without repayment. A constructive trust therefore attached to the relevant settlement sum, consistently with the principle discussed in James v Williams [1999] 3 All ER 309.
5. Watkinson v Legal Aid Board [1991] 1 WLR 419 did not assist the claimant. Lord Donaldson MR’s observation concerned successive matrimonial applications, not a recovery representing part payment of a judgment already impressed with the charge. The general statutory scheme was consistent with legal aid operating as assistance for those who lose and as a loan, repayable through the charge, for those who recover: Davies v Eli Lilly [1987] 1 WLR 1136.

First-instance decision in the High Court. The judgment does not state any prior appellate decision in the same dispute.