The Lord Chancellor v Blavo & Co Solictors Ltd & Anor

A contractual power to terminate a legal-aid contract on receipt of a report may be engaged by a report from the contracting agency itself, where the contract permits the agency to conduct the relevant investigation. The decision-maker must act reasonably, in good faith and rationally. A contractual power to assess claims may survive suspension and termination. Where a provider fails to co-operate with a serious investigation and cannot produce records supporting self-certified claims, nil assessment may be lawful. A guarantee that the provider will perform its obligations and pay sums due is a true guarantee, giving rise to damages measured by the creditor’s loss.

The Lord Chancellor sought repayment of more than £22 million paid to Blavo & Co. Solicitors Limited for mental-health legal-aid work. The company was in liquidation and did not participate. The claim against John Blavo was brought under deeds of guarantee and indemnity.

The evidence showed a substantial disparity between claims recorded on the LAA’s CWA portal and tribunal cases recorded by HMCTS. The company failed to produce most of the requested files or provide satisfactory explanations. The issues were whether the legal-aid contracts had been validly terminated, whether subsequent nil assessments were lawful and effective, whether the company owed the assessed sum, and whether Mr Blavo was liable under the deeds.

1. Findings of fact and proof. The claimant had to prove the case on the balance of probabilities. The seriousness of the allegations required cogent evidence, but did not create a heightened standard of proof. The court found that 42 of 49 audited files were false and that fraudulent claims were endemic. The failure of Mr Blavo and his brother to give evidence justified an adverse inference under Wisniewski v Central Manchester Health Authority and Jaffray v Society of Lloyd’s, although the case was not decided solely or mainly on that inference.
2. Natural justice. MRH Solicitors Ltd v The County Court sitting at Manchester, and the authorities discussed there, required caution before making serious findings against a non-party who had no opportunity to answer them. That principle did not prevent findings against Mr Blavo, who was a party, had access to the evidence and had a full opportunity to address the allegations.
3. Termination. On the proper construction of clause 25.4(c), “Report” was not confined to a report from an external regulator. It included a report from the LAA arising from an investigation which the contract authorised the LAA to conduct. The clause did not require a separate causal link between the report and the decision, but the report had to provide some support for the conclusion that termination was required. The contractual discretion was constrained by good faith and rationality, importing public-law principles identified in Braganza v BP Shipping Ltd and permitting public-law defences as recognised in Wandsworth London Borough Council v Winder (No. 1).
4. Application of the contractual powers. The LAA rationally and proportionately terminated under clauses 25.4(a) and (c), because the evidence disclosed a very large unexplained discrepancy, fraud indicators and a serious failure to co-operate. The failure to provide files and explanations was a material and repeated breach of clause 9.6, amounting under clause 9.7 to a fundamental breach.
5. Assessment and liability. The power to assess survived suspension and termination under clause 26.8. Nil assessments were lawful because the provider could not produce the records needed to establish that the claimed work or clients existed, and there was no want of good faith. The assessment created a debt under clause 14.12, and the contractual appeal rights were time-limited. A guarantee to “see to it” that the provider performed and paid was a true guarantee under Moschi v Lep Air Services Ltd. Mr Blavo was liable in damages under both the guarantee and indemnity for the company’s unpaid loss.
6. Disposition. Judgment was entered for the Lord Chancellor against Mr Blavo for £22,136,001.71. The same sum was recoverable from the company, whether by the valid nil assessments or, alternatively, on the underlying evidence.