XDE v North Middlesex University Hospital NHS Trust

When a receiving party changes from legal aid to a CFA-lite arrangement and seeks the resulting success fee and ATE premium from the paying party, reasonableness must be assessed in the particular case. The general comparison is a level starting point: neither funding method is automatically preferable. The court must examine the client’s actual reasons for switching, the advice given and the surrounding circumstances. The receiving party bears the burden of justifying the choice on a standard-basis assessment. A hypothetical advantage that played no part in the decision-making process cannot ordinarily replace that inquiry. On the facts, solicitors’ failure to control expenditure under the legal aid certificate and the absence of an informed client decision made the switch unreasonable.

The appellant brought a clinical negligence claim concerning an alleged delay in diagnosing and treating tuberculosis meningitis. Her solicitors initially used private funding and a CFA, then obtained legal aid. In 2012, after expenditure exceeded the legal aid limit and without a proper application for further funding or informed instructions from the litigation friend, the solicitors switched to a CFA-lite arrangement with ATE insurance.

On assessment, Master Rowley disallowed the success fee and ATE premium. Jay J dismissed the appeal in [2019] EWHC 1482 (QB). The second appeal concerned the application of Surrey, the relevance of the actual reasons for changing funding, and whether CFA-lite was objectively so superior to legal aid that the reasons for the switch were immaterial.

Appeal dismissed unanimously. The Court of Appeal upheld the disallowance of the success fee and ATE insurance premium.

1. Applicable approach. Under Civil Procedure Rules 1998 CPR 44.3(1), costs that were unreasonably incurred cannot be recovered. Surrey v Barnet and Chase Farm Hospitals NHS Trust [2018] 1 WLR 5831 establishes the general starting point that legal aid and CFA-lite funding are broadly equivalent. That is only a starting point. The court must assess the particular case and the receiving party’s reasons for changing funding. The receiving party bears the burden of justifying a choice that creates additional liabilities for the paying party.
2. Actual reasons. The relevant inquiry concerns the client’s actual reasons, the advice given, the background circumstances and whether that advice was sound or self-serving. Matters which played no part in the decision-making process will generally be put out of account. This approach was consistent with Wraith v Sheffield Forge Masters, Truscott v Truscott and Solutia v Griffiths.
3. Application. The funding change occurred because the solicitors had failed to control expenditure within the legal aid certificate and had not made the formal application invited by the LSC. The litigation friend did not make an informed choice. The finding that the solicitors had acted unreasonably was not challenged. The appellant therefore failed to establish that the switch was reasonable.
4. Alleged superiority of CFA-lite. The court considered, although it was unnecessary to the result, that the alleged advantages concerning statutory deductions, adverse costs, Part 36 offers, interlocutory disputes and partial costs recovery were theoretical or insufficiently evaluated. Legal aid’s budgetary control could itself benefit the claimant. CFA-lite was not shown to be obviously superior.
5. Hypothetical reasons. The court did not decide whether a factor absent from the original decision-making process could ever displace the actual reasons. Any such argument would face very high hurdles and would remain subject to an objective assessment within the particular circumstances of the litigants.

• Court of Appeal (Civil Division): dismissed the second appeal unanimously.
• High Court, Queen’s Bench Division: Jay J, sitting with Master Haworth, dismissed the appeal from the costs decision in [2019] EWHC 1482 (QB).
• Costs Judge: Master Rowley disallowed the success fee and ATE insurance premium on assessment.