Legal aid – Statutory charge – Damages awarded in proceedings against vendors of property for misrepresentation – Vendors unable to pay – Defendant purchasers withholding rent – Claimant seeking to recover legal aid – Section 16(6) of Legal Aid Act 1988 – Regulation 87(1) of Civil Legal Aid (General) Regulations 1989 – Whether rent amounting to property recovered or preserved in proceedings – Whether claimant having statutory charge over amount of retained rent – Claim dismissed
The defendants purchased a leasehold interest in a nursing home for a premium of £250,000, with an annual rent of £50,000 payable to the vendors as freehold owners. Following the purchase, it emerged that owing to budget cuts, the local authority would not be referring the same number of patients to the home as they had previously. The vendors had omitted that information from their replies to pre-contract enquiries regarding the likely turnover of the business. The defendants brought a claim against the vendors, funded by legal expenses insurance, for damages for misrepresentation. Those proceedings were dismissed. However, the defendants’ claim was subsequently allowed at a retrial in late 2000, after new evidence was admitted showing that the vendors had known about the cuts. The costs of the retrial were funded by a grant of legal aid to the defendants, their legal expenses insurance having been exhausted. The trial judge found the vendors to be liable for an amount of damages to be assessed, and ordered them to make a payment of £100,000 on account.
The defendants ceased to pay rent under the lease. The vendors threatened to exercise their right of re-entry and the defendants obtained an injunction preventing re-entry pending the assessment of damages. However, they were required to give an undertaking to pay the rent from the damages eventually awarded. Meanwhile, the legal aid certificate had been withdrawn because it had become apparent that the vendors would not be able to pay any award made against them; nor had they made the £100,000 payment on account. Their application for permission to appeal on liability was refused and, in 2002, damages were assessed at more than £1.23m. The injunction against re-entry was also continued.
The claimant brought a claim against the defendants to recover £200,000 of legal aid pursuant to section 16 of the Legal Aid Act 1988. It argued that: (i) the defendants had recovered property in the proceedings against the vendors in the form of a money judgment; (ii) a statutory legal charge arose over those moneys for the claimant’s benefit; (iii) value of the judgment to the defendants was the amount of the retained rent moneys; and (iv) the defendants were obliged to pay those moneys to the claimant pursuant to regulation 87(1) of the Civil Legal Aid (General) Regulations 1989.
Held: The claim was dismissed.
Property was “recovered or preserved” in proceedings, within the meaning of section 16(6) of the 1988 Act, if its ownership or transfer had been in issue in the proceedings as a matter of fact having regard to the pleadings, the evidence and the judgment: Hanlon v Law Society [1981] AC 124 and Davies v Eli Lilly & Co (No 1) [1987] 1 WLR 1136 applied. The defendants had “recovered” property in the sense of a judgment. That chose in action was duly subject to the statutory charge: Cavaliere v Legal Services Commission [2003] EWHC 323 (QB); [2003] 3 Costs LR 350 applied. However, no moneys had been recovered in the proceedings against the vendors for which the defendants had to account to the claimant under regulation 87 of the 1989 Regulations. The payment of rent had not been in issue in those proceedings, and the injunction restraining re-entry had been obtained in separate proceedings. Given the terms of the undertaking that the defendants had been required to give, the practical effect of the injunction had been only to postpone payment of rent pending satisfaction of the judgment against the vendors. Liability for that rent remained undischarged and rent therefore continued to be payable to the vendors. Accordingly, the proceedings for which the defendants had received financial assistance had resulted in no financial gain for them. Against that background, the defendants were not required to pay the monetary equivalent of the rent under regulation 87 or otherwise account for it.
Nicola Rushton (instructed by CKFT Solicitors) appeared for the claimant; Simon Williams (instructed by Cumberland Ellis LLP) appeared for the defendants.
Sally Dobson, barrister
