Two recent decisions have clarified the law relating to the Legal Services Commission's (LSC) powers to recoup payments on account made to solicitors for work done under a legal aid certificate, and to 'nil assess' such certificates many years, indeed decades after a case has ended.
In Legal Services Commission v Loomba, Ulasi and Carter, the high court held that the LSC's practice of making a 'nil assessment' was lawful. Where a payment on account remains outstanding despite requests for a final bill or account from a solicitor, the LSC has adopted a policy of discharging the legal aid certificate and assessing the value of work done under a certificate as zero. Such 'nil assessments' can take place many years after the work on a file has concluded, including when the file in question no longer exists. The effect of a nil assessment is the LSC will then seek to recoup all payments on account, either administratively via the monthly bank automated clearing system (BACS) account or through debt recovery proceedings.
In Henthorn v the Legal Services Commission the Court of Appeal held that the limitation period starts to run from the date of final assessment, even if the final assessment takes place many years and indeed decades after a case has ended.
Further details on the judgment
A number of matters had been stayed pending the outcome of these cases and there is now likely to be an increase in legal action and demands for payment.
What are the implications for practitioners?
Where the LSC has already nil assessed a file or concluded that payment already made on account exceeds the value of work done on the file, solicitors should strive to resolve the matter. Below are steps solicitors can take to help protect themselves from being the subject of a nil assessment and recoupment.
Conclusion of work on a legal aid certificate
- At the conclusion of the work done under a legal aid certificate, solicitors need to act expeditiously to complete the final costs assessment process and report to the LSC. Solicitors must ensure that any counsel's fees are included in the final assessment.
- Solicitors will then need to retain the file until the expiry of the limitation period ie six years from the date of detailed assessment, subject to any other requirements. Note the SRA requires practitioners to keep certain records for defined periods eg solicitors accounts must be kept for six years (r29 SRA Accounts Rules). See paragraph 3.9 (Records and documents) of the Closing down your practice: regulatory requirements practice note and paragraph 5 (Storing files) of the File retention: wills and probate practice note.
If a solicitor is facing a nil assessment by the LSC
- Solicitors need to carefully consider whether the nil assessment is appropriate in the circumstances of each case.
- Where possible bills should be prepared and submitted as soon as possible, and if necessary include the file as evidence.
- For firms not able to locate files (eg because of the time that has elapsed and/or the solicitor has retired or firm dissolved) other documentation will be considered by the LSC and may show that a nil assessment is inappropriate. The LSC's guidance on this is contained in LSC Focus 34 (PDF) (March 2001, p18) and Focus 51 (PDF) (August 2006, p12). Here the LSC confirmed it 'will consider all the documentation available and decide whether recoupment is due on the facts available' and where 'alternative evidence can be produced to demonstrate the payment made was reasonable'.
- In all cases solicitors should provide whatever evidence they can that the work was done and invite the LSC not to make a nil assessment where the evidence suggests work was carried out. Examples may include: pleadings, account ledgers and time recording sheets, previous correspondence, and court orders. Where counsel or experts were used it may be possible to obtain previous documents from them.
- The LSC confirmed to the high court in Legal Services Commission v Loomba, Ulasi and Carter that they will write at least two letters to firms prior to taking further action and consider all evidence.
If a certificate is subject to a nil assessment by the LSC, practitioners should consider appealing against the LSC's assessment using the LSC's own internal appeals mechanism.
How do you know you have a nil assessment?
- The nil assessment process does not follow the usual assessment carried out by the LSC on a claim. Instead solicitors are notified of a nil assessment simply by a debit on the monthly 'BACS statement'. The LSC recoup payments on account by recording a negative balance on the BACS statement alongside the public funding reference number. Solicitors usually do not receive a separate letter or notification of an assessment. It is therefore important to check the BACS statements and see whether a nil assessment has been made and if wrongly made, to ask the LSC to carry out a review of the matter.
- Some nil assessments were carried out many years ago and solicitors notified via a debit to the usual monthly BACS statement. Solicitors should check whether such nil assessments are outside the six year limitation period.
The same steps set out above apply to instances where the LSC has alleged there has been overpayment and is taking steps to recoup and, solictors dispute the alleged overpayment.
Note also that solicitors may be able to benefit from the Deed of Settlement (PDF) of April 2008 agreed between the Law Society and the LSC. This resolved many historic matters, although cases must meet the strict critera set out in paragraph 8 of the deed.
Legal Services Commission v Loomba, Ulasi and Carter
The high court heard three claims by the Legal Services Commission for various sums said to be paid by the LSC to solicitors up to 25 years earlier. In each case the LSC had made a 'nil assessment' and placed a debit on the monthly statement seeking full repayment of the payment on account.
The defendants argued the LSC had no power under the Civil Legal Aid (General) Regulations 1989 to make such a 'nil assessment' and, that before recoupment could take place, there needed to first be a detailed assessment in the usual way. The LSC policy 'Unrecouped payments on account (UPOA) guidance' states a detailed assessment is not necessary where a solicitor fails to respond to enquiries or cannot be traced, and in all these cases the LSC should discharge its certificate by closing the file and processing a final zero value bill ('the nil assessment'). In the case the defendants faced complete recoupment of payments on account (POAs) for every certificate nil assessed by the LSC, despite many of these claims being more than 15 years old and the relevant files no longer being available.
The LSC accepted there were no express powers within the Civil Legal Aid (General) Regulations 1989 (the regulations) or Legal Aid Act 1988 that allow nil assessment but argued it had a general power to do so under s4 Legal Aid Act 1988 (the Act). This is the general power to carry out acts that 'would facilitate or be incidental or conducive to the discharge of its functions'. The defendants argued there was no such power and further that the regulations provided an entire framework for the recovery of funds from solicitors. They also contended that automatically entering a 'zero value bill' or nil assessment without any assessment as to whether this was an appropriate amount was an unlawful fetter of the LSC's discretion.
The high court rejected these defences and held:
- Although neither the Legal Aid Act nor the regulations directly empower the LSC to make nil assessments, s4(1)(b) of the Act enabled the LSC to assess the final costs as nil. This was 'incidental or conducive to the functions of the LSC'.
- The LSC was entitled to adopt a policy on recoupment of POAs and make a nil assessment. This was largely because the court found that where a nil assessment has been done the LSC was prepared to review and vary the assessment where firms provided some evidence that work had been carried out. It was not found to be a rigid policy.
- Although not relied upon by the LSC, Cranston LJ concluded that regulation 102(b)(2) introduced in 2002 had retrospective effect and empowered the LSC to recover monies and make deductions of monies from money owed to practitioners. In short the LSC could recoup POAs from the usual standard monthly payment for work carried out, and could rely on Regulation 102(b)(2) even if the POA was made before 2002.
- In the alternative the LSC has a restitutionary claim.
- The Deed of Settlement (PDF) referred to above was not sufficient to protect solicitors where a nil assessment had been made and shown on the 'BACS statement' sent by the LSC. Although the monthly statement sent via the LSC is not a BACS statement, the court accepted that the term BACS statement, was used interchangeably with the terms 'debit note' and 'payment demand' and amounted to the same thing for this purpose.
- The court rejected the argument that the making of a nil assessment so many years after the conclusion of a matter was a breach of public law principles. This is despite firms having no recollection of matters from 10, 15 or 20 years earlier. The court rejected this argument on the basis that the UPOA guidance required at least two letters to solicitors seeking information about cases and that the LSC would accept alternative evidence of work being carried out.
Maladministration complaint to parliamentary ombudsman
The Law Society has long standing concerns about the LSC's policy of seeking recoupment of old payments on account some of which took place decades ago. The fundamental problem remains one of maladministration and there has in the Law Society's view been a real failure to deal with matters in a timely way. The Society's maladministration complaint to the parliamentary ombudsman addresses this concern. The Society is awaiting the ombudsman's determination.