Neutral Citation Number: [2010] EWHC 1406 (Admin)
Case No: CO/214/2010
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 15/06/2010

Before :

LORD JUSTICE ELIAS
and
MR JUSTICE KEITH
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Between :

	THE QUEEN ON THE APPLICATION OF 
THE LAW SOCIETY 
OF ENGLAND AND WALES	Claimant	
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	THE LORD CHANCELLOR	Defendant	

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Ms Dinah Rose QC, Mr Javan Herberg and Ms Jessica Boyd (instructed by Kingsley Napley LLP) for the Claimant
Mr James Eadie QC and Mr Samuel Grodzinski (instructed by Litigation and Employment Group, Treasury Solicitor) for the Defendant

Hearing date: 27 May 2010
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Judgment

Lord Justice Elias :

1.	In these proceedings, The Law Society challenges by way of judicial review the lawfulness of a scheme which has been made by the Lord Chancellor for the award of costs out of central funds to defendants who have faced, and successfully resisted, criminal proceedings (“the New Scheme”).
2.	The New Scheme was implemented by the Costs in Criminal Cases (General) (Amendment) Regulations 2009 (“the 2009 Regulations”) with effect from 31 October 2009. The 2009 Regulations amended the Costs in Criminal Cases (General) Regulations 1986 (“the 1986 Regulations”).
3.	In making the New Scheme, the Lord Chancellor has exercised the discretionary power given to him under section 20 of the Prosecution of Offences Act 1985 (“the 1985 Act”).  So far as is material, this is as follows: 
“ (1) The Lord Chancellor may make regulations for carrying this Part into effect and the regulations may, in particular, make provision as to  -
(a) the scales or rates of payments of any costs payable out of central funds in pursuance of any costs order, the circumstances in which and conditions under which such costs may be allowed and paid and the expenses which may be included in such costs; and
(b) ....
and any provision made by or under this Part enabling any sum to be paid out of central funds shall have effect subject to any such regulations.” 
4.	Any regulations so made have to be laid before Parliament and are subject to the negative resolution procedure. 
5.	Section 20 (3) provides that the regulations do not themselves have to lay down the rates and scales; the regulations may provide for these to be determined by the Lord Chancellor with the consent of the Treasury.  Any rates and scales so fixed do not thereafter have to be laid before Parliament.
6.	A court order to award costs out of central funds to a successful defendant is known as a defendant’s costs’ order (“DCO”).  It is made pursuant to section 16 of the 1985 Act.  In the New Scheme the Lord Chancellor has for the first time exercised the power given to him under section 20 to set rates and scales in relation to DCOs.  He has set those rates and scales not in the regulations themselves but in a separate document entitled “Rates and scales in respect of defendant’s costs orders” which is made pursuant to the power conferred by reg. 7(4) of the 1986 Regulations as amended in 2009. 
7.	The effect of the New Scheme is that DCOs will allow successful defendants to recover their costs only at legal aid rates.  It is not disputed that this will result in payments which are in general considerably smaller than those made under the 1986 Regulations, and that the payments will necessarily fall short, and sometimes well short, of the costs actually incurred by the successful defendant.  The central issue in this case is whether the 2009 Regulations, when read with the accompanying rates and scales document, are consistent with the principles of compensation reflected in section 16.
The statutory framework.
8.	Section 16 of the 1985 Act sets out the circumstances in which the court may make a DCO. The order may be made by all courts who hear criminal cases. The following provisions set out the principles for determining how much should be paid:
“(6) A defendant’s costs order shall, subject to the following provisions of this section, be for the payment out of central funds, to the person in whose favour the order is made, of such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings.”
Subsection (7) then provides for circumstances where it is not appropriate to pay the amount which would otherwise be payable under subsection (6):
“(7) Where a court makes a defendant’s costs order but is of the opinion that there are circumstances which make it inappropriate that the person in whose favour the order is made should recover the full amount mentioned in subsection (6) above, the court shall –
(a) assess what amount would, in its opinion, be just and reasonable; and
(b) specify that amount in the order.”

Subsection (9) provides for two separate methods by which the amount may be determined: either a summary assessment by the court, provided the defendant agrees the amount, under paragraph (a); or by what the regulations term an “appropriate officer” under paragraph (b):
“(9) Subject to subsection (7) above, the amount to be paid out of central funds in pursuance of a defendant’s costs order shall –
(a) be specified in the order, in any case where the court considers it appropriate for the amount to be so specified and the person in whose favour the order is made agrees the amount; and
(b) in any other case, be determined in accordance with regulations made by the Lord Chancellor for the purposes of this section.”

9.	There are equivalent provisions in section 17 of the 1985 Act in relation to the costs of a private prosecutor who successfully prosecutes a criminal case. In sub-section (1) it is expressly provided that the court may in respect of certain specified proceedings (which do not include summary proceedings in a magistrates’ court):
“order the payment out of central funds of such amount as the court considers reasonably sufficient to compensate the prosecutor for any expenses properly incurred by him in the proceedings.”
It will be seen, therefore, that the principles for determining the amount reflect   precisely those found in section 16(6).
10.	There is a similar provision in section 17(3) to that found in section 16(7), permitting the court in an appropriate case to reduce the amount that would otherwise be payable; and section 17(4) is cast in the same terms as section 16(9) above, except that it applies to orders in favour of the prosecution.

11.	The Lord Chancellor made the first set of regulations under the 1985 Act in 1986. Part III contains regulations concerning costs payable out of central funds. Regulation 5 identifies the appropriate authority for determining which costs are to be awarded, and regulation 6 makes provision as to how claims must be submitted to the appropriate authority. Regulation 7 then identifies the principles for assessing those costs.  It was as follows:
“(1) The appropriate authority shall consider the claim, any further particulars, information or documents submitted by the applicant under regulation 6 and shall allow such costs in respect of –
(a) such work as appears to it to have been actually and reasonably done; and
(b) such disbursements as appear to it to have been actually and reasonably incurred,
as it considers reasonably sufficient to compensate the applicant for any expenses properly incurred by him in the proceedings.
(2) In determining costs under paragraph (1) the appropriate authority shall take into account all the relevant circumstances of the case including the nature, importance, complexity or difficulty of the work and the time involved.
(3) When determining costs for the purposes of this regulation, there shall be allowed a reasonable amount in respect of all costs reasonably incurred and any doubts which the appropriate authority may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved against the applicant.”

12.	It will be seen that the language of Regulation 7 reflects that in section 16(6): it is to provide an order for costs which is “reasonably sufficient” to compensate for the expenses properly incurred in the proceedings. Regulation 7(3) specifies that if there is a dispute as to what is reasonable, it will be determined against the payee.
13.	There are also regulations which provide for the re-determination of costs in certain circumstances and for appeals against the determination by an appropriate authority.
The New Scheme.
14.	The 2009 Regulations were approved and laid before Parliament on 8 October 2009. They came into force on 31 October 2009. Regulation 8 substitutes a new regulation 7 into the 1986 Regulations as follows:
“7.- (1) The appropriate authority shall consider the claim, any further particulars, information or documents submitted by the applicant under regulation 6 and shall allow costs in respect of –
(a) such work as appears to it to have been actually and reasonably done; and
(b) such disbursements as appear to it to have been actually and reasonably incurred.
(2) Any doubts which the appropriate authority may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved against the applicant.
(3) The costs awarded shall not exceed the costs actually incurred.
(4) The Lord Chancellor shall, with the consent of the Treasury and for the purposes of this regulation, determine the rates and scales of costs in respect of work and disbursements payable out of central funds.”

15.	It is pertinent to note that this regulation applies only where the costs are fixed by the appropriate authority under section 16(9)(b).  They do not directly apply to a case where the amount is summarily assessed by the court under section 16(9)(a). 
16.	The new regulation is cast in very different terms to the previous one. It no longer states that the sum awarded will be what the appropriate authority considers to be “reasonably sufficient” to compensate a successful defendant. Indeed, it does not identify all the principles which will enable the amount recoverable to be determined. Rather, the amount will be calculated in accordance with the rates and scales of costs fixed by the Lord Chancellor. He published those rates and scales on 30 October 2009 to coincide with the approval of the 2009 Regulations. 
17.	The document itself is detailed and deals separately with the costs payable in different courts.   It is common ground, however, that the way in which those rates and scales have been defined is to ensure that defendants’ costs will never exceed legal aid rates, at least where assessments are made by the appropriate authority rather than the court. 
The rationale for the New Scheme.
18.	There was extensive consultation on the New Scheme, and The Law Society relies heavily on some of the passages found in the consultation document, and linked documents, in support of its case. The executive summary contains the following passage:
“The Government…believes that those who can afford to pay towards the cost of their defence should do so…..
We believe that it is now the time to consider whether it is counter-intuitive to pay privately funded rates in criminal cases when the legal aid system pays both sustainable fee levels for practitioners and ensures a sufficient level of quality for clients. We believe that there is a strong case for reforming the current payment of legal costs from Central Funds to ensure that we are balancing effectively the need to pay fair rates in criminal cases to practitioners whilst using taxpayers’ money effectively and responsibly.”
19.	The consultation paper outlined three options under consideration for the reform of defendants’ costs orders. Option 3 is the one which has been adopted and involves capping central fund payments to the relevant legal aid rates. The justification for adopting this option was elaborated in the following way:
“The Government believes that the rates paid under legal aid for criminal cases are fair and proportionate for the complexity and expertise required for the full range of criminal cases conducted within the Criminal Justice System … We would suggest that it is not an efficient use of public funds, particular in the current financial climate, to subsidise those individuals wishing a ‘gold plated’ legal service … 
… we are of the view that the taxpayer should not be required to subsidise private fees when legal aid rates we pay are both fair and allow for a quality service to be provided. This should mean that there is no particular reason why competitive pressures would not make them available on the private market.”

20.	The Government made it plain that the reform was necessary in order to control rising costs and to bring central fund costs within the available budget. The consultation paper assessed that if option 3 were employed then it would make a saving of some £20 million from the central fund’s budget: £12 million from the magistrates’ court, and £8 million from the Crown Court.
21.	The Ministry of Justice conceded in their response to the consultation process that those who responded to the consultation were for the most part in favour of maintaining the current system and objected to the proposed option. They summarised the objections to the proposal that payments should be capped at legal aid rates in the following way:
“66 respondents disagreed with this suggestion. Only six agreed. This proposal was attacked as being very unfair to those who were deemed to need representation by reason of passing the interests of justice test, but having failed the means test would have no option but to obtain legal services in the open market. Respondents said that the level at which the means test was set excluded many workers on average incomes from legal aid. Solicitors would not be able to provide the same level of service if working to legal aid rates, which are able to be as low as they are due to volume of work and guaranteed payment. Defendants would either have to pay higher than legal aid rates and forfeit the difference if acquitted, or try to persuade lawyers to conduct work at legal aid rates, when they were in no position to negotiate lower rates.”

22.	The Government responded to these objections in the following way.  Under the heading “Conclusions and the next steps” the following observation was made: 
“The Government believes that public funding should be prioritised on those who canot afford to pay for their own representation and those who can afford to pay towards the cost of their defence should do so. The Government has introduced means testing in both the magistrates’ court and the Crown Court with this principle in mind. The Government believes that the award of costs from Central Funds must complement means testing policy in both the magistrates’ and Crown Courts.”

23.	Then under the heading “Responses to specific questions”, the response to the question:
“Do you agree that it is appropriate to cap payments from Central Funds to the relevant legal aid rates for individuals who have failed the means test in the magistrates’ court or on appeal to the Crown Court?” was as follows:
“Because private rates vary enormously on a case by case basis, this makes the Government’s ability to predict and control spend from Central Funds difficult. Paying private rates from public funds also creates a two-tiered system. It remains entirely at the discretion of individual law firms as to the rates they charge to their private clients. However, individuals who can afford to pay private rates are relying on the taxpayer to refund these costs where they are acquitted. The Government believes therefore that awarding costs from Central Funds at legal aid rates is fair, reasonable and proportionate.”

24.	The Ministry of Justice also responded to the question whether companies should be subject to the same cap. They concluded that they should be, essentially on the grounds that even though they were not eligible for legal aid, they could take out insurance to cover the risks of litigation.
25.	Some further observations about the purpose and effect of the 2009 Regulations were contained in an impact assessment on the effect of the New Scheme.  This demonstrates the extent of the anticipated savings, but it also reveals that the Government at least hoped that a change in rates would lead to downward pressure on the cost of privately funded services, whilst recognising that the precise effect was to some extent speculative. Under the heading “Impact on acquitted defendants and successful appellants” it says this:

“21. Under this option, individual defendants and defendant companies would be liable for any difference between the refund of costs at legal aid rates and their actual expenditure on their case at the private rate they had negotiated with their solicitor and/or barrister. We estimate that in the magistrates’ court this could average in the region of £1,000, being the difference between the estimated average privately funded case (£1,500) and the average legally aided case (£500). In the Crown Court, we estimate that this could average in the region of £16,700, being the difference between the estimated average privately funded case (£19,500) and the average legally aided case (£2,800). In very high cost cases, this sum could be much higher. As illustrated by the example above, the difference could be as much as £11 million. While companies do not have access to legal aid and so have no choice but to pay privately for their defence, the impact may be mitigated if they have taken out insurance to protect them against such an action.
22. The impact on individual defendants may also be mitigated if implementation of the proposal resulted in downward pressure on private rates. Competition between providers for private clients and individual negotiations over rates could see private rates moving more closely into line with those available under legal aid, but we are unable to quantify the effect. This would result in a reduction in income for solicitors, barristers and firms. We cannot quantify the impact since we have no reliable data on private rates, although from research conducted in the magistrates’ court, based on a sample of bills paid from Central Funds we understand that they are in the region of three times more expensive than legal aid rates.”
The Grounds.
26.	There are five grounds on which it is alleged that the scheme is unlawful.  They are as follows: 
(i) The scheme fails to give effect to the principles underpinning section 16(6).  Instead of using his powers to provide reasonably sufficient compensation to successful defendants, the Lord Chancellor has acted for a number of improper purposes.  He has exercised his powers for extraneous purposes such as seeking to effect savings in public funds in part by aiming to change the market for the relevant legal service, and placing some of the burden of defence costs on the successful defendants themselves. He has thereby subverted the clear compensation principle found in section 16(6).
(ii)  The New Scheme is irrational and internally inconsistent because it applies only to detailed assessments and not to summary assessments by the courts. The Lord Chancellor was originally under the misapprehension that the New Scheme applied to both.  The result is that defendants in the same position will be subject to different assessment principles depending upon how their claim for costs is dealt with. Such discrimination is unjustified.
(iii) The New Scheme discriminates between private prosecutors and defendants, notwithstanding that the underlying costs principles set out in sections 16 and 17 of the 1985 Act are virtually the same.   There is no rational basis for compensating prosecutors and defendants differently, and no sensible justification has been advanced.  
(iv) The effect of the New Scheme is to interfere with the right of access to the courts under Article 6 of the European Convention.
(v) The New Scheme was based on a defective understanding of its likely consequences.  The real savings would be unlikely to reflect the amounts identified by the Lord Chancellor. 
I will deal with these in turn.
Ground 1: The new scheme is for improper purposes.
27.	In assessing this ground it is important to note that the factual premise on which it is based is not disputed. Ms Rose QC, counsel for the Law Society, contends that the consultation statement and the impact statement make it abundantly clear that the Lord Chancellor was seeking to effect savings, and potentially very significant savings, by adopting this scheme. Furthermore, he is attempting to influence the market for privately funded legal services in criminal cases and he considers that over time the costs of legal representation in criminal cases for privately funded clients will be driven down as a result of these regulations. He also considers that it is desirable and just that successful defendants should bear a greater share of the cost of their defence than they have done hitherto.  Privately funded rates ought not to exceed legal aid rates, and the change complements, and is consistent with, the new means test policy introduced into the magistrates’ and Crown courts.  It leads to a fair, affordable and proportionate use of central funds. Mr Eadie QC, counsel for the Lord Chancellor, does not dispute that these were indeed the objectives of the New Scheme.  

28.	The Law Society has provided witness statements from Mr Stobbs, its Director of Policy, designed to question some of the assumptions which the Lord Chancellor has made. For example, he suggests that the evidence relied on by the Lord Chancellor in predicting that the market for privately funded services will be forced down, perhaps eventually to legal aid levels, is inappropriate and unconvincing; and it challenges the premise that it is right that a defendant should personally have to bear some of the costs even though he is found to be innocent. The Lord Chancellor has through Ms Sarah Albon, a senior civil servant at the Ministry of Justice, responded by engaging in that debate to justify the approach he has adopted. 
29.	We are not concerned with those issues. It is not said, and could not in my view sensibly be said, that the assumptions or objectives underpinning the policies adopted by the Lord Chancellor are irrational.  Plainly the Lord Chancellor could seek to achieve these objectives, whether successfully or not, by primary legislation as Ms Rose concedes. The issue we have to determine is whether the Lord Chancellor can properly seek to give effect to them through these particular regulations in the exercise of his rule-making powers.
30.	Ms Rose submits that he cannot.  The central concept behind section 16(6) is the principle of compensation. This means getting back what has been expended.  That does not, however, result in the defendant being indemnified for his costs because the compensation principle is qualified in two ways. First, the compensation is limited to such amount as is reasonably sufficient to compensate for expenses properly incurred. The work done must not be extravagant or unnecessary; and the amounts charged must be reasonable. Where a defendant actually incurs greater costs because those principles are not met, he has to bear that amount himself.  And by regulation 7(2) any doubt on the matter is resolved against him.  
31.	Second, section 16(7) enables the court to reduce the amount which would otherwise be recovered under the compensatory principle where that sum would be inappropriate. In such cases the relevant authority may fix what would in its opinion be “just and reasonable”. That provision is intended to deal with exceptional cases where the compensatory principle ought not to be adopted.
32.	Ms Rose submits that the approach of the Lord Chancellor fails to give effect to the clear statutory language.  He is not compensating for the costs incurred in any meaningful sense; he is simply making a contribution towards the costs and the amount of that contribution will be determined by a range of factors some wholly unconnected with the position of the successful defendant, such as the resources available to the Lord Chancellor.  There is no warrant for that being a material factor in the setting of rates.
33.	The Lord Chancellor, when fixing rates and scales, cannot alter the underlying principle of compensation; he is only entitled to be concerned with the process of detailed assessment. He cannot change the rules because he considers that successful defendants ought to bear more of the burden of the cost of their defence. In particular, when applying the compensation principle he must have regard to the market in which privately funded criminal defendants find themselves.  It is that market which determines how much they will have to pay for legal services.  It is not for the Lord Chancellor to use his powers with the avowed aim of changing that market, however much he may disapprove of it. That leaves successful defendants inadequately compensated unless and until the market for private representation mirrors legal aid rates, and even the Lord Chancellor cannot say with confidence that this will ever be achieved.  
34.	Furthermore, section 16(7) envisages that the normal principles may be departed from in exceptional circumstances where it would be inappropriate to recover the full amount.  There the principle is that a reasonable amount will be awarded.  However, it is plain that the Lord Chancellor cannot prescribe rates and scales which systematically result in successful defendants being paid at a rate which falls short of the compensatory level and instead to substitute his own view of what constitutes a reasonable rate. The court’s power under subsection (7) is to be exercised on a case by case basis in exceptional circumstances; the Lord Chancellor is effectively seeking to bring about that same result by general regulations applying across the board in all circumstances. 
35.	In short, the Lord Chancellor is asking himself for what level of fees it is reasonable to expect the State to be responsible rather than asking whether the rates that he prescribes provide reasonable recompense for costs properly and actually incurred, which is what section 16(6) requires. 
36.	Ms Rose also relies on certain authorities which she submits are at odds with the Lord Chancellor’s approach.  These are to the effect that reasonable costs are not the same as necessary costs, and that a cost is not necessarily unreasonably incurred merely because the services might have been obtained more cheaply. As to the former proposition, she relies on the case of Balchin v South Western Magistrates’ Court [2008] EWHC 3037 (Admin), and as to the latter, on the case of R v The South Devon Magistrates Court ex parte Hallett (CCO/3786/99). 
37.	Balchin was a decision of the Divisional Court (Latham LJ and Davis J) directly concerned with section 16(6).  The court held that the assessor was wrong in asking himself whether the employment of counsel was necessary; that was the wrong test.  The only issue was whether it was reasonable.  
38.	Ex parte Hallett was another Divisional Court case (Judge LJ, as he then was, and Wright J) involving consideration of section 16(6).  The costs assessor had refused costs for counsel on the grounds that they were unreasonably incurred because the case was not sufficiently grave.  The Court held that there was nothing in the statutory language to justify the adoption of such a high test of reasonableness. The issue was not whether cheaper representation could have been obtained, but whether the representation in fact secured was reasonable.
39.	Ms Rose placed particular emphasis on the case of KPMG Peat Marwick McLintock v HLT Group Ltd [1995] 2 All E R 180, which involved assessing costs in a civil case. The taxing officer had disregarded a survey published by the London Solicitors’ Litigation Association showing the broad average direct hourly cost for City solicitors. He had applied lower rates to taxation of the claimant’s costs on the basis that the survey rates were substantially higher than the rates which he had been in the habit of permitting on taxation. Auld J, as he then was, found that the taxing master should have allowed the actual rates claimed which were, in fact, marginally lower than the survey rates. He said this (page 185):
“The taxing officer’s task, as Robert Goff J put it in R v Wilkinson [1980] 1 All ER 597 at 604, [1980] 1 WLR 396 at 404, is to determine ‘the broad average direct costs of work done’ by a partner and assistant solicitor ‘ in the relevant area at the relevant time’ …
In my view, Master Ellis was wrong to regard as unreasonable, ‘the broad average direct costs’ of City of London solicitors for such a case. His approach was contrary to authority … If, as I find, it was reasonable for the plaintiffs to have instructed Travers Smith Braithwaite in the litigation, then the firm’s costs on taxation should be taxed by reference to the broad average direct costs for such a firm in that area. The fact that the plaintiffs could have obtained the same services at a much lower price than that average elsewhere is irrelevant (cf R v Dudley Magistrates’ Court, ex p Power City Stores Ltd).”
40.	Later in his judgment he said this:
The taxing officer, when drawing on his own experience, must thus have regard to the general levels of costs actually incurred in the relevant area at the relevant time, not merely those which he has customarily allowed in similar cases. The latter, whilst a useful guide to consistency in the short term, will not reflect the actual general levels of costs unless constantly measured against the reality of what was happening outside the taxing officer’s room during the relevant period … The process of taxation must reflect, not set, the reasonableness of costs incurred in litigation.” (Emphasis supplied)
41.	Ms Rose stresses the last italicised sentence of that passage in particular. She submits that although that case was concerned with the taxation of civil costs, it accurately reflects the approach which the Lord Chancellor should adopt in this context.  In this case, as in KPMG, the fundamental issue is whether costs have been reasonably incurred, and the criticism of the taxing master was that he was, in effect, substituting his view of what he considered to be reasonable for the compensatory principle.  Instead of reflecting the market, he was seeking to set a different standard of reasonableness by attempting to change it.  That same criticism, submits Ms Rose, applies to the Lord Chancellor.
42.	Mr Eadie rejects all these arguments. He submits that the starting point is that the Lord Chancellor is empowered to determine what is a reasonable level of fees.  The Law Society is wrong to say that the central concept in section 16(6) is compensation. He submits that Ms Rose’s emphasis on the compensation principle is misconceived; taken to its logical conclusion that would warrant an indemnity principle which is plainly not what section 16(6) envisages. 
43.	 The Lord Chancellor is not obliged to accept that the charges actually made by individual solicitors reflect what a reasonable rate should be; that would be the indemnity principle.  Nor is he obliged to accept that the rate set in the market is the appropriate level at which to compensate.  The Lord Chancellor takes the view that a proper service can be provided by lawyers paid at legal aid rates.  He is entitled to conclude that these rates reflect a reasonable level of fee. Furthermore, drawing an analogy between compensatory damages for breach of private law claims is of no assistance when seeking to determine the appropriate level of Government subsidy for costs.
44.	Mr Eadie dismisses the authorities relied upon by The Law Society as being of no assistance. They all depend on their particular facts and in any event they were decided before the 2009 Regulations had introduced the amendments under consideration. They do not identify what considerations may be considered relevant when determining what is a reasonable and appropriate level of expenditure; and they certainly do not support the proposition that it is irrelevant to ask whether other lawyers might have been able to conduct the case more cheaply.
45.	 The Lord Chancellor was fully entitled to have regard to the cost which the public purse is having to bear. It would be extraordinary to suggest, particularly in testing economic times, that it was an irrelevant consideration when setting rates and scales. The fact that section 20(3) envisages that  the rates and scales made pursuant to the Regulations have to receive the consent of the Treasury is itself a pointer to the need to have regard to overall budgetary considerations; that must surely be the purpose of the Treasury having the power of veto.
46.	Similarly, it is perfectly proper for the Lord Chancellor to have regard to the effect that rates would have on the market. His analysis that the market for private lawyers would be likely to adjust if legal aid rates were set was a cogent and rational one.  There is nothing in the language of the rule-making power that would preclude him from seeking to encourage that result. Wealthier clients could, of course, continue to pay for a better of level of service, but that cost ought not to be borne by central funds.
Discussion.
47.	As I have sought to emphasise, the issue before the court is not whether it is a legitimate objective to make successful defendants in criminal cases bear a greater proportion of the costs of their defence, nor whether it is desirable that the Government should seek to harbour resources, or to adopt a policy with the object of affecting the market for legal services in criminal cases. The only issue is whether those objectives can properly be achieved by the Lord Chancellor exercising the particular rule-making powers conferred upon him.  It is trite law that he cannot exercise that power for a purpose or objective which is not permitted by the primary legislation conferring the power: see the well known passage from the judgment of Lord Reid in Padfield v Minister of Agriculture, Fisheries and Foods [1968] A.C. 997, 1030.  The question is whether the objectives which the Lord Chancellor is avowedly seeking to achieve by adopting the New Scheme are lawful.
48.	In my judgment, they are not lawful. The section 20 power has to be exercised “to carry into effect” the principles enunciated in Part II of the Act, and that includes the principles set out in section 16(6).  Mr Eadie does not suggest otherwise. He accepts that the regulations cannot undermine or subvert the principles of compensation set out in that subsection. That provision requires that the compensation must be “reasonably sufficient”. It should be such amount as is reasonably incurred for work properly undertaken. In my view, one can only sensibly ask whether the cost has been reasonably incurred by having regard to the prevailing market. The individual defendant seeking legal representation is a consumer in that market.  The amount he or she will have to pay to secure the services of a lawyer will be determined by that market.  
49.	It is not disputed that at present it is not possible for lawyers to be hired privately at legal aid rates, or at least not in the normal run of cases.  The Lord Chancellor considers there is a basis for believing that the 2009 Regulations will ensure that in time this may be possible because lawyers will respond to the tighter purse strings by lowering their fees. Once the market changes, the burden of meeting the costs of representation will no longer lie - or at least, not to the degree it does now - on the successful defendant.  
50.	 I do not think that it is a legitimate objective for the Lord Chancellor to try to mould the market in that way. As the Lord Chancellor himself recognises, there is no guarantee that the market will ever change to the point where privately funded defendants will be able to obtain services for legal aid rates; and in any event that will take time.  In the meanwhile defendants will receive less than the costs which are necessarily and reasonably incurred in their defence. 
51.	Nor, in my judgment, can the Lord Chancellor stipulate what sums he deems to be a reasonable reward for the services of a lawyer.  That repeats the error of the taxing master in the KPMG case.  Similarly, he cannot fix reasonable rates by reference to the resources available.  That involves determining what he thinks the government can reasonably be expected to pay rather than focusing on the costs which the successful defendant has reasonably incurred.  Any change in policy designed to save money in that way must, in my judgment, be achieved in primary legislation and not by the exercise of his rule making powers.
52.	In my judgment, the fundamental defect of Mr Eadie’s analysis is that it fails to give proper weight to the statutory language in section 16(6). The obligation is to provide a sum of money which is reasonably sufficient to compensate the successful defendant. The word ‘sufficient’ pre-supposes that there is some measure to determine whether the amount paid satisfies that criterion of sufficiency or not. It must be sufficient by reference to some particular criterion or criteria. In this case the relevant measure is the principle of compensation, albeit one which is constrained by considerations of what is reasonable and proper expenditure.
53.	I agree with Ms Rose that to compensate in this context naturally means to recompense the defendant for the expenditure that has been incurred, within those constraints. If the Lord Chancellor simply gives what he thinks is reasonable, having regard to the available resources and to other objectives which he considers to be desirable, then no significance is attached to the concept of compensation at all, and it becomes impossible to say in any meaningful way whether what is recompensed is sufficient or not. 
54.	Furthermore, in my judgment, if the principle is simply that the Lord Chancellor can pay what he considers to be a reasonable sum with respect to the costs incurred, having regard to the very broad range of considerations which Mr Eadie submits are potentially appropriate considerations, then I would have expected the section to have been drafted in an entirely different  way.  As Mr Eadie accepts, it could simply have said that the Lord Chancellor will pay such contribution towards the costs of the defence as he considers fit.
55.	Mr Eadie says it would be surprising if the Lord Chancellor were not entitled to tailor payments to resources and if, particularly in economically straightened times, he were unable to take the view that the successful defendant ought to bear some of the costs of his own defence. Indeed it would.  But it is not, in my judgment, surprising that any such change to the fundamental principles by which compensation is to be assessed should be achieved by primary legislation rather than by the exercise of delegated powers.
56.	The new regulations involve a decisive departure from past principles. They jettison the notion that a defendant ought not to have to pay towards the cost of defending himself against what might in some cases be wholly false accusations, provided he incurs no greater expenditure than is reasonable and proper to secure his defence. Any change in that principle is one of some constitutional moment.  It means that a defendant falsely accused by the state will have to pay from his own pocket to establish his innocence. Whatever the merits of that principle, I would be surprised if Parliament had intended that it could properly be achieved by sub-delegated legislation which is not even the subject of Parliamentary scrutiny.
57.	In my judgment, the authorities on which Ms Rose relies also support her submission.  They demonstrate that the focus should be on whether what has been spent is reasonable rather than whether cheaper adequate representation could be achieved; and they also show that the level of fees should reflect the market for services of the relevant kind and not seek to change it.
58.	I would therefore uphold the appeal on this ground. It follows that it is not strictly necessary to engage with the remaining grounds.  However, I will briefly consider them in case I am wrong on the primary submission.
Ground 2: Irrational distinction depending on who fixes the costs.
59.	The second ground is that the current rates are irrational and discriminatory because they do not apply to costs orders made by the court itself, but only where the order is made by the appropriate authority on taxation. Indeed, Ms Rose submits that a judge would be bound to construe section 16(6) in line with the current authorities, and that would inevitably result in a more generous level of recoupment than the regulations provide.
60.	 The Lord Chancellor accepts that initially he had been under the impression that the new regulations would apply to both methods of assessment.  However, he now recognises that this is not so but he proposes in due course to introduce the same principles to the summary assessment carried out by the court. Until then, he concedes that different principles will apply to the two different methods of assessment.
61.	The Lord Chancellor denies that there is any irrationality in applying these new principles in this partial way. Mr Eadie submits that if the scheme is otherwise lawful, it would be wrong to deny the Exchequer the significant costs’ savings that would accrue. Whereas the ideal would be for all forms of costs assessment to be subject to the same rules, once the view is taken that the new rules are desirable and should replace the old, it is not irrational to take advantage of them to the extent possible.
62.	I agree with that submission. If these rules were otherwise intra vires, and the Lord Chancellor considered that they were desirable and should be introduced, then I do not think it is perverse or irrational to apply them to one category of case merely because it is recognised that they cannot be applied to the other. That does give rise, of course, to a discrepancy between the way in which defendants are treated, depending on who makes the costs order in their particular case. But the fact that a few defendants in receipt of DCOs are treated more favourably than they might otherwise have been does not, in my judgment, compel the conclusion that all successful defendants must be treated in that way. I think that the pressing need to make substantial savings, if that had otherwise been consistent with the principles adopted in the New Scheme, would have justified the Lord Chancellor taking the view that he need not treat everyone more generously than he thinks appropriate or desirable because he must treat a few in that way.
Ground 3: Irrational distinction between defence and prosecution.
63.	The third ground compares the position of defendants and prosecutors. The submission in essence is that since sections 16 and 17 of the 1985 Act provide for costs orders to be paid from central funds in similar terms, so Parliament must have intended that a similar approach would be adopted by the Lord Chancellor in setting any rates and scales.  To alter the rules in a manner prejudicial to defendants but to leave private prosecutors unaffected is unjust and irrational.
64.	Mr Eadie denies that there is any legislative intent that can be inferred from the 1985 Act which would require the two cases to be treated identically. For example, a very important difference is that the cost of private prosecutors cannot be recovered from central funds where summary cases are successfully prosecuted in the magistrates’ court. 
65.	Furthermore, Parliament has not chosen to empower the Lord Chancellor simply to introduce one set of rates and scales to apply identically to both sets of costs orders. He also points out that Ms Albon in her witness statement has identified a number of reasons why the Secretary of State has chosen not to cap private prosecutors’ costs in the same way as defendants’ costs. The Lord Chancellor took the view that it might deter private prosecutions if the claimants were to be so limited and that would be against the public interest. Some private prosecutors conduct prosecutions on a fairly regular basis. This will include a number of charities, such as the RSPCA. They will need to recover expenditure close to actual levels, otherwise they would be out of pocket, and that in turn would deter them from bringing such prosecutions. By contrast, defendants are not typically involved in a range of cases in this way. A further distinction is that private prosecutors have no access to an alternative funding mechanism, such as insurance or legal aid.
66.	Finally, there are pressures which will cause private prosecutors to keep costs down, specifically because they cannot recover the majority of their costs even if successful. It is the Lord Chancellor’s opinion, which is challenged by the Law Society, that the pressure is not felt to the same extent on individual defendants since they are generally involved in a one off event.
67.	In my judgment, there is nothing which requires the Lord Chancellor to treat both situations the same, and these reasons provide a rational basis for  drawing the distinction that he does.  The assumption that must be made in assessing this ground as an independent basis for quashing the New Scheme is that the Lord Chancellor can fix such rates as he considers to be reasonable; and he has a wide area of discretion as to the factors that can weigh with him when making that assessment.  He has chosen to discriminate here because he thinks it desirable to promote private prosecutions in the public interest.  There is not the same public benefit to be derived from recompensing successful defendants in the same way.  
68.	In my view, this is capable of providing a justification for the difference in treatment.  It is not for the court to determine how much weight should be given to these considerations.  Had the scheme been otherwise lawful, I would not have struck it down on these grounds 
Ground 4: Depriving defendants of a fair trial.
69.	The fourth ground contends that the New Scheme will be so inadequate that it will lead to an absence of effective representation such as to deprive defendants of a fair trial.  The contention is that defendants who will be unable to negotiate legal aid rates will have to represent themselves or plead guilty. The position is serious, according to The Law Society, particularly in the magistrates’ court because there legal aid is only available subject to the interests of justice test and the means test. A defendant may pass the interests of justice test but fail the means test and therefore be unable to pay for representation.
70.	Mr Eadie submits that if the market alters, as the Lord Chancellor envisages it will, then this problem will not arise. But even if one assumes that the market will not change in that way, nonetheless the vast majority of defendants in the magistrates’ court receive legal aid.  In addition, there is a principle that legal aid will be payable by what is termed the “hardship review” for those who otherwise have no access to representation.  Therefore there ought not to be anybody who is faced with a serious criminal charge who would not be able to obtain appropriate representation.
71.	Ms Rose made a number of criticisms of the hardship review process which she says fails to deal with the representation problem.  She may be right, but in my judgment that has no direct bearing on the question of what rates and scales can appropriately be set. The real complaint here is that the combination of the way in which the means test is set, coupled with an inadequate backstop to deal with hard cases, means that the effect of these regulations is particularly severe.  That may be right, but in my judgment the central defect lies in the effect of those other principles. If there were an effective backstop provision, the question of an unfair trial would not arise.  
72.	I accept, of course, that the reduction in rates may indeed discourage or prevent some persons from obtaining a lawyer privately, but there is insufficient evidence that they will in a serious case thereby be left without representation at all.
Ground 5: Flawed understanding of the effects of the policy.
73.	It was my understanding that this argument changed between the skeleton submissions and those advanced orally.  As I understand it, the basis of the submission finally adopted was that some responses to the consultation paper had expressed the view that if DCOs are reduced in amount, that will increase the number of applications against prosecutors for costs thrown away, and if some of those succeed, it will reduce the savings which will be achieved from the scheme.  It is alleged that whilst the government noted in the response to the consultation that this issue had been raised, they did not specifically respond to it.  That demonstrates, it is alleged, that they based their analysis on a flawed understanding of the effects of their policy.  
74.	In my judgment, this argument is hopeless.  Government does not have to respond in terms to every peripheral point raised in consultations, and its failure to do so does not demonstrate any lack of grasp with the issues amounting to an error of law.  There is no reason to assume that there will be any increase in successful applications, and in any event  even if there were a modest number of additional successful claims, the costs involved would be miniscule compared with the anticipated savings.  
75.	I would accept that there may be cases where a failure properly to assess all relevant considerations may lead a decision maker to make fundamentally flawed factual assumptions which taint the decision and render it unlawful.   Decisions based on such a false basis can then be challenged.  In my judgment, that is the thrust of the observation of Blake J in the case of R (on the application of Lunt) v Liverpool City Council [2009] EWHC 2356; [2010] R.T.R. 5 para.44, on which Ms Rose relies.   It is, in my judgment, impossible to say that the alleged error here led to any fundamental misunderstanding of the problem which the Lord Chancellor was seeking to address. 

Conclusion.
76.	Accordingly, I would uphold the judicial review on the single ground that the Lord Chancellor has sought to achieve objectives which are inconsistent with the purpose for which he can pass these regulations. I would dismiss the remaining grounds.
77.	The question then is: What remedy is appropriate? It seems to me that it is not appropriate here to quash the 2009 Regulations themselves since they do not embrace the scales and rates which render the exercise of this power unlawful. It is strictly those rates and scales, which embody the principle that reimbursement should be on legal aid rates, which render the whole Scheme unlawful. I would therefore be minded simply to declare the Scheme to be unlawful and quash the rates and scales. But I would hear further argument before making a final ruling.
Mr Justice Keith:
78.	I agree.