Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2013] CSOH 53
PD478/10	OPINION OF LORD BANNATYNE in the cause JH (F.E.) Pursuer; against AB and OTHERS Defenders; and THE SCOTTISH LEGAL AID BOARD Interested Party: ________________

Pursuer: Absent; Balfour + Manson LLP

First Defenders: Doherty; Burness Paul & Williamsons LLP

Interested Party: For the Scottish Legal Aid Board: MacGregor

5 April 2013

Introduction

[1] A motion came before me at the instance of the first defenders, namely: AB to find the Scottish Legal Aid Board ("SLAB") liable to the first defenders in the expenses of the action in terms of section 19 of the Legal Aid (Scotland) Act 1986 and the Act of Sederunt (Civil Legal Aid Rules) 1987 rule 6.

[2] By interlocutor dated 12 July 2012 the Lord Ordinary assoilzied the first to fifth defenders from the conclusions of the summons. The pursuer was in addition by the said interlocutor found liable to the defenders in the expenses of the process as an assisted person, said expenses being modified to nil on the opposed motion of the pursuer.

[3] Lastly by said interlocutor, in terms of rule 6(2)(a) of the said Act of Sederunt, the first to fourth defenders were directed to lodge statements on oath of their grounds for claiming payment out of the Scottish Legal Aid Fund of the whole or any part of the expenses incurred by them together with an estimate of the probable amount of those expenses.

[4] This matter then came before me on 27 February 2013 at which time the documentation ordered to be lodged by the defenders had on behalf of the first defenders been lodged in court. The first defenders were represented by Ms Doherty. The motion was opposed by SLAB who were represented by Mr MacGregor. No motion was moved on behalf of the second to fourth defenders.

Submissions for the first defenders

[5] Ms Doherty commenced her address by setting out the background to the action. It was an action of reparation in which the pursuer sought the sum of £300,000 in damages from the defenders. The basis of the action against the first defenders was that the pursuer had regularly been abused by nuns who ran a school she was attending and for whom the first defenders are vicariously responsible. The first defenders are a Roman Catholic order of religious women. They form one congregation with members in many countries throughout the world. They are an unincorporated voluntary association.

[6] The pursuer was granted legal aid to bring the foregoing action against the first defenders despite a detailed letter being sent to SLAB by solicitors acting for the first defenders (7/13 of process) objecting to the granting of legal aid on the basis that there was no probabilis causa and it was unreasonable to grant legal aid. Following the granting of legal aid this action was raised. Shortly prior to a procedure roll discussion taking place at the instance of the first to fifth defenders the action settled extra judicially (with the pursuer in essence abandoning her action) as reflected above.

[7] Having advised me as to the background to the present motion counsel then turned to the relevant provisions of the said Act and Act of Sederunt which are in the following terms:

"19.

(1) In any proceedings to which a legally assisted person is party and which are finally decided in favour of an unassisted person, subject to subsections (2) and (3) below, the court may make an award out of the Fund to an unassisted party of the whole or any part of any expenses incurred by him (so far as attributable to any part of the proceedings in connection with which another party was a legally assisted person).

(2) Before making an order under this section, the court shall consider making an award of expenses against the legally assisted person.

(3) An order under this section may be made only if -

(a) an order for expenses might be made in the proceedings, apart from this Act; and

(b) in the case of expenses of proceedings in a court of first instance, those proceedings were instituted by the legally assisted person, and the court is satisfied that the unassisted party will suffer financial hardship unless the order is made; and

(c) in any case, the court is satisfied that it is just and equitable in all the circumstances that the award should be paid out of public funds

"6.

(1) An application to the court for an award of expenses under section 19(1) of the Act shall be made by motion in the cause.

(2) On an application to the court being made under section 19(1) of the Act, the court may -

(a) summarily dismiss the application; or

(b) order the applicant to lodge a statement on oath of his grounds for claiming payment out of the Scottish Legal Aid Fund of the whole or any part of the expenses incurred by him together with an estimate of the probable amount of those expenses.

(3) Where the court pronounces an interlocutor under paragraph (2)(b), the court shall also order the applicant to intimate a copy of each of the statement of grounds and estimate referred to in paragraph (2)(b) to the Board."

[8] Ms Doherty in dealing with the relevant provisions drew to my attention that section 19(3)(b) had been amended by the Legal Profession and Legal Aid (Scotland) Act 2007. The effect of that amendment had been to delete the word "severe" immediately before the words "financial hardship".

[9] It was Ms Doherty's position that all three criteria in section 19(3) had been fulfilled. Her submissions concentrated on subsections (b) and (c) it being in relation to these on which parties joined issue, it not being disputed that the first defenders fulfilled the criterion set out in (a).

[10] Ms Doherty then turned to examine certain authorities and first directed my attention to: McGovern v Brooks 1992 SCLR 915 in which, the sheriff when considering what amounted to severe financial hardship held "that although the defenders were of modest means rather than impecunious, they would suffer severe financial hardship if they had to pay their own expenses." (see: 916C). In addition when the sheriff turned to consider the just and equitable criterion he went on to state:

"It is difficult to imagine a situation more suited to the application of this leg of section 19. The defenders really had no choice but to enter the process." (see: page 919A)

[11] Ms Doherty next turned to Hanning v Maitland (No. 2) 1971 QB 580 and in particular to the following observations of Lord Denning MR on the issue of what constituted severe financial hardship at 587H to 588A:

"The words 'severe financial hardship' were construed in Nowotnik so as to give emphasis to the word 'severe'. But in the light of experience, I do not think they should be construed so strictly. In future, the words should be construed so as to exclude insurance companies; and commercial companies who are in a considerable way of business; and wealthy folk who can meet the costs without feeling it. But they should not be construed so as to exclude people of modest income or modest capital who would find it hard to bear their own costs."

[12] Ms Doherty submitted that the observations of the Master of the Rolls were of particular significance in relation to the circumstances of this case in that: it was her position that the first defenders were the type of organisation, namely: an order of nuns who provided charitable services who she argued clearly fell outside the types of groups which the Master of the Rolls believed should not recover in terms of the rule.

[13] She then briefly referred me to Stewart v Buchanan 1997 SCLR 48 in order to draw my attention to first the sheriff's reliance when considering the issue of severe financial hardship on the comments of Lord Denning M.R. in Hanning v Maitland (at page 55G) and secondly his having considered that one important circumstance in it being just and equitable to make an order was that the defenders had no choice but to enter the process and defend (see: page 55D).

[14] Lastly she directed my attention to Young v Bohannon 2009 SLT 928. This decision, of Lord Brodie, was the only case which she had been able to discover in which the court had opined as regards the meaning of financial hardship rather than severe financial hardship. She referred in particular to paragraph 9 of the decision where Lord Brodie considered the issue of financial hardship and stated:

"[9] I have to be satisfied that the defender, as the unassisted party, will suffer financial hardship as a result of proceedings instituted by the legally assisted pursuer unless the order for payment of expenses out of the fund is made. As originally enacted, the standard to be met was "severe financial hardship" but that has been modified by Parliament deleting the adjective "severe" in terms of the 2007 Act. I have been satisfied that the defender will suffer financial hardship if an order is not made. He is a 62 year old man of relatively modest means. His income barely meets his outlays. Other than a house purchased for £115,000 in 2004 with the assistance of a mortgage and some very limited savings, he has no capital. He has liabilities in relation to legal expenses in excess of £33,500 and, allowing for the likely recovery from the sequestration of the pursuer, he will be rendered insolvent in the event that no order is made."

[15] She also as regards the issue of just and equitable referred me to Lord Brodie's remarks at paragraph 10:

"[10] I also have to be satisfied that it is just and equitable in all the circumstances the award should be paid out of public funds. In my opinion the conduct of the defender's legal advisers and that of the board are relevant considerations. It appears to me from consideration of the correspondence between those acting for the defender and those acting for the pursuer on the one hand and the board on the other demonstrates that the defender's solicitors took such steps as were available to them with a view to both the pursuer's advisers and the board giving further consideration to the evidential basis upon which legal aid had been granted and the action raised."

[16] Having reviewed the foregoing authorities Ms Doherty referred me to certain documentation upon which reliance was placed in order to satisfy the criteria at (b) and (c).

[17] She first drew my attention to the account of expenses which was 7/10 of process and which brought out a figure of £11,139.24.

[18] She then directed my attention to first a statement on oath by one sister of the order and secondly an affidavit by a second sister regarding the financial hardship which would be produced if the first defenders motion were not granted and regarding the satisfaction of the just and equitable requirement.

[19] The relevant parts of these were in the following terms:

The first sister:

"3 Financial Hardship

3.1 As a result of being named as a defender in this action, the (first defenders have) suffered financial hardship having had to spend considerable management time investigating matters and instructing legal representation.

3.2 To date, the (first defenders have) paid the sum of £30,859.54 to solicitors and Counsel in defending matters. I am told that they estimate the judicial account will be around £10,000. These are significant sums which the (first defenders have) no choice but to pay themselves. These sums are increasing. There is no insurance backing in this matter.

3.3 As a charity, the (first defenders lodge) annual accounts with the Charity Commission as regulator of charities within England and Wales. The accounts for the financial period ending 31 March 2011 confirm that the (first defenders) received income of £1,420,281. The income derives from earned income, investment income and legacies and donations.

3.4 Spending in that period exceeded the income and amounted to £1,787,106.00, of which £1,720,000 was spent on charitable activities, namely costs incurred by the charity in supplying goods or services to meet the needs of its beneficiaries. There was therefore a deficit of £366,825.00.

3.5 The (first defenders employ) 28 individuals. Total liabilities comprise monies held on behalf of individual members ... and expense creditors and accruals. Creditors due within one year amount to negative £233,340.

3.6 The (first defenders have) a number of "own use assets", which are assets other than investments held for more than 12 months and used to run and administer the charity or which are integral to the purposes of the charity (eg. buildings, offices, fixtures and fittings), amounting to £6,300,000.

3.7 The (first defenders have) long term investments, which are investments held by the charity with the sole aim of generating a financial return amounting to £18,019,000.

3.8 The (first defenders have) "other assets", which are assets held for less than 12 months, amounting to £1,400,000.

3.9 The charity's financial health is noted in the accounts as being "healthy with reasonable but not excessive reserves". None of the monies held as assets is easily realisable being either held in fixed assets or long term investments.

3.10 In the event that the (first defenders are) required to meet the legal costs arising from this case, money earmarked for charitable goals will be directed elsewhere. This will impact on the needs of those who rely upon the (first defenders). Specifically, members ... (both active and retired), women and children for whom pastoral and social work is undertaken by the sisters, vulnerable adults and trafficked women will be affected.

4. Just and Equitable Test

4.1 The (first defenders) as an unassisted party were the defenders in this action raised against them. They had no choice but to enter the process and defend matters. The claim against (them) was substantial. (They) stated a proper defence and were wholly successful at the end of the day. There was nothing in the conduct of the defence to suggest any dilatoriness or lack of justification by (them). There has been no delay from (them) in responding to the pursuer's claim.

4.2 Furthermore, while the amount of expenses incurred by the (first defenders) as an unassisted party will have a direct bearing on whether or not there is financial hardship, it is also a factor in considering whether or not it is just and equitable to make an award out of public funds. In this case, where the level of expenses paid is so significant, following the pursuer's decision to abandon her case, it cannot be said to be just and equitable to punish the (first defenders).

4.3 Had the legal aid application not been granted it seems highly unlikely that an action would have been raised at all. Sound objections were made at the time of the application (on which I comment further below) which ultimately were not upheld. Objections rightfully made, though dismissed, are key in determining whether it would be just and equitable to make an award from the fund now.

4.4 In terms of the assets held, whilst it is conceded that they are on one view healthy, the absence of a realistic timescale for the realisation of assets (or, it may be said, the replacement of assets otherwise available) is also a relevant factor in deciding whether it would be just and equitable to make an award from the funds.

5. Original objections made to the legal Aid Application

5.1 I understand the (first defenders') solicitor lodged reasonable and justified opposition to the pursuer's application for legal aid by letters dated 25 February and 27 January 2011, attached for reference. I would repeat that none of the pupils at the ... Approved School were volunteers. All of the pupils had been placed at the school by, amongst other entities, the children's panel, the courts, social work departments. The Secretary of State and/or the appropriate local authority which has the statutory duty in respect of the care and wellbeing of the pupils may have been a more appropriate defender in this action.

5.2 As has already been indicated to SLAB, there is no contractual or other relationship between the (first defenders) and the pursuer. As such, there is no legal basis upon which the action could competently have been raised against the (first defenders).

5.3 With regards to the issue of reasonableness, the (first defenders have) made clear on a number of occasions that the case itself was objectively unreasonable. In this case, the pursuer alleged wrong doing during her time at the school "in or about 1971". The action was served upon the (first defenders) on 25 February 2010, approximately 39 years following the alleged abuse. The action was clearly time barred. It was not only unreasonable but also prejudicial to provide legal aid to the pursuer given the excessive time that had passed.

5.4 In assessing prospects of success, the fact that evidence would require to be heard from individuals with fading memories is clearly relevant.

5.5 On any view, the (first defenders were) wrongly sued in this matter which was facilitated by SLAB, as a result of which neither they, nor those helped by the (first defenders), should be left disadvantaged."

The second sister:

"5. As I understand it, the (first defenders') solicitors in Scotland, Messrs McSparran McCormick, made representations on at least two occasions to the Scottish Legal Aid Board on behalf of the (first defenders) pointing out that the pursuer's action against the (first defenders), ... was flawed in law and the said solicitors challenged the appropriateness of legal aid being granted to the pursuer.

6. As I understand it, the pursuer has now abandoned her case against the (first defenders), .... The (first defenders), ... had no alternative but to defend (itself) in respect of the claim against (it) and I have been advised that considerable sums of money have been expended in so doing.

7. I am aware that there are rules regarding how a charity can utilise its charitable funds in fulfilling the objectives of the charity. The (first defenders) had no alternative but to defend the court action in order to protect its reputation and its assets.

8. It would seem to me that, given that the Pursuer abandoned her action, and that the (first defenders have) had to defend itself in relation thereto and has incurred legal expenses and that the Court has refused to make an award of expenses in favour of the (first defenders) against the Pursuer, that an award in favour of the (first defenders) against the Scottish Legal Aid Board who funded the Pursuer's legal action is just and equitable."

[20] Ms Doherty on the basis of the foregoing submitted that the first defenders fulfilled the criterion of financial hardship. She contended that they could properly be described as being of modest means. Ms Doherty at the outset conceded that the first defenders had a significant amount of assets including a sum of cash at hand. Nevertheless, she submitted that looking to the observations of Lord Denning MR in Hanning v Maitland the first defenders were neither an insurance company nor a commercial company in a considerable way of business nor a wealthy individual. It was her position that they were an entirely different type of entity, they were a charity whose charitable work would be affected by having to meet these expenses.

[21] With respect to the just and equitable test reliance was placed on the fact that the first defenders were a charitable organisation; the detailed letter of objection which they had written to SLAB when they were considering the pursuer's legal aid application together with the fact that they had had no choice but to enter the process given the nature of the action and the sum sought.

[22] For the foregoing reasons she moved that I should grant the motion.

Reply on behalf of SLAB

[23] Mr MacGregor's position was this: the first defenders failed to meet the criteria set out at 19(3)(b) and (c).

[24] As regards the case law to which I had been referred by Ms Doherty, he indicated that he accepted the jurisprudence set out therein. However, it was his position that the facts in each of these cases was readily distinguishable from the facts in the instant case. It was his position that the parties in each of the cases to which I had been referred could be described as being of modest means and in certain of the cases as being in a situation where they would in essence be rendered insolvent if they had had to pay the expenses. It was his contention that this could not be said of the first defenders, rather the position in relation to them was entirely to the contrary.

[25] He referred me to one further authority, namely: Leishman v Leishman 1965 SLT (Sh Crt) 51 and drew my attention to this observation of the sheriff when considering the criterion of severe financial hardship:

"The presence of this capital, however, must be taken into consideration and on the whole circumstances I propose in terms of section 1(1) of the Legal Aid Act, 1964, to make an order against the Legal Aid Fund for payment to Mrs Weir of part of the cost incurred by her in these proceedings, namely, the sum of £150." (see: at page 53)

[26] It was his submission that these remarks were of some significance in the circumstances of the instant case given the amount of the first defenders capital.

[27] With respect to the observations of Lord Denning M.R. in Hanning v Maitland, to which, as I have said, Ms Doherty had attached some significance it was his position that on a proper understanding these did not support the first defenders' position. His contention was that Lord Denning was doing no more than giving examples of wealthy parties who would not satisfy the test of "severe financial hardship" and comparing them to those he described as having modest income or capital who would fulfil that test. What the Master of the Rolls was not seeking to suggest was that because a body was a charity it would automatically pass this test, which as he understood it, was being suggested by Ms Doherty.

[28] He then turned to the facts and circumstances of this case. As regards whether the first defenders fulfilled the criterion of financial hardship he pointed to the following factors in their most recent accounts (to 31 March 2012). [being more up to date accounts than those referred to by the first sister] (7/12 of process):

(a) The first defenders had investment managers, in his submission suggesting that they were a substantial financial body.

(b) The first defenders had actual free reserves of £4,100,000.

(c) The first defenders had total incoming resources of £1,600,000, their resources expended were £1,500,000 and this produced a figure of £100,000 excess of resources over expenses in the current year.

(d) Total assets were £23,690,318.

(e) Short term deposits were £1,500,000.

(f) Cash at bank and in hand was £105,560.

[29] It was his position that all of these figures were of a very significant nature and it could not be said having regard to these figures that financial hardship as interpreted in the relevant case law could be shown where the figure in the judicial expenses account was approximately £11,000.

[30] In addition as regards this particular criterion Mr McGregor submitted that in order to satisfy it, it had to be shown that the "unassisted party will suffer financial hardship" (my emphasis). Ms Doherty, he submitted had at no point suggested that the first defenders would suffer any hardship. Her position had been that those who received charity from the first defenders would not receive as much money, that was not the unassisted party suffering hardship.

[31] If I were required to turn to the criterion set out at (c) it was his position that this equally was not fulfilled. His position on this criterion flowed to a material extent from what he had already said as regards financial hardship and could be summarised as this: it was not just and equitable to grant the motion in that the amount of public funds available for the benefit of those requiring legal aid would be reduced by the sum of approximately £11,000 in circumstances where the defenders had assets of the level he had previously outlined.

[32] With respect to the circumstances in which SLAB had granted legal aid he advised me as follows: that the initial application had been refused and thereafter there had been an application for review which was accompanied by a supportive opinion from counsel. These papers were considered by the Legal Services Committee of SLAB and a decision ultimately taken to grant legal aid. He advised me that this decision had not been taken lightly. It was his position that this decision had been made in good faith and having regard to the whole papers before that particular committee of SLAB including the first defenders' letter of objection and the opinion of counsel supporting the pursuer's case.

[33] Overall he submitted that there was nothing which supported a conclusion that it was just and equitable to grant the motion.

[34] For these reasons he moved that I should refuse the motion.

Discussion

[35] I turn first to consider whether the first defenders have satisfied the criterion of financial hardship. On a proper construction the hurdle of "financial hardship" is a more modest one than "severe financial hardship", however, I am clear that the first defenders do not fulfil this criterion and in fact come nowhere near fulfilling this criterion.

[36] I am not persuaded on the basis of the figures presented to me that any financial hardship would be caused to the first defenders by having to pay approximately £11,000 in judicial expenses. It seems to me that on the basis of the figures presented to me the first defenders are well able to pay these expenses without financial hardship.

[37] In considering whether a party seeking such an order would suffer financial hardship, the whole financial position of the party must be had regard to including: capital, debts, income, and the nature of the capital and debt. In particular it may be of significance whether investments are easily realisable.

[38] When the first defenders whole financial position is looked at by reference to their most recent accounts, it is clear that their capital is very substantial; they have substantial capital reserves available to meet contingencies such as these judicial expenses; they have significant readily available assets in the form of short term deposits and cash, and their income for the year was in excess of their expenditure by a significant amount.

[39] Overall, the financial picture presented by their most recent accounts is a healthy one, with no identifiable financial difficulties. Against that background I believe the payment of the judicial expenses will have no discernible effect on the financial health of the first defenders. They could not be described as being of modest means or anything approaching such a description, nor could it be said that payment of these fees would cause insolvency or any prospect of insolvency.

[40] Further in my view Ms Doherty's approach to the issue of whether financial hardship would be caused was to an extent misconceived. In light of the observations of the Master of the Rolls in Hanning v Maitland she relied to an extent in the course of her submissions on the nature of the first defenders, namely: that they are an order of nuns and a charity in order to fulfil the criterion of financial hardship.

[41] In my view she had misunderstood the observations of the Master of the Rolls and that the correct understanding of these was as set out by Mr MacGregor.

[42] On a proper construction of section 19(3)(b) regard has to be had not to the nature of the organisation seeking the order but to the effect on its finances if such an order is not made. What the court has to consider is the issue of financial hardship. Thus a wealthy charity would not fulfil the criterion at (b) but a charity of modest means would fulfil the criterion at (b). In the same way a commercial organisation which is wealthy would not succeed, however, one of modest means would succeed in fulfilling the criterion.

[43] As regards criterion (b) I am not persuaded by Mr MacGregor's second argument, namely: that there would be no financial effect on the first defenders if they had to meet the judicial expenses and that the only effect would be on those who received their charity. I observe that one of the charitable goals of the first defenders is the support of their members both past and present (see: para 3.10 of the statement on oath of the first sister). I believe, if it had been shown, that if required to pay the judicial expenses, the first defenders charitable giving to their members would have declined causing their members financial hardship that would have satisfied criterion (b): the financial hardship of its members could not be said to be different from the financial hardship of the first defenders (the unassisted party). The first defenders are in a real sense its members. Moreover, where an unassisted party's sole purpose is the provision of charity, it would seem to me, that if payment of an expenses award were to cause it to be materially less able to fulfil that purpose then on a proper construction that would amount to financial hardship to the unassisted party.

[44] In that I am not satisfied that the first defenders have fulfilled the criterion in section 19(3)(b) the motion must fail.

[45] As regards section 19(3)(c), given the first defender's failure to meet the criterion in (b) I do not require to express a concluded view on this issue. However, I would wish to make two general observations, namely: first, I believe in the consideration of this criterion it is relevant to have regard to the circumstances in which legal aid was granted and in particular to whether objections were lodged to the granting of legal aid by the party seeking the order and secondly I believe it is also relevant when considering this criterion to have regard to whether the party seeking the order had no choice but to enter the process.

Decision

[46] For the foregoing reasons I refuse the motion. I was not addressed in relation to the issue of expenses arising from this motion and I have accordingly reserved the position as regards these.