Practice and Procedure


PUBLISHED March 6, 2003

A claimant who obtained monies from an insurer under the Third Parties (Rights Against Insurers) Act 1930, where the original defendant had gone into liquidation, held the amount paid out in legal aid in respect of the original claim by the Legal Services Commission on trust for the Commission. .Claim for a declaration that the claimant ('C') was entitled to the entirety of monies recovered from an insurer and that the Legal Services Commission ('LSC') was not entitled to a statutory charge on those monies. C had commenced proceedings for damages against a company ('E') in 1994 in relation to a building works supervision contract. In May 1995 E entered into a creditor's voluntary liquidation and thereafter C entered judgment against E for damages to be assessed and costs to be taxed. Three years later damages were assessed at over ?800,000 and the costs were taxed at more than £46,000. Had those sums been paid, it was agreed that the LSC would have had the benefit of the statutory charge which arose by virtue of s.16(6) Legal Aid Act 1988. Action against E's professional indemnity insurers, represented by Equitas, was compromised by a payment of £165,000. C argued that the sum was recovered as a separate claim against a third party, in respect of which C was not legally aided. As the monies had not been recovered or preserved in the relevant proceedings, s.16(6) of the 1988 Act did not apply. Neither did the proceedings threatened against Equitas constitute enforcement of the judgment, which would have permitted the LSC to take such proceedings in its own name (reg.9(1) Civil Legal Aid (General) Regulations 1989 SI 1989/339). The LSC argued that the taxed costs to be refunded did attach to the monies.HELD: (1) All C recovered against E was a judgment. With the benefit of that judgment, C then successfully claimed upon E's professional indemnity policy relying on the Third Parties (Rights Against Insurers) Act 1930. If unsecured money was available in E's liquidation, C had not lost the benefit of the judgment and could undoubtedly have proved for the balance. However, the judgment against E was an essential prerequisite of the threatened direct cause of action against Equitas. (2) The statutory regime did not specifically provide for the transfer of the statutory charge in circumstances such as these. However, the statutory charge could not simply be ignored. Howsoever it had arisen, the chose in action which was the judgment was impressed by a first charge in favour of the LSC in relation to the costs incurred in pursuing the action against E and obtaining the judgment in the first place. (3) It was difficult to see a more appropriate case in which to apply the doctrine of constructive trust. The charge in relation to the costs expended by the LSC ranked first in relation to any money recovered under the judgment without which it would not have been possible to obtain the settlement from Equitas. There was no discernible reason why the liquidation of E should impact on C's obligations to the LSC or provide her with an uncovenanted benefit namely the ability to avoid reimbursing the LSC with the costs incurred and paid in order to obtain the judgment. Accepting £165,000 from Equitas in settlement of their liability to E reduced E's liability under the judgment and there was no justification for allowing C to assert full beneficial ownership of that sum. It would be inequitable for her to do so and a constructive trust did attach to that sum. (4) The dictum in Watkinson v Legal Aid Board (1991) 1 WLR 419 relating to costs incurred under a previous discharged certificate did not assist C. (5) C was not entitled to the declaration sought but held the agreed sum paid out by the LSC on trust for the LSC which was entitled to payment of that sum. (6) This outcome coincided with the general scheme of publicly-funded legal assistance, which was to help those who lost cases but only to make loans to those who won them.Judgment accordingly.

[2003] EWHC 323 (QB)