IMY (MINOR, BY HIS MOTHER AND NEXT FRIEND, SLT) v. DR LO NI BOON, PETER AND ANOTHER

HCPI 1093/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO 1093 OF 2004

_________________________

___________________________

J U D G M E N T

___________________________

I.  INTRODUCTION

1. On 2 December 2004, the infant plaintiff by his mother and next friend commenced the present action against the 1^st defendant for damages for personal injuries.  The plaintiff is an aided person.  Mr Nicholas Millar (“Mr Millar”) of Messrs Littlewoods (“applicant”) was/is the assigned solicitor for the plaintiff in the present action.  Legal aid certificate was issued to the plaintiff on 3 April 2001.

2. On 26 March 2007, the present action was compromised and settled pursuant to the order of DHCJ Gill (“Settlement Order”), which included an order awarding costs in favour of the plaintiff against the 1^st defendant (“Inter Partes Costs”).  After the Settlement Order, the 1^st defendant made payment on account of his liability for the Inter Partes Costs in the sum of $3,000,000.  On/about 30 May 2007, the applicant paid such sum in full to the Director of Legal Aid (“Director”).  The Inter Partes Costs were taxed (“Taxed Costs”), and an allocatur was sealed on 24 July 2008. On 8 August 2008, the 1^st defendant settled in full the balance of the Taxed Costs in the sum of $3,247,737.31.  Out of such balance sum, the applicant paid to the Director some $628,583.42.

3. Interest on the Taxed Costs runs from the date of the costs order (ie the Settlement Order) until payment.[1]  On 28 August 2008, the 1^st defendant paid interest on the Taxed Costs in the sum of $498,594.55 to the applicant (“Total Interest”).  On 8 May 2013, without prejudice to their stance that the Director is not lawfully entitled to interest on the portion of the taxed costs/disbursements out of the Taxed Costs that he has not borne by way of advance payment or reimbursement, the applicant paid to the Director a sum of $289,184 being, according to the Littlewood 1^st Aff,[2] part of the Total Interest “in the percentage of all party and party costs that the Director actually bore, to the payment of interest, or in respect of the balance of experts’ fees and so on for which he was due to account” (“Paid Interest”).  On 16 May 2013, the Director acknowledged receipt of the Paid Interest as part payment of the Total Interest on the Taxed Costs.  This means that the applicant is still holding (and has not accounted to the Director) the remaining balance of the Total Interest less the Paid Interest in the sum of $209,410.55 (“Balance Interest”).  In this Judgment, I shall refer to interest on taxed/agreed party and party costs/disbursements claimed and recovered for the aided person from the other party in the aided proceedings (“Other Party”) as “Interest on Costs”.

II.  SUMMONS

4. On 21 June 2013, the applicant applied by way of summons against the Director for inter alia the following reliefs (“Summons”):

(a) a declaration that the Director has no entitlement under section 19A or section 19C of the Legal Aid Ordinance Cap 91 (“LAO”) to claim Interest on Costs;

(b) alternatively, a declaration that the Director has no entitlement under section 19A or section 19C of the LAO to claim Interest on Costs insofar as the Director has not actually borne such costs prior to the taxation thereof.

5. On 24 June and 23 October 2013 respectively, the applicant filed the 1^st and 2^nd affidavits of the applicant’s principal Brian Lewis Littlewood in support of the Summons (“Littlewood 1^st and 2nd Affs”).  On 30 July 2013, the Director filed the affidavit of Assistant Principal Legal Aid Counsel Mo Yuk Wah of the Legal Aid Department (“Department”) in opposition.  The Summons came before me for hearing on 4 December 2013 (“Hearing”).

6. I shall quickly deal with a few preliminary matters.  First, the applicant and the Director/Department have corresponded copiously over the question of who is entitled to the Total Interest since 2008, but I find it unnecessary to refer to such correspondence in any detail save to elicit/ summarise the dispute between the applicant and the Director.  Secondly, given the nature of the declaratory reliefs sought under the Summons, which concern matters of principle, there is no need for me to deal with case-specific calculations.[3] In any event, given my conclusion below, such calculations are unnecessary.  Thirdly, the Summons is an interlocutory summons by non-parties in the present action and not an originating process.  Question arises as to whether this is procedurally correct, but the Director has not complained of procedural irregularity.  It appears that the Director and the applicant are both keen to seek a substantive adjudication, and I will deal with the Summons on such basis.

III.  OVERVIEW

7. I start with a brief overview of (a) the Ordinary Legal Aid Scheme (“OLAS”), (b) the relevant legislative provisions that are currently in force, and (c) the practice guidance by the Director/Department, and take the opportunity to dispose of certain matters that are not pertinent to the issue at hand.  Unless otherwise specified, the discussion below does not concern (i) the Supplementary Legal Aid Scheme (“SLAS”) since the plaintiff in the present action receives legal aid under the OLAS and/or (ii) assigned counsel since they have no interest in Interest on Costs.

(a)  Overview of the legal aid scheme

8. Funding for legal aid services mainly comes from the public purse (ie appropriations in the Government budget).[4] Section 16B of the LAO[5] provides inter alia that subject to the provisions of the LAO, where a person receives legal aid in connection with any legal proceedings, he enjoys various benefits afforded to him as specified in the provision.[6]

9. Under sections 16B and 20 of the LAO, the Director shall pay the fees and costs of the assigned solicitor as may be prescribed, and reimburse disbursements incurred by him.  The assigned solicitor does not have to pay disbursements as authorised by the Director[7] (and indeed the assigned solicitor is sometimes required to send disbursement fee notes, eg expert fee notes, to the Director for payment).[8] 

10. An aided person must, if required by the Director, pay to the Director a contribution towards the sums that may be or become payable on his account by the Director.[9]  Section 16C of the LAO sets out the liability of the aided person which under the OLAS is, subject to the Director’s first charge, limited to his contribution.  If the total contribution paid by the aided person exceeds the Director’s net liability on his account, the excess shall be repaid to him.[10]  If the contribution is less than the Director’s net liability on his account, then a sum equal to the deficiency becomes a first charge for the benefit of the Director.[11]  But subject thereto, an aided person shall not be liable for costs incurred by the Director on his behalf in excess of his contribution.[12]

11. As explained by Sir John Donaldson MR in Davies v Eli Lilly & Co & ors,[13] the first charge converts legal aid from a grant to a loan:

“ Put simply, …… legal aid helps those who lose cases, not those who win them. Legal aid makes ‘out and out’ grants to those who lose cases. It only makes loans to those who win them. ……

……

In other words, for the successful plaintiff the legal aid fund provides a loan, not a grant, at least to the extent that his damages are sufficient to repay the loan. Put slightly differently, every legally-aided plaintiff should realise that if he succeeds in recovering more by way of damages, costs and interest than it has cost to recover them, if the money actually paid by the defendant in respect of damages, costs and interest exceeds his own costs, which after all is what he expected, he will be in no better position than an unassisted litigant.” (my emphasis)

12. The underlying principle of the first charge has been described as being “to put the legally assisted person as far as possible in the same position in relation to proceedings as an unassisted person, whose first responsibility at the end of the proceedings is to pay whatever legal costs that are not being paid by the other side.  It prevents an assisted person from making a profit at the expense of legal aid and is deterrent to running up costs unreasonably”.[14] Plainly, the first charge is imposed to ensure that aided persons contribute towards the cost of funding their cases as far as they are able and to protect the legal aid fund.[15]

13. When a legal aid certificate is issued to an aided person, the Director may act for the aided person in any or any part of the proceedings, or he may assign solicitor and/or counsel to act for the aided person.  Even though the relationship among the aided person, the Director and assigned solicitor attracts privileges and rights like those which arise from the relationship of client and solicitor in their professional employment, the rights and obligations in respect of legal aid funding and payment/ reimbursement are statutory in origin and must be found primarily in the provisions of the LAO and the regulations made under it (and also in the terms of the Department’s assignment letter to and the confirmation/ undertaking in the completed Updated Data Form (Form LAP2) by the assigned solicitor).  It follows that the rules of common law and equity affecting the rights and obligations between a privately-funded client and his solicitor are relevant only insofar as they throw light on the true construction of the relevant statutory provisions and the legal aid assignment as between the Director and the assigned solicitor thereunder.

(b)  LAO

14. The current version of the LAO provides inter alia as follows:

“19A All moneys due to aided person to be paid to Director

(1) All moneys which may become payable to an aided person-

(a) by virtue of an order, including an order of the Court of Final Appeal, made in connection with the proceedings to which his legal aid certificate relates;

(b) by virtue of any agreement made in connection with the proceedings to which his legal aid certificate relates, whether such agreement be made before or after the proceedings are actually begun;

(c) being moneys paid into court or the Court of Final Appeal by him or on his behalf in connection with the proceedings to which his legal aid certificate relates and ordered to be repaid to him; or

(d) being moneys standing in court or in the Court of Final Appeal to the credit of any proceedings to which his legal aid certificate relates,

shall be paid or repaid, as the case may be, to the Director unless the Director by notice in writing to the person responsible for payment and to the aided person directs otherwise.

……

(3) The provisions of this section shall apply in relation to all sums which may become payable to an aided person, notwithstanding any provision in-

(a) the Employees' Compensation Ordinance (Cap 282); or

(b) the High Court Ordinance (Cap 4); or

(c) any other law,

which-

(i) restricts the payment of any sum to any person; or

(ii) prohibits the payment of any sum to any person.

(4) Only the Director shall be capable of giving a good discharge for moneys which may become payable to the Director under this section.

……

19B Disposal by Director of moneys paid to him

(1) Upon receipt of all moneys paid to him pursuant to section 19 or 19A, the Director shall-

(a) retain-

(i) any sum paid by virtue of an order or agreement for costs made in the aided person's favour;

(ii) a sum equal to the amount, if any, by which any property recovered or preserved is charged for the benefit of the Director by virtue of section 18A(1); and

(iii) any costs recovered in proceedings taken by the Director in his own name under regulations made under this Ordinance:

Provided that where the Director is satisfied that it would cause serious hardship to any person to retain any such sum under this paragraph and that it is in all the circumstances just and equitable to reduce the sum to be so retained, the amount to be so retained shall be reduced by such amount not exceeding $57400 as the Director may determine;

(b) pay to the Registrar of the High Court or the Registrar of the Court of Final Appeal any court fees and other fees and charges paid to him pursuant to section 19(1A); and

(c) pay the balance to the aided person or, if the court so directs, to the court or to some other person.

……

19C Interest on moneys paid to Director

(1) Any interest or dividend received by the Government under this Ordinance on all moneys paid to the Director by or on behalf of an aided person shall be paid into the general revenue.

(2) It is declared that any interest or dividend received by the Government under this Ordinance, prior to its amendment by the Legal Aid (Amendment) Ordinance 1991 (27 of 1991), on all moneys which have been paid to the Director by or on behalf of an aided person shall be deemed to be and to have always been part of the general revenue.

20 Costs of counsel and solicitors

There shall be paid by the Director to counsel and solicitor acting for an aided person such fees and costs for so acting as may be prescribed.”

15. Although the Director has initially relied on section 19C of the LAO, he now accepts that such provision being only concerned with interest that accrues on moneys he receives on behalf of the aided person is irrelevant.  Indeed, at the second reading of the Legal Aid (Amendment) Bill 1991 (“1991 HK Bill”), the then Secretary for Home Affairs explained that the purpose of section 19C of the LAO is to relieve the Director from liability to pay interest on moneys received by him on behalf of an aided person. 

16. Whilst Mr Millar complains against non-payment of interest that accrues on damages recovered on behalf of an aided person and held by the Director pending final accounting of such aided person’s account with the Director, there cannot be any doubt this is the very mischief that section 19C of the LAO is intended to address.  Indeed, when the 1991 HK Bill was introduced, the Government Administration made a ministerial statement to the Legislative Council (“LegCo”)[16] to explain the purpose of section 19C of the LAO which was to validate the then existing practice of the Director of “holding a portion of those damages pending taxation and payment of the costs” by the Other Party in order to meet his first charge without paying interest to the aided person in respect of all such monies held.[17] In any event, Mr Millar’s dissatisfaction is irrelevant to the issue at hand.

(c)  Data Update Forms

17. At page 3 of the completed Data Update Forms (Form LAP2) dated 11 July 2000 and 25 March 2012 given by Mr Millar to the Department, he has confirmedhis understanding that the costs payable to him in legal aid assignments under section 13 of the LAO including any advance payment made under regulation 6 of the Legal Aid (Scale of Fees) Regulations Cap 91C (“LA(SOF)R”) are governed by and subject to taxation as required by such regulations, and he further undertakes that if he is assigned any legal aid work, he will comply with the provisions of the LAO and its regulations, and any guidelines or directions issued by the Department from time to time which may apply to each assignment.  In my view, apart from the guidelines or directions issued by the Department discussed below, Mr Millar’s confirmation/undertaking do not advance matters beyond statutory rights and obligations.

(d)  Director’s guidance/directions

18. There is no dispute that the Director has a long-standing policy/practice of requiring assigned solicitors to seek Interest on Costs from the Other Party and to account to the Director any such interest received.  Mr Millar accepts he has access to the Manual for Legal Aid Practitioners (“LA Manual”), which is supplied by the Department to assigned solicitors taking up legal aid work, and which provides inter alia as follows:

“Chapter 7

Guidance Notes to Solicitors Handling Civil Cases

……

14. Costs and Taxation

14.1 Throughout the course of proceedings, you must seek costs orders in favour of the aided person especially in cases where the aided person has paid a contribution or where property has been recovered/preserved for the aided person giving rise to the First Charge. ……

……

14.3 Where costs are awarded in favour of an aided person at the conclusion of the case, you must agree party and party costs (including disbursements and court fees and any former assigned solicitor’s costs) with interest or commence taxation within 3 months after the completion date as provided for in Order 62 Rule 22(9) of the Rules of the High Court and Rules of the District Court. ……

……

14.10 Prior to taxation, the Director may make an advanced payment of your profit costs. The advance payment shall not exceed 75% of the amount which in the opinion of the Director would have been allowed if there had been taxation. The fact that advance payment has been made shall not preclude the Director from making any representations in subsequent taxation hearings as to the proper level of the costs payable to you.

……

14.17 Unless directed otherwise by the Director, you are under a duty to seek interest on taxed costs against the opposite party and to account to the Director for the interest received.”

But Mr Millar takes issue with the lawfulness of paragraph 14.17 of the LA Manual, and says that a long-standing policy/practice does not necessarily connote any lawful basis.  I will return to this below.

(e)  Director’s reminders

19. It is the Director’s practice to send a standard letter to an assigned solicitor upon the conclusion of a claim, and in the present case the Director wrote to the applicant on 16 April 2007 as follows:

“Upon conclusion of the claim,

1. You should remit the compensation monies to us once they are received pursuant to S.19A of the [LAO] and indicate to us your estimate of the ceiling of all costs and disbursements you incurred in these proceedings within 21 days for us to consider interim payment to the Aided Person.

2. If there is/are order(s) awarding costs against the Aided Person, you should also give us an estimate of the amount involved and try to get the opposite party(ies) to prepare the costs bill for us to consider.

3. You should recover costs from the opposite party(ies) within 6 months, or in any case not longer than 9 months, unless there are exceptional circumstances justifying the time required.

……

5. When you negotiate with the opposite party(ies) for the recovery of costs pursuant to a costs order/judgment, you should seek post-judgment interest on costs and account the same to us. Primarily, we are not prepared to waive our claim for interest unless costs can be agreed and paid promptly, ie within 6 months from the date of the settlement order/judgment or before the first call-over hearing for taxation whichever is earlier.

……

7. After settlement of costs, you should report to us the sum recovered and provide us with breakdown of your Party and Party Profit Costs and Disbursements in the attached proforma.

Your attention is also drawn to the part about Costs and Taxation as set out in the Guidance Notes to Solicitors Handling Civil Cases, Chapter 5 of [the LA Manual].”

It is plain that the applicant must be aware of the Director’s stance that (a) Interest on Costs may be waived to encourage early settlement of costs but not otherwise, and (b) an assigned solicitor should account to him Interest on Cost upon receipt.

(f)  Advance payments of profit costs

20. The Director assumes an obligation under section 20 of the LAO to pay the assigned solicitor such fees and costs as prescribed by the LAO and the regulations made it, and in this sense the assigned solicitor’s entitlement to his profit costs and disbursements as allowed under statute is guaranteed, and the aided person has the services of such assigned solicitor with liability limited to his contribution calculated by reference to his financial resources.[18]  It must be remembered that the assigned solicitor’s costs are not paid out of the first charge but are met by the Director from moneys provided by the LegCo[19] even though the aided person may bear the ultimate cost after ascertaining the net liability under the Director’s first charge.

21. The amount payable by the Director to an assigned solicitor is prescribed by regulations 5-6 of the LA(SOF)R:[20]

“5. The amount payable by the Director to a solicitor acting for an aided person shall be-

(a) the full amount allowed on taxation on account of disbursements;

(b) the full amount allowed on taxation on account of profit costs; and

(c) in cases where fixed costs are applicable and the solicitor has made an election to take fixed costs, the full amount of such fixed costs,

or, in default of taxation or where an election to take fixed costs has not been made, an amount as may be fixed by the Director, not exceeding such amount as in the opinion of the Director would have been allowed if there had been taxation or would have applied if there had been an election to take fixed costs.

6. (1)The Director may before taxation make an advance to counsel or solicitor of an amount not exceeding 75% of the sum which the Director estimates will be payable under regulation 4 or 5 and such advance shall be on account of moneys so payable.

(2) If the amount paid under subregulation (1) exceeds the amount payable under regulation 4 or 5, the counsel or solicitor, shall repay the excess to the Director.”

Section 22(1) of the LAO further provides that subject to the provisions of section 18(1) of the LAO, no person who, pursuant to any reference under the LAO, acts for an aided person, shall take or agree to take or seek from an aided person any fee, profit or reward (pecuniary or otherwise) in respect thereof.  Thus, under the LAO and LA(SOF)R, an assigned solicitor in carrying out assigned legal aid work, is only entitled to be paid the specified sums in the manner prescribed in regulations 5-6 of the LA(SOF)R and no more.

22. Mr Millar complains that an assigned solicitor is in a less advantageous position when compared with a privately-instructed solicitor because a privately-funded client is liable to pay all costs and disbursements actually/properly incurred pursuant to a proper retainer,[21] but regulation 5 of the LA(SOF)R requires an assigned solicitor’s costs/disbursements to be either taxed[22] or determined by the Director at his discretion, and regulation 6 of the LS(SOF)R at best only permits partial payment of the assigned solicitor’s profit costs under interim bills.  He adds that in reality the Director usually makes advance payment of less than 50% of the profit costs under the applicant’s interim bills despite provision of detailed narrative particulars of work done,[23] which he says is unfair and against the purpose of the LAO.

23. Mr Millar submits that in view of the “claw back” provision under regulation 6(2) of the LA(SOF)R, the Director should properly fund aided proceedings by advancing “on a regular normal basis, 75% of (profit) costs claimed” on the same rationale as expressed by Harris J in Re MF Global Holdings HK Ltd (No 2) for approving interim payment of provisional liquidators’ fees and expenses pending taxation against their and their agent’s undertaking to pay back any excess in the event their fees are reduced by more than 30% after taxation:[24]

“6. ……The reason for seeking an interim payment is that the amount of work undertaken to date had been considerable and that provisional liquidators and Linklaters cannot reasonably be expected to provide their services without at least a sizable payment on account of their fees. I accept that this is reasonable. Quite clearly it is unrealistic to expect professionals to carry out significant work without payment within a reasonable time period. The fact of the matter is that the taxation process does take some time and if the provisional liquidators have to wait for it be completed before they are paid and are able to pay Linklaters this would result in the professionals having to provide de facto financing for the process of collecting in and distributing client money. This is not their function and it would be unreasonable to impose it on them. I am satisfied that it is appropriate to order an interim payment of the fees that have been incurred of 70%.”

24. But apart from taking note that (a) the assigned solicitor’s entitlement to their fees and costs are prescribed by the LAO and the regulations under it (ie an assigned solicitor normally recovers profit costs on common fund basis whereas a privately-funded client normally has to pay for his/her solicitor’s services on solicitor and own client basis),[25](b) advance payments by the Director of an assigned solicitor’s profit costs are governed by regulation 6 of the LA(SOF)R that statutorily prohibits the Director from paying more than 75% of what he estimates will be payable under regulation 5 of the LA(SOF)R (whereas a privately-funded client may freely agree with his/her solicitor to provide for interim payments of costs and disbursements in their retainer), and (c) the tri-partite funding and payment relationship among the aided person, the assigned solicitor and the Director is driven by statute (whereas the retainer between a privately-funded client and solicitor is driven by contract), which matters I will return to below, I am unable to see how Mr Millar’s above complaints are relevant to the issue at hand.  In my view, this is not the occasion to debate the statutory or administrative discretion given to the Director (and not to the court) to make advance payments under the regulation 6 of the LA(SOF)R.

(g)  Liability for costs

25. Section 19 of the LAO provides that a court may make an order for costs in favour of or against an aided person in the same manner and to the same extent as it may make an order in favour of or against any other person but such an order may only be enforced against the aided person and the Director to the extent permitted by section 16C of the LAO, and where the court makes an order for costs in favour of an aided person there shall be payable by the person against whom the order for costs is made the court fees and charges which, but for section 16B(c)-(d) of the LAO would have been payable by the aided person.  Under section 16B(c) of the LAO, the aided person is not liable for court fees, fees for service of process and bailiff’s fees for execution of process in the aided proceedings, and “for the purposes of any order or agreement of costs made in his favour with respect to the proceedings such costs shall be deemed to have been paid by him and sections 19, 19A(1) and 19B(1)(b) shall apply accordingly”.  Plainly, in respect of recovery of party and party costs from the Other Party under a costs order made in favour of the aided person, the indemnity principle to some extent has been modified by statute.

26. Section 16C of the LAO sets out the liability of the aided person for costs.  Where a court makes an order for costs against an aided person or an agreement is entered into for the payment of costs by an aided person, in favour of a person not receiving legal aid, such costs are in general borne by the Director unless a contribution is payable by the aided person in which case the Director on behalf of the aided person shall pay such costs to the extent that the contribution is in excess of the costs incurred by the Director on behalf of the aided person.[26]

27. Mr Millar complains that by referring to sections 16B(b)-(c) of the LAO Ms Tang, who appears for the Director at the Hearing,  has ignored the situation where a person is not legally aided for the whole duration of the litigation since it is not uncommon for a litigant to apply for legal aid when he runs out of money or due to some change in circumstances.  But I fail to see the relevance of such contention since the “benefits afforded to aided persons”[27] as well as the question of entitlement to Interest on Costs must be considered within and not outside the context of the statutory legal aid scheme.

IV.  DIRECTOR’S STANCE

28. In a nutshell, it is the Director’s position that Interest on Costs accrues for his benefit (and hence to be credited to the general revenue) and not for the benefit of the assigned solicitor, so the applicant must account and pay to him the Total Interest to which the Director is entitled at law.

29. Ms Tang submits there has never been a policy intent that the assigned solicitor should be allowed to retain Interest on Costs.  She draws attention to the fact that when the Director defers enforcing his first charge in appropriate cases, simple interest at the prescribed rate is payable by the aided person on the amount of the first charge from the date of registration on the recovered or preserved property until payment.[28]

30. When a costs order is made in favour of an aided person, Interest on Costs becomes payable to the aided person by virtue of such order.  Since section 19A(1)(a) of the LAO covers inter alia “all moneys” which may become payable to an aided person by virtue of an order of the court made in connection with the aided proceedings, the assigned solicitor is legally obliged to account and pay to the Director both party and party costs and Interest on Costs recovered from the Other Party pursuant to a costs order unless the Director directs otherwise, and the Director shall retain all such moneys upon receipt thereof pursuant to section 19B(1)(a)(i) of the LAO.[29] By virtue of section 3(1) of the Public Finance Ordinance Cap 2, the moneys so retained shall be paid into the general revenue. 

31. Ms Tang says there is no provision in the “retainer” between the assigned solicitor and the Department and/or in the LAO and the regulations made under it thatempowersan aided person or an assigned solicitor to retain Interest on Costs or any portion thereof received from the Other Party.  If an assigned solicitor were to retain such Interest on Costs, it would be analogous to making a profit at the expense of public funds.  Unlike a privately-funded litigant, the aided person who is funded by the public purse does not have to put up any cost on account to meet the costs and expenses of the aided proceedings, which expenses are ultimately borne by the Director irrespective of the outcome of the case,[30] so the aided person does not bear any risk in terms of costs save to the extent of his contribution even if his claim fails.  Soeven though the costs order awards party and party costs in favour of the aided person, it is the Director who should be entitled to Interest on Costs. 

32. It is said that all along the Director has consistently maintained his entitlement to Interest on Costs, so Mr Millar must be well aware that such interest belongs to the Director and not to the assigned solicitor.  This has also been made clear in Chapter 7 of the LA Manual, which (a) requires the assigned solicitor to agree party and party costs (including disbursements, court fees and any former assigned solicitor’s costs) with interest or to commence taxation within three months after the costs order in favour of the aided person is granted at the conclusion of the case,[31] and (b)specifies that unless otherwise directed by the Director the applicant is under a duty to seek interest on taxed costs against the Other Party and “to account to the Director for the interest received”.[32]  Ms Tang submits that Mr Millar’s failure (despite the Director’s forbearance) to account to the Director the Total Interest already received from the 1^st defendant amounts to breach of the provisions in the LAO and in paragraph 14.17 of Chapter 7 of the LA Manual, and also breach of the undertaking in his Data Update Forms.

33. Ms Tang argues that since section 19B(1)(a)(i) of the LAO allows the Director to retain Interest on Costs upon being paid, he has a discretion to waive such Interest on Costs that has not been received from the Other Party if the party and party costs awarded in favour of the aided person are paid within six months of the costs order so as to encourage early settlement of costs and hence speedy payment of damages to the aided person.  But such waiver relates to the Director’s right to recover Interest on Costs from the Other Party and not his right to receive such Interest on Costs that has already been received from the Other Party by the assigned solicitor.  In the latter case, the Director has no discretion to waive Interest on Costs already received, which should be paid to the Director pursuant to section 19A(1)(a) of the LAO.  Hence, it is the duty of the applicant (who has agreed/received the Total Interest from the 1^st defendant in August 2008) to account to the Director the Total Interest promptly upon receipt. 

V.  APPLICANT’S POSITION

34. Although the applicant makes myriad complaints about the legal aid scheme, the essential arguments as distilled from Mr Millar’s written and oral submissions and the applicant’s letters to the Department are three-fold, which I shall summarise below.

35. First, Mr Millar submits that although there is no express provision in the LAO that empowers an assigned solicitor to retain Interest on Costs, there is likewise no express provision that directly prohibits him from doing so.  He says the Director has never satisfactorily explained the legal basis for his practice of claiming Interest on Costs and requiring assigned solicitors to account to him such interest recovered from the Other Parties, and unless there is a sound statutory/legal basis paragraph 14.17 of Chapter 7 of the LA Manual does not advance matters.

36. Mr Millar does not accept that section 19A(1)(a) of the LAO gives rise to any legal obligation on the part of an assigned solicitor to pay the Director any Interest on Costs received from the Other Party under any order/agreement in favour of the aided person unless the Director otherwise directs, or that the words “all moneys” in such provision cover not only damages payable to the aided person but also Interest on Costs.  Mr Millar submits that if the words “all moneys” in section 19A(1) of the LAO does not include Interest on Costs, then the Director has no entitlement.

37. Indeed, Mr Millar doubts whether taxed/agreed costs (let alone any Interest on Costs) in contra-distinction to damages recovered on behalf of an aided person come within the words “all moneys” in section 19A(1)(a) of the LAO such that they must be paid to the Director, especially when the Director has chosen not to make advance payments of the assigned solicitor’s profit costs or when the first charge has been fully repaid because the Director cannot be said to have any proper interest in such costs recovered from the Other Party.  But “in so far as such costs are paid by [the Director], having previously been paid out by him, then such “repaid” costs merely go to off set the previous payment out.  They are not paid into general revenue”. 

38. The applicant also suggests that the Director’s arguments do not accord with reality because on occasions when the Director has not incurred any disbursements or liability to any third party, taxed/agreed costs recovered from the Other Party have been paid directly to and retained by the applicant (albeit with the Director’s agreement).  The applicant complains that whether such agreement is forthcoming depends on the legal aid counsel handling the legal aid assignment.

39. It has also been suggested that if Interest on Costs falls into the general revenue and not for the Department’s benefit, it means that the Director will not suffer any loss should the court find he is not entitled to Interest on Costs on the basis that the words “all moneys” in section 19A(1) of the LAO do not cover Interest on Costs.

40. Mr Millar has not been able to find any case law that discusses the words “all moneys” in the context of the LAO or as a statutory phrase.  He refers to Stroud’s Judicial Dictionary of Words and Phrases[33] and Words and Phrases Judicially Defined[34] for general or popular definitions of the words “all” and “money” (most of which are in the context of testamentary dispositions).[35] I am not persuaded such dictionary definitions are of much assistance save that I note in general or ordinary meaning “all” means “all” and does not mean “some” and clear language is required to exclude things which may otherwise be included in it.  There is no need to consider the general or ordinary meaning of “money” since the Total Interest is either cash or credit in bank account held by the applicant. 

41. Secondly, Mr Millar argues that if the words “all moneys” in section 19A(1) of the LAO include Interest on Costs, then question arises as to (a) whether the Director has a discretion to waive interest that accrues on party and party costs, and (b) whether (because the Director claims he has such discretion) such discretion is statutorily limited to the period of six months from the costs order. 

42. As to (a) above, it is argued that it does not follow that because the Director has the right to claim Interest on Costs (which the applicant disagrees) he therefore has discretion to waive Interest on Costs upon recovery of party and party costs within six months of the costs order or any other period.  As to (b) above, notwithstanding the Director’s administrative policy to waive Interest on Costs if party and party costs are recovered from the Other Party within six months of the costs order to encourage early settlement of costs and hence speedy payment to the aided person, Mr Millar does not understand how the Director’s right under section 19B(1)(a)(i) of the LAO to retain sums paid to him pursuant to section 19 or section 19A of the LAO (which do not expressly refer to interest at all) justifies the limitation of the Director’s discretion to recovery of costs within six months of the costs order and not for other periods.  In any event, the Director cannot retain sums paid to him indefinitely since he has to defray solicitors’ profit costs, counsel’s fees and other disbursements (eg expert’s fees).

43. Mr Millar says that if the Director has (as he claims) discretion to waive Interest on Costs, it must be an unfettered one in the absence of any express statutory time constraint.  He says this is borne out by the applicant’s past experience when on more than one occasion the Director has agreed to waive Interest on Costs even though more than six months have elapsed since the date of the costs order.  Hence, there is no reason for the Director to decline exercise his discretion to waive Interest on Costs in this particular case even though (a) the 1^st defendant has paid the Taxed Costs more than six months after the Settlement Order and (b) the applicant has received the Total Interest from the 1^st defendant.  In any event, the Director should exercise his discretion in the applicant’s favour insofar as he has not funded their profit costs in the aided proceedings. 

44. Mr Millar therefore asks the court to determine (if the Director has an unfettered discretion to waive Interest on Costs) “whether the Director can lawfully impose such a blanket period and if he can, the legality of his varying the same and yet, without seeming individually considering this case, refusing to do so”.  In my view, insofar as the Director has discretion to waive payment of Interest on Costs by the Other Party in contra-distinction to discretion (if any) to waive Interest on Costs already received by the assigned solicitor from the Other Party, it is doubtful whether the applicant is entitled to challenge any exercise of the latter administrative discretion (if any) which is said to be vested in the Director (and not with the court) by judicial (and not administrative) proceedings.  In any event, this is beyond and outside of the declaratory reliefs sought in the Summons.

45. Thirdly, Mr Millar argues that even if the words “all moneys” in section 19A(1) of the LAO includes Interest on Costs, it does not follow that the Director “owns” the same such that it has to be paid to the Director pursuant to such provision. He draws analogy to damages recovered on behalf of the aided person from the Other Party, and says that the Director only has a first charge on (but does not own) such recovered damages.  Whilst Mr Millar accepts that (subject to certain exceptions) the Director’s first charge attaches to such recovered damages to cover his liability for costs/disbursements (a) incurred and eventually paid on behalf of the aided person and/or (b) payable and eventually paid to the Other Party, such first charge “does not apply” where the recovered damages exceed the aforesaid liability. 

46. Mr Millar says that as regards the Director’s suggestion that he is entitled to Interest on Costs because of his obligation to fund the aided person’s costs of the litigation and his liability for any costs that may be ordered against the aided person, it is not necessarily the position in practice because (a) it is not unusual for an aided person to be required to make a (sometimes sizeable) financial contribution, and (b) the Director only makes partial payment of the assigned solicitor’s interim bills and not as they fall due like a privately-funded client would have done.  Mr Millar says that in the present action, even allowing for the Director having borne[36] or has liability for disbursements, the Director has only made advance payment of about 43% of the interim profit costs claimed by the applicant or about 36% of their total profit costs out of the Taxed Costs allowed on party and party taxation.

47. Using the present action as an example, Mr Millar says the 1^st defendant made his first payment into court on 19 June 2005 in a sufficiently large amount to fully cover the Director’s liability for costs, and any risk in respect of the Director’s liability for costs was removed upon entry of interlocutory judgment on liability on 5 December 2005, thus leaving the aided person to be the only person at risk due to the first charge that might eventually be imposed on damages awarded to him. 

48. Mr Millar says that unless the assigned solicitor has been properly/fully paid on time by way of advance payments, it cannot be said that he makes a profit at the expense of public funds by retaining Interest on Costs.  It is unfair for the Director to claim Interest on Costs when he has chosen to only make partial payment of the assigned solicitor’s total profit costs as allowed on taxation and has not been out of pocket for at least part of the assigned solicitor’s profit costs for which he has not made any advance payment.  Hence, without prejudice to their entitlement to the Total Interest, the applicant has proposed to pay and eventually has paid to the Director the Paid Interest in recognition of the Director’s out-of-pocket advance payments of the applicant’s profit costs as allowed upon taxation.

49. Further, even though the Director (subject to his first charge) may have an obligation to pay costs incurred on behalf of the aided person, it does not automatically confer on him any entitlement to Interest on Costs because the aided personis still at risk in terms of any non-recovered costs or any costs awarded against him to the extent of his contribution (if any) under the first charge on any damages recovered from the Other Party.  It also does not follow that because interest is payable by the aided person when the Director defers enforcing his first charge in appropriate cases under section 18A(3B) of the LAO[37] there is therefore any policy intent that the Director is entitled to retain Interest on Costs received from the Other Party in the aided proceedings.

50. Mr Millar says that insofar as the Director also relies on his undertaking/understanding in the Data Update Forms, he denies any breach of undertaking because the applicant has all along made clear they will account to the Director any and all sums lawfully due to him.

VI.  STATUTORY INTERPRETATION

51. I have been reminded of the principles for interpreting and construing a statutory provision as summarised in HKSAR v Cheung Kwun Yin,[38] which is to adopt a purposive and contextual approach:[39]

“11. In interpreting a statute, the court’s task is to ascertain the intention of the legislature as expressed in the language of the statute. This is of course an objective exercise. The court is not engaged in an exercise of ascertaining the legislative intent on its own. As Lord Reid pointed out in Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591 at p.613G:

We often say that we are looking for the intention of Parliament, but that is not quite accurate. We are seeking the meaning of the words which Parliament used.

12. The modern approach is to adopt a purposive interpretation. The statutory language is construed, having regard to its context and purpose. Words are given their natural and ordinary meaning unless the context or purpose points to a different meaning. Context and purpose are considered when interpreting the words used and not only when an ambiguity may be thought to arise. In HKSAR v Lam Kwong Wai (2006) 9 HKCFAR 574 at p.606E, Sir Anthony Mason NPJ stated:

The modern approach to statutory interpretation insists that context and purpose be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity may be thought to arise.

See also Medical Council of Hong Kong v Chow Siu Shek (2000) 3 HKCFAR 144 at p.154B-C. As the Court pointed out in Town Planning Board v Society for the Protection of the Harbour Ltd (2004) 7 HKCFAR 1 at p.14A-C, the mischief rule is an early example of the purposive approach. And the purposive approach (including the mischief rule) has been reflected in Hong Kong in s.19 of the Interpretation and General Clauses Ordinance (Cap.1).

13. The context of a statutory provision should be taken in its widest sense and certainly includes the other provisions of the statute and the existing state of the law. See Town Planning Board v Society for the Protection of the Harbour Ltd at p.13I-J and Attorney-General v Prince Ernest Augustus of Hanover [1957] AC 436 at p.461.”

52. However, it is also important to bear in mind the words of Lord Millett NPJ in China Field Ltd v Appeal Tribunal (Buildings) (No 2) as follows:[40]

“36. ……There can be no quarrel with the principle that statutory provisions should be given a purposive interpretation, but there has been a distressing development by the courts which allows them to distort or even ignore the plain meaning of the text and construe the statute in whatever manner achieves a result which they consider desirable. It cannot be said too often that this is not permissible. Purposive construction means only that statutory provisions are to be interpreted to give effect to the intention of the legislature, and that intention must be ascertained by a proper application of the interpretative process. This does not permit the Court to attribute to a statutory provision a meaning which the language of the statute, understood in the light of it context and the statutory purpose, is incapable of bearing: see HKSAR v Lam Kwong Wai. ……”

VII.  HANSARD

53. There is debate as to whether certain passages from Hansard may be taken into account in order to ascertain the meaning of the statutory words. In this respect, Mr Millar draws attention to English guidance, ie the three conditions[41] set out in Pepper v Hart.[42] But I note the Court of Final Appeal in Cheung Kwun Yin has expressly left open the question whether and to what extent the approach in Pepper v Hart is applicable in Hong Kong.[43]

54. In my view, it is unnecessary to go into the question of the applicability of Pepper v Hart because the authorities draw a distinction between identifying the purpose of the statutory provision and ascertaining the meaning of the statutory words, which Li CJ in Cheung Kwun Yin has described as being “fundamentally different”.[44]

55. In applying a purposive and contextual approach to statutory interpretation, the legislative purpose must first be identified.  In Cheung Kwun Yin, Li CJ said as follows:[45]

“14. The purpose of a statutory provision may be evident from the provision itself.  Where the legislation in question implements the recommendations of a report, such as a Law Reform Commission report, the report may be referred to in order to identify the purpose of the legislation.  The purpose of the statutory provision may be ascertained from the Explanatory Memorandum to the bill.  Similarly, a statement made by the responsible official of the Government in relation to the bill in the Legislative Council may also be used to this end.  See PCCW-HKT Telephone Ltd v Telecommunications Authority (2005) 8 HKCFAR 337 at p.351F-J and Director of Lands v Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1 at p.15A-H.”

56. In PCCW-HKT Telephone Ltd v Telecommunications Authority, Bokhary PJ, with whom the other members of the Court of Final Appeal agreed, said as follows:[46]

“20. It has been clear at least since the decision of the Full Court in Elson-Vernon Knitters Ltd v. Sino-Indo-American Spinners Ltd [1972] HKLR 468 that the Objects and Reasons or Explanatory Memorandum annexed to a Bill is admissible for the purpose of ascertaining the mischief which the proposed statute was intended to remedy. Explanations given by Ministers when introducing a Bill are also admissible for that purpose. But to treat ministerial statements about the meaning and effect of proposed legislation as reflecting the will of the legislature would go beyond using such statements to ascertain the mischief against which a statute is aimed. Lord Millett NPJ, with whom the other members of this Court agreed, said this in Director of Lands v. Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1 at p.15 F-H:

“Such evidence is admissible for a limited purpose only, to enable the Court to understand the factual context in which the statute was enacted and the mischief at which it was aimed. This is not the same as treating the statements of the executive about the meaning and effect of the statutory language as reflecting the will of the legislature. Within the permissible limits, however, the admissible evidence is not confined to the Explanatory Memorandum of Objects and Reasons, but must logically extend to explanations given by Ministers when introducing the Bill.””

57. It seems to me that the Objects and Reasons or the Explanatory Memorandum annexed to various bills as well as the passages from Hansard discussed below are ministerial statements of the mischief(s) which the various provisions of the LAO are aimed, and as such those materials are plainly admissible for the purpose and to the extent of identifying the relevant mischief(s).  But in looking for what the LegCo intends to do, one does not just turn to those materials but has to consider the language of the statute as a whole.[47]

VIII.  LEGISLATIVE HISTORY

58. I set out below the relevant legislative history because the proper interpretation of the LAO is informed by an examination of the history of the LAO and the regulations made under it as well as the relevant Acts of Parliament and subsidiary legislation in England and Wales from where the local legislation has borrowed various provisions.

59. Mr Millar’s list of authorities refers to the Legal Aid Bill 1966 (Bill No 33/66, “1966 HK Bill”) and the Legal Aid Bill 1967 (Bill No 23/67, “1967 HK Bill”) as well as the Community Legal Services (Costs) Regulations 2000 (“2000 UK Reg”) and the Civil Legal Aid (Statutory Charge) Regulations 2013 (“2103 UK Reg”).  He says that the origin of section 19A of the LAO is unknown to him save that it was introduced by the 1967 HK Bill.  Ms Tang’s list of authorities additionally refers to the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“2012 UK Act”) and various English text and case law that in turn refer to the Legal Aid (General) Regulations 1971 (“1971 UK Reg”), the Legal Aid Act 1974 (“1974 UK Act”) and the Legal Aid Act 1988 (“1988 UK Act”).

60. Prior to the Hearing, I drew the attention of Mr Millar and Ms Tang to the Legal Aid Regulations 1966 (LN 89/66, “1966 HK Reg”), the Legal Aid (Scale of Fees) Regulations 1966 (LN 91/66, “1966 LA(SOF)R”) and the Legal Aid (Amendment) Ordinance 1984 (Ord 54/88, “1984 LAO”) in Hong Kong as well as the Legal Aid and Advice Act 1949 (“1949 UK Act”), the Legal Aid (General) Regulations 1950 (“1950 UK Reg”) and the 1971 UK Reg in England and Wales .

61. Quite evidently, there is some lacuna in Mr Millar’s and Ms Tang’s efforts in tracing the local and English legislative history.  In the account below, I shall try to piece together the legislative history, some of which pieces have been discovered in the course of preparing this Judgment. 

62. For the avoidance of doubt, I have not attempted to and it is unnecessary for the present purpose to trace every amendment in the evolution of the LAO (and the regulations made under it) and their English counterparts. Further, since the issue at hand concerns Interest on Costs, I shall only focus on the major developments of the relevant provisions and on their effect on assigned solicitors rather than assigned counsel.

(a)  Overview of UK legislative history

63. In England and Wales, the modern system of legal aid was created by the 1949 UK Act which, amongst other matters, provides for the remuneration of counsel and solicitors as well as the statutory machinery for administering and financing the scheme (which at that time was administered by the Law Society).[48]  The 1949 UK Act was amended by the Legal Aid Act 1960 (“1960 UK Act”)[49] and the Legal Aid Act 1964.[50]  Much subordinate legislation was made under the 1949 UK Act of which the most relevant are the 1950 UK Reg and the 1971 UK Reg. 

64. The above legislation was consolidated and re-enacted as the 1974 UK Act, which provided for administration of the legal aid scheme by the Law Society and establishment of the Legal Aid Fund.  The relevant regulations are the Legal Aid (General) Regulations 1980 (“1980 UK Reg”).[51]  The 1974 UK Act was replaced by the 1988 UK Act, the purpose of which was to establish a new framework for the provision of legal advice, assistance and representation.[52] The 1988 UK Act removed administration of the legal aid scheme from the Law Society, and it became the responsibility of the Legal Aid Board.  A number of regulations made under such enabling Act came into operation on 1 April 1989, including the Civil Legal Aid (General) Regulations 1989 (“1989 UK Reg”).[53]

65. The 1988 UK Act was repealed and (subject to certain transitional provisions) replaced by the Access to Justice Act 1999 (“1999 UK Act”).  Civil legal aid was replaced by the Community Legal Service, and the Legal Aid Board was replaced by the Legal Services Commission.  The 1999 UK Act excluded inter alia personal injury cases (other than clinical negligence) from the scope of legal aid.  The relevant regulations are the 2000 UK Reg.

66. Further legal aid reforms took place and eventually resulted in the 2012 UK Act that has made fundamental change to the English legal aid system and civil legal aid funding.  The 2012 UK Act came into force on 1 April 2013, gave the Lord Chancellor overall responsibility for legal aid, and limited the scope of issues eligible for civil legal aid funding.  Cases that commenced prior to 1 April 2013 remain covered by the scheme under the 1999 UK Act.  The relevant regulations under the 2012 UK Act are the 2013 UK Reg.

(b) Overview of the Hong Kong legislative history

67. In October 1966, the Government gazetted the 1966 HK Bill which was drafted on the basis of the 1949 UK Act with some modifications based on Singaporean legal aid legislation.[54] Such bill empowered the Governor to appoint a Director of Legal Aid, and sought to make legal aid available in civil proceedings (except those that were specifically excluded).[55] The 1966 HK Bill was enacted as the Legal Aid Ordinance 1966 (Ord No 36/66, “1966 LAO”), and regulations made thereunder included the 1966 HK Reg and the 1966 LA(SOF)R.  The 1967 HK Bill was enacted as the Legal Aid (Amendment) Ordinance 1967 (Ord No 27/67, “1967 LAO”).  It introduced a new section 19A.  The 1967 LAO came into effect on 19 May 1967.  On the same day, the Legal Aid (Amendment) Regulations 1967 (LN 56/67, “1967 HK Reg”) came into operation to make minor amendments.  The Legal Aid (Amendment) Ordinance 1968 (Ord No 9/68, “LAO 1968”) added a new section 19B.

68. In 1967, a sub-department of the Judiciary called the Legal Aid Section came into operation.  In 1970, the Department was established to take over the administration of legal aid.[56] In 1973, the Department established a Litigation Unit, and in 1974 its scope of work was expanded to include civil legal aid.[57]

69. The Legal Aid (Amendment) Bill 1981 (“1981 HK Bill”) was introduced into the LegCo to remove the uncertainty that has arisen over whether the Director’s power to realise costs out of recovered property extended to out-of-court settlements in the same way as it applied to property recovered under a court order,[58] and the Legal Aid (Amendment) Ordinance 1981 (Ord No 60/81, “1981 LAO”) was eventually passed and enacted.

70. In 1982, the Legal Aid (Amendment) Bill 1982 was introduced into the LegCo to make legal aid available in civil appeals to the Privy Council,[59] and such bill was eventually passed as the Legal Aid (Amendment) Ordinance 1982 (Ord No 14/82).  Then, the Legal Aid (Amendment) Ordinance 1984 (Ord No 54/84, “LAO 1984”) was enacted to establish the SLAS, which came into operation on 1 October 1984.[60]  The working of the legal aid scheme was further improved by the Legal Aid (Amendment) Ordinance 1989 (Ord No 40/89, “1989 LAO”).[61]  As explained above, the 1991 HK Bill proposed, amongst other matters, the insertion of a new section 19C to the LAO.[62]  Such bill was enacted as the Legal Aid (Amendment) Ordinance 1991 (Ord No 27/91, “1991 LAO”).

71. By the Hong Kong Court of Final Appeal Ordinance (Ord No 79/95), consequential amendments were made to sections 19A(1)(a), (c) and (d), 19A(2) and 19B of the LAO by replacing references to “Privy Council” with “Court of Final Appeal”.  The Legal Aid (Amendment) Bill 1996 introduced into the LegCo proposed to increase the financial eligibility limits for the legal aid schemes.  When the Legal Aid (Amendment) Ordinance 1997 (Ord No 8/97) was enacted, the maximum amount that may be reduced by the Director under section 19B(1)(a) of the LAO was increased from $30,000 to $57,400.[63] By the Adaptation of Laws (Courts and Tribunals) Ordinance (Ord No 25/98), references to “Supreme Court” in section 19A(3), 19B(1)(b) and 20A(2) of the LAO were repealed and replaced by “High Court”. 

(c)  Historical statutory provisions

72. I set out in the schedule attached to this Judgment the relevant historical legal aid statutory provisions in Hong Kong and in England and Wales. For convenience, I also set out the Objects and Reasons or Explanatory Memorandum for some of the relevant local legal aid bills and the Explanatory Note for some local legal aid regulations.  Where appropriate, I also set out Hansard material that goes to the purpose of the then proposed legislative provisions.

IX.  DISCUSSION

(a)  Incipitur rule

73. It is necessary to start with a proper understanding of the nature of Interest on Costs.  To do so, one must begin with the incipitur rule.  Neither Mr Millar nor Ms Tang has gone into any detail about the incipitur rule although they both accept that Interest on Costs runs from the date of judgment/order and not from the date of the allocatur, ie the allocatur rule.  Following from this, two matters are of note. 

74. First, the incipitur rule (or indeed the allocatur rule as well) means that Interest on Costs which runs from the date of the judgment/order is not awarded on costs incurred and paid by the successful party before judgment; it does not depend on whether the receiving party (usually the successful party) has been out of pocket.  Such non-discretionary statutory interest is automatically paid pursuant to a costs order which carries interest under section 49 of the High Court Ordinance Cap 4 (“HCO”) as if it were a judgment debt. 

75. In McPhilemy v Times Newspapers (No 2)[64] cited in Shih Pik Nog v G2000 (Apparel) Ltd,[65] Chadwick LJ explained that a successful claimant “will get interest in his costs from the date of the order (whether he has actually paid them or not); but he will get nothing to compensate him for the cost of money (or the loss of use of money) which he has had to bear before trial in relation to payments which he has made on account of costs” (my emphasis).  McPhilemy in turn refers to the leading case of Hunt v R M Douglas (Roofing) Ltd[66] in which Lord Ackner, with whom the other Law Lords agreed, concluded that while a satisfactory result cannot be achieved in every case, the balance of justice favoured the incipitur rule, and one of the reasons given was that “it is the unsuccessful party …… who …… has caused the costs unnecessarily to be incurred, [and, since] interest is not awarded on costs incurred and paid by the successful party before judgment, why should he suffer the added loss of interest on costs incurred and paid after judgment?” (my emphasis) It is therefore plain that Interest on Costs has no correlation with the payment or non-payment by the receiving party in respect of profit costs and/or disbursements to his/her solicitor prior to taxation.

76. Mr Millar accepts it may be argued that insofar as the Director has not made advance payments of costs and disbursements prior to taxation then there should be no entitlement to Interest on Costs to be paid by the Other Party, but he does not pursue such suggestion because (a) the Director controls when an assigned solicitor will receive (and how much he will receive in respect of) costs against interim bills under regulation 6 of the LA(SOF)R and (b) entitlement to Interest on Costs is prescribed under section 49 of the HCO.  In my view, such argument (which Mr Millar shies away from) demonstrates the fallacy of the contention that the Director cannot rest on his own failure to pay for costs for which he is liable and yet still demand Interest on Costs. The suggested link between advance payments of incurred costs/disbursements and eventual entitlement to Interest on Costs is unsustainable because it leads inexorably to the conclusion (which I disagree) that absent advance payment of costs/disbursements by the receiving party to his/her own solicitor the Other Party simply has no obligation to pay Interest on Costs.  But the reality is that the 1^st defendant has paid the Total Interest and, as Mr Millar recognises, entitlement to such Interest on Costs is prescribed under section 49 of the HCO and automatically follows a costs order.

77. Secondly, in a privately-funded case, party and party costs under a costs order made in favour of a successful receiving party are payable by the unsuccessful paying party to such successful party and not to his legal advisors.  This is quite a separate matter from such successful party’s own obligation to pay the fees and costs of his/her own legal advisors.  Likewise, Interest on Costs that is carried on a costs order pursuant to section 49 of the HCO is payable to the litigant and not to his legal advisors, especially when he has not made payment to his legal advisors in respect of costs prior to taxation.

78. This is borne out by Lord Ackner’s judgment in Hunt which refers to K v K (Divorce Costs: Interest).[67]  In that case, a wife claimed for interest on costs/disbursements ordered in her favour on 17 May 1974.  Her costs/disbursements were taxed, and on 18 August 1975 her husband was ordered to pay within 28 days the sum of £16,651.67.  He paid well within the 28 days.  The English Court of Appeal ruled that the allocatur rule applied and dismissed the wife’s claim.  This decision was overruled by Hunt which applied the incipitur rule.  But in K v K it was revealed that the wife’s solicitors only paid disbursements for counsel’s fees and bills for English and American lawyers and accountants after those bills were taxed and after the relevant period of interest of costs which under the incipitur rule would have started to run as from 17 May 1974.  Since the disbursements were unpaid, Lord Denning MR said at p 46 that “…… [the wife] is claiming that interest for her own benefit.  If she were to recover that interest, she could not hand it over to the counsel or lawyers or accountants.  She would keep it herself and pay tax on it ……”

79. The case of Erven Warnik BV & ors v J Townend & Sons (Hull) Ltd & ors (No 2)[68] cited in Hunt was also overruled as it followed K v K and the allocatur rule.  In that case, Fox LJ at p 320 rationalised the application of the allocatur rule on the basis that “…… [if], therefore, [the successful litigant] has made payments to his lawyers in respect of costs prior to taxation (and it is likely nowadays that he will) it is difficult to see why he should be denied interest as from the date of judgment or later payment on the amounts from time to time paid (up to the aggregate ultimately allowed on taxation).  On the other hand, interest cannot be allowed in the K v K situation ……”

80. However, Lord Ackner in Hunt at pp 415-416 thought the allocatur rule would do greater injustice than the incipitur rule when there has been advance payment of costs to lawyers prior to taxation, and the incipitur rule which allows Interest on Costs to be paid to the successful receiving party may provide stimulus for him to make payment on account of costs and disbursements prior to taxation to relieve the unsatisfactory situation of having barristers, solicitors and expert witnesses finance their client’s litigation until taxation.  Lord Ackner also recognised that to overcome the unsatisfactory situation in K v K, an express agreement between the solicitor and his/her client (to the effect that any Interest on Costs recovered on costs/disbursements after judgment is pronounced but before the taxing master’s certificate is obtained, but which costs and disbursements have not in fact been paid prior to taxation, shall as to such Interest on Costs as to profit costs belongs to the solicitor, and as to such Interest on Costs as to disbursements be held by him for and on behalf of the person(s) to whom the disbursements are ultimately paid) would be required.

81. The above reinforces the conclusion that Interest on Costs has no correlation with any advance payment of profit costs and/or disbursements prior to taxation.  Rather the incipitur rule, which simply allows statutory interest payable to the successful receiving party to run from the date of the costs order irrespective whether the costs/disbursements have been incurred and paid, is thought to provide greater incentive for such successful receiving party to make advance payments to his legal advisors.  But notwithstanding such encouragement, the law is that where costs and disbursements have not been paid, the legal advisors are, quite simply, not entitled to Interest on Costs, which situation (though unsatisfactory) can only be overcome by an express solicitor and client agreement.  This means that prior to payment and in the absence of any express agreement otherwise, it is the successful receiving party (and not his legal advisors) who is entitled to statutory Interest on Costs that follows from the costs order in his favour.

82. Both Ms Tang and this court have referred to the Legal Services Commission Manual published by the Legal Services Commission in England and Wales (“LSC Manual”) at the Hearing.  Ms Tang refers to a version of the LSC Manual updated to 2009 and this court refers to a version updated to 2003.  However, for the parts of the LSC Manual referred to in this Judgment, there is no difference between the two versions.  For consistency, I shall refer to the 2003 version of the LSC Manual instead of the faxed extract of the 2009 version produced by Ms Tang.  Mr Millar submits that the LSC Manual is unknown to the applicant, but it is plain from the LSC Manual itself that it is a reference tool that provides guidance on the civil legal aid scheme for organisations providing legal aid in England and Wales.

83. The above discussion is born out by the LSC Manual inter alia as follows:

“3.47 Interest on Costs

Legal Aid Act 1988 Cases – What is Interest on Costs?

1. The Judgments Act 1838 gave a statutory right to interest on High Court judgments and orders. Once judgment is obtained, interest runs automatically and is recoverable from the opponent. Section 18 of that Act provides that interest also runs on any orders for costs.

2. Statutory interest on costs only arises where there is a court order for the payment of costs. If, for example, an action is settled on payment of an agreed of an agreed sum for damages and costs, but the court order disposing of the action makes no order for costs between the parties, interest on costs does not arise.

……

Who does Interest on Costs Belong to in a Non-Legal Aid Case?

5. In the absence of legal aid, interest on costs prima facie belongs to the client. It is payable to the client just like any other order between the parties. …… the House of Lords upheld the Incipitur Rule so that interest on costs can be recovered by the client whether or not the client has paid the solicitor. Such a conclusion is possible because interest on costs arises automatically under statute, so that normal contractual principles of restitution cannot be directly applied.

6. The solution is for solicitor and client to enter into an agreement as to the treatment of interest on costs, ensuring that the interest is paid to whoever has been waiting for their money. Such an agreement was recommended by Lord Ackner and is now commonly entered into in contentious business agreements between solicitors and clients. ……” (my emphasis)

(b)  Effect of legal aid intervention

84. If the successful receiving party with a costs order in his favour is legally-aided rather than privately-funded, is there any difference?  The starting point for party and party costs is section 19 of the LAO, ie the court may make an order for costs in favour of the aided person “in the same manner and to the same extent as it may make an order for costs in favour of …… any other person ……” Further, the applicability of section 49 of the HCO does not draw any distinction between aided and non-aided persons as the receiving party for Interest on Costs.  This means that if a costs order is made in favour of an aided person, then Interest on Costs is payable to him (and not to the assigned solicitor) by the Other Party. 

(c)  Applicant’s entitlement

85. The next question is whether the assigned solicitor has any interest or claim over the statutory Interest on Costs that is payable by the Other Party to the aided successful receiving party pursuant to the costs order.  As explained in paragraphs 20-21 above, an assigned solicitor in carrying out legal aid work is only entitled to be paid the sums specified in the manner stipulated in section 20 of the LAO and regulations 5-6 of the LA(SOF)R and no more, and he looks to the Director and not to the first charge for payment out of the public purse even though on final accounting as between the aided person and the Director the aided person may have to bear the ultimate cost. 

86. Going back a little into legislative history, the precursor of section 20 of the 1966 LAO is section 6 of the 1949 UK Act (which provides for payment of remuneration to the assigned solicitor by the Legal Aid Fund operated by the Law Society) which is later replaced by section 10 of the 1974 UK Act, and the precursor of regulation 5 of the 1966 LA(SOF)R is the Third Schedule to the 1949 UK Act (as amended by section 2 of the 1960 UK Act) which is later replaced by Schedule 2 of the 1974 UK Act. 

87. Although section 20 of the 1966 LAO is the same as the current version, regulation 5 of the 1966 LA(SOF)R that guarantees the assigned solicitor’s profit costs (80% of the amount allowed on taxation) and disbursements (full amount allowed on taxation) or an amount determined by the Director is different.  Such regulation has eventually evolved to become the current version that provides for payment of the full amount allowed on taxation on account of both profit costs and disbursements or an amount fixed by the Director in default of taxation.

88. I have referred Mr Millar and Ms Tang to Matthews and Oulton, Legal Aid and Advice under the Legal Aid Acts 1949 to 1964,[69] which explains that:

“[solicitors] …… acting for assisted persons have a statutory right to costs. These are payable to them out of the Fund and they may not look for payment to their client nor to any other source. The amounts due are normally ascertained by a legal aid taxation carried out by a taxing officer on a common fund basis in accordance with the third schedule of the Act of 1949, but in certain cases they are assessed by an Area Committee without taxation. For work done in the House of Lords and the Supreme Court the profit costs and counsel’s fees are subject to a statutory deduction of 10 per cent; for county court cases the full amount are payable. ……” (my emphasis)

89. Two matters are of note.  First, it is evident from the above passage from Matthews and Oulton that whilst the legal aid scheme envisages defraying the cost of assistance to aided persons from the legal aid fund sourced from the public purse, the statutory creation of the legal aid scheme contemplates that occasionally the scheme may make a profit which will be retained for the benefit of scheme and hence the public purse.  In the early days, there might be occasions when sums recovered in respect of costs in aided proceedings exceeded sums paid to the assigned solicitor, eg the aided person enjoyed the benefit of 20% deduction made from the costs of his assigned solicitor in the aided proceedings.[70] It is said that such costs will be “retained” “even if they exceed the total amount paid out on the aided person’s behalf, so that in certain circumstances it may make a profit. ……”[71] Regulation 5 of the 1966 LA(SOF)R has since been replaced by the current regulation 5 of the LA(SOF)R that allows for the full amount of costs allowed upon taxation.  But, as both Mr Millar and Ms Tang agree, section 19C of the LAO relieves the Director from paying interest on moneys received by him on behalf of an aided person, and the Director is entitled to retain such interest.  What the above demonstrates is that it is not necessarily foreign to the statutory legal aid scheme under local legal aid legislation for the Director to “retain” gains derived from the “success” by aided persons in the aided proceedings.

90. Secondly, since regulation 5 of the LA(SOF)R prescribes that the amount payable to assigned solicitor shall be the full amount allowed on taxation on account of profit costs and disbursements or an amount determined by the Director in default of taxation, the assigned solicitor’s entitlement to remuneration, which is statutory in origin, plainly excludes Interest on Costs since such interest is automatically derived from the costs order and section 49 of the HCO and not from any taxation/allocator.  Indeed, throughout the legislative history of the LAO and the regulations made under it, there has never been any provision for payment to assigned solicitors of any statutory Interest on Costs that follows from costs orders in favour of the aided persons.

91. The above analysis is also borne out by the LSC Manual as follows:

“Position under Legal Aid Act 1988 and Regulations

7. As explained below, interest on legal aid costs is always payable to the Legal Aid Fund. …… one must look to the Act and Regulations and relevant authorities to decide how the grant of legal aid affects entitlement to interest on costs.

8. Where a legal aid certificate was issued, the primary obligation to pay the solicitor fell on the Board rather than the client (section 15(6) Legal Aid Act 1988), and solicitors could receive payment from no other source (Regulation 64 of the General Regulations). Therefore regarding payment of costs, the Board stepped into the position of the client. ……

9. …… Further, there was nothing in the 1988 Act or Regulations under it allowing the Board to pay out interest on costs to the solicitor, except as described below.[72]”

92. In my view, this is quite sufficient to dispose of the matter.  Since the applicant has no right to receive the Total Interest, especially any such interest on profit costs and disbursements that have been incurred but unpaid prior to taxation in the absence of any express agreement which provides otherwise (and there cannot be such agreement with the Director in view of regulation 5 of the LA(SOF)R), they are duty bound to account the whole of the Total Interest to the Director.  The applicant, who is not entitled to the Total Interest or any part thereof, is not concerned with the disposal of such interest as between the Director and the aided person.  However, in deference to the submissions made by Mr Millar and Ms Tang, I will go further.

(d) Enhanced interest

93. But before I go further, I would like to deal with case law cited by Ms Tang and discussed by Mr Millar on enhanced interest on costs under Order 22 rules 22-23 of the Rules of the High Court (“RHC”).  I should say at the outset that reference to such case law is merely for analogy because we are now dealing with statutory interest on costs (pursuant to a costs order in favour of the aided person and section 49 of the HCO) that runs from the date of the costs order and not enhanced interest under the Order 22 regime that runs from the last date for acceptance of the sanctioned offer/payment.

94. In KR v Bryn Alyn Community (Holdings) Ltd (in liq), the English Court of Appeal said:[73]

“ If this were not a publicly funded case then the position would be straightforward. If an order is made to pay costs on an indemnity basis, it is unlikely to be unjust to make the party pay interest on those costs for the period when litigation is being funded when acceptance of a Pt 36 offer should have led to it not being funded. There may be cases where evidence will demonstrate actual dates when clients had put up funds and from which interest will run. Without such evidence the court can do no more than …… make the interest run from the date when the work was done or liability for disbursements incurred. ……

……

Should the position be any different because the claimants were publicly funded? In our view the position should be no different. In the circumstances we do not think it would be unjust to order interest at the rate of 4 per cent over base rate on the costs from the date upon which the work was done or liability for disbursements incurred up until the date when the judge made his order for costs.” (my emphasis)

95. In Shih Pik Nog, Bharwaney J dealt with the issue of enhanced interest on costs as follows:[74]

“18. In my judgment, save for legally-aided parties, it is incumbent on the party seeking interest on costs, be that party a plaintiff or a defendant, to state, in his supporting affidavit, the amount of disbursements, costs, and costs on account paid to his solicitors during the period commencing from the last date of acceptance up to the date of supporting affidavit, and the date(s) of payment. Upon sight of this information, the court can either refuse to make or make an order for enhanced interest on the actual amounts of disbursements, costs, and costs on account paid during the relevant period ……

19. The matter was not argued before me and may have to be decided in an appropriate case. However, I would indicate my agreement with Waller LJ who stated in para.23 of his judgment in KR v Bryn Alyn Community (Holdings) Ltd that the court has power to award enhanced interest on costs to parties who are publicly funded and who may obtain an award of enhanced interest on costs and disbursements which may have been incurred but not yet paid or fully paid. …… Although I incline to the view that the interest or enhanced interest ordered to be paid pursuant to O.22 rr.23 or 24 in a legally-aided case ought to be paid to the [Director] instead of the aided person, I refrain from deciding this point as I have not had the benefit of argument on this point. However, the fact that publicly-funded plaintiffs may be able to obtain an award for enhanced interest on costs incurred but not yet paid or not yet fully paid by the [Director] does not, in my judgment, justify an order for enhanced interest on costs incurred but not yet paid by privately-funded parties.” (my emphasis)

96. Bharwaney J adjusted his aforesaid views in Fung Chun Man v Hospital Authority.[75]  He awarded enhanced interest to one of the defendants who was publicly funded and represented by the Department of Justice on that basis that “[if] any such costs were incurred during the period from the last date of acceptance of the sanctioned payment or offer until the date of judgment, an order for enhanced interest may be made in respect of such costs, from the dates on which the work was done up to judgment, notwithstanding that no payment in respect of or on account of those costs had been paid by the aided person or government department involved in the litigation” (my emphasis).[76] But in respect of enhanced interest on disbursements, Bharwaney J said:[77]

“5. Just as private solicitors pay disbursements, including fees for experts’ reports and counsels’ fees, so does the Legal Aid Department and the Secretary for Justice. …… An order for enhanced interest should be made from the date of payment of such fees and disbursements and not from the date liability for the payment of such fees and disbursements costs accrued. An award of enhanced interest from the date liability for the payment of such fees and disbursements costs accrued would produce an unjust windfall for the receiving party. For this reason, I decline to follow Waller LJ who was prepared to award enhanced interest from the date liability for the payment of such fees and disbursements costs was incurred by the publicly funded body (see para.23 of his judgment in KR v Bryn Alyn Community (Holdings) Ltd (in liq) [2003] PIQR P30 (p.562), 570.” (my emphasis)

97. It appears from the above case law that in dealing with the question of enhanced interest under Order 22 of the RHC Bharwaney J draws a distinction between legally aided and privately-funded claimants, and in respect of legally aided cases he draws a further distinction between enhanced interest on costs (recoverable on the basis that they have been incurred but may or may have been fully paid) and enhanced interest on disbursements (recoverable only on the basis that they have been incurred and paid).  Mr Millar does not disagree with the principles in these authorities, but he focuses his attention on the application of those principles to the particular facts of the present case.

98. In my view, the nature of enhanced interest under consideration in the above case law is quite different from that of Interest on Costs in that the former requires an exercise of judicial discretion[78]  whilst the latter is the automatic statutory consequence under section 49 of the HCO following a costs order without need for any further order by the court.  Nevertheless, the approach adopted by Bharwaney J for enhanced interest on incurred but not necessarily paid profit costs (but not disbursements) in legally aided cases lends analogous support for my conclusion that the successful receiving party’s entitlement to Interest on Costs is not dependant on advance payments of such costs prior to taxation.  Surely, if prior advance payments of profit costs are not required for awarding enhanced costs in legally aided cases under the discretionary Order 22 regime, it should not be required for non-discretionary statutory Interest on Costs that follow from a costs order.  Bharwaney J’s approach as to claims by aided persons for enhanced interest on incurred and paid disbursements can only be explained on the basis of his exercise of discretion under Order 22 rules 23(5) and 24(4) of the RHC that it would be “unjust” to allow enhanced interest on unpaid disbursements, but such discretion does not come into the picture at all for automatic Interest on Costs pursuant to the costs order. I do not forget the learned judge has

inclined to the view (though he has not decided) that enhanced interest on incurred but unpaid costs should be payable to the Director and not to the aided person.  There is no suggestion that such enhanced interest inures to the benefit of the assigned solicitor, and I will return to this point below.

99. Mr Millar draws my attention to the rationale expressed in Shih Pik Nog against awarding indemnity costs in favour of a privately-funded defendant payable by a legally aided plaintiff and against awarding enhanced interest in favour of a defendant who in fact is an insurance company,[79] but these scenarios are irrelevant to the present situation and ultimately they have not dissuaded the learned judge from ordering indemnity costs and enhanced interest (but not enhanced interest on costs/disbursements incurred after the last date of acceptance in Shih Pik Nog or paid by the 1^st defendant after the date of judgment in Fung Chun Man).  In suggesting the aforesaid rationale supports his submissions that any receipt of Interest on Costs by the Director when he has not made full advance payments of the Taxed Costs creates an unjust windfall, Mr Millar has ignored the careful distinction that Bharwaney J has drawn between publicly-funded and privately-funded claimants even though he does not say that such distinction is in any way incorrect.

100. Mr Millar next argues that salaried government counsel acting for the publicly-funded 2^nd defendant in Fung Chun Man, who are not subject to time-costing or generation of work/costs that govern their eventual emoluments, and who do not render interim bills to the client department, are fundamentally different from assigned solicitors whose livelihood depends on their profit costs from assigned cases.  On such basis, he says, there is no difference in practice or principle between an assigned solicitor and an assigned counsel, and an assigned solicitor’s profit costs (like counsel’s fees) come within the purview of disbursements, which according to Fung Chun Man attracts enhanced interest in appropriate cases when such solicitor’s costs and/or counsel’s fees have been paid (and not when liability for payment has accrued) to avoid a windfall for the receiving party.

101. In my view, such argument is misconceived.  First, I am unable to accept that an assigned solicitor’s profit costs are disbursements and not costs.  Mr Millar’s awkward tailoring of his argument to fit in with the reasoning in Fung Chun Man leads to the surprising position that there will be no costs but only disbursements in legally aided cases.  This cannot be right (and it contradicts regulation 5 of the LA(SOF)R).  Indeed, Bharwaney J in Fung Chun Man distinguishes costs from disbursements in dealing with enhanced interest in legally aided cases.  The learned judge says that enhanced interest may be made on incurred “costs” even though no payment in respect of or on account of those costs has been made by the “aided person”.  It is difficult to imagine what those “costs” (in contra-distinction to disbursements) are if the assigned solicitor’s profit costs are regarded as disbursements.  In discussing enhanced interest on disbursements, the learned judge refers to expert’s reports, counsel’s fees and the like, which he says the Department has to pay “as private solicitors pay disbursements”.  In my view, they do not include assigned solicitor’s profit costs.

102. Secondly, it must not be forgotten that the question of enhanced interest is a matter between the opposing litigants and not between the receiving party and his solicitor.  This is so even in aided proceedings.  Even if Mr Millar is correct in saying that enhanced interest should be permitted in a legally aided case only if costs and disbursements have been paid in legally aided cases (contrary to Fung Chun Man), the fact that payment has not been made only means the opposing litigant does not have to pay enhanced interest at all, which is quite different from the present situation in which the aided plaintiff has already received Interest on Costs from the Other Party and the remaining contest over entitlement of the received Interest on Cost is merely between the legal advisor (ie the applicant) and the funding party (ie the Director).  In my view, the rationale for enhanced interest in a party and party situation under the Order 22 regime cannot be lightly transposed to the contest over Interest on Costs between the assigned solicitor and the Director whose relationship is governed by the LAO and the regulations made under it.

103. This is borne out by Willis v Redbridge Health Authority,[80] a case cited by Mr Millar, where it was held that an unsuccessful defendant would not be ordered to pay costs on an indemnity basis to a plaintiff who had been legally aided throughout the proceedings because the Legal Aid Board’s liability to pay legal advisors was limited to costs taxed on a standard basis.  Mr Millar submits that as with enhanced interest, if the person has no right to costs (as in Willis) or the costs have not been paid, then the receiving party has no entitlement.  Whilst Mr Millar claims that this is on all fours with the facts of the present case in that the Director not having made advance payments of costs should not be entitled to interest on such costs, it is patently clear from Willis that the court there was concerned with the issue of indemnity costs as between the plaintiff and the defendant and not between the legally aided plaintiff and her own legal advisors.  For reasons explained above, it is impermissible to conflate the considerations between these two different sets of relationship.  All in all, I am not persuaded that the case law on Order 22 of the RHC advances the applicant’s case at all.

(e)  Purpose of the LAO and its regulations

104. As explained above, it is necessary to adopt a contextual and purposive approach to statutory interpretation.  It is also trite that statutes must be construed as a whole, and that individual words or even sentences must not be interpreted by being examined in isolation. 

105. In my view, section 19A(1) of the LAO must be viewed in the context of the statutory legal aid scheme as a whole.  It must be remembered that the LAO and the regulations made under it have been, and in my view are rightly, hailed as an important piece of social legislation.[81] Its aim is to promote a just society by ensuring vulnerable and disadvantaged citizens receive the legal services they need to protect their rights and interests, but such assistance is only to put them as far as possible in the same position in relation to proceedings as unassisted persons.  So if an aided person loses his case, he loses his contribution but the Director pays the prescribed fees and costs of his legal advisors.  In short, he receives an out and out grant from the Government.  But suppose he wins, the defendant may have no money, or the legal aid fund incurs further legal expense beyond “taxed costs”, or he loses on some subsidiary issue and has been ordered to pay the defendant’s costs in fighting that issue, then the LegCo has required that moneys recovered on his behalf be paid not to him but to the Director to recoup every dollar of the costs incurred in assisting him to fight the case, and it is only after this has been done that anything left will be paid to him or even there may be nothing left.  This essentially is how the first charge works to protect the legal aid fund and to prevent aided persons from profiting or running up costs at the expense of legal aid.[82]

106. This explains why all sums due to or monies payable to the aided person, including taxed/agreed costs paid by the Other Party, are generally paid to the Director (with limited exceptions).  According to Matthews and Oulton, “[after] all costs due to an assisted person have been taxed or agreed, the party liable for them must pay them to the assisted person’s solicitor or, if he is no longer represented by a solicitor, to The Law Society, and only the solicitor or the Society can give a good discharge for them.  This is part of the general rule that all sums due to an assisted person, with limited exceptions, must be paid in this way for the credit of the assisted person’s account with the Fund ……”[83]

107. Given such legislative purpose, the statutory legal aid scheme has made significant modifications to the solicitor and client relationship under common law and equity.  The Director has obligations (which should have been the aided persons’ duties if they are privately-funded) to provide civil legal aid funding, to pay prescribed remuneration to assigned solicitors and assigned counsel and to reimburse incurred disbursements prescribed by the LAO and the regulations made under it, and Director also has rights to the payment of monies (being payable to the aided persons if they are privately-funded) that may be subject to the first charge under section 18A of the LAO or that he should retain and deal with under sections 19B and 19C of the LAO.

108. On the other hand, the assigned solicitor provides legal aid services for remuneration as prescribed by the legal aid legislation and deals with monies payable to the aided person in the prescribed manner to protect and benefit the legal aid fund.  For example, an assigned solicitor receives profit costs on common fund basis under legal aid taxation (whereas a privately-funded client pays his/her solicitor on solicitor and own client basis), advance payments to an assigned solicitor cannot exceed 75% of what the Director estimates will be payable under regulation 5 of the LA(SOF)R (whereas a privately-engaged solicitor is contractually free to agree with his client on the manner and quantum of interim payment of costs), and an assigned solicitor cannot receive any remuneration beyond what is prescribed in regulation 5 of the LA(SOF)R (whereas a privately-engaged solicitor can enter into an express agreement with his client to receive Interest of Costs). 

109. It is obvious from Mr Millar’s submissions that the applicant feels aggrieved by what they perceive as “unfair” treatment at the hand of the Director when compared with what is achievable by a privately-engaged solicitor with his client as a result of contractual freedom.  It is, however, not the function of statutory interpretation to redress any such perceived “unfairness”, but to ascertain the meaning of the statutory words used by the LegCo having regard to their purpose and context.

110. It is also another pillar of Mr Millar’s submissions that his interpretation of section 19A(1) of the LAO is a sensible one on the particular facts of the present case.  There is a danger in taking this argument too far because the language of section 19A(1) of the LAO is incapable of yielding a meaning only for the purpose of the particular facts of any one case. Section 19A(1) of the LAO is not case-specific; it applies to all aided proceedings whenever monies “may become payable to an aided person”.  For example, if an aided defendant merely succeeds in defending a claim against him and recovers costs (as well as Interest on Costs) in his favour but without any advance payment of such costs by the Director to his assigned solicitor, and if Mr Millar’s arguments are taken to their logical conclusion, does it mean in this situation the assigned solicitor has no obligation to pay the recovered costs and/or Interest on Costs thereon to the Director even though under the LAO the Director is required to give credit for any recouped costs and interest when calculating the amount of the first charge or in deciding whether the aided person’s contribution can be refunded?[84] If the language/text of section 19A(1)(a) of the LAO is to be read in the way Mr Millar suggests, it will be at the expense of introducing another anomaly since such language/ text applies to the whole umbrella of aided persons and proceedings.

111. This leads logically to my next point.  Apart from his complaint that the words “all moneys” do not encompass Interest on Costs at all, which argument I will return to below, the tenor of Mr Millar’s submissions is that the Director has no entitlement to Interest on Costs unless he has made advance payment of costs/disbursements.  This means that whenever costs in favour of the aided person are recovered from the Other Party there has to be nice calculations as to the extent of every advance payment (if any) made by the Director, the proportionate share of the ultimate taxed/agreed costs attributable to such advance payments (possibly with different payment dates) and the proportionate share of Interest on Costs attributable to such advance payments, which means the assigned solicitor cannot pay to the Director the relevant proportionate share of Interest on Costs attributable to such advance payments until “monies which may become payable to an aided person” (on the aforesaid understanding) have been ascertained.  This is quite unsatisfactory because under section 19A(4) of the LAO only the Director can give a good discharge for moneys which may become payable to him under that section.  In my view, the straightforward language of section 19A(1)(a) of the LAO is incapable of yielding the meaning that Mr Millar contends unless some additional words are to be implied.  But short of rewriting that provision, I do not think that any implication as contended by Mr Millar can be read into such provision.  Further, even if the language/text of section 19A(1)(a) of the LAO can somehow be read in the way suggested, it will, as explained above, only exchange one anomaly for another. 

112. Further, regulation 6 of the LA(SOF)R disallows advance payment to the assigned solicitor in excess of 75% of what the Director estimates to be payable under regulation 5 of the LA(SOF)R.  This means there is always going to be a shortfall of at least 25% of incurred costs and disbursements that never receives any advance payment, so on Mr Millar’s arguments, the nice calculations referred to above becomes a mandatory exercise in every aided case where costs and/or Interest on Costs are payable to (and recovered for) the aided person with consequent implications on manpower resources for the Department.  Yet section 19A(1)(a) of the LAO is completely silent on such exercise.  In my view, this compels to the conclusion, however unwelcome to Mr Millar and the applicant, that the purpose and language of such statutory provision do not support their contentions. 

(f)  Section 19A(1)(a) of the LAO

113. Mr Millar does not agree that “all moneys which may become payable to an aided person by virtue of an order” made in connection with the aided proceedings under section 19A(1)(a) of the LAO encompass either costs payable/paid to the aided person by the Other Party or Interest on Costs.  Admittedly, there is no express definition of the words “all moneys” in the interpretation section of the LAO or in the Interpretation and General Clauses Ordinance Cap 1. But bearing in mind the purpose and context of the LAO as explained above and (as reminded by Lord Millett NPJ in China Field Ltd) without distorting or ignoring the plain meaning of the language/ text used, I have no hesitation in concluding that both party and party costs and Interest on Costs received from the Other Party come within the meaning of the words “all moneys which may become payable to an aided person by virtue of an order” in the aided proceedings in section 19A(1)(a) of the LAO. 

114. The genesis of this provision is section 19(3) of the 1966 LAO which is borrowed from section 2(2)(d) of the 1949 UK Act  (which English provision has later evolved into section 8(1)(d) of the 1974 UK Act and still later into section 16(5) of the 1988 UK Act).  These provisions make clear that “any sums” received or recovered by virtue of “an order or agreement for costs” (my emphasis) in favour of the aided person shall be paid to the Director or to the Legal Aid Fund/Legal Aid Board.  It is therefore clear that received/recovered party and party costs payable to an aided person under an order for costs are to be paid to the Director under the 1966 LAO, and this is also borne out by the Objects and Reasons in respect of clause 19 of the 1960 HK Bill.  It would be surprising indeed if recovered party and party costs do not come within the meaning of any sums received by virtue of any “order or agreement for costs” in favour of the aided person. 

115. Section 19(3) of the 1966 LAO is bolstered by two provisions in the 1966 HK Reg, ie regulations 14(1)(a) and 14(5).  Regulation 14(1)(a) is borrowed from regulations 16(1)(a) and 16(2) of the 1950 UK Reg save that instead of paying “all moneys” payable to aided/assisted person by virtue of an order in the aided proceedings to the Director, the English provision requires a two-stage payment to the assigned solicitor who is then obliged to pay the same to the Law Society (that administers the English legal aid scheme) for the Legal Aid Fund.

116. As regards regulation 14(5) of the 1966 HK Reg, it is borrowed from regulation 16(6) of the 1950 UK Reg.  Regulation 14(5) of the 1966 HK Reg reads that “[upon] receipt of moneys paid to him by virtue of this regulation the Director shall retain (a) any sum paid to him by virtue of an order …… for costs made in the aided person’s favour” (my emphasis). Save that the Law Society is substituted for the Director, regulation 16(6) of the 1950 UK Reg is similar in terms to regulation 14(5) of the 1966 HK Reg.  It therefore follows that party and party costs recovered from the Other Party (which necessarily comes within “any sums” under section 19(3) of the 1966 LAO and “any sum” under regulation 14(5)(a) of the 1966 HK Reg, which regulations expressly refer to “costs” by virtue of an order) are part of “moneys” received under “this regulation” (ie regulation 14 of the 1966 HK Reg).  Of course, “[all] moneys which may become payable to an aided person by virtue of an order” in the aided proceedings in regulation 14(1)(a) of the 1966 HK Reg has a wider scope in that it not only encompasses costs in favour of the aided person under a costs order but also, say, a judgment/order for damages or debt.

117. As a result, party and party costs received/recovered under a costs order for the aided person fall within section 19(3) of the 1966 LAO, regulation 14(1)(a) of the 1966 HK Reg and regulation 14(5)(a) of the 1966 HK Reg, and hence “any sum” or “any sums” in relation to received/recovered costs under regulation 14(5)(a) of the 1966 HK Reg and section 19(3) of the 1966 LAO respectively fall within and is part of “all moneys which may be payable to an aided person” under section 19A(1)(a) of the 1966 LAO.  I have no doubt that since the inception of the local legal aid legislation received/recovered party and party costs in favour of an aided person have to be paid to the Director who will deal with such sums/moneys in the prescribed manner. 

118. I therefore disagree with Mr Millar’s suggestion that the purpose ascribed in the Objects and Reasons that “[any] costs awarded to an aided person are paid to the Director” has not been expressly incorporated in the 1966 LAO.  But even if we put aside such Objects and Reasons, the statutory machinery as explained above is still clear, and received/recovered party and party costs in favour of an aided person are to be paid to the Director, who shall retain such costs together with two other sums and “pay the balance to the aided person”.[85] I shall return this below.

119. Mr Millar says all this has been changed with the introduction of a new section 19A under the 1967 LAO to replace section 19(3) of the 1966 LAO and regulation 14(1) of the 1966 HK Reg.  The Objects and Reasons for the 1967 HK Bill make clear that the purpose of the amendments is to “combine in a new section, dealing with costs and damages, a requirement that all sums due to an aided person shall be paid to the Director” (my emphasis) and the new section is to “reproduce a similar provision” in the 1966 HK Reg.  The Explanatory Note for the 1967 HK Reg also says that the amendment is for “transfer of regulation 14(1) [of the 1966 HK Reg] to the Ordinance”.  I pause here to note that although reconstitution of the local provisions took place in 1967, section 8(1)(d) of the 1974 UK Act and section 16(5) of the 1988 UK Act still maintain a provision equivalent to section 19(3) of the 1966 LAO.

120. Mr Millar argues that (a) the use of the word “moneys” in section 19A(1) under the 1967 LAO reflects that the word “sums” in section 19(3) of the 1966 LAO is unsatisfactory, (b) the use of the words “all moneys” do not expressly encompass “costs payable to solicitors (or indeed counsel or experts), certainly insofar as the Director has not incurred those costs”, and (c) when paragraph 4 of the Objects and Reasons for the 1967 HK Bill is considered as a whole, the purpose for adding a new section 19A is to make sure payments to the Director shall prevail over other ordinances that prohibit payment to persons other than the person to whom they are due under a court order (eg damages due to such person).

121. I do not agree with such arguments.  First, Mr Millar has not explained how and why the word “sums” is unsatisfactory.  In fact, at the Hearing he frankly confesses he has no idea why the word “moneys” has been used instead, but insists there must be a difference.  I note that notwithstanding the repeal of section 19(3) of the 1966 LAO and regulation 14(1) of the 1966 HK Reg, regulation 14(5) of the 1966 HK Reg has been retained with some minor amendments:

“Upon receipt of monies paid to him by virtue of this regulation any provisions of the Ordinance or of these regulations the Director shall retain–

(a) any sum paid by virtue of an order or agreement for costs made in the aided person’s favour;

……

and shall pay the balance to the aided person or, if the court so directs, to the court or some other person.” (my emphasis)

Thus, the analysis in paragraphs 114-117 above continues to apply.  After all, the Director can only “retain” party and party costs being “any sum paid by virtue of an order or agreement for costs” in favour of the aided person “upon receipt” by him of such costs as “moneys paid to him by virtue of any provision of [the LAO] or of these regulations”.  The new reference to “any provision of [the LAO]” is necessitated by the transfer of regulation 14(1) of the 1966 HK Reg to section 19A under the 1967 LAO.  By reading regulation 14(5) as amended by the 1967 HK Reg and section 19A(1)(a) under the 1967 LAO as a whole, even with the repeal of section 19(3) of the 1966 LAO, it is clear that “all moneys which may become payable to an aided person by virtue of an order” in the aided proceedings in section 19A(1)(a) under the 1967 LAO includes “any sum paid by virtue of an order …… for costs” in regulation 14(5)(a) as amended by the 1967 HK Reg.  There is nothing unsatisfactory with the word “sum” that is paid by virtue of a costs order (which is retained even after the 1967 amendments) upon receipt of “moneys” payable by virtue of any order (which include both costs and, say, damages). 

122. Secondly, by reason of the above analysis, I also reject the notion that the words “all moneys” in section 19A(1)(a) under the 1967 LAO do not include party and party costs payable to the aided person.  For the reasons discussed in paragraphs 110-112 above, I am not persuaded that the language/text of section 19A(1)(a) under the 1967 LAO allows the distinction drawn by Mr Millar between the portion of the party and party costs in favour of the aided person for which the Director has made advance payments and the remaining portion for which he has not.  Indeed, such distinction contradicts the Director’s obligation to retain “any sum paid by virtue of any order …… for costs made in the aided person’s favour” (my emphasis) under regulation 14(5)(a) amended by the 1967 HK Reg “upon receipt” of “moneys paid to him by virtue of any provision of [the LAO] ……” which necessarily refers to section 19A(1)(a) under the 1967 LAO. 

123. Thirdly, Mr Millar’s emphasis on the legislative purpose of the 1967 amendments to the LAO of making sure that payments to the Director shall prevail over other ordinances that prohibit payment to persons other than the person to whom they are due under a court order ignores the other key purpose of the amendments (as explained in the Objects and Reasons for the 1967 HK Bill) of combining and reproducing in section 19A provisions that (a) deal with costs and damages and (b) require all sums due to an aided person to be paid to the Director.  The language/text of the new section 19A(1)(a) under the 1967 LAO  do not suggest (and there is nothing in the Objects and Reasons to indicate) such combination and reproduction is intended to bring about any changes beyond consolidation and amalgamation. 

124. Mr Millar says the source of section 19B of the LAO (and hence the Objects and Reasons for enacting such provision) is unknown.  This is not correct.  A new section 19B that replaces regulation 14(5) of the 1967 HK Reg has been introduced by the 1968 LAO.  The Objects and Reasons for the 1968 HK Bill make clear that the purpose of such legislative change is merely to transfer regulation 14(5) amended by the 1967 HK Reg to the LAO. It was thought that the LAO is a more appropriate place for this provision.  There is no material difference between regulation 14(5) amended by the 1967 HK Reg and section 19B of the LAO save that the latter expressly clarifies that the Director is to retain any sum paid by virtue of an order for “costs” in the aided person’s favour upon receipt of “all moneys paid to him pursuant to section …… 19A”.  This removes any doubt that “all moneys which may become payable to an aided person by virtue of an order” under section 19A(1)(a) of the LAO includes party and party costs payable to the aided person pursuant to an order for costs in his favour in the aided proceedings. 

125. I further note that pursuant to section 16B(c) introduced by the 1984 LAO the aided person does not have to pay court fees, fees for service of process and bailiff’s fees for the aided proceedings, which fees, however, can be recovered from the Other Party as being deemed to have been paid by the aided person under any order or agreement for costs made his favour. More significantly, in respect of such costs which are deemed to have been paid by the aided person for the purpose of any order or agreement of costs made in his favour, section 16B(c) provides that “sections …… 19A(1) …… shall apply accordingly”. Plainly, the statute envisages that section 19A(1) of the LAO covers costs payable to the aided person under a costs order or agreement.

126. Subsequent to the introduction of section 19A under the 1967 LAO, the equivalent English provision in regulations 16(1) and 16(2) of the 1950 UK Reg are replaced by regulations 18(2) and 18(3) of the 1971 UK Reg and later by regulations 88 and 91 of the 1980 UK Reg, which still maintain the two-stage statutory mechanism of paying moneys payable to an assisted person by virtue of an order in the aided proceedings first to the assigned solicitor and then to the Law Society.  Still later, regulation 87 of the 1989 UK Reg is enacted in similar terms except that payment is no longer made to the Law Society but to the Legal Aid Board.

127. The equivalent English provision for section 19B of the 1968 LAO is regulation 16(6) of the 1950 UK Reg, which is later replaced by regulation 18(7) of the 1971 UK Reg, then by regulation 93 of the 1980 UK Reg and still later by regulation 92 of the 1989 UK Reg,[86] all of which are in similar terms save and except that the 1989 UK Reg refers to the Legal Aid Board instead of the Law Society.

128. The historical English legal aid statutory regime is structured similarly to the Hong Kong legal aid scheme, and supports the above analysis.  I refer to paragraph 106 above in which I have noted that Matthews and Oulton states that as a general rule under the English statutory provisions, all taxed/agreed costs due to an assisted person must be paid to the assigned solicitor who in turn has to pay the same to the Law Society for the credit of the assisted person’s account with the Legal Aid Fund.  Matthews and Oulton goes on to explain the operation of the English provisions which echo the above analysis in respect of sections 19A and 19B of the LAO:[87]

“ The Law Society has the right to recover, from the following sources, the costs and expenses which are paid out of the Fund to an assisted person’s legal advisers:

(a) first, from any costs recovered by the assisted person;[88]

(b) then from any contributions paid by him into the Fund;

(c) finally, from any damages or other property or sums recovered or preserved for him.

To this end, any money due to an assisted person must be paid direct to his solicitor, who must account for it to The Law Society ……

…....

When a legally aided case is concluded the Law Society balances the assisted person’s account and retains, for the benefit of the Fund, any sums recovered in respect of costs. If, as is occasionally the case, those costs are greater than the sums paid to the assisted person’s solicitor and counsel the fund will make a profit. If the costs recovered are less than the sums paid out a sufficient amount to meet the deficit (which is referred to in the 1949 Act as “the net liability” of the Fund on the assisted person’s account) is retained out of any contributions which the assisted person may have paid. Should there still be a deficiency the statutory charge will be enforced to the necessary extent. If, when all amounts due to the Fund have been recovered, there is a credit balance this will be paid to the assisted person. The effect of these provisions is to make him liable to pay for the cost of his case, to the extent to which he is able, from his contribution or from the fruits of his litigation. He benefits, however, by the 10 per cent deduction made from the costs of his solicitor and counsel in any proceedings in the House of Lords or the Supreme Court and by the fact that those costs are in all cases paid on a common fund, rather than on a solicitor and own client, basis.

Should there continue to be a deficiency, despite the above payments, this will be borne by the Fund, and ultimately by the Exchequer, the assisted person’s liability being limited to his maximum contribution.”[89]

“Sums which The Law Society receive for the credit of an assisted person’s account with the fund must be dealt with by it as follows:

(a) It must retain, for the benefit of the Fund, any sum paid under an order or agreement for costs made in the assisted person’s favour in respect of the period covered by his certificate. The Fund will retain such costs even if they exceed the total amount paid out on the assisted person’s behalf, so that in certain circumstances it may make a profit. The most usual case is when the assisted person’s opponent agrees, or is ordered to pay costs inter partes on a common fund basis. The Fund profits by the 10 per cent statutory deduction in respect of the assisted person’s solicitor’s profit costs and counsel’s fees.

(b) Out of the other moneys received on the assisted person’s account The Law Society also retain a sum equal to the amount, if any, by which the total sum paid out of the Fund to the assisted person’s solicitor and counsel exceeds the aggregate of any contributions paid by the assisted person and any costs received from his opponent.

(c) It must retain a sum equal to the costs of any enforcement proceedings taken in the name of The Law Society.

(d) Any balance remaining after the Fund has been credited with the above amounts is payable to the assisted person.”[90]

129. Mr Millar suggests that because the Director has not objected to the applicant holding the balance of the Taxed Costs not previously advanced by the Director (and the wording of the Director’s standard letter to the applicant dated 16 April 2007 suggests that the Director did not expect costs would necessarily be paid to him), the Director must have implicitly accepted that party and party profit costs recovered but not previously advanced by him are not “moneys” within the meaning of section 19A of the LAO.  Mr Millar also refers to the following extracts from Matthew and Oulton to say that the assigned solicitor is entitled to retain monies that he has received on account of the amount due to him:[91]

“…… a solicitor who receives a sum in respect of costs (or damages) due to his assisted client but who is already entitled to be paid his own costs and disbursements out of the Fund need not make an actual payment but may be permitted to retain the sum he has received on account of the amount due to him.[92]

……

An assisted person’s solicitor must inform the Area Committee of any property recovered or preserved for his client, and must pay to The Law Society any money which he receives under any order or agreement made in the assisted person’s favour.[93] Where the Area Committee consider that the rights of the Fund will be adequately safeguarded by payment of less than the full amount, it may give a direction accordingly. The solicitor need then pay the Society only the amount specified in the direction and may pay the balance to the assisted person.[94]

……

As already stated, a solicitor who receives sums due to an assisted client may be permitted, in the course of normal accounting transactions, to retain these in payment or part payment of sums due to him for his own costs and disbursements.[95] ……” (my emphasis)

130. However, the above extracts from Matthews and Oulton make clear that the assigned solicitor is able to retain a sum in respect of costs due to the aided person with the permission of the Law Society, and the Law Society may give such direction if they can be assured that the rights of the Legal Aid Fund will be adequately safeguarded.  Locally, this has also been the applicant’s experience as well, ie they have on occasions received and retained party and party costs paid by the Other Party (a) with the Director’s agreement and (b) when the Director has not incurred any disbursements or liability to any third party.[96] In fact, this has been provided for in section 19A(1) of the LAO which requires all moneys which may become payable to an aided person by virtue of an order in the aided proceedings to be paid to the Director unless he directs otherwise.  Thus, the fact that the Director permits an assigned solicitor to hold recovered party and party costs pending final accounting as between the Director and the assigned solicitor does not mean such costs are not “moneys” payable to the aided person by virtue of an order under section 19A(1)(a) of the LAO.  An assigned solicitor holding such costs under permission pending final accounting is a far cry from the applicant holding Interest on Costs by treating it as their own and denying the Director’s entitlement.

131. In my view, the discussion in Matthews and Oulton reinforces the above analysis and my conclusion that all costs awarded, taxed/agreed and received/recovered in favour of the aided person shall be paid to the Director.  Ms Tang submits that as with recovered party and party costs Interest on Costs being moneys recovered by virtue of an order for costs made in an aided person’s favour in the aided proceedings should also be paid to the Director in Hong Kong and to the Legal Aid Fund in England and Wales.  She says that if otherwise the words “all moneys” would not have been used, and instead, say, the words “costs and disbursements” would have been more appropriate for adoption in the legislation.

132. I agree with Ms Tang.  Since Interest on Costs payable to the aided person is plainly received/recovered by virtue of a court order (or an order for costs to be precise), it is, in my view, always payable to the Director.  The Director’s stance spelled out in paragraph 14.17 of Chapter 7 of the LA Manual and the Director’s reminder letter to the applicant dated 16 April 2007 is plainly correct.

133. This is also borne out by the LSC Manual which provides as follows:[97]

“Position under Legal Aid Act 1988 and Regulations

7. As explained below, interest on legal aid costs is always payable to the Legal Aid Fund. …… one must look to the Act and Regulations and relevant authorities to decide how the grant of legal aid affects entitlement to interest on costs.

8. …… regarding payment of costs, the Board stepped into the position of the client. Section 16(5) of the Act then goes on to provide as follows:

“Any sums covered by virtue of an order or agreement for costs made in favour of a legally assisted person with respect to the proceedings shall be paid to the Board”.

9. Interest on costs is plainly recovered “by virtue of an order … for costs” and therefore was always payable to the Board. Further, there was nothing in the 1988 Act or Regulations under it allowing the Board to pay out interest on costs to the solicitor, except as described below.

10. …… Dealing first the position prior to the Regulation changes which brought into effect prescribed rates in civil cases (i.e. certificates issued before 25 February 1994), Regulations 87(1)(a) and 90(1) read with section 16(5) of the Act mean that interest on costs must be paid to the Board via the solicitor. Nothing in the regulations allows interest to be paid out to the solicitor and Regulation 92 allows the Board to retain “any sum paid under an order or agreement for costs made in the assisted person’s favour …”. Again the view taken is that this covers any interest on costs.

……”

134. The only authority directly on the point of entitlement of the then Legal Aid Board to Interest on Costs is the unreported County Court decision of Clifford v The Law Society[98] cited in the LSC Manual.[99] In that case, legal aid had been granted to a claimant for a personal injury claim.  He was ultimately successful and his assigned solicitor accepted an agreed sum in full satisfaction of their costs.  In addition, the defendants paid Interest on Costs which was paid into the Legal Aid Fund.  No payment on account had been made to the assigned solicitor during the proceedings, so there was no deficiency on the assisted person’s account with the Legal Aid Fund.  The assigned solicitors claimed that they and not the Law Society were entitled to Interest on Costs.  Judge Leonard concluded that the Law Society was entitled to such interest.  According to the LSC Manual, “[this] decision confirmed Leading Counsel’s advice as to the entitlement to interest on costs in legal aid cases and the view taken is that that advice still holds good under the Legal Aid Act 1988”.

135. Mr Millar complains there is no summary of arguments let alone detailed reasoning of the judgment given in Clifford v The Law Society set out in the LSC Manual, hence such decision is irrelevant, of no persuasive value and certainly in no way binding.  In my view, this decision merely reinforces the analysis and reasoning given in this Judgment and as explained in the LSC Manual.  I do not agree that it should be simply brushed aside.  I further note that the relevant English statutory provisions in force at the time when Clifford v The Law Society was decided are section 8(1)(d) of the 1974 UK Act, regulations 18(2) and 18(3) of the 1971 UK Reg, and regulation 18(7) of the 1971 UK Reg, which are similar to sections 19A and 19B of the LAO.

136. The LSC Manual also refers to the case of The Debtor v The Law Society[100] which although not directly in point is a helpful and persuasive case that serves to reinforce the above conclusion.  In that case, the assisted person Mr Kershman was ordered to pay the other party taxed costs of certain proceedings.  He did not pay and argued that because he had acquired certain debts of the other party he was entitled to resist payment.  The court had to consider whether he could rely on a costs order made in his favour in the aided proceedings as an argument for staving off bankruptcy proceedings.  It was held that he could not because the costs order “belongs” to the Board and not to the assisted person or his solicitor.  Templeman LJ (with whom Oliver and Cumming-Bruce LLJ agreed) said:

“But it seems to me that in any event the Legal Aid Act 1974 and the regulations made thereunder prevent [the bankrupt’s] device from being effective. As a result of the Legal Aid Act, the state, through the Legal Aid Fund, provides the money to pay solicitors ……; the State is entitled to the benefit of any orders made on third parties, to pay back the costs incurred on behalf of the assisted person …… anything payable by third parties in respect of the legal costs of the assisted person is payable to the State and not to the assisted person. Thus, section 8(1) of the Legal Aid Act provides that where a person receives legal aid in connection with any proceedings, “(d) Any sums recovered by virtue of an order or agreement for costs made in his favour with respect to the proceedings shall be paid into the Legal Aid Fund”. The State having paid out in the first instance, gets its money back.

This section is supported by Regulation 18(2) of the Legal Aid (General) Regulations 1971, which …… makes it clear that in order to give effect to section 8(1)(d), the money does not belong to the assisted person, but to the Legal Aid Fund [and] …… is to be paid to the solicitor or to the Law Society ……[101]

……

In my judgment this means that the assisted person never obtains the slightest entitlement as beneficiary to a single penny payable by virtue of an order in his favour for costs made after his legal aid certificate has been granted. Any order for costs is only made in the name of the assisted person for the purposes of identification and taxation. The money must be paid to the solicitor or the Law Society ……”

137. This case reinforces my conclusion above that party and party costs although payable to the aided person under a costs order in fact “belong” to the Director. It follows that if such costs belong to the Board, so must Interest on Costs that is derived from the same costs order in favour of the aided person.  I do not accept Mr Millar’s argument that even if the Director is entitled to payment under section 19A of the LAO, such provision does not confer ownership of Interest on Costs on him in the same way that it does not confer ownership on damages and costs, and his entitlement is limited to the first charge. I shall return to discuss the operation of the first charge below. I further disagree with Mr Millar’s suggestion that The Debtor was decided on the assumption that the Law Society had paid out and therefore should get its money back.  The reasoning of the court cited in the above paragraph shows that the decision was premised on statutory interpretation.  I bear in mind that the current version of section 19A of the LAO, despite various minor amendments over the years, contain wording similar to regulation 18(2) of the 1971 UK Reg. 

138. Mr Millar next argues that given the nature of the LAO and the aim of protecting public funds, the only point for introducing section 19A of the LAO is to protect the Director in respect of his responsibilities pursuant to the first charge.  He says section 19A of the LAO does not confer a general right on the Director to have party and party costs and disbursements paid to him, and his only right is to be repaid in respect of liabilities actually incurred by him, thereby eliminating or minimising the first charge against the aided person’s recovered damages.  On the facts of the present case, since the Director chose not to pay (a) the applicant’s profit costs in full or in any realistic amount despite provision of detailed narrative particulars and/or (b) all disbursements in full by the time of the Settlement Order or the payment to him of all costs/disbursements advanced by him, the Director is protected as a result of (i) the matters set out in paragraph 47 above and (ii) his receipt of the sums of $3,000,000 (payment by the 1^st defendant on account of costs) and $628,583.42 (part of the balance of the Taxed Costs paid by the 1^st defendant), which represented full reimbursement of all sums advanced by him or for which he was liable.  Mr Millar says that even if section 19A(1) of the LAO requires that Interest on Costs is to follow profit costs incurred by the Director, on the facts of this particular case the Director is not entitled to Interest on Costs that relates to costs/disbursements which he has not paid otherwise he would receive a gratuitous benefit or unjust enrichment. 

139. In my view, Mr Millar misunderstands the operation of the statutory first charge and payments to be made consequent thereto.  It must be remembered that the assigned solicitor’s costs and disbursements are not paid out of the statutory first charge.  By reason of sections 16B(b) and 20 of the LAO the assigned solicitor must claim payment from the Director, and under section 27 of the LAO the Director meets the expenses of legal aid from moneys provided by the LegCo.  In short, the Director defrays the assigned solicitor’s costs and disbursements out of public funds.  I therefore disagree with Mr Millar’s suggestion in paragraph 42 above that the Director cannot “retain” sums under section 19B(1)(a)(i) of the LAO indefinitely because he has to defray solicitors’ profit costs, counsel’s fees and other disbursements (eg expert fees) out of those sums. 

140. Since the assigned solicitor is remunerated out of the legal aid fund and not from the statutory first charge, only “sums paid or payable by the Director on his account in respect of the proceedings to any solicitor ……. and not recouped by the Director from sums recovered under an order or agreement for costs made in favour of that person with respect to the proceedings” (my emphasis) are aggregated as part of the net liability.[102] Recouped costs from the Other Party under a costs order (and Interest on Costs recovered under the same costs order) are not subject to the first charge because they have been taken into account in the process of determining the amount of the deficiency which gives rise to the first charge.  This is the very reason why (a) section 19A of the LAO requires “all moneys which may become payable to an aided person by virtue of an order” in the aided proceedings (which includes the recouped costs and recovered Interest on Costs paid by the Other Party) to be paid to the Director, (b) section 19B of the LAO requires that upon receipt of “all moneys paid to him pursuant to section …… 19A”, the Director shall retain inter alia (i) such recouped costs and Interest on Costs paid by the Other Party (ie sums paid by virtue of a costs order) and (ii) a sum equal to the amount of the first charge and then pay the balance to the aided person, and finally (c) section 3(1) of the Public Finance Ordinance Cap 2 requires such recouped costs and Interest on Costs so retained be paid into the general revenue.  This is the statutory mechanism so that credit is given to the aided person in respect of recovered monies and the recouped monies are returned to the general revenue in full cycle to cover the Director’s expenditure on costs and disbursements out of the public purse. 

141. The aforesaid explanation is consistent with the discussion in Matthews and Oulton in paragraph 128 above. I do not agree with Mr Millar’s suggestion in paragraph 37 above that costs recovered from the Other Party merely go to off set previous payment out by the Director and are not paid into the general revenue.  This flies in face of section 19B(1)(a)(i) of the LAO and section 3(1) of the Public Finance Ordinance Cap 2.  It must be noted that whilst the Director retains such recovered costs, the aided person is given credit for the same when calculating the amount of the first charge or deciding whether the contribution can be refunded.  I also do not agree with the suggestion in paragraph 39 above that no loss is suffered if Interest on Costs is not paid into the general revenue.  If the Director cannot give credit for Interest on Costs (because he has not received the same) in calculating the net liability for the first charge, the ultimate balance (if any) payable or the contribution refundable to the aided person will be reduced.  

142. In my view, the assigned solicitor is statutorily required to pay Interest on Cost to the Director and the Director is statutorily required to retain the same for eventual payment to the general revenue.  For reasons explained above, recovered Interest on Costs, which is also a sum paid by virtue of a costs order, should be given the same treatment as recouped costs.  In this respect, I can do no better but to adopt the discussion in the LSC Manual as follows: [103]

“Effect of Interest on Costs on the Legally Aided Client

15. Although the Board retains interest on costs, the client must be given credit for all interest on costs received when calculating the amount of the statutory charge or deciding whether contributions can be refunded.

16. Section 16(4) provides that where the total contribution paid by a person exceeds the “net liability of the Board on his account” the excess must be repaid to him. Similarly the statutory charge applies where the total contribution is less than the net liability of the Board on his account (section 16(6)). The concept is defined in section 16(9) as including all sums paid or payable on behalf of the assisted person “being sums not recouped by the Board by sums which are recoverable by virtue of an order or agreement for costs made in his favour with respect to those proceedings …’.[104] This is the section which ensures that credit is given for inter partes costs recovered, and the view take is that clearly any interest on costs is also recoverable “by virtue of an order … for costs”.

17. It follows that the assisted person must be given credit for interest on costs recovered when determining the amount of the statutory charge and the amount of contribution to be refunded, if any.

18. The net effect is that interest on costs goes to the benefit of the client so long as there is a deficit on his account with the Board. Insofar as there is a credit, that credit is retained to the general benefit of the Legal Aid Fund.”

143. As explained in paragraphs 110-112 above, it is inappropriate to focus on the particular facts of this case without looking broadly into the purpose and context of the LAO and carefully into the language/text of sections 19, 19A and 19B of the LAO in light of such purpose and context.

144. Mr Millar finally refers to Morgan & ors v Legal Aid Board,[105] which held that where an assisted party settled an action, the statutory charge could be executed over property which was not in issue in the proceedings only if it could fairly be said that property had been effectively recovered or preserved by the claimant in substitution for property (or even rights) in issue in those proceedings, so the charge does not extend to assets which, though included in the overall agreed terms, were really extraneous, or no more than incidental, to the issues in the legally aided proceedings.  I am unable to see the relevance of this authority, and I am not persuaded that Interest on Costs is extraneous to sections 19A and 19B of the LAO.  I also do not understand the relevance of Foskett v McKeown & ors[106] cited by Mr Millar which concerns proprietary tracing remedies.

145. I am not persuaded that the provisions in the 1999 UK Act, the 2000 UK Reg, the 2012 UK Act and the 2013 UK Reg are of any useful relevance in understanding the meaning of sections 19, 19A and 19B of the LAO.  Mr Millar accepts that the changes to the legislation for the English legal aid scheme are rapid and extensive, and the scope of civil legal aid in England and Wales is now distinctly limited.  Conditional fee arrangements have also been introduced.  Since the 1999 UK Act, English civil legal aid has operated under a wholly different legal aid framework, and a quick review of the provisions referred to in paragraphs 26-29 of the schedule to this Judgment show that their content/language are fundamentally different from what has gone before.  I do not find these provisions helpful.  In making the present application by the Summons, the applicant may have been emboldened by the current English provisions to the effect that where costs under a legally aided party’s costs order or agreement are paid to the Lord Chancellor with interest, the Lord Chancellor shall pay to the legal aid services provider an amount equal to interest attributable to such costs in the manner prescribed in regulations 17(1)(b)-(c) of the 2013 UK Reg, which Mr Millar claims to be “the exact opposite of the position for which the Director now contends”.  Be that as it may, the reality is that the current provisions in the LAO and the regulations made under it are nothing at all like the 2013 UK Reg, and it is not correct for the applicant to say that regulation 17(1)(b)-(c) of the 2013 UK Reg are replications of the provisions that have gone before. 

146. Mr Millar says that insofar as the LegCo has chosen to expressly make provision in section 19C of the LAO to relieve the Director of liability to pay interest on the aided person’s contribution or on damages held by him on behalf of the aided person but chosen not to expressly make provision for disposal of Interest on Costs, such distinction is indicative that the LegCo does not wish to make provision for the Director on such issue.  I have explained the operation of sections 19A, 19B, 19C and 20 of the LAO, and have found that party and party costs and Interest on Costs recovered from the Other Party come within sections 19A(1)(a) and 19B(1)(a)(i) of the LAO.  I reiterate my reasoning set out above.

147. On the aforesaid analysis, the question of exercise of discretion to waive the Total Interest does not come into the picture at all.  The waiver of Interest on Costs is exercised vis-à-vis the Other Party to encourage early settlement of costs.  Whilst such discretion is not for this court to exercise, but adopting a time window of six months from the date of the costs order for the exercise of such discretion appears to be a sensible timeline that balances the incentive for early settlement of party and party costs by the Other Party against the loss of an interest sum due under the costs order.  But discretion to waive Interest on Costs does not come into the picture in the present case at all because once received the statutory mechanism under sections 18A, 19A and 19B of the LAO becomes operative, and the assigned solicitor must pay such interest to the Director unless directed otherwise.

148. It is perhaps appropriate to end the discussion by referring to the following in the LSC Manual:[107]

“14. The arguments based on the Act, Regulations and the authorities in favour of the Board retaining interest on costs are overwhelming. Solicitors sometimes assert that it is unfair that the Board would retain interest on costs where it is the solicitor who has been kept waiting for payment. That argument would not arise where the Board has made payment on account, and one can only say that the system for statutory interest sometimes produce surprising results. An advantage of publicly funded work is that costs will always be ultimately paid, but the disadvantage is that a solicitor cannot take steps to arrange for interest on costs to be paid to him or her.” (my emphasis)

X.  CONCLUSION

149. In the present case, a costs order (ie the Settlement Order) was made in favour of the aided person, and party and party costs received from the 1^st defendant is payable to the Director pursuant to section 19A(1)(a) of the LAO unless the Director directs otherwise.  Statutory Interest on Costs arises pursuant to the very same Settlement Order and runs from the date of such order at judgment rate.  The Director is entitled to claim and receive the whole of the Total Interest (ie both the Paid Interest and the Balance Interest) which are moneys payable and paid to the aided person under a costs order or agreement whether or not the Director has actually paid/advanced all or part of the costs and disbursements incurred on behalf of the aided person. 

150. In the circumstances, I dismiss the Summons.  I also grant a costs order nisi that the applicant shall pay costs of and occasioned by the Summons to the Director (including all costs reserved, if any) to be taxed if not agreed. 

151. I refrain from expressing any view as to whether any interest is payable on the Paid Interest (up to the time of payment to the Director) or on the Balance Interest which have not been paid over to the Director.  It will be for the court (possibly the District Court given the amounts that are involved) dealing with Director’s recovery action (if any) to determine this matter. 

Schedule

A.  1949 UK Act

1. The 1949 UK Act provides inter alia as follows:

“Financial conditions of legal aid

2. ……

(2) Where a person receives legal aid in connection with any proceedings –

(a) the expenses incurred in connection with the proceedings, so far as they would ordinarily be paid in the first instance by or on behalf of the solicitor acting for him, shall be so paid except in the case of those paid direct from the legal aid fund as provided by this Part of this Act;

(b) his solicitor and counsel shall not take any payment in respect of the legal aid except such payment as is directed by this Part of this Act to be made out of the legal aid fund;

(c) he may be required to make a contribution to the legal aid fund in respect of the sums payable thereout on his account;

(d) any sums recovered by virtue of an order or agreement for costs made in his favour with respect to the proceedings shall be paid to the legal aid fund;

(e) his liability by virtue of an order for costs made against him with respect to the proceedings shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.

......

Solicitors and counsel

6. ……

(5) Subject to this Part of this Act, a solicitor who has acted for a person receiving legal aid shall be paid for so acting out of the legal aid fund, and any fees paid to counsel for so acting shall also be paid out of that fund.

(6) The sums payable under the last foregoing subsection to a solicitor or counsel shall not exceed those allowed under the Third Schedule to this Act.

……

Section 6

THIRD SCHEDULE

REMUNERATION OF PERSONS GIVING LEGAL AID UNDER PART I

……

2- (1) ……

(2) The sums allowed to a solicitor in connection with proceedings in the House of Lords or the Supreme Court shall be the full amount allowed on taxation of the costs on account of disbursements and eight-five per cent. of the amount so allowed on account of profit costs:

     Provided that so much of this sub-paragraph as relates to profit costs shall not apply to a solicitor employed for a salary to act in connection with matrimonial causes.

(3) The sums allowed to a solicitor in connection with proceedings in the county court shall be the full amount allowed on taxation of costs whether on account of disbursements or of profit costs.

(4) The sums allowed to a solicitor in any other case shall be such as may be determined the prescribed manner.

……

4. – (1) Subject to the last foregoing paragraph, costs shall be taxed for the purposes of this Schedule according to the ordinary rules applicable on a taxation as between solicitor and client where the costs are to be paid out of a common fund to which the client and others are interested :

     Provided that no question shall be raised as to the propriety of any act for which prior approval was obtained as required by regulations.

……

5. Regulations may provide that for the purposes of this Schedule, instead of costs being taxed in the ordinary way, -

(a) they shall be taxed by the prescribed person (whether an officer of the court or not);

(b) the amount of the costs shall be fixed (whether by an officer of the court or not) by an assignment made without a taxation but with a view to allowing as nearly as may be the same amount as on a taxation.”

B.  1950 UK Reg

2. The 1950 UK Reg provides inter alia as follows:

“Property Recovered or Preserved for and Costs Awarded to an Assisted Person

16.- (1) All monies payable to an assisted person-

(a) by virtue of an order or agreement made in proceedings to which his certificate relates; or

(b) being monies paid into court by him or on his bejalf and ordered to be repaid to him; or

(c) being monies standing in a court to the credit of any proceedings to which his certificate relates;

shall be paid or repaid, as the case may be, to the solicitor of the assisted person and no other person shall be capable of giving a good discharge for monies so payable.

(2) All monies received by an assisted person’s solicitor under the foregoing paragraph shall be paid by him to The Law Society.

…

(6) Upon receipt of monies paid to them by virtue of this Regulation The Law Society shall retain -

(a) any sum paid by virtue of an order or agreement for costs made in the assisted person’s favour;

(b) a sum equal to the amount (if any) by which any property recovered or preserved is charged for the benefit of the Fund by virtue of section 3 (4) of the Act (which provides that any sums remaining unpaid on account of an assisted person’s contribution and. If the total contribution is less than the net liability of the Fund on his account, a sum equal to the deficiency shall be a first charge on any property recovered or preserved in the proceedings); and

(c) any costs of proceedings taken by the Area Committee in the name of The Law Society under the provisions of paragraph (5) of this Regulation against whom the proceedings have been taken;

and shall pay the balance to the assisted person.

(7) The appropriate Area Committee may defer the payment of an assisted person’s solicitor of his profit costs in connection with the proceedings until he has, in their opinion, given effect to any provision of this Regulation.”

C.  1960 UK Act

3. The 1960 UK Act provides inter alia as follows:

“2. In the Third Schedule to the Legal Aid Act (which regulates the remuneration of persons giving legal aid under pat I of the Act, and in paragraphs 1 and 2 limits it in certain cases to eighty-five per cent. of the amount allowed on taxation) after the words “eighty-five per cent.”, wherever occurring in either of those paragraphs, there shall be inserted the words “or such larger percentage as may be prescribed”.

……

4. For the removal of doubts it is hereby declared that a provision of the Legal Aid Act requiring anything to be paid into or out of the legal aid fund is not to be taken as requiring the making of an actual payment, so as to prevent the obligation to make it being satisfied in whole or in part by an allowance in account or in any other way; and in that Act references to payments, to sums paid or payable or to receipts and similar references (whether in connection with that fund or not) shall be read accordingly.”

D.  1966 LAO

4. The 1966LAO provides inter alia that:

“18.(1) An aided person may be required to pay to the Director a contribution towards the sums payable on his account by the Director.

……

19.(1) A court may make an order for costs in favour of and against an aided person in the same manner and to the same extent as it may make an order for costs in favour of or against any other person.

(2) Where a court makes an order for costs against an aided person or an agreement is entered for the payment of costs by an aided person, there shall be paid by the Director on behalf of the aided person to a party not receiving legal aid or to his solicitor –

(a) the amount of such costs as may be due from the aided person to the party not receiving legal aid, in any case in which the latter party was a defendant or respondent in the proceedings or, in the case of any appeal, was a respondent therein;

(b) an amount not exceeding the contribution to be paid by the aided person to the Director, after deduction therefrom of any sums payable by the Director of the aided person, in any other case.

(3) Any sums received by virtue of an order or agreement for costs made in favour of an aided person shall be paid to the Director.

20. There shall be paid by the Director to counsel and solicitor acting for an aided person such fees and costs for so acting as may be prescribed.”

5. The Objects and Reasons for the 1966 HK Bill state inter alia that:

“7. Persons receiving legal aid will be required to pay a contribution towards costs (clause 18) on a sliding scale to be prescribed by regulations made under clause 28. A contribution would normally be required from both disposable capital and disposable income. The contribution represents the maximum liability from his own resources of an aided person towards the costs of the action whether or not he is successful in the action and whether or not costs are awarded to or against him by the court. Clause 19 provides that a court may make an order for costs in favour of or against an aided person in the same way as in the case of any other person. Where costs are awarded against an aided person these are paid by the Director, in full if an unaided person was defendant or respondent, otherwise only up to the limit of the aided person’s maximum contribution after deduction of expenses incurred by the director. Any costs awarded to an aided person are paid to the Director.

8. Clause 20 provides that fees and costs shall be paid by the Director to solicitors and counsel acting for aided persons in accordance with scales to be prescribed by legislation.”

E.  1966 HK Reg

6. The 1966 HK Reg provides inter alia as follows:

“14(1) All moneys payable to an aided person –

(a) by virtue of any agreement or order made in connexion with the action, cause or matter to which his certificate relates, whether such agreement be made before or after proceedings are actually begun; or

(b) being moneys paid into court by him or on his behalf and ordered to be repaid to him; or

(c) being moneys standing in a court to the credit of any proceedings to which his certificate relates,

shall be paid or repaid, as the case may be, to the Director and no other person shall be capable of giving a good discharge for moneys so payable.

……

(5) Upon receipt of moneys paid to him by virtue of this regulation the Director shall retain –

(a) any sum paid by virtue of an order or agreement for costs made in the aided person’s favour;

(b) a sum equal to the amount (if any) by which any property recovered or preserved is charged for the benefit of the Director by virtue of subsection (2) of section 18 of the Ordinance; and

(c) any costs of proceedings taken by the Director under the provisions of paragraph (4) in so far as such costs have not been recovered from the person against whom the proceedings have been taken,

and shall pay the balance to the aided person.”

According to paragraph 10 of the Explanatory Note (which is not part of the regulations, but is intended to indicate their general purport), “[property] or money payable to an aided person must be paid to the Director who will then deal with it in the appropriate manner, as prescribed in regulation 14”.

F.  1966 LA(SOF)R

7. Regulation 5 of the 1966 LA(SOF)R provides inter alia as follows:

“The amount payable by the Director to a solicitor acting for an aided person shall be-

(a) the full amount allowed on taxation on account of disbursements; and

(b) eighty per centum of the amount allowed on taxation on account of profit costs,

or, in default of taxation, such amount as may be fixed by the Director, not exceeding such amount as in the opinion of the Director would have been allowed if there had been taxation.”

According to paragraph 3 of the Explanatory Note (which is not part of the regulations, but is intended to indicate their general purport), “…… by regulation 5 a solicitor will receive the full amount of disbursements and 80 per cent of his taxed costs”.

G.  1967 LAO and 1967 HK Reg

8. The 1967 LAO came into effect on 19 May 1967, and a new section 19A was added as follows:

“(1) All moneys which may become payable to an aided person –

(a) by virtue of an order made in connexion with the proceedings to which his legal aid certificate relates;

(b) by virtue of any agreement made in connexion with the proceedings to which his legal aid certificate relates, whether such agreement be made before or after the proceedings are actually begun;

(c) being moneys paid into court by him or on  his behalf in connexion with the proceedings to which his legal aid certificate relates and ordered to be repaid to him; or

(d) being moneys standing in court to the credit of any proceedings to which his legal aid certificate relates,

shall be paid or repaid, as the case may be, to the Director.

(2) Subsection (1) shall not apply where any court, authority or person, in exercise of a power under any law, gives any direction or exercises any discretion as to the payment of any sum to an aided person, and in such case the court, authority or person shall provide that the sum payable to the aided person shall be subject to a first charge for the benefit of the Director for any sum due to be paid or repaid to him under this Ordinance.

(3) The provisions of this section shall apply in relation to all sums which may become payable to an aided person, notwithstanding any provision in –

(a) the Workmen’s Compensation Ordinance; or

(b) the Supreme Court Ordinance; or

(c) any other law,

which

(i) restricts the payment of any sum to any person; or

(ii) prohibits the payment of any sum to any person.

(4) Only the Director shall be capable of giving a good discharge for moneys which may become payable to the Director under this section.”

9. The 1967 HK Reg came into force on the same day, ie 19 May 1967, and provides inter alia as follows:

“4. Regulation 14 of the principal regulations is amended-

(a) by deleting paragraph (1);

(b) in paragraph (5) by deleting “this regulation” and substituting the following-

“any provision of the Ordinance or of these regulations”;

(c) in paragraph (5) by adding at the end the following-

“or, if the court so directs, to the court or some other person”.”

10. In short, the section 19(3) of 1966 LAO (clause 4 of the 1967 HK Bill) and regulation 14(1) of the 1966 HK Reg (regulation 4(a) of the 1967 HK Reg) were repealed and a new section 19A was added (clause 5 of the 1967 HK Bill).

11. The Objects and Reasons for the 1967 HK Bill state inter alia as follows:

“4. The object of clauses 4 and 5 is to combine in a new section, dealing with costs and damages, a requirement that all sums due to an aided person shall be paid to the Director. The new section will reproduce a similar provision which is at present found in the Legal Aid regulations, because doubt has been expressed as to whether the regulations will prevail over provisions in other Ordinances (e.g. Cap. 282) which prohibit payment to anyone other than the person to whom they are due under a court order; similar difficulties have arisen over payments to infants. This clause will make it clear that, in legal aid cases, all sums shall be paid to the Director in the first instance.” (my emphasis)

12. At the first reading of the 1967 HK Bill on 12 April 1967, the then Attorney General said as follows:

“The original Legal Aid Regulations, Sir, provided that all moneys payable to a person in receipt of legal aid should be paid to the Director in order that he may deduct from them whatever expenses he has incurred on behalf of the legally aided person. It has been found however that some ordinances provide for certain payments to be made either into Court or at the discretion of the Court, and these statutory provisions naturally override subsidiary legislation. Since it is considered desirable that in all cases referred to in clause 5 of the Bill moneys coming to a legally aided person should pass through the hands of the Director, clause 5 of the Bill seeks to achieve this.”

13. The Explanatory Note of the 1967 HK Reg (which is not part of the regulations, but is intended to indicate their general purport)provides inter alia as follows:

“4. Regulation 4 makes amendments which follow from the transfer of regulation 14(1) of the principal regulations to the Ordinance and also allows for the payment of money due to be paid by the Director to an aided person to be made by the Director to the court or to some other person, if the court so orders.”

H.  1968 LAO

14. The 1968 LAO adds a new section 19B as follows:

“Upon receipt of all moneys paid to him pursuant to section 19 or 19A, the Director shall –

(a) retain –

(i) any sum paid by virtue of an order or agreement for costs made in the aided person’s favour;

(ii) a sum equal to the amount, if any, by which any property recovered or preserved is charged for the benefit of the Director by virtue of subsection (2) of section 18; and

(iii) any costs recovered in proceedings taken by the Director in his own name under regulations made under this Ordinance;

(b) pay to the Registrar of the Supreme Court any court fees and other fees and charges paid to him pursuant to subsection (1A) of section 19; and

(c) pay the balance to the aided person or, if the court so directs, to the court or to some other person.”

15. At the first reading of the 1968 HK Bill on 10 January 1968, the then Attorney General said inter alia that:

“The proposed amendment in clause 2 of the Bill will remedy this situation, and provide that, where an order for costs is made in favour of an aided person, the party against whom the order is made shall be obliged to pay those fees and charges to the Director of Legal Aid.

Clause 3 transfers from regulation 14 of the Legal Aid Regulations to the Ordinance, as a new section 19B, the provisions governing the disposal of moneys paid to the Director of Legal Aid in favour of an aided person. It is thought this is a more appropriate place for these provisions.”

16. The Objects and Reasons for the 1968 HK Bill state inter alia as follows:

“The purpose of clause 2 of this Bill is to provide that, when an aided person obtains an order for costs in his favour, the party against whom the order is made shall be liable also to pay the court fees and other fees and charges mentioned. Thus, in such cases, these expenses will not be borne by the Government.

……

The purpose of clause 3 of the Bill is to transfer to the principal ordinance the provision of regulation 14(5) of the Legal Aid regulations relating to the disposal of moneys received by the Director. It is thought that this is the most appropriate place for these provisions, especially if clause 2 of the Bill is adopted. The new section 19B also provides that the Director of Legal Aid shall pay to the registrar of the Supreme Court any court fees or other fees or charges recovered under the proposed section 19(1A).”

I.  1971 UK Reg

17. The 1971 UK Reg which came into operation on 1 February 1971 provides that:

“Property Recovered or Preserved for and Costs Awarded to an Assisted Person

18.-   …

(2) Subject to paragraph (10) all moneys payable to an assisted person-

(a) by virtue of any agreement or order made in connection with the claim or action, cause or matter to which his certificate relates, whether such agreement was made before or after the proceedings were taken; or

(b) being moneys payable in respect of the claim or the action, cause or matter to which his certificate relates upon the distribution of property of a person who had been adjudicated bankrupt or has entered into a deed of arrangement, or of a company in liquidation; or

(c) being moneys which were paid into court by him or on his behalf in any proceedings to which his certificate related and which have been ordered to be repaid to him; or

(d) being moneys standing in court to the credit of any proceedings to which his certificate relates,

shall be paid or repaid, as the case may be, to the solicitor of the assisted person or, if he is no longer represented by a solicitor, to The Law Society, and only the solicitor, or as the case may be, The Law Society, shall be capable of giving a good discharge for moneys so payable:

Provided that …

……

(3) An assisted person’s solicitor shall –

……

(b) pay all monies received  by him by virtue of an order or agreement made in the assisted person’s favour to The Law Society:

Provided that where the appropriate area committee consider that the rights of the fund will thereby be safeguarded and so direct, he shall –

(i) pay only such sum which, in the opinion of the appropriate area committee, should be retained by the Law society in order to safeguard the rights of the fund under any provisions of the Act and these Regulations; and

(ii) pay any other moneys to the assisted person.

……

(7) Upon receipt of moneys paid to them under this Regulation The Law Society shall retain –

(a) subject to regulation 14(3) any sum paid under an order or agreement for costs made in the assisted person’s favour in respect of the period covered by his certificate;

(b) a sum equal to the amount (if any) by which any property recovered or preserved is charged for the benefit of the fund by virtue of section 3(4) of the Act; and

(c) any costs of proceedings taken by The Law Society under paragraph (4);

and shall pay the balance to the assisted person.”

J.  1974 UK Act

18. The 1974 UK Act being a consolidating enactment came into operation on 8 February 1974. It provides inter alia as follows:

“10.(1) Subject to this Part of this Act, a solicitor who has acted for a person receiving legal aid shall be paid for so acting out of the legal aid fund, and any fees paid to counsel for so acting shall also be paid out of that fund.

(2) Subject to any rules of court made for the purposes of section 9 of the Matrimonial Causes Act 1967 ……, the sums payable under sub-section (1) above shall not exceed those allowed under Schedule 2 to this Act.

……

Section 10

SCHEDULE 2

REMUNERATION OF PERSONS GIVING LEGAL AID

UNDER PART I

……

2.-(1) The sums allowed to a solicitor in connection with proceedings in the House of Lords, the Court of Appeal or the High Court shall be the full amount allowed on taxation of the costs on account of disbursements and 90 per cent. of the amount so allowed on account of profit costs.

(2) The sums allowed to a solicitor in connection with proceedings in a county court shall be the full amount allowed on taxation of the costs whether on account of disbursements or of profit costs.

……

4.-(1) Subject to paragraph 3 above, costs shall be taxed for the purpose of this Schedule according to the ordinary rules applicable on a taxation as between solicitor and client where the costs are to be paid out of a common fund in which the client and others are interested; but no question shall be raised as to the propriety of any act for which prior approval was obtained as required by the regulations.

……

5. Regulations may provide that any percentage specified in paragraph 1(1) or 2(1) above there shall be substituted such other percentage, not less than 85 per cent., as may be prescribed by the regulations.”

K.  1980 UK Reg

19. The 1980 UK Reg provides inter alia as follows:

“Moneys recovered to be paid to solicitor or the Law Society

88. Subject to regulations 90 and 96, all moneys payable to an assisted person-

(a) by virtue of any agreement or order made in connection with the action, cause or matter to which his certificate relates, whether such agreement was made before or after the proceedings were taken; or

(b) being moneys payable in respect of the action, cause or matter to which his certificate relates upon the distribution of property of a person who had been adjudicated bankrupt or has entered into a deed of arrangement, or of a company in liquidation; or

(c) being moneys which were paid into court by him or on his behalf in any proceedings to which his certificate related and which have been ordered to be repaid to him; or

(d) being moneys standing in court to the credit of any proceedings to which his certificate relates,

shall be paid or repaid, as the case may be, to the solicitor of the assisted person or, if he is no longer represented by a solicitor, to The Law Society, and only the solicitor, or as the case may be, The Law Society, shall be capable of giving a good discharge for moneys so payable:

……

Solicitor to pay moneys recovered to The Law Society

91.(1) An assisted person’s solicitor shall forthwith–

……

(b) subject to paragraph (2), pay all monies received  by him by virtue of an order or agreement made in the assisted person’s favour to The Law Society.

(2) Where the appropriate area committee considers that the rights of the fund will thereby be safeguarded and so directs, the assisted person’s solicitor shall–

(a) pay to the Law Society under paragraph (1)(b) only such sum as, in the opinion of the appropriate area committee, should be retained by The Law society in order to safeguard the rights of the fund under any provisions of the Act and these Regulations; and

(b) pay any other moneys to the assisted person.

……

Retention and payment out of moneys by The Law Society

93. Upon receipt of moneys paid to them under this part of these Regulations, The Law Society shall retain –

(a) subject to regulation 98, any sum paid under an order or agreement for costs made in the assisted person’s favour in respect of the period covered by his certificate;

(b) a sum equal to the amount (if any) by which any property recovered or preserved is charged for the benefit of the fund by virtue of section 9(6) of the Act; and

(c) any costs of proceedings taken by The Law Society under regulation 92(1);

and shall pay the balance to the assisted person.”

L.  1981 LAO 

20. The 1981 HK Bill was introduced tomake clear that the Director’s power to realise costs out of recovered property extend to out-of-court settlements as well as court orders. The 1981 HK Bill also provides relief to aided persons who may suffer hardship from the deduction of legal expenses out of what is recovered for them by inter alia giving the Director authority to deduct from what an aided person recovers an amount which is less by up to $10,000 than the full amount of the first charge if serious hardship would otherwise be caused to the aided person.Section 3 of the 1981 LAO amended section 19B(a) of the LAO to give effect to the above.

M.  1984 LAO

21. The 1984 HK Bill introduced the SLAS which was intended to be self-financing. The 1984 LAO was enacted and came into effect on 1 October 1984. Section 26 of the LAO 1984 provides for contribution by the aided person to the legal aid fund set up under SLAS (ie a new section 32 of the LAO). All moneys due to the aided person continue to be paid to the Director pursuant to section 19A of the LAO and are retained by the Director pursuant to section 19B of the LAO save that section 20 of the LAO 1984amends section 19A(1) of the LAOby inserting after “Director” the following: “unless the Director by notice in writing to the person responsible for payment and to the aided person directs otherwise”. Section 14 of the LAO 1984 also amends the LAO adding sections 16B (benefits afforded to aided persons) and 16C (liability for costs) in Part IV.

N. 1988 UK Act

22. The 1988 UK Act, which came into effect on 29 July 1988, provides inter alia as follows:

“Part IV  Reimbursement of Board by contributions and out of costs or property recovered

16.(1) A legally assisted person shall, if his financial resources are such as, under regulations, make him liable to make such a contribution, pay to the Board a contribution in respect of the costs of his being represented under this Part.

……

(5) Any sums recovered by virtue of an order or agreement for costs made in favour of a legally assisted person with respect to the proceedings shall be paid to the Board.

……

(9) In this section references to the net liability of the Board on a legally assisted person’s account in relation to any proceedings are references to the aggregate amount of—

(a) the sums paid or payable by the Board on his account in respect of those proceedings to any solicitor or counsel, and

(b) any sums so paid or payable for any advice or assistance under Part III in connection with those proceedings or any matter to which those proceedings relate,

being sums not recouped by the Board by sums which are recoverable by virtue of an order or agreement for costs made in his favour with respect to those proceedings or by virtue of any right of his to be indemnified against expenses incurred by him in connection with those proceedings.”

O. 1989 UK Reg

23. The 1989 UK Reg provides inter alia as follows:

“Money recovered to be paid to solicitor or the Board

87. (1) Subject to regulations 89 and 94, all moneys payable to an assisted person–

(a) by virtue of any agreement or order made in connection with the action, cause or matter to which his certificate relates, whether such agreement was made before or after the proceedings were taken; or

(b) being moneys payable in respect of the action, cause or matter to which his certificate relates upon the distribution of property of a person who had been adjudicated bankrupt or has entered into a deed of arrangement, or of a company in liquidation; or

(c) being moneys which were paid into court by him or on his behalf in any proceedings to which his certificate relates and which have been ordered to be repaid to him; or

(d) being moneys standing in court to the credit of any proceedings to which his certificate relates,

shall be paid or repaid, as the case may be, to the solicitor of the assisted person or, if he is no longer represented by a solicitor, to the Board, and only the solicitor, or, as the case may be, the Board, shall be capable of giving a good discharge for moneys so payable.

(2) Where the assisted person’s solicitor has reason to believe that an attempt may be made to circumvent the provisions of paragraph (1), he shall inform the Board.

……

 

Retention and payment out of moneys by the Board

92. Upon receipt of moneys paid to it under this Part of these Regulations, the Board shall retain–

(a) subject to regulation 103, any sum paid under an order or agreement for costs made in the assisted person’s favour in respect of the period covered by his certificate;

(b) a sum equal to the amount (if any) by which any property recovered or preserved is charged for the benefit of the Board by virtue of section 16(6) of the Act; and

(c)   any costs of proceedings taken by the Board under regulation 91(1); and shall pay the balance to the assisted person.”

P.  1989 LAO

24.                    Section 7 of the 1989 LAO amendedsection 19B of the LAO by renumbering it as subsection (1), by amending the proviso to subsection (1)(a) by repealing “$10,000” and substituting “$30,000”, andby adding a new subsection (2) as follows:

“(2) Notwithstanding subsection (1), where the Director is satisfied that –

(a) compliance with subsection (1)(a) would cause serious hardship to any person; and

(b) a payment will be received by him under section 19 or 19A,

the Director may, upon receipt of any such payment, pay such proportion thereof as he thinks fit to the aided person without complying with subsection (1)(a).”

Q.  1991 LAO

25. The Explanatory Memorandum of the 1991 HK Billinter alia states that:

“……

13.Clause 12 amends section 19A to enable a court to retain a first charge for the benefit of the Director over moneys payable to an aided person.

14.Clause 13 adds a new section 19C to provide that interest received by the Government on moneys paid to the Director by or on behalf of an aided person shall be paid into the general revenue.”

Section 12 of the 1991 LAO also amended section 19A of the LAO by (a) repealing the words “for the benefit of the Director” in subsection (2) and substituting the words “to be retained by the court, authority or person for the benefit of the Director as a first charge”, and (b)  adding at the end “(5) In this section reference to an “aided person” includes an aided person whose legal aid certificate has been revoked or discharged.” Section 13 of the 1991 LAO introduced a new section 19C[108] to relieve the Director from liability to pay interest on monies paid to him by or on behalf of an aided person in order to give statutory effect to the then current practice.

R.  1999 UK Act

26. The 1999 UK Act is an enabling Act, and the operation of the legal aid scheme is set out in delegated legislation. But it is of interest to note section 22 which provides that:

“22 Position of service providers and other parties etc.E+WThis sectionnoteType=Explanatory Notes has no associated

(1) Except as expressly provided by regulations, the fact that services provided for an individual are or could be funded by the Commission as part of the Community Legal Service …… shall not affect—

(a) the relationship between that individual and the person by whom they are provided or any privilege arising out of that relationship, or

(b) any right which that individual may have to be indemnified in respect of expenses incurred by him by any other person.

(2) A person who provides services funded by the Commission as part of the Community Legal Service …… shall not take any payment in respect of the services apart from—

(a) that made by way of that funding, and

(b) any authorised by the Commission to be taken.

……

(5) Regulations may make provision about the procedure of any court or tribunal in relation to services funded by the Commission as part of the Community Legal Service ……”

S.  2000 UK Reg

27. The relevant delegated legislation is the 2000 UK Reg which provides inter alia as follows:

“Application of regulations 18 to 24

17.(1) ……

(2) If the client is no longer being represented by a solicitor, all money to which regulation 18(1) applies shall be paid (or repaid) to the Commission, and all references in regulations 18(1) and 19 to the client’s solicitor shall be construed as references to the Commission.

 

Money recovered to be paid to solicitor

18. (1) Subject to the following paragraphs of this regulation, and to regulation 17(2), all money payable to or recovered by a client in connection with a dispute by way of damages, costs or otherwise, whether or not proceedings were begun, and whether under an order of the court or an agreement or otherwise, shall be paid to the client’s solicitor, and only the client’s solicitor shall be capable of giving a good discharge for that money.

……

 

Solicitor to pay money recovered to Commission

20.(1) The client’s solicitor shall forthwith:

…..

(b) subject to the following paragraphs of this regulation, pay to the Commission all money or other property received by him under regulation 18.

(2) Paragraph (1)(b) shall not apply to any money or other property to which the statutory charge does not apply, by virtue of the Financial Regulations.

(3) Where he considers it essential to protect the client’s interests or welfare, the Regional Director shall pay, or direct the client’s solicitor to pay, to the client any money received by way of any interim payment made in accordance with an order made under CPR rule 25.6, or in accordance with an agreement having the same effect as such an order.

(4) The Regional Director may direct the client’s solicitor to:

(a) pay to the Commission under paragraph (1)(b) only such sums as, in the Regional Director’s opinion, should be retained by the Commission in order to safeguard its interests; and

(b) pay any other money to the client.

(5) Where the solicitor pays money to the Commission in accordance with this regulation, he shall identify what sums relate respectively to:

(a) costs;

(b) damages;

(c) interest on costs; and

(d) interest on damages.

 

Retention and payment out of money by the Commission

22.(1) The Commission shall deal with the money paid to it under this Part in accordance with this regulation.

(2) The Commission shall retain:

(a) an amount equal to the costs incurred in taking steps under regulation 23;

(b) an amount equal to that part of the funded sum already paid to the supplier in respect of the relevant work; and

(c) where costs are paid to the Commission together with interest, an amount equal to that interest, less the amount of any interest payable to the supplier under paragraph (3)(b)(ii).

(3) The Commission shall pay to the supplier:

(a) any outstanding amount of the funded sum payable to him in respect of the relevant work;

(b) where costs are ordered or agreed to be paid to the client, and those costs are received by the Commission, and those costs (less any amount retained under paragraph (2)(a) or payable under paragraph (5)) exceed the funded sum:

(i) an amount equal to the amount of the excess; and

(ii) where those costs are paid to the Commission together with interest, an amount equal to the interest attributable to the excess referred to in sub-paragraph (i).

……

(7) Where the amount received by the Commission, less any amount retained under paragraph (2)(a), is insufficient to meet the funded sum and any sum payable under paragraph (5), the Commission shall apportion the amount received proportionately between the two.

(8) The Commission shall pay all the money paid to it under this Part, which is not paid or retained under paragraphs (2) to (5), to the client.

……

 

Interest on damages

24.(1) Where the Commission receives damages paid in favour of a client it shall, subject to the following paragraphs, pay to the client a sum representing gross interest earned while the damages are being held by the Commission.

(2) Without prejudice to its other powers to invest money, the Commission shall maintain and may deposit damages to which this regulation refers in one general account at a bank or building society.

(3) The rate of interest payable to the client under this regulation shall be 0.5% per annum less than the rate payable on damages deposited in the general account.

(4) The Commission shall not be required to pay interest where the damages received do not exceed £500 or where the period during which they are held by the Commission is less than 28 days.

(5) Interest shall be payable for the period beginning on the third business day after the date on which damages are received by the Commission to and including the date on which the Commission determines the amount to be paid under regulation 22(8).

……”

T.  2012 UK Act

28. The 2012 UK Act is again an enabling Act that leaves the operation of the legal aid scheme to be dealt with in delegated legislation, eg the 2013 UK Reg. But it is useful to take note of section 28(1)-(2) thereof:

“28 Position of providers of servicesThis sectionnoteType=Explanatory Notes has no associated

(1) The fact that services provided for an individual are or could be provided under arrangements made for the purposes of this Part does not affect—

(a) the relationship between the individual and the person by whom the services are provided,

(b) any privilege arising out of that relationship, or

(c) any right which the individual may have to be indemnified by another person in respect of expenses incurred by the individual,

except to the extent that regulations provide otherwise.

(2) A person who provides services under arrangements made for the purposes of this Part must not take any payment in respect of the services apart from—

(a) payment made in accordance with the arrangements, and

(b) payment authorised by the Lord Chancellor to be taken.

……”

U.  2013 UK Reg

29. The 2013 UK Reg provides inter alia as follows:

“Application of regulations 13 to 19This sectionnoteType=Explanatory Memorandum has no associated

12.(1) ……

(2)   Where a legally aided party is no longer being represented by a provider, all money to which regulation 13(1) applies must be paid to the Lord Chancellor, and a reference in regulation 13(1) or 14 to the provider is to be construed as a reference to the Lord Chancellor.

 

Money recovered to be paid to the providerThis sectionnoteType=Explanatory Memorandum has no associated

13.(1) All money payable to or recovered by a legally aided party in relevant proceedings or a relevant dispute, whether under a court order or an agreement or otherwise, must be paid to the legally aided party’s provider, and only that provider is capable of giving good discharge for the money.

(2) Paragraph (1) does not apply to—

(a) any periodical payment of maintenance; or

(b) any money which, in accordance with regulation 11, is not subject to the statutory charge.

(3) Where a legally aided party’s provider, or former provider, has reason to believe that an attempt may be made to circumvent the provisions of paragraph (1), the provider or former provider must inform the Lord Chancellor immediately.

……

Provider to pay money recovered to the Lord ChancellorThis sectionnoteType=Explanatory Memorandum has no associated

15.(1) The legally aided party’s provider must without delay—

……

(c) subject to paragraphs (2) and (3) and regulation 16, pay to the Lord Chancellor all money received by the provider by virtue of regulation 13.

(2) Paragraph (1)(c) does not apply to any money which is not subject to the statutory charge by virtue of regulation 5.

(3) The Lord Chancellor may authorise the legally aided party’s provider to—

(a) pay to the Lord Chancellor under paragraph (1)(c) only such amount as in the opinion of the Lord Chancellor is necessary to safeguard the Lord Chancellor’s interests;

(b) retain, after payment of any amount under sub-paragraph (a), any amount received under a legally aided party’s costs order or agreement; and

(c) pay any other money to the legally aided party.

(4) Where the provider pays money to the Lord Chancellor in accordance with this regulation, the provider must specify what sums relate to—

(a) costs;

(b) damages;

(c) interest on costs; and

(d) interest on damages.

……

Payment out and retention of money by the Lord ChancellorThis sectionnoteType=Explanatory Memorandum has no associated

17.(1) The Lord Chancellor must pay to the provider—

(a) any outstanding amount payable under the arrangements to the provider in respect of services provided to the legally aided party in relevant proceedings or a relevant dispute;

(b) where costs under a legally aided party’s costs order or costs agreement are received by the Lord Chancellor, any amount by which—

(i) the amount under that order or agreement, after deduction of any amount under paragraph (2)(b),(4) or (6); exceeds

(ii) the total amount payable under the arrangements to the provider in respect of civil legal services made available in the relevant proceedings or relevant dispute, after deduction of any legal aid only costs; and

(c) where the costs referred to in sub-paragraph (b) are paid to the Lord Chancellor with interest, an amount equal to interest attributable to any amount payable under that sub-paragraph.

(2) Where money is received by the Lord Chancellor under this Part, the Lord Chancellor must, subject to paragraph (6), retain—

(a) an amount equal to that part of the total cost of the civil legal services made available to the legally aided party in relevant proceedings or a relevant dispute which form part of the statutory charge;

(b) an amount equal to the costs incurred in taking steps under regulation 18; and

(c) where costs are paid to the Lord Chancellor together with interest, an amount equal to that interest, less the amount of any interest payable to the provider under paragraph (1)(c).

(3) Paragraph (4) applies where—

(a) money is received by the Lord Chancellor under this Part; and

(b) a solicitor, whether or not a provider, has acted on behalf of a legally aided party in proceedings or a dispute before that party receives civil legal services in respect of the same proceedings or dispute, or has a lien on any documents necessary to proceedings to which a legally aided party is party, and has handed them over subject to the lien.

(4) Where this paragraph applies, and the solicitor referred to in paragraph (3) gives the Lord Chancellor written notice to that effect, the Lord Chancellor must, subject to paragraph (6), pay to that solicitor the costs to which the solicitor would have been entitled if those costs had been assessed on an indemnity basis.

(5) Where the amount of costs payable under paragraph (4) have not been assessed by the court, they may be assessed by the Lord Chancellor.

(6) Where the amount received by the Lord Chancellor under this Part, after deduction of any amount under paragraph (2)(b), is insufficient to meet—

(a) the total amount payable to the provider under the arrangements in respect of the civil legal services made available to the legally aided party in the relevant proceedings or relevant dispute; and

(b) the amount payable to a solicitor under paragraph (4),

the Lord Chancellor must apportion the amount received proportionately between the Lord Chancellor and the solicitor, and pay to the solicitor the amount so apportioned.

(7) The Lord Chancellor must pay all the money paid to the Lord Chancellor under this Part, which is not paid or retained under paragraphs (1)(b), (1)(c), (2), (4) or (6) to the legally aided party.

(8) In this regulation, “solicitor” means a person who, for the purposes of the Legal Services Act 2007, is an authorised person in relation to an activity which constitutes the conduct of litigation within the meaning of that Act.

……

Interest on damages

19.(1) Where the Lord Chancellor receives damages paid in favour of a legally aided party, the Lord Chancellor must—

(a) deposit those damages in one general account at a deposit-taker; and

(b) except where paragraph (3) applies, pay the legally aided party a sum representing the gross rate of interest earned on the damages while they are held by the Lord Chancellor.

(2) The interest payable to the legally aided party under paragraph (1)(b) is to be calculated—

(a) at a rate of 0.5% per annum less than the rate payable on damages deposited in the general account; and

(b) for the period beginning with the third business day after the date on which the damages are received by the Lord Chancellor, and ending with the date on which the Lord Chancellor determines the amount to be paid to the legally aided party by virtue of regulation 17(7).

(3)   The Lord Chancellor is not required to pay interest where the damages received—

(a)   are £500 or less; or

(b)   are held by the Lord Chancellor for less than 28 days.

……”