Handbooks Index

Part 7: Clawback and expenses


Chapter 1

A&A - clawback and regulation 16(3) of the 1996 Regulations

1.1 The hierarchy of payments – Payment of fees and outlays – Section 12(3) of the Legal Aid (Scotland) Act 1986
1.2 If after deducting the contribution and any expenses there is still an amount due, what do you need to do?
1.3 Property recovered or preserved
1.4 What sort of property can be recovered or preserved?
1.5 What sort of property is exempted from clawback?
1.6 Matrimonial cases
1.7 What if my client had both advice and assistance and civil legal aid – will they have to pay from property recovered or preserved for both?
1.8 What are the differences between payments from property recovered or preserved under advice and assistance and under civil legal aid?
1.9 Applications under Regulation 16 (3)
1.10 Refusal of a “hardship” application under Regulation 16 (3) (a) should not mean you are not paid
1.11 Power of the Board to exempt part of the fee
1.12 Regulation 16 (3) (a): payment out of the property would cause grave hardship or distress to applicant
1.13 Making the application: Regulation 16 (3) (a) – Applicant hardship or distress application form
1.14 Factors to be considered
1.15 Grave hardship
1.16 Applicant’s up-to-date financial circumstances
1.17 Outstanding debts
1.18 Intended use for money recovered or preserved
1.19 The impact of the sale of the property recovered or preserved
1.20 Distress
1.21 Categories of cases
1.22 Regulation 16 (3) (b): the solicitor has taken all reasonable steps to get payment and payment cannot be achieved without unreasonable delay or difficulty
1.23 Making the application : Regulation 16(3)(b) – Solicitor’s application
1.24 We will take the following factors into consideration when assessing applications under regulation 16(3)(b)
1.25 Steps taken to recover the fee
1.26 If you are aware that a recovery has been made the Board will expect you to take the following steps to recover your fee
1.27 If the settlement terms of the action are not known to you or you no longer act on behalf of the client the Board would expect you to take the following steps
1.28 What we will pay for
1.29 Difficulty in recovering property or expenses
1.30 Nature of the property
1.31 Reasonable timescale to await payment
1.32 Transfer of agency
1.33 Review of a refusal under regulation 16(3)(a) or (b)
1.34 Right of the Board to recover sums paid out of the Fund

 

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 ADVICE AND ASSISTANCE – PROPERTY RECOVERED OR PRESERVED AND APPLICATIONS UNDER REGULATION 16(3) OF THE ADVICE AND ASSISTANCE (SCOTLAND) REGULATIONS 1996

Unless otherwise stated, in this section "the Act" or "the 1986 Act" means the Legal Aid (Scotland) Act 1986, and “the regulations” means the Advice and Assistance (Scotland) Regulations 1996.

When you come to the end of the case, your fees and outlays may not always be paid from the Legal Aid Fund. There is a hierarchy of payments and this section sets out how this operates and takes you through the application process for telling us why your fees and outlays should be paid from the Legal Aid Fund.

This information is important because it impacts on the applicant or assisted person and there is advice that you need to give your client.

1.1 The hierarchy of payments – Payment of fees and outlays – Section 12(3) of the Legal Aid (Scotland) Act 1986

The Act states:

 

“Except in so far as regulations made under this section otherwise provide, fees or outlays to which this section applies shall be paid to the solicitor as follows

(a) first, out of any amount payable by the client in accordance with section 11(2) of this Act;

(b) secondly, in priority to all other debts out of any expenses which (by virtue of a judgment or order of a court or an agreement or otherwise) are payable to the client by any other person in respect of the matter in connection with which the advice and assistance is provided;

(c) thirdly, in priority to all other debts, out of any property (of whatever nature and wherever situated) which is recovered or preserved for the client in connection with that matter, including his rights under any settlement arrived at in connection with that matter in order to avoid or bring to an end any proceedings;

(d) fourthly, by the Board out of the Fund, following receipt by it of a claim submitted by the solicitor.”

 This is the hierarchy of payments and means that:

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1.2 If after deducting the contribution and any expenses there is still an amount due, what do you need to do?

When you prepare your advice and assistance account, if after deducting the contribution and any expenses there is still an amount due, you should consider whether there has been property recovered or preserved. To help you assess this, we have set out below when property can be recovered or preserved and the exemptions that apply if there is property recovered or preserved. You should take payment of the amount due from the property recovered or preserved.

You should only subsequently submit and advice and assistance account to the Board if it is accompanied by an application under Regulation 16 (3(a) or (b) or if no property has been recovered or preserved from which you can be paid.

Under civil legal aid, an account must always be sent to the Board. Payment of your civil legal aid account cannot be made from anywhere other than the Legal Aid Fund.

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1.3 Property recovered or preserved

Your client will recover or preserve property under advice and assistance if they get something they didn’t own before, if they keep something that someone tried to take or they retain property which was part of the settlement and they already previously owned.

However, the clawback provisions in advice and assistance vary in several ways from those applied in civil legal aid. The main difference being that under civil legal aid, your client is entitled to their own one half share of any jointly owned property as long as it was not put at issue in the proceedings. Under advice and assistance there are no half sharing provisions.

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1.4 What sort of property can be recovered or preserved?

Property has a very wide meaning, and includes anything that can be owned. Examples of property include:

Any item which has a monetary value can be recovered or preserved in an action.

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1.5 What sort of property is exempted from clawback?

Regulation 16(2) lists categories of property recovered or preserved to which section 12(3)(c) of the Act does not apply. Only property specifically excluded in regulation 16(2) is exempt from clawback. Among the types of property exempted are:

You should refer to regulation 16(2) for full details of the exempt property.

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1.6 Matrimonial cases

For applications granted prior to 1 April 2011 under regulation 16(2)(b), clawback does not apply to a specified initial limit (see the Keycard for up-to-date limits) of any money, or of the value of any property, recovered or preserved by virtue of –

(i) an order for the payment of a capital sum under section 5 of the Divorce (Scotland) Act 1976;

(ii) an order for payment of a capital sum or transfer of property, or an incidental order, under section 8 of the Family Law (Scotland) Act 1985;

(iii) any settlement arrived at to prevent or bring to an end proceedings in which such an order may be granted.

There are no exemptions for applications received on or after 1 April 2011.

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1.7 What if my client had both advice and assistance and civil legal aid – will they have to pay from property recovered or preserved for both?

In civil legal aid cases where section 17(2B) directs payment of any net liability to the Fund should be made out of property recovered or preserved, in priority to all other debts, unless the property is exempt under regulation 33 of the Civil Legal Aid (Scotland) Regulations 2002. The net liability must be paid to us, for payment into the Fund to cover all civil legal aid accounts paid in connection with that matter.

If any property recovered or preserved remains after any civil legal aid accounts has been paid, you must take payment from the remaining property to cover your fees and outlays for any linked advice and assistance account unless there is a relevant exemption under regulation 16(2). You take payment direct from the property recovered or preserved and no advice and assistance account should be submitted to the Board. Any remaining sums can be released to your client.

If you have recovered funds and feel it is appropriate to submit an application under Regulation 16 (3) (a) or (b), you must retain sufficient funds to cover your advice and assistance account until a decision has been made to either grant or refuse your application.

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1.8 What are the differences between payments from property recovered or preserved under advice and assistance and under civil legal aid?

Although the rules are similar, there are some important differences.

A person receiving civil legal aid may have to pay from property recovered or preserved in cases where they would not have to do so under advice and assistance. There are also some cases where they will have to pay for advice and assistance, but not towards the cost of civil legal aid. You should refer to the regulations for details, but some of the major differences are:

Hardship provisions

Sale proceeds from a home

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1.9 Applications under Regulation 16 (3)


If there is property recovered or preserved and it will be difficult for the solicitor to recover the money or it would cause grave hardship or distress to the applicant to recover the money, you can apply to have the remainder of your fees and outlays paid from the Legal Aid Fund under Regulation 16(3).

Regulation 16 (3) states:

“The Board may authorise that the requirement created by section 12(3)(c) of the Act that, before recourse to the Fund, fees and outlays shall be paid to the solicitor out of any property which is recovered or preserved for the client shall not apply in relation to the whole or any part of any such property in any case where on application by the solicitor, the Board are satisfied that –

(a) payment out of the property to which the requirement would otherwise apply would cause grave hardship or distress to the client; or

(b) (i) the solicitor has taken all reasonable steps to obtain payment out of the property to which the requirement would other wise apply; and

(ii) payment to the solicitor out of that property could only be effected with unreasonable difficulty or after unreasonable delay.”

This section describes the issues you need to think about when drafting your application and the issues we consider when assessing the application.

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1.10 Refusal of a “hardship” application under Regulation 16 (3) (a) should not mean you are not paid

If we refuse an assisted person’s application under Regulation 16 (3) (a) where grave hardship or distress has to be shown, this does not mean you will not be paid. It means that payment should be made from the property recovered or preserved instead of from the Legal Aid Fund. If you have difficulty in getting payment from that property you can apply under Regulation 16 (3) (b). However, it is important that you explain to the applicant at the initial stages of advice and assistance that they may have to pay for the work from property recovered or preserved.

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1.11 Power of the Board to exempt part of the fee

In some situations we may exempt only part of your fee from payment from any property recovered or preserved. If only part of the property recovered or preserved has met the statutory tests under Regulation 16 (3) (a) or (b), your fee can be exempt to that extent only.

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1.12 Regulation 16 (3) (a): payment out of the property would cause grave hardship or distress to applicant

The regulation states:

16 (3) The Board may authorise that the requirement created by section 12 (3) (c) of the Act that, before recourse to the Fund, fees or outlays shall be paid to the solicitor out of any property which is recovered or preserved for the client shall not apply in relation to the whole or any part of any such property in any case where an application by the solicitor the Board are satisfied that –

(a) payment out of the property to which the requirement would otherwise apply would cause grave hardship or distress to the client;

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1.13 Making the application: Regulation 16 (3) (a) – Applicant hardship or distress application form

You should make this application if paying the costs of the case from the property recovered or preserved would cause the applicant grave hardship or distress. To make an application under Regulation 16 (3) (a), you should use form AA/HARDSHIP/1. This form must be fully completed and signed by both you and your client. It can be sent to the Board on paper or you can scan the completed form and send this electronically by way of an email or online by attaching it through “View case”. You can only send the form as an attachment through Legal Aid Online, you cannot complete the Hardship application using Legal Aid Online as this facility is not yet available.

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1.14 Factors to be considered

Although applications made under Regulation 16 (3) are commonly referred to as “hardship applications”, applications under Regulation 16 (3) (a) require to demonstrate grave hardship or distress. We are not aware of any formal legal definition of “grave” in such a context and so believe it reasonable to apply the ordinary meaning of the word which we take from standard dictionary definitions to be “serious, important or crucial”; and the ordinary meaning of the word “distress” to be “extreme unhappiness or worry, upset badly or in dire need of help”. In other words, the standard to be met is extremely high and not met by inconvenience or disappointment.

We will look at each hardship application on its own merits and consider the impact on the applicant of paying your fee and outlays.

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1.15 Grave hardship

For applications based on grave hardship you must provide details and supporting documents showing your client’s financial circumstances at the time the settlement was reached.

Please note that being in receipt of state benefits is not indicative by itself of grave hardship. If your client was and continues to be on benefits before and over the course of the action, this will not be considered as grave hardship.

If there is evidence that the applicant has deliberately disposed of property or, for instance, left employment in order to avoid paying, we may refuse the application.

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1.16 Applicant’s up-to-date financial circumstances

Applicants should give us full and up-to-date details, including documentary evidence, of: their income, outgoings and any outstanding liabilities. This should enable us to assess the impact on them paying your fees and outlays and whether they are likely to suffer any grave hardship.

For example, we will take into account the costs of re/mortgage, council tax, gas and electricity, food, essential travel, and children’s clothing. (See paragraph 1.18 on “Items that are essential living costs” for further guidance.)

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1.17 Outstanding debts

When assessing your application, we will consider any debts such as arrears for rent, mortgage, utilities, and council tax which have accrued as a direct result of the action in which advice and assistance was granted. (See paragraph 1.18 on “Items that are not essential living costs” for further guidance.)

The Board will consider non secured debts but payment of your account takes priority.

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1.18 Intended use for money recovered or preserved

When an application is submitted you must state the desired use for the property your client has recovered or preserved and provide evidence of the costs involved.

Examples of essential costs that may be considered are:

Example 1: If the applicant is a lone parent, living in an isolated rural area and a motor vehicle is vital to travel to shops, schools or medical practitioner, the application is likely to be granted.

 

Example 2: If the applicant’s home was flooded and flooring damaged, redecoration is needed. We would consider allowing the client sufficient funds from any award made to fix the flooring and redecorate the damaged area. Quotes and/or receipts must be sent with the application.

Example 3:  Following an employment matter the client wishes to repay a debt for Council tax.  The debt is for 10 months of unpaid council tax.  For seven months of this time the client was in employment, but for three months they were unemployed and the funds now awarded to the client are to compensate them for the period they were unemployed.  We will allow the client to use sufficient funds from the award made to cover the 3 months of arrears that the client was in unemployed, but not the 7 months in which they were working.


Examples of non essential costs that will not be considered are:

Example 1: An applicant receives damages from the council because they had an accident. With the funds received the client wishes to purchase a new television and entertainment system. This would not be considered as an essential cost and the application refused.

 

Example 2: An applicant receives money from an employment action and wish to use the funds to renew a football season ticket that they could not afford to do previously. This is not considered an essential cost and the application would be refused.


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1.19 The impact of the sale of the property recovered or preserved

We will consider the impact the sale of the property recovered or preserved will have on the applicant, including:

Example 1: Client recovers a television. If this had to be sold to repay the fee, the amount that would be received from the sale of second hand goods may be minimal and may not cover the cost of the account. Client would be left with no TV and no funds to cover full fee. The application would be considered.

 

Example 2: Client receives a policy which is not due to mature until a much later date. If the policy is surrendered now to cover fee the client will lose some of the value. This is not considered as grave hardship and the application would be refused.

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1.20 Distress

Where applicants claim they will suffer distress if they have to make payment of your fee, you should explain in detail the nature of such distress. Would they have to sell a treasured family heirloom or personal item of a close relative? If applicable, they should provide medical evidence to support the nature of the distress. The test is one of reasonableness, which we see as being fair, logical and sensible

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1.21 Categories of cases

We will not make any specific provisions for types of case – for example, money received from the Criminal Injuries Compensation Authority and employment appeal tribunals.

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1.22 Regulation 16 (3) (b): the solicitor has taken all reasonable steps to get payment and payment cannot be achieved without unreasonable delay or difficulty

The regulation states:

16 (3) The Board may authorise that the requirement created by section 12 (3) (c) of the Act that, before recourse to the Fund, fees or outlays shall be paid to the solicitor out of any property which is recovered or preserved for the client shall not apply in relation to the whole or any part of any such property in any case where an application by the solicitor the Board are satisfied that –

(b) (i) the solicitor has taken all reasonable steps to obtain payment out of the property to which the requirement would otherwise apply; and

(ii) payment to the solicitor out of that property could only be effected with unreasonable difficulty or after unreasonable delay.

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1.23 Making the application : Regulation 16(3)(b) – Solicitor’s application

You should make this application when you have difficulty or delay in recovering your fee and outlays from your applicant or are unable to determine if any property has been recovered or preserved. When applying to us to waive payment out of property under Regulation 16(3)(b), you should use form AA/HARDSHIP/2. This form must be fully completed and needs only to be signed by you. This does not require a signature from your client. It can be sent to the Board on paper or you can scan the completed form and send this electronically by way of an email or online by attaching it through “View case”. You can only send the form as an attachment through Legal Aid Online as this facility is not yet available.

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1.24 We will take the following factors into consideration when assessing applications under regulation 16(3)(b)

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1.25 Steps taken to recover the fee

You should have taken all reasonable steps possible to recover the fee and give us details of these. If legal action has not been taken, you should explain why. There is not a requirement to take legal action, but you should be able to say why no such action was taken. You should provide:

We cannot give prescriptive or definitive guidance about the steps you should take, as we have to consider each case on its own merits. However, one factor we have to consider is the cost-benefit analysis of any potential steps to recover the fee.

Example 1: You have been unable to trace the client through tracing agents and have no bank information to place an arrestment. It is likely that we will grant the application in these circumstances.

 

Example 2: Client’s financial position indicates that any legal proceedings would be unsuccessful as the client is on low income or is in receipt of benefit and does not own any property. It is likely that we will grant the application in these circumstances.

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1.26 If you are aware that a recovery has been made the Board will expect you to take the following steps to recover your fee

In many cases where the solicitor’s account is small (under £100), we would accept a letter showing that you have written to your client seeking payment of your account, but they have not replied, or evidence or return of post from the last known address.

For accounts up to £500, we would expect to see evidence as above and a clear explanation of why it is not possible or practical to take legal action.

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1.27 If the settlement terms of the action are not known to you or you no longer act on behalf of the client the Board would expect you to take the following steps

If your account is small (under £100), and you have not received any instructions from the client. We would accept a letter showing that you have written to the client seeking an update but no reply has been received, or evidence of return of post from the last known address.

For any other accounts we think it reasonable to expect to see evidence of more substantial steps having been taken such as two letters being sent to the client seeking information regarding settlement with one being sent by recorded delivery. Letters to the opponent or opponent’s solicitor seeking an update should also be consider.

Once you have undertaken the above and you are still unaware of the recovery position, you should submit your account to the Board for it to be assessed. No hardship application is required in these circumstances as you are not aware of a recovery being made.

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1.28 What we will pay for

We will pay you for sending a letter to your client seeking specific information about settlement or progression of the case in order to find out whether property has been recovered or preserved. The letter should be of a reasonable length and be no more than one sheet. We will also pay for a letter to the opponent and opponent’s solicitor.

If you do not receive a reply to this letter we will also pay you for issuing a final reminder letter before you decide to close your file. Again this letter should be no more than one sheet and will be paid at the formal rate.

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1.29 Difficulty in recovering property or expenses

Two aspects can lead to difficulty in recovering any property or expenses:

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1.30 Nature of the property

We will look at how much the applicant would receive if they sold the property and the personal importance of the property to them if they were to keep it. We do not expect the applicant to sell the property if the item does not have reasonable monetary worth or if it would be difficult to sell.

Example 1: If the applicant is successful in recovering items such as a mobile phone and their clothes which were kept by a previous partner, the items have a minimal value second hand and the Board would not expect the client to sell these to make payment of the fee.

 

Example 2: If the applicant is successful in recovering items such as jewellery, cars and paintings which were kept by a previous partner, these items could have significant value and so we would expect the applicant to sell the items to pay your fee. You could agree with the client to repay the sum due by instalments so they did not have to sell the items.

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1.31 Reasonable timescale to await payment

If the applicant is unable to make payment of your account in a lump sum the Board would expect you to seek payment of your account from the applicant by way of instalments. You must show that you have sought payment of your account from the applicant.

• For any accounts where instalments can be made, we will only consider an application for payment if payment has not been made in full by the applicant within 12 months.

• If the applicant is not in position to pay any instalments, you must provide documentary evidence, such as up to date bank statements, verification of income and outstanding debts to show the applicant’s income and outgoings in order that the Board can assess their financial position.


For example:

If the property recovered is the applicant’s dwelling the Board would expect you to seek payment of you account by instalments. If the timescale is not reasonable you can submit an application under Regulation 16 3 (b). This must be supported by evidence of your client’s financial circumstances to show that if they paid your account by instalments it would cause undue delay.

If the recovery is a property that is not your client’s dwelling, the Board would expect the property to be sold to allow payment of your account to be made or for the applicant to raise/borrow funds against the property to make payment of your account.

If the recovery involves a pension, and the policyholder is within one year of pensionable age at the time of settlement, we consider it is reasonable for you to await the payment of the pension.

Where the parties are young at the time of the agreement and you will have to wait more than one year before the pension is payable, this would constitute unreasonable delay or difficulty.

Where a pension is paid by instalments and not by a lump sum, it may not be reasonable to expect you to wait for payment.

Where an investment, such as a bond, would not otherwise be encashed for four years, the applicant is accruing interest and therefore gaining advantage at the expense of the Fund. Normally, the only hardship to the client is that they would incur some form of penalty by loss of interest and we will refuse the application. However, we will consider the type of investment, any arrangements for surrender and the likelihood of capital being lost.

 

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1.32 Transfer of agency

If you are aware that there has been a transfer of agency then you should not submit your account either with or without a hardship application. You should contact the new solicitors to advise that you have an account which requires to be paid from any property recovered. The Board will not consider your application if there has been a transfer and the matter is still ongoing.

If you are the new solicitor acting in a case, you are expected to keep the previous solicitor updated and make payment of their account from any property recovered or preserved.

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1.33 Review of a refusal under regulation 16(3)(a) or (b)

If we refuse an application under Regulation 16(3)(a) or (b) you can ask us to review the decision. A member of staff not involved in the original decision will undertake the review.

You should ensure, however, that you provide all the necessary information needed at the beginning of the process to allow us to determine whether or not to grant your hardship application.

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1.34 Right of the Board to recover sums paid out of the Fund

The Advice and Assistance (Scotland) Amendment (No.3) Regulations 2004, S.S.I. No. 492, provide that, where we have paid a solicitor’s account for fees and outlays for advice and assistance under Regulation 16(3)(b), we have the power to recover any future expenses or property recovered or preserved by the client and to reimburse the Fund.

Regulation 21 states:

“(1) This regulation applies where after giving a person an opportunity of submitting representations, the Board is satisfied –

(a) that the person has wilfully failed to comply with these Regulations as to the information to be furnished by that personÍž

(b) that the person has knowingly made a false statement or false representation in furnishing such informationÍž or

(c) that the Board has paid fees and outlays to a solicitor who provided advice and assistance to that person, and at any time prior to or after such payment that person or any solicitor acting on that person’s behalf has, in respect of the same matter for which advice and assistance was provided –

(i) received any expenses which (by virtue of a judgement or order of a court or an agreement or otherwise) are payable to that personÍž or

(ii) recovered or preserved any property (of whatever nature and wherever situated), including that person’s rights under any settlement arrived at in connection with the matter in order to avoid or bring to an end any proceedings,

such expenses or property not having been declared to the Board by either that person or any solicitor acting on that person’s behalf.”.

The regulation gives us some flexibility in that, if we pay the solicitor’s account under regulation 16(3)(b), we can seek payment from the client if they are to recover or preserve property at a later date.

After we have made payment of the solicitor’s account under regulation 16(3)(b)

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Note about Solicitor’s application

The first is as follows:

 

1.18 Refusal of a “hardship” application under regulation 16(3)(a) should not mean you are not paid

 

If we refuse an assisted person’s application under regulation 16(3)(a), where grave hardship or distress has to be shown, this does not mean you will not be paid. It means that payment should be made from the property recovered or preserved instead of from the Legal Aid Fund. If you have difficulty in getting payment from that property, you can apply under regulation 16(3)(b) – we grant most of these applications. However it is important that you explain to your client at the initial stages of advice and assistance that they may have to pay for the work from property recovered or preserved.

The second is as follows:

 

1.21 Factors to be considered

 

Both tests under regulation16(3)(b) must be met:

• you should have taken all reasonable steps to get payment and

• you must show you cannot be paid without unreasonable delay or difficulty.

The standard for solicitor applications under regulation 16(3)(b) is much less onerous than that for assisted persons under 16(3)(a). We grant a high proportion of such applications.

• The standard of “grave hardship or distress” that applies to assisted person applications is extremely high.

• The standard applying to solicitor applications, however, is less onerous, referring to “reasonable steps” and “unreasonable difficulty” or “unreasonable delay”.

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