The Court of Appeal has backed a decision to deprive a claimant firm of almost £1.1m in costs, concluding that the solicitors were not entitled to benefit from changing funding methods midway through the case.

In XDE v North Middlesex University Hospital NHS Trust, Lord Justice Coulson agreed with the lower courts that the reasons for changing from legal aid funding to a conditional fee agreement were unreasonable. As a result, the court disallowed almost £1.1m incurred by London firm Bolt Burdon Kemp (BBK) in additional liabilities through the funding change. Its total bill was £2.4m. The decision, on an underlying clinical negligence claim, reasserts the position of the Court of Appeal on funding changes.

The claimant and her solicitors argued that the lower courts were wrong to equate so-called CFA-lite funding with legal aid funding. They further submitted that because CFA-lite was so obviously superior as a funding method, the actual reasons for the change were irrelevant.

In court, it was argued that the entire debate was artificial, because no issue about recoverability would have arisen had the claimant signed up to a CFA from the outset.

The defendant pointed to the findings of Master Rowley, namely that the claimants had acted unreasonably in failing to keep within the restrictions of the legal aid certificate. The Court of Appeal had set out in Surrey v Barnet and Chase Farm Hospitals NHS Trust – where claimant lawyers were stripped of extra costs – the general approach to be taken in cases involving a change of funding, the defendant said.

Lord Justice Coulson insisted that Surrey was to be applied in cases where the reasonableness of a decision to change funding was in issue.

He said the actual reason for the change in this case was the law firm’s unreasonable failure to keep spending within the limits imposed by the Legal Services Commission. ‘To put this case at its simplest, Master Rowley found that BBK had gone over the LSC budget and that [the solicitor handling the case] knew that she would not get an increase in that budget because she could not show a good reason for the increase. As a result, she changed funding. It therefore follows that that change in funding was unreasonable.’

The judge said that at no point during the five years of working with legal aid funding did the firm suggest CFA-lite was a superior system. He also rejected the argument that the change in funding was an obvious benefit to the claimant, stating that control of costs was in everyone’s interests.