A county court breach of contract dispute looks set to have major ramifications for legal aid.
Solicitors involved in the case say that it lays down important guidelines on when the legal aid charge bites on recovered cash. It has, they say, revealed that certain funds which previously have been subject to the charge should not have been.
The Legal Aid Board may end up having to pay back a hefty sum now that the Court of Appeal has ruled that it should not be levying a charge against certain recovered money.
However, the case may be taken further. Although the Appeal Court refused leave for the LAB to take the matter to the Law Lords, a petition for leave to appeal has now been lodged at the House of Lords.
The matter which sparked off the action was a low-key breach of contract claim at Hemel Hempstead County Court involving only £3,543.
A damages claim was brought against the seller of property on the basis that he had not completed work he was under contract to complete. Initially a summary judgment was entered against the defendant. That was then set aside and he was given leave to defend on condition he paid money into court. However, a further default judgment was entered against him and he was ordered to pay £3,173 to the plaintiffs.
He then obtained legal aid to defend the action, the judgment was set aside and the money already paid to the plaintiffs was paid back into court. Ultimately the claim against the defendant was dismissed by consent.
It was then that the LAB sought to levy its charge against the money originally paid out by the defendant but then paid back into court. It successfully claimed in the High Court that the money was vulnerable to the charge.
However, in the Court of Appeal, Lords Justice Ward, Pill and Leggatt ruled that it was not and could not be classed as "recovered" money on which the charge could bite.
The case has established guidelines for a grey area of legal aid practice and the ruling is one of considerable significance to practitioners, says Alison Trent, of Fleet Street-based Alison Trent & Co, who masterminded the challenge to the LAB's stance.
She says the fact that the LAB is attempting to take the case to the House of Lords indicates just how important it views the matter.
"We always took the view that the payment of this money into court was a procedural move and that the charge could not bite against it," she says.
"If the charge could bite against sums of this nature then the ramifications would be very wide. It would certainly serve as a disincentive to legally- aided people when it comes to paying money into court in a bid to settle claims. Once money was paid in, it could become vulnerable to the charge.
"Even if a letter offering settlement was written, it's possible the money so offered could be viewed as being vulnerable."
She also believes the LAB is concerned that it may have to pay back a massive amount of money because of the incorrectly-applied levy. Her view seems to be backed by the fact the board has already admitted the Appeal Court ruling could lead to the charge no longer being applied in many cases in which it once would have been.
Solicitors involved in the case say that the LAB has also hinted that the ruling may lead to restrictions on the availability of legal aid.