Access to Justice

A Critical Analysis of Recoverable Conditional Fees and No Win No Fee Funding

J. Peysner

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137397232
• Topic: Negocios y empresa
• Subtopic: Servicios financieros

This book addresses an experiment in funding money damage claims in England from 2000 to 2013. The model - recoverable conditional fees - was unique and has remained so. It covers the development, amendment and effective abolition of the model, as well as the process of policy development and the motivation and objectives of the policy makers.

1

Introduction

A critical analysis of the unintended consequences leading to the rise and fall of recoverable no-win no-fee funding in the light of evidence-based policy

This book addresses a remarkable experiment in the funding of money damage claims – largely personal injury claims – which began in 2000 and which the government effectively abolished in 2013.¹ The model – conditional fees with recoverable additional elements (recoverable CFAs) – adopted by the incoming New Labour administration was unique and, for reasons that will become obvious, it has remained so. This book is based on a review of published material, the author’s own view as a ‘participant’ in the process and anonymised semi-structured interviews with other participants, from government, claimant and defendant lawyers and litigation insurers. The book covers the development, subsequent amendment and effective abolition of the model. It examines the process of policy development, the motivation and objectives of the policy makers and the reactions of the parties attempting to grapple with the new system. It asks whether a development process incorporating a range of models addressing the evidence base, and including insights from behavioural psychology, counterfactuals and simulations, might have produced a better result: a workable policy based on the core of government objectives or, possibly, an entirely different model.

2

The Development of Funding

The issue of funding – that is, financial support – for individual citizens¹ of England and Wales² bringing civil claims to vindicate their rights³ needs to be addressed in stages:

Outline

1. Development of trade union welfarism from the early 20th century offering members individual services – particularly access to union lawyers to pursue injuries at work – with a growing pro bono movement amongst private lawyers to assist clients with civil problems.⁴ This movement grew into the Poor Man’s Lawyer movement in the 1930s, which expanded in the Second World War to deal with matrimonial problems arising out of families disrupted by the war and began the process of arguing for a universal legal aid system.

2. The passing of the Legal Aid Act 1949, alongside other welfare reforms by the incoming Labour government, provided criminal and civil advice and assistance for cases of merit with financial eligibility limits based on means. Alongside this, the union movement successfully lobbied the government to remove barriers to claims by their members for personal injuries.⁵ In due course these reforms benefited victims who were not union members.

3. The era of economic growth and social expansiveness in the 1960s saw a short-lived expansion of provision under the influence of the ‘Access to Justice’ movement,⁶ which addressed the decline of eligibility as incomes rose but eligibility levels did not, and a benign approach by the national and local state to the development of neighbourhood law centres offering legal services focused on welfare rights and free at the point of demand.⁷

4. After the 1973 oil shock and a period of rising inflation and pressure on government budgets, eligibility for legal aid was tightened by administrations of all persuasions. The Thatcher and Blair governments, with their emphasis on limiting state intervention, continued this process. This created a gap between the poor, who remained eligible, and the rich, who could afford to pay their own lawyer’s fees. This group, known as MINELAs,⁸ involved in, say, a serious accident, could not afford lawyers but needed an effective remedy. The Conservative Lord Chancellor, Lord Mackay, introduced the conditional fee in 1995 to assist this group.⁹ At the same time there was a continued tightening of funding for legal aid. Franchising and contracting were introduced, with the idea of increasing quality by focusing on fewer providers and driving down price in exchange for ‘guaranteed’ funding.

5. This policy area was marked by a seamless transfer in policy between Conservative and New Labour administrations in 1997. The pace of legal aid ‘reforms’ quickened. Money damage civil claims (mostly personal injury cases) were removed from the scope of legal aid. Funding now became available through a revised version of conditional fees (Recoverable CFA). This limited or eliminated the risk to clients by the device of recoverability – the subject of this book – on which much blood and treasure was spent in the ‘Cost War’.¹⁰

6. The review by Lord Justice Jackson in 2011 addressed continuing cost problems, and the proposal – taken up on almost unanimous cross-party basis – to abolish recoverability came into force in 2013.

The cost system

This is not a treatise on litigation costs, but, in order to understand the challenges posed by social or public policy in this area, it is necessary to introduce the bare bones of how the litigation cost system works in England¹¹ and its inter-relationship with funding, particularly in the period leading up to recoverable conditional fees.

Any cost system deals with the management and distribution of risk: the risk of paying damages and the risk of paying associated legal costs.

In the USA individual personal injury claims are funded through the contingency fee systems. There is no loser pay system: each side bears its own costs. If damages are recovered, part of these is paid to the winner’s lawyer by way of fee.

The court-based system in England is based on the loser pays principle.¹² If a party wins or favourably settles the case, then, as well as damages, the successful lawyer’s fees and any other expenses are recoverable from the loser. In England, recovery of costs can be no more than the fee agreed with the winner’s own lawyer. If the lawyer agreed not to charge unless the case was successful, such a speculative agreement was historically unlawful, as breaching the indemnity principle.¹³ This rule seems purely technical, but it will play a central role in this book as the root cause of problems which arose during the ‘Cost War’. If the case is lost, the loser pays both lawyers’ fees and all the expenses. In England, contrary to Europe, these lawyers’ fees are high and unpredictable. In these circumstances, ordinary citizens will be reluctant to take the risk of using a lawyer at their own expense.

Individuals can protect themselves against this cost risk by buying in advance legal expense insurance or by being a member of a trade union or trade association that will cover cost liability. Between 1947 and 2000, civil legal aid was available to a diminishing number of individual parties whose cases fell within scope (for these purposes, largely money claims arising from personal injury, housing disrepair and contract breaches). The claim made had to meet a merits test as well as the applicant satisfying a financial eligibility or means test. This could result in ‘free’ legal aid to bring the case, or funding based on a contribution. Legal aid operated as a cost protection, because a legally aided party whose case was unsuccessful only had to pay the winner’s costs up to the limit of their contribution, if any.

As mentioned, MINELAs, who were outside legal aid eligibility from 1995, could, under the Courts and Legal Services Act, potentially use conditional fees. This first iteration of conditional fees was a no-win no-fee system, with the party’s lawyer charging by the hour in the normal way. If the case was lost, the client did not get a bill. If the case was won, the bill (made up from the hourly rate) would be increased by a success fee or reward of up to 100% deducted from the winner’s award of damages. The balance, if any, would be deducted from the winner’s award of damages.¹⁴ This system incentivised lawyers to take on risk, but it only solved half of the client’s problem. It protected them against paying their own lawyer’s fees if the case was lost, but not the other side’s lawyer. Protection against this risk involved buying a specific insurance product: After the Event Insurance – ATE. The premium for this was expensive and not recoverable as a cost of the case, so it had to be paid in any event: win or lose. This was unattractive to MINELAs, who remained between a rock (no legal aid) and a hard place (expensive ATE). Very few people bought legal expense insurance: Before the Event insurance (BTE).¹⁵ There was a justice gap: a large and increasing number of citizens with no access to justice.

3

The Theoretical Context

Introduction

This chapter deals with the issue of how individual citizens might enforce their rights to compensation (as opposed, for example, to administrative redress or human rights). It does not address any particular jurisprudential model which generates these rights, but, instead, looks to effective enforcement of them.

Substantive law rights may be contained in the common law or codes, but for a number of reasons, whether through corruption, lack of resources or a citizen’s inability to understand the purported rights, they may be incapable of effective engagement. The key issue is assuming that the claimant has an arguable substantive law right: can that right be vindicated? This chapter makes no assumption that vindication has to be through a court-based system. In England tribunals have grown in number and breadth so that, for example, the Employment Tribunals have jurisdiction over employment and discrimination claims, with the advantage that costs do not follow the event.¹ They have become the first port of call for most disputes in this area. Increasingly in England, reflecting European practice, regulatory-backed complaint systems and a range of trade or industry-based dispute resolution models produce, in practice, decisions which stick and which do not involve court-based adjudication.²

Nevertheless, the focus of this chapter is the engagement of clients and lawyers in the recovery, or the defence, of money claims, particularly for personal injury. Apart from pure debt matters, these have been the mainstay of the court system outside the specific jurisdictions such as the Commercial Court. In New Zealand, personal injury litigation has been replaced by a no fault compensation scheme. In England there has been some academic support³ but no demand to replace court-based damages.⁴

While the focus here is on court-based jurisdiction, theories about how courts should operate (civil procedural theories), such as the need for rigour in decision making and so forth, are not our concern. Further, while the focus is on court-based adjudication systems, this does not mean, as it would in Continental Europe, that cases are actually tried by a judge. Almost all money damage cases settle either before issuing the case or before trial.⁵ However, the reason why they settle is the threat of the court process and the risk of who pays the costs when the music stops.

The development of access to justice

Access to justice has long been recognised as a public good, alongside education and health, and latterly as a human right following Article Six of the Convention on Basic Rights. In fact access to justice has a long history in public policy in the UK. In civil cases Scotland, as is often the case, was well ahead of England, and a 1424 statute had a remarkably modern two-stage ‘legal aid’ test that entitled a poor person with a good cause to be represented by a lawyer free of charge and to be exempt from court fees:⁶

and gif there bee onie pure creature, for faulte of cunning, or expenses, that cannot, nor may not follow his cause, the King for the love of GOD, sall ordain the judge to purwey and get a leill and a wise Advocate, to follow sik pure creatures causes.⁷

Crucially, if the litigant was successful then the lawyers’ fees and court fees would be recoverable on top of damages and handed over to the winning party.

This lead appeared to be followed by an English statute of 1494,⁸ which by virtue of the writ in pauperis indigent claimants could issue proceedings without paying court fees.⁹ While lawyers could be appointed to act for the indigent person, there was no provision for recovery of the winner’s lawyer’s fees. Thus, an opportunity was missed to create a ‘legal aid’ exception to the emerging indemnity principle,¹⁰ with costs recoverable even though the poor person had no cost liability. Understandably, lawyers avoided being appointed if they could. Until 1531, the losing indigent party had to pay the costs of their successful opponent. After this date, under a further statute,¹¹ this liability was removed. However, indigents may not have seen this as an unrelieved blessing, as courts could order their punishment for non-payment of costs. This could include corporal punishment and imprisonment.

However, while developments in public health and education in England raced ahead in the 19th and early 20th centuries, support for access to justice always lagged behind. While the progressive political parties might have espoused this cause, they tended to allow the New Model trade unions to take the lead as they developed services to their members. In an era of dangerous manual labour, representation in personal injury claims was paramount.

In Scotland, as...