The Legal Ombudsman's case fee and funding
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- Bernadette Glenn
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1 The Legal Ombudsman's case fee and funding Law Society discussion paper May The Law Society. All rights reserved.
2 1. Introduction The Law Society ("The Society") is the representative body for over 159,000 solicitors in England and Wales. It presents the policy of its council made on behalf of the solicitors profession as a whole, and lobbies regulators, Government and others. This discussion paper has been produced by the Law Society's Regulatory Affairs Board. More detail on the remit and members of the Board can be found in Annex B. The paper seeks the views of solicitors about the ways in which the profession funds the Legal Ombudsman (LeO) and the extent to which the Society should lobby for changes to the funding mechanisms and its processes generally. The Society is aware of concerns that the existing mechanisms, particularly those requiring solicitors to pay a case handling fee are having unintended consequences for firms. We would like to hear the profession s views on whether this is the case and what changes could be made to the Society s policy and approach in respect to this. Since LeO is largely funded by solicitors, through a levy on the Law Society, a change is likely to affect every firm. This paper considers two questions: The effect of the new case fee arrangements on solicitors and whether there is scope for reform; Dealing with complainants who push their cases too far or are otherwise vexatious. In addition, we are interested in solicitors experience generally of LeO and would welcome thoughts about that. 2. Background to the Legal Ombudsman The Legal Services Act 2007 (the Act) created the Office for Legal Complaints which was established to set up and oversee the work of LeO 1. LeO is an independent body which considers complaints about the service provided by authorised persons under the Act, including solicitors. LeO started taking complaints in October LeO currently costs 15.8m 2. LeO is funded partly through a levy on the approved regulators which is apportioned according to the number of complaints received in respect of their regulated 1 Part 6 of the Legal Services Act Legal Ombudsman (2015) Annual Report
3 community. In 2013/14, 94% of LeO's complaints were about SRA regulated firms 3 so solicitors are by far the biggest contributors to LeO financially. A smaller proportion of LeO's cost is funded through a flat case fee ( 400) which is charged to firms if they have complaints dealt with by LeO. A case fee is potentially chargeable on closure of the case. Where a complaint is resolved in favour of the lawyer, and an Ombudsman is satisfied that the lawyer took all reasonable steps to try to resolve the complaint under their own procedure, the case will not be treated as chargeable. The fee applies irrespective of the amount of work and time taken by LeO to investigate the complaint. In , the case fee constituted 7.6% of LeO's overall budget 4. Until 2013, LeO operated a free cases approach whereby a lawyer or firm was not required to pay the case fee in respect of the first two complaints each year. In practice, this meant that few firms in fact were required to pay the fee. 3. Areas for consideration The 'polluter pays' principle The case fee supports what has become known as the polluter pays principle. The Law Society has, thus far, supported it on the basis that firms which provide poor service, or do not handle complaints well, should not be cross-subsidised by other firms. The case fee provides an incentive for poorly performing firms to improve and reduces the levy on the rest of the profession. In 2012, the Law Society stated that: "With regard to the way that the Ombudsman is currently funded, we believe that it should recover as large a proportion of its costs from case fees as possible. We think the principle that those law firms that give cause for complaints, or who do not settle complaints effectively themselves, should meet the costs is a fair one. Those members of the profession that are able to avoid complaints, or who do handle complaints effectively, should not be paying the costs of those that do not." 5 It should be noted that it would not be possible for LeO to abandon the 'polluter pays' principle entirely as the Legal Services Act 2007 requires the Ombudsman to charge a fee though it may not do so where the solicitor has not done anything wrong and has handled the initial complaint appropriately. 3 Legal Ombudsman's complaints data Legal Ombudsman (2015) Annual Report The Law Society (2012) Legal Ombudsman - Review of Scheme Rules and Case Fee Structure: Law Society Response - 2
4 Since abolition of the free cases approach, firms have raised concerns with the Society about the effect of the case fee. These have been that: The case fee can provide a weapon for clients who wish to seek a fee reduction: it may be cheaper for firms to agree a fee reduction early than have a complaint go to LeO. In some cases, a firm will have made an offer to the complainant to settle a complaint which an Ombudsman may increase by a relatively small amount. At that point the case fee becomes payable which may be disproportionate to the amounts involved and appear unfair to the solicitor. It could also be argued that the requirement to pay a fee is not helpful for a service that aims to conciliate and support rather than to apportion blame. Moreover, we are not aware of the cost of collecting these amounts. If LeO were to change its approach the result is likely to be that the bulk of the additional cost will be passed on to the whole profession by way of the levy. This is likely to mean an additional cost of between 10 and 15 per practitioner with the greatest effect falling on the largest firms which tend, of course, to be the ones least likely to be affected by LeO. The 'free' cases Until 2013, LeO allowed two 'free' cases for each firm per year. At the time, the Society was opposed to this and supported the abolition of 'free' cases on the basis that the policy went against the 'polluter pays' principle. There are now no 'free' cases unless the firm is found to have acted appropriately or the complaint was abandoned; in which case, the fee is waived. The principal arguments in favour of 'free' cases are that it means that firms that are unfortunate in having only one or two individual cases but are otherwise responsible practices are not penalised. It also protects small firms and those who undertake high risk work with difficult clients. Against that, it should be noted that the money saved by individual firms from case fees waived would have to be made up through PC fees. In practice, it may be that few firms would have to pay the fee. It might also be thought that this significantly detracts from the rationale of having any form of case fee. Case fee exemptions 3
5 The Legal Services Act 2007 requires that a case fee is charged to respondents 6 ; however, it allows a significant amount of flexibility around how case fees are charged. Under the Act, LeO's Scheme Rules can include exemptions. Since the 'free' cases were abolished in April 2013, these provisions have not been utilised. There may be an argument for encouraging LeO to consider adding additional exemptions which could help to protect firms; for example, firms who operate in particularly high risk areas that tend to generate large numbers of complaints, firms providing legal aid, firms providing pro bono activities, small firms or cases where the compensation ordered by LeO is of a significantly lower value than the case fee. Arguments in favour of case fee exemptions may include: Exemptions could significantly assist firms which are most at risk of unjustified complaints. Exemptions could help to support increased access to justice: for example, waiving the case fee where the lawyer has provided pro bono work may make solicitors more amenable to providing pro bono work. Arguments against exemptions may include: The money saved by individual firms from case fees waived would have to be made up through practicing certificate fees. It may be difficult to decide which firms should be exempt. It may increase administrative costs for LeO. A stepped case fee Another option LeO could consider would be a stepped case fee. This would be a fee which would increase as a case progresses. LeO's procedure seems to lend itself to such an approach as there are clear stages to complaints which in the first instance go to an assessor, then an investigator and, if the respondent and complainant still can not agree; finally, an Ombudsman. This fee could be charged in three stages: for example, a flat 100 during the investigation/resolution stage, then an increase if the matter goes to recommendation report, and a further increase if an Ombudsman s decision is required. Arguments in support of a stepped case fee may include: 6 Section 136 of the Legal Services Act
6 It may encourage solicitors to resolve complaints as early as possible. Early resolution would decrease LeO's unit costs. This may be viewed as fairer by firms. Earlier resolution is likely to be viewed favourably by complainants. It is consistent with the polluter pays principle (the Law Society's current policy position) - those who use the full LeO service would pay more than those who resolve a complaint early in the process. Arguments against a stepped case fee may include: It is often complainants, not lawyers, who push complaints to Ombudsman decision. Therefore, the stepped system would only work if LeO introduced a case fee waiver where the lawyer had made an adequate attempt to resolve the complaint early on. LeO has a policy of publishing data on all Ombudsman decisions; this already provides an incentive to lawyers to resolve complaints early. The current system of a flat 400 per case is simple to understand and operate. The Law Society would find it valuable to understand how the profession has been affected by the change in LeO s approach and whether it should lobby for a further change to that approach. Question 1: How, if at all, has your firm been affected by the change in LeO s approach? Question 2: Do you think that the Law Society should: (a) Continue with its existing policy supporting polluter pays? (b) Campaign for the return of free cases? (c) Campaign for exemptions from the case fee for particular types of firm or practice? (d) Campaign for LeO to provide a stepped case fee depending on where how far the complaint progresses? Question 3: LeO is required to charge a case fee and this is currently set at 400 per case. What do you think an appropriate level would be? Please give reasons for your views and include evidence and examples where possible. 5
7 Charging LeO was established as a free service for complainants. In this respect it follows other statutory Ombudsman and complaints handling schemes in the UK. There have been suggestions that complainants should be charged either (a) to make a complaint at all or (b) if they seek to press their complaint beyond the initial decision so that the matter is looked at by an Ombudsman without good reason. In particular, there is clear evidence that complainants tend to push things to the highest possible level in an effort to gain a satisfactory result. In 2013/14 7, 37% of cases were pushed further in this way with nothing to suggest that a better result was achieved in most of those cases. This is costly and inefficient for both solicitors and LeO. The second option, in particular, might have the effect of deterring complainants from taking their case further and of contributing to the cost of LeO. There is no power in the Legal Services Act for complainants generally to be charged for making a complaint. A change in the legislation would be required. Moreover, the EU Directive on Alternative Dispute Resolution 8 would allow a nominal charge; however, this must not be dissuasive and would therefore be ineffective as a means of sifting out less worthy complaints or providing much in the way of funding. There is a provision in section 133 (3)(i) of the Legal Services Act for LeO to award costs against the complainant or the respondent in favour of the OLC for the purpose of providing a contribution to resources deployed in dealing with the complaint, if in the ombudsman s opinion that person acted so unreasonably in relation to the complaint that it is appropriate in all the circumstances of the case to make such an award. However, it is clear from the drafting that this is intended to be a power used only in exceptional circumstances. It is unlikely to cover the case of a client who simply makes a complaint which is not upheld, whatever the motivation of the client. Moreover, it is unlikely to be cost-effective for LeO to recover such fees and the outcome would simply be that the profession would end up paying for this also. In addition, there are strong reasons of principle as to why it would be inappropriate to charge complainants. These are: People who have received poor service should not have to pay to have their complaint looked at properly; The Society and most solicitors are opposed to the use of court fees as a deterrent to bringing litigation a different approach here would be hard to square with that argument; 7 Legal Ombudsman's Annual Report Directive 2013/11/EU of the European Parliament and of the Council 6
8 It is an important reputational support for the profession that there is an independent body able to look at complaints of poor service; A complaints system can help the profession gain knowledge of poor practice and help it to improve; There are costs associated with collecting fees and they may well exceed any amount collected. Any change would, in any case, require primary legislation and the Society s assessment is that, even if a change were desirable in principle, Parliament would be unlikely to agree to it. Sifting out vexatious complaints There may be scope to explore whether LeO can do more within their current rules and processes to make the scheme fairer to solicitors and more efficient. These could include: Increasing the number of complaints discontinued on the grounds that they are vexatious complaints and/or Investing resource at the early stages of dealing with complaints so that cases where it clear that there is complaint is vexatious are filtered out early. Question 4: Do you agree that it is inappropriate for the Society to press for complainants to be charged other than in the circumstances currently permitted? Question 5: Based on your experiences, how do you think LeO could improve their procedures to make them fairer? Question 6: Are there any other important issues relating to LeO that have not been addressed in this consultation document. If so, please include further information. Please give reasons for your views and include evidence and examples where possible. 4. Conclusion The Law Society is keen to hear about solicitors' experiences with the Legal Ombudsman so that we can provide considered advice to inform any future work LeO undertakes to review its Scheme Rules. The full list of questions have been included in the Annex to this paper. 7
9 Please send your response to the consultation to by Friday 10 July If you would like your response to be anonymous, please state this. 8
10 Annex A - summary of questions Question 1: How, if at all, has your firm been affected by the change in LeO s approach? Question 2: Do you think that the Law Society should: (a) Continue with its existing policy supporting polluter pays? (b) Campaign for the return of free cases? (c) Campaign for exemptions from the case fee for particular types of firm or practice? (d) Campaign for LeO to provide a stepped case fee depending on where how far the complaint progresses? Question 3: LeO is required to charge a case fee and this is currently set at 400 per case. What do you think an appropriate level would be? Question 4: Do you agree that it is inappropriate for the Society to press for complainants to be charged other than in the circumstances currently permitted? Question 5: Based on your experiences, how do you think LeO could improve their procedures to make them fairer? Question 6: Are there any other important issues relating to LeO that have not been addressed in this consultation document. If so, please include further information. Please give reasons for your views and include evidence and examples where possible. 9
11 Annex B - Regulatory Affairs Board Terms of reference: 1. To set and oversee the implementation of policy for the promotion of solicitors' interests in all regulatory matters. 2.To assist the Management Board in making recommendations to the Council under Regulation 23(1) on the exercise of approved regulator functions. Members: Linda Lee Chair Andrew Caplen President Jonathan Smithers Vice-President Robert Bourns Deputy Vice-President Sundeep Bhatia Council Member Christina Blacklaws Council Member Sara Chandler Council Member Michael Garson Council Member Nwabueze Nwokolo Council Member Alan Radford Council Member David Taylor Council Member Paul Widdup Council Member Andrew Hopper QC Member John Wotton Member Webpage: D=
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