LEGAL AID, SENTENCING AND PUNISHMENT OF OFFENDERS BILL HOUSE OF LORDS COMMITTEE STAGE

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1 LEGAL AID, SENTENCING AND PUNISHMENT OF OFFENDERS BILL HOUSE OF LORDS COMMITTEE STAGE 1. Executive summary The Bar Council s proposals for Part 2: Civil litigation funding and costs 1.1. The Bar Council is very seriously concerned about the Government s proposed reforms to the funding of civil litigation, contained within Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Bill. In our view, these provisions will threaten access to justice to all but those with the most simple and certain claims We are particularly concerned about the impact on deserving claimants in personal injury and clinical negligence cases, some of whom have sustained very serious injuries and require life-long care, and in relation to public law, in all of which types of case there is inevitably a fundamental inequality between the claimant (an individual unlikely to be of significant means) and the defendant (either the state or an insurer) After explaining the current system and the Government s proposed reforms, this paper goes on to elaborate upon the Bar Council s recommendations for the funding of civil litigation These recommendations can be summarised as follows: No win, no fee success fees should remain recoverable from losing defendants to ensure that lawyers continue to represent those with good but complex claims, provided that those success fees are proportionate to the risk taken on by the claimant s lawyer If the Government is to insist on abolishing this system, success fees should be capped at 25% of all damages, to recognise the risk taken on by no win, no fee lawyers and to ensure access to justice for those with good but complex claims Payment of this success fee should be split 50/50 between the claimant and the defendant; with the result that the claimant loses no more than 12.5% of their damages, and that both claimant and defendant retain a stake in the costs of proceedings 1

2 The ability of the claimant to have their after the event insurance premium paid by the losing defendant should not be abolished; and if it is to be abolished, this should only occur after a system of qualified one way costs shifting (QOCS) has been introduced, to ensure that claimants do not end up having to pay their expert fee costs and the costs of the other side if they lose, and If QOCS is to be introduced, it should be extended to judicial review and housing cases. In many of these cases, damages are not the desired outcome. In such cases, a success fee based on a proportionate uplift in the claimant s costs should continue to be recoverable against an unsuccessful defendant. 2. Introduction 2.1. The Government claims that the provisions within Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Bill implement the recommendations of Lord Justice Jackson s review of civil litigation funding. In fact, it has cherry-picked from the review whilst excluding important recommendations, some of which would have gone some way towards mitigating the potential impact of these reforms For example, Lord Justice Jackson emphasised that there should be no further cut-backs in the availability of legal aid. In contrast, in clinical negligence cases, claimants will face a double whammy effect of the removal of clinical negligence from the scope of legal aid (Clause 8, Schedule 1) and the civil litigation funding reforms Most clinical negligence and housing cases involve individuals litigating against public authorities. Legal aid is a cost effective means of resolving such disputes. In addition, Lord Justice Jackson recommended qualified one way costs shifting for judicial review and housing cases and a 10% increase in general damages to soften the impact of the changes, neither of which appear on the face of the Bill Before considering the specifics of these reforms, it is important to identify the issue in its moral and philosophical context. The key question concerned is: Who is to provide funding for claims on behalf of those who have suffered harm but who do not themselves have the means to fund them? 2.5. The choice for society is between: The claimant impossible for most individuals The state i.e. legal aid A combination of funding by the claimant s lawyer and success fees from other (successful) cases, which are paid by the unsuccessful defendants in those cases (as in the current conditional fee agreement system), or 2

3 The claimant s lawyer alone in effect what is proposed by the Government, as the lawyer will be paid nothing for unsuccessful cases and will receive little or no compensation for this loss by success fees in successful cases Wherever legal aid is unavailable, the Bar Council favours the third option and views it as both the most effective for securing access to justice and the most morally acceptable. If, however, this is to be rejected by the Government, we propose a further system by which the success fee would be paid equally by the claimant and the defendant in cases which the claimant wins. This would allow a proportionate (albeit still capped) success fee to be charged, which would in turn provide funding for lawyers to take on other cases which they might lose and for which they will receive no remuneration The paper explains the case against the Government s Part 2 proposals, covering the current system of civil litigation funding, the likely impact of the Bill s provisions and the Bar Council s alternative recommendations. A glossary of terms can be found at Appendix II. 3. The current system 3.1. Until 2000, legal aid was available for personal injury cases for claimants of modest means. To ensure that access to justice was retained when personal injury was removed from the scope of legal aid, the then Government introduced a system of conditional fee agreements (CFAs), also known as no win, no fee agreements Lawyers acting on a CFA do so with the knowledge that if the claimant loses the case, they will receive no payment. It should be emphasised how unpredictable litigation can be. Even cases with good prospects of success are by no means sure-fire winners. This situation is compounded when, for example, cases involve difficult expert evidence on causation or disputed facts in relation to the defendant s level of liability The predicted level of risk in any case is used to calculate an agreed additional success fee for the lawyer if the claimant wins, calculated as a percentage of the normal ( base ) fee, up to a maximum (in the higher risk cases) of 100%. For many types of case there are fixed staged uplifts, meaning that the success fee percentage increases if the case goes to trial. This recognises both the higher risk of a case that goes to trial and also the higher level of investment by the lawyer, at the risk of not being paid a penny for their work if the claimant loses If the claimant wins, in order to avoid making inroads into their damages (which are calculated precisely to compensate them for their loss and suffering), the success fee is paid by the losing defendant. 3

4 3.5. In relation to costs (including expert reports, lawyers base fees and court costs), the current system operates under a loser pays principle. To insure against the risk of losing and having to pay their own costs (as even if the lawyer is on a no-win no-fee agreement, there will be disbursements such as experts fees) and those of the other side if they lose, claimants take out after the event (ATE) insurance ATE insurers will only agree to cover claimants if the case has a reasonable chance of success, so claims without merit are not pursued. The ATE insurers pay both the defendant s costs and the claimant s disbursements if the claimant loses. For this service they charge a premium which is payable by the defendant, or (more commonly) the defendant s liability insurer, if the claimant wins. If the claimant loses, they recover no premium This system works very efficiently in its present form. It has retained access to justice in areas no longer within the scope of legal aid whilst ensuring via a gatekeeper in the form of the ATE market that only cases with a reasonable chance of success are taken forward. Concerns about high costs, either of the fees or of the ATE premiums, would be addressed best by proper policing, if necessary by the courts, of the base fees from which success fees are calculated and the ATE premiums respectively. 4. The Government s proposals 4.1. Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Bill contains provisions to: Abolish the recoverability of success fees, so that they are no longer payable by the losing defendant Require success fees to be paid instead by claimants, which will mean the raiding of their precisely-calculated damages No doubt because of this, limit those success fees to 25% of non-future loss, which in many cases represents a very small proportion of base costs, and will act as a severe deterrent to any sensible lawyer from taking on all but the simplest and most certain of cases, and Abolish the recoverability of ATE premiums from the losing defendant (excluding premiums for insurance to cover the cost of expert reports in clinical negligence cases), making it very unlikely that claimants will be able to secure cover against the risk of losing and having to pay both their disbursements and those of the other side The net effect of these provisions would be to deny access to justice to all but those with the most certain cases. As stated above, without an appropriate success fee for risky cases which they win (to compensate for the risk of losing and to pay for those cases which they do lose), lawyers simply will not take on more complicated cases. 4

5 4.3 We attach, as Appendix I to this paper, a hypothetical (but typical) example of a medium value case, which demonstrates the practical limitations that this will impose upon success fees if the Government s proposals are implemented. No sensible solicitor would be likely to enter a CFA on these terms unless a positive outcome appears guaranteed. As a result, many good claims will fail to enter the system; a failure in access to justice which will result in the protection of many wrongdoers from good claims, which will now never be brought. 4.4 The Government s proposals would rule out a huge number of claims with considerable merit, including: Cases with high early investigation costs, such as mesothelioma ( asbestos poisoning ) and very many clinical negligence cases Cases which are more difficult to win because of disputed liability Cases which involve cutting edge points of law, and Cases involving complex and difficult expert evidence on causation (such as complicated brain damage at birth). 4.5 The Government also proposes to introduce qualified one way costs shifting (QOCS) to mitigate against the effects of abolishing ATE premium recoverability. This would remove the right of successful defendants to claim their costs from the losing claimant. This proposal does not appear in the Bill, so its scope is not yet clear. 4.6 The Government hopes to retain ATE recoverability for the obtaining of expert reports in clinical negligence cases. Many have voiced serious concern as to whether an ATE market will still exist in such a limited form. In any case, the premiums are likely to be so high that in many cases it will cost the NHS considerably more to pay the premium than it would have cost to fund the reports upfront through legal aid. 4.7 Furthermore, even if an expert report establishes sufficient levels of causation to warrant a claim under the current system, given the proposed cap on success fees, the complex nature of clinical negligence cases will in future leave many unable to find a lawyer to represent them. 5. The Bar Council s alternative proposals 5.1. The Bar Council is proposing a series of amendments to Part 2 of the Bill. This section outlines our position on the current and future system and explains the effect of each amendment. 5

6 Success fees and ATE insurance premiums: primary position 5.2. Our primary position on success fees is as follows: Success fees should only be charged if the defendant has denied liability and causation in order to ensure the proportionality of the success fee They should be subject to staged uplifts (similar to those which currently exist in road traffic accident cases, where, for example, they are charged at 12.5% of base fees until the trial and 100% at or near trial), again to ensure the proportionality of the success fee On that basis, success fees should remain recoverable in full from losing defendants to ensure access to justice without raiding the damages of winning claimants, and ATE premiums should remain recoverable from losing defendants to ensure that successful defendants do not have to pay claimants costs, claimants are insured against having to pay all costs and cases without merit are not brought. Bar Council amendments: Opposition to stand part question on Clauses 43 and 45 The Bar Council invites peers to oppose the question that Clauses 43 and 45 stand part of the Bill. Effect: Removing Clauses 43 and 45 from the Bill would retain recoverability of success fees and ATE premiums from losing defendants. However, if the Committee resolves to include those clauses, we invite it to make the following amendment: Clause 43: Limiting non-recoverability to proceedings where liability and causation are admitted before issue Page 30, line 16, leave out A costs order made in proceedings and insert Where liability and causation are admitted before proceedings are commenced, a costs order made in the proceedings. 6

7 Effect: This amendment would prevent defendants from having to pay success fees when they admit liability and causation before the case goes to trial. That would provide an extra incentive to avoid unnecessary litigation. Success fees and ATE recoverability: secondary position 5.3. The Bar Council recognises that the Government perceives a need to curb excessive costs and to ensure that claimants have a greater stake in the costs of litigation by exposing them to the risk of some payment of costs We have developed alternative proposals for the reform of civil litigation funding which will give the claimant a stake in the claim and protect access to justice, whilst limiting the extent to which their damages can be raided in order to pay their lawyer s success fee. It would also ensure that the defendant retains some skin in the game to encourage good behaviour, and would ensure that costs shifting is introduced in a way which discourages irresponsible claimant behaviour This compromise can be achieved by: Capping the success fee (on this basis, no longer recoverable in full from the losing defendant) at 25% of the total damages awarded Funding that success fee equally (i.e. up to a maximum of 12.5% each) by the winning claimant and the losing defendant; the effect of this being that the most the claimant would ever have to forego of their damages would be 12.5% Introducing qualified one way costs shifting (QOCS) in the event that ATE insurance premiums are no longer recoverable in injury cases and other types of case where there is usually a particularly significant inequality of arms; the effect of this being that successful defendants would not recover their costs from losing claimants except where the claimant has acted fraudulently, brought a claim which has been struck out (i.e. without any possible merit), or failed to beat a valid defendant s Part 36 offer Extending QOCS to judicial review and housing cases: in many of these cases, damages are not the desired outcome, and a success fee based on a proportionate uplift in the claimant s costs should continue to be recoverable against an unsuccessful defendant, and Preserving ATE recoverability for clinical negligence generally (and not just the obtaining of expert reports). 5.6 We have also set out in Appendix I the effect of this alternative proposal on the example described there. 7

8 5.7 It is important to emphasise that this is a compromise position. The Bar Council is strongly opposed to any system which requires inroads into vital damages payments. We believe that claimants should be fully compensated for their loss and suffering, and that any other system is nothing short of second rate. 5.8 However, in the case that the Government scraps the recoverability of success fees from losing defendants, it is vital that that success fees are available of an adequate size to encourage lawyers to take on worthy cases which they might nevertheless lose. An unfortunate side effect of this is that a claimant s damages may be reduced by a maximum of 12.5%. Bar Council amendments: Clause 43: Capping recoverable success fees to 25% of damages, divided between claimant and defendant Page 30, leave out lines 7 to 12 and insert (c) that percentage must not exceed 25 percent of the amount (other than costs) awarded in the proceedings; (d) the agreement must provide that the amount of the success fee payable by the person bringing the proceedings is subject to a maximum limit; (e) the maximum limit must not exceed half the success fee. Page 30, line 17, leave out all or part and insert more than half. Effect This amendment would have the effect of capping the success fee at a maximum of 25% of all damages and ensuring that the claimant and defendant each pay 50% of that amount (i.e. a maximum of 12.5% of the damages received). 5.9 The recoverability of ATE insurance premiums should only be scrapped after a system of qualified one way costs shifting has been introduced. This will ensure that, unless they behave in a demonstrably inappropriate manner, claimants will not have to pay the defendant s costs if they lose. 8

9 Bar Council amendments: Clause 45: Sunrise provision to await QOCS Page 32, line 29, at end insert ( ) No order may be made under section 134(1) bringing this section into force unless (a) (b) the Lord Chancellor is satisfied that one way costs shifting has been introduced in relation to proceedings which include a claim for damages for personal injury, death, judicial review, statutory appeals, housing disrepair or loss of home. a draft of the instrument containing the order has been laid before, and approved by resolution of, each House of Parliament. Effect This amendment would have the effect of ensuring that Clause 45 (abolishing ATE recoverability) is not implemented until qualified one way costs shifting has been introduced. Clause 45: saving provision in the event that QOCS is introduced Page 32, line 29, at end insert ( ) An order bringing this section into force must make provision pursuant to section 134(4)(b) with a view to ensuring that in the event of introduction of one-way costs shifting in favour of persons bringing clinical negligence proceedings (within the meaning of the provisions inserted by subsection (1)), a costs order made in the proceedings must include an amount in respect of the premium for a costs insurance policy insofar as the policy covers (a) the risk that the amount of any disbursement which the person bringing the proceedings is liable to pay is not recovered from another party to the proceedings; (b) the risk that the person bringing the proceedings is ordered to pay all or part of the costs of another party to the proceedings.. 9

10 Effect A QOCS regime provides a claimant with only partial protection from adverse costs, and (unlike ATE insurance) makes no provision for funding the claimant s own disbursements (such as expert reports). These costs can be particularly high in clinical negligence cases. It is important that viable ATE arrangements are as far as possible preserved in respect of these risks. This amendment would require an order commencing Clause 45 to save the recoverability of ATE premiums in relation to these risks. Clause 45: preserve ATE recoverability for clinical negligence generally, not just the investigative stage Page 31, line 35, leave out from policy to first in in line 37. Page 31, leave out lines 40 to 42. Page 31, line 43, leave out relevant part of the. Effect This amendment would preserve ATE recoverability for clinical negligence generally (and not just the investigative stage). New Clause after Clause 53: One way costs shifting To move the following Clause One-way costs shifting in claims for personal injury, death (1) This section applies to proceedings which include a claim for damages for personal injury, death, judicial review, statutory appeals, housing disrepair or loss of home. (2) Where the claim is unsuccessful or is discontinued, no order of the court or provision of civil procedure rules may require the claimant to make a payment in respect of costs incurred by any other party to the proceedings unless - 10

11 (a) (b) the claim is based wholly or mainly on factual allegations which are made dishonestly, or the bringing of the claim, or the conduct of the proceedings, is so unreasonable that the claim has been (or, if an application were made, would be) struck out on the ground that the claim is an abuse of the court's process or the conduct in question is otherwise likely to obstruct the just disposal of the proceedings, and the amount of the payment does not exceed such amount (if any) as it is reasonable for the claimant to pay. (3) Where civil procedure rules provide for a claimant to pay another party s costs of proceedings following that party s making an offer to settle the claim which the claimant subsequently fails to beat, the court must not require the claimant to pay an amount exceeding ten percent of any damages awarded to the claimant against the party who made the offer. Effect This New Clause would place the Government s commitment to introduce one way costs shifting on the face of the Bill. It would be limited to personal injury (including clinical negligence), death and areas of public law in which the inequality between the claimant and the defendant (i.e. the citizen and the state) is particularly significant. 6. Other civil litigation provisions 6.1. The Bar Council proposes two further amendments which would also reduce the damage that the Government s proposals will have on access to justice for vulnerable individuals. 10% uplift on general damages 6.2. Lord Justice Jackson recommended that 10% should be added to calculations of general damages, in order to mitigate against the negative effects of abolishing the recoverability of success fees and ATE insurance premiums. This is absent from the face of the Bill, but would go some way towards compensating claimants for the reduction in damages that they will face as a result of these reforms; particularly if the Bar Council s recommendation of a maximum success fee deduction from all damages of 12.5% is adopted. 11

12 6.3. The Bar Council strongly supports amendment 137B, tabled by Lord Bach and Lord Beecham, which would have the effect of implementing the 10% uplift: After Clause 43 Insert the following New Clause Uprate to general damages The quantum of damages for pain, suffering and loss of amenity is increased by 10 per cent above the levels awarded immediately before this section comes into force. Contingent Legal Aid Fund 6.4. A Contingent Legal Aid Fund (CLAF) is a system by which a claim is funded on the basis that the claimant, if successful, pays a percentage of the damages recovered into a pooled fund. These contributions then fund future claims by others The percentage paid into the pooled fund may be less than a claimant would pay under a conditional fee agreement, giving CLAFs a competitive advantage CLAFs would be commercial mechanisms, so would operate at no cost to the public purse. They already exist in a number of other countries, including Australia, Canada and Hong Kong, and were considered as a possible component of civil litigation funding in the early 1990s, but were effectively forestalled by the introduction of CFAs. Bar Council amendment: New Clause after Clause 53 Contingent legal aid fund Insert the following New Clause Contingent legal aid fund (1) For the purposes of this section, a contingent legal aid fund (a CLAF ) means a pooled fund financed by contributions paid out of damages recovered in claims supported by the fund. 12

13 (2) Subsections (3) and (4) apply to a CLAF insofar as it operates in compliance with section 58B of the Courts and Legal Services Act 1990 (litigation funding agreements) and regulations made under that section. (3) Nothing in any rule of law or public policy renders void or unenforceable an agreement made by the operator of a CLAF for funding or otherwise supporting a claim. (4) Nothing in section 51 of the Senior Courts Act 1981 (costs in civil courts) enables a court to order the operator of a CLAF which operates otherwise than for profit to pay the costs of a party to proceedings supported by the CLAF (other than the person bringing the supported claim). (5) In section 108 (commencement) of the Access to Justice Act 1999 (section 29 of which inserts section 58B into the Courts and Legal Services Act 1990 but has not been brought into force), in subsection (2) after passed insert, and section 29 shall come into force on the day on which the Legal Aid, Sentencing and Punishment of Offenders Act 2011 is passed. Effect This New Clause would have the effect of enabling contingent legal aid funds to be established as method of funding civil litigation. Further information Harriet Deane Communications Officer The Bar Council High Holborn London WC1V7HZ Tel: (direct) E: 13

14 APPENDIX I Example of typical litigation: consequences on success fee of (i) Government proposals and (ii) Bar Council alternative proposal Background facts Take a (hypothetical) example of a typical mid-range County Court case which goes to trial. A young female pedestrian in a relatively low paid job is hit by a motorcycle and suffers a badly broken leg. This keeps her off work completely for six months and leaves her with some permanent disability which not only affects her ability to work in the future, but also requires a continuing and long-term element of care and assistance in the future from her partner. Assume total damages of 50,000, which include 15,000 for PSLA (pain, suffering and loss of amenity i.e. general damages) and past losses, and 35,000 of future losses. Assume base fees for the whole case, including trial, are 15,000 for the solicitor and 1,500 for the barrister. Given that it went to trial (i.e. the defendant considered it had a better than 50% chance of success), the success fee is likely to have been 100% of base fees, to reflect the risk of losing the case and the lawyers receiving no fees. Calculation of success fee: effect of the Government's proposals The Government s suggested cap of 25% of PSLA/past loss, however, will allow a success fee pool of 15,000 x 25% = 3,750 only. That would represent less than 23% of base fees; even though the system (as enshrined in the Civil Procedure Rules) is intended in these circumstances to continue to provide for the trial having a 100% success fee. The problem only gets worse, not better, the more disabled the claimant and the more complicated the case. Calculation of success fee: effect of the Bar Council s alternative proposals Bar Council suggested cap: 25% of all damages: success fee pool of (up to) 50,000 x 25% = 12,500 On the same figures for base fees as above ( 16,500) the capped success fee of 12,500 would represent just over 75% of base fees, of which the claimant and defendant would each have to contribute 6,

15 APPENDIX II Glossary of terms After the event ( ATE ) insurance Base fees Claimant Conditional fee agreement ( CFA ) Defendant Disbursements Litigation Qualified one way costs shifting ( QOCS ) Success fee Insurance taken out by claimants to cover for the possibility of losing their case and having to pay the other sides costs (e.g. legal fees and expert reports) and their own disbursement costs if they lose. The insurer charges a premium which, if they win, is currently payable by the losing defendant. The total fees charged by lawyers for their services, excluding any uplift for winning the case. The alleged victim of wrongdoing by the defendant. An arrangement currently used in much civil litigation, especially where the claimant has limited means and legal aid is not available, and therefore (for example) in almost all injury cases. The lawyer charges nothing for their services if they lose the case, but receives an uplift on their base fee (a success fee) if they win. The individual or entity against which the case is brought by the claimant. Additional costs such as expert fees. The act of bringing a contested legal action. A method of ensuring that losing claimants do not have to pay defendants costs if they lose, qualified to prevent application in cases of demonstrably irresponsible behaviour. An uplift on base fees charged by claimants lawyers if the case is won. The fee is calculated as a percentage of base fees and its size is dependent on the level of risk taken in pursuing the claim. 15

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