Consultation Document Alternative Methods of Funding Money Damages Claims

Transcription

1 Consultation Document Alternative Methods of Funding Money Damages Claims March

2 CONTENT 1. Introduction 3 2. Purpose of Consultation 4 3. How to Respond 4 4. Current Position 6 5 Access to Justice 7 6 Proposed Options for Alternative Funding Mechanisms for 9 Money Damages Cases 7 Comparison with Other Jurisdictions 12 8 Scope of Options 14 9 Conclusion Consultation Questions 16 Page Annex A B C D E F G Extract from the Access to Justice Review that deals with Money Damages. Number of Legal Aid Certificates issued in Money Damages Cases from Percentage of Legally Aided Money Damages cases which were won or settled. Cost of Legal Aid Fund of Paying for Lost Cases. Average Cost to Legal Aid Fund of Lost Money Damages Cases Statistical Information provided by the Compensation Recovery Unit. Description of Alternative Options for funding in Money Damages Cases 2

3 ALTERNATIVE METHODS OF FUNDING MONEY DAMAGES CLAIMS 1.0 Introduction 1.1 In September 2010 the Minister of Justice announced a review of access to justice which examined how people could best be helped to secure access to justice in a cost effective manner. The Final Report of the Access to Justice Review (the Review), which was published in September 2011, was the subject of public consultation. 1.2 One of the recommendations of the Review was that most money damages cases, except for the more complex clinical negligence cases, should be removed from the scope of legal aid, provided that an alternative means of securing and improving access to justice can be implemented [Paragraph 5/106 of the Review]. 1.3 The full text of the section of the Review that deals with Money Damages (the term used in the Review) is attached at Annex A. 1.4 The Final Report recognised the Legal Service Commission s ongoing engagement with the Law Society on this issue, paragraph refers, and encouraged further work at paragraph We are attracted to aspects of the insurance based solution in money damages cases, but think that more details need to be fleshed out on its workings and that full consultation should take place before decisions are taken on whether or not to adopt it. 1.5 On the 2 nd July 2012 the Minister of Justice announced his response to the Review and published a Departmental Action Plan 1 setting out 38 projects to take forward the recommendations of the Review. In his statement to the Assembly, the Minister specifically mentioned the recommendations dealing with money damages. The Minister said: Work has also begun on developing an alternative approach to what are known as money damages cases. The Review recommended that such cases, which include claims for such things as injury from tripping, should be removed from the scope of legal aid once an alternative approach had been developed. The Legal Services Commission has been working for some months, in discussion with the legal profession and representatives of the insurance industry, to develop alternative arrangements, and good progress has been made. That is the kind of constructive engagement that I want to see replicated across the wider programme of work

4 2.0 Purpose of consultation 2.1 The purpose of this consultation is to seek views on a range of options which would give effect to the basic thrust of the Review s recommendations as they represent alternative mechanisms which could fund money damages cases. This will be of interest to consumers, both those who are involved in money damages cases and those who pay insurance, the legal profession, the judiciary, insurance providers, bodies which may be involved in litigation on money damage claims whose policies, practices and procedures are affected, or influenced by legal aid and the public generally. 2.2 It is intended that following consideration of the responses to this consultation exercise, the preferred option will be developed in detail. 3.0 How to respond 3.1 When you are responding to this document, please state whether you are responding as an individual or representing the views of an organisation. If responding on behalf of an organisation, please make it clear whom the organisation represents and, where appropriate, how the views of the members were assembled. 3.2 Please submit your response to this consultation by post, fax or to: Money Damages Consultation Public Legal Services Division Department of Justice Massey House Stormont Estate Belfast BT4 3SX [email protected] Facsimile Tel: Text phone Closing date 3.3 Responses must be received by 28 June. 4

5 Miscellaneous 3.4 Additional copies of this consultation document may be made without seeking permission from the Department of Justice (the Department ). Printed copies may be obtained in the post by contacting the Consultation Coordinator at the address above. An electronic version is available on the Department s website at Copies in other formats, including Braille, large print, audio cassette, computer disk etc may be made available on request. If it would assist you to access this document in an alternative format or a language other than English, please let us know and we will do our best to assist you. 3.5 Section 75 of the Northern Ireland Act 1998 requires all public authorities in Northern Ireland to have due regard to equality of opportunity between the nine equality categories and have regard to promote good relations between persons of different religious belief, political opinion, or racial group. Public Authorities are also required to meet legislative obligations under the Disability Discrimination Act 1995, particularly in the formation of public policy making. The Department of Justice is fully committed to fulfilling its Section 75 obligations on the promotion of equality of opportunity, good relations and meeting legislative requirements in Northern Ireland. 3.6 An initial screening of the policy has indicated that an Equality Impact Assessment (EQIA) and a Regulatory Impact Assessment (RIA) are not necessary. A copy of that completed screening document has been published with this consultation paper. Information relating to equality and regulatory impacts is however being sought alongside the consultation exercise. We will use the evidence provided in the responses to inform any further screening of the proposals. 5

6 4.0 Current Position 4.1 Money damages cases currently fall within the scope of the civil legal aid scheme. All applicants for civil legal aid in such cases have to satisfy the financial eligibility test and a legal merits test. These tests are set in the Legal Aid, Advice and Assistance Order (Northern Ireland) 1981 (the 1981 Order) and the Legal Aid (General) Regulations (Northern Ireland) 1965 (the 1965 Regulations). 4.2 In respect of the legal merits of applications for funding, the decision making is subjective as it is based on whether in the decision makers view, that on the facts presented, the applicant has reasonable grounds for taking (defending or being party to) proceedings as required by Article 10(4) of the 1981 Order, and it is reasonable in the particular circumstances of the case that funding should be granted, Article 10(5) of the 1981 Order refers. There is a high instance of appeals when initial applications are unsuccessful and these are often refused by the Appeals Panel or granted when further information which was not submitted at the outset becomes available. The administration of appeals places a significant burden on the resources of the Commission. 4.3 Typically applications for civil legal aid in respect of money damage claims represent 25% of the applications for civil legal aid. Details of the number of applications for funding for money damage cases are given at Annex B. Typically the applications include claims for negligence, road traffic accidents, tripping, medical negligence and accidents at work. 4.4 When civil legal aid is granted to applicants in money damage cases, there is no real cost to the legal aid fund for the majority of the cases. If someone bringing a money damages case, supported by legal aid, wins then their legal costs will be met by their opponent as the costs are paid by the unsuccessful losing party. If the case is settled and there is a shortfall in the costs and the defence does not accept some elements of the successful litigants costs these have will have to be paid by the legal aid fund in the first instance but the statutory charge will apply. This means the Legal Aid fund recoups the legal costs expended from the assisted person s damages. Details of the percentage of successful cases funded by legal aid are set out at Annex C. 4.5 If someone in receipt of legal aid is unsuccessful in their case, then the Legal Aid fund will have to meet their costs. If a case is lost, the principle of cost protection for legally aided work usually means that the successful defendant has to bear its own costs. The cost to the legal aid of paying for lost cases is set out at Annex D. 6

7 4.6 The costs incurred by the legal aid fund when an assisted party loses comprises the fees for solicitors and barristers, expert witnesses, court fees and other expenses. As can be seen from Annex E the cost to the public purse of lost cases was on average 2.8 million over the last 7 years. In addition the Commission has the hidden costs of administering these cases. 4.7 The total cost of administering applications for money damage claims, including the costs of processing appeals against refusal of applications is circa 333.5K. 5.0 Access to Justice Review 5.1 The Review proposed that most money damage cases should be removed from the scope of legal aid, provided that an alternative means of securing and improving access to justice can be implemented. While there may be certain types of money damage claims or specific cases which will require, at least for the immediate future, access to legal aid funding to enable these cases to be brought, the majority of cases could and should be brought without the benefit of public funding. 5.2 The Department proposes that viable alternatives should be introduced to support the majority of money damage claims. Any such mechanism should deliver the following objectives: (a) (b) (c) (d) (e) expand access to justice by removing the glass ceiling imposed by the legal aid financial eligibility test any mechanism should not be restricted by the financial means of applicants; speedier decision making and commencement of claims as solicitors should be able to determine whether a case is meritorious; reduction in the number of speculative claims as losing cases would have a real penalty for plaintiffs and / or their legal representatives; successful defendants (whether public authorities or insurers) should be able to recover their costs from plaintiffs; reduction of cost to the public purse in bringing these cases (both to the legal aid fund and the administrative costs of the Commission). 7

8 5.3 To establish what types of alternative mechanisms could support money damage claims moving forward, a Reference Group was established which included representatives from the Law Society, the Bar, Insurers and Public Authorities. Six alternative funding options were identified and this consultation paper seeks the views of interested parties on which option they prefer and why. 5.4 It is intended that once a preferred option has been identified, that option will be developed in detail including how such an option could be delivered in practice. 5.5 The Department recognises that while it is focused on those cases which are supported by legal aid that any alternative funding mechanism could equally impact on privately paying litigants. As such the introduction of an alternative funding mechanism could change the approach to money damage claims beyond those cases funded by legal aid. 5.6 The information about the total number of money damages claims was secured from the Compensation Recovery Unit (CRU) which is required by legislation to be notified of all claims for damages. The CRU provides compensators and customers with details of Social Security benefits paid in respect of accidents, injury or disease for which compensation is awarded. The information provided by CRU is set out at Annex F. This information can be used as an approximate estimate of the total number of money damages claims in Northern Ireland. 8

9 6.0 Proposed Options for alternative funding mechanisms for money damages cases 6.1 The Money Damages Reference Group considered a range of options which seek to give effect to the recommendations contained in the Access to Justice Review. Discussions produced six options which while by no means an exhaustive list, does reflect approaches which are actually operational in other jurisdictions. The Department will consider any other options which consultees believe are more appropriate in the Northern Ireland context than those set out in the current consultation paper, while still meeting the objectives set out at paragraph 5.2 above. 6.2 A high level summary of each of the options can be found below. A more detailed description of each of the alternatives with accompanying advantages and disadvantages is set out in Annex G. 6.3 Option 1 Money Damages remain in scope of Legal Aid as part of the Funding Code The proposed Funding Code which has been the subject of extensive consultation 2 does not include money damages in one of its priority areas for legal aid. As such the decision on whether to grant legal aid in particular cases where the client was financially eligible would be determined by applying a merits test based on consideration of the interaction between likelihood of success, the scale of damages likely to be awarded and the projected costs. For example if the prospects of success were assessed as very good (80% or more), legal aid would be awarded provided that damages were expected to exceed projected costs; but if prospects of success were moderate (50-60%), legal aid would not be awarded unless the damages were likely to exceed costs by at least a factor of four. The Code also makes provision for granting of Investigative Help, which is necessary in some cases to establish prospects of success, and would only be made available if the damages claimed were in excess of 5,000. The Funding Code was designed to ensure that decisions made in these cases and the spending of public funds were made on a proportionate basis against the considerations that would apply if the cases were being funded privately. This option produces modest cost savings both in terms of the legal aid fund and the cost to the Commission of administering legal aid. 2 Consultation papers issued by the Commission on the Funding Code (November 2006), proposed Criteria (June 2009) and proposed procedures (June 2009) available at 9

10 Option 2 Conditional Fee Agreement with set success fee being paid by the losing defendant Conditional Fee Agreements (CFAs) are an insurance based product which enables individuals to take or defend proceedings without the support of public funds. In essence a CFA allows a solicitor to represent a client on the basis that they only get paid in prescribed circumstances, namely if they win the case. In a winning case the costs will be paid by the opponent. Under a CFA the client would be exposed to the costs of their opponent, as well as their own costs, if they lose the case. Accordingly a CFA will be underpinned by an insurance package which guarantees payment of the opponent s costs. As a solicitor only gets paid if they win a case, a success fee is typically payable for the risk the solicitor takes in running the case. The solicitor s success fee is paid by the losing defendant and the client will therefore keep 100% of their damages. The client will have to pay a premium for the CFA, the amount of this will be known in advance of taking the case and it will only become payable if the case is won. This option produces significantly higher savings than option 1, both in terms of the legal aid fund and the cost to the Commission of administering legal aid. Option 3 Conditional Fee Agreement with set success fee being paid by successful plaintiff This Option is a variation on Option 2. The only difference in this Option is that the solicitor s success fee will be paid by the successful plaintiff and not the losing defendant. This Option is based on the assumption that the risk of running the case is a matter between the plaintiff and their legal representative and as such the success fee should be between them. This option produces the same savings as option 2, both in terms of the legal aid fund and the cost to the Commission of administering legal aid. Option 4 Contingency Legal Aid Fund (CLAF): a percentage of damages paid into the fund to sustain it for future cases. While CFAs are individual agreements for each plaintiff, a CLAF would be a generic scheme to support money damages claims which would ultimately be self financing. The CLAF, in a similar way to the existing Legal Aid scheme, would consider applications for support for cases 10

11 considered to have merit. If a case is lost the CLAF pays the solicitor, disbursements and some or all of the winner s costs. If the case is won, the loser pays the client s solicitors and other fees in the normal way and a percentage of the plaintiffs damages are paid into the CLAF to support future cases. There are no success fees payable in a CLAF, nor is there a personal insurance underpinning the CLAF. An application fee may be payable to assist the CLAF being self financing. The CLAF would require initial pump priming capital until the turn over of cases produced a surplus. This may represent expenditure comparable to several years worth of funding given the life cycle of claims. If the scheme was successful then it would build up funds out of which administrative expenses as well as costs paid to successful opponents could be paid. This option would not deliver short term cost savings to the legal aid fund and would in the early years increase the administrative cost of administering this option. If the Commission was to be responsible for the scheme. Option 5 Jackson Model Lord Justice Jackson conducted a review of civil litigation costs in England and Wales 3, the majority of his proposals have been accepted by the government and will come into force in England and Wales in April The proposals retain the CFA arrangements (see description in Option 2) which have been place in England and Wales for many years. However the Jackson proposals end the ban on contingency fees in England and Wales, where the solicitor s fee is linked to a percentage of the general damages. Jackson also proposes to end the recoverability of success fees and ATE (After the Event Insurance) which in future will be paid out of damages. Jackson believes this will give claimants a financial interest in controlling costs and seeking early settlement. Jackson also proposes that general damages should be uplifted by 10% to mitigate the effect of claimants having to pay success fees. The Jackson proposals seek to address issues which have arisen in England and Wales over some aspects of the operation of CFAs. This option produces the same savings as option 2, both in terms of the legal aid fund and the cost to the Commission of administering legal aid

12 Option 6 Contingency Fee Scheme This option would allow the plaintiff to bring a personal injury action, underpinned by an insurance package, which guarantees payment of their opponents costs should they lose the case. A percentage of the plaintiff s damages will be paid to the successful solicitor as an uplift to their costs. There will be no success fee in this Option. A comprehensive regulatory framework would be required to be drawn up to underpin this option. Contingency fees in an unregulated environment could lead to spiralling costs and increasing litigation challenging costs. This option produces the same savings as option 2, both in terms of the legal aid fund and the cost to the Commission of administering legal aid. 12

13 7.0 Comparison with Other Jurisdictions 7.1 Money damages cases are currently funded in Northern Ireland as set out in section 4 above. Those cases currently in scope of the Legal Aid scheme are subject to a financial eligibility means test and a legal merits test. While the annual cost of funding such cases is relatively low it is a recurring cost that cannot continue to be justified in light of the recommendations contained in the Access to Justice Review as adopted by the Minister for Justice. 7.2 It may therefore be of interest to note how other similar jurisdictions fund money damages cases. England and Wales 7.3 Personal Injury cases (apart from clinical negligence cases) were removed from scope of legal aid in 1999 on the basis that such cases could be pursued under CFAs. Under the CFA the solicitor does not receive a fee in the event that a case is lost; but to compensate for taking that risk, if the case is won they receive a success fee as an uplift on top of their normal hourly rate. 7.4 The plaintiff is able to secure after the event insurance (ATE) to cover the opponent s costs and the cost of the ATE premium itself should the case be lost. 7.5 CFAs as operated in England and Wales generally had a positive impact on access to justice, especially in regard to bringing litigation within the reach of those people whose financial circumstances meant that they were marginally over the financial eligibility limits for legal aid but who could not easily afford to fund their own litigation. However, concern about the overall cost of litigation in England and Wales and the emergence of a compensation culture associated with claims management companies and referral fees caused the government to appoint Lord Justice Jackson to review the system and make recommendations to improve its operation. 7.6 Jackson s proposals (option 5 in this paper) retain the CFA system (and end the ban on contingency fees where the solicitor s fee is linked to a percentage of the general damages) but ends the recoverability of success fees and ATE which in future will be paid out of damages, giving plaintiffs a financial interest in controlling costs and seeking early settlement. 7.7 Clinical negligence cases will also be taken out of scope in April 2013 but in recognition of concerns about the high cost of expert witnesses in such 13

14 cases, the Government is considering retention of recoverability of ATE insurance premiums covering the costs of experts in this category of case. 7.8 In response to the Ministry of Justice proposals in England and Wales it has been suggested that some of the changes to No Win No Fee and ATE could have an adverse impact for example on solicitors taking up public interest cases or ordinary people holding powerful institutions and government to account. 7.9 There are a number of lessons for Northern Ireland from the English experience: I. CFAs are a mechanism that allows those who are financially ineligible for legal aid but of insufficient funds to litigate on their own behalf to bring proceedings. As such the English experience offers an expansion of the current access to justice. II. The English version of CFAs allowed for unforeseen consequences which should be avoided. Scotland 7.10 Money damages claims can be dealt with in Scotland either through an application for legal aid (which operates in a very similar way to the current system in Northern Ireland as outlined in section 4 of this paper) or through insurance based products Typically the insurance based product is a form of a contingency fee. The level of insurance premium payable depends on the type of claim. The solicitor informs the client of this amount at the start of the process. The insurance premium is payable if the claim for damages is successful The insurance covers the client s outlays and their opponent s legal expenses and outlays. It will indemnify the client in respect of the insurance premium for the policy if: a) The client loses; or b) If the claim is withdrawn by agreement with the provider, client and solicitor after the start date of the speculative fee agreement; or c) If, after a minute of tender (an offer to settle the claim), the client wins but a court awards damages that are less than the offer to settle, provided the solicitor has advised the client not to accept the minute of tender A success fee is also payable to the winning solicitor and it cannot be more than a hundred percent of the solicitors standard cost. The usual amount is normally in the region of twenty five percent. 14

15 7.14 However, this dual system (of traditional legal aid and insurance based products) is unlikely to produce a coherent and efficient system for a jurisdiction of this size. Republic of Ireland 7.15 In 2004 the government in the Republic of Ireland established the Personal Injuries Assessment Board (PIAB) which is run by the Insurance industry. The procedure for processing all personal injury claims (except clinical negligence) is controlled by the PIAB Its aim was to reduce the costs of personal injury claims by assessing compensation payable outside of the courts. However PIAB has no role in assessing liability, it will only assess the amount of compensation where there are no such issues in dispute The PIAB is now known as the InjuriesBoard.ie and in 2009 reported that actual savings were 44.1 million from avoiding the litigation system. The Access to Justice Review however, despite noting that system seems to work well, would not recommend it for this jurisdiction as they do not think the circumstances in Northern Ireland warrant the potential expense and risks associated with setting up such a scheme. 4 The set up costs were significant and it also has to cover its running costs. It does this by charging a fee to all claimants and by charging defendants Most insurers operating in Northern Ireland also operate in the rest of the United Kingdom. It is therefore unlikely, in the absence of a decision by UK insurers to support the creation of such a body, that a separate organisation would be created for the relatively small insurance market in Northern Ireland. 4 Access to Justice Review, Final Report page 84 para

16 8.0 Scope of Options 8.1 The Department would expect any of the options outlined above to include all money damages cases in the new County Court range which includes cases with damages up to 30,000. The County Court scale would add control and predictability regarding the costs of actions. 8.2 The vast majority of money damages claims that fall within the Court of Judicature range should also be included in any funding mechanism that was adopted. 8.2 Complex litigation such as catastrophic clinical negligence or death at work cases would likely remain within the scope of legal aid and be dealt with under the general Funding Code Criteria. The Department recognises these are difficult cases often requiring substantial outlay to establish liability issues. 8.3 Claims against public authorities such as assault and battery actions are also likely to remain within the scope of legal aid in the first instance and be dealt with under Section 8 of the Funding Code Criteria. 8.4 If a product covers a certain type of case but not others this does not mean that legal aid funding will automatically be available for these cases. 8.4 However clearly different options could lead to different scope decisions and therefore the fine detail of the exact type of cases that would remain within the scope of legal aid and what would be removed cannot be fully known until a preferred option is agreed. 16

17 9.0 Conclusion 9.1 The Department accepts that if some of the options were to be adopted they would significantly alter the legal landscape and the conduct of litigation in all personal injury cases including those not currently legally aided. 9.2 The Minister of Justice has accepted the Access to Justice Review s recommendations that alternative funding mechanisms for money damages cases should be explored. The Department recognises that these case types cannot be removed from the scope of legal aid until an alternative means of securing and improving access to justice can be implemented. 17

18 10. Consultation Questions 10.1 The Department is eager to obtain the views of as many consultees as possible on the options proposed 10.2 Questions Q1. Do consultees accept that if the Northern Ireland Legal Services Commission is to make savings on the legal aid spend that it is worthwhile exploring options for alternative funding mechanisms for money damages cases? If so, which of the options described would be your preferred option and why? Q2. Do you think there any other options not discussed in this consultation, for alternative mechanisms for funding money damages cases that would provide access to justice? Q3. Should any insurance mechanism be available to all solicitors or be confined to specific firms or panels of expert solicitors? Q4. What interest is there from providers to make available the products these options describe? If you are an insurance provider please outline whether you would be interested in providing a product and a brief description of how you would see it working. Q5. Irrespective of funding option should a successful plaintiff have to contribute from their damages to the costs of the case? Q6. Irrespective of funding option should a successful defendant be able to recover their own costs? Q7. Should there be a success fee paid to the winning solicitor? Who should be responsible for paying it? How could the cost of the success fee be controlled? Q8. In your preferred option are there any other safeguards which you would want to see built into the system? Q9. Irrespective of the option do you agree that discretion should be limited to prevent unnecessary satellite litigation? Q8. Do you believe any of the options would have an adverse impact on any of the Section 75 groups? 18

19 Q9. Do you think any of the options would have a greater impact on nonlegally aided cases? 10.3 Confidentiality of Response The Department will publish a summary of responses following the completion of the consultation process. Unless individuals specifically indicate that they wish their response to be treated in confidence, their name and the nature of their response may be included in any published summary of responses. Respondents should also be aware that the Department s obligations under the Freedom of Information Act 2000 may require that any responses, not subject to specific exemptions in the Act, may be disclosed to other parties on request in accordance with the legislation. 19

20 Annex A Extract from the Access to Justice Review that deals with Money Damages Money Damages 5.93 Legally aided money damages cases for the most part involve claims for negligence, often in the context of road traffic accidents, tripping, medical negligence and accidents at work. There is usually a cost to the legal aid fund only where a case is lost, as in successful claims costs are invariably awarded against the other party and, even in cases lost, cost protection for legally aided work usually means that the other side is required to bear its own costs Over the past decade (until 2009/10) there was an overall reduction in the number of legal aid certificates granted for cases in the main money damages categories; but it is noteworthy that since 2009/10 that downward trend has been reversed, particularly in respect of road traffic accidents and medical negligence cases. Spend out of the Legal Aid Fund on money damages has fluctuated between 1.5 million and 2 million, although it is not clear whether the increase in the number of certificates granted in the past two years has yet fully fed through to the expenditure figures. The table below gives an indication of these trends based on the figures available to us. Table 6 Trends in main categories of legally aided money damages cases 05/06 06/07 07/08 08/09 09/10 10/11 k k k k k k Employers liability ok General negligence ok Medical negligence ok Traffic accidents ok Tripping ok Contract Total ( k) 1,488 1,693 1,817 1,519 2,049 1,813 Total certificates Notes: 1. We do not have disaggregated expenditure figures going back beyond 2005/06. However, the numbers of certificates granted in these categories for 2003/04 and 2004/05 were 1,770 and 2,396 respectively. 2. The figures given above do not enable average costs to be calculated. There may be more than one certificate per case and bills often do not fall for payment in the year when the certificate was granted. 20

21 5.95 Based on the figures given in Table 6, we think it reasonable to assume that if the current arrangements remain, the overall cost to the fund of full legal aid in money damages cases, added to advice and assistance (see Table 5 at paragraph 5.25 above), will be about 2 million per annum. These payments include fees for solicitors and barristers, expert witnesses and other expenses. On top of that, it is necessary to take into account that adjudicating on the grant of legal aid in money damages cases and administering consequential payments into and out of the fund add to the running costs of the Commission The Commission s proposed Funding Code (paragraph 5.3 above), that has been the subject of extensive consultation 5, does not include money damages in one of its priority categories for legal aid. This means that if the Code were operative, the decision on whether to grant legal aid in particular cases where the client was financially eligible would be determined by applying a merits test based on consideration of the interaction between likelihood of success, the scale of damages likely to be awarded and the projected costs. Thus, if the prospects of success were assessed as very good (80% or more), legal aid would be awarded provided that damages were expected to exceed projected costs; but if prospects of success were moderate (50 60%), there would be no legal aid unless the damages were likely to exceed costs by at least a factor of four. There was also a stipulation in the draft Code that grants for investigative help, necessary in some cases to establish prospects for success, would only be made where likely damages were in excess of 5,000. All of this was designed to secure that decisions on spending public money were made on a proportionate basis against the considerations that would apply if the cases were being funded privately In England and Wales personal injury cases (apart from clinical negligence) were removed from the scope of legal aid in 1999 on the basis that such cases could be pursued under conditional fee agreements (CFAs), first permitted in that jurisdiction in Under the CFA, solicitors and barristers do not receive a fee in the event of a case lost; but, to compensate for taking that risk, if the case is won they receive a success fee as an uplift on top of their normal hourly rates. The plaintiff is able to secure after the event insurance (ATE) to cover the opponent s costs and the cost of the ATE premium itself should the case be lost. Under the original system, if a case was won, then the litigant would pay the success fee and the ATE premium out of the damages. In a move designed to enhance access to justice for claimants at a time when the legal aid option was being removed, the Access to Justice Act 1999 provided that ATE insurance premiums and success fees could be recovered from the losing opponent as part of costs; recoverable success fees varied as a percentage of standard fees depending on the point at which the case was concluded, rising to as much as 100% in cases that went to trial (although capped at 25% of damages in accordance with Law Society guidance). The success fee compensates the lawyer for the risk of being paid nothing in the event of a lost case. 5 Consultation papers issues by the NI Legal Services Commission on the Funding Code (November 2006), proposed criteria (June 2009) and proposed procedures (June 2009). 6 CFAs were first made enforceable under a provision of the Courts and Legal Services Act 1990 that was commenced in

22 5.98 It is generally agreed that CFAs, as operated in England and Wales, had a positive impact on access to justice, in particular by bringing litigation within the reach of those people whose financial circumstances meant that they were marginally over the financial eligibility limits for legal aid but who could not easily afford to fund litigation on their own account. However, recent years have brought increasing concern about the overall cost of litigation there and about the emergence of a compensation culture associated with claims management companies and referral fees In June 2008, the Master of the Rolls appointed Lord Justice Jackson to conduct a Review of Civil Litigation Costs in England and Wales. His final report (January 2010) was wide ranging and comprehensive and most of its recommendations, including those relating to personal injury claims and money damages cases, have been accepted by the Government 7. In short the proposals retain the CFA concept (and end the ban on contingency fees where the lawyer s fee is linked to a percentage of general damages) but end the recoverability of success fees and ATE which in future will be paid out of damages, thus giving claimants a financial interest in controlling costs and seeking early settlement; there is a related proposal that general damages should be uplifted by 10% to mitigate the effect of claimants having to pay success fees 8. Qualified one way costs shifting means that the plaintiff will not be liable for the defendant s costs in a lost case, unless the case is pursued unreasonably or the relative financial means of the parties are such that it would be reasonable for costs to be paid. (The defendant is often economically stronger than the plaintiff or covered by insurance). It is also intended to amend the civil procedure rules to strengthen financial incentives and costs sanctions to encourage parties to make and accept reasonable offers. Other measures taken in England and Wales include a scheme for regulating claims management companies, while consideration is being given to requiring greater openness in the use of referral fees Clinical negligence was the one significant type of money damages case that was kept within the scope of legal aid in England and Wales after 1999 because of the expense and complexity associated with some of these cases and the vulnerability of those affected. Under the reforms to be implemented there, it is now to be removed from scope but, in recognition of concerns about the high cost of expert witnesses in such cases, the Government is considering retention of recoverability of ATE insurance premiums covering the costs of experts in this category of case. There is also discussion of exceptional funding for very complex clinical negligence cases where failure to do so might raise issues in relation to compliance with the Human Rights Act 1998 or European Union law In the Discussion Paper and the Progress Report we canvassed a number of options for the future of money damages in Northern Ireland, including:- 7 See in particular Proposals for Reform of Civil Litigation Funding and Costs in England and Wales Implementation of Lord Justice Jackson s Recommendations November 2010 and the Government s response to the consultation published in March It is widely accepted that general damages for injury in Northern Ireland are significantly higher than in England and Wales. 9 Reform of Legal Aid in England and Wales: the Government Response, June Annex B paragraph

23 1. Retain money damages in scope as envisaged in the Funding Code and give further consideration to the limitations on investigative help for lower value claims. 2. Remove money damages from the scope of legal aid and introduce conditional (and contingency) fees with the qualifications and safeguards recommended by Lord Justice Jackson Article 38 of the Access to Justice (NI) Order 2003 makes provision for CFAs. 3. Remove money damages from the scope of legal aid and introduce an insurance based scheme whereby the solicitor joins the scheme and insures against loss for each case. In a case won, the solicitor for the applicants receives the county court scale fee enhanced by 20% and the applicant pays the insurance premium. In a lost case there is no premium payable, the solicitor does not receive a fee, but the insurance scheme pays the defendant s costs and the plaintiff solicitor s disbursements, including counsel fees. 4. Introduce a Contingent Legal Aid Fund (CLAF) or Supplementary Legal Aid Scheme (SLAS) whereby losing cases are funded out of a ring fenced fund which is maintained out of a levy on damages in successful cases such funds could be administered privately or by the Commission and could replace the legal aid fund in these cases or operate alongside it. It is important to bear in mind that options 3 and 4 above are dependant on solicitors demonstrating that they are successful in selecting cases to run with that have a good chance of success and also on their not cherry picking strong cases to operate outside the scheme. That is because all parties involved commit to a degree of risk sharing where the successful cases subsidise those that fail. Option 2 would bring about a similar result through economic incentives on lawyers to run cases with reasonable chances of success As noted in the Progress Report, we have decided not to pursue further the option of a statutory body to determine quantum of damages along the lines of the Personal Injuries Assessment Board in the Republic of Ireland; while that system appears to be working well, it was established to meet the particular requirements of that jurisdiction and we do not think that circumstances here warrant the potential expense and risks associated with setting up such a scheme. Also, we appreciate that in some jurisdictions Before The Event (BTEI) or legal expenses insurance is taken up so widely that it effectively acts as the legal aid scheme. This type of insurance is unlikely to reach a level of take-up here, especially amongst lower income groups, that would enable it to be relied upon for access to justice purposes. Nevertheless, we suggest that the Department of Justice should take steps to heighten awareness of the potential role of Legal Expenses Insurance. It is already an integral part of some motor and home insurance policies. 23

24 Money Damages Discussion Before examining the options for money damages, we will record some of the key points made to us and issues that we have identified in the course of the review. They are as follows:- Several organisations representing lawyers commented that, with cost protection, costs awarded to the plaintiff in successful cases and sound application of the merits test, the current arrangements provided good value for money in terms of benefits secured for vulnerable clients at a relatively small overall cost to the legal aid fund. This value for money argument was supported by the fact that over 80% of legally aided money damages cases were successful in that they were settled or were won in court, resulting in no charge on the legal aid fund. The taxpayer benefits by more than the cost of legal aid in money damages cases through the Compensation Recovery Unit s ability to recover NHS and social security benefits costs from damages won as a result of accidents. While we are unable to quantify how much of the CRU s income ( 13.6 million in 2009/10) comes from legally aided cases, we think it a valid point and support this joined up approach to assessing value for money. There is concern that the combined effect of the merits calculation under the Funding Code and the ending of funding for investigative help for cases worth less than 5,000 would effectively remove lower value cases from the ambit of legal aid, with a disproportionate impact on those with very low incomes for whom such sums are very significant. On the other hand we are conscious of concerns expressed by the Public Accounts Committee about the costs of litigation 10 especially in low value cases such as tripping where claimants and defendants costs taken together can exceed the damages that are at issue. We can envisage situations where, with the impact of costs protection, it is cheaper to settle a case with little merit than to fight it. We heard a counter argument, supported by some limited research, that government departments were much less inclined to settle at an early stage than insurance companies, with the result that additional costs associated with expert evidence and counsel were being unnecessarily incurred. There was strong support across the various stakeholders for the court system in Northern Ireland, the introduction of pre-action protocols for High Court actions and for the transparency and predictability of the county court scale costs system for fixing levels of remuneration, which fitted one of the review s key principles of proportionality. We heard one expression of concern about county court scale costs being determined and reviewed 10 Public Accounts Committee, Report on the Management of Personal Injury Claims, March

25 by a committee of judges and lawyers, but note that recommendations of the Rules Committee are consulted upon and require the approval of the Department of Justice. There was support for the planned extension of the county court jurisdiction to include cases worth up to 30,000 in damages (from the current 15,000 limit). However, we received a number of comments about the importance of extending the use of case management tools such as pre-action protocols to the county courts; and concern was expressed about the paucity of information that appeared on civil bills and an absence of detail on documentation served by defendants at this tier. A positive requirement for full and early exchange of information and attempts at negotiation and mediation would focus minds on the possibilities of early resolution. A number of consultees stressed the complexities associated with some clinical negligence cases and the desirability of retaining them within the scope of legal aid. There was opposition to the introduction of referral fees and to the development of a claims management industry in Northern Ireland. Some respondents expressed unease about any solution that involved some or all of lawyers fees being taken out of damages awarded to clients Taking account of these views, we have given careful consideration to the options at paragraph above, researched experience in other jurisdictions and conducted discussion with a number of interested parties. We start from the propositions that in general money damages cases do not fall within one of the high priority categories for legal aid purposes and that, when successful, as most are, they yield funds for the claimant, thus opening up the possibilities of no win no fee and/or insurance based solutions. The losing cases do constitute a significant, if not large, cost to the legal aid fund. Moreover, we are conscious that adjudicating on the merits test, which will not be any easier under the proposed Funding Code, is a drain on administrative resources in the Legal Services Commission. If financial arrangements and incentives can be put in place enabling lawyers to exercise their professional judgement on which money damages cases have merit, rather than having to make a case to the Commission, that would constitute progress. There is also the point that the financial eligibility requirements for legal aid, as they stand and as they would be under the Funding Code, are such that people with moderate incomes, who may not qualify for legal aid but cannot easily afford lawyers fees, are at a particular disadvantage The Legal Services Commission, conscious of these points, invested some time between 2005 and 2007 in discussing and developing with stakeholders the concept of a Supplementary Legal Aid Scheme for Northern Ireland, to be administered by the Commission. The Northern Ireland Alternative Legal Aid Scheme (NIALAS) would involve the creation of a ring fenced fund out of which 25

26 lawyers fees and costs would be paid in cases that were lost; to replenish the fund and keep it in a self-financing state, a proportion of damages in winning cases would be paid into it. All litigants in money damages cases would be able to pursue cases through NIALAS regardless of means, thus meeting the objective of improving access to justice. If it operated as envisaged, the scheme would secure savings for the fund, although the Commission would remain responsible for its administration. The scheme would require significant seed funding to make it viable at the outset and the financial modelling that was carried out demonstrated how, if it was to remain self-funding, it would be dependant on the maintenance of a high percentage success rate; a small under performance would have a significant impact on costs and risk triggering a need for subsidy from the legal aid fund. The possibility of lawyers cherry picking their stronger cases to run outside the scheme would by definition threaten the viability of NIALAS The financial risks and administrative complications associated with a Supplementary Legal Aid Scheme or a CLAF are too great to justify our recommending option 4 at paragraph above as a means of replacing legal aid in money damages cases. However, we remain of the view that, largely for the reasons outlined in paragraph 5.104, most money damages cases, except for the more complex clinical negligence cases, should be removed from the scope of legal aid, provided that an alternative means of securing and improving access to justice can be implemented In England and Wales, the conditional fee provision, with associated insurance and success fee arrangements, was seen as a viable alternative to legal aid in cases involving money damages. It has not been without its problems with issues about costs and a rash of satellite litigation. However, we can learn from the experience of that jurisdiction while the changes recommended by Lord Justice Jackson (paragraph 5.99 above) address most of the difficulties that have been identified. We believe that introduction of conditional fees in Northern Ireland through commencement of Article 38 of the Access to Justice Order (NI) 2003, together with implementation of the relevant recommendations in Lord Justice Jackson s Review of Civil Litigation Costs, would offer a sound basis for securing and improving access to justice in money damages cases. We do appreciate that this would mean some costs being paid for out of general 11 damages subject to a percentage limit but, especially in circumstances where the level of damages is generally greater in Northern Ireland than England and Wales, this does not seem unreasonable if it helps enhance access to justice There is another possibility on the table. Preliminary discussions have been taking place between the Legal Services Commission, representatives of the legal profession and some insurers about an insurance based solution, (option 3 at paragraph 5.101). In essence this is a risk sharing option not dissimilar in concept to a SLAS or CLAF, with a private sector organisation taking on the administration and risk sharing element. Solicitors would be invited to join the scheme administered by a private insurer. They would have delegated authority 11 Special damages relating to such matters as the cost of future care or loss of earnings would be ring fenced and not liable to deduction to cover costs. 26

27 to decide whether to take on a money damages case. If they decided to proceed there would be a deferred premium to be paid to the insurer, under which in a case lost the defendant s costs (including solicitors and counsel fees), the plaintiff solicitor s expenses (including the cost of counsel) and the cost of the premium would be covered. If the case was won, the solicitor would receive county court scale costs, enhanced by 20%, while the client would be expected to pay the insurance premium out of damages (typically the premium might be in the region of 150 to 250). The scheme is dependant on lawyers making sound choices about which cases to run and about the point at which to settle; should a particular firm produce an unsatisfactory success rate, it would be open to the insurer to exclude it. Interestingly the scheme is not dependant on qualified one way costs shifting; if the case is lost, then the insurance premium covers the fees of the other side s lawyers, thus dealing with concerns about whether it is worthwhile to defend actions with poor chances of success in court Insurance based arrangements are available in Scotland, although they run in parallel with legal aid where money damages cases remain in scope. We are attracted to aspects of the insurance based solution in money damages cases, but think that more details need to be fleshed out on its workings and that full consultation should take place before decisions are taken on whether or not to adopt it. In particular, while there may be issues about commercial confidentiality, financial modelling would need to be sufficiently transparent to demonstrate that charges were reasonable and that the scheme was viable on a long term basis; and with the private sector so centrally involved in the process, contractual arrangements would need to be watertight and commitment absolute if this were effectively to replace legal aid in these cases. Consideration needs to be given to the applicability of this approach to higher value claims that would go to the High Court. There are also issues of detail such as how to fund preliminary investigations where they are necessary to inform a decision on whether to run a case We understand that at the time of writing there is a debate in England and Wales about whether referral fees should be banned completely or rules introduced to make their use more transparent. In Northern Ireland they are effectively banned by Article 28 of the Solicitors (NI) Order It is difficult to draw any other conclusion than that referral fees and the claims management industry add to costs, whether borne by the profession, the client or the insurance industry (as well as having the potential to ramp up a litigation culture) and we suggest that the ban on referral fees in Northern Ireland is maintained. In this context, we are conscious of concerns about a compensation culture, about the scope for fraudulent claims (especially in road traffic accidents) and the impact on insurance premiums and public expenditure. While these matters are not strictly within our terms of reference, it is important that they are taken into account in any development of new approaches to funding money damages cases through appropriate consultation with stakeholders, including relevant public authorities and the insurance industry. Money damages Clinical Negligence 27

28 5.111 Clinical negligence cases, especially those at the more serious end of the spectrum, can be particularly complex, expensive, long running and harrowing for those involved. It is for such reasons that they were originally kept within the legal aid scheme in England and Wales when other money damages cases were taken out of scope. While we appreciate that it is planned to remove most such cases from scope there now (although retaining recoverability of ATE insurance costs), we suggest that, at least until new arrangements for funding money damages cases have bedded down, clinical negligence cases involving quantum at a sufficient level to bring them into the High Court jurisdiction in Northern Ireland should remain within the scope of legal aid. We are aware of concerns about how long it takes to resolve some of these cases, (sometimes delay is purposeful, when necessary to assess how an illness or disability is going to develop), and about the expertise of lawyers in running those at the more complex end, of which there are relatively few. The Law Society, in recognition of the special challenges posed in this area, has set up a Practitioners Group. We recommend that, if the more serious and complex clinical negligence cases remain within scope, a panel of solicitors should be established, suitably accredited to take carriage of legally aided cases in this area of law. It may be that a relatively small number of practices would have the experience and case-load to qualify. We will say more about accreditation and quality issues in chapter We mentioned in our Discussion Paper concerns that early resolution of less serious clinical negligence cases was being impeded by an over-defensive approach on the part of medical staff and trusts, when sometimes all that was wanted was an apology; while there were suggestions from the other side that over zealous solicitors firms were using complaints procedures and any early sign of admission of fault as a means of gathering information to support litigation, thus inhibiting a constructive approach to responding. And there were suggestions that the complaints process was being suspended as soon as litigation was instigated. The recommendation at paragraph 5.55 about government departments and public authorities committing to early dispute resolution may be relevant here. Also we recommend that DHSSPS establishes the applicability to Northern Ireland of Department of Health work in England and Wales to consider changes to the NHS Redress Act 2006 and to improve the fact finding phase at the early stages of claims to facilitate early resolution where appropriate. 12 Money Damages County Court Jurisdiction We have already noted the positive response to the increase in county court jurisdiction to cover cases worth up to 30,000 and the supportive comments about the workings of the county courts in Northern Ireland. A consequence of the increase in jurisdiction is the need to review the scale costs awarded to winning parties which are linked to quantum and will now have to accommodate a broader band of cases. The County Court Rules Committee is engaging on an extensive round of consultation with proposals for new bandings and for a 12 Proposals for Reform of Litigation Funding and Costs in England and Wales Implementation of Lord Justice Jackson s recommendations (November 2010) paragraph

29 general increase in allowable costs to reflect inflation since the last review in If most money damages cases come out of scope of legal aid this will not have a major impact on the Fund, although it is important to recognise that the costs of litigation generally have an impact on access to justice. Given the breadth of consultation taking place, which includes relevant government departments and public authorities, we do not propose to comment on this exercise other than to note that under Articles 47 and 48 of the County Courts (NI) Order 1980 the Rules Committee is required to submit any proposals on costs to the Department of Justice which may allow or disallow them after consulting the Lord Chief Justice There may be a slight tension between the merits of the straightforward procedures associated with the county courts and the comments we have received about applying the principles associated with pre-action protocols in that court to facilitate early resolution of cases. There is also the issue of the applicability of cost penalties and incentives in cases where offers of settlement are bettered, or not as the case may be, in subsequent stages of the proceedings. We suggest that, in the light of comments made to us, consideration is given to case management tools in the county courts, processes to secure the early exchange of information between parties, appropriate details on civil bills and defence responses and the use of incentives to encourage the early settlement of cases where this is possible. Some (but not all) of the thinking about early dispute resolution and introducing pre-action directions contained in the consultation paper on solving disputes in the county courts in England and Wales 13 is potentially relevant and would be worthy of consideration in the Northern Ireland context. The description of the RTA scheme for personal injuries is particularly noteworthy with its focus on the use of an electronic portal as a means of facilitating early exchange of confidential information between insurance companies and claimants solicitors and on appropriate litigation behaviours. We suggest that the DoJ keeps in touch with the evaluation of the RTA personal injuries scheme being conducted by the Ministry of Justice to assess whether it contains lessons for Northern Ireland. Annex B 13 Solving disputes in the county courts; creating a simpler, quicker and more proportionate system a consultation paper on reforming civil justice in England and Wales March

30 Number of Legal Aid Certificates issued in Money Damages Cases from /06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 half yr Employers liability Negligence - General Negligence - Medical Traffic accidents Negligence - Tripping Contract Total

31 Annex C Percentage of legally aided Money Damages cases which were won or settled Class of Case 05/06 % 06/07 % 07/08 % 08/09 % 09/10 % 10/11 % 11/12 % 12/13 % (half yr) Assault Contract Employers Liability Negligence - General Negligence - Medical Negligence - Tripping Road Traffic Accident

32 Annex D Cost to Legal Aid fund of paying for lost cases 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 half yr k k k k k k k k Employers liability Negligence - General Negligence - Medical , Traffic accidents Negligence - Tripping Contract Total ( k) 1,489 1,692 1,817 1,516 2, , The reason this amount is considerably higher than other years is due to the Omagh Civil Case 32

33 Annex E Average cost to Legal Aid fund of lost Money Damages Cases Year Average Costs 2012/13 6, /12 9, /11 3, /10 2, /09 2, /08 2, /07 2, /06 2,503 Average 05/06-12/13 3,585 Average 05/06-12/13 (excluding 11/12 due to Omagh) 2,806 * Includes cases in the following categories: Assault/Battery/Trespass, Contract, Employer Liability, Negligence General, Negligence Medical, Negligence Tripping, Road Traffic Accident 33

34 Annex F Statistical information provided by the Compensation Recovery Unit (this includes legal aided and non legal aided claims) Year 2011/ / / / /08 Liability Type New Claims Notified Claims Withdrawn/ Repudiated Claims Settled Claims Ongoing Claims with Benefit Recovery Claims With HS Charges Average Resolution Time (Days) Motor Public Employer Clinical Neg Other Motor Public Employer Clinical Neg Other Motor Public Employer Clinical Neg Other Motor Public Employer Clinical Neg Other Motor Public Employer Clinical Neg Other

35 Description of Alternative Options for funding Money Damages Cases Annex G Option 1 1. Money Damages remain in scope of legal aid as part of the Funding Code 1.1 Money Damages cases are currently covered by Civil Legal Aid, and are subject to both a financial eligibility test and a legal merits test before legal aid is granted. 1.2 The current position, detailing how money damages cases are adjudicated upon and paid for, is described at section 4 in the Consultation document. 1.3 However the Access to Justice Review that was published in September 2011 proposed that money damages cases should be removed from the scope of legal aid subject to a viable alternative being put in place. 1.4 If a viable alternative cannot be agreed upon money damages cases may remain in scope but it will be as part of the Funding Code. The requirement of the Access to Justice (Northern Ireland) Order 2003 to introduce a Funding Code and the onus on the Commission to make savings in legal aid expenditure means that a no change for money damages is not an option. 1.5 Section 6.2 of the Consultation details how the Funding Code would operate in regard to Money Damages cases and provides examples of how the cost-benefit analysis on each case would be performed. Money Damages cases would not be a priority funding area under the Code 15 and would be adjudicated upon using the General Funding Code Criteria in Section The Commission received a total of 22 responses to the consultation on the proposed criteria and procedures of the Funding Code. The majority of the responses focussed on the proposed arrangements for dealing with money damages cases with particular concern being noted about the 15 Funding Priorities likely to be Special Children Order Proceedings and Civil Proceedings where the client is at real or immediate risk of loss of life or liberty. Higher priority will also be given to cases that concern social welfare issues, cases involving domestic violence and other proceedings concerning the welfare of children and cases against public authorities alleging serious wrongdoing and/or abuse of position. 16 Funding Code Criteria is available under the consultations section on the Commission s website 35

36 impact of the Funding Code on claims with a value of 5,000 or less. For example if the prospects of success were assessed as very good (80% or more), legal aid would be awarded provided that damages were expected to exceed projected costs; but if prospects of success were moderate (50-60%), legal aid would not be awarded unless the damages were likely to exceed costs by at least a factor of four. The Code also makes provision for granting of Investigative Help, which is necessary in some cases to establish prospects of success, and would only be made available if the damages claimed were in excess of 5,000. The concern was that the impact of this cost benefit analysis decision making criteria in the Funding Code, would have the effect of removing lower value cases from the scope of legal aid with no alternative funding arrangements in place..1.7 In a consultation document issued by the Northern Ireland Court Service figures showed that 58% of civil bills disposed of in the County Court in 2007 were for a value less than 5,000 (with 27% being disposed off for an unknown amount) To address this concern the Commission set up a separate work stream to deal with the issues arising from the consultation on the funding of money damages cases, working in partnership with the Department of Justice, Law Society, Bar Council and Insurers representatives to seek to develop proposals for an alternative way forward. 1.9 However, the Commission s aim is to balance the cost of providing Civil Legal Services in respect of money damages cases with the need to ensure that only cases which meet the statutory merits criteria are proceeded with in the most cost effective manner, while meeting the economic imperative to make savings in this area. Legislative Requirements 1.10 The Access to Justice (Northern Ireland) Order 2003 would require to be fully commenced and the current legal aid legislation repealed (the 1981 Order and the 1965 Regulations) The Funding Code Criteria and Procedures would require affirmative procedure in the Assembly along with the supporting Financial Eligibility Regulations 17 GB/Publications/Public_Consultation/Documents/Increasing%20the%20Jurisdictional%20Limit%20of%20 the%20county%20courts%20in%20northern%20ireland/p_pc_increasing-the-jurisdictional-limit- Consultation-Paper.pdf 36

37 Option 1 Money Damages remain in scope of legal aid as part of the Funding Code ADVANTAGES DISADVANTAGES Legal Services Commission Reduction in the number of speculative cases being processed due to application of the Funding Code Criteria. Unable to make necessary savings required; Continued cost of administration of these types of cases; Lower value cases unlikely to be funded due to cost benefit analysis. Solicitor Will get paid whether the case is won or lost. Defendant (Insurer/Public Body) Likely decrease in number of cases funded by legal aid due to application of Funding Code Criteria; No increase in damages or costs of settling cases. Client Has to wait until legal aid financial and legal merit tests are completed before progressing the case; Case could be disrupted due to client failing to pay contributions and certificate being suspended or revoked; Prior authority required from the Commission for counsel/disbursements; Solicitor has to facilitate application of the statutory charge; Lower value cases unlikely to be funded due to cost benefit analysis. Cannot recover costs if they win. Protection against personal liability for an award of costs in Must meet the financial eligibility criteria to qualify for legal aid; 37

38 the event that an action is lost; Legal Aid safety net still in place; All of damages are retained. If they do qualify financially may have a large contribution to make; Certificate can be revoked/withdrawn for noncooperation; Some cases for damages claims worth below 5,000 may not pass the cost-benefit tests in the Funding Code; Statutory Charge may apply to any damages won; Lower value cases unlikely to be funded due to cost benefit analysis. 38

39 OPTION 2 2. CONDITIONAL FEE AGREEMENT: SET SUCCESS FEE BEING PAID BY THE LOSING DEFENDANTS 2.1 Conditional Fee Agreements (CFAs) are an insurance based product which enables individuals to bring proceedings without the support of public funds. 2.2 The Access to Justice (Northern Ireland) Order 2003 (Articles 37-44) contains enabling provisions which would allow conditional fee agreements to be offered and enforced in Northern Ireland. 2.3 In essence a CFA allows a solicitor to represent a client on the basis that they only get paid in prescribed circumstances i.e. the solicitor only gets paid if they win the case. In a winning case the costs will be paid by the opponent. Barrister fees will be treated as a disbursement so will be paid whether the case is won or lost. 2.4 However, the CFA means that the assisted person is exposed to the costs of their opponent, as well as their own, if they lose the case. Accordingly, they require the CFA to be underpinned by an insurance package which guarantees payment of the opponent s costs. 2.5 The solicitor has an added incentive under CFAs to accurately assess the prospects of a case being successful as no payment will be received for lost cases. This will allow and encourage public authorities and insurers to robustly contest weak cases to reshape the type of cases which are litigated. 2.6 In addition because public authorities and insurers will be awarded their costs in cases in which they are successful there is a further incentive to rationalise the cases brought. It is assumed that the insurance package which underpins a CFA will involve monitoring the success rates of solicitors. This may result in solicitors being excluded from the scheme to ensure its viability. This would be preferable to premiums being increased). 2.7 An uplift will be payable to solicitors for successful cases to offset against the losses incurred when they do not win a case (and receive no fee). This is provided for in the provisions of the Access to Justice (Northern Ireland) Order 2003 (Article 37). The uplift is likely to be in the region of 20% of the actual costs of the case. This is intended to balance the package of measures by ensuring that public authorities and insurers can reduce the number of claims by defending the action and securing their own costs, effectively denying the unsuccessful solicitor payment. By settling good 39

40 cases early public authorities and insurers can avoid payment of a success fee. 2.8 To balance the arrangements between the parties a quarantine period of three months could also be observed before proceedings are issued to allow settlement where liability is not an issue. If proceedings are issued within the quarantine period then no uplift would be payable on a successful case. If the case is settled within the quarantine period then the uplift is not payable, however if the case is settled once the quarantine period is over the uplift can be claimed. 2.9 There may be some cases where the 3 month quarantine period may not be enough to facilitate settlement. Insurers need to have confidence under the scheme that they will have the correct information available to make informed decisions and that the quarantine period would not start to run until receipt of details of claim, including medicals, following an acceptance of liability If a case is approaching being statute barred and the solicitor has only received instructions it is recognised that the solicitor may require to issue proceedings within the quarantine period to protect the interests of the client. If the case if capable of being settled within the quarantine period no uplift will be payable If a lodgement is made and refused and the case is won but the lodgement is not beaten an uplift is payable but the solicitor will only get three quarters of County Court scale costs. The defendant will also have no liability for costs from the date of the lodgement. If lodgement was made and refused and the case is won with the lodgement beaten, the uplift is payable along with full County Court scale fees Under this option as the solicitors success fee is paid by the losing defendant the applicant will keep 100% of their damages. However the applicant will have to pay a premium for the CFA, but the amount of this will be known in advance of taking the case and it will only become payable if the case is won The applicant will not be subject to a financial eligibility test under the CFA scheme. This product could therefore enhance access to justice in this area. 40

41 Legislative Requirements 2.14 Two legislative changes are required to deliver CFAs in this way. First, Schedule 1 to the Legal Aid, Advice and Assistance (Northern Ireland) Order 1981/Schedule 2 to the Access to Justice (Northern Ireland) Order 2003 will require amendment to remove money damages claims (save for significant clinical negligence and assault/battery claims against the PSNI/MoD in the first instance) from the scope of civil legal aid Second, the provisions of Part III of the Access to Justice (Northern Ireland) Order 2003 should be commenced to allow conditional fees to operate, including any agreed percentage uplift. (Regulations 36 and 37). 41

42 Option 2 - Conditional Fee Agreement: set success fee being paid by the losing defendant. ADVANTAGES DISADVANTAGES Legal Services Commission Removes vast majority of money damages claims from legal aid and therefore reduces public expenditure; Could operate retrospectively so as to remove the necessity for legal aid adjudication; Significant reduction in administrative costs, including the number of cases that require to be referred to the Legal Aid Appeals Panel. Solicitor Issues of sustainability of a CFA product; Cost of premiums; Disputes about uplifts (success fees). Can progress case without administrative process of waiting for legal aid; Greater pool of clients as there is no legal aid financial eligibility means test; Capped uplift and no referral fee; No prospect of case being disrupted through client failing to pay contributions and certificate being suspended or revoked; No prior authority required from the Commission for counsel/disbursements; Direct authority not required and no need to report on case; Premium could be enhanced to expand case load; No statutory charge to facilitate. May have to observe quarantine period before issue proceedings; Defence will attack poor cases if case lost, no fee payable; Exposure to strategic lodgement to secure disposal; Solicitor may choose to pay premium and wasted disbursements; Potential sanctions for repeated lost cases; Delegated authority could be reduced and premiums increased for firms with poor risk management. 42

43 Defendant (Insurer/Public Body) Defence can attack poor cases; Defence can recover costs in winning cases; Reduction in number of speculative claims; Reduction in number of nuisance settlements; Potential sanction on plaintiff if proceedings issued during quarantine period; Tactical use of lodgements to shorten life of the case; Reduced risks of unpaid costs due to insurance cover; Referral fees and insurance premium not recoverable; No increase in damages. Client Success fee payable if plaintiff wins. Can progress case without the administrative process of waiting for legal aid; Increased availability as no legal aid financial eligibility test required; No legal aid contributions to pay; No exposure to suspension/revocation of Legal Aid; No exposure to legal aid debt proceedings and block on grant of future legal aid; No deduction from damages. Defence more likely to contest poor cases; Exposure of strategic lodgement to secure disposal; Some solicitors may have higher premiums due to poor risk management; May have to pay premium and deal with any shortfall in costs; Legal Aid removed no future safety net. 43

44 OPTION 3 3. CONDITIONAL FEE AGREEMENT: SET SUCCESS FEE BEING PAID BY THE SUCCESSFUL PLANTIFF 3.1 This option would operate in entirely the same way as option 2 except that instead of the losing defendant paying the solicitors set success fee this would be paid by the successful plaintiff from their damages. 3.2 Like Option 2 the success fee would be a regulated amount therefore avoiding the plethora of satellite litigation that occurred in England and Wales over the amount of uplift that could be claimed. 3.3 The advantages and disadvantages for each participant are also largely the same as for Option 2. 44

45 Option 3 Conditional Fee Agreement: set success fee paid by successful plaintiff ADVANTAGES DISADVANTAGES Legal Services Commission Removes vast majority of money damages claims from legal aid and therefore reduces public expenditure; Could operate retrospectively so as to remove the need for legal aid adjudication; Significant reduction in administration costs, including the volume of cases that require to be referred to Legal Aid Appeals Committee. Solicitor Issues of sustainability of a CFA product; Cost of premiums; Disputes about uplifts (success fees). Can progress case without administrative process of waiting for legal aid; Greater pool of clients as no legal aid financial eligibility means test; Capped uplift and no referral fee; No prospect of case being disrupted through client failing to pay contributions and certificate being suspended or revoked; No prior authority required from the Commission for counsel/disbursements; Premium can be enhanced to expand case load; No statutory charge to facilitate. May have to observe quarantine period before issue proceedings; Defence will attack poor cases if case lost, no fee payable; Exposure to strategic lodgement to secure disposal; Solicitor may have to pay premium and wasted disbursements; Potential sanctions for repeated lost cases; Delegated authority could be reduced and firms with poor risk management could be removed from cover. Defendant (Insurer/Public Body) Defence can attack poor cases; Defence can recover costs when it wins; Public sector bodies will have to adapt litigation strategy to respond in a similar way to the 45

46 Reduction in number of speculative claims; Reduction in number of nuisance settlements; Potential sanction on plaintiff if proceedings issued during quarantine period; Tactical use of lodgements to shorten life of the case; Reduced risks of unpaid costs due to insurance cover; Referral fees not recoverable; No increase in damages Client Can progress case without the administrative process of waiting for legal aid; Increased availability as no Legal Aid financial eligibility test required; No periodic contributions to pay; No exposure to suspension/revocation of Legal Aid; No exposure to debt proceedings and block on grant of future legal aid. Defence more likely to contest poor cases; Exposure of strategic lodgement to secure disposal; Some solicitors could be removed from the scheme and some could have higher premiums due to poor risk management; Legal Aid removed no future safety net; May have to pay premium and deal with any shortfall in costs; Success fee payable if case won. 46

47 Option 4 4. Contingency Legal Aid Fund 4.1 This option would create a separate scheme (a CLAF) to support money damages claims which would be ultimately self financing. It would replace legal aid support for the money damages cases taken out of scope The CLAF would consider applications for support for cases considered to have merit; there may be a registration fee to pay by applicants and their solicitors. If the case is lost the fund pays the solicitor, disbursements and some or all of the winner s costs. If the case is won, the loser pays the applicant s solicitor fees in the normal way and a percentage of the damages recovered are paid into the fund to support future cases. 4.3 The fund however would need to have some initial pump priming capital until the turnover of cases produced a surplus. If the scheme was successful then it would build up funds out of which administrative expenses as well as costs paid to successful opponents could be paid. However that would take time and it would be necessary to have access to working capital during the period from commencement until the stage is reached that the scheme covers its costs and continues to build up reserves. As the aim is to take the vast majority of money damages out of the scope of legal aid significant pump priming capital is likely to be required. 4.4 A CLAF would require there to be an agreed percentage of the damages deducted if the case was won, it is likely that this would be a sliding scale for example when the case was settled before final hearing. Similar conditions as outlined in Option 2 regarding a quarantine period before proceedings are issued etc could also be implemented under a CLAF. 4.5 A CLAF system could also operate by way of an accretion to the costs paid by a losing defendant rather than a deduction from damages. A viability study conducted by the Legal Services Research Centre (LSRC) in suggests that an accretion to costs of the order of 15% would be sufficient to maintain the solvency of the scheme. However, it is likely that the figure of 15% would need to be increased to meet the needs of any scheme in It may be necessary to have application fees as well to underpin the viability of maintaining a CLAF. 18 This option assumes that the most likely way for a CLAF to be viable is for the Commission to administrate it and public funds underpin it. 19 Report prepared by the Legal Services Research Centre (LSRC) for the Legal Aid Advisory Committee for Northern Ireland July

48 4.5 For a CLAF to be self funding it would be dependant on the maintenance of a high percentage success rate, even a small number of cases under performing could have a significant impact on costs and risk triggering a need for a subsidy. It may be that a success rate of at least 80% would need to be maintained. 4.6 The possibility of solicitors cherry picking their stronger cases to run outside the scheme could also threaten the scheme s viability. The scheme could end up only with cases that were uncertain or unlikely to win and therefore would not be able to self fund. The likelihood that adverse selection in cases would occur is high as there would be no way of compelling solicitors to run their cases through the scheme. 4.7 All applicants wishing to avail of these schemes would be able to do so regardless of means, which would increase access to justice. Legislative Requirements 4.8 Article 85 of The Justice Act (Northern Ireland) 2011 repeals the ban contained in the AJO 2003 on the Commission funding services under a litigation agreement or making any payment to any person for the purpose of enabling services to be funded under a litigation funding agreement (Article 41 of the AJO 2003). However this has not been commenced yet. 48

49 Option 4 Contingency Legal Aid Fund (CLAF) ADVANTAGES DISADVANTAGES Legal Services Commission Removes money damages claims from legal aid fund; Could operate retrospectively so as to remove the need for legal aid adjudication. No reduction of overall level of public expenditure in initial years; Adverse selection of cases likely to occur leading to problems of sustainability/viability of scheme; If the Commission had to operate the CLAF no administrative savings would be realised; Additional costs to the Commission for collecting any fees/contributions required from damages. Solicitor Greater pool of clients as no legal aid financial eligibility means test; No prospect of case being interrupted through client failing to pay contributions and certificate being suspended or revoked; No statutory charge to facilitate; Fees/disbursements paid whether case is won or lost. Conflict of interests in respect of cases which had strong prospects of success i.e. why put through CLAF. Defendant (Insurer/Public Body) Defence can attack poor cases; Defence can recover costs when it wins; No increase in damages; No success fees to pay if lose. Adverse selection of cases likely to occur, leading to problem of sustainability/viability of scheme, creating an uncertain market place. 49

50 Client No statutory charge to be paid; No legal aid contributions to pay; Increased availability as no Legal Aid financial eligibility test required; No exposure to suspension/revocation of legal aid; Protection against personal liability for an award of costs in the event that an action is lost. Legal Aid removed no future safety net; A proportion of damages won will have to be paid back into fund. 50

51 OPTION 5: 5. JACKSON MODEL 5.1 In June 2008, the Master of the Rolls appointed Lord Justice Jackson to conduct a Review of Civil Litigation Costs in England and Wales. The final report of January 2010 was wide ranging and comprehensive and most of its recommendations, including those related to personal injury claims and money damages cases have been accepted by government. The majority of which will come into force in England and Wales in April The Jackson proposals and review were an attempt to remedy what was seen as the excesses of the Conditional Fee Arrangements that existed in England and Wales, such as the significant increase in satellite litigation about success fees. Northern Ireland does not have the same arrangements as England and Wales in this regard and therefore all the specific proposals to remedy this problem may not be as relevant in this jurisdiction. In Northern Ireland there are statutory payment scales and proportionality in costs. 5.3 The proposals retain the Conditional Fee Agreement (CFA) arrangement as discussed in Options 2 and 3. They also end the ban on contingency fees, where the solicitor s fee is linked to a percentage of the general damages (damages for future loss are unaffected). 5.4 The Jackson model ends the recoverability of success fees and After the Event Insurance (ATE), which in future will be paid out of damages, thereby giving plaintiffs a financial interest in controlling costs and seeking early settlement. There is also a related proposal that general damages should be uplifted by 10% to mitigate the effect of claimants having to pay success fees. 5.5 Qualified one way costs shifting will also be introduced, this means that the plaintiff will not be liable for the defendant s costs in a lost case, unless the case is pursued unreasonably or the relative financial means of the parties are such that it would be reasonable for costs to be paid. The rationale for this is that the defendant is often economically stronger than the plaintiff or covered by insurance. 5.6 The government in England and Wales also intend to amend the civil procedure rules to strengthen financial incentives and costs sanctions to encourage parties to make and accept reasonable offers. There will also be the introduction of a scheme to regulate claims management companies and consideration is being given to requiring greater openness in the use of referral fees. 51

52 5.7 The intermingling of a plaintiff s damages with solicitor s costs is not something that is familiar in the context of this jurisdiction and is currently banned by regulations and legislation and if introduced, would significantly change the way civil cases are litigated upon in Northern Ireland. Legislative Requirements 5.8 Schedule 1 of the Legal Aid Advice and Assistance (NI) Order 1981 and Schedule 2 of the Access to Justice (NI) Order 2003 would require amendment to remove money damages from the scope of civil legal aid. 5.9 The Provisions of Part III of the Access to Justice (NI) Order 2003 would also need to be commenced to allow CFAs to operate Legislation to allow Contingency Fee s (where the solicitor s fee is linked to a percentage of the general damages) would also be required. 52

53 Option 5 Jackson Model ADVANTAGES DISADVANTAGES Legal Services Commission Removes money damages claims from legal aid and therefore reduces public expenditure; Significant reduction in Commission administrative costs; Could operate retrospectively so as to remove the need for legal aid adjudication. Issues of sustainability; Could result in satellite litigation over percentage of damages claimed. Solicitor Greater pool of clients as no legal aid financial means test; No prospect of case being interrupted through client failing to pay contributions and certificate being suspended/revoked; Fees/disbursements paid whether case is won or lost. Defendant (Insurer/Public Body) Exposure to strategic lodgement to secure disposal; Cost sanctions if failure to make/accept reasonable offer. Risk of losing the proportionality in costs that currently exists in Northern Ireland. Defence can attack poor cases; Tactical use of lodgements/offers to shorten life of case. May not be able to recover own costs even when they win; Could result in an increase in amount of damages that have to be paid in cases that are lost. Client Can progress case without the administrative process of waiting for legal aid; Increased availability as no legal aid financial eligibility test required; No exposure to Legal Aid removed no future safety net; Exposure to strategic lodgement to secure disposal; Proportion of damages will require to be paid to the solicitor; Cost of insurance likely to rise to 53

54 suspension/revocation of legal aid; No exposure to legal aid debt proceedings and block on grant of future legal aid; No statutory charge to be paid; Likely to be protection against personal liability for an award of costs in the event that an action is lost. 54

55 OPTION 6 6. CONTINGENCY FEE PRODUCT (CFA) 6.1 This option would offer an insurance based product similar to that outlined in Option 2 and 3 for the CFA. The applicant would be responsible for paying a premium for the insurance cover. 6.2 The product would allow plaintiffs to bring personal injury actions underpinned by an insurance package which guarantees payment of their opponent s costs should they lose the case. 6.3 As with the CFA option the solicitor will have a vested interest under this option to properly assess the prospects of a case being successful as no payment will be received for lost cases. This will allow and encourage public authorities and insurers to robustly contest weak cases to reshape the type of cases which are litigated. 6.4 However like the Jackson model there is no success fee for solicitors as such; instead a percentage will be from the plaintiff s damages of either the costs of the case or the value of the damages. This will give the plaintiff a financial interest in controlling costs and seeking early settlement. 6.5 A Regulatory framework would be required to be drawn up, under which any contingency fee would be calculated. Otherwise the spiralling satellite litigation and associated escalating costs that blights the system in England and Wales, and which the Jackson proposals are trying to remedy, would occur in this jurisdiction. Legislative Requirements 6.5 Schedule 1 of the Legal Aid Advice and Assistance (NI) Order 1981 and Schedule 2 of the Access to Justice (NI) Order 2003 would require amendment to remove money damages from the scope of civil legal aid. 6.6 The provisions of Part III of the AJO 2003 would also need to be commenced to allow CFAs to operate. 6.7 Legislation to allow Contingency fees (where the solicitor s fee is linked to a percentage of the general damages) would also be required. A regulatory framework within which any contingency fee could be calculated would be necessary, for example the fee could not be more than 100% of solicitor s standard costs. The requirement for a percentage 55

56 of the plaintiff s damages to be paid to the solicitor could also interfere with the common law doctrines of Champerty and Maintenance. 56

57 Option 6 Contingency Fee Product ADVANTAGES DISADVANTAGES Legal Services Commission Removes money damages claims from legal aid and therefore reduces public expenditure; Significant reduction in Commission administrative costs; Could operate retrospectively so as to remove the need for legal aid adjudication. Issues of sustainability; Cost of premiums; Could result in satellite litigation over percentage of damages claimed. Solicitor Can progress cases without the administrative process of waiting for legal aid; Greater pool of clients as no legal aid financial eligibility means test; No prospect of case being interrupted through legal aid being suspended/revoked; Premium can be enhanced to expand case load; No statutory charge to facilitate. Defence will attack poor cases if case lost no fee payable. Defendant (Insurer/Public Body) Defence can attack poor cases; Defence can recover costs when it wins; Reduction in number of speculative claims; Reduction in number of nuisance settlements; No increase in damages. If not properly regulated could create uncertainty in market. 57

58 Client Can progress case without the administrative process of waiting for Legal Aid; Increased availability as no legal aid financial eligibility test required; No legal aid contributions to pay; No exposure to suspension/revocation of legal aid; No exposure to legal aid debt proceedings and block on grant of future legal aid; No statutory charge to pay. Legal Aid removed no future safety net; Defence more likely to contest poor cases; Some solicitors may have higher premiums due to poor risk management; Proportion of damages will be required to be paid to the solicitor. 58