Select Committee on Northern Ireland Affairs Appendices to the Minutes of Evidence



  I refer to our previous correspondence and discussions about the work of the Group which, under your Chairmanship, has accepted a commission from the Lord Chancellor to examine further personal injury claims funding options for Northern Ireland.

  At our meeting on 2 February 2001 we were able to provide some provisional feedback on the central issue which we understand to be the primary interest of the Working Group, namely the viability of a CLAF in this jurisdiction.

  At that time we informed you also of our intention to canvass views more widely within the solicitors' profession. We appreciate the indications given by the Working Group as to the weight to be attached to the views of the Society, as representative of the profession with most practical experience of the operation and culture of civil litigation (and litigation funding) in the Province. I believe that all contributors to date have recognised the critical importance of this debate, given the widespread reservations expressed in Northern Ireland about the introduction of Conditional Fee Agreements (and associated insurance arrangements) as they have developed in England and Wales, and bearing in mind also the apparent position of the Government, at least to date, that the only alternative to a CLAF is the imported CFA model.

  Because of these factors we have thought it right to consult with the profession and, having done so, to reflect carefully on the main strands of the debate thus far. The purpose of this letter is to let you have our conclusions. I understand that your own work has been continuing, and I imagine that some points made in this letter may resonate with other submissions you have received. In any event I hope you will find our comments and suggestions helpful in finalising the report of the Working Group.


  As a preliminary point, the position of the Society stated herein should be understood to be without prejudice to our fundamental concern about the proposed removal of civil legal aid funding in its present form. We are not persuaded that the case for this has been established (as opposed to the case for modification and improvement of the current Legal Aid Scheme, combined with a more thorough examination of how unmet need falling outside the present Scheme might be otherwise addressed). Nonetheless we recognise the clearly-signalled intentions of the Government in this respect and therefore provide these comments on the working assumption that the Government will proceed to remove the present form of civil legal aid funding from most categories of money-recovery claims.

  The primary purpose of this letter is to set out for consideration of the Working Group our views on the viability of a CLAF. This being so, we do not propose to re-examine in any detail the case for and against the introduction of Conditional Fee Agreements. However, we affirm our serious reservations about the CFA model. For present purposes we need not rehearse the various concerns which have been articulated by a wide range of informed commentators in this jurisdiction. We do consider, however, that as time passes and experience builds in England and Wales, these concerns are reinforced rather than assuaged. In particular, it seems clear that the arrangements for handling of litigation are becoming the monopolistic preserve of the insurance industry with a steady and rapid erosion in the rights of the consumer to receive genuinely independent advice. This being so, we wish to affirm specifically that we do not accept the Government proposition that there is no alternative to a CLAF in Northern Ireland other than the CFA model developed elsewhere.


  Our views on the viability of a CLAF are informed by two critical assumptions, as follows:

    (a)  despite some ambiguity in the stated position of the Government (that any CLAF in Northern Ireland must be "comprehensive"), it seems to be recognised generally that this cannot mean that participation by any individual claimant in a CLAF can be compulsory (for human rights and other reasons). We do not think, for reasons of principle, that a model which requires a potential litigant to choose between a "CLAF solicitor" and a "non-CLAF solicitor", and/or which puts the solicitor in the position of not being able to offer best advice to a potential client as to the available full range of funding options, is right or indeed viable in practice. We do not consider that the acknowledged problem of "adverse selection" can be solved by this model. It follows from all of this that any CLAF model will need to be genuinely competitive in the market as against the existing insurance-funded options, and as against the common practice (dictated by the market) whereby solicitors provide clients with no-cost litigation where damages recovery is either guaranteed or highly probable;

    (b)  the second critical assumption is that whatever CLAF model might be devised for Northern Ireland will be unique and experimental. Unique in the sense that none of the paradigms from elsewhere would appear to be an unqualified success, and where there is some measure of success this appears to be linked to a percentage recovery from damages which is unlikely to be viable or competitive in the Northern Ireland context. The experimental nature of this model, at least within the British Isles, is self-evident; the implications of the experimental nature of this project are explored in more detail below.

  Bearing in mind these two critical assumptions, we are strongly of the opinion that a CLAF which relies primarily or exclusively on a deduction from damages in the hands of a successful party has no realistic prospect of success in this jurisdiction. This is not a conclusion at which we have arrived lightly because, as will appear from our subsequent analysis, there are important potential advantages which inhere in a CLAF. But all the available evidence suggests that a CLAF on a damages-deduction basis can only be achieved by the levy of a percentage deduction which will be unacceptable and unattractive to successful litigants by comparison with the other available funding options.

  However, because we recognise the in-principle advantages of a CLAF there is a different model which we consider may have some prospect of viability (for the reasons we set out below), the central elements of which would be as follows:

    (a)  our fundamental proposition relates to the source of revenue to support a CLAF. We recommend that this should be by way of a contributory fee levied on the unsuccessful defendant, in addition to the damages award and liability for the claimant's costs. Precisely how the fee is to be determined would be for further consideration. The more obvious options might be as a percentage of the damages recovered in each case, or a fee determined by reference to a banded-value scale, or by a fee which distinguishes between categories of actions, or as a combination of these options. The key success criteria would be that the amount of the fee-levy as an imposition on the unsuccessful party (in practice, the insurer) should be fair, balanced, and applied and administered efficiently (see further below). Secondly that the terms on which the CLAF option would be available to the litigant choosing to use this option would be attractive and competitive when compared to other options;

    (b)  we consider that this proposal is justifiable in principle in a situation where the Government has accepted now (in England and Wales) that it is not reasonable to expect a successful litigant to bear either the enhanced cost of the lawyers' success fee or the (reasonable) cost to the successful litigant of purchasing after-the-event insurance cover. The principle that the unsuccessful party should pay would appear intrinsically fairer than the proposition that the successful litigant should do so;

    (c)  the terms on which CLAF funding is made available to litigants within this model are important. If the CLAF option is to prove sufficiently popular to meet the concerns about adverse selection (which may well prove central to its viability and success) the terms available must be sufficiently attractive to bear comparison with non-CLAF funding options available in the market. In effect, this means that the incentives for the claimant will need to include, as a minimum:

      (i)   protection against personal liability for an award of costs in the event that the action is lost;

      (ii)   full costs recovery out of the fund of professional legal costs and disbursements irrespective of the outcome (subject perhaps only to the exceptional imposition of defined penalties for consistently poor performance, see below);

      (iii)   a nil or nominal cost for access to CLAF funding. It is conceived that no fee would be payable at least by claimants in receipt of prescribed forms of state benefit. It is conceivable that some limited registration fee for CLAF usage might be payable by claimants of modest means, although ideally the CLAF Scheme would be fully self-financing by means of the "losing party levy". Any limited fee for access to CLAF will need to be more attractive than the litigation funding costs available in the commercial insurance market. In theory, of course, this should be achievable, given that CLAF would operate on a non-profit making basis;

      (iv)   the systems operated by the CLAF administrator will need to be as simple as possible in the hands of the legal adviser conducting the litigation.

    (d)  it is important of course that a CLAF on this model should not be viewed as unfair or unbalanced as regards the interests of the defence/insurers. This need not be so for several reasons. First, the proposed absence of CFA costs-enhancements of professional legal costs (and associated insurance premiums) will represent a saving by comparison with the CFA regime operating in England and Wales. Secondly it is conceivable that the CLAF might provide in due course for the recovery of defence costs against the Fund. Thirdly it is conceivable also that the CLAF could be refined to provide some form of incentive for early settlement (by discount on the standard percentage levy). Fourthly, there may well be financial advantages for insurers arising from the consistency and predictability of the levy for budgetary forecasting and provision;

    (e)  within this model there will be no necessity to restrict access to solicitor of choice (subject only to the monitoring arrangements set out below). For the majority of personal injury actions, any solicitor would be able to offer a range of funding options. We affirm again the importance of the principle that a solicitor should be free to provide genuinely independent advice to each client as to the available options. The solicitor should not be "tied" to CLAF nor to any other funding product. Because, on this model, the use of CLAF does not involve a penalty (deduction from damages) imposed on the successful litigant with a cast-iron or strong case, the problem of adverse selection may be minimised, if not obviated.

    (f)  it is perhaps worth emphasising that, in the perspective of the Society, this principle of independent advice, not only in terms of choice of funding option but in terms of the conduct of the proceedings (and pre-proceedings negotiations) is cardinal. In practical terms it means arrangements with the funding source which avoid conflicts of interest, and preserve the primary responsibility of the solicitor towards his or her client. The CLAF, on the model proposed, is arguably the best means of securing the independent principle because it avoids the dangerous compromise and division of loyalties evident or implicit in the evolving CFA/insurance funding market elsewhere, in which the insurance industry dominates the conduct of both the prosecution and defence of civil litigation;

    (g)  we emphasise this principle because we believe that it has certain implications for the operation of all funding options within the market in Northern Ireland, irrespective of the establishment of a CLAF. Accordingly we take the view that the public interest requires that all arrangements whereby the costs of litigation are funded by third-parties in Northern Ireland should have the following minimum common characteristics;

      (i)  there should be no compulsory use by clients of panels of solicitors chosen by the insurer, or any other direct or indirect inhibitions upon the individual's choice of a competent solicitor;

      (ii)  there should be no enhanced fees payable to the solicitor in circumstances which compromise his primary obligation to secure the interests of his individual client;

      (iii)  similarly, there should be no circumstances in which the solicitor directly or indirectly is required to "purchase" clients referred or introduced by third parties;

      (iv)  any insurance product used for purposes of funding a claim conducted by a solicitor should be reasonable in its terms (whether as to the premium charged, the administrative and quality-control standards required, or otherwise), and accredited by the Society as such.

    (h)  because of the conflict of interest considerations already mentioned, and for other pragmatic reasons, we consider that decisions as to the grant and control of CLAF funding should be vested in a separate body. Assuming the establishment in due course of a Legal Services Commission, and given that body will have a responsibility in some areas of continued civil legal aid funding on the traditional model for merits assessment, the administration of a CLAF would appear to be vested sensibly in the Commission;

    (i)  in terms of administration, we have noted already the need for the CLAF to be as simple as possible in the hands of both the solicitor and the user. However, obviously this needs to be balanced with the need for merits assessment and control mechanisms proportionate to the circumstances of the case, to the extent of the costs exposure of the CLAF, and to the nature and complexity of the litigation. We envisage that it would be possible to devise a funding matrix to deal with the range of differing situations. For example, the approvals process for a cast-iron case might be considerably simpler in terms of the Commission processes than for a marginal case of considerable complexity in which the initial funding decision, and the progress of the case thereafter, will need to be subject to close monitoring and supervision by the Commission. It is conceivable that in certain cases the solicitor may be prepared to assume a responsibility for self-certification, subject to certain safeguards;

    (j)  as indicated, part of the rationale for a CLAF is to maximise continued access to justice through free choice of an independent legal adviser. Consonant with this objective we envisage that all solicitors would be entitled from the inception of CLAF to register and participate. The circumstances in which poor performance might be assessed and penalised would be developed by way of a Protocol between the Society and the Commission;

    (k)  on disbursements funding during the course of a case, again we anticipate the need for a certain flexibility of approach. However, we expect that the general rule would be that no interim funding pending the outcome of the case would be required, thereby enhancing again the prospect that the CLAF would be financially viable. In exceptional cases (possibly corresponding to those being extensively monitored by the Commission) there may well be a need for arrangements for interim disbursements and interim legal costs;

    (l)  we conceive that, at least for the initial five year period (see below) the CLAF option would be made available only to cover the more common types of personal injury actions (broadly corresponding to those categories, such as road traffic accidents, industrial accidents, and tripping cases for which insurance is presently available on the market at affordable cost). Decisions as to the possible extension of the CLAF concept thereafter would be based on the assessment of the longer-term viability of the concept (see below);

    (m)  there would seem to be little doubt that, if a CLAF option is made available on the model commended by the Society, there will need to be a clear recognition of the experimental nature of these arrangements. We do not think that there can be any guarantee of success. On the other hand we would not commend the particular CLAF model set out in this letter, unless we had some reasonable degree of confidence as to its viability. We are satisfied that the potential benefits to be secured make this an experiment worth trying. However, we believe the experimental nature of the exercise should be recognised in two particular ways:

      (i)   we believe that the Government should be prepared to underwrite the administration costs of the CLAF for a minimum period of three years, with the possibility of an extension to a five year period in light of funding experience. In addition, the Government should be prepared to provide "pump priming" finance in respect of non-administrative expenditure out of the Contingency Legal Aid Fund until such time as the "loser-levy" income has accumulated to a sustainable level;

      (ii)   the CLAF model should be introduced as a time-limited experiment. We suggest an initial period of five years, followed by a review process (the criteria for which would be determined in advance) to assess the longer-term viability of the model.

  By way of final comment, we do recognise of course that what is proposed may seem radical. However we suggest that this may be more apparent than real. At its simplest, the proposed model preserves some of the best features of the current legal aid arrangements while transferring the burden of funding from general taxation to the insurance market. This is no different, in principle, from what is the position in effect in England and Wales. However, the model effects this transfer in a way which is appropriate to the Northern Ireland litigation market and culture, and preserves the key principle of ready access to independent legal advice. We are satisfied that a model on the lines proposed by the Society would operate in the public interest in this jurisdiction.

  Should you find it useful for us to do so, we should be happy of course to expand further on suggestions, or indeed deal with any queries you may have. I hope, incidentally, that this letter will deal with most, if not all, of the 11 preliminary questions posed by the Working Group for consultation purposes.

11 April 2001

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