LETTER FROM THE LAW SOCIETY OF NORTHERN
IRELAND TO THE CHAIRMAN OF THE LORD CHANCELLOR'S LEGAL AID ADVISORY
COMMITTEE FOR NORTHERN IRELAND
RE: CONTINGENCY
LEGAL AID
FUND ETC
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.
PRELIMINARY OBSERVATIONS
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.
VIABILITY OF
A NORTHERN
IRELAND CLAF
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
|