Legal Aid, Sentencing and Punishment of Offenders Bill

Memorandum submitted by the Professional Negligence Lawyers Association (LA 02)

Abolition of recovery of success fees and ATE premiums – s41 onwards Legal Aid Sentencing & Punishment of Offenders Bill

Terms used:

‘Conditional Fee Agreement’ – ‘CFA’ - the form of retainer between solicitor and client which allows lawyers to act on a ‘no win no fee’ basis and the lawyer to charge a success fee if they win the case which is recoverable from the wrongdoing/losing defendant.

‘After the Event Insurance’ – ‘ATE’ – this is insurance that litigant can obtain at the moment against losing the case – they can typically insure their own disbursements, counsel’s fees and opponent costs. The premium is recoverable from the wrongdoing/losing defendant.

Summary

Under the section 41 onwards of the proposed Legal Aid Sentencing & Punishment of Offenders Bill no claimant in ANY civil litigation will recover any damages under the proposed system if £claim is equal to (£success fees plus £ATE premium). Worse the claimant could win the case and go into debt to their own solicitor and ATE insurer if £claim is less than (£success fees plus £ATE premium). This formula is impossible to calculate at the outset of the case. A risk averse claimant would never bring a claim if the Bill is passed.

The PNLA have submitted responses to Lord Justice Jackson and the Ministry of Justice consultations which include more detailed submissions.

ALL CIVIL LITIGATION WILL BE AFFECTED FOR ORDINARY PEOPLE.

The parliamentary debate on the Bill and the speeches made underline that NONE of the MP’s have strong views about the civil justice system save for abuse by those in the personal injury and clinical negligence sectors. Therefore it appears that ALL other forms of litigation are being swept up in the proposed reforms incidentally and without any good reason. The detriment to ordinary people with strong claims who simply cannot afford to pay lawyers will be immense and the destruction of the civil justice system is inevitable as a consequence.

Recovery of success fees and ATE premiums has filled the gap in Civil Legal Aid so that claimant solicitors and ATE insurers have carried the cost and risk of access to justice unless and until the case succeeds when most of the costs can be recovered from a wrongdoing/losing defendant.

S41 onwards will not save the Government ANY money and indeed it may cause losses in particular to HMRC as insolvency practitioners will be unable to bring claims and HMCTS will have fewer actions and fewer Court fees paid.

Who brings professional negligence and liability claims?

The PNLA claimant members deal with a wide range of claims of NON MEDICAL negligence and dishonesty of professionals – usually such claimants have trusted a professional and often found themselves financially ruined as a consequence. Examples include:

1. A surveyor negligently fails to spot subsidence in his report for first time home buyers – the property is a ‘home for hell’ and subsides – they lose all their money as it is worth only site value and still have to repay the mortgage.

2. A solicitor negligently helps a dishonest nephew to get his elderly aunt to sign away her home to him – he then throws her out leaving her homeless.

3. A barrister only reads the papers the night before the trial and forgets half the evidence so the case is lost.

4. A financial adviser negligently invests in a high risk investment that fails so the claimant with a spinal injury loses all the damages award they received for their care.

5. An insurance broker negligently forgets to send the form for buildings insurance and the home burns down in a fire – the claimants lose their home and all their possessions.

6. An accountant negligently fails to prepare proper accounts for a business – HMRC then claim a large payment for tax which the business cannot pay and it goes into liquidation.

7. A solicitor negligently tells a client that litigation has a good chance of success but then change’s his advice just before the trial forcing a settlement involving payment of the opponents costs – the solicitor keeps his fees while bankrupting his clients.

8. A probate solicitor takes 3 years to deal with a mother’s estate after her death – then charges huge fees some of which were used dishonestly for his own lifestyle.

9. A negligent insolvency practitioner does an administration pre pack – leaving dishonest directors and shareholders of the company with all the assets and the company creditors without any payment.

Many PNLA members have developed practices over many years from referral by professionals in their locality or local Law Societies eg The Legal Complaints Service (formerly part of the Law Society) had a Negligence Panel Referral Scheme for those claimants needing advice about negligence claims against solicitors. It is not thought that there is widespread use of claims management companies or referral fees in this sector – on the contrary most deserving claims come by way of referral from another professional in the same profession who is horrified by the service provided to a consumer.

Why professional negligence cases cannot be funded under the proposed reforms?

The real victims of the proposed reforms are professional negligence and dishonesty claimants with claims of a value as follows:-

£claim is equal to or less than (£success fees plus £ATE premium)

The fundamental problem is that ‘£success fees’ is directly caused by the conduct of the defendant in defending the claim and cannot be calculated or predicted with any certainty at the outset of the claim. The proposals do not recognise that wrongdoing defendants choose to fight strong claims – and it is only if they do that then they have to pay high claimant CFA/ATE costs awards.

‘£claim’ is a very fine art indeed to calculate in this type of case. It is based on what the financial position of the claimant would have been in if they had been correctly advised (a wholly hypothetical scenario) compared to their actual financial position. It is rare that this figure is not open to challenge in defence.

The existing system places the risk on the wrongdoing defendant – if they choose to defend the claim then the costs including (£success fee and £ATE premium) are the defendant’s risk as they pay those costs if they lose the case.

The Government’s proposed new system places the risk on the claimant because if the defendant chooses to defend the claim then (£success fee and £ATE premium) cannot be recovered and comes out of any damages the claimant receives.

Even if liability is admitted in these cases – technical legal defences are commonly raised including ‘causation’– ie even if there was negligence then it did not cause the loss claimed, ‘contributory negligence’ ie that the claimant should share the blame and ‘failure to mitigate’ ie the claimant has not done enough to reduce the loss and the defendant should not pay because the claimant did not act sooner.

These cases are always complicated. They often take 2-3 years to resolve and the parties may well can incur typically costs of about 100 hours each. The PNLA ATE Scheme premium is at a set level increasing in four stages starting at about £2000 pre action and ending at about £50,000 for a trial.

If the matter settles just before trial and ‘£success fee’ is £200 plus VAT per hour for 100 hours = £20,000 plus VAT and the ATE premium is £50,000 then (£success fee plus £ATE premium) = £74,000. If the damages recovered by the claimant are £74,000 then he/she gets nothing from the litigation even if they win the case.

Worse – if the damages recovered are less than (£success fee plus £ATE premium) then even if the claimant wins the case he/she will go into debt to his/her own solicitors and ATE insurer – in the above example if (£success fee plus £ATE premium) = £74,000 and the damages recovered are only £30,000 – then the claimant has won the case but will be in debt to his own solicitors and ATE insurers for £44,000.

The real legal experts are the Professional Indemnity Insurers and their large teams of litigators and claims handlers both in house and in their panel solicitors firms. Claimant specialists are few and unlikely to have anything like the same expertise. The odds are stacked against claimants inherently because of this imbalance in legal skills and experience – under the proposed reforms many claims become impossible because the financial risks to the claimant compared to the chances of potential recovery will not make sense.

The proposed reforms do not offer any realistic alternative funding for claimants. Civil Legal Aid is largely unavailable. The proposals seek to make the uncertainty worse as to how much of the claimant’s costs can be recovered giving greater discretion to Costs judges to slice off chunks of costs in their discretion. Contingency fees make no greater financial sense in claims within the above formula. Claimants will run the risk of paying the defendant’s costs if they lose without ATE Cover in an amount that cannot be predicted at the outset. Claimants can pay the hourly rates of their solicitor up front – but how many can afford to do that? – and these are claimants who believe that they have already been let down by a trusted professional adviser....

July 2011

Prepared 14th July 2011