Legal Aid, Sentencing and Punishment of Offenders Bill

Memorandum submitted by , , Clarke Willmott LLP (LA 39)

1 My clients and this firm

 

1.1 I am a partner in a large firm, with a turnover of about £35/40m. About 40% of our workload is litigation. Virtually none of it is legal aid based. We are not a welfare practice – we aim at the SME and private client as our main market.

1.2 Although I have been in practice now for nearly 40 years, my practice for the last 12 years has been concerned exclusively with litigation in the fields of pensions, financial services, savings and investments. My clients are typically successful entrepreneurs, professional men and women and the retired. I have some pension fund and charity trustees as clients as well. I lead a team of 8, and we have recovered about £30m over the last 10 years, mostly from life assurance companies and banks, which are my typical opponents. My biggest single case so far was for over 400 Equitable Life annuitants, whose claim was funded with a series of CFAs, a mutual costs sharing agreement and limited BTE and ATE cover.

1.3 As a firm we use CFAs and ATE insurance extensively, mainly for claimant work but also for defence work. The costs of litigation are so high that even wealthy people and small businesses find it imprudent not to hedge against disastrous results. For example, my property litigation colleagues used a CFA to defend an unfounded dilapidations claim for a well known health charity.

2 This jurisdiction

 

2.1 This jurisdiction is an extraordinarily expensive place to litigate compared with other European countries. 

2.2 Lord Justice Jackson does not satisfactorily explain why costs are so high here. In his preliminary report he summarises his "whistle stop" tour of various other countries looking at their systems. The countries he refers to mostly have the following characteristics which ours does not.

2.2.1 Scales of Costs

We use to have scales of costs which prescribe what steps are to be taken in a lawsuit and what charges could be made for each of those steps.  These have been abolished and in their place we have judicial case management.  The Judges of course love the freedom that this gives them to, as they say, manage the case in the interest of efficiency etc.   What in practice happens is they manage the case so as to minimise the embarrassment to them of an appeal to the Court of Appeal.  This results in cases being hopelessly over engineered.

2.2.2 A unified legal profession for litigation

We still have solicitors and barristers performing their separate functions in litigation.  The opportunity was not taken which was presented by Lord Mackay when he was Lord Chancellor of fusing the two professions.  This means that there is repetitious traffic between the solicitor and the barrister and back again which does not occur elsewhere. All of this adds to cost.

2.3 There are powerful interests which would resist changes in these areas. Probably we are stuck for the time being with an unnecessarily expensive system. The task for the Government is surely to mitigate the effect of that cost for the average client. What it proposes will, on the contrary, exaggerate it.

3 The impact of costs on the ordinary client.

 

3.1 The impact assessments which I have read are plainly not based on any empirical evidence or any experience of what actually goes on.  For civil litigation to take place at all claimants must go to Court.  The impact assessments suggest there will be a slight falling off of civil litigation; my experience shows that there will be a massive reduction in justified non personal injury litigation.

3.2 The maths should be obvious, even using the (limited) data in the appendices to the Jackson report. If the average wage is about £26,000 before tax, how can a lawsuit be affordable without hedging the risk of losing? As the cost of hedging is itself unaffordable, the clients must hedge that also. Hence the need for the deferred and contingent ATE premium. Take away recoverability, and insurance is impossible. Take away insurance, and the claim is imprudent or impossible to pursue, no matter how strong the merits.

3.3 The abolition of the recoverable CFA uplift can be accommodated. It will push overheads up, and thus charges for other clients. But it is not a disaster. The abolition of recoverable ATE premiums will however be a very significant deterrent to the prudent person or small business, with a good claim for an important sum.

4 Irresponsible no cost litigation

 

4.1 There are, I am told, claimants who make unjustified claims with the benefit of ATE policies which insurers find it uneconomic to defend. As this is not the sort of client I have, I cannot speak from experience. I view such reports with cynicism however, because the presence of ATE cover means a defendant can get his costs of defeating an unjustified claim; Jackson’s Qualified One way Costs Shifting will remove that comfort, and make dishonest claims much easier.

4.2 I can say that in my experience dishonest claims are much rarer than dishonest defences. Human nature demands that it is so. Few people will lie willingly to manufacture a claim, but faced with a justified claim many will lie to escape the consequences of their folly.

5 The impact of litigation on the Exchequer

 

5.1 Non legal aid civil litigation should be recognised as a huge source of tax revenue.  By way of example let me say that my firm’s VAT payments to HMRC alone are about £8 million per annum and about 40% of our work is litigation.  If you also take into account that about 40% of our staff are engaged on litigation, and the consequential payments of National Insurance Contributions and Income Tax, then you can see that litigation is in fact extremely good for the Crown and the economy generally.  It serves the public purpose of enforcing the law, maintaining a level playing field for commerce and helping us comply with our international obligations. And it produces revenue.

5.2 I remind the Committee that damages are untaxed. If the Treasury is looking for Revenue, it could do worse than consider the taxation of damages (as they are in Ireland) and ensuring that  the Ministry of Justice provides a legal system which serves the public better and encourages justified litigation.

6 The impact on commercial life.

 

6.1 It is far too often forgotten that the purpose of litigation is to enforce the law. It does so by shifting assets from those not entitled to them to those that are, with costs penalties having the effect of discouraging unjustified claims and unjustified defences.

6.2 Of the clients who approach me with good cases for considerable sums, well over half refuse to take their cases further, even when offered CFAs and ATE cover. They see it as too risky. Already big business, by threatening high costs, can defeat meritorious claims by deserving people. I have seen recently costs estimates from banks of over £500,000 for a single case. This is really scary for the average client, and even for the rich. The proposed reforms will heighten that risk enormously, and will deter even more deserving people.

6.3 If big business can afford to ignore the law, and small business cannot afford to, it makes for an unlevel playing field. I see this in my specialised field of financial services. The banks seem to get away with ignoring the FSA’s Conduct of Business Rules, and generate most of the complaints to the FOS. The small IFA observes them scrupulously as a rule, and is placed at a disadvantage thereby as the banks get business in ways an IFA dare not.

6.4 If Parliament wishes its laws to be enforced, it must make it attractive for the responsible citizen to go to court to enforce them. Part 2 of the Bill will have the opposite effect. 

July 2011