Legal Aid, Sentencing and Punishment of Offenders Bill

Memorandum submitted by LEIGH DAY & CO (LA 79)

1. PREAMBLE AND SUMMARY OF PROPOSALS

1.1. Leigh Day & Co is a London-based Claimant law firm with a specialisation in human rights and personal injury claims. Over the past twenty years, we have developed particular expertise in international human rights and environmental claims against multinational corporations ("MNCs") on behalf of clients from the developing world. Our cases have included, for example, claims on behalf of mining giant Cape Plc on behalf of 7,500 South African mine workers exposed to asbestos dust, and against oil trader Trafigura on behalf of 30,000 Ivorian residents exposed to toxic waste dumping.

1.2. Because of this expertise, we are particularly well-placed to offer constructive and focused contributions to the Committee on the impact of the Legal Aid, Sentencing and Punishment of Offenders Bill ("The Bill") on this type of litigation, and have focused our submission on this area.

1.3. We wish to make it clear that Leigh Day is not opposed to all of the reforms proposed by the Bill, and recognises the need for sensible reform in some areas to promote cost efficiency and savings. In this submission we have attempted to make proposals which accord with this overall objective, whilst at the same time preserving access to justice for this particularly vulnerable group of claimants.

1.4. Our principal concerns relate to the proposed reforms to the funding of civil litigation under ss 41-43 of the Bill, including:

· Non-recoverability of success fees from Defendants (s 41)

· Non-recoverability of ATE premiums from Defendants (s 43)

· Non-recoverability of base costs in as far as they fail the proposed ‘proportionality’ test (which we understand will be introduced via the regulations accompanying the Bill or via the Court Rules)

1.5. Human rights claims against MNCs are far riskier and more expensive than standard personal injuries claims, due to the size and complexity of the cases, the significant resource imbalance between the parties and the logistics of collecting evidence from claimants overseas. These risks are such that, even under the existing funding regime, most claimant firms will not take on these types of cases.

1.6. The reforms to funding arrangements proposed under the Bill would significantly increase both the cost burden and risk of litigating these types of claims. They would restrict our ability to take on all but the most straightforward cases against MNCs – resulting in reduced access to justice by the victims of human rights violations and a reduced incentive for MNCs to respect human rights in their business operations overseas. We understand that the Special Rapporteur on Business and Human Rights, Professor John Ruggie, has written to the government expressing similar concerns.

1.7. Given the value of preserving access to remedy in these types of cases, we would propose that:

· Provision should be made under s 41 for the Courts to retain the power to order that success fees be recoverable interpartes in the limited context of these types of claims, and where certain public interest criteria are met.

· The exemption applied to recovery of ATE premiums in clinical negligence cases under s 43(2) of the Bill should be extended to human rights claims against MNCs.

· The current test for recoverability of base costs should be preserved.

1.8. These proposals, if adopted, would ensure ongoing access to justice for the victims of human rights abuses by MNCs while maintaining the overall objectives of the legislation and imposing no additional burden on the public purse.

2 THE IMPORTANCE OF HUMAN RIGHTS CLAIMS AGAINST MNCS:

The importance of accountability of multinational companies (MNCs) for their Human Rights (HR) impact in developing countries has been increasingly recognised over the past decade. In 2005, Prof John Ruggie was appointed as UN Special Rapporteur on Business and Human Rights with a mandate to recommend effective means to address the HR challenges posed by MNC and other business enterprises. His framework is based on the following three principles:

(a) the duty on governments to "protect" the human rights of individuals against third parties including business

(b) the responsibility of business to "respect" human rights

(c) the existence of adequate legal mechanisms to provide a "remedy" for individuals whose human rights have not been safeguarded by (a) and (b).

The UK Government has consistently endorsed the Protect, Respect and Remedy Framework. In June 2011, at the Human Rights Council in Geneva, the UK Government reaffirmed its commitment to implement the Guiding Principles that accompany the Framework, including Guiding Principle 26, which provides that:

‘States should take appropriate steps to ensure the effectiveness of domestic judicial mechanisms when addressing human rights-related claims against business, including considering ways to reduce legal, practical and other relevant barriers that could lead to a denial of access to remedy’.

3 HUMAN RIGHTS LITIGATION AGAINST MNCS IN THE UK TO DATE:

3.1. Notable examples of litigation in the UK courts to hold UK MNCs to account for human rights violations are as follows:

(a) Ngcobo & Ors v Thor Chemicals: claims by 20 South African workers poisoned by mercury (1995-1997)

(b) Connelly v Rio Tinto: Namibian uranium miner’s claim for throat cancer (1995-1998)

(c) Sithole & Ors v Thor Chemicals: claims by 21 South African workers poisoned by mercury (1997-2000)

(d) Lubbe & Ors v Cape PLC: claims by 7,500 South African asbestos miners (1996-2003)

(e) Bembe & Ors v T&N: claims by 400 Swaziland asbestos miners

(f) Ocensa Pipeline Claim against BP exploration for Colombian campesinos for damage to land (2004-2006)

(g) Motto & Ors v Trafigura: claims by 30,000 Ivory Coast citizens arising from toxic waste dumping (2007-2010)

(h) Tabra & Ors v Monterrico Metals: torture claims by 32 indigenous Peruvian anti-mine protesters (2009- 2010)

(i) Arroyo & Ors v BP: exploration for 73 Colombian campesinos for damage to land (2007 - ongoing)

In addition to providing redress and justice for individual human rights victims, the cost and reputational consequences of these ground-breaking cases have provided a powerful incentive on the part of MNCs to respect human rights.

Nature, complexity and resources required for MNC cases

3.2. These cases are complex, protracted and costly to run primarily due to:

(a) Logistical factors: they involve victims and evidence that is mainly overseas and often difficult to access;

(b) The fact that the claims are usually against the UK parent company rather than the operating subsidiary, which entails overcoming the "corporate veil" obstacle and investigating the relationship between various MNC entities (the Trafigura case was an exception in this regard);

(c) The financial and reputational implications for MNCs which invariably instruct major City law firms who fight "tooth and nail", and deluge victims’ lawyers with demands and procedural issues;

(d) The complexity of the evidence, which often requires instructing highly specialised experts in a range of fields, such as environmental science, chemistry and medicine.

(e) The financial situation of the victims means they are in no position to contribute to the funding of the claims.

3.3. In order to have any reasonable prospect of securing justice for victims in MNC cases, claimants’ lawyers need to allocate a level of resources to these cases that is comparable to that deployed by the MNC lawyers. Consequently, the legal costs are invariably significantly higher than the compensation recovered. Given the wider human rights implications of these cases, it would be short-sighted, unfair and unjust to view the justification for pursuing them by simply comparing the level of costs with the compensation recovered. It is worth recalling that for the purposes of allocating public funding, the Legal Services Commission classified the Cape PLC case as being of "very high public interest".

Funding of MNC cases to-date

3.4. Because legal aid is no longer available for these types of cases, most are currently funded through conditional fee agreements ("CFAs") under which claimant lawyers are only paid if they win. This model enables a slightly more level playing field between the victims of human rights violations (who are often impecunious) and multi-million dollar corporations. It also means, however, that claimant’s lawyers shoulder a significant financial burden throughout the cases and the risk of losing all costs incurred if the case is unsuccessful.

3.5. Cases may last for several years and require the deployment of substantial resources and expense which claimants’ lawyers must carry for the duration with the attendant financial and cash flow burden. The disbursements involved in these types of claims are usually particularly high, often running to hundreds of thousands of pounds (and on occasion, to millions). The current system of ‘after the event’ ("ATE") insurance has developed to cater for this risk. Whilst it is usually possible to obtain ATE indemnity cover for the disbursements, reimbursement under the ATE scheme is only available for those costs if the case is lost. Again, this means that the lawyers have to fund the disbursements themselves for the duration of the action.

3.6. In recognition of these risks, claimants’ lawyers have to date been allowed to charge the defendants with the ‘success fees’ – an uplift on their standard fees that is recoverable from the MNC in the event that the case is successful. The risk in terms of the complexity, uncertainty and financial outlay associated with MNC cases is often such that the claimants’ success fee will be set at 100% if that accurately reflects the risk of the case. If the success fee is set too high, then the court is likely to reduce it when assessing the costs at the conclusion of the case.

3.7. Notwithstanding the success fee, the costs of lawyers representing MNCs are often higher than those of the claimants.

4 PROBABLE EFFECT OF THE PROPOSED REFORMS ON MNC LITIGATION

4.1. Apart from the involvement of John Pickering & Partners in the Cape PLC case, Leigh Day & Co ("LDC") has essentially been the only UK law firm to undertake MNC cases over the past 15 years. This reflects the risks associated with such cases, in terms of their prospects of success, uncertain duration, level of resources and investment required and the cash flow implications of having to carry the financial burden until the conclusion of the litigation.

4.2. The proposed changes to CFA recoverability will substantially reduce the ability of this firm to undertake such cases in the future. It is doubtful whether we would have been able to undertake the cases referred to above under the proposed new arrangements. Certainly, it would not have been feasible to run any of them with the same level of resources or effectiveness. Since that would have reduced the prospects of success it would have reduced on our willingness and ability to embark on the cases.

4.3. Given that virtually no other UK firms have not undertaken such cases to date it is inconceivable that others will do so under the proposed new regime.

4.4. As set out above, the three issues of particular concern in respect of MNC cases are the proposals on non-recoverability of:

(a) Success fees (NB in Australia and South Africa, which have CFA systems that are very similar to the UK, but where success fees are not recoverable from the losing party, there has been virtually no litigation of this type).

(b) ATE premiums;

(c) Basic costs, to the extent that they fail the "proportionality" test.

Non-recoverability of success fees (s 41)

4.5. The effect of this proposal will impact particularly harshly in MNC cases where compensation may be significantly less than costs. Even if LDC deducted success fees from the compensation of MNC human rights victims (which we would be loath to do taking on board the significance of the compensation to the individuals concerned) the reality is that with the 25% cap, this is likely to only scratch the surface in terms of the loss of the success fee.

4.6. The disparity between compensation and costs in MNC human rights cases has become worse as a result of the Rome II Regulation (EC) No 864/2007 coming into force. The effect of Articles 4 and 15 is that compensation will usually be assessed in accordance with local law, which in the case of developing countries will invariably be significantly lower than compensation awarded by a UK court. Previously, the House of Lords (in Hardings v Wealand) had held that assessment of compensation would be assessed in accordance with English procedure). Rome II will completely undermine any prospect of recovering success fees from claimants’ compensation in MNC human rights cases. The effect of Rome II is even more serious in relation to the proposed changes to the principle of "proportionality" (see below).

4.7. For the reasons given above, our ability to continue to pursue MNC cases on behalf of victims from the developing world will be seriously limited unless the major part of the success fee remains recoverable from the MNC.

4.8. We understand that it has been proposed to increase general damages by 10% in order to ameliorate the effect of the non-recoverability of success fees from defendants. However, given the level of the disparity between costs and compensation common in MNC HR cases, such an increase could not possibly rectify the position in the vast majority of such cases.

Non-recoverability of ATE premiums other than in clinical negligence cases (s 43)

4.9. The Bill proposes that ATE premiums would not generally be recoverable from Defendants, other than in clinical negligence cases, recognising the specialist and costly expert evidence required in many clinical negligence cases.

4.10. As indicated above, MNC human rights cases often require equally specialised and costly expert evidence. Unless the same exemption is extended to these types of cases, claimants will still need to obtain ATE cover. The magnitude of the ATE premiums in these cases is such that unless they are recoverable from MNCS, claimant firms will be deterred from taking these cases on, further undermining the viability of these claims.

Proportionality

4.11. In the Government’s response to the proposals made by Lord Justice Jackson, it indicated that a new test of ‘proportionality’ would be introduced with respect to the assessment of recoverability of base costs, replacing the existing test whereby a court may still award base costs that are disproportionate to the compensation awarded, provided these were ‘necessary’ to the success of the claim. While this issue is not raised in the legislation, we presume it is likely to be dealt with either via the Court Rules or by regulations.

4.12. As indicated above, costs in MNC human rights cases invariably exceed compensation. These costs should still be regarded as proportionate on the grounds of complexity and importance of the litigation or because the additional costs were "generated by the conduct [of the MNC]" (a specific let-out proposed by LJ Jackson).

4.13. The reality, however, is that MNCs will always argue when it comes to assessment of costs that the recoverable costs should be limited to the level of compensation awarded, and that the factors of importance and complexity etc should not be applied to the benefit of claimants. As a result, claimants’ lawyers will face the prospect of investing enormous amounts of time, money and resources not knowing whether, even if a case is successful, they will recover anything more than a fraction of the costs. Consequently, if implemented without the let out clause referred to above, this proposal would constitute a strong disincentive against claimants’ lawyers taking on these cases.

4.14. Claims on behalf of victims in the developing world, where compensation levels are already generally much lower due to the introduction of the Rome II Regulation would, under this new test, become almost impossible to litigate. Legal costs would surpass the levels of compensation achievable very early on in the case, thus becoming potentially ‘disproportionate’. This would act as a further disincentive to claimants’ lawyers taking on these cases. Claimants from the developing world would therefore be particularly disadvantaged.

5 PROPOSALS

As indicated, these three proposed changes to the existing litigation funding regime for civil cases, if implemented, would severely reduce our ability to take on human rights cases against MNCs in the future. Only the strongest and most straightforward cases would justify the risk and, even then, Defendants would be able to exert unfair pressure on Claimants to settle for less, rather than running up costs that might not ultimately be recoverable – effectively putting us into conflict with our clients.

Given the value of preserving access to remedy in these types of cases, we would therefore make a number of proposals which we hope would enable us to continue to bring these types of claims.

First, we believe that provision should be made under s 41 for the Courts to retain the power to order that success fees be recoverable interpartes in the limited context of these types of claims, and where certain public interest criteria are met.

We would also strongly argue that the exemption applied to recovery of ATE premiums in clinical negligence cases under s 43(2) of the Bill should be extended to human rights claims against MNCs. Given the specialist expertise generally required in these cases, there is no good reason why the same exemption should not apply.

Finally, we maintain that the current test for recoverability of base costs, which allows the courts to weigh up both the proportionality and the necessity of costs incurred, should be preserved.

These proposals, if adopted, would ensure ongoing access to justice for the victims of human rights abuses by MNCs while maintaining the overall objectives of the legislation and imposing no additional burden on the public purse.

September 2011

Prepared 7th September 2011