(b) Explain the criticisms that have been made of conditional fees and the other
methods of funding.
by James Faulkner
Introduction
By discussing the ways in which the public may perceive a problem as a "legal" problem
and the steps which the profession might take to assist in the identification of problems
which require legal advice for their solution I hope to indicate that we are concerned, in the
main, with the provision of information and advice by lawyers. However, legal advice is not
provided solely by lawyers and it is certainly not restricted to those operating within the
professional structure. In this essay I shall deal with the major advice-giving agencies prior to
a discussion of the arrangements under which the private profession and the law centres
provide legal advice and assistance.
The other side to the question promotes the issue of conditional fee agreements: lawyers can
agree with a client that no fee will be charged if they lose the case, but if they win, the fee will
be an agreed percentage of the damages won. This naturally gives the lawyer a direct personal
interest in the level of damages.
A person should not have to be very rich, or poor enough to qualify for legal aid, to be able to
pursue a strong and worthwhile case. But unless the case is also a simple one, it will be necessary
to pay for one or more lawyers. Many people with good cases are put off because they cannot
afford lawyers' fees. Others are put off simply by fear of a very large bill, because they are unsure
how the fees will mount up over time. These factors are ardent criticisms of conditional fee ageements
and I will develop them in the second part of the question.
Conditional fee agreement
Section 58 of the Courts and Legal Services Act 1990 permitted the Lord Chancellor to
introduce conditional fee arrangements. [1]
In order to understand what is meant by a conditional fee agreements implicitly, it is
important to make apparent how they can be made more affordable and predictable, by:
working with the industry to develop less expensive legal insurance; ensuring that lawyers
provide full and clear information to their clients about the likely cost of taking a case; and,
where appropriate, regulating the costs which lawyers can charge their own clients or recover
from the other side; extending and improving conditional fees.
The last Government introduced conditional fees for certain types of civil case, most
importantly for personal injury cases. Under a conditional fee agreement, the lawyer agrees
not to charge a fee if the case is lost, in return for a higher fee than normal if it is won. The
client or the lawyer can take out insurance to cover the risk of losing and having to pay the
other side's costs. In a successful case, the other party will usually be ordered to pay most of
the lawyer's normal fee. The client currently has to find the additional "success fee" out of
what ever damages they have won. The success fee cannot be more than 100% of the normal
fee; and most solicitors have agreed not to take more than 25% of the damages recovered in a
personal injury case.
Where they are allowed, conditional fees have already greatly extended access to justice.
With conditional fees, people can take good cases, in the certain knowledge that they will not
be left out of pocket if they lose (except by the amount of any insurance premium).
I think in practice, at the moment, only people who expect to win money from their case can
benefit from conditional fees. This is the only way that most people can afford to pay the
success fee. But it means that a successful litigant will not receive all the money which they
had been awarded. I believe that this is wrong, and I think that the fact the court can grant an
order making it possible for the winning party to recover the success fee, and any insurance
premium, from the losing party (the person or organisation that has committed the legal
wrong) is fully justified. This has made conditional fees more attractive and fairer, and allows
defendants and claimants whose case is not about money to use them. In my opinion this
measure is emblematic of a further radical extension to access to justice.
Two arguments might be advanced in favour of conditional fees. The first is that, the
solicitor's entitlement to payment, being conditional upon a successful outcome to the
litigation, a major incentive is given to solicitors to do the very best possible job for their
clients. The second argument is that conditional fees may provide access to justice for
litigants who do not qualify for legal aid and who cannot afford the risks of an adverse costs
order if they fund the case from their own resources.
In the English Legal System, contingency fees - fee paid to a lawyer which is a proportion of
the damages recovered in the case - are banned, but in 1991 the Courts and Legal Services
Act made provision for the introduction of conditional fee agreements. The change made by
the CLSA came into effect in 1995, but was only applicable to cases involving personal
injury, insolvency and applications to the European Court of Human Rights. After
consultation with the legal profession and other interested parties, in 1998 the Government
extended them to all areas of civil law, except family matters. Now the Access to Justice Act
1999 means conditional fees are set to become a crucial method of funding legal cases, since
the Act removes state funding from all personal injury cases, with the intention that these
should be funded by conditional fee agreements.
The 1999 Act also makes changes to the arrangements for conditional fee agreements in order
to promote their use. Where a person who has made a conditional fee agreement wins their
case, it will be possible for the court to order the losing party to pay the success fee, as well
as the normal legal costs. Thus the success fee is now only ever payable by the losing party,
which is a complete reversal of the previous situation. This provision is designed to meet the
criticism that damages are calculated to compensate the litigant for the damage done to him, so
if the 'uplift' has to come out of the client's damages, the amount left will be less than the
court calculated as necessary for the purpose of full compensation.
Likewise, where a successful litigant has taken out insurance to provide for payment of the
other side's costs if they lose, the court can order that the other side also pays the cost of
the insurance premium (see above). As a result, people who are bringing actions for remedies
other than the payment of money can use a conditional fee arrangement.
In Callery v Gray [2] the Court of Appeal decided that an after-the-event insurance
premium was recoverable by the claimant from the defendant as part of the costs of the case
under s. 29 Access to Justice Act 1999 even though the policy was taken out in consideration
of proceedings rather than after the issue of proceedings. This extended to Rule 44.12A which
enabled pre-action costs to be recovered where an action had been settled before substantive
proceedings had been commenced. But moreover, the cost of the premium had to be
inexpensive.
There remains the issue that someone who loses the case will ordinarily be directed to pay
the costs of the other side. To help prohibit this it is possible to insure against losing a case.
The insurance premium will have to be paid in advance of the case even if the case is
ultimately won. This can create problems to people who cannot afford the cost of the
premium. There was also the fact that this premium could not be claimed as part of the costs
of the case from the other side. This second point has been amended by s 29 of the Access to
Justice Act 1999 which allows the court to order that the winning party recovers the cost of
insurance premiums from the losing party.
In Callery v Gray (2001) the court also ruled that a success fee could be recovered where an
action had been settled before substantive proceedings had been settled before substantive
proceedings had been commenced. But in normal cases the recoverable success fee would be
limited to 20 per cent.
The court drew attention to the possible use of a two-stage success fee in cases with a higher
success fee where the case did not settle. In such cases an uplift of 100 per cent could be
included as the second stage of the success fee.
Conditional fee agreements cost the state nothing; the costs are entirely levied upon the
solicitor or the losing party, depending on the outcome. By eliminating the huge number of
personal injury cases from state funding and promoting conditional fee agreements for them
instead, the Government claims it can direct more resources to those cases which still need
state funding, such as tenants' claims against landlords, and provide more money towards
suppliers of free legal advice, such as Citizens' Advice Bureaux.
The Government believes that conditional fee agreements will allow many people to bring or
defend cases, who would not have been eligible for state funding and who could not
previously have afforded to bring cases at their own expense. As long as they can afford to
insure against losing, and can pursuade a solicitor that the case is worth the risk, anyone will
be able to bring or defend a case for damages. Critics illustrate that there are a number of
problems with this argument; these problems will be outlined in section (b) of my essay
where I will need to focus on the criticisms of conditional fee agreements.
(ii) Legal help
It is axiomatic that making available the elaborate structure of courts is useless in itself
unless those courts are accessible, regardless of financial status, to those with meritorious
cases. I have found that litigation, in particular, is expensive. Its costs can be prohibitive even
to a commercial company or to a rich individual. Taking or defending civil proceedings
requires the expenditure of money, as does defending oneself on a criminal charge.
I think that to many people, litigation, or even the obtaining of legal advice, is out of the
question unless the cost is to be subsidised by the state. Fortunately, the state has accepted
some responsibility in this area, although the financial limits imposed on eligibility for legal
aid and advice are not, and I doubt ever have been, over-generous.
There remains, therefore, a danger that justice may be denied to those who fall outside the
financial eligibility limits and who, contrary to my initial presumption, cannot afford to
proceed out of their own pockets. There is also the problem of tribunals, for the vast majority
of which, legal aid is not available at all. I view this omission as an ironic denial of justice
given that Parliament created many of these tribunals for the protection and assistance of
ordinary citizens, who have then been denied the public funding with which to assert their
rights adequately.
The modem scheme for the provision of legal aid and advice to those who could not
otherwise afford to employ a lawyer to assist with advice, or in the bringing or defending of
proceedings, was introduced by the Legal Aid and Advice Act 1949. The Act of 1949 was
repealed and replaced by the Legal Aid Act 1974, which, as subsequently amended, governed
the scheme until 1989 when it, in turn was repealed and replaced by the Legal Aid Act 1988.
The avowed purpose of the 1988 Act, as set out in s. 1, is
"to establish a framework for the provision... of advice, assistance and representation -
which is publicly funded with a view to helping persons who might otherwise be unable to obtain
advice, assistance or representation on account of their means. " [3]
It is a feature of the new arrangements that the scheme is regulated to a much greater extent
by means of delegated, rather than primary legislation. The 'framework' supplied by the Act
is supplemented by detailed regulations made under the authority of the Act by the Lord
Chancellor, who I imagine has the very wide power to make such regulations as appear to him
necessary or desirable for giving effect to the Act or for preventing abuses of it. [4]
Legal aid in civil cases
Legal aid is available to cover the cost of work done in civil proceedings leading up to, and
including representation by a solicitor and, if necessary, a barrister at, the court hearing. [5]
The fact that the client is legally aided rather than a private client would not, I think, affect
the solicitor/client or barrister/client relationship. Thus, a solicitor, for example, must exercise
the same degree of care and skill and must respect the client's confidences.
Legal aid is available in most civil proceedings in the following courts: House of Lords; Court
of Appeal; High Court; county court; magistrates' courts. It is not generally available for
proceedings in defamation. Applications for civil legal aid are made to the area director.
Eligibility
There is a merits test and a means test.
On the merits, the client must show that he has reasonable grounds for taking, defending, or
being a party to, the proceedings. [6] In addition, the client may be refused legal aid if, in the
particular circumstances of the case, it appears unreasonable that he should receive it, or more
appropriate that should have assistance by way of representation. An application for legal aid
may also be refused where, in the opinion of the area director, either the client would gain
only a trivial advantage from the proceedings, or the nature of the proceedings is such that a
solicitor would not normally be engaged on them.
If legal aid is granted, there is a continuing requirement that the assisted person's solicitor
must, when requested by the Legal Services Commission, be prepared to certify that it is
reasonable for his client to go on receiving legal aid in respect of the proceedings.
The means of the client are assessed by an assessment officer of the Department of Social
Security. I think that it is due mostly to this, and also because of the necessity to make a
formal application to the area director, that it can take several weeks or months before legal
aid is granted or refused. I have found that this compares unfavourably with the 'green form'
scheme where the client's means are assessed there and then by the solicitor himself.
Neighbourhood advice centres
These are informal groups operating in a wide diversity of localities and conditions, with
very different structures and objectives. In general they offer assistance with all types of
problem but are often found in the areas of urban development and rehousing which I think
are likely to expose housing, welfare benefit and educational problems. [7] About two-thirds
provide a generalist advice service, and about one third, general assistance to a specific group
of users, (e.g. women, the elderly, ethnic minority communities). It is reasonable to say that
these centres may attract finance from a variety of sources, mainly local authorities, and there
has been some government funding.
Assistance bv way of representation
The Legal Aid Act 1979, extended the scope of legal advice and assistance so as to include
within the ambit of the scheme, "assistance by way of representation" (ABWOR) at certain
designated proceedings.
Whilst I think it can be said that the new provisions would appear to create a very wide
power to use the scheme for representation in all manner of courts, tribunals or statutory
inquiries, the detailed implementation of the section was left to regulations to be made by the
Lord Chancellor, whose approach was cautious. Since 1980, the green form scheme became
available for domestic proceedings in magistrates' courts, which I assume would transfer the
cost of representation from civil legal aid to legal advice. ABWOR has been made available in
Mental Health Review Tribunals; prison disciplinary proceedings before a board of visitors
where legal representation has been granted; and in respect of applications for warrants of
further detention under the Police and Criminal Evidence Act 1984. There is also provision
for ABWOR to be provided at the request of a magistrates' court or a county court by a
solicitor within the precincts of the court for purposes other than the provision of ABWOR,
where the court considers that the case should proceed the same day and that the client would not
otherwise receive representation.
It is my opinion that ABWOR would only be highly significant if it were to be used for a
much wider range of proceedings, especially those for which legal aid is not available. One
critic expressed fears that it might "...become a new kind of legal aid on the cheap," [8] yet
others were concerned lest it be thought that the green form was appropriate for anything
other than low-cost proceedings. The Law Society conceded that it might"... be suitable for
some tribunal proceedings or even some criminal proceedings in magistrates' courts," but
remained "firmly convinced of the necessity for retaining the legal aid procedure for cases
which are likely to be lengthy and costly." [9]
However, at least the powers are there in the statute and have been used in some cases.
Therefore I am justified in saying that ABWOR is a useful peg for piecemeal extensions of
publicly-funded representation.
Community Legal Service Partnerships
The Legal Service Commission has an obligation to communicate with other funders of legal
services in order to augment a network of legal service providers. The idea is to develop local,
national and regional plans which will equal the services available in a particular area to the
needs of the people living there. To do this, the Commission is setting up Community Legal
Service Partnerships in each local authority area, involving the Commission, the local
authority and other important funders of legal services, to co-ordinate funding and planning.
Partnerships can administer a forum for sharing expertise, developing and improving services
and for monitoring what is taking place locally. The partnerships should facilitate the creation
of effective local referral networks in every area and ensure that funding is adequately
targeted.
Already, gaps in the geographical distribution of legal services have increased unmet legal
need. The Commission and the Community Legal Service Partnerships are encouraging the
voluntary sector to use the Internet and mobile services to reach more remote communities.
Funding
Whereas previously, legal aid in civil cases was accessible on a demand-led basis, there is at
present a Community Legal Service Fund, comprising of a fixed amount of money, set each
year as part of the normal round of government spending plans.
The complex way in which the fund is intended to be spent is dictated by a Funding Code,
constructed by the Legal Services Commission and approved by the Lord Chancellor, which
designates the criteria and procedures to be carried out when determining whether a particular
case should be funded. The Commission has an onus to obtain the best value for money,
where the explanatory notes to the Access to Justice Act 1999 defines as taking into account
"a combination of price and quality", [10] i .e, the Commission is not obligated to choose the
most financially beneficial service, but it is not called upon to select the best quality one
either; a balance between the two must be found.
Suppliers of legal aid
In the precursive, if someone wanted assistance with an issue covered by legal aid they could
go to a lawyer and, providing the client met with the relevant means and merits tests, that
lawyer would be remunerated by the Government for the help donated in that particular case.
This position was starting to shift even before the the 1999 Act was passed. [11] In 1994 the
Legal Aid Board started a quality-assurance scheme called franchising. Law firms could apply
for a franchise in a certain area of work, and would have to pass quality control tests in order
to get one, but would then be able to attract more work in that area.
The 1999 Act also gives the Commission power to make grants to service providers, such as
advice centres and to employ staff directly to deliver legal services to the public. This point
means that the Commission could, in theory, fashion a system of lawyers employed by the
state to provide legal help to the public, although there are no plans to implement this with
regard to civil cases at present.
Future changes
The Act proclaims a new way of funding for individuals, which at the moment the
Government has no plans to use. It offers a scheme in which people could be given state
funding, but would be required to agree that if they win their case, they will pay back the
state funding in addition to a further sum. This would make it viable to fund certain types of
case on a self-financing basis, with the extra sums paid by winning litigants funding the costs
of those who lose their cases.
Part (b) - criticisms of conditional fees
Insurance burdens
With conditional fee agreements there may be a sense of obligation to discharge, from
insurance companies, a number of whom have been known to portend to withdraw their cover
if a client refuses to accept an offer of settlement that the insurance company considers
reasonable. Pellucidly, the insurance company's primary interest will be to avoid having to
pay out, so it is not operose to see that their idea of a reasonable settlement might be very
different from the client's.
Financial embroilment of lawyers
The Bar has admonished the idea of permitting lawyers a financial interest in the eventuality
of a case. The Chair of the bar Council disputed that since clients do not generally have
requisite knowledge to assess their chance of winning their case, lawyers will be able to charge
whatever they think they can get away with within the established limits. It can be said that
this seems a rather strange argument for a representative of the legal profession to put
forward, and widely circulated criticisms infer that the real reason behind this is that lawyers
were reluctant to lose the no-risk income that state-funded legal aid allowed them.
The evidence on solicitors' approach to the uplift on fees is currently rather inconclusive. A
1997 report by the Policy Studies Institute on the effects of the changes made under the
Courts and Legal Services Act 1990 found that the average uplift was 43 per cent, less than
half the 100 per cent maximum allowed.
In 1999, the Forum of Insurance Lawyers suggested that the chance to make extra money
was encouraging solicitors to push clients into conditional fee agreements, even where the
clients did not need such an agreement.
Insurance outlay
There are perturbations that insurance against losing can be financially demanding. In the
area of personal injury, the Law Society provides an affordable insurance scheme, but in other
areas, the only suppliers are private insurance companies, who administer charges in reliance
with risk, so that clients with cases where the outcome is uncertain may be faced with
astronomically high premiums.
Both the Law Society and the Bar have suggested that a better idea would be the
establishment of a self-financing Contingency Fund, which would pay a proportion of their
damages back to the fund.
Capricious cases
The majority of those who have criticised the legislation on conditional fee agreements
accept that they are a sound addition to the state-funded system, but are concerned that they
may not be adequate as a substitute. In particular, critics have expressed vehement concerns
that certain types of cases will lose out under the new rules. They suggest that solicitors will
only want to take on cases under conditional fee agreements where there is a favourable
chance of winning.
It was for this reason that clinical negligence cases have been kept within the state-funded
system. These cases are generally very difficult for claimants to win - the success rate being
around 17 per cent, compared to 85 per cent for other personal injury claims. It can often cost
between £2000 and £5000 simply to do the initial investigations necessary to assess
accurately whether the case is worth pursuing. Resulting from this, solicitors would be
unlikely to want to take on such cases on a conditional fee basis, and if they did, the
uncertainty of outcome means that insurance against losing would be extremely expensive,
possibly amounting to thousands of pounds.
Alternative proposals for reform - a national legal dispensation scheme?
With the Access to Justice Act 1999 the Government introduced major reforms to the
provision of state funding of legal services. Maybe the most radical reform would be to take
the statutory scheme entirely out of the hands of private practice and establish a nationwide
network of salaried lawyers on the law centre model. All funding could be given on a block
rather than case by case basis, for centres to use in whatever ways best meet the needs of
their own locality, in consultation with management committees representing the community.
Any immediate advantages of this idea would be that: a nationwide network of such centres
may help to overcome the uneven distribution of solicitor firms; law centres appear not to
suffer from the unapproachable image of the legal profession in general; state-funded work
would no longer have to include an element of profit for the lawyer; resources could be more
flexibly employed, on a combination of individual case-work and litigation - this more flexible
approach to dealing with problems would get away from the over-emphasis on litigation of
solicitors in private practice.
Criticisms of state & other funding methods
The legal professions and a selection ofMPs have launched accusations at the Government
of putting cost-cutting before access to justice. The Legal Aid Practitioners Group chairman
Richard Miller told The Lawyer newspaper in December 1988 that he believed the fixed
budget for civil matters was designed to make it easy for the Government to cut the amount
spent in later years: "The Legal Services Commission will simply be able to say, this is the
budget and if there are any more cases, tough luck." [12]
There are particular consternation's that civil cases will not be benefited by the priority
given to criminal defence work. So as to meet its obligations to guarantee a fair trial under
human rights legislation, the Government has had to continue to allow the funding for criminal
defence to be demand-led. The Lord Chancellor has conceded, however, that there is a fixed
overall budget for legal services, which means that the budget for civil cases is effectively
whatever is left over once criminal defence work is paid for.
In sequence with this, the legal profession has guardedly opposed the idea of the
Commission employing its own lawyers to do criminal defence work. The Bar Council and
the Criminal Law Solicitors Association alike have expressed concern that lawyers who are
wholly dependant on the state for their income cannot be sufficiently dependant to defend
adequately people suspected of crime. The experience of foreign jurisdictions, such as
America, demonstrates that any system of public defenders must be properly funded and
staffed if it is to retain the confidence of providers, users and the courts. Infelicitously they
are regularly underfunded in practice, dependent as a result on inexperienced lawyers with
excessive caseloads and who are not respected by their clients, opponents or the court.
Additionally, the concept of restricting state funding to firms and individuals with contracts
is denounced by the legal profession, who maintain that it will severely restrict client choice.
A 1999 survey conducted among legal aid firms by the Legal Aid Practitioners Group found
that 95 per cent believed that exclusive contracting would result in a reduction in access to
legal services.
In part the issue is that many firms have in the past done a small degree of legal aid work out
of a sense of social obligation, and could afford to do so because of the money they earned
from private work. The result, thus, will be the formation of a two-tier legal profession, with
one set of firms doing poorly paid state-funded work and another doing exclusively private
work.
State-funded work is well disposed to become the most important source of income for
those firms which hold contracts; in some cases, even the only source of income. There are
therefore concerns that the threat of losing their contract if they make themselves unpopular
with the Government, might perhaps lead firms to shy away from taking on cases that
contend Government action, or might in any suppletory way disconcert or provoke the
Government.
Conclusion
In conclusion, our changes to the concept of conditional fees increase access to justice by
making the success fee and insurance premium in 'no win no fee' cases recoverable from the
losing party. This means that conditional fee arrangements will be suitable for non-money and
small money claims and that people of moderate, and even limited means can use them
without fear of having to face the uplift out of their own pockets or out of modest damages.
On the extension of conditional fees, this will release legal aid money and allow us to
concentrate its application on the priority needs of less-well-off people in areas where private
funding does not extend, and to cases that raise matters of public interest.
Instead of looking to conditional fees to secure justice for those injured in accidents, such
cases could be removed from the litigation arena by the establishment of a system of no-fault
compensation for personal injury cases. I know this is the case in New Zealand.
To offer a summation of legal help and funding, it does not seem that we are any nearer the
integrated approach to legal services long advocated by the Lord Chancellor's Advisory
Committee. In recent years, the Committee has noted, with a degree of disappointment I
imagine, that the new Legal Aid Board was not "a Legal Services Board with overall
responsibility for legal aid and legal services" [13]; that the present system could not be said
to constitute a "comprehensive system of legal services offering good early advice" [14]; and
that in considering reform to the legal profession, there had been a failure by government "to
examine the place that lawyers' services should occupy in the field of legal services as a
whole." [15] I believe the Committee would be justified if it expressed concern that these
reforms, particularly those concerning conveyancing and the Bar, may lead to a breakdown in
the network of solicitors' offices, especially in rural areas, and a diminution in the quality of
service to legally aided clients.
There are blueprints available for the comprehensive provisions of legal services. One is
provided by the National Consumer Council in its report Ordinary Justice, with a proposed
network of general advice centres with access to both specialist advice agencies, with salaried
staff and volunteers, and the legal profession. In the end, it comes down to resources.
The argument is often heard that problems are not necessarily solved by throwing money at
them; how are they solved if you don't?
James Faulkner (AS student) November 2003
[I] S. Hardy. - 'English Legal System' - Studymates (1999).
[2] J. Martin . - 'The English Legal System' - Hodder & Stoughton (2002).
[3] T. Ingman . - 'The English Legal Process' - Blackstone Press Ltd. (1992).
[4] Legal Aid Act 1988, s.34(l).
[5] Legal Aid Act 1988, s.2(4).
[6] Legal Aid Act 1988, s.l5(2).
[7] The Fourth Right of Citizenship
[8] Lord Gifford
[9] 30th Legal Aid Annual Reports
[10] C. Elliot & F. Quinn. - 'AS Law' - Longman (2002).
[II] Access to Justice Act 1999 - provides that the Lord Chancellor can direct the
Commission to provide services for excluded categories in exceptional circumstances.
12] C. Elliot & F. Quinn. - 'AS Law' - Longman (2002).
[13] 37th Legal Aid Annual Reports
[14] 38th Legal Aid Annual Reports
[15] 39th Legal Aid Annual Reports