Legal Aid, Sentencing and Punishment of Offenders Bill

Lord Gold Excerpts

Monday 21st November 2011 Lords Chamber

[Lord Gold]

My Lords, the Bill proposes many sensible changes to the civil justice system, although this debate has highlighted some serious issues of disagreement, particularly in relation to legal aid. I was certainly heartened and encouraged by the Minister’s comments at the beginning of the debate that he is here to listen and I hope that he will be sensitive to some excellent speeches that we have heard this evening. Today, perhaps because I am looking for safety, I am going to concentrate my remarks on Part 2 of the Bill, which deals with litigation funding and costs, a subject of which I have some knowledge. I feel guilty to say that I have very little knowledge of legal aid.

At the outset I formed a somewhat simplistic view of the Bill—not the easiest thing to do, as it happens. Accepting that some reform of the legal aid system was required to reduce the high financial burden on taxpayers, it seemed to me that in order to continue providing access to justice to all, which is certainly desirable, one answer was to encourage greater use of private funding through conditional fee arrangements and “after the event” insurance to plug the hole left by the reduction in legal aid. Accordingly, it did not sit well with me that in Part 2 of the Bill, which largely seeks to implement Lord Justice Jackson’s recommendations, private funding was being limited through the abolition of the recoverability of success fees, which has been the cornerstone of conditional fee arrangements and of ATE insurance premiums. Surely, I thought, what we should be doing is making it easier to fund litigation privately so that any reduction in legally aided cases would to some extent be alleviated.

Many commentators on the Bill, including the Bar Council and the Law Society, have expressed grave concern that the effect of these proposals will be to limit access to justice as many claimants who cannot obtain legal aid will be reluctant to risk losing and having to pay their own legal costs as well as those of the other party. Indeed, the Law Society goes sufficiently far as to suggest that the ATE market is likely to collapse. Having reflected on these submissions, I am much more sanguine and believe that the negative predictions of the system collapsing are somewhat exaggerated. In practice, a claimant who has the benefit of a conditional fee arrangement and after the event insurance may well not be required to pay anything towards the cost of the litigation. We have heard a lot about that today. Whatever his own costs, he may well not have to bear anything at all.

There has to be some merit in the action in the first place, otherwise neither the lawyers nor the insurers would be prepared to fund the claim. However, in assessing whether to agree to offer a CFA and ATE, I am sure that some account is taken of the effect that such an arrangement is likely to have on the opposing party when it is known that the claimant has a free run to trial and no risk of having to pay any costs whatever the outcome. Even the toughest of defendants will realise that there may be commercial sense in settling with such a well funded opponent.

The Government’s proposals seek to remove the ability to recover either the success fee or the premium for ATE insurance. Instead, it is proposed that on a capped basis both the success fee and the insurance premium must be financed from the damages award that is made. We have had some criticism of that today from many noble Lords. To help compensate the claimant for this financial burden, the Government propose that damages awards should be increased by 10 per cent. However, that will not be sufficient to bridge the gap. Some critics say that this is unfairly eating into the compensation being awarded to a claimant. The noble Baroness, Lady Turner of Camden, made that point very clearly and very well. The result, of course, is that victims will no longer receive 100 per cent of their compensation. A second complaint, as I mentioned earlier, is that the ATE insurance market is thought likely to collapse. Thirdly, the legal services market is thought unlikely to be willing to absorb the greater losses that cases of lower value, higher risk or greater complexity would present. Solicitors will be disinclined to take on anything but the most winnable cases.

I now want to compare the position of these claimants with that of litigants who receive no financial aid and have to finance their claims themselves. First, one can be sure that self-financing litigants do not usually risk having to pay their opponents’ costs by bringing claims that do not have a good chance of success. Those who pay are more cautious than those who have no risk, or, to be somewhat colloquial, have no skin in the game. Secondly, as the noble Lord, Lord Hunt of Wirral, who is sitting next to me, pointed out—what seems like many hours ago—the victor in civil litigation never recovers all of his costs. That is so, even when so-called indemnity costs are awarded. As a norm, the winning party may recover something in the order of 60 per cent of his total bill. He has to finance the balance and he has to do that from the damages awarded. In other words, the successful self-financing claimant is not able to keep for himself the whole of his damages award. A proportion of it will go to his solicitors to bridge the gap between the solicitor’s bill and the money recovered from the losing party. Why should litigants who enter into CFAs and take out ATE insurance be in a better position? Why should they not give up some part of their award to pay the costs?

Finally, are the proposals in the Bill likely to bring down the ATE insurance industry? I do not think so. First, I believe that the ATE insurance market is more resilient than many fear. I do not know the figures. None of those writing to me—I have had many letters and e-mails—has indicated how much money is being made by the ATE insurance market, but I suspect that it is rather a large figure. If I am right, there will be room for the insurers to swallow some of the cost by reducing their premiums and thus reducing the cost that claimants have to contribute from their damages award. It is a question of finding the right balance. I would hope that, with a little pressure, we could move in the right direction.

For all of these reasons, I believe that what the Government are seeking to achieve in the Bill, so far as funding is concerned, should be supported. The present system does not achieve the right balance. I fear that the availability of CFAs and ATE insurance has encouraged some, who otherwise would have been wary of litigating, to bring claims on the basis that they have nothing to lose and everything to gain. I suspect that a number of claims would not otherwise have seen the light of day. That is not to say, of course, that these claims lack some merit. Indeed, if one is to give access to justice to all who want it then theoretically we should actively pursue a course that allows such claims to be brought even if, ultimately, they fail. However, asking taxpayers to fund claims that non-funded claimants would not themselves bring because they are too speculative and therefore risky is not the answer.

Our legal aid bill in this country is too high. As the former Justice Secretary, Jack Straw, acknowledged at the beginning of 2009,

“legal aid per head in England and Wales is higher … than in any other country in the world, including common-law countries”.—[Official Report, Commons, 26/1/09; col. 28.]

As the noble Lord, Lord Clement-Jones, said just a few minutes ago, the legal aid bill is now £2 billion a year.

As for outside funding, I suspect that this will be harder to obtain in smaller cases where solicitors and ATE insurers may calculate that it is unlikely that they will recover a sufficiently high figure to cover the costs and provide even a partial success fee. In truth, it may well be that these smaller cases are not financially viable unless supported by legal aid.

The Government’s answer, which I wholly support, is to encourage greater use of mediation. If the parties can be persuaded to mediate their claims at an early stage, perhaps before litigation has commenced and substantial legal costs have been incurred, there could be considerable benefit to the parties. It is far better for them if moneys are used to settle the dispute rather than to be spent on lawyers’ fees. Indeed, in some cases, the parties themselves may mediate claims without lawyers being instructed. With the right encouragement to mediate and help from an experienced mediator who ensures that each party is helped through the process and treated fairly, I envisage that many disputes will be settled at a far earlier stage than is the case once proceedings have been issued and entrenched positions are taken.

I should declare an interest in that I sometimes sit as a mediator, but not in cases of the size that we are discussing today. My experience is limited to dealing with large civil cases where mediation usually occurs late in the day after considerable work and costs have been incurred. If the Government’s present proposal of encouraging mediation is to succeed it is imperative that it happens at an early stage before the costs have been racked up.

There is much detail in this Bill to review in Committee but I hope, as I said at the start of this speech, that the Government will be sympathetic to some of the very moving speeches that we have heard today.