Lord Irvine's intention to abolish legal aid for civil damages claims, in the wake of the Woolf and Middleton reports last year, has confirmed that significant change is now a matter of "when" and not "if". But Irvine's radical proposals would in effect abolish legal aid and replace it with the "no win, no fee" system, which may exclude one social group.
While more and more people are being squeezed out of the legal aid system by an increasingly stringent merit test, it is an anomaly of the current regime that thousands of legal aid certificates are still granted each year on the basis of incomplete or incorrect information as to the means of the applicant or the merit of the case. This results in huge non-recoverable costs to businesses without access to legal aid as it is they who still foot the bill for defending themselves in court, even if they win the case. Accordingly, businesses are often forced to settle in cases where their defence is strong, simply because there is no incentive for the legally aided party to play fair, and act reasonably.
It is not just solicitors who have concerns about the apparent wastefulness of legal aid being granted to undeserving cases. Several prominent judges last year added their weight to the opinion that reform on this front was urgently needed. There is little doubt that access to a fairer justice system can only be achieved with a more level playing field. And the conditional fee arrangement (CFA) has been heralded as the solution.
Certainly, the merits test that is currently applied to all legal aid applications is far from perfect. A person must have "reasonable grounds for taking, defending or being a party to the proceedings" to be eligible. This does not amount to granting legal aid only in those cases where there is a fair to good chance of success. The official view is that the legal aid board should aim "not to be over cautious, but not to grant legal aid where there is little or no hope of success".
Considering the taxpayer foots the bill and that the opponent has no prospect of recovering his costs, this is an extremely low threshold upon which to grant funding for what is often speculative litigation.
It seems an unfair system that too often enables spurious cases to be brought against businesses and provides the legally aided party with the whip hand on costs and settlement. But to remove these perceived faults by scrapping the system altogether and replacing it with one that is unfamiliar to both the legal profession and business seems extreme.
Lord Irvine has stated that he wants to increase confidence in the legal profession, but it is hard to see how his proposed reforms will support this aim. Lawyers effectively gambling on clients' disputes and taking a cut of the damages (which represent real needs, such as an injured plaintiff's medical expenses) will do little to endear the profession to an already suspicious public.
Moreover, the new "fixed cost" regime being introduced in April 1999 for claims under pounds 15,000 may see successful claimants being left out of pocket if their lawyer's "success fee" exceeds the sum awarded by the court. Headlines of "greedy lawyer who left his client penniless in the gutter" are not hard to imagine.
Other problems created by the "fixed cost" system include the huge potential for conflict of interest and the spectre of insolvent law practices. When fees become the main focus for lawyers, then some may be tempted to advise a client to settle for less than their claim is really worth. This strategy allows the lawyer to secure his fees and get out early, rather than carry on incurring more costs in the hope of a fairer (higher) recovery at trial. Second, the new regime will require new skills for lawyers which if not learnt in time could see an increase in firms going to the wall. Risk assessment is a key determinant of success or failure when it comes to CFAs and some firms will inevitably judge cases only to become insolvent. If this were the case, who would be willing to take on the caseload that bankrupted the practice in the first place? Litigants could find themselves in a very unhappy situation.
Another concern that has yet to be addressed by the supporters of the CFA system is that of access to justice for the poor and middle-income groups. Introducing CFAs will no doubt increase the access to justice for the middle classes, but will surely exclude those who really need support in this area.
Those on benefit will simply not be able to afford the insurance premiums to cover legal expenses, nor will their lawyers, whose cashflow will already be badly affected by not receiving any fees until the end of the trial. And in the case of heavily "front-loaded" cases, which require a significant amount of investigation, such as medical negligence, lawyers will be unlikely even to consider them if they doubt the client can pay for it.
Irvine's effective recommendation of the abolition of legal aid seems far too radical a step to take when the current system could work so much better with a tougher assessment of merits and some limited awards of costs against legally aided litigants.
If the introduction of the CFA regime is a foregone conclusion, then legal aid should surely be maintained until the new system beds down. That way at least, there would not be a yawning gap in legal representation for those at the bottom of the heap. Businesses also need to understand the rules of the new game, which could see management taking a tougher line with those opponents who would have been previously legally aided.
The potential pitfalls created by the proposed regime are numerous for businesses. While the "no win, no fee" system might sound like manna from heaven to many cost-conscious company directors, the terms of business between businesses and their lawyers need to be carefully considered, as going to court is rarely a costless exercise.
The writer is head of litigation at the Birmingham office of the national law firm Eversheds.Reuse content