Legal aid system overhaul

Amendment of Financial Conditions for Public Funding of Litigants by the Legal Services Commission

At the end of July 2000, the government published a Consultation Paper on revising the financial conditions that apply to people who apply for or are granted public funding for legal advice or representation in proceedings. These changes are consequential to the replacement from April 2000 of the former civil legal aid system, with its statutory eligibility limits and conditions, by the Community Legal Service Fund, with its more flexible procedures set out in The Funding Code, and would take effect in April 2001.

Important proposals relate to funding of group actions and would almost certainly facilitate the bringing of more claims.

The imposition or removal of conditions or barriers on the funding and costs of litigation have a direct effect on the number of claims that may be brought. At one extreme, governments are concerned to ensure that consumers have appropriate access to justice so as to enforce their rights in genuine cases. On the other hand, there should be barriers on the bringing of ill-founded claims. During the 1980s and 1990s, a very considerable number of group product liability claims were funded by legal aid but proved to be ill-founded. The enormous public expense involved was entirely wasted.

The Consultation Paper contains some proposals which would maintain or increase the barriers on poor claims, but some proposals which would tend to encourage poor claims. It is recommended that comments on the proposals should be sent by 20 October 2000 to Sean Langley, Lord Chancellor's Department, Selborne House, 54-60 Victoria Street, London SW1E 6QW or [email protected]. Lawyers representing claimants have already strongly objected to some of the Government's proposals and it is important that industry's voice should be heard in response.

The full Consultation Paper is available at www.open.gov.uk/lcd/consult/civ-just/lsc.htm. The following comments summarise some of the more important points, with references to particular questions on which the government requests comments (referred to as Q numbers).

The Government's general philosophy

Although the Government supports the concept of facilitating consumer's access to justice, these proposals are not strongly pro-claimant. The Government's stated aim is to make the financial conditions fairer and more consistent and to simplify the rules. The Government has limited the financial resources available to the Community Legal Service Fund and has been careful to ensure that the package of proposals is designed to cost no extra money overall.

The Government's intention to try and achieve a balanced approach is indicated in the following passage relating to proposals on costs rules:

"The rules governing costs between the parties in funded cases seek to balance competing objectives. On the one hand, funded clients would be deterred from pursuing worthwhile cases if they risked facing an unknown and effectively open-ended liability for costs. If the Fund faced this liability, there would be fewer resources available for other priorities. On the other hand, it is undesirable that funded clients are placed in a more favourable position than their unfunded opponents (who may be only slightly better off). [It is argued above] that funded clients should, so far as practicable, be placed in an equivalent position to private litigants; this would include accepting some of the discipline inherent in the risk of costs..."

The Government also states that:

• funded clients should be required to pay as much as they can reasonably afford towards the cost of their cases; and
• the rules governing the financial conditions are as fair as possible as between applicants for funding in different circumstances, and between funded litigants and their unfunded opponents.

Whilst these general statements appear balanced, industry is likely to object that some individual proposals are not balanced.

Group actions

The Consultation Paper states that, wherever possible, the Commission seeks to fund group actions by selecting an appropriate test case. It notes that it often happens that not all of potential claimants are eligible for funding, so the Commission's choice is limited to those who are, and this limits the Commission's ability to select and fund the case that would test the generic issues most cost-effectively. The Government therefore proposes to give the Commission power, where it considers that the majority of potential claimants are likely to be eligible, to waive the upper financial eligibility limit in order to fund a test case (Q.7). The Commission would also be able to waive further contributions where these would exceed a reasonable share of the generic costs. The Commission already has power to waive all or part of the statutory charge in these circumstances. The Government would also consider further whether to extend this power to any case with a significant wider public interest.

We consider that these proposals are very dangerous. They would mean that people who would not normally qualify for public funding would be entitled to receive it if they were involved in a group claim. Given the abysmal history of public funding of group cases which should never have been funded, we have the gravest reservation about the wisdom of this proposal, particularly given that, unlike many of the other proposals, there is no balancing proposal.

We also consider that the Commission's underlying assumptions are incorrect. It is assumed that all group claims will contain generic issues and that it will be appropriate for the court to resolve them by selecting a single test case. Academic analysis of US class actions and UK group actions has clearly shown that these assumptions are not true of all multi-party actions. In product liability or toxic tort actions, for example, individual issues predominate over any supposed common issues and it is inappropriate for the Commission to fetter the court's discretion as to how it might wish to resolve the litigation: the Civil Procedure Rules 1998, Rule 19.III are entirely clear that the court has full discretion on the appropriate methodology which it might adopt to resolve group litigation and that, although the court has the power to order one or more test cases, this is not mandatory in all cases.

We would oppose the proposal.

Financial eligibility changes

The current funding rules are complex, as are some of the proposals, so will not be summarised here: the current limits on income and capital eligibility are annexed to the Consultation Paper.

The most significant provisions are summarised below:

• An increase in the eligibility limit for Legal Help to the same level as that for Legal Representation (currently 8,067 pounds). The aim is to improve access to early advice on legal problems.
• An increase in the current capital limit for Legal Help to 3,000 pounds and for Legal Representation (currently 6,750 pounds) to 8,000 pounds.
• A limit on the amount of contributions payable and/or the length of time that contributions can be payable. The government notes that this carries the risk that clients who no longer pay contributions would have no incentive to have their case completed as quickly as possible. Industry should object to these proposals (Q.4) since a claimant would be exempt from the normal principles of being put in the position of an unfunded person and the disciplines of cost-benefit analysis that apply to such a person.
• A simplified means test. Roughly the same number of people as now would qualify, but more pensioners and people in low-paid employment would become eligible and homeowners in the South East with relatively high gross income and most likely to cease eligibility.
• A single 3,000 pounds allowance applicable to both contributions from capital and the statutory charge.
• Maintain the rule that the first 100,000 pounds equity value of an applicant's home is disregarded for determining financial eligibility, but in future include the full equity value of the home where calculating capital contributions. The Law Society has said that the proposed treatment of equity in homes would effectively abolish public funding for virtually all owner occupiers, with a catastrophic effect on access to justice and consumer lawyers are strongly opposed to this proposal. Industry should strongly support this proposal (Q.9).
• To give the Commission power to charge a funded person interest the statutory charge and capital contributions. Industry should support this (Q.10).
• To charge such interest at commercial rates. Industry should support this (Q.11).

Costs rules in litigation

Under the court rules, in deciding whether to order costs against a funded client, the court must take account of both parties resources. For this purpose, equity that the funded client owns in his own home is disregarded up to a value of 100,000 pounds. The Government proposes to reduce the disregarded figure to 3,000 pounds plus any contribution from equity due to the Commission. However, the current rule that a non-funded party cannot enforce an order for costs by forcing the sale of a funded client's home would be maintained.

A successful non-funded opponent may be able to recover some or all of his costs from the Fund where he can satisfy the court that he would otherwise suffer severe financial hardship. The Government proposes to relax this test to plain "financial hardship".

Industry should support both these changes (Q.12).

For further information please contact Chris Hodges on telephone 020 7367 2738 or e-mail [email protected].