LASPO and LIPs: funded and unfunded civil litigation

Posted on 9th Sep 2013 in Legal Profession

This year has seen the government mount a two-pronged attack aimed at reducing the cost of legal aid, by introducing measures to reduce spending on both criminal and civil legal aid.

Last week, following a heated summer of discontent from the legal profession, its proposals in relation to criminal legal aid, based on the introduction of price competitive tendering (PCT), were as good as abandoned. But in relation to civil litigation, the changes introduced by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) are unlikely to be reversed quite so easily.

This post looks at the effect on civil litigation of the changes to scope and sources of funding introduced by LASPO. To aid understanding, we have once again prepared a table of relevant acronyms and abbreviations.

In a separate post, we will look at the rise and fall of PCT and consider the reaction to the new proposals put out by the Ministry of Justice for saving money on criminal legal aid.

LASPO and civil litigation funding

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 was given Royal Assent on 1 May  2012 and came into force on 1 April 2013 (April Fools’ Day – an irony not lost on many commentators). It’s a big Act, with 154 sections and .27 Schedules, occupying 314 pages. (Download the PDF – Legal Aid, Sentencing and Punishment of Offenders Act 2012).

Part 1 is concerned with legal aid, both civil and criminal;  Part 2 with litigation funding and costs; and Part 3 with the sentencing and punishment of offenders.  It’s hard to see why all this had to go into one Act, rather than at least two, and it makes it all a bit of a ragbag. However, the provisions in Part 2 relating to litigation funding are related to those in Part 1 relating to legal aid, because litigation funding is one way for an impecunious claimant to get their case heard, in the absence of direct legal aid from public funds.

Alternative funding: the CFA

Litigation funding takes various forms, one of the more obvious being “no win, no fee” conditional fee agreements (CFA)  in which the lawyer effectively underwrites the cost of legal advice and representation in the hope, expectation or even certainty that it will be more than recouped by the “success fee” which they will get, in addition to their fees, if an when they win the case. CFAs have been used in civil litigation, particularly damages claims for personal injury, since the 1990s.

CFAs have the merit of ensuring that a valid claim is not barred for want of funding; but they also encourage a money culture, a pursuit of claims for profit and not out of any misty-eyed notions of seeing justice done, etc. Small personal injury claims, particularly those involving insured motorists, are not just the bread and butter of many firms of solicitors, but provide the jam and cream on their scones as well. There’s been a growth of what’s sometimes contemptuously (but not entirely accurately) called the “compensation culture”.

Referral fees

What’s made it even more briskly commercial is that the sometimes unseemly business of ambulance chasing has been outsourced to specialist claims management firms to whom solicitors pay “referral fees” for details of clients with potentially money-spinning claims which they have gathered and vetted for them. (If you’ve ever wondered where those texts come from urging you to claim for an accident you don’t recall having had, it’s probably a claims management company spamming for business. Ditto your PPI mis-selling claim. Soon no doubt there’ll be claims for mis-selling of mis-selling claims.)

Referral fees for personal injury (PI) claims have now been banned, under Part 2 of LASPO (see sections 56-60). This means, starkly, that for firms whose entire business model consisted of gathering and vetting details of clients with PI claims and then selling them to solicitors to pursue their claims, will have to shut up shop. But claims management firms can charge for other services provided to solicitors, such as advertising or seeking out those who may have a claim, investigating claims or dealing in other claims areas such as financial products and services, and in relation to motor claims they can provide credit hire, storage and vehicle recovery and repair services.

Although no win no fee CFAs remain available in civil cases post-LASPO, the success fee  is no longer payable by the losing side: see section 44 of LASPO and the Conditional Fee Agreements Order 2013 (SI 2013/689). The success fee payable by the winning client to their solicitor  can be up to 100% of the basic fee, but in personal injury cases it is now capped at 25% of the damages recovered (excluding damages for future care and loss).

Damages based agreements

Another type of “no win, no fee” agreement has been permitted for civil litigation under LASPO, called the Damages Based Agreement (DBA), under which the client agrees a percentage of any damages which will be paid to the successful lawyer. How is this different from a conditional fee agreement? The difference is that the fee represents a percentage of the winnings, rather than a success fee, but the maximum percentage is still 25% of the damages (excluding damages for future care and loss) in personal injury cases. There are higher limits in other types of claim (35% in employment tribunal claims; 50% in all other cases). Successful claimants using DBAs will recover their normal costs (lawyers’ fees and disbursements) from defendants in the usual way, but the claimant will be responsible for paying from their damages any shortfall between the costs recovered and the agreed DBA fee, plus disbursements. See generally section 45 of LASPO and the Damages Based Agreements Regulations 2013 (SI 2013/609).

To reflect the reduction in the costs burden to defendants, there will also be a general uplift in damages for personal injury of 10% where the claimant matches or betters a pre-trial offer (under Part 36 of the Civil Procedure Rules).

Jackson reforms

Alternative funding (CFAs and DBAs) can help fund litigation where the claims involve the recovery of sums of money, because it is from those sums that the lawyer’s fees are carved out. The reforms to damages-based civil litigation outlined above are collectively known as the “Jackson reforms”, because some of them were derived from recommendations made by Lord Justice Jackson in the final report of his Review of Civil Litigation Costs (2010).

Legal aid cuts

Part 1 of LASPO takes a scythe to the ever-spreading knotweed of publicly funded litigation.

So in the area of civil law, LASPO simply turns off the tap of public funding for a number of classes of claim. If you need to take the matter to court to get a solution, you will simply have to fund it yourself or, more likely, do it yourself.

The categories of claim for which no legal aid will henceforth be forthcoming include:

  • Clinical negligence cases (except certain cases involving neurological injury to infants)
  • Employment cases (except those under the Equality Act 2010 or in relation to victims of human trafficking)
  • Private family law cases, such as divorce and child contact (except cases involving domestic violence, child abuse or abduction)
  • Housing disputes (except where there is serious disrepair, homelessness or anti-social behaviour)
  • Debt (except where there is a risk of homelessness)
  • Immigration (except cases involving detention and refugee claims)
  • Education (except special needs cases)
  • Welfare benefits claims (except appeals to the Upper Tribunal or higher courts)

In addition, the scope of eligibility for legal aid even for those claims for which it is still available has been reduced with the intention of excluding all but the poorest from having access to funding.

DIY justice

If you can’t afford or get public funding for a lawyer, you will either have to forget about taking the case to court – grin and bear it – or face the prospect of arguing the matter yourself in court. This is not a course of action to be undertaken lightly. It is one thing to take a dodgy parking ticket (PCN) to the Parking and Traffic Appeals Service (PATAS) with its relatively informal procedures, or for a small or medium sized enterprise (SME) to resort to an alternative dispute resolution (ADR) hearing under HM Revenue and Customs’ litigation and settlements strategy (LSS). These procedures have been designed for the unrepresented litigant. But it is quite another to try to secure a fair resolution of your child custody battle against an ex-partner, where third party agencies are involved (who will certainly be represented by counsel), or to fight a judicial review hearing against an oppressive act by local government, whose legal department will have no difficulty funding a legal stone wall.

LIP gloss

What is still more bewildering for a litigant in person (LIP) is knowing where to get help. There are litigants who have the patience, intelligence and know-how, often derived from some other professional skill, to look up the law and learn how to address the court, and who can marshall their papers and line up witnesses for their big day in court. But they must be in a tiny minority. Litigation is an inherently infuriating process, so even the most skilful and well prepared find it hard to keep an even temper and the necessary objectivity not to spoil their own chances, particularly if they are pitted against professional counsel.

There are, thankfully, a number of books designed to help Litigants in Person, including those published by the Bar Council and the Judiciary. A selection of these were reviewed recently in Counsel Magazine (July 2013, p 31) and previously on our post Paying LiP service to April fools. No doubt this is a genre that will increase in popularity as the legal aid cuts bite deeper and more individuals than ever before are forced to go it alone. Expect to see titles like Litigation for Dummies appearing on Amazon (as far as one is aware, the New Jersey based publishers of the “for Dummies” series have no actual plans for such a book, but you never know).

More worrying, perhaps, than the prospect of struggling amateurs cluttering up the justice system in a way that several judges have already complained about (see, for example, Wright v Michael Wrights (Supplies) Ltd [2013] EWCA Civ 234 at [2], per Sir Alan Ward) is the prospect of aggrieved citizens simply bypassing the legal system entirely, and taking the law into their own hands. This is something Lord Neuberger, as President of the Supreme Court, hinted at in an interview with the BBC in March this year, shortly before LASPO came into effect. He also warned of the knock-on costs of reducing legal aid in terms of additional time and costs borne by a justice system coping with litigants in person.