Conditional Fee Arrangements For Legal Aid

“To no one will we sell, to no will we refuse or delay, right or justice” 1. It has long been recognized that “access to the courts is a constitutional right” 2. Access to justice is therefore integral to this fundamental human right and legal aid is an important vehicle to achieve this goal in the modern world.

Following World War II, legal aid was established to enable people who could not afford the services of lawyers to be provided with those services by the government. The Access to Justice Act 1999 was enacted and a Legal Services Commission (LSC) was set up to maintain and develop the Community Legal Service and the Criminal Defence Service.

Unmet Legal Need

The legal aid systems expanded quickly together with its cost and there were major concerns over the uncontrolled and unabated rise of legal aid cost. In 1990-1991 the total expenditure on legal aid was £682 million and rose to £2.1 billion in 2003-04 3. LSC is currently spending £2 billion a year on legal aid 4. Civil and family legal aid accounted for about £671 million 5.

In spite of the increase in the cost of legal aid, fewer and fewer people became eligible to the scheme. In 1996-1997 the number of acts of help funded fell by about 39,000 5. Taxpayers were paying more but getting less.

Most low-income litigants were able to benefit from legal aid schemes. On the other hand, people who were on “modest incomes” were ineligible for legal aid and were effectively denied access to courts because they could not afford a lawyer.

Conditional Fee Agreement (CFA)

Conditional Fee Agreement

As part of the reform to legal aid and a solution to the funding problem, conditional fee was introduced as an alternative way of funding civil litigation. A conditional fee agreement is defined as “an agreement between a person providing advocacy or litigation services and his client which provides for that persons fees and expenses to be payable only in specified circumstances” 6. The lawyer will charge no fee if the case is unsuccessful but charge his normal fee plus a percentage “uplift” (known as “success fee”) of those fees if the client is victorious in the litigation.

Previously, the uplift was to be 20% of the fee that the lawyer would normally charge for the sort of work in question. However it was felt that the inherent risk of not getting any fee at all outweighed the incentive of 20% extra of the normal fee. The uplift was later revised at 100% of the fee normally charged 7.

Conditional fees should be distinguished from contingency fees where lawyer’s fee is calculated as a percentage of the amount of damages awarded by the court. The restriction on contingency and conditional fees had its origins in the ancient common law crime and tort of champerty and maintenance. Section 14 of the Criminal Justice Act 1967 abolished maintenance and champerty as crimes and torts and allowed conditional fee arrangements.

Advantages and Disadvantages

Conflict of Interests and Malpractices

A number of arguments have been put forward on the conditional fees regime. For example, it has been suggested that the introduction of conditional fee would lead to the conflict of interests of lawyers because they have to win cases before they can receive remuneration. Despite strong regulation of the legal profession, lawyers might be tempted to allow their own financial interests to prevail over the interests of their clients and their duty to the court. Malpractices such as fabrication or re-construction of evidence, improper coaching of witnesses, use of professionally partisan expert witnesses, groundless legal arguments designed to lead the courts into error and competitive touting might occur 3.

Some have been expressed concerns that there might be intrinsic conflict of financial interests if lawyers’ remuneration were dependent upon the outcome of litigation. Conditional fee arrangements might push lawyers to settle a case too readily to avoid the cost of preparing a trial that could be lost if the claim failed. Under the conditional fee system, settlement would guarantee the lawyer’s cost and agreed success fee which would be completely lost if the case was fought and lost. This supports the proposition that the anxiety to recover legal expenses does not always correspond with the lawyer’s commitment 3.

The research conducted by the Sheffield University revealed certain deficiencies in the conditional fees scheme, namely the poorest clients were not able to afford the insurance premiums, those with risky cases may find it difficult to find a solicitor to represent them and it is difficult for the solicitor to estimate the likely cost and cases have cost solicitors more than the fee they are allowed to charge.

On the other hand, it is advantageous for claimants under the conditional fee arrangements to make a claim because they will be free from the anxiety of having to pay huge fees to their lawyers if they are unsuccessful. Further, they are not required to pay legal fees in advance and there will be no delays or worries with legal aid applications. In addition, conditional fee arrangements encourage the legal profession to manage their work efficiently.

Access Justice for All, Not a Select Few

Lord Irvine, LC stressed that CFA’s would result in a huge enhancement of the right to access to justice, especially for the middle-income group 8. From a public perspective, it is important to ensure that access to justice is for all and not only to a select few 9. Given the scope of the current legal aid services, only the very rich and the very poor can afford to litigate. CFA’s provide an alternative access to justice avenue so that everyone with a strong case will be able to enforce his legal rights and secure a fair trial.

In contrast to the conventional fee agreements, CFA’s can weed out frivolous or weak claims and ensure that the most vulnerable and most in need are protected. The rationale is that an unscrupulous lawyer could mount a frivolous claim safe because he or she knows that legal fees could be recovered regardless of the outcome of the trial. Under the condition fee arrangements, a lawyer is unlikely to take a frivolous or weak claim because he or she would receive nothing if the claim failed. Secondly, this arrangement can partly shift the financial risks of litigation from clients to lawyers and insurance companies who are in a better position to assess the prospects of success and can spread the risks over a number of cases.

However CFA’s, which are designed to help millions of people who are ineligible for legal aid, cannot assist claimants who have a weak case. CFA’s provide an excellent incentive for lawyers for cherry-picking of high value cases with high chances of success 10 and effectively denying certain potential litigants for their constitutional right to the courts.

After-The-Event Insurance

It has been suggested that CFA’s could enhance the right to access to justice for those members of the community currently neither eligible for legal aid nor able to pay for the litigation themselves. However an affordable insurance (“after-the-event” insurance) must run alongside to cover the opponent’s legal costs if the legal action fails 11. The indemnity costs rule provides that unsuccessful litigants will usually be ordered by the court to pay the legal costs of the successful party, that is, “costs follow the event”. Under the regime of “No win, no fee” arrangements, a litigant does not have to pay for his or her own lawyers if the action fails. But he or she will have to pay for the opponent’s lawyers if he or she loses the claim. In addition, the losing party may have to settle the disbursements incurred. Further, the winning party is liable to pay his or her lawyers for any costs that the losing party is not ordered to pay. Without an ATE insurance, a litigant without a deep pocket could face serious financial consequences if he lost.

The likelihood of getting ATE insurance to cover the costs that a litigant will have to pay is scarce. It is because in many areas (for example, medical negligence cases), the prospects of success is often difficult to predict and calculate. In these circumstances, insurance companies may not wish to take such a risk. Even if ATE insurance could be offered, the premium would be very high (many thousands pounds in some cases). Without ATE insurance, a conditional fee arrangement would be difficult, if not possible, to sustain. For example, the Law Reform Commission of Hong Kong Special Administrative Region, China, acknowledged that its proposal to set up a conditional fees regime would be difficult to sustain without a commercially viable and long-term ATE insurance 12.

Zero-Sum Gain – Implications of Success Fee and ATE Insurance

It has been suggested that conditional fees agreement enhances access to justice but denies effective access to compensation. It has been contended that CFA’s erode the value of claimants’ compensation by allowing lawyers to double their normal fees for certain cases 10. If the successful client was unable to recover the uplift from his opponent, he would have to pay for himself out of the damages awarded. Very often, this would result in the claimant’s damages being halved. In some extreme cases, the winning parties even owe money at the end of the litigation.

Until the Access to Justice Act 1999, a successful litigant who had made use of the conditional fee arrangements was obliged to pay the success fee from the costs recoverable from the losing party. However he was unable to recover the success fee from his opponent. Section 6 of the 1999 Act changed the situation by providing that “a costs per order made in any proceedings may, subject to the rules of court, include a provision for the payment of any fees payable under a CFA” 13. Although the uplift may now be recovered under the statutory provision, there is a chance that a litigant has to pay his or her lawyers for any costs that the losing party is not ordered to pay. This could convert the conditional fee arrangements into a zero-sum gain and restrict the access to compensation.

Lack of Regulation

It has been pointed out that most people do not have the time, inclination or ability to familiarize them with the risks and liabilities they are exposing themselves to as the conditional fee agreements have not been clearly explained to them. They might be misled to believe that the arrangements are genuinely “No win, no fee”. The consumers might also be subject to high-pressure sales tactics by unqualified intermediaries introducing them to a legal process 14. Moreover, there are usually other disbursements such as court fees or fees for medical reports which are hidden and unpredictable to the consumers.

Conclusion

Although the regime of conditional fees is not completely flawless and some of the criticisms are well founded, the truth of the matter is that it has enabled more litigants to enforce their legal rights in a court of law. More and more claimants whose ability to pursue a claim was jeopardized by a lack of means sufficient to instruct lawyers to conduct a privately funded action have been given access to justice. It is submitted that the conditional fees scheme in England has generally proved to be an effective vehicle to address the concerns of the society, including the fundamental human right of equality before the law and the alarming cost of legal aid services. That said, every effort should be made to improve the scheme so as to make it just, cost-effective and efficient.