June 2000
» Summary
» Part One - Existing Legislation
» Part Two - Collective Agreements
» Conclusion
» Responses
» Annex A - Collective Conditional
Fees Draft Regulations
1. The Government's objectives are to make justice affordable to all, to discourage weak claims and encourage early settlement. Allied to this is the desire to ease the administrative burden on those providing and purchasing legal services. The provisions in the Access to Justice Act 1999 (the Act) give effect to Parliament's intention to increase access to justice by making it easier and more affordable to use conditional fee agreements and insurance policies.
2. The Act provided the vehicle to bring into effect the Government's commitment to make conditional fee agreements more widely available, affordable and simpler to use. Sections 27, 29 and 30 of the Act were commenced on 1 April and secondary legislation supporting those sections also came into effect on that date. Rules of Court and accompanying practice directions regulating the operation of the costs rules and court procedure have been drawn up and will come into effect on 3 July.
3. The Act and secondary legislation provide that:
4. The secondary legislation relates solely to conditional fee agreements entered into on an individual basis and does not encompass collective agreements. During the passage of the Access to Justice Act, and the drawing up of the regulations, Ministers gave a clear undertaking to interested parties that further regulations would be considered which would allow the use of collective agreements by bulk providers and purchasers or users of legal services.
5. Progress has been made on that commitment and a first draft of regulations has been drawn up which provides an outline of a possible scheme for collective agreements. A copy of the draft is at Annex A.
6. The Government recognises that the needs of different types of bulk purchasers and clients may be disparate. The aim of this paper is therefore to seek views on the shape of a scheme providing for collective conditional fee agreements and supporting additions to court rules or practice directions desirable as a consequence of any collective fee regulations being made.
7. The draft regulations are only a guide. They provide that:
9. The paper addresses a number of these concerns and comments are requested on the proposals set out above and on the following questions:
Background
1. The Government's consultation paper Access to Justice with Conditional Fees, (March 1998) proposed that, as part of the commitment to making conditional fee agreements more widely available, affordable and easier to use, the success fee in a conditional fee agreement and any insurance premium paid to protect against meeting a party's own and their opponent's costs, should be recoverable from the losing opponent. Responses to that consultation paper informed the Government's decision to accept these proposals and the Access to Justice Act 1999 (the Act) provided, amongst other things, the vehicle to do so.
2. The consultation paper Conditional Fees: Sharing the Risks of Litigation was published on 23 September 1999. It invited comment on proposals about the practical operation of measures, included in the Act, to meet the Government's objectives of making justice affordable to all, discouraging weak claims and encouraging early settlement. The provisions in the Act were designed to:
3. Consultation closed on 26 November 1999 and having considered the responses, a report was published which summarised the views expressed by respondents to the issues raised and set out the Government's conclusions on:
4. The Government's conclusions informed the drafting of the secondary legislation which came into effect on 1 April and the drafting of Civil Procedure Rules.
Primary Legislation
5. On 1 April 2000 sections 27, 29 and 30 of the Act were commenced (1).
6. Section 27 of the Act substitutes the existing section 58 of the Courts and Legal Services Act 1990 with two new sections. The new sections provide the framework for conditional fee agreements.
7. New section 58 redefines conditional fee agreements to include agreements which provide that legal fees are payable only in certain circumstances, provided that the agreements comply with requirements set out in regulations. This section also sets out the conditions which are to be satisfied to create an enforceable conditional fee agreement. Read together with the new section 58A it provides that all civil proceedings, and criminal proceedings under section 82 of the Environmental Protection Act 1990, may be the subject of an enforceable conditional fee agreement. Other criminal proceedings and family proceedings remain outside the ambit of these provisions. The section allows for a distinction to be drawn between agreements which provide for a success fee and those which do not. Section 58A(6) allows success fees to be recovered from the losing party in a case.
8. Section 29 of the Act allows the court to include in any costs order, any premium paid for an insurance policy against the risk of incurring a liability in those proceedings. The recovery of the insurance premium is not limited to policies backing conditional fee agreements, but covers all after the event policies. The way in which recovery operates is subject to rules of court.
9. Section 30 of the Act allows a membership organisation (such as a trade union) to recover a sum which reflects the provision the organisation has made against the risk of having to meet the liabilities of the member whose case it has underwritten. The section provides that the sum shall be no more than one determined in a prescribed manner and can only be recovered by a prescribed body which satisfies prescribed conditions. That prescription is provided in Regulations.
Secondary Legislation
10. April 1 also saw the coming into force of secondary legislation which sets out the Lord Chancellor's requirements for conditional fees and membership organisations.
11. The Conditional Fee Agreements Order 2000 (SI 2000/823) is made under section 58(4) of the Courts and Legal Services Act 1990 and specifies the proceedings to which a conditional fee agreement must relate if it is to provide for a success fee. These are all civil proceedings bar specified family proceedings. The order also sets the maximum success fee applicable to conditional fee agreements. This remains at 100%.
12. Conditional fee agreements are also permissible for proceedings under section 82 of the Environmental Protection Act 1990. Section 82 allows people aggrieved by a statutory nuisance to seek an order for that nuisance to be put right. These cases concern, for example, the failure of a landlord to maintain rented housing in a habitable condition. In the light of representations from housing support groups, the Government has decided that conditional fee agreements can be made in these cases, but a success fee will not be available. The order provides this exemption.
13. The Conditional Fee Agreements Regulations 2000 (SI 2000/692) is made under sections 58 and 119 of the Courts and Legal Services Act 1990. The regulations set out the detailed requirements with which an agreement must comply if it is to be enforceable.
14. As well as setting out what information an agreement must contain, the regulations include provisions to improve client care by legal representatives. A legal representative will have to cover in preliminary discussions whether the client is already covered for the costs of taking a claim by the terms of a pre-existing insurance policy or by membership of a scheme run by an organisation of which he is a member, such as a trade union. The legal representative will also have to discuss with the client the most appropriate means of funding his claim, how the agreement operates and also any financial liabilities he may face in entering a conditional fee agreement. For the benefit of the client the regulations require a conditional fee agreement to include a term that a solicitor may not recover from a client any part of the success fee disallowed by the court.
15. The Access to Justice (Membership Organisations) Regulations 2000 (SI 2000/693) specifies the bodies which are prescribed as membership organisations (as ones approved by the Lord Chancellor), the conditions which the organisation must satisfy and the way in which the recoverable sum is to be determined.
16. The Act places the recovery of the success fee, any insurance premium and the self-insurance costs of a membership organisation within the courts' discretion when it is considering the question of costs, subject to rules of court. These rules of court, subject to the Lord Chancellor's agreement, are made by the Civil Procedure Rules Committee.
17. The Civil Procedure (Amendment No.3) Rules 2000 (SI 2000/1317(L.11)) together with supporting practice directions and pre-action protocols provide detailed guidance to costs judges for the assessment of the costs involved. These come into force on 3 July and include specific provisions to incorporate any agreements or insurance policies entered into between 1 April and 3 July 2000.
18. The Regulations and Order, together with Rules of Court give effect to Parliament's intention to increase access to justice through making it easier and more affordable to use conditional fee agreements and insurance policies. Since the provisions of the Act came into force on 1 April, successful litigants have been able to recover success fees and insurance premiums from their unsuccessful opponents rather than from their own pockets.
1. The regulations governing conditional fee agreements currently relate solely to agreements entered into on an individual basis between a legal representative and client. They do not encompass situations where a purchaser or supplier wishes to enter into a common agreement with set terms, with the only variation being the risk assessment for individual cases taken under the agreement. Nor do they encompass schemes whereby organisations enter collective agreements with solicitors to take on their clients or members' cases, rather than the solicitor entering into individual agreements with each client or member. They also do not include scenarios where a solicitor is retained by a client on standard terms.
2. It was agreed during the course of the Access to Justice Act, that consideration would be given to allowing organisations to enter into collective agreements and where claimed, recover a success fee. At the time discussion focused on membership organisations such as Trade Unions, rather than commercial organisations. It was envisaged that any scheme would incorporate a collective agreement (in writing) between a union and its solicitor(s) for provision of services to its members. There would be no need for a full written agreement between the solicitor and the member, although the solicitor would provide the usual client care letter. The solicitor would also supply an individual risk assessment. If provided for in legislation, the consensus was that collective agreements would become one of the main ways in which unions would fund litigation.
3. However, discussions with other organisations indicated that they too wished to use collective conditional fee agreements. Specifically, the discussions highlighted the desirability of extending any collective conditional fee agreement legislation to encompass other bulk providers and users of legal services, thereby increasing the avenues for legal help available to the public.
4. The Government recognises that the extension of the conditional fee agreements scheme to include bulk providers will allow economies of scale, reduce regulatory burdens on business and membership organisations and will support its policy of enhancing the competitiveness of providers of legal services. It is clear that collective conditional fee agreements have particular potential for agreements between:
5. However, the current scheme regulates the use of conditional fee agreements on an individual basis. Improvements and adaptations need to be made to the existing scheme for conditional fee agreements if the Government is to enable bulk providers of legal services to provide better services to clients and achieve economies of scale.
Capacity in the existing legislation
6. The ability to enter into a collective agreement and to recover success fees under such agreements was addressed during the passage of the Act. While the current secondary legislation does not provide for collective agreements, the primary legislation is constructed such that bulk provision of legal services through collective agreements could be provided through secondary legislation.
7. Section 27 of the Act amended section 58 of the Courts and Legal Services Act 1990. Section s.58(2) reads:
The section is couched in terms of who is offering the agreement, rather than whom the agreement is between. There is nothing therefore in the legislation to prevent a legal representative entering into an agreement with an individual or organisation to provide services for a third party - the client or member.
8. Section 58(3) provides the conditions which are applicable to every conditional fee agreement. A conditional fee agreement must:
9. Those "requirements" are to be set out in secondary legislation. The current regulations are drafted in terms of individual agreements between a client and legal representative. However, there is nothing in s.58(3) to prevent regulations being drawn up which provide for collective agreements. Indeed, s.58a(3)(b) provides that the requirements set out in regulations:
10. Similarly s.58A(6) does not prevent recovery of the success fee in a case taken under a collective agreement:
A scheme for collective agreements
11. Consideration has been given to whether regulations relating to collective agreements should form part of the general Conditional Fee Agreements Regulations 2000, or should form a separate set of regulations. The initial view is that a separate set of regulations relating specifically to collective agreements would appear desirable, using the Lord Chancellor's power under 58A(3) to provide different requirements for different descriptions of conditional fee agreements. To do otherwise might unduly complicate the existing regulations since, while the requirements for collective agreements would replicate much of the general conditional fee agreements regulations, there would be significant exceptions. In addition, most users of collective agreements might be distinct and separate from those using individual agreements.
12. A first draft of regulations has been drawn up as the basis for this consultation. The Regulations would be made under the powers conferred on the Lord Chancellor by sections 58(3)(c), and 58A(3) of the Courts and Legal Services Act 1990. Under the regulations a Collective Conditional Fee Agreement (CCFA) would be defined as an agreement which provides common terms for those pursuing their case under the agreement, but which specifies individual success fees in those cases. There would be no prescription as to who could use a collective conditional fee agreement. The provisions would enable a purchaser and supplier of legal services to enter into a collective conditional fee agreement either for the direct supply of services in bulk, or the supply to third parties such as trade union members or insurance policyholders.
13. As currently drafted, the regulations do not require the CCFA to define those clients/ members to which the agreement relates. The regulations are drafted on the basis that the agreement is a CCFA whether or not the clients/members are named.
14. The regulations would not require the detailed terms of the agreement to be contained in the same document as the risk assessment. The terms would be set out in a document - the collective agreement- which related to all cases taken forward under the agreement, while the percentage and risk assessment would be specified in a separate document.
Requirements for the contents of collective agreements
15. It is proposed that the collective agreement must specify:
16. It is clear that the collective agreement must contain specific information on any potential liability - whether the liability rests with the sponsor organisation or the member/client. However, the ultimate liability will depend on the nature of the agreement. Trade unions and other membership organisations generally meet the liability of their members, whether for own solicitor's costs or between the parties costs. In such circumstances the agreement would set out the organisation's liability, even though they were not a party to the case. A similar situation exists between a solicitor and an insurance company. However, where the collective agreement is between a solicitor and an individual (company) on a retained basis, the liability would rest with the individual.
17. The collective agreement element would be signed by the legal representative and the purchaser of services, and a copy retained by both. The draft regulations provide that the client, if a third party, should be informed that his case is being taken under the agreement.
Q.3 Should the client signify in writing that he agrees to the proposed course of action?
Requirements for contents of collective agreements with a success fee
18. It is proposed that where the agreement relates to court proceedings and the success fee becomes payable the agreement must provide:
19. It is proposed that the court, in determining the reasonableness of the success fee, should be required to disregard the fact that the case was funded by a collective agreement. The factors employed in determining whether the success fee was reasonable would apply equally whether the case was funded by a collective or individual agreement.
20. Where no success fee is claimed, there is no additional costs liability and therefore no need for disclosure to the courts or opponent or for the requirements listed above.
The risk assessment
21. Although it is proposed that the conditional fee agreement will be collective, an individual risk assessment will be required for each case. The success fee is subject to challenge and in order for the court to reach a decision on the level of the success fee to be recovered, it must have sight of the risk assessment. The risk assessment and reasons would therefore be in the form of a separate written document which could be provided to the court where the success fee is challenged.
22. Responses to earlier consultations indicated that many potential providers of collective conditional fee agreements were of the view that neither the sponsor organisation nor their members/clients would wish to receive a copy of each risk assessment as a matter of course. Feedback indicated that sponsor organisations were content for their legal representatives to work unhindered within the parameters of any agreement, without the need for monitoring and that members/clients were intimidated by the technical information provided by a formal agreement.
23. Although this may be true for many membership organisations and their members, the capacity of members/clients should not be underestimated. It is likely that a number of members/clients would wish to be provided with the option of receiving a copy of the risk assessment and success fee claimed. Many sponsoring organisations would also welcome this provision, even though they may not wish to sign up to every assessment. In contrast, it is highly likely that all commercial clients would wish to receive a copy of the risk assessment and would wish to sign it.
Q.6 Should the client/member sign the risk assessment?
Information to be given to the client
24. The Government recognises that conditional fee agreements can be complex and that clients may not fully comprehend the way in which such agreements operate. This informed the decision to place client care provisions relating to the provision of information in the conditional fee regulations. However, it is also clear that not all potential users of collective agreements require or need the detailed information set out in the general regulations. Members of membership organisations largely have little or no personal liability for costs and as such have little interest in the availability of alternative methods of funding their cases, since the alternatives invariably require some outlay. In a separate but similar vein, sophisticated commercial clients employing continuing contracts also have little interest in receiving an oral explanation each time a new proceeding is commenced under the contract.
25. However, it is recognised that clients need to know that their cases has been taken on and, if they have any personal liability, details of their liability for costs. It is therefore proposed that:
26. However, it is clear that the level of information required and the way in which it is provided will differ depending on the way in which the case is funded, whether there is any personal liability, the sophistication of the user and whether a third party funder is involved.
Comments are therefore requested on the following questions:
Q.8 Who should provide it - the legal representative or the sponsor organisation?
Q.9 Should the legal representative or the sponsor organisation be required to provide information on liability etc, should the requirement to provide information be subject to specific exemptions or should it be discretionary?
Q.10 Should the provision of information take the form of a client care letter or client care pack?
Rules of Court and Practice Directions.
27. The Act places the recovery of the success fee within the courts' discretion, subject to rules of court. Rules of Court, subject to the Lord Chancellor's agreement, are made by the Civil Procedure Rule Committee. Together with any practice direction and pre-action protocols, they provide detailed guidance to costs judges and practitioners on the assessment of costs.
28. New rules amending the Civil Procedure Rules 1998 come into force on 3 July. The new rules regulate proceedings where the new funding arrangements apply (conditional fee agreements, insurance premiums or membership organisation funding) and provide for the assessment of costs in such proceedings.
29. Primarily, the new rules regulate proceedings where a party seeks to recover an additional liability, whether success fee, insurance premium or the membership organisation's costs' provision. Where no additional liability is claimed e.g. a Thai Trading style agreement, no additional requirements are imposed. The new rules require the party to inform the opponent where they intend to seek to recover the additional element, and set out the mechanism to be followed.
Comments are requested in the following:
Q.12 If not, what modifications are desirable?
Q.13 Is it necessary to modify the indemnity principle further, in order to facilitate the effective use of collective conditional fee agreements?
Q.14 If so what modifications are desirable?
Q.15 In what circumstances could the other party to litigation seek discovery of the CCFA (if at all)?
Comments are requested on the proposals that:
And on the following questions:
Q.1 Should the regulations contain a requirement to define, perhaps in
class terms, who is covered by the arrangement?
Q.2 Is the proposal for the signing and retention of the collective agreement
sufficient? Does the client need a summary of the terms of the agreement?
Q.3 Should the client signify in writing that he agrees to the proposed
course of action?
Q.4 Is the proposal for the contents of a collective agreement with a success
fee sufficient? Are any other requirements necessary given the nature of
collective agreements?
Q.5 Should a copy of the risk assessment and reasons be available on request
or automatically provided to the client?
Q.6 Should the client/member sign the risk assessment?
Q.7 Should the client/member receive a copy of:
Q.8 Who should provide it - the legal representative or the sponsor organisation?
Q.9 Should the legal representative or the sponsor organisation be required
to provide information on liability etc, should the requirement to provide
information be subject to specific exemptions or should it be discretionary?
Q.10 Should the provision of information take the form of a client care
letter or client care pack?
Q.11 Are the Civil Procedure Rules and practice directions relating to the
recovery of the success fee sufficient to cover the question of collective
conditional fee agreements?
Q.12 If not, what modifications are desirable?
Q.13 Is it necessary to modify the indemnity principle further, in order
to facilitate the effective use of collective conditional fee agreements?
Q.14 If so what modifications are desirable?
Q.15 In what circumstances could the other party to litigation seek discovery
of the CCFA (if at all)?
The Lord Chancellor believes that the scheme canvassed above would allow the use of collective agreements by bulk providers and purchasers or users of legal services within a regulated but non bureaucratic scheme. However, he recognises that the scheme may bring with it consequences for the practitioner and he therefore welcomes comments on the issues raised in this paper.
Comments on the paper should be sent by 28 July 2000 to the following
address:
Ms Heather Williams
Lord Chancellor's Department
3rd Floor, Selborne House
54-60 Victoria Street
London SW1E 6QW
DX 117000
Endnote
(1) The
Access to Justice (Commencement No 3 and Transitional Provisions and Savings)
Order 2000 (SI 2000/774).