Department for Constitutional Affairs -

Ms Bridget Lee
Lord Chancellor's Department
3rd Floor Selborne House
54/60 Victoria Street
London SW1E 6QW

Making Modernisation Happen

What are conditional fees?

The case for extending conditional fees more widely

Monitoring

Other Issues

The Need to Modernise

Targeting Legal Aid Provision

Transitional Arrangements

The Bar and Law Society Proposals

Legal Expenses Insurance

Membership Litigation Schemes

1.1.	Justice should be there for all of us, when we need it. It should not be just for the wealthy or those on the very lowest incomes. But justice always has a cost, in time and money, and we also want to encourage fair settlements of disputes before they go to court, whenever possible. We do not want to create a litigious society but one in which people respect one another's rights.
1.2.	The present civil justice system falls woefully short of this ideal. It is too complex, takes too long to deal with cases and it is too costly. The number of people entitled to legal aid has gone down. A huge swathe of ordinary people on modest incomes are deterred from starting a legal action by the potential costs of litigation - their own costs, and the risk of ending up paying the costs of the other side. That is why the Government has embarked on a programme of wide ranging reform of the system to make it quicker, simpler and more certain.
1.3.	The current system does not encourage lawyers - who are paid the same, win, lose or draw - to weed out weak cases. This means that too many people undergo the strain of lengthy legal disputes for nothing.
1.4.	At the same time the cost of the Legal Aid Fund goes up and up. Net expenditure in 1990-91 was £682 million. Only six years later, expenditure had more than doubled to £1,477 million. That is an increase of 115%. On civil alone the cost has almost tripled (see paragraph 3.3).
1.5.	This Government was elected with a modernising agenda, and there could be no clearer case for radical reform than Legal Aid. When it was set up 50 years ago, it was a great step forward. It brought the opportunity of access to justice within the reach of the majority of the population. Now it is failing the people it was supposed to help, and stands in the way of the modernisation of the legal profession and the justice system as a whole.
1.6.	That is why the Lord Chancellor, Lord Irvine, has announced a radical programme of reform to achieve change. The programme will be delivered in two stages. This paper looks at the first stage. The Government intends to: Promote access to justice for the majority of the population in England and Wales through the wider availability of conditional fee agreements. This will make access to the courts a reality for the majority of the population of England and Wales. Conditional fees ensure that the risks of litigation are shared between the lawyer and the client: clients do not pay their lawyers fees unless they win; and lawyers, when they win, receive a level of fees that recognises the risk they have taken. Lawyers are better placed to know the strength of a case and how to deliver the most successful outcome. We know that conditional fees work: already, over thirty thousand people have used them to bring claims. Refocus legal aid by removing cases which can be financed in some other way and promoting access to justice for the needy by directing the legal aid budget to priority areas. This will allow the Government ultimately to concentrate publicly funded support on legal services towards helping people secure their basic rights such as a decent home, appropriate social security benefits and challenging officialdom through judicial review, and towards assisting cases that raise issues of wider public interest. The present system does not allow the Government to do this. It allows no assessment of the importance of classes of cases or any way of targeting help towards priority needs. The Government simply pays for the amount and type of legal services that lawyers wish to provide.
1.7.	In the longer term the Government will seek to: Deliver legal aid through contracts, to provide the right help in the right place at a price which delivers good value for money. In future, all legal aid work, whether civil or criminal cases, will be restricted to providers of legal services who have a contract with the Legal Aid Board. This will allow better control through the Board agreeing the price to be paid in advance for the majority of cases. Contracting will allow the Government to get the most for the money that is spent and to spend it on those cases which most need it. Remove weak cases from the legal aid system by toughening the legal merits test so that only cases with a strong prospect of success are supported with taxpayers money. Too many weak cases are granted legal aid. The hopes of litigants are unrealistically raised, and the opposing party is exposed to unnecessary costs which they cannot recover. There should be a strong prospect of success before legal aid can be granted. The test should reflect the priority of different types of case, and take account of the need for the legal aid budget to deliver as much help as it can with the taxpayers' money it has to spend. Develop a way of supporting cases which have a significant wider public interest but which might otherwise not be brought. There may be some cases where the benefit to the individual is small, or for some other reason the individual may not qualify for legal aid, but there is a significant wider public interest that the case be supported with public funds. The Government wishes to consider how this can be achieved. Establish a Community Legal Service The Community Legal Service will vary from area to area according to local needs. The principle will be to provide effective mechanisms to enable the socially excluded and economically disadvantaged to enforce the legal rights which substantially influence their lives, such as housing, welfare, consumer and employment rights.

1.8.	This is our radical vision for a modern and fair system. It will require primary legislation to bring about fully. It also requires lawyers to adapt to new ways of doing business and to change the financial basis on which their firms or practices are structured. It requires a partnership between the Government, the taxpayer, lawyers, insurers and financial institutions to fashion a new culture for meeting legal costs. The Government wishes to encourage a wider use of legal expenses insurance, and a wider range of after-the-event insurance products. It wishes also to assist the legal profession, insurers, banks and other financial institutions to help lawyers to take cases on a conditional fee basis, where appropriate, regardless of the financial standing of the client. We also want to discuss with trade unions and others how we can help them to buy more services on behalf of members and their families. It is an ambitious programme, but nothing less than a modern country deserves.
1.9.	Access to justice is such a fundamental part of our democracy that rushing into a "big bang" would not be right. We have to make sure that extending access to justice brings benefits for everyone including those on low incomes who currently receive legal aid. But the prizes are so important that we should not delay either. We are setting deadlines for each stage of the programme of reform, so that all parties - lawyers, insurers, those who fund litigation through membership schemes and most importantly the public - have some certainty and can plan accordingly.
1.10.	We plan a two stage approach. Much change can come through better use of existing systems, and existing legislation. This consultation paper shows how. We will aim, subject to consultation, to complete the extension of the availability of conditional fees, and to complete the first phase of refocusing legal aid by the middle of 1998. We also need to legislate to complete our reform package (including some of the changes to the law that are proposed in this paper) and we will be issuing a White Paper in the Summer this year to explain in more detail the vision set out above. Legislation will follow as soon as Parliamentary time can be found.
1.11.	In all our reforms, we aim to bring access to justice back to millions of ordinary people. But we will not ignore the strengths of the current system. Solicitors and barristers have their critics, and there are abuses of the current system, but equally many lawyers take on legal aid work even when more lucrative business is available. Others do work free for those who cannot pay for themselves, as a valuable public service.
1.12.	We do not want to create a purely commercial legal profession, concerned only with the fast buck. We do not want to import "ambulance chasing", or to encourage litigiousness.
1.13.	Our aim is a fair and open legal system, where everyone is able to rely on the impartial advice of their legal advisers throughout the legal process, where people are neither sucked into expensive and heart rending litigation, nor prevented from seeking justice and redress by the fear of punitive legal costs. That is what our reforms will deliver.

2.1.	Conditional fee agreements, also known as no-win-no-fee agreements, allow a lawyer to agree to take a case on the understanding that if the case is lost, he will not charge his client for the work he has done. If, however, the case is won, the lawyer is entitled to charge a success fee calculated as a percentage of his normal costs, to recompense him for the risk he has run of not being paid. Clients sometimes have to pay for the expenses, known as disbursements (medical or other expert reports, court fees or enquiry agent's fees) that the lawyer has had to pay, although in some cases the lawyer may agree to fund these costs as well as part of the agreement. Conditional fees allow lawyers and clients to share the risk of litigation. The success fee is set according to the risk the lawyer is taking. The higher the chance of winning, the lower the success fee should be set, and vice versa. This helps to ensure that the risks are managed by those who are in the best position to know what the risks are - the lawyers.
2.2.	Lawyers working under a conditional fee agreement are likely to be more concerned to ensure that they do not take on cases where the chances of success are not sufficiently good. Conversely, in the cases that are taken on, the lawyer is encouraged to achieve a favourable outcome for his client to earn his success fee. The introduction of conditional fees is a significant step towards removing the barrier of high costs that deters so many people from starting legal proceedings however good their claims might be. To provide peace of mind against the possibility of having to pay his opponent's costs, a client can take out insurance to pay the opponent's costs, and the disbursements the client has paid his lawyer. As with disbursements, in some cases the lawyer may agree to meet the costs of the insurance premium.
2.3.	Conditional fees were introduced by section 58 of the Courts and Legal Services Act 1990. The Act allowed the Lord Chancellor to make Orders specifying the proceedings in which agreements could lawfully be made i. The Act also specifically excluded certain proceedings (briefly summarised as criminal and family proceedings ii).
2.4.	In 1995, the then Lord Chancellor, Lord Mackay of Clashfern, allowed conditional fee agreements for proceedings involving personal injury, insolvency and cases before the European Commission and the European Court of Human Rights iii. The maximum amount of success fee a lawyer was entitled to charge was set at 100% of the lawyer's normal fees for the work undertaken. The Lord Chancellor also made regulations under section 58 to specify the information a conditional fee agreement had to contain iv.
2.5.	Since the introduction of conditional fees in 1995, the Law Society has produced guidance for solicitors about using conditional fees and a model agreement for use between clients and solicitors. It also advised solicitors to apply a voluntary limit on the proportion of damages that could be taken by the success fee. It suggested that this should not be more than 25%. The Law Society also arranged a scheme of insurance for clients against meeting their opponents costs in personal injury cases at modest premiums (currently ranging from £92-£155 exclusive of tax). By the end of 1997, when conditional fees had been available for some 30 months, around 34,000 policies had been issued, their use increasing as lawyers developed their expertise in this area.

2.6.

It seems clear that conditional fees, once they become available, represent an avenue to access to justice that has not existed before. Maintaining the prohibition on their use in other areas of litigation, therefore, can be justified only where a greater harm to justice would be caused by allowing their use. Further, the harm caused to the delivery of justice must be greater than the harm of denying access to justice. It is important that people are able to obtain redress if, for example, they are caused harm, or if they buy goods or services that turn out to be poor quality, or if people do not honour contracts. The barrier of legal costs which dissuades many people from bringing or continuing with claims can be removed by using conditional fees. Consequently, the Government can see no good reason to continue to prohibit the wider use of conditional fee agreements.

2.7.

The Government wishes, subject to this consultation, to allow conditional fee agreements to be entered into in any proceedings, save in the categories presently proscribed by statute, that is family and criminal cases.

2.8.	Are there are any types of proceedings for which conditional fee agreements should not be allowed; and, if so, why would these proceedings not be suitable for conditional fee agreements?

2.9.	The Government acknowledges that some are opposed in principle to the notion of conditional or contingent fees. It was argued at the time of their introduction, that lawyers working under conditional fee agreements would look to their own financial interest ahead of their clients interest: that allowing success fees to be set at a maximum of 100% would mean that lawyers would quickly make the maximum the norm, and swallow up large parts of the money or damages that the client had recovered.
2.10.	These fears have simply not been realised. Nearly all agreements follow the Law Society model agreement. In a recent study v three quarters of the cases studied had success fees of 50% or less, with the average uplift for all cases being only 43%. In 90% of cases the voluntary cap of 25% was applied. This evidence does not suggest that rapacious lawyers are seeking to take in fees large parts of the client's damages. It shows that they can balance their duty to their client with the need to ensure that their firm can make a profit on the work it undertakes. Moreover, both branches of the profession (solicitors and barristers) work within a strong code of ethics that are rigorously enforced by the self-regulating professional bodies. The Courts are also, able to scrutinise, and amend if necessary, success fees agreed in a conditional fee agreement, through the process known as taxation of costs vi. The regulatory supervision of the professional bodies and the Courts provide, in the Government's opinion, sufficient safeguards to prevent excesses.
2.11.	The Government is keen to ensure that conditional fees are made more widely available and that they develop to their fullest potential. As part of this, the Government believes it is necessary to monitor the introduction of conditional fee agreements in new areas of litigation, and to conduct some further work on cases presently proceeding under these agreements once sufficient numbers of cases have finished. This will enable the Government to identify quickly areas where changes to the law might be needed, or where corrective action may be required.

2.12.

What monitoring or other research ought to be undertaken and over what period.

2.13.	The Government is committed to making conditional fees work in as many fields of litigation as possible. The extent to which lawyers, the insurance and banking industries have already developed, and are continuing to develop, the market in which conditional fees can operate suggests that in future the use of conditional fees will become commonplace. Consequently, the Government is keen to know whether any changes to current law (either directly affecting the provisions of the Courts and Legal Services Act 1990 or more generally), rules of court, practice or procedure might assist in the development and use of conditional fees. In particular, two specific proposals have been made during consultation so far on which views are sought.
2.14.	It has been argued that any insurance premium paid to protect against meeting an opponent's costs, and the success fee, should be recoverable against the losing party. It has been argued that the former is simply a disbursement and should be recoverable together with all other disbursements. More generally, it is argued that both types of cost are incurred directly because the loser has put the successful party to the cost of taking court proceedings, and that they should be recoverable in the same way that other costs are presently. It seems wrong that a successful party who without a conditional fee agreement might not have been able to bring their case is unable to recover all the lawyers costs that they have incurred. The losing party has caused the need for litigation and it could be argued that they should meet all the winners costs including the success fee. Allowing the litigant to recover his success fee from the losing party would enable him to keep all the damages or money he has been awarded by the court, making conditional fees more attractive. It may also encourage the use of no-win-no-fee agreements by those defending proceedings who would not generally have secured damages or money from which to meet a success fee.
2.15.	If the success fee were recoverable from the losing side, it would be necessary to decide at what stage a litigant should be required to disclose the level of the success fee. Requiring the level of the success fee to be disclosed before the conclusion of a trial might encourage early settlements. Conversely, disclosing the level of the success fee at too early a stage might divulge too soon the estimated prospects of success.
2.16.	It might also be necessary to allow the losing party to challenge the level of the success fee agreed between the client and the lawyer. In the event of disagreement some mechanism would be needed to allow adjudication. The trial judge, or the judge seized of the case under the proposed case management and allocation procedures to be implemented next year, could make a decision when the case is tried, or if asked to approve a settlement, or when a settlement is in prospect save only on the question of costs. A decision at these stages would need to apply a broad brush approach of whether, in all the circumstances, the success fee was broadly reasonable. Alternatively, a more investigative approach, akin to taxation, might be used, although there would be the potential to generate satellite litigation which could prove costly. The Government would prefer the first approach.
2.17.	The Government is, on the whole, minded to amend the present law vii to allow the success fee to be recoverable and, either by statute or changes to rules of court, to allow the insurance premium to be recovered as a disbursement. It is keen to learn whether these changes would be welcomed in making conditional fees more useful and attractive.

2.18.	*What changes to the law might assist the development of conditional fees?*
2.19.	*Should the success fee and any insurance premium be recoverable against the losing party?*
2.20.	*If the success fee was recoverable, when should a party disclose the success fee he has agreed with his lawyer?*
2.21.	*What rights should the party liable to meet the success fee have to question the basis on which it had been agreed?*
2.22.	*How should any disagreement best be resolved?*

3.1.

The Government wishes to modernise legal aid because:

the system is out of date;
it costs too much;
it covers only a small percentage of the population
it can be unfair in its effect on those who are sued by those helped with legal aid; and
it is not flexible enough to allow the Government to target help in priority areas.

3.2.	Legal Aid was brought in by a Labour Government in 1949 to meet the social and economic conditions of that time. The extent and costs of the scheme now operating would be unrecognisable to its founders. We need a system that is fit for the next century not the middle of the present one. It must be able to deliver help to those in poverty, who would otherwise be unable to enforce their rights, in a way that puts them on a level footing with the rest of the population, and in a way which allows the Government to prioritise and focus help properly.
3.3.	Legal Aid expenditure has been rising at an unacceptable rate. Over the past seven years, the cost of civil and family legal aid has tripled to £671 million. The average cost for proceedings which received full civil legal aid in 1990/91 was £1,442. If those costs had grown in line with inflation that would represent £1,760 at 1997 prices. The actual average cost in 1996/97 was £2,684. This represents an increase of 53% above inflation or an average of 8% per year. While the cost of civil and family legal aid continued to rise last year, the number of acts of help it funded fell by about 39,000. We are spending more and more public money helping fewer and fewer people.
3.4.	The grant of a legal aid certificate can be a defining moment in the conduct of litigation. It carries with it support from an almost inexhaustible fund, and almost total protection from any liability to pay the opponent's costs if the assisted person loses the case. An unassisted opponent knows that it is far better to settle the case quickly and keep down legal costs than to fight the case, however good the merits may be. The high success rate achieved in cases supported by legal aid is in part due to the oppressive effect of the grant of legal aid. This has allowed cases to be successfully taken which would not have proceeded if the cases had been financed privately. The provision of costs protection was intended to protect the assisted person, who by definition is of few means, from being dissuaded from bringing cases by the fear of losing and meeting costs. It was envisaged as a necessary limitation on the rights of those who are sued by assisted persons to recover costs, in order that the needy can bring cases and enforce their rights. It was not intended to give assisted persons or the lawyers of assisted persons a tool to use in litigation to bring claims of doubtful merit which effectively blackmail defendants into submission.
3.5.	In seeking to modernise the system, however, the Government is mindful of the lessons of the past. The legal aid scheme is so complex and covers such wide areas of litigation, that attempts to control one part of the scheme can often be seen to result in increased expenditure in other parts as lawyers ensure that they use new systems to maintain or maximise income. There is nothing improper in this. It is the natural business response.
3.6.	Moreover legal aid, with regular payments on account of final bills, and certainty of eventual payment, is an important source of cashflow. Revision to procedures, or the introduction of new ones, (for example on the introduction of the Children Act 1989) has also lead to longer and more complex litigation. Similarly, as income streams from private work have reduced or disappeared, lawyers have turned more to legal aid to maintain income. For example, spending on legal aid rose rapidly at the same time as solicitors' income fell when the conveyancing market declined in late 1980s and early 1990s.
3.7.	The extension of the availability of conditional fees offers the opportunity for the Government to begin re-focusing legal aid. The Government intends to provide the right conditions in which the legal services market can provide legal advice and representation regardless of the financial standing of the client. It wishes to assist lawyers, with the help of insurers and bankers, to be able to take cases on a conditional fee basis without requiring clients to meet on-going costs.
3.8.	The reforms we plan will begin to redress the unfairness of the present legal aid system mentioned in paragraph 3.4. Lawyers who are sharing risks with clients will assess more carefully the merits of cases. Some weak cases presently brought under legal aid will not find lawyers who are willing to act. This is to be welcomed: the Government does not believe that weak cases should be brought using legal aid which would not be brought privately. Removing these cases will reduce the costs not only to the legal aid fund but to all defendants who presently face these speculative claims.
3.9.	The Government has been criticised for moving too quickly in beginning the targeting and prioritisation of legal aid. It is argued that it is too soon to know whether conditional fees could be a suitable alternative in areas where they do not presently exist; or that some cases are inherently unsuitable for conditional fees; or that the financial bases of lawyers' practices would not enable them to take cases under conditional fees for clients unable to meet disbursements or insurance premiums. At the same time that the Government is urged to caution, legal aid delivers less and less help to fewer and fewer people.
3.10.	The Government firmly believes that to bring about change, especially change that is necessary and long overdue, it should look for radical and innovative solutions. We require new ways of thinking and a readiness to grasp and exploit new opportunities. We are told we cannot move forward without proving the next step but we cannot prove the next step without moving forward. This Government does not favour a status quo which fails those in need, fails the taxpayer, and fails the legal profession by entrenching out of date practices.
3.11.	Therefore, the Government is determined to ensure that the legal aid system is modernised to provide help where there is no reasonable alternative, in a way that ensures that help is properly directed towards the priority area of social welfare. The following paragraphs set out the plans for removing, over time as the market for conditional fees and supporting insurance and funding develops, most money and damages claims from legal aid to allow the existing system to focus on priority areas. These plans also prepare the way for the next stage of more fundamental reform.

3.12.

Claims that arise from people's maintenance, possession, use or enjoyment of their home, whether or not they include ancillary claims for money or damages, ought to remain within the scope of legal aid. Some people - especially those who qualify for contributory legal aid - may find conditional fee agreements more suitable, once sufficient experience has developed among lawyers, and suitable insurance arrangements are available. But it would remain the Government's objective to provide a means by which those eligible could obtain help in meeting legal costs to deal with housing problems (whether bringing or defending proceedings). The problems that the needy face in ensuring a decent standard of accommodation are not generally shared by those who are better-off, and are of a kind that deserve assistance from the taxpayer to obtain the necessary remedies or redress.

3.13.

Similarly, the Government believes that the ability to challenge the acts or omissions of public authorities is a necessary check on the use of the power of the State, and a positive encouragement to maintain high standards in public administration or by public bodies. It believes it right to ensure that the poor are also able to exercise this right of challenge through judicial review, and that legal aid should remain available for those who qualify. Similar special considerations apply where a person claims that he is the victim of some action of the authorities, for example, the police. The Government believes that assistance must continue to be available, for the present, to allow those who qualify for legal aid to bring claims of this kind.

3.14.

The Government is not persuaded that, at present, it should exclude money or damages claims where the assisted person is a defendant. There may be cases where a substantial counterclaim is made, in which a conditional fee agreement might provide a suitable alternative to funding from the taxpayer. However, there are few legally aided cases with counterclaims. Without a counterclaim, it is difficult to see how conditional fees could provide an alternative for those defendants who, by definition, lack the means to finance litigation and have no expectation of a money recovery from which to meet any success fee. Legal aid will therefore continue to be available to assist those defending claims against them for the payment of money or damages.

3.15.	The Government has received many representations about medical negligence cases. It is argued that these cases present particular problems not generally shared by other types of money or damages claims. In particular, it is argued that there can be significant costs involved in reaching the point at which a lawyer can make an informed decision about the prospects of success. Conversely, it could be argued that experience in this field of litigation ought by now to be sufficient that a solicitor who relied on these cases for his income should be practised enough in structuring his business to absorb the costs of losing cases, within the overall charging structures he has in place. The presence of the Legal Aid Fund has not only allowed this field of litigation to burgeon in recent years, but, with its regular pay-outs from the taxpayer, has cushioned lawyers from the economic realities of operating in this field of law.
3.16.	The Government remains of the view that sufficiently experienced lawyers ought to be able to undertake these cases profitably on conditional fees even where clients could not meet themselves the costs of investigating and running cases. However, the Government accepts that the provision of insurance for such cases is still relatively new and developing, and that many solicitors' firms may not be financially structured to enable them to carry this work. Moving from the present position, with heavy dependence on the regular cashflow provided by taxpayers through the Legal Aid Fund, to the position it believes ought to exist, may be too great a step for many law firms to take quickly. The Government does not intend to remove medical negligence now but will look to do so as the market develops and lawyers adapt to the greater use of conditional fee agreements.
3.17.	However, the Government does need to tackle the problem of the high number of cases that recover nothing or next to nothing. The net cost of medical negligence cases to the taxpayer last year was £27 million. Looking at the cases closed by the Legal Aid Board in 1996/97, 32 cases recovered £500,000 or more. Leaving these cases aside, the average cost of cases was £4,122 to recover average damages of £4,107. In only 17% of cases was £50 or more recovered (and 1996/97 was a good year: closed case data from previous years shows recovery rates between 13% and 17%). Medical negligence cases are a specialist area of litigation. It can be difficult to identify at the outset whether a case has merit, and even as the medical evidence unfolds whether the negligence alleged has caused the ailment or injury. The Government believes that part of the reasons for the high failure rate is that cases are being pursued by lawyers who are insufficiently experienced in this area of litigation. They do not have the experience or knowledge to identify at from the outset cases which have little merit, nor can they properly appraise the evidence of medical reports that would allow them to stop cases sooner.
3.18.	The Government has been told that developments in the conduct of medical negligence litigation are bringing improvements both in the handling of cases and in their cost. New procedures are being developed which have detailed pre- action protocols to make litigation as straightforward in this area as possible. All of these changes will make this area of litigation quicker and cheaper. However a constant theme of the discussions the Government has had with those who are concerned about medical negligence litigation, whether claimants, defendants or other representative groups, has been that the conduct of this litigation ought to be left only to those who have the experience to undertake this work properly. The Government agrees. We propose to limit the right of choice of solicitor who may undertake medical negligence cases under legal aid.
3.19.	In future, the Legal Aid Board should provide assistance in these cases through contracts under Part IV of the Legal Aid Act 1988. Contracts would be given only to solicitors who have shown that they have sufficient competence in this area. Competence might be demonstrated by membership of the Law Society Medical Negligence Panel, or of some other panel (for example, that maintained by the Action for Victims of Medical Accidents), or by some other objectively verifiable criterion. It might not be necessary for the Board to enter into contracts with Counsel, because quality control would be achieved through the choices made by solicitors of the counsel they instructed. It may be thought that solicitors of experience and competence in this area are best placed to select counsel similarly expert. On the other hand, it might be preferable for the Board to have contracts with counsel from whom solicitors could make their choice.

3.20.	Should representation in medical negligence cases be limited to those lawyers, whether solicitors or barristers, who have shown that they have sufficient competence in this area;
3.21.	*By what measures might competence be determined.*

3.22.	The Government is satisfied that the conditions do exist to allow non-medical negligence personal injury cases to be financed through conditional fee agreements. As has been mentioned, some 34,000 cases had been brought by the end of 1997 using the Law Society backed insurance scheme to protect themselves against the potential costs of losing and having to pay their opponents costs. The premiums range from £92 to £155 (exclusive of tax) and provide cover for up to £100,000 of costs and disbursements. More products are being developed all the time. There is already considerable experience of using conditional fees in this area. The Government is also talking with the insurance and banking industry to help them develop more and even better products that can ensure that lawyers can undertake cases on a conditional fee basis for the poorest client with lawyers meeting on-going costs. The new products might take the form of funding packages that allow a lawyer to draw down part of his fee in advance, or that include 'stop-loss' protection for lawyers against a run of losses in high risk cases. The Government will do all it can to encourage lawyers to adapt to the changing market that they will now find themselves working in, so that those currently receiving legal aid will be able to find lawyers who will act under a conditional fee.
3.23.	In addition, there are a number of other categories of case in which conditional fees will become available which the Government believes do not have sufficient priority to justify public funding. It intends to remove any claims for money or damages arising from: disputes about inheritance under a will or an intestacy; matters affecting the administration of a trust or the position of a trustee; matters relating to the position of directors of companies, restoring a company to the Register or dealing with the position of minority shareholders; matters affecting partnerships; matters before the Lands Tribunal; cases between landowners over a disputed boundary of adjacent property; and cases pursued in the course of a business.
3.24.	The extension of conditional fees in these areas will provide increased access to justice for those who presently need help in similar cases but do not qualify for legal aid. The Government believes that almost all cases in these categories can and ought to be financed through a conditional fee agreement. In competition for the use of taxpayers' money, the Government does not believe these categories can command sufficient priority to warrant continued coverage within legal aid.
3.25.	The Government also proposes to remove the categories mentioned in paragraphs 3.22 and 3.23 from the scope of advice and assistance under Part III of the Legal Aid Act 1988.

3.26.

The Government would welcome views on the categories of cases mentioned in paragraphs 3.22 to 3.23 that it is intended to exclude from the scope of legal aid, and whether any other categories of case should be excluded.

3.27.

The changes outlined above will lead to some 60% of money or damages claims being removed from the scope of legal aid. For the remainder, including medical negligence mentioned above, the Government believes that, once conditional fees are extended, the necessary products and experience will become available reasonably quickly to allow it to remove the remaining categories from the scope of civil legal aid. However, the Government wishes to give lawyers and insurers time to gain the experience they need to ensure that where legal aid is removed the market can provide, for cases with sufficient merit, the alternative of conditional fees. Over the next few years the Government will transfer remaining money or damages cases from support through legal aid to financing through conditional fee agreements.

3.28.	The Government recognises that the transfer from legal aid to conditional fees has to be managed. The Government will consider whether transitional provision needs to be made for cases which have similar problems to medical negligence cases of high investigative costs or high costs overall. As with medical negligence we expect the market to develop to be able to deal with these cases. However in the meantime we propose to make arrangements to ensure that people with good cases who face these problems may be receive some public assistance. This could be either in the investigation stage or where they have entered into a conditional fee agreement, but the costs of running the very strong cases have become so high that in present circumstances solicitors might generally not be able to bear them (in excess, say of £100,000).
3.29.	Until the success fee is recoverable from the other party it might still prove difficult to find a lawyer ready to undertake the case on a conditional fee basis, if the potential damages are insufficient to cover the success fee, or could only do so by exceeding the 25% voluntary cap. This might be because the size of the claim was relatively low in relation to the likely cost of the case. These may also be cases where transitional help may be necessary.
3.30.	As we said earlier we wish to focus legal aid funds among other things on public interest cases. Accordingly where those cases which we exclude from legal aid demonstrate a significant wider public interest, assistance could also be made available under the transitional arrangements ahead of primary legislation.
3.31.	It will be necessary to decide what should constitute public interest. For example, a test case about a novel point of law might have no more than a 50% chance of success, but the decision could impact on numerous future cases (for example, recent cases involving sporting injuries have extended the duty of care owed by officials wider than was previously accepted). Or a claim for a relatively small sum in damages might benefit a large number of other people with a similar claim. Examples might be claims arising out of the use of pharmaceutical products, and pollution of water supplies or the atmosphere. Very expensive cases often include this type of public interest aspect: they are expensive because they are novel and complex, or because their wide potential impact means that they are hard fought. In the longer term the Government will wish to take powers to fund public interest cases which will potentially go wider than the limited ambit of the special cases fund being discussed here.
3.32.	The Government wishes to ensure that cases in categories which have been removed from the scope of legal aid, but currently may not attract a conditional fee, for one of the reasons outlined in paragraph 3.28 above, and which also have a significant public interest element, can continue to receive help from the Legal Aid Fund. For this purpose, public interest cases are defined as those which affect, or potentially affect, a wider group of people than those directly involved. To justify legal aid funding, a case would have to demonstrate the potential to produce tangible benefits for a significant number of people in a definable category. This should include cases involving novel points of law likely to have a real impact, but not points that are only of academic interest.

3.33.	What are the types of exceptional case, within the categories likely to be excluded from legal aid, that might justify continued funding either because they involved a significant public interest because the costs became too high to make the case currently suitable for a conditional fee?
3.34.	*Is the threshold of £100,000 for defining a high cost case reasonable?*

3.35.	Subject to consultees' views, the Government intends to establish a transitional limited fund for high investigative cost, for high cost cases that are unlikely to attract a conditional fee in current circumstances, and for public interest cases. The fund would be managed centrally by the Legal Aid Board. The Board would negotiate an individual contract in each case that qualified for help under the special arrangements.
3.36.	The fund is intended to assist the transition and to help cases that, initially at least, may not be run now under a conditional fee without some element of subsidy. The Government wishes to ensure that lawyers and clients have an incentive to use conditional fees whenever possible. One way of achieving this might be for the Board's contracts to provide supplementary funding, leaving the lawyers to operate on a conditional fee basis for an agreed proportion of the cost of the case. Alternatively legal aid might fund the disbursements, but the lawyer's profit costs would remain on a conditional fee basis. The legal aid funding would, in effect, bridge the gap between the actual cost of the case, and the level of cost at which the case could be run with a conditional fee. The assisted person would pay their lawyer a success fee.
3.37.	A scheme of this sort would have much in common with some of the ideas, recently published by The Law Society, for a Conditional Legal Aid Fund, ( see paragraph 4.6) although we would not expect the transitional fund to be self- financing. The Lord Chancellor intends to ask the Legal Aid Board to make detailed proposals for operating a scheme along these lines.

3.38.

Is this approach feasible? Are there other ways of introducing incentives to use a conditional fee, rather than legal aid, whenever possible?

4.1.

This section of the Consultation Paper considers the proposals the Government has received from both the Bar and the Law Society suggesting some form of self-financing fund and the potential for expansion of legal expenses insurance and bulk purchase of legal services through litigation schemes run by various organisations.

4.2.

The proposed fund would operate by requiring clients in winning cases to make payments into it from the money or damages they recovered. These would be used to meet the costs of clients in losing cases, of the successful opponents of those assisted by the fund, and possibly also the administration costs of the fund.

4.3.

Under the Bar's proposals for a Contingency Legal Aid Fund (CLAF), successful plaintiffs would pay an agreed proportion of their winnings into the Fund to meet the cost of unsuccessful cases. There would be no financial eligibility test. This has the attraction that it would potentially provide access to justice to those presently ineligible for legal aid. The CLAF would run alongside the availability of conditional fee agreements, and the Bar believes would compete with the fees being charged on conditional fees. The Bar has undertaken a preliminary feasibility study which suggests that a CLAF could be self financing but might need something of the order of between £15 million and £45 million as a start up loan. The Government is grateful to the Bar for the work it has done. However, despite the hope expressed by the Bar that a CLAF could cover a wide range of categories of case, the feasibility study suggests that to be viable, a CLAF would have to concentrate on the categories of litigation in which there was generally a high success rate with good damages to costs ratio, largely personal injury actions. The study excludes from its analysis other damages and contract cases.

4.4.

Whether a CLAF is fully self-financing depends on its success rate and the amount of the surcharge. The tougher the merits test, the lower the surcharge necessary. Given the existence of conditional fees, there is a danger that the strongest cases would not use the CLAF, because successful conditional fee agreement cases would be more profitable for lawyers; or lawyers could offer more competitive terms to the client; or because the client preferred to pay a mark-up on costs under a conditional fee rather than a surcharge on potentially high damages. This is known as adverse selection. The more adverse selection, the more likely that the CLAF will not be viable, or will be viable only by charging very high success fees (thereby generating more adverse selection in a downward spiral that would end in bankruptcy). A CLAF also requires significant start-up funding to cover costs incurred before the fund has been built up by winning some cases. Initially, therefore, the charges made on winning cases must cover not only the expected costs of losing cases, but also the repayment of any start-up loan. By contrast, a success fee for a conditional fee is set on a case by case basis at a level commensurate with the risk involved to the solicitor.

4.5.

A CLAF does have advantages over individual conditional fees: the fund would be bigger than the value of the work undertaken by individual solicitors' firms. This means that it is probably a more cost-effective way of dealing with disbursements and inter partes costs because it could fund disbursements without borrowing; and self-insure against costs. It could also bear the risk of some cases that could not be run under a conditional fee (see paragraph 3.28)

4.6.

The Law Society's proposals for a Conditional Legal Aid Fund (CoLAF) are less developed, but seek to combine some element of risk sharing between the Fund and the lawyer. The proposals set success fees in relation to costs rather than damages. The Law Society suggests that a scheme should offer three funds structured in the following way:

4.6.1. The client receives legal aid and costs protection. The lawyer is paid under present legal aid payment arrangements (including payment on account of profit costs and disbursements), but the client pays a success fee to the Fund based on the risk assessed by the Board on advice of the lawyer.

4.6.2. The client receives legal aid and costs protection. The lawyer works on a no-win-no-fee basis but is paid disbursements on account. The client pays a success fee in the usual way but this is shared between the lawyer and the Fund.

4.6.3. As 4.6.2 but the client does not receive costs protection and is required to pay either after-the-event insurance or a higher success fee to reflect the fact that the Fund would meet the opponent's costs if the case were lost. The proportion of the success fee due to the Fund would be greater than in 4.6.2 to reflect the position on liability for costs.

4.7.

As with the Bar's proposals, the Law Society see a CoLAF as providing the opportunity to extend financial eligibility (subject to the payment of appropriate contributions).

4.8.

It should be noted that the CoLAF proposals continue a provision in the present legal aid arrangements which is widely criticised: that an assisted person, and the Legal Aid Fund, is almost entirely protected against the possibility of having to meet the costs of those who successfully defend or bring proceedings against an assisted person. If, as is proposed by the Law Society, the CoLAF is to be extended to give wider coverage than presently given by legal aid, there must be a concern about the long term effect of extending to a greater proportion of litigation the kind of costs protection currently found in the legal aid system. If fairness required cost protection to be removed, leaving litigants in an even position, whether assisted by a CoLAF or meeting their own legal costs, the CoLAF would have to meet the costs of the successful opponents, in the way that the CLAF proposed by the Bar seeks to do. Meeting the costs in losing cases would add to the level of the fee required from winning cases in order to make the Fund viable.

4.9.

The Government has considerable reservations whether a CLAF or CoLAF could be viable. To achieve a self financing fund it seems clear that some form of compulsion would be necessary to ensure that all cases were brought within the scope of the fund. Effectively conditional fees would have to be made unlawful. Yet the advent of conditional fees has provided access to justice for tens of thousands of people and has the potential to enable access for many more. The insurance and banking industries are developing products which will further assist the development of conditional fees. This suggests that conditional fees will increasingly become a basis on which cases are financed. The Government does not think it would be right to prevent the further development of conditional fees which are proving to be so successful.

4.10.

Consequently, the Government does not believe that a CLAF or CoLAF, especially if mainly used as a safety-net for cases that lawyers or their clients chose not to take under conditional fee agreements, could ever be self-financing in competition with conditional fees. Put simply, a CLAF will not work alongside conditional fees. The more that a CLAF or CoLAF supported marginal cases, the higher would be the success fees it had to charge. The Government believes, therefore, that it is doubtful whether it would ever be possible to construct a CLAF that was viable. Even were that possible, it remains unconvinced that either a CLAF or CoLAF which required subsidising from public funds, whether as a start up loan or ongoing support, has sufficient priority for funding or would be an appropriate use of taxpayers' money.

4.11.

If, however, either professional body is confident that a self financing fund could be viable, in competition with conditional fees, there is no reason why they should not establish and manage it privately. A privately run CLAF or CoLAF, if viable, would be a worthwhile addition to the legal services market extending client choice. If the CLAF or CoLAF were truly able to compete with conditional fees, this would provide positive incentives to solicitors to set competitively low success fees. A Fund of this type would have to bear the costs of losing cases. This would address one of the major areas of complaint against the present legal aid system: that it is almost impossible to obtain orders for costs against assisted persons when they lose the case. If a business case could be developed that demonstrated that a fund would be viable, the Government would reconsider whether the priorities for legal aid included assistance with the initial start up costs of a CLAF or CoLAF.

4.12.

The Government is committed to making conditional fees work. Through the policies it has set out in earlier parts of this paper, it intends to ensure that conditional fees allow the opportunity for access to justice that it wishes all members of the community to enjoy. How far this is realised will depend on how the financial and legal services markets respond. The Government must ensure that it can provide alternative mechanisms should its preferred course not achieve all that it expects. Consequently, the Government is considering taking the necessary reserve powers to allow it to establish a CLAF (which might also require the limitation or abandonment of the use of conditional fees to enable a CLAF to run successfully).

4.13.

The Government is keen to encourage the wider use of legal expenses insurance more generally, both for before-the-event and after-the-event insurance. Many people have legal expenses insurance as part of other insurance polices they hold at premiums so small that most do not realise they have cover in the eventuality that they need to go to law. These polices have been available for over twenty years and over 17 million people are already covered by one of these policies. They usually cost between £4 and £20 a year. The Government wants to see a varied market for providing products to enable people to go to law if the need arises. The Government is therefore keen to do what it reasonably can to assist the market for legal expenses insurance to develop to its full potential.

4.14.

The Government would welcome views on how it could facilitate the development of legal expenses insurance, whether through changes to the law or otherwise.

4.15.

Through contracting with specialist solicitors firms, various organisations, notably legal expenses insurers, the trade unions, and motoring organisations provide cost-effective and quality assured litigation services to their members and increasingly to their members' families. Larger groups or organisations can use their greater purchasing power and more informed knowledge of providers of legal services to purchase legal services of the right kind and quality for their members. The wider these services are made available not only to members but to their families or to others the greater the choice generally in finding ways of meeting lawyers' bills.

4.16.

The Government therefore welcomes and is discussing with the TUC their suggestion that their arrangements with solicitors might be opened up to a wider category of people and, in particular, to those who now rely on legal aid to pursue compensation for personal injury. The Government is aware that the continued success and any opening up or expansion of such litigation arrangements may require it to reconsider current and proposals rules governing the recovery of costs in civil proceedings.

4.17.

The Government would welcome views on how it could help sustain the continued success and the expansion of what amount to bulk purchasing arrangements by insurers, trade unions and other organisations.

5.1.

The package of reforms set out in this Paper marks the first part of a planned programme of modernisation that the Government wishes to implement over the next few years. The proposal set out in previous chapters can be achieved without primary legislation. Legal aid plays a vital part in ensuring that those among the poorest and most disadvantaged can obtain remedies in the courts. However, provision of scarce public resources cannot be without limit, nor can it be made without an assessment of the comparative benefits of expenditure.

5.2.

The Government is beginning to frame a legal aid system for the 21st Century, better targeted towards areas of greatest need like social welfare and public interest cases. Contracts for medical negligence and cases under the transitional fund are part of the move to better quality and value for money through contracting. We shall bring forward our plans for completing the programme of reform in a White Paper later this year.

5.3.

The Government invites comments on the proposals made in this paper, summarised below.

5.4.

Extending Conditional Fees

5.4.1. Are there any types of proceedings for which conditional fee agreements should not be allowed; and if so why would these not be suitable for conditional fee agreements? Paragraph 2.8

5.4.2. What types of monitoring or other research ought to be undertaken and over what period. Paragraph 2.12

5.4.3. What changes to the law might assist the development of conditional fees? Paragraph 2.18

5.4.4. Should the success fee and any insurance premium be recoverable against the losing party? Paragraph 2.19

5.4.5. If the success fee was recoverable, when should a party disclose the success fee he has agreed with his lawyer? Paragraph 2.20

5.4.6. What rights should the party liable to meet the success fee have to question the basis on which it had been agreed? Paragraph 2.21

5.4.7. How should any disagreement best be resolved? Paragraph 2.22

5.5.

Modernising Legal Aid

5.5.1. Should representation in medical negligence cases be limited to those lawyers, whether solicitors or barristers, who have shown that they have sufficient competence in this area Paragraph 3.20

5.5.2. By what measures might competence be determined. Paragraph 3.21

5.5.3. The Government would welcome views on the categories of cases mentioned in paragraphs 3.22 to 3.23 that it is intended to exclude from the scope of legal aid, and whether any other categories of case should be excluded. Paragraph 3.26

5.5.4. What are the types of exceptional case, within the categories likely to be excluded from legal aid, that might justify continued funding either because they involved a significant public interest or because the costs became too high to make the case suitable for a conditional fee? Paragraph 3.33

5.5.5. Is the threshold of £100,000 for defining a high cost case reasonable? Paragraph 3.34

5.5.6. Is the approach set out in paragraphs 3.35 to 3.37 feasible? Are there other ways of introducing incentives to use a conditional fee, rather than legal aid, whenever possible. Paragraph 3.38

5.6.

Other Funding Mechanisms

5.6.1. How can the Government facilitate the development of legal expenses insurance, whether through changes to the law or otherwise? Paragraph 4.14

5.6.2. The Government would welcome views on how it could help sustain the continued success and the expansion of what amount to bulk purchasing arrangements by trade unions and others. Paragraph 4.16

i	s58(3)
ii	s58(10)
iii	Conditional Fee Agreements Order 1995 (SI 1995 No 1674)
iv	Conditional Fees Agreements Regulations 1995 (SI 1995 No 1675)
v	The Price of Success Lawyers Clients and Conditional Fees, Stella Yarrow (Policy Studies Institute) 1997
vi	Section 58(9) of the Courts and Legal Services Act 1990 allows Rules of Court to make provision with respect to the taxation of costs payable under a conditional fee agreement. The relevant court rule is Order 62 Rule 15A of the Rules of the Supreme Court 1965
vii	s58(8) Courts and Legal Services Act 1990

Access to Justice with Conditional Fees
A Lord Chancellor's Department Consultation Paper

March 1998

1. THE WAY AHEAD

2. EXTENDING CONDITIONAL FEES

3. MODERNISING LEGAL AID

4. OTHER FUNDING MECHANISMS

5. CONCLUSION AND SUMMARY OF QUESTIONS