Making Simple CFAs a Reality
Response by Thompsons Solicitors - September 2004
Thompsons is the UK’s most experienced trade union and personal injury law firm. It has a network of offices across the UK, including in the separate legal jurisdiction of Scotland and Northern Ireland.
Thompsons has been an active participant in government consultation on legislation.
At any one time Thompsons will be running 70,000 personal injury claims on behalf of claimants only. Thompsons does not act on behalf of insurers or employers.
In our response to the original consultation paper in September 2003, Thompsons stated that the firm’s primary concern was with the impact of the Conditional Fee Agreement (CFA) regime upon trade unions and their members.
We reiterate our position in this follow up consultation. The firm considers that the DCA response to the consultation has still not taken on board the impact of the regime on trade unions.
The rejection of the reversal of Sarwar is unjustified and we do not consider that the explanation given is an adequate response, especially given the significant role that unions have played in providing access to justice for members and their families. The trade unions have funded far more personal injury cases than the Legal Aid Board or any other provider of legal services and remain the most important provider of legal services to victims of personal injury.
The response by the DCA to the unions’ request that Sarwar be reversed is extremely disappointing. It repeats the impression given by the CFA regime that trade union funding is supplementary to private case funding.
The provision of discretionary legal funding for personal injury and employment litigation is one of the main reasons why people join unions. Trade union members, who choose to take advantage of their trade union legal services, should not be forced to use before the event (BTE) legal expense insurance instead. BTE is inferior protection to that afforded by trade unions. It is usually an ‘add on’ to household or other insurance policies and so is not chosen by an individual because they believe it will provide them with the best legal protection should they need to take a personal injury claim.
When a union represents a member in a claim, the union initiates a premium which is specifically designed to cover the legal services being provided to the member. The provider of legal services to the member’s union will have ensured that the policy is the most suitable for the member’s claim. Providers of legal services to unions are accountable to the union client as well as to the individual member and so have to guarantee the highest possible level of service, including by ensuring that the best insurance cover is purchased.
Because claims made using BTE insurance do not attract a success fee there is no incentive for solicitors to take risks. This means they will “cherry pick” cases most likely to succeed – typically those with an 80 to 90 per cent chance of success. Trade union legal assistance schemes do not do this. Neither do they under-settle cases in order to avoid higher costs if the claim proceeds.
Thompsons is surprised by the suggestion that the solution is for unions to market their legal services. Trade unions already do an extremely professional job of promoting their legal services, though members’ journals, direct mail, conferences, seminars and other promotional activities.
Sarwar undermines the ability of unions to fund cases through CCFAs and insurance/self-insurance. It forces members to make use of inferior and risk averse BTE arrangements controlled by the insurance industry even if they would prefer to make use of the trade union arrangements. The issue has little to do with the effectiveness of the unions’ marketing campaigns.
The refusal to extend self-insurance to include unrecovered disbursements is inexplicable. How can the DCA say that limiting self-insurance costs to opponents’ costs will balance the needs of membership organisations with those of defendants, when the playing field for the trade unions is so clearly uneven? The principle of ‘polluter pays’ should determine what is fair, not restricting the ability of the claimant lawyers to recover disbursements.
The DCA’s explanation of the decision on membership organisations’ self-insurance repeats the inaccuracy that we sought to correct in our original response to the consultation. Section 30 of the Access to Justice Act 1999 does not allow unions to recover the cost of self-insurance for unrecovered disbursements. It only allows recovery of self-insurance in respect of defendants’ costs. Why should unions be able to recover only in respect of defendants’ costs when commercial insurance can cover both defendants’ costs and own disbursements? There is a real danger that the impact of this position will be to deter unions from backing meritorious cases that have a lower chance of success. That would be an extremely serious blow to the principle of access to justice.
We state again that the anomaly limiting self-insurance should be removed. This can only be achieved by primary legislation.
The continued refusal by the DCA to abolish the indemnity principle is another blow to the unions’ efforts to provide access to justice. Prior to last year’s consultation the unions were told that abolition depended on the outcome of the consultation and not on whether an immediate alternative was available. Now we are told that it is the absence of a replacement which prevents abolition. This despite the fact that there was a general consensus that the indemnity principle should go, that primary legislation is required and that finding an alternative basis for assessing costs should not be difficult.
The indemnity principle is only of benefit to those seeking to bring technical challenges and therefore it impedes access to justice. It was a barrier to access to justice, prior to the introduction of CFA’s in the mid-1990’s and has returned to a far greater extent since the 1999 reforms. In the absence of the indemnity principle, the technical challenges would have no basis and would fall away. It is the single most important barrier to the simplification of CFAs.
With the weight of opinion against the indemnity principle the DCA should abolish it.
We repeat our call for root and branch reform of the CFA regime, not simply definitive minor amendments within the constraints of secondary legislation.
- Do you think the proposed regulations could be simplified further?
- Do you have any comments on the detail of the regulations, and have you any suggestions for amendment?
The regulations are fundamentally flawed with regard to CCFAs. In what appears to be a clear error, they apply to CCFAs the terms which appear to be intended to apply to CFAs. The net result, if not amended, would be a far heavier regulatory touch for CCFAs than at present and simply unworkable arrangements for CCFAs.
Suggested amendments are at the end of this response paper.
In circumstances where fixed recoverable success fees will apply (fixed recoverable success fees for all RTA claims brought on a CFA came into force on 1 June 2004) should the requirement for a risk assessment in regulations 4(1) and 6(1) be dis-applied?
Yes. An individual risk assessment would be pointless. The fixed recoverable success fees have been determined on the basis of detailed research into the various risk profiles of RTA cases. They proceed on the basis of a single success fee for all cases, irrespective of the particular risks applicable to that case. In the circumstances, where the fixed recoverable success fees apply, it would be pointless to require risk assessments. This could only create confusion, give rise to unnecessary costs and provide for unmeritorious technical challenges by defendants in cases where the solicitor has understandably waived the need for a risk assessment on a particular case.
Although the solicitor should not be required to prepare a risk assessment, they may still do so where appropriate. This will be applicable to high-risk cases where the solicitor sought under CPR a success fee higher than the fixed success fee.
- It is likely that Rule 44.16 will need to be amended if these regulations are introduced? What other consequential amendments, if any, would need to be made to the Civil Procedure Rules or Practice Directions?
Numerous amendments are required to CPR in respect of CCFAs and Section 30 arrangements. When CPR was amended to reflect the introduction of CCFA’s and Section 30 arrangements, the unions were not properly consulted. Consequently, CPR is inconsistent with the legislation, the Regulations and practical arrangements.
To their credit, the courts have dealt with this unsatisfactory position pragmatically and significant difficulties have not arisen. However, a tidying up exercise would be appropriate to ensure certainty and consistency and to avoid unmeritorious technical challenges and satellite litigation.
CFAs and Defamation
- How should the guidance by the Court of Appeal be developed to ensure that costs in defamation actions are reasonable and proportionate?
- What scope is there for new ‘protocols’ or agreements between the main claimant and defendant parties to provide a sustainable regime that ensure access to justice with reasonable costs for those genuinely defamed while frivolous or excessive claims are excluded?
Although Thompsons do have a limited involvement in defamation cases, we would not consider it appropriate to respond to this aspect of the consultation process.
Suggested Amendments on the Draft Conditional Fee Agreement Regulations
The definition of “funder” is consistent with the current definition under Regulation 1 of the CCFA Regulations 2000. By Regulation 6(1) of the 2000 Regulations and Regulation 7(2) of the proposed 2004 Regulations, the funder must be a signatory to the CCFA.
This combination excludes circumstances where a membership organisation, such as a trade union, wishes to provide a framework for legal services to its members, without being liable to pay the legal representatives fees.
It is suggested that the concept of CCFAs be extended to include this type of arrangement by amending the definition of “funder” to provide:
“Means the party to a Collective Conditional Fee Agreement whether or not, under that Agreement, that party is liable to pay the legal representative’s fees”.
Regulations 3 and 4
These Regulations are clearly intended to apply to individual CFAs only. However, pursuant to the Courts and Legal Services Act 1990, a CCFA constitutes a form of CFA. Section 58 gives authority only to make Regulations in respect of CFAs and it is the Regulations themselves which provide for CCFAs as a sub-category of CFAs.
Under the 2000 Regulations, this difficulty did not arise because Regulation 7 of the CCFA Regulations ensured exclusivity so that the CFA Regulations could not apply to CCFAs.
By now amalgamating the regulations into one, and in the absence of an express provision that Regulations 3, 4 and 7(1) do not apply to CCFAs, they will apply.
That would render CCFAs unworkable and is clearly not the intention of the Department or those drafting these Regulations.
In effect, it would end the use of CCFAs and that is clearly not the intention.
A new Regulation is proposed providing:
“Regulations 3, 4 and 7(1) do not apply to a Collective Conditional Fee Agreement”.
Regulation 5(3) requires that the CCFA and any statement prepared under Regulation 6 (ie the risk assessment) must specify the circumstances in which it represents fees and expenses, and how much of them are payable.
The inclusion of risk assessments in this provision is new, unworkable and unnecessary.
It is new in that Regulation 4(1) of the 2000 Regulations refers only to the CCFA and not to the statement/risk assessment. Likewise, in relation to individual CFAs Regulation 3(2) of the proposed 2004 Regulations refers only to the CFA and not to the statement/risk assessments.
It is unworkable in that it would require a detailed explanation to be attached to each statement/risk assessment. That would be a highly onerous task, particularly where, upon application of Regulation 8, a CCFA pre-dating the 2004 Regulations then became subject to the Regulations. In those circumstances there may be many thousands of cases where documentation would have to be attached to the statement/risk assessment as the 2004 Regulations would then apply to that CCFA.
It is unnecessary because solicitors are already required by professional conduct rules to explain to their clients their potential liabilities. Regulation 4(2) of the 2000 Regulations duplicated that obligation in professional conduct rules. It is correct that the 2004 Regulations should remove the need for Regulation 4(2) but there can be no point in imposing a requirement that information which has to be given to the client also has to be attached to the statement/risk assessment. That would simply invite technical challenges as in many cases this pointless procedure will not be followed opening the way to uncertainty and satellite litigation.
As outlined above, Regulation 7(1) should not apply to CCFAs.
Under Regulation 8 an amendment to a CCFA made under the 2000 Regulation, even a minor amendment, to cover further proceedings, would render that Agreement subject to the 2004 Regulations.
In many cases this would be unworkable. For example, the 2000 Regulations do not require risk assessment in individual cases to state the percentage increase related to the postponement of fees and expenses. Regulation 6(c) of the proposed 2004 Regulations does contain such a requirement. Accordingly, upon a minor amendment to a pre-2004 CCFA, to cover further proceedings, the additional details would be required to comply with Regulation 6(c). That would then require all of the risk assessments already prepared to be themselves amended. There will be many thousands of such risk assessments and it will be an onerous and pointless task to attempt to trace those cases and amend the risk assessment. Again, this would simply open the way to unmeritorious technical challenges by Defendants and satellite litigation.
This is a problem which is specific to CCFAs and appears to arise out of the attempt to cover CFAs and CCFAs in the same Regulation.
It is suggested that Regulation 8 is divided into two separate sections dealing specifically with CFAs and CCFAs as follows:
“8(1). Where a Conditional Fee Agreement is amended to cover further proceedings or parts of them, Regulations 2, 3, 4 and 7 apply to the amended agreement as if it were a fresh agreement made at the time of the amendment”.
(2) Regulation 8(1) does not apply to Collective Conditional Fee Agreements.
(3) Where a Collective Conditional Fee Agreement is amended to cover further proceedings or parts of them Regulations 2, 5, 6 and 7 apply to the amended agreement as if it were a fresh agreement made at the time of the amendment, but only in respect of new instructions accepted after the date of the amendment.
Although the scope for technical challenges will be reduced by the proposed 2004 Regulations, there will still be technical challenges. It is suggested that the Regulations should include provision similar in effect to that in the consumer credit legislation, giving the court power to disapply a requirement of the Regulations retrospectively in any case, either conditionally, or unconditionally. This would be intra vires the Act and the possibility of attaching conditions would enable the court to make the punishment fit the crime. Such power would then be exercisable by a court considering a dispute inter partes or as between solicitor and client.
Reference is made to “agreements” but this is inconsistent with Section 30 of the Access to Justice Act 1999 and with existing practice.
Section 30(1) refers to undertakings which are in accordance with arrangements satisfying prescribed conditions. There is no requirement for a specific separate agreement in each individual case in the same way that CCFAs do not require an individual CFA in each individual case.
Introducing the concept of “agreements” will cause confusion, inconsistency and satellite litigation.
Further, this is inconsistent with the 2000 Regulations which follow the wording of the 1999 Act using the terms “arrangements” and the “undertaking” made by the membership organisation.
In the circumstances, it is proposed that Regulation 2 be amended to provide as follows:
2. These Regulations shall apply to undertakings given on or after [ ], and undertakings given before that date shall be treated as if these Regulations had not come into force.
Regulation 4(3) requires the arrangements to contain a statement which concerns the liability of the member/other person to pay the costs of any proceedings. However, that is inconsistent with Section 30 which provides only in respect of undertakings to pay the costs of other parties to the proceedings.
As long as Section 30 remains limited to Defendant’s costs, the arrangements should only be required to set out the circumstances in which the member/other person may be liable to pay Defendant’s costs.
If Section 30 is amended to include provision for the member/other persons own disbursements, clearly, the arrangements should also cover that liability.
As outlined in respect of the CCFA Regulations, the court should be given power to disapply any requirement of the Regulations retrospectively in any case, either conditionally or unconditionally, to ensure that, in any particular case, the punishment fits the crime.