Privatising access to justice
The introduction of the conditional fee system, supported by after-event insurance, demonstrates the government's determination to widen access to justice, by privatising it and moving away from the civil legal aid system. The Court of Appeal decision in Callery v Gray demonstrates the complex relationship between lawyers and insurance providers in conditional agreements. Whereas the role of lawyers in the conditional fee system has been regulated by legislation, the after-event insurance industry has been largely unregulated, apart from market forces. The case of Callery v Gray sets out some fundamental principles.
Introduction
Access to justice and rule of law are the hallmarks of a civilised society, but legal rights are only meaningful if they can be enforced. Litigation is inherently risky and both parties must assess the risk of losing against the benefits of winning. Usually the loser has to pay the winner his damages and legal costs (as well as the loser's own legal costs). This "loser pays" rule operates to promote the resolution of cases according to the merits; weak cases are abandoned and strong cases are settled. This discourages speculative litigation but the high costs and risks of civil litigation have meant that only the wealthy and those who qualify for legal aid have had access to lawyers. As a consequence the civil justice system is in danger of being brought into disrepute for not being avail-able to ordinary people. To address the problem government has introduced radical reform which amounts to the privatisation of access to justice.
Conditional fees
Conditional fee arrangements (no win, no fee) have been permissible since 1995 for limited claims. They are available now for all civil money claims. They are not permitted in criminal cases or civil proceedings involving matrimonial, family, children or adoption matters. They represent an exception to the ancient prohibition against maintenance and champerty.
In a conditional fee arrangement solicitor and client agree that in the event of a successful outcome the solicitor may charge an enhanced fee, up to 100% of the basic fee, and nothing in the event of failure; this can operate as "double or quits", providing the lawyer with a bonus if the claim succeeds. The solicitor has to assess the prospects of success of the case and decide whether or not to take it on; the reward for assuming the risk is the increased fee. The level of the success fee is assessed according to the prospects of success. The risk of funding the litigation is underwritten by the lawyer. The element of contingent fee uplift is related to an enhancement of the basic fee; it is not related to a percentage share in any damages awarded.
Under our costs rule, an unsuccessful litigant must pay the opponent's legal costs. Conditional fee agreements thus only provide access to legal representation; however, there is exposure to costs liability should the case fail. After-event insurance to protect against such liability is available. The combination of conditional fees sup-ported by after-event insurance provides a system for independent privatised access to justice; the risks of litigation (funding and costs liability) are shared by the lawyer and the insurer. It is probably the availability of insurance provided by the insurer rather than legal representation provided by lawyers which determines access to justice.
Recent years have seen the development of an increasing range of insurance products in response to consumer needs and demands. It is essential that there is consumer choice arising out of competition between insurance providers.
The conditional fee system imposes a commercial discipline to ensure that the prospects of success of a case are properly investigated. Competence is rewarded and incompetence is penalised. There are appropriate inbuilt incentives to ensure quality control and to deter abuse. There is an identity of interest between the client, lawyer and after-event insurer: all want the claim to succeed.
The relationship between a lawyer and client is regulated largely by the Access to Justice Act 1999 (and subordinate legislation). By contrast, the provision of after-event insurance has been largely unregulated. The successful privatisation of access to justice requires cooperation and understanding between the legal profession and the insurance industry.
Callery v Gray
This case concerned two decisions of the Court of Appeal last summer (Callery v Gray (1) and Callery v Gray (2)). These were appeals by the defendants in two personal injury cases arising out of road accidents which were run on conditional fee agreements and settled without the need for court proceedings. The issues in Callery v Gray (1) were (1) the time at which it was appropriate to enter into a conditional fee agreement and take out after-event insurance policy; (2) the reasonableness of the success fee charged, particularly where a claim was quickly resolved without the need for court proceedings; (3) whether claimants were entitled to recover an after-event premium at all in those circumstances; (4) the reasonableness of the after-event premiums for which claimants were seeking reimbursement by defendants when their claim succeeded. The court held that (1) after-event premiums were in principle recoverable as part of the claimant's costs, even where the claim was quickly resolved without the need for proceedings; (2) it was in principle permissible for a claimant to enter a conditional fee with a success fee and take out after-event insurance when first consulting a solicitor, and before the solicitor wrote a letter of claim and received the defendant's response; (3) in modest and straightforward claims for compensation resulting from road traffic accidents where a conditional fee agreement was agreed at the outset, 20% was the maximum uplift that could be reasonably agreed; (4) it was open to a solicitor and client to agree a two-stage success fee at the outset of proceedings, for example an uplift might be agreed at 100%, subject to a reduction to a maximum of 5%, should the claim settle before the end of the period fixed by the pre-action protocol.
In Callery v Gray (2) the Court examined the insurance position more closely. The court held that: (1) the words "insurance against the risk of insuring a costs liability" in section 29 of the Access to Justice Act 1999 mean "insurance against the risk of incurring a costs liability that cannot be passed on to the opposing party". This interpretation accorded with Parliament's legislative intention and with the overall scheme for the funding of legal costs; (2) in this case, the whole of the cover, including the small element of cover for "own costs insurance" could be regarded as falling within the description of insurance against the risk of liability within section 29; (3) the premium cost of £350 was considered reasonable. The Court also went on to provide guidance on the recoverability of assessment fees.
In the coming year the court is bound to be troubled with novel issues thrown up by further cases. The decisions in Callery v Gray helpfully provide that reasonableness and proportionality should operate in deter-mining the level of recoverability of success fees and insurance premiums.
The other articles contained in the Litigation Review 2002 may be found on by clicking on ‘your latest information’ on our website www.law-now.com. Alternatively, to access a PDF of the complete review please click here.
For further information on this article please contact the author Anthony Barton by telephone on +44(0)20 7367 2117 or by e-mail at anthony.barton@cms-cmck.com.
For further information on this review in general, please contact Tim Hardy on +44 (0) 20 7367 2533 or by e-mail at tim.hardy@cms-cmck.com.
