Recovering criminal defence costs from Central Funds?

In November 2008 the Ministry of Justice published its consultation paper on the Award of Costs from Central Funds in Criminal Cases. This paper contemplates a shake-up which could significantly impact the financial position of those acquitted in criminal proceedings in England and Wales.

At present, individuals and companies tried on indictment in the Crown Court and acquitted are entitled to recover their legal defence costs from the Central Funds (i.e. the taxpayer). It matters not who they have instructed to defend them so long as the costs are reasonably incurred and reasonable in amount. Costs are assessed by the Court to ensure these criteria are met.

The views of Lord Bach (the Justice Minister) on the current system are clearly expressed in his covering letter accompanying the consultation paper where he says:

“It cannot be right, or a responsible use of taxpayers’ money, that individuals who choose not to take the available State funded service, opting instead to procure a more expensive private service, should then be able to claim back their costs.

We are therefore proposing that, in the future, any individual who does not apply for Legal Aid in defending their case would no longer be able to receive back their legal costs from Central Funds.”

The Government clearly believes that those who can afford to pay towards the costs of their defence should do so and they should not look to the State to fund them. This is a fundamental change to the way in which the English criminal legal system has operated to date. The Ministry of Justice puts forward three alternatives (this is to reflect the fact that one of the three is maintaining the status quo):

• First, no change to the current system.
• Second, restricting access to Central Funds so that defendants who fail to apply for Legal Aid in Crown Court cases would no longer be eligible for Central Funds’ payments if acquitted.
• Third, cap Central Funds’ payments in all cases for acquitted defendants to the relevant Legal Aid rates.

The above proposals are being made at the same time as the Ministry of Justice is consulting on reintroducing means testing in the Crown Court. Save in exceptional circumstances it is proposed that all defendants will, as of right, have access to legal aid for the duration of their case where they are tried on indictment in the Crown Court.

The Ministry of Justice points out that since private rates for legal representation are much higher than Legal Aid rates, if a privately funded defendant which has successfully defended the case against it has recourse to Central Funds, the costs to be borne by the taxpayer can be significant. They say this is particularly true in complex cases involving charges against a company and, on occasion, that claims from Central Funds under private rates, can be several million pounds for a single case.

The Ministry of Justice states that it believes that there is a strong case for reforming the current payment of legal costs from Central Funds to ensure that the need to pay fair rates in criminal cases to practitioners whilst using taxpayers’ money effectively and responsibly are balanced effectively.

Comment:

These proposals, if given effect, will severely curtail a defendant’s ability to recover costs spent on lawyers where they are acquitted in criminal proceedings. It is difficult to see why someone who is wrongly accused and then acquitted at trial should then have to shoulder the financial burden. They would also have a significant impact on insurers, particularly those who write D&O policies. Where Insurers have funded the successful defence of an Insured their ability to reclaim costs from Central Funds will disappear or be severely reduced. Claims arising out of SFO, FSA criminal or HSE investigations/prosecutions and corporate manslaughter/homicide prosecutions will almost certainly be complex and expensive to defend.

Insurers’ ability to recover defence costs from Central Funds where their Insureds have been acquitted is a most important (and valuable) avenue of recovery. This is particularly so where the prosecution results from complex allegations of fraud against multiple defendants. In such cases trials can last for months and involve several firms of solicitors often funded by the same Insurer. The costs of defending the individuals have the potential to run into millions of pounds. If this avenue of recovery is blocked off (or significantly curtailed) the effect may be that Insurers will look again at the cover they are offering and potentially restrict its ambit. Insureds may very well also see an increase in premiums.

The consultation period runs until 29 January 2009. We invite you to read the paper and contact us to discuss the issues raised.

The full paper can be viewed at www.justice.gov.uk.