Seed-funding justice

A call for views: Justin Fenwick QC explains how a properly thought-out contingency legal aid fund on a not-for-profit basis could fit into the new landscape of litigation funding

The idea of a contingency legal aid fund (known for short as ‘CLAF’) has been around for a long time, with the first preliminary feasibility study having been issued by the Bar Council as long ago as January 1998. 

Since then the landscape of litigation funding has changed completely. With the encouragement of the judiciary, a joint working group was set up in May 2016 between the Law Society, the Bar Council and the Chartered Institute of Legal Executives (CILEx) with active support and participation of the Ministry of Justice.

The objective was to see whether a CLAF was a viable and worthwhile option to complement existing forms of litigation funding with the objective of delivering justice at lower cost and/or in ways not currently provided for by other means of litigation funding.

Defining a CLAF

Our preliminary investigations indicated substantial confusion and disagreement over the nature and purpose of a CLAF with mixed views as to its utility and/or viability. To ensure consistency of approach, we defined a CLAF, for the purpose of this working group as follows:

‘A CLAF is a self-sustaining pooled fund to cover the legal costs of a claimant’s civil money claim, where (i) in cases that win, the claimant’s legal costs are recovered from a losing party and a portion of the money recovered is paid into the fund and (ii) In cases that lose, the claimant’s appropriate legal costs are reimbursed by the fund.’

We also concluded that in order to be self-sustaining, a CLAF will need either substantial initial seed funding or, with limited seed funding, would need to start with a relatively small pool of cases in order to be self-sustaining.

It also became clear that to be self-sustaining, cases would need to be selected on the basis of a rigorous merits test and confidence that the claims would be of sufficient value and with good prospects of recoverability of any award of damages and costs. We therefore also formed a preliminary conclusion that, at least at the outset, it would not be possible to support either low value cases or cases with less good prospects of success, although in future the CLAF might be able to fund a small proportion of deserving cases or test cases 
which would otherwise not be viable.

How to make it happen…

Our overall conclusion was that without government funding or substantial voluntary donations, the CLAF would need to generate consistent surpluses to build up a long-term fund and would not be able to look for further funding except on the back of a successful record of achievement.

We also concluded that it was likely, in the absence of very substantial initial funding, that a CLAF would need to obtain infrastructure and administrative support from an established organisation or litigation funder to avoid the costs of establishing the necessary infrastructure to access and manage a suitable volume of viable cases.

We have already received indications of support from several sources which might enable a CLAF to be set up on a relatively small scale without a huge overhead burden, although much work would need to be done to test the appropriateness of such approach.

We were conscious when looking at existing forms of litigation funding that there is a wide variety of models in terms of the remuneration of lawyers, ranging from full or part conditional fees with or without uplifts to normal or concessionary fees paid when incurred.

It is important to the success of a CLAF that it should be seen as a useful and/or attractive form of funding to lawyers as well as to those seeking access to justice. We considered that the model most likely to be attractive, subject to views of the profession, is one which provides early payment of a proportion of normal fees with the balance of normal or slightly discounted fees being available on success, perhaps together with a small uplift for success (although this will inevitably affect the ability of the fund to generate surpluses).

Options for initial funding

The working party has discussed a number of options for initial funding of a CLAF with a view to it being self-sustaining. It will be important to establish an initial fund of at least £3-5m, depending on the nature of any administrative set-up. There are a number of potential sources of such funding, apart from government which may not be prepared to fund the initiative.

A not-for-profit CLAF will have lower costs because of the absence of a need to provide a return for investors. However, its relatively small scale and lack of initial resources will mean that to compete effectively and deliver access to justice at lower cost, it would benefit substantially from assistance by way of rule changes, on the assumption that it will continue to compete freely with other forms of litigation funding without there being any restraint on the current availability of litigation funding. We have therefore considered changes to the rules which might improve the attractiveness and viability of a CLAF without substantial distortion of its competitive position. These will require careful consideration, and the agreement of government, but might include an extension of qualified one-way costs shifting (QOCS) and/or concessionary or conditional court fees.

As a result of our investigations and discussions it became clear that although there was much support for some form of CLAF, it was far from obvious either that CLAF would attract real support or how far there would be support for a CLAF of the kind indicated by the constraints we have identified.

Canvassing views: the questionnaire

For that reason, we have concluded that, with the support and assistance of the Law Society, the Bar Council and CILEx, we are circulating as widely as possible a questionnaire inviting individual views on a number of aspects of the CLAF and its viability and desirability.

I am persuaded that a properly thought-out and established CLAF on a not-for-profit basis can offer a real improvement in access to justice, even if only to a limited pool of litigants and that, if successful it would have sufficient funds to promote increasing numbers of deserving cases which otherwise would not be able to attract funding. However, it is important to establish the degree of support for a CLAF and views as to its nature, funding and constraints and I would therefore strongly urge all lawyers and others to whom the questionnaire is circulated to respond as fully as they feel able to. That would enable us to prepare a final report on the best possible information.

Further information

The questionnaire is available at until 31 January 2017

Contributor Justin Fenwick QC, Chairman, CLAF 2016 Working Group

MAKING THE CASE FOR CLAF: SUCCESS OVERSEAS

Lord Justice Jackson in a keynote speech to the Solicitors’ Costs Conference (February 2016) looked at CLAFs in detail.

Pointing to examples in Australia where such schemes are operating successfully, Jackson LJ also cited the high-profile Hong Kong supplementary legal aid scheme (SLAS), operated by the Hong Kong Legal Aid Department. Established in 1984, it is funded by a levy on damages recovered: 10% in respect of cases that proceed to trial and 6% in respect of cases settled before the brief for trial is delivered. Whilst applicants to the SLAS are means-tested, the eligibility limits are higher than those which apply in the ordinary legal aid scheme (OLAS).

The SLAS was started up with a HK$1m loan (subsequently repaid) provided by the Jockey Club (which has a similar role to lottery funding in the UK). The scheme has been running profitably, in the sense of covering both its expenditure and administration costs, for 31 years. It covers a range of personal injury cases from road traffic to clinical and dental negligence.

In November 2012, it was expanded to cover an additional range of civil claims – in particular, additional categories of professional negligence. The Legislative Council authorised an injection of HK$100m as additional funds to support the expansion of the scheme. As at the end of May 2014, reserves were $189.5m.

THE ACRONYM MAZE: KNOW YOUR CLAF FROM YOUR SLAS (THE JACKSON WAY)

ATE: After-the-event insurance by one party against the risk of it having to pay its opponent’s legal costs, where the insurance policy is taken out after the event giving rise to court proceedings (eg an accident involving personal injury).

BTE: Before-the-event insurance, protecting a claimant or defendant, that was in place before the occurrence of an event giving rise to a legal claim (eg a motor vehicle accident) that covers the claimant’s or defendant’s legal fees, and possibly also those of its opponent (in the event of the insured being ordered to pay their opponent’s costs).

CFA: A conditional fee agreement pursuant to which a lawyer agrees with his client to be paid a success fee in the event of the client’s claim succeeding, where the success fee is not calculated as a proportion of the amount recovered by the client. A typical example of a CFA is where a lawyer is retained on a ‘no win, no fee’ basis.

CLAF: Contingency legal aid fund – a fund which grants legal funding to chosen applicants, where the receipt of funding is conditional on the applicant agreeing to pay a percentage of any amount awarded (eg as damages) back into the fund. CLAFs attempt to be self-financing and operate on a not-for-profit basis.

LEI: Legal expenses insurance that covers a person against his own legal costs and/or the legal costs of an opponent in litigation. LEI includes both BTE insurance and ATE insurance.

SLAS: Supplementary legal aid scheme – similar to a CLAF, in that it is a legal fund which aims to be self-funding, and the granting of funding is conditional upon the applicant agreeing to pay a percentage of any amounts recovered back into the fund. A SLAS is different from a CLAF in that it is usually operated by a legal aid body, and is intended to provide funding to persons who are not of sufficient means to afford legal representation for their case.

Source: Review of Civil Litigation Costs: Final Report, Lord Justice Jackson

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Justin Fenwick QC

Justin has been a practising barrister for 35 years (including 23 years as a QC) specialising in onshore and offshore commercial disputes and professional liability claims. He was Chairman of BMIF 1999 to 2013.