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exceptional circumstances or complexity. In the county court the remuneration
allowed could be doubled; in the High Court it could be trebled.
Standard and graduated fees From the mid-1980s the Government increas-
ingly paid legal aid fees by way of either standard or graduated fees. The stan-
dard fee was either wholly, or more or less, ¬xed for the category of case. So in
the Crown Court, standard fees were introduced for solicitors in respect of con-
tested cases lasting under two days, guilty pleas, committals for sentence and
appeals. The solicitor claimed either ˜the lower standard fee™ or ˜the principal
standard fee™ or he delivered a bill in the traditional way. The determining o¬cer
decided the appropriate fee. In the case of barristers, the standard fee laid down
one fee.47 However, it was found that in a high proportion of cases the lawyers
used the ˜escape clause™ to charge by the hours worked.
Graduated fees are more ¬‚exible because they take more variables into
account. Graduated fees were introduced in 1997. They initially applied to all
Crown Court cases other than those lasting more than ten days or where there
were more than eighty witnesses or over 1,000 pages of material. The system
provided a base fee determined by the most serious o¬ence charged. The base
fee could then be increased by ¬ve factors: the size of the brief, the length of the
trial, the number of defendants represented, other hearings pre-and post-trial
and certain other work by counsel.48
Graduated fees were progressively extended to capture more cases. Since
October 2005 they have applied to all Crown Court cases except very high cost
cases (now de¬ned as trials lasting forty-one days or over).
In May 2001 graduated fees were introduced for payment of barristers in
family work in magistrates™ courts, county courts and the High Court.49
Very high cost cases are managed by individual contracts with the Legal
Services Commission. Work is agreed in advance and there are ¬xed rates for
preparation and court attendance.


Wasted costs orders
The Courts and Legal Services Act 1990, s. 4 provided for ˜wasted costs orders™
against legal representatives. Under the section (and under ss. 111 and 112)
the court may disallow or, as the case may be, order the legal representative
concerned to meet the whole or any part of the wasted costs (s. 4(6)). Wasted
costs are de¬ned as costs incurred by any party (1) as a result of any ˜improper,


47
See ˜Standard fees in the Crown Court™, Law Society™s Gazette, 23 September 1987, p. 2672; A.
Edwards, ˜Standard Fees: a Survival Guide™, New Law Journal, 7 October 1988, p. 722.
48
For a description of the history and the system see Counsel, May/June 1996, pp. 12“15. For
an exploration of the mysteries of the system see P. W. Tague, ˜Barristers™ Sel¬sh Incentives
in Counselling Defendants over the Choice of Plea™, Criminal Law Review, 2007, p. 3 at
11“17.
49
See the Community Legal Service (Funding) (Counsel in Family Proceedings) Order 2001, SI
2001/1071.
570 Costs and the funding of legal proceedings


unreasonable or negligent act or omission on the part of any representative or
any employee of a representative™ or (2) which, in the light of any such act or
omission, the court considers it is unreasonable to expect that party to pay.
The wasted costs order jurisdiction has been fraught with di¬culties. A series
of test cases on ˜wasted costs orders™ were decided in Ridehalgh v. Horse¬eld.50
All six appeals were successful. The orders should not have been made.51 The
Lord Chief Justice™s 1995 Practice Direction (p. 124 above) had emphasised the
importance of wasted costs orders: ˜the paramount importance of reducing
the cost and delay of civil litigation makes it necessary for judges sitting at ¬rst
instance to assert greater control over the preparation for and the conduct of
hearings than has hitherto been customary. Failure by practitioners to conduct
cases economically will be visited by appropriate orders for costs, including
wasted costs orders™,52 but the Court of Appeal™s decision in Ridehalgh v.
Horse¬eld suggested that an appeal by the lawyers from a wasted costs order
would often, if not usually, succeed. In Persaud v. Persaud53 the Court of Appeal,
citing Ridehalgh and Medcalf v. Weatherill,54 said that there had to be something
akin to abuse of process for a wasted costs order to be made. Mere negligence
was not su¬cient:55
Wasted costs are dealt with in CPR 48.7 and the accompanying Practice
Direction. The Practice Direction states that the court will generally take the
question in two stages. First, it should be satis¬ed that there is evidence which
˜if unanswered would be likely to lead to a wasted costs order being made™ and
that the wasted costs order proceedings are justi¬ed ˜notwithstanding the likely
costs involved™. The second stage is for the court, having heard the lawyer, to
consider whether it is appropriate to make a wasted costs order (PD 48, 2.6).
Lord Justice Auld in his report was distinctly unenthusiastic about wasted costs
orders:
The third possible ¬nancial sanction is to make a wasted costs order against the
legal representatives on one side or another, but again there are often practical
limitations on the court of identifying who is at fault on the prosecution side,
counsel, those instructing him or the police “ and on the defence side, counsel,


50
[1994] Ch 205, [1994] 3 All ER 848.
51
The conduct complained of in the appeals, variously, was: both parties™ solicitors
misconstrued a complex statute, solicitors (like their own expert and counsel) failed to realise
that the client had fundamentally (and fatally for the claim) misdescribed the location of a
piece of machinery; solicitors failed to serve the other side with notice of legal aid; solicitors
pursued a misconceived application in reliance on specialist counsel and failed to progress
negotiations even though counsel advised that the parties were too far apart to achieve a
sensible compromise; honest solicitors relied on the client™s untruthful instructions; and
counsel instructed at the eleventh hour was inadequately prepared at the hearing.
52
[1995] 1 All ER 385, para. 1.
53
(6 March 2003, unreported) Case No. AC9500972, CA; 147 Solicitors™ Journal, 14 March 2003,
54
p. 301. [2002] UKHL 27, [2003] 1 AC 120.
55
For a case in which a wasted costs order was made where the judge delivered severe criticism
of the barristers, including QCs, see Re G (care proceedings).
571 Should costs follow the event?


his solicitor or the defendant. And wide use of such cumbrous satellite pro-
ceedings would be both an impractical and expensive way of achieving e¬cient
preparation for trial.56
A study of the case law and insurance statistics con¬rmed Auld™s concerns. The
wasted costs jurisdiction was ¬‚awed for six reasons:
. . . First, it is very costly proportionate to the amount recovered. Secondly,
judges can initiate a wasted costs enquiry, which is unfair and even more dis-
proportionately costly. Thirdly, it is procedurally complex. Fourthly, it is unpre-
dictable whether the client would waive privilege, and what the consequences
will be . . . Fifthly, it is not possible for solicitors and barristers to make contri-
bution claims against each other. Sixthly, it is mostly used against lawyers rep-
resenting legally aided litigants from whom costs cannot be recovered.57
NB Advocates™ former immunity from suit is ended Until the twenty-¬rst century
both barristers and solicitors had immunity from actions for negligence with
regard to the work they did in court and in preparation of court work.58 In
Arthur JS Hall & Co v. Simons59 the House of Lords, sitting with seven judges,
changed that rule. They held that advocates no longer had immunity from suit,
unanimously in respect of their conduct of civil proceedings and by a majority
of four to three in respect of criminal proceedings. (The judgments take some
eighty pages in the law reports.60)
It seems that fears that the change in the immunity would lead to a ¬‚ood of
claims against barristers have proved unfounded.61


3. Should costs follow the event?

Civil cases
As already noted, under the CPR the rule that the loser pays the allowable costs
of the winner is no longer so hard-edged and clear-cut as before but CPR
44.3(2) states that to be the general rule.
In the United States the rule is the opposite “ namely each side generally
pays his or its own costs. There is a great deal of debate in the United States as
to the merits and demerits of the ˜cost shifting rule™, as it is known there. By

56
Auld, p. 491, para. 230.
57
H. Evans, ˜Wasted Costs™ , 64 Modern Law Review, 2001, p. 51. For earlier articles see P. Jones
and N. Armstrong, ˜Living in Fear of Wasted Costs™, 13 Civil Justice Quarterly, 1994,
pp. 208“32; A. Murdie, ˜Costs against Non-Parties and Wasted Cost Orders against
Representatives™, Legal Action, January 1998, p. 20.
58
Rondel v. Worsley [1969] 1 AC 191, HL and Saif Ali v. Mitchell & Co [1980] AC 198, HL. See
59
also Kelley v. Corston [1997] 4 All ER 466. [2002] 1 AC 615, [2000] 3 All ER 673.
60
See M. Seneviratne, ˜The Rise and Fall of Advocate™s Immunity™, 21 Legal Studies, 2001,
pp. 644“62.
61
J. Bennett, ˜Blasts from the Past™, The Lawyer, 13 September 2004 “ www.thelawyer.com. The
article, which details several of the cases, states that according to the Bar™s insurers, the level of
claims was stable.
572 Costs and the funding of legal proceedings


contrast, in England there is very little discussion of the pros and cons of the
costs rule.
The alleged advantages of the rule that costs normally follow the event
include the following:
• It ˜makes the winner whole™ “ restores him ¬nancially somewhat to the posi-
tion that he was in before the wrong done to him.
• It recognises that the winner has won. By contrast, if he had to pay his own
costs, the fruits of the litigation would be diminished by his costs, which to
that extent would diminish his victory. In smaller cases the costs would eat up
a huge proportion or even all of the damages.
• If the client is advised that he has good prospects of success, the costs-follow-
the-event rule encourages meritorious litigation. (The overwhelming major-
ity of plainti¬s win “ whether on a settlement or after a trial.)
• The rule also helps to discourage unmeritorious or nuisance actions. A person
with no reasonable prospects of success will think twice before bringing an
action if he is told that he will have to pay his opponent™s as well as his own costs.

The alleged disadvantages of the rule include the following:

• The rule operates harshly where both sides have been responsibly and com-
petently advised that they have good prospects of success. If both sides have
acted reasonably why should the loser pay most of the winner™s costs? (That
remains the case under the post-Woolf reforms.)
• The rule operates harshly where the outcome of the litigation turns on uncer-
tainties and complexities of the law. It is unfair that the losing litigant should
bear such a heavy burden of costs because the law is obscure. (Again, that
unfairness is not reduced by the post-Woolf rules.)
• The rule operates harshly where one party loses on most of the issues raised
at the trial but wins overall on a point that absorbs very little of the time in
the case. Why should the opponent pay such a heavy price when he succeeded
with regard to a high proportion of time taken by the trial? (The post-Woolf
rules impact on that problem to the extent that the court can allocate the
burden of costs in accordance with the costs of the issues won and lost.)
• The rule may deter meritorious as well as unmeritorious litigation. Some
would-be litigants will not be willing to take the risk of losing even if they are
advised that they have good chances of success.
• The pressure to abandon sound causes of action for fear of the cost of losing
will bear most heavily on the economically weaker party.
• The rule has an in¬‚ationary e¬ect on the cost of litigation as each side tends
to spend more and more in order to ensure success and thereby avoid the risk
of paying costs. Often the litigation is actually more about who pays the costs
than about the apparent subject of the litigation. (That still operates power-
fully despite the attempt in the Woolf reforms to keep costs in proportion to
the amount at stake.)
573 Should costs follow the event?


• Moreover, the rule certainly does not prevent nuisance actions “ they are a
well-known phenomenon.
• The rule increases the unpredictability of the costs factor in litigation. It is
bad enough that one cannot know what one™s own lawyers are going to
charge, it is worse that one may also have to pay an unknown amount in
respect of one™s opponent™s costs. (That obviously does not apply to ¬xed
costs.)
In his Report, Lord Woolf said that, on balance, the indemnity rule should be
retained subject to a requirement that the court takes account of the conduct of
the parties in its allocation of costs.62

The costs-follows-the-event rule and group actions
Special problems arise when there are many plainti¬s suing collectively as a
group. The question became a matter of acute public concern in 1987, in the
course of the litigation brought by over a thousand plainti¬s for the e¬ects
su¬ered as a result of use of the anti-arthritis drug Opren. In Davies v. Eli Lilly
& Co63 the court held that if the action were to go ahead, all the plainti¬s, other
than those on legal aid, had to be regarded as being liable for their share of the
ultimate costs of the action if they failed.64
One of the plainti¬s in the case then challenged the power of the court to
make an order regarding costs before the end of the case. RSC Order 62, r. 3 said
that costs should follow the event except when the court saw ¬t to make some
other order. To follow the event, the plainti¬ argued, must mean that the case
was ¬nished. The Court of Appeal rejected the argument. Normally the order
would be made at the end of the case but it could be made earlier if the inter-
ests of justice required it. In any event, the judge™s order in this case had not been
for payment but for apportionment between plainti¬s.
In Aiden Shipping Co Ltd v. Interbulk Ltd, The Vimeira65 the House of Lords
held that the court had the widest possible discretion to order anyone to pay
costs “ even if they were not parties to the proceedings. The only proviso was
that the order had to be fair in the circumstances. Such an order was highly
appropriate where some ˜lead actions™ were selected raising common issues
which could be litigated in order to settle those issues. In Ward v. Guinness
Mahon & Co66 it was held that each of the ninety-nine claimants should only be
liable for one-ninety-ninth™s part of the overall costs, in other words several,
rather than several and joint liability.

62
Interim Report, June 1995, p. 204, paras. 23“4.
63
[1987] 3 All ER 94, [1987] 3 All ER 94.
64
Most of the plainti¬s were elderly pensioners. Obviously they could not a¬ord this risk and it
seemed as if the cases brought by non-legally aided plainti¬s would have to be withdrawn. At
the last moment, however, a ˜fairy godparent™ in the form of a wealthy philanthropist, Godfrey
Bradman, came forward and guaranteed the costs of the non-legally aided plainti¬s, which it
was thought would be well in excess of £1 million. (See The Times and The Guardian, 23 July
65 66
1987.) [1986] 2 All ER 409. [1996] 4 All ER 112.
574 Costs and the funding of legal proceedings


Group actions, as has been seen (p. 66 above), are now governed by CPR Part
19 which provides for the making of a Group Litigation Order (GLO). In July
2000, CPR 48.6A codi¬ed the guidance in the case law on costs issues in such
cases. It provides that unless the court orders otherwise, any order for common
costs67 against group litigants imposes on each such litigant several liability for
an equal share of those costs. However, in respect of liability toward his own
solicitors, a group litigant is responsible for his own solicitor and client costs as
well as an equal share of the common costs.
The court may make provision for the costs contribution of a party who joins
the group late or leaves it early. In December 2001 the Court of Appeal gave a
single decision in three GLO actions respectively concerning the MMR vaccine,
oral contraceptives and exposure to asbestos in each of which there was an
almost identical cost-sharing order made by the trial judge.68 The chief question
was whether the share of generic costs of discontinuers and those who settled
were to be determined when they discontinued or settled or rather at the end of
the case. If the former, funders of the litigation, notably the Legal Services
Commission, would not be able to recover their costs even if they had funded a
successful claim. The Court of Appeal held that the proper time for that deci-
sion was at the end of the case. So defendants cannot get pre-emptive orders
exempting them from paying the common costs of discontinuers even though
they might end up losing in respect of those common issues. Writing about the
case the co-ordinating solicitors for the solicitors said: ˜The judgment means
practitioners involved in representing claimants in group claims can breathe a
sigh of relief and the Legal Services Commission is able to look positively again
on funding these claims . . . The only people unhappy with the judgment will
be the defendants™.69
For an account of the development of this area of litigation and discussion of
the issues raised see C.J.S. Hodges, Multi-Party Actions (Oxford University
Press, 2000) and M. Mildred, ˜Group Actions™ in G.G. Howells (ed.), The Law of
Product Liability (Butterworths, 2000). For a highly critical review of the dismal
story of unsuccessful English group actions funded at public expense and sug-
gestions for improving the system see D. Collins, ˜Multi-party Actions™, 31


67
˜Common costs™ are de¬ned as costs incurred in relation to the GLO issues, individual costs
incurred while it is a test case or costs incurred by the lead solicitor in administering the
group litigation “ see CPR 48.6A(2)(b).
68
Afrika v. Cape plc; X v. Schering Health Care Ltd; Sayers v. Merck, SmithKline Beecham plc
[2001] EWCA Civ 2017, [2002] 1 WLR 2274.
69
M. Day and G. Matthews, ˜Fairer Multi-party Actions™, 146 Solicitors™ Journal, 15 February
2002, p. 142. They began their article: ˜It is no exaggeration to say that the future of multi-
party actions hung by a thread while the judgment of the Court of Appeal was awaited™. See
also on this important decision M. Mildred, ˜Cost-sharing in Group Litigation: Preserving
Access to Justice™, 65 Modern Law Review, 2002, pp. 597“602; and M. Goldberg, ˜Counting the
Cost of Group Actions™, 152 New Law Journal, 22 March 2002, p. 437; but for a much
gloomier assessment two years later see F. Bawden, ˜Group Dynamic™, 18 Independent Lawyer,
2004, pp. 10“13.
575 Should costs follow the event?


Manitoba Law Journal, 2006, pp. 211“34. (˜Recent English group actions have
demonstrated a waste of public resources on unmeritorious claims . . .™)
By direction of the Lord Chancellor there is now only £3 million annually
available for multi-party actions. The dire implications of this cap on funding
were explored by Jon Robins in ˜A Bitter Pill to Swallow™, Independent Lawyer,
November 2006, pp. 14“17.

The costs liability of non-parties
In what circumstances can someone who helps to ¬nance another person™s lit-
igation be made liable for the other side™s costs? In Arkin v. Borchard Lines Ltd70
the Court of Appeal distinguished three categories of funders.
˜Pure funders™ were those with no personal interest in the litigation, who did
not stand to bene¬t, were not funding it as a matter of business and did not
involve themselves in controlling or in¬‚uencing its course. Generally the court
would not make an order for costs in such a case. The court gave priority to the
public interest in the funded party getting access to justice over that of the suc-
cessful unfunded party recovering his costs. An example was Hamilton v. Al-
Fayed (No 2)71 where several hundred individuals had contributed to a ¬ghting
fund to enable Neil Hamilton MP to bring a libel action against Mohammed Al-
Fayed, the owner of Harrods. The court refused to make a costs order against
nine of the major contributors to the fund.
In the second category, the non-party not only funded the litigation but sub-
stantially controlled or bene¬ted from it, so as to maker himself the ˜real™ party.
Here justice ordinarily required that a costs order be made. An example was
where a costs order was made against insurers who funded and conducted the
proceedings in their own interests72 or a costs order against a shareholder of a
company who was not a party to the litigation against the company but who had
controlled the conduct of the litigation in his own interest.73
The third category was where the funder supported the litigation for com-
mercial or ¬nancial reasons. In such a case, where the funder was in e¬ect pur-
chasing a stake in the litigation for pro¬t it was unfair that he should be
protected from all liability for the costs of the opposing party. In a case where
the professional funder provided some of the funding it could be made liable
for the other side™s costs to the extent of the funding provided. The court said it
saw no reason in principle why the same approach should not apply where the
funder provided the greater part or the whole of the costs. In Arkin the funding
body had provided the money for expert evidence on a contingency basis of a
share in the proceeds if the case was won. It expected that it would have to
provide some £600,000 but in fact provided £1.3 million. The costs order was
limited to a contribution of £1.3 million toward the successful defendant™s costs

70 71
[2005] EWCA Civ 655, [2005] 3 All ER 613. [2002] EWCA Civ 932.
72
TGA Chapman Ltd v. Christopher [1998] 1 WLR 12.
73
CIBC Mellon Trust Co v. Wolfgang Otto Stolzenberg (No 3) [2005] EWCA Civ 628.
576 Costs and the funding of legal proceedings


(which were over £6 million). The court said this would have the bene¬cial
e¬ect that professional funders would cap their liability or otherwise ensure that
the costs remained proportionate.74
A comment on the decision in Arkin posed the question whether professional
funders in this context might include the lawyers on a Conditional Fee Agree-
ment where the lawyers are in e¬ect funding the case on the basis that if they
win they can claim a success fee of up to 100 per cent of their costs.75
In Total Spares & Supplies Ltd v. Antares SRL76 the judge made a costs order
against an Italian company to which the defendant company had transferred a
substantial part of its business just two weeks before litigation against it com-
menced. The Italian company was run substantially by o¬cers of the defendant
company. The judge found that the transfer had been made in order to frustrate
any costs order.77
This argument was raised in Hodgson v. Imperial Tobacco Ltd78 a case brought
by cancer su¬erers against three tobacco companies. The court held that with
regard to liability for costs, the position of the lawyers under Conditional Fee
Agreements was the same as that of lawyers normally.79


Criminal cases
The principle that costs follow the event in criminal cases a¬ects both the
defence costs and those of the prosecution. Where the defendant is convicted,
in addition to any contribution he may have had to make in respect of his own
defence, he can be ordered to pay something toward the costs of the prosecu-
tion. The courts vary in their policy as to whether to order such payments. The
power to order costs arises under s. 18 of the Prosecution of O¬ences Act 1985,80
which says that where the defendant is convicted at the Crown Court or a mag-
istrates™ court he can be ordered to pay the whole or any part of the prosecution

74
In Campbells Cash and Carry Property Ltd v. Fosti¬ Property Ltd [2006] HCA 41 the High
Court of Australia held by ¬ve to two that third party litigation funding was not an abuse of
process or contrary to public policy. The third party litigation funder had underwritten the
costs in exchange for one-third of any amounts recovered plus the bene¬t of any costs order.
For a discussion of third party litigation funding developments in Australia see Litigation
Funding, August 2006, p. 8.
75
K. Ashby and C. Glasser, ˜Extending Liability for Financing™, 155 New Law Journal, 17 June
2005, p. 928. For comment rejecting the proposition see J. Peysner, ˜Arkin . . . Again™, 155 New
76
Law Journal, 9 September 2005, p. 1326. [2006] EWHC 1537, Ch.
77
For comment see P. Gearon, ˜Third Parties Beware™, 156 New Law Journal, 1 September 2006,
78
p. 1312. [1998] 2 All ER 673.
79
The action collapsed a year later when forty-seven of the ¬fty-three claimants abandoned
their action after a pre-trial ruling by the judge suggested they were unlikely to succeed. The
plainti¬s™ solicitors, Leigh Day & Co and Irwin Mitchell, who had been funding the litigation
under the CFA, were said to have lost £2.5 million (The Times, 27 February 1999). In 2004
Martyn Day, one of the leading lawyers handling multi-party actions, said of these cases:
˜Successful cases are good business. Unsuccessful cases are a disaster [for a ¬rm]. A total
disaster™ (18 Independent Lawyer, 2004, p. 10).
80
Supplemented by the Costs in Criminal Cases (General) Regulations 1986, SI 1986/1335.
577 Exceptions to the rule that costs follow the event


costs.81 The court may make any order it considers just and reasonable. For a
helpful statement of the principles to be applied see R v. Northallerton
Magistrates™ Court, ex p Dove.82 The sum ordered to be paid should be within
the defendant™s means, should not be grossly disproportionate to the ¬ne and
should not be greater than the costs actually incurred. The purpose of the order
is to compensate the prosecution not to punish the defendant.
The Attorney General told the House of Commons in November 1987 that it
was the policy of the Crown Prosecution Service always to make an application
for costs against all convicted defendants unless in the particular circumstances
it was apparent that such an application would ˜lack merit or that an order for
costs would be impractical™.83
A defendant who is acquitted and who has paid some or all of his defence costs
may be entitled to ask for the whole or part of his costs to be paid out of public
funds.
Under s. 16 of the Prosecution of O¬ences Act 1985, when a defendant is
acquitted the court may make an order (˜a defendant™s costs order™) of such
amount as the court ˜considers reasonably su¬cient to compensate him for any
expenses properly incurred by him in the proceedings™ (subsection(6)):
Where the defendant is acquitted, he ought normally to be awarded his costs.
This is the rule, laid down repeatedly by a series of Practice Notes. The latest,
issued in 2004, provides that such an order should normally be made ˜unless
there are positive reasons for not doing so™ “ for example ˜where the defendant™s
own conduct has brought suspicion on himself and has misled the prosecution
into thinking that the case against him was stronger than it was™.84
However, in fact costs are only rarely given to the acquitted defendant by magis-
trates, probably because they tend to feel that such an order re¬‚ects badly on the
prosecution. A refusal of an order is supposed to be exceptional, but in fact it is
the order itself that is exceptional. The Practice Direction states that when refus-
ing to make a costs order the court should give its reasons and should explain in
open court that this does not involve any suggestion that the defendant is guilty.


4. Exceptions to the rule that costs follow the event
There are a variety of situations where the costs-follow-the-event rule does not
apply.


No costs in small claims in county courts
As was seen, in cases allocated to the small claims track, unless he has behaved
unreasonably, the loser pays only ˜restricted costs™ (CPR 27.14): the ¬xed costs

81
For further details see Practice Note [1991] 2 All ER 924, [1991] 1 WLR 491.
82 83
[1999] Crim LR 760. House of Commons, Hansard, 6 November 1987, col. 819.
84
Practice Direction [2004] 2 All ER 1070 at paras. 2.1 and 2.2.
578 Costs and the funding of legal proceedings


payable on issue of the proceedings, the fee payable on allocation (which is not
payable if the claim is for under £1,000), the travelling expenses of a witness, up
to £50 a day loss of earnings for each party or witness, a sum not exceeding £200
for an expert™s fees plus travelling expenses and costs of enforcement. But
restricted costs only apply after the case has been allocated to the small claims
system by the District judge. There is therefore a possibility of having to pay
costs in respect of things done before the case was allocated.
The costs rule in small claims litigation is designed to facilitate and encour-
age use of the courts by ordinary citizens. The theory is that if they conduct the
case themselves and then lose, they have little in the way of costs to pay and they
will therefore not be frightened to bring the case. The trouble with the theory is
that the inability to recover costs may penalise rather than bene¬t the litigant by
in practice denying him the use of a lawyer. He either has to be prepared to pay
for it or do without. It is for that reason that, so far at least, personal injury and
housing cases involving sums of between £1,000 and £5,000 have been excluded
from the small claims system. The exception o¬cially recognises that the ser-
vices of a lawyer in such cases may often be crucial and the winning claimant
should be able to recover the cost from the other side.


Legal aid cases
Under the former legal aid scheme, an assisted litigant was protected against the
normal operation of the costs-follows-the-event rule by a special rule which
limited what he could be asked to pay in respect of his opponent™s costs to the
same amount, if any, as he had been required to contribute toward his own
costs. (Something between 80 per cent and 90 per cent of those who got civil
legal aid were not subject to a contribution with regard to their own costs and
were therefore not at risk of having to pay anything if they lost.) This rule
applies equally under the arrangements which came into force in April 2000
when the legal aid scheme became the Community Legal Service and the Legal
Aid Board was replaced by the Legal Service Commission.85
Where a non-assisted person succeeds in an action against a legally aided
person the e¬ect of the rule meant that usually such a person got little, if any-
thing, by way of costs from his defeated opponent. The Legal Aid Act 1988, s. 18
provided that a person in that situation could make a claim on the Legal
Aid Fund in respect of ¬rst instance proceedings by showing that he would
otherwise su¬er ˜severe ¬nancial hardship™86 and in all cases that it was ˜just and

85
Access to Justice Act 1999, s. 11 and the Community Legal Service (Costs) Regulations 2000,
SI 2000/441.
86
Lord Mackay, in a 1996 White Paper, said that the test would be eased to permit recovery by
the unassisted successful litigant if he could show that he would otherwise su¬er ¬nancial
hardship. The requirement that it be ˜severe™ would be dropped (p. 34, para. 4.30). Lord
Irvine™s 1998 White Paper Modernising Justice con¬rmed that Labour would make the same
change (p. 36, para. 3.29).
579 Exceptions to the rule that costs follow the event


equitable in all the circumstances™ for such an order. This system too was con-
tinued under the Access to Justice Act 1999, s. 1187 “ except that as from 2001
only individuals can apply and they need only show ¬nancial hardship. The
requirement that the hardship be severe was dropped.88
With regard to proceedings at the appellate level it has been held to be ˜just
and equitable™ to make an order in favour, inter alia, of building societies, insur-
ance companies, a police authority and local authorities. In R v. Secretary of
State for the Home Department, ex p Gunn89 the Court of Appeal held that an
order could be made in favour even of a Government department despite the
fact that under the new rules the court had to have regard to the resources of the
non-funded party in deciding what was just and equitable.90


Some costs of litigant in person
The traditional rule was that a successful litigant in person, unless he was a prac-
tising solicitor, could not recover anything in respect of his own time and labour
in preparing his own case.91 The reason for the rule (at least that given in 1884)
was ˜private expenditure of labour and trouble by a layman cannot be mea-
sured. It depends on the zeal, the assiduity, or the nervousness of the individ-
ual™.92 Such considerations did not apply where the litigant was a solicitor. A
practising solicitor could recover costs in respect not only of his own skill and
labour, but also that of his clerk or that of his ¬rm,93 but the principle that a lit-
igant in person who was a solicitor could recover costs as if he had employed a
solicitor did not extend to members of other professions.94
In 1973 the House of Lords held that a successful litigant in person was enti-
tled to claim for payments made to a solicitor who assisted him with the prepa-
ration of his case. Lord Reid said he should have ˜such sums as were reasonably
necessary for him to spend in order to prepare his written case and equip
himself to appear and argue his case in person™.95
The Litigants in Person (Costs and Expenses) Act 1975 took the matter further.
It provided that litigants in person are entitled to recover costs, including com-
pensation for their own time and e¬ort, but the level of remuneration for their
own time was “ and remains “ pitifully low. It was originally set at a nominal £9.25
per hour and that ¬gure has not been increased. In Mainwaring v. Goldtech
Investments Ltd96 a litigant in person put in a bill for £87,250 charging her time at

87
See the Community Legal Service (Cost Protection) Regulations 2000, SI 2000/824, reg. 5. See
also 30 Focus, pp. 32“3.
88
Community Legal Service(Costs Protection) (Amendment No 2) Regulations 2001, SI
89
2001/3812. [2001] EWCA Civ 891, [2001] 3 All ER 481.
90
See generally J. Simons, ˜Recovering Costs from the Legal Services Commission™, 154 New Law
91
Journal, 15 October 2004, p. 1528. Buckland v. Watts [1970] 1 QB 27, CA.
92
London Scottish Bene¬t Society v. Chorley (1884) 13 QBD 872 at 877.
93
Malkinson v. Trim [2002] EWCA Civ 1273, [2003] 2 All ER 356.
94
Sisu Capital Fund Ltd v. Tucker [2005] EWHC 2321, Ch, [2006] 1 All ER 167.
95 96
Malloch v. Aberdeen Corpn (No 2) [1973] 1 All ER 304. [1997] 1 All ER 467.
580 Costs and the funding of legal proceedings


a basic rate of £75 per hour, uplifted to £125 in respect of research and £200 an
hour in respect of preparation and advocacy. The court held that she was only
entitled to charge at the going rate for litigants in person who su¬ered no pecu-
niary loss, namely £9.25 per hour! However, in R (on the application of Wulfsohn)
v. Legal Services Commission97 the Court of Appeal awarded the litigant in person,
who had spent over 1,200 hours on the case, total costs of £10,460. (The trial
judge had awarded him £120.) In Hart v. Aga Khan Foundation (UK)98 the Court
of Appeal held that an actress who spent some 250 hours in studying technical
matters in connection with her action could only recover for forty hours™ worth
because that is what it would have taken a solicitor.
The 1975 Act provided that if the litigant in person in a civil case has su¬ered
actual ¬nancial loss by reason of the work done on the case, such loss can be
recovered “ subject to a maximum of two-thirds of the rate that would have
been allowed if a solicitor had done the work.99
An amendment to the rules in October 2002 stated that where the litigant can
prove ¬nancial loss, recoverable costs include ˜the amount that he can prove he
has lost for time reasonably spent on doing the work™,100 but if he cannot prove
¬nancial loss, he can only claim £9.25 per hour for ˜the time reasonably spent
on doing the work™.101 (The Civil Justice Council in 2005 urged that the right to
try to establish ¬nancial loss should be removed as it absorbed undue judicial
time and in 85 per cent of cases was unsuccessful.102)
The two-thirds restriction laid down by the 1975 Act also applies if the liti-
gant in person is himself a practising solicitor, though not if he employs another
¬rm.103 A barrister who conducts his own defence in a criminal case can recover
remuneration in respect of his professional time and skill.104
One useful change made in the CPR in 1999 is the rule that the litigant in person
can recover ˜payments reasonably made by him for legal services relating to the
conduct of the proceedings™.105 This would seem to permit ˜unbundled™ legal ser-
vices where the litigant in person does much of the work on his case but uses pro-
fessional lawyers as and when needed and, if he wins, can then recover their
proper costs. A further amendment to the rules in October 2002 added to recov-
erable costs ˜the costs of obtaining expert assistance in assessing the costs claim™.106
However, where a lay litigant employs someone other than a solicitor to assist
him, his costs may not be recoverable. Andre Agassi, the tennis star, in an appeal

97 98
[2002] EWCA Civ 250, [2002] All ER (D) 120 (Feb). [1984] 1 WLR 994.
99 100
Previously, RSC Order 62, r. 18(2), now CPR 48.6(2). CPR 48.6(4)(a).
101
CPR 48.6(4)(b). Under the Employment Appeal Tribunal Rules 2004 the ¬gure is £25 per
hour increasing by £1 each year from 2006.
102
Improved Access to Justice “ Funding Options and Proportionate Costs, August 2005, pp. 62“3.
103
This is the e¬ect of CPR 48.6(6) which now includes a practising solicitor in the de¬nition of
a litigant in person. Pre-1999 the rule (RSC Order 62, r. 18(6)) speci¬cally excluded from the
de¬nition of litigant in person anyone who was a practising solicitor.
104 105
Khan v. Lord Chancellor [2003] EWHC 12, QB, [2003] 2 All ER 367. CPR 48.6(3)(b).
106
CPR 48.6(3)(c). E Fennell, ˜Is the Route into Law now too Tailor-made?™, The Times,
17 October 2006, p. 3 (www.timesonline.co.uk/aw).
581 Exceptions to the rule that costs follow the event


to the courts from the decision of the tax commissioners, employed tax experts
who instructed a barrister. The tax experts were allowed under the Bar™s rules
(see pp. 799“800 below) to instruct a barrister and the case in the court was pre-
sented by the barrister. Despite this, the Court of Appeal held that Mr Agassi was
a litigant in person because the tax experts were not solicitors entitled to conduct
litigation.107 Having won his court case, he therefore could not recover from the
Revenue the costs charged by the tax experts as legal advisers “ though the court
held that he could recover as disbursements their costs as tax experts. (To add
insult to injury, Agassi subsequently lost the tax appeal in the House of Lords.)
The litigant in person costs rules do not apply to cases brought in the small
claims system, the limit for which since 1999 has been £5,000. In small claims
cases, the litigant normally cannot recover costs whether he employs lawyers or
acts in person.


Where the winner is not liable to pay “ the indemnity principle
The costs-follow-the-event rule provided, as has been seen, that when the
winner is indemni¬ed against his costs, the indemnity covers his actual costs
and no more. It follows that if he won the case and had no costs because his
solicitor had agreed to work for nothing, nothing could be recovered from the
other side. This was the principle “ and the problem “ of the indemnity prin-
ciple. Why, however, should the lawyer not be permitted to promise his own
client that he will charge him nothing and still recover his proper costs
from the other side if the case succeeds? If the arrangement quali¬es as a
Conditional Fee Agreement (CFA), the matter is now regulated by statute (see
below), but if not, the indemnity rule applied “ until it was modi¬ed as from
June 2003.108
The May 1999 consultation paper Controlling Costs said that the Lord
Chancellor was considering abolishing the indemnity rule but was concerned
that its removal should not lead to an increase in legal costs being awarded by
the courts. The indemnity principle provided a cap on the costs which could be
recovered from the loser. Without it solicitors would technically be free to claim
costs without bounds, subject only to assessment by the court.
The Access to Justice Act 1999, s. 31 paved the way for abolition of the indem-
nity principle. It provided that Rules of Court might make provision, inter alia,
for securing that the amount awarded to a party in respect of costs to be paid
by him to his representatives ˜is not limited to what would have been payable by

107
Agassi v. Robinson [2005] EWCA 1507. See D. Capper, ˜Costs Recovery under Bar Licensed
Access Scheme™, 26 Civil Justice Quarterly, 2007, pp. 23“27.
108
Gundry v. Sainsbury [1910] 1 KB 645; General of Berne Insurance Co v. Jardine Reinsurance
Management Ltd [1998] 2 All ER 301; Solicitors Act 1974, s. 60(3). The authorities were
described and the issues discussed in the writer™s ˜Will the Revolution in the Funding of Civil
Litigation in England Eventually Lead to Contingency Fees?™, 52 DePaul Law Review, 2002,
p. 259 at 271“8.
582 Costs and the funding of legal proceedings


him to them if he had not been awarded costs™. The Explanatory Notes to the
Act stated that the purpose was ˜to limit or abolish the common law principle
known as the indemnity principle™. However, it was not until 2 June 2003 that
this actually happened.109 As from the same date a new rule has provided that
recoverable costs in CPR Parts 44“48 include costs incurred by the provision of
advocacy or litigation services under a CFA where the client is only liable to pay
his lawyer™s fees and expenses to the extent that they are recovered ˜whether by
way of costs or otherwise™.110 ˜By way of costs™ means from the loser; ˜or other-
wise™ would recover from the damages.111 The Explanatory Note to the statutory
instrument says:
This in e¬ect abrogates in relation to this type of conditional fee agreement the
so-called indemnity principle “ the principle that the amount which can be
awarded to a party in respect of costs to be paid by him to his legal representa-
tives is limited to what would have been payable by him to them if he had not
been awarded costs. Solicitors will to this extent be able to agree lawfully with
their clients not to seek to recover by way of costs anything in excess of what the
court awards or what it is agreed will be paid . . .
NB Clause 185 of the Legal Services Bill introduced in November 2006 gives a
court the discretion to make a costs order in favour of a party whose legal rep-
resentation has been provided pro bono. The money would be paid to a desig-
nated charity established to distribute money to organisations that conduct pro
bono work.


Contemptuous damages
If the claimant wins only contemptuous damages he will normally be ordered
to pay the costs despite having technically won the action. The order that he
pay the ˜loser™s™ costs re¬‚ects the true meaning of the result. Contemptuous
damages are traditionally expressed in the form of the smallest coin then in cir-
culation. In Dering v. Uris112 Dering, a Polish prisoner doctor at Auschwitz,
sued for libel over a passage in Leon Uris™s well-known novel Exodus in which
he was said to have participated in more than a hundred atrocious experimen-
tal operations at the concentration camp. The author, defending, brought wit-
nesses who had survived the operations whose evidence showed Dering™s
conduct at Auschwitz in extremely poor light. The libel action in e¬ect turned
into a war crimes trial of Dering. In the event, the jury awarded him a half-
penny damages and the judge ordered that he pay the costs. (He died shortly
after the court™s decision.)


109
Access to Justice Act 1999 (Commencement No 10) Order 2003, SI 2003/1241.
110
Civil Procedure (Amendment No 2) Rules 2003, SI 2003/1242.
111
See D. Marshall, ˜The New CFA Regulations™, 153 New Law Journal, 30 May 2003, p. 833. For
the background see J. Peysner, ˜A Revolution by Degrees: From Costs to Financing and the
112
End of the Indemnity Principle™ “ www.webjcli.ncl.ac.uk. [1964] 2 QB 669.
583 Exceptions to the rule that costs follow the event


Family law ancillary relief applications
As from April 2006, ancillary relief applications in family law matters are subject
to a new rule that normally there will be no order as to costs unless the court
considers that an order should be made on the ground of conduct at any
stage.113 The motive was to make the question of costs part of the overall ¬nan-
cial settlement between the parties rather than a separate matter tacked on after
the substantive issues had been decided. Costs have to be paid out of the mat-
rimonial ˜pot™ and the court divides up what is left between the parties.114


Public interest cases
The court sometimes exercises its discretion by making no order as to costs
where it takes the view that the losing party does not deserve to be penalised in
costs. A familiar example is the long established practice of granting the
Revenue leave to appeal to the House of Lords on terms that it will pay the tax-
payer™s costs in any event. If the Revenue want a point of tax law cleared up, it
should be done at the expense of the general body of taxpayers.
In New Zealand Maori Council v. A-G of New Zealand 115 Lord Woolf, giving
judgment for the Privy Council, expressed this policy in a case concerning
threats to the survival of the Maori language (taonga):
Although the appeal is to be dismissed, the applicants were not bringing the pro-
ceedings out of any motive of personal gain. They were pursuing proceedings in
the interests of taonga which is an important part of the heritage of New
Zealand. Because of the di¬erent views expressed by the members of the Court
of Appeal on the issues raised on this appeal, an undesirable lack of clarity
inevitably existed in an important area of the law which it was important that
their Lordships examine and in the circumstances their Lordships regard it as
just there should be no order as to the costs on this appeal.
In R v. Lord Chancellor, ex p Child Poverty Action Group Dyson J refused to grant
the pre-emptive costs order requested. The rule that costs follow the event
should normally apply even in public law cases, but he accepted that there was
a category of very exceptional case where the court would make no order as to
costs and an even more exceptional category where it would make an early pre-
emptive order in public interest challenge cases providing that the public body
should in e¬ect subsidise proceedings brought against it. The pre-conditions for
such an order were that the issues raised were truly ones of general public
importance and that the court could assess the merits at an early stage so as to

113
Family Proceedings (Amendment) Rules 2006, SI 2006/352 and Practice Direction. There was
a consultation paper in October 2004, CP(L)29/04 (Costs in Ancillary Relief Proceedings and
Appeals in Family Proceedings).
114
For an explanation of the change and its implications see Judge Michael Cook, ˜Costs out of
the Matrimonial Pot™, 25 Civil Justice Quarterly, 2006, pp. 261“72; S. Gold, 156 New Law
115
Journal, 17 March 2006, p. 448. [1994] 1 AC 466 at 484.
584 Costs and the funding of legal proceedings


make a pre-emptive decision. The applicant should not have a private interest
in the matter. The court would have to consider the respective ¬nancial means
of the parties and the probable level of costs. It would be more likely to make
an order ˜where the respondent clearly has a superior capacity to bear the costs
of the proceedings than the applicant, and where it is satis¬ed that, unless the
order is made, the applicant will probably discontinue the proceedings, and will
be acting reasonably in so doing™.116
The ¬rst such order “ known as a Protective Costs Order (PCO) “ was made
in December 2002 in R (on the application of the Campaign for Nuclear
Disarmament) v. Prime Minister.117 The relevant rule is now CPR 44.3. The
order in that case “ which concerned an attempt to have the then impending
war in Iraq declared illegal “ was the more remarkable in that it was made before
permission had been given to make the judicial review application.118
The issue was considered further by the Court of Appeal in R (Corner
House Research) v. Secretary of State for Trade and Industry.119 The court allowed
an appeal against the refusal of a PCO in judicial review proceedings brought
by a small non-governmental organisation regarding the failure to consult
over a new anti-corruption policy issued by the Export Credits Guarantee
Department. In a lengthy judgment delivered by Lord Phillips MR, the court
approved of the conditions for the grant of a PCO laid down by Dyson J (as he
then was) in R v. Lord Chancellor, ex p CPAG (above) but it added some further
details:
• A PCO would be more likely to be granted if those acting for the applicant
were doing so pro bono.
• If not, the claimant would normally have a conditional fee agreement and
there should normally be a cost capping order for the applicant™s costs “
including the success fee on CFAs.
• Such an order should be restricted to solicitors™ fees and a modest fee for a
single advocate of junior counsel status.
• If the application for a PCO failed, the applicant would pay the court fee and
the defendant™s costs on the application.
• The judge would consider whether to grant a PCO on the papers. If he was
minded to refuse the request, the applicant could ask for a hearing “ limited
to one hour.
The Public Law Project was allowed to intervene in the case as an interested third
party. Commenting on the Court of Appeal™s decision, its solicitor criticised the
court™s indication that the PCO would restrict the applicant to modest fees of a

116 117
[1998] 2 All ER 755 at 766. [2002] EWCA 2712, Admin, Case No. AC9500930.
118
In Weir v. Secretary of State for Transport (21 April 2005, unreported) QBD a PCO limiting
costs to £1.35 million was refused to a claimant who was a member of the Railtrack Private
Shareholders Action Group because they were claiming compensation which indicated they
had a private interest in the outcome.
119
[2005] EWCA Civ 192, [2005] 4 All ER 1.
585 The legal aid system


single junior counsel. (˜The two propositions “ exceptional cases and limited
costs recovery “ may well prove irreconcilable in many cases™.120) Also, she asked,
why should the court be more willing to grant a PCO if the lawyers for the appli-
cant were acting pro bono? That had no bearing on the merits of an application.
Cost caps to include the success fee on CFAs, she said, would restrict access to
justice for claimants. Many small organisations would not be able to risk apply-
ing for a PCO if losing meant having to pay the costs of the application.121
For a proposed variant on PCOs in public law cases see J. Beagent and J.
Hickman, ˜Costs protection certi¬cates “ bridging the funding gap™, 155 New
Law Journal, 16 December 2005, p. 1914. Their suggestion was that in public
law cases persons whose means took them outside the legal aid scheme should
be able to ask the Legal Services Commission for a ˜costs protection certi¬cate™
which would limit or totally extinguish the claimant™s liability for the other
side™s costs. Respondent public authorities would remain liable to pay costs if
they lost but would not be able to recover costs if they won. Part of the cost of
the scheme could be defrayed by charging a fee for making the application.
See further the 38-page Report of the Working Group on Facilitating Public
Interest Litigation published in July 2006.122 The Working Group, convened by
Liberty, funded by the Nu¬eld Foundation and chaired by Kay L.J, brought
together government lawyers, lawyers acting for claimants and representatives
of other interested bodies. It focused on when it was appropriate for the courts
to make PCOs. It recommended, inter alia, that having a private interest in the
outcome of the case should not be an absolute bar to getting a PCO. Also the
court should place little emphasis on whether the lawyers were acting pro bono.
It identi¬ed three types of possible PCO: 1) The party with the PCO not liable
for the opponent™s costs if they lost, but could recover costs if they won; 2)
Neither side liable for the other™s costs; 3) The party™s liability for the opponent™s
costs under a PCO capped in advance.
For an overall assessment see R. Clayton QC, ˜Public Interest Litigation, Costs
and the Role of Legal Aid™, Public Law, 2006, pp. 429“42.
NB As seen above, cl. 185 of the Legal Services Bill 2006“07 allows a court to
make a costs order in favour of a party whose legal representation has been pro-
vided pro bono.


5. The legal aid system

Introduction
It is recognised in most civilised countries that there is a signi¬cant denial of
justice if the state does not assist poor persons to meet the costs of lawyers. In
120
L. Whit¬eld, Legal Action, May 2005, p. 31 at 32.
121
These would include the defendant™s costs of acknowledging service “ R (Mount Cook Land
Ltd and Mount Eden Land Ltd) v. Westminster City Council [2003] EWCA Civ 1346.
122
www.liberty-human-rights.org.uk/publications/6-reports/litigating-the-public-interest.pdf.
586 Costs and the funding of legal proceedings


England this recognition goes back many decades. The ¬rst major legislation
establishing the legal aid system on a modern footing was the Legal Aid Act 1949
passed by the Attlee Government in the post-Second World era.
The scheme has had three main stages. The ¬rst was from 1949 to 1989 when
the scheme, though funded by the state, was run by the Law Society under the
authority of the Legal Aid Act 1949. The second, from 1989 to 1999, was when
it was run by the statutory Legal Aid Board established by the Legal Aid Act
1988. The third era beginning in April 2000 is the current system run by the
Legal Services Commission under the authority of the Access to Justice Act
1999. The second stage could be seen as a seamless progression from the ¬rst.
The third marked a radical break. It is widely accepted that the system is now in
serious di¬culties.
The scheme as it developed from 1949 had certain main characteristics:
• It covered both civil and criminal proceedings in all the courts.
• It covered legal advice and assistance short of legal proceedings.
• Any ¬rm of solicitors could undertake legal aid work.
• Though funded by the Treasury, the service was at ¬rst wholly and later
mainly provided by private practitioners.
• To get legal aid for representation in court there was a means test and a merits
test.
• Depending on his means, the legally aided person could be asked to pay a con-
tribution toward the cost.
• There was no ceiling on total expenditure. The system was demand-led.
These characteristics were in the second as much as in the ¬rst stage. The most
important di¬erence between the third stage as from April 2000 and the pre-
ceding ¬fty years is that there is now an overall ceiling on expenditure. But
because of the obligations imposed by the European Convention on Human
Rights the cap on expenditure does not apply to criminal legal aid. The result is
that the funds available for the civil scheme are always at the mercy of the costs
of the criminal scheme which have been rising exponentially.
The other major di¬erence between the third stage beginning in 2000 and the
previous ¬fty years is that whereas previously any ¬rm of solicitors could under-
take legal aid work, now only ¬rms that have a contract with the Legal Services
Commission can do so.
The change from a demand-led service to one that is restricted by a ceiling on
expenditure was introduced by Tony Blair™s Labour Government but Labour was
implementing plans developed by the previous Conservative Government.123
When it was proposed by Lord Mackay, the Conservative Lord Chancellor, Lord
Irvine, wrote: ˜Capping is crude™. It would, he said, ˜lead at worst to substantial
exclusion from justice and at best to long waiting lists™. The availability of legal

123
See the 1995 Green Paper, Legal Aid “ Targetting Need, Cm. 2854 and the 1996 White Paper,
Striking the Balance, Cm. 3305.
587 The legal aid system


aid should not depend on where the individual lives or when application is
made. It should depend on means and merits.124 But it was Lord Irvine as Labour
Lord Chancellor who brought in the Access to Justice Act 1999 which established
the present scheme.
The 1999 Act was foreshadowed in a White Paper, Modernising Justice, pub-
lished in December 1998:125
• There would be a new body, the Legal Services Commission (LSC), responsi-
ble for running the Community Legal Service (CLS).
• Its functions would be to ˜develop, in co-operation with local funders and
other interested bodies, local, regional and national plans to match the pro-
vision of legal services to identi¬ed needs and priorities™.126
• The CLS would replace legal aid in civil and family cases.
• Criminal legal aid would be the responsibility of the new Criminal Defence
Service (CDS).
• Resources would be directed where most needed.
• The CLS would operate under a controlled (i.e. capped) budget.
• All providers of funded legal services would require a contract from the
LSC.
• Contracts would specify and limit the work that could be undertaken.
• The way forward included ¬xed prices and competitive tendering.
• A Funding Code would set out criteria for funding decisions.
• The funding assessment would consider three questions: (1) would another
type of service be better; (2) could the matter be funded some other way; and
(3) did the merits of the case justify public funding?
• As under the legal aid scheme, the general test would be whether a reasonable
person able to fund the case with his or her own money would be prepared to
pursue it, but the criteria applied would not as before only be the strength of
the case and the prospects of success. They would also include ˜the impor-
tance and potential bene¬t to the assisted person and the likely cost™, ˜the
wider public interest™ and ˜the availability of resources and the likely demands
on those resources™.127


(1) The civil legal aid scheme
The proposals outlined in the White Paper were incorporated in the Access to
Justice Act 1999. The Act established the LSC.

124
Lord Irvine, ˜The Legal System and Law Reform under Labour™ in D. Bean (ed.), Law Reform
for All (Blackstone, 1996).
125
Cm. 4155. For analysis see M. Zander, ˜The Government™s Plans on Legal Aid and Conditional
Fees™, 61 Modern Law Review, 1998, pp. 538“50.
126
White Paper, p. 15, para. 2.11. On assessing the need for legal services by the LSC see P.
Pleasence et al, ˜Needs Assessment and the Community Legal Service in England and Wales™,
11 International Journal of the Legal Profession, 2004, pp. 213“32.
127
White Paper, para. 3.26.
588 Costs and the funding of legal proceedings


The LSC, like the Legal Aid Board, has a mixed board of lawyers and non-
lawyers.128 (Of the ¬rst three chairmen, two were non-lawyers.) The LSC
is responsible for publicly funded civil legal services through the CLS and
criminal legal services through the CDS. It publishes an annual report.129 The
annual report and other publications issued by the LSC can be accessed on its
Website “ www.legalservices.gov.uk.130
A great deal of valuable information about the legal aid scheme is also to be
found in Lord Carter™s Review of Legal Aid Procurement, Legal Aid “ a market-
based approach to reform (the Carter Report) published in July 2006.
The new scheme changed the names of the di¬erent parts of the scheme and to
some extent the nature of the categories and added a number of new features.131

The nature of provision
The Funding Code became operative as from 1 April 2000.132
The LSC funds civil legal services under the headings of Controlled and
Licensed Work.
˜Controlled Work™ covers all Legal Help and Help at Court and Legal
Representation before Mental Health Review Tribunals, the Immigration
Appeal Tribunal and Immigration Adjudicators. These services are provided
under the terms of the provider™s General Civil Contract where the decision as
to whether to provide services is made by the provider under a contract that
limits the number of cases that may be taken (known as ˜matter starts™). The
¬rm gets a global sum calculated by the LSC on the basis of the number and
kind of its ˜matter starts™. The contract speci¬es the number of matter starts

128
Details of the members and their business, ¬nancial and other interests appear in the annual
report.
129
Less detailed as to information and especially statistics than given by its predecessor, the Legal
Aid Board, but there are plenty of colour photos. As from 2005“6 much of the statistical
information was hived o¬ to “ www.legalservices.org.uk “ About Us “ Corporate information
“ Our publications “ Statistical information.
130
Note especially Focus published several times a year by the LSC with the latest information on
both the civil and criminal schemes and Focus on CDS which concentrates just on the CDS.
Both are accessible on the Website.
131
˜Legal aid for civil proceedings™ became ˜Legal representation™, sub-divided into ˜Investigative
Help™ limited to making inquiries to permit assessment in cases likely to be expensive and ˜Full
representation™. ˜Legal aid for criminal proceedings™ became ˜funded services™ provided by the
CDS. ˜Legal advice and assistance™ for matters that had not reached court proceedings (widely
known as the Green Form scheme) became ˜Legal Help™. ˜Assistance by way of representation™
(ABWOR) permitting representation in certain cases without a full legal aid certi¬cate became
˜Help at Court™. ˜Support funding™ (new) is a funding mix of the state plus a conditional fee
agreement (CFA) divided into ˜Investigative Support™ (new) and ˜Litigation Support™ (new).
˜Approved Family Help™ (new) is help in family cases short of Full Representation. ˜General
Family Help™ (new) covers negotiations in a family dispute where no mediation is in progress.
˜Family Mediation™ (new) is for disputes relating to children, money or property. For a fuller
glossary of new terms see LSC, 30 Focus, April 2000, pp. 42“3.
132
For the text of the Funding Code see www.legalservices.gov.uk. For an overview see 30 Focus,
April 2000, pp. 19“30. For the relevant regulations see 29 Focus, March 2000, pp. 28“57. For a
helpful explanation of the Funding Code see Legal Action, December 2003, pp. 17“18.
589 The legal aid system


under di¬erent headings “ family, actions against the police, clinical negligence,
debt, education, public law, welfare bene¬ts etc. By far the largest number of
contracts are issued with regard to family matters.133 The number of matter
starts can be adjusted on application.
With regard to Controlled Work there are limits to the amount that may be
spent on the case without further authority from the LSC. (The current limit
for Legal Help is £500 for most cases. In cases where Controlled Legal
Representation is provided before a tribunal the limit is £1,500. In immigration
and asylum cases the limit is ¬ve hours™ work.)
A ¬rm with a contract for Controlled Work also has the right to apply to the
LSC for a certi¬cate to provide representation in civil proceedings. Certi¬cates
are issued on a case-by-case basis. (Emergency work can be conducted without
prior authority.)
˜Licensed Work™ covers other Legal Representation (not including very
expensive cases which are managed under individual contracts). Licensed Work
contracts do not limit the number of cases that can be started. Instead, an appli-
cation for funding has to be made to the LSC in each case and a decision is made
on the basis of ¬nancial eligibility of the client and the merits of the case.
Licensed Work is typically for ¬rms that handle specialised litigation.

The funding priorities
A direction given by the Lord Chancellor under the Access to Justice Act 1999
(AJA), s. 6(1) together with guidance issued under s. 23 set the funding priori-
ties as envisaged in the 1988 White Paper.134 In drawing up its plans the LSC was
required to give top priority to certain Children Act proceedings (as de¬ned in
the Funding Code)135 and to civil proceedings where the client is at real and
immediate risk of loss of life or liberty. Any such case should be funded pro-
vided it meets the merits test criteria. After that the LSC ˜should generally give
the following categories higher priority than others™, namely:
• Help with social welfare issues that will enable people to avoid or climb out
of social exclusion, including help with housing proceedings and advice relat-
ing to debt, employment rights and entitlement to social security bene¬ts.
• Domestic violence proceedings.
• Proceedings concerning the welfare of children (including those under Parts
IV or V of the Children Act, adoption proceedings and proceedings concern-
ing residence).

133
In 2005“6 family law accounted for 43 per cent of all contract categories and 36 per cent of all
matter starts. The next largest categories of matter starts were housing (14 per cent), debt (13
per cent), welfare bene¬ts (13 per cent) and immigration (12 per cent). (LSC Statistical
Information, 2005“6, Tables CLS1 and CLS2.) These statistical tables are now to be found at
www.legalservices.gov.uk “ About Us “ Corporate Information “ Our Publications “
134
Statistical Information. See 29 Focus, March 2000, pp. 17“18.
135
Public law child protection cases for which legal aid was previously available without a means
or merits test.
590 Costs and the funding of legal proceedings


• Proceedings against public authorities alleging serious wrong-doing, abuse of
position or power or signi¬cant breach of human rights.

Exclusions from the scheme
Under legal aid there was a short list of types of matters that were excluded:
defamation, relator actions, election petitions and judgment summonses: the
AJA has a longer list of excluded categories. The AJA excluded, in particular, ser-
vices relating to allegations of negligently caused injury, death or damage to
property, other than allegations of clinical negligence.136 These matters were
excluded on the ground that they were suitable for funding under CFAs (see
below). Personal injury due to something other than negligence was not
excluded. Other areas of work excluded were conveyancing, boundary disputes,
the making of wills, matters of trust law, defamation137 and malicious false-
hood, company or partnership law and other matters arising out of business.138
It is thought that such matters do not have su¬cient priority to justify public
funding.

Exceptions to the exclusions
The Lord Chancellor may give directions under the AJA, s. 6(8)(a) permitting
the LSC in speci¬ed circumstances to fund services that are generally excluded.
The categories include cases that have a signi¬cant wider public interest and
cases against public authorities alleging serious wrong-doing, abuse of position
or power or a signi¬cant breach of human rights. Another category is personal
injury cases with very high investigative costs before it can be determined
whether the case could be funded under a CFA. The Lord Chancellor may
authorise funding in individual cases following a request from the Commission
(s. 6(8)(b)).
The Lord Chancellor™s Guidance states that funding of a case in an otherwise
excluded category may be considered where ˜(i) there is signi¬cant wider public
interest; or (ii) the case is of overwhelming importance to the client; or (iii)
there is convincing evidence that there are other exceptional circumstances such
that without public funding for representation it would be practically impossi-
ble for the client to bring or defend the proceedings, or the lack of funding
would lead to obvious unfairness in the proceedings™.139

136
AJA 1999, Sch. 22, para. 1(a).
137
In February 2005 in the famous ˜McLibel™ case of Steel and Morris v. United Kingdom (2005)
Times, 16 February the Strasbourg Court ordered the Government to pay the two defendants
£57,000 compensation for failing to give them legal aid to defend the action brought against
them by McDonalds. See Hudson, ˜Free Speech and Equality of Arms “ the Decision in Steel
& Morris v. United Kingdom™, European Human Rights Law Review, 2005, pp. 301“9.
138
AJA 1999, Sch. 2, para. 1(a).
139
The third category was added in light of R (on the application of Jarrett) v. Legal Services
Commission [2001] EWHC Admin 389, [2001] All ER (D) 111 (Jun) which concerned the
exclusion of director disquali¬cation cases. This might be su¬cient to meet the need for legal
aid in exceptional cases identi¬ed by the Strasbourg Court in the ˜McLibel™ case (n. 137
591 The legal aid system


The Commission has a Public Interest Advisory Panel. A summary of its
reports on individual cases is published in its publication Focus and also on the
Website “ www.legalservices.gov.uk “ Guidance “ Public Interest Reports.140
In addition to establishing that the matter in question is within the scope of
the scheme, the applicant has to satisfy a merits test and a means test.

The merits test
Under the previous scheme an applicant could not get civil legal aid unless he
satis¬ed the Legal Aid Board that he had reasonable grounds for taking, defend-
ing or being a party to the proceedings.141 He could be refused legal aid if in the
circumstances it appeared to the Board ˜unreasonable that he should be granted
representation™.142
The ¬rst part of the test was whether there were su¬cient prospects of the
client being successful. The second part, the ˜reasonableness test™, was more
elastic. The usual interpretation was whether a reasonable solicitor would
advise a reasonable client, who had the means, to spend his own money on the
case. This excluded most small claims, as solicitors would not normally advise
their clients to proceed, but although ¬nancial bene¬t as compared with the cost
was the normal criterion, it did not always apply. There were cases a¬ecting the
applicant™s status, reputation or dignity where legal aid could be appropriate
even though the ¬nancial bene¬t was small.
The Funding Code radically transformed the merits test. As foreshadowed in
the 1998 White Paper, it now requires consideration of wider criteria and
di¬erent measures of likely success depending on the type of case.143 The
essence of the matter is not merely prospects of success but cost bene¬t. The
tests are set out in the General Funding Code (section 5).144 They are di¬erent
for the di¬erent categories. For Legal Help, they are whether there is su¬cient
bene¬t to the client having regard to the circumstances, including his personal
circumstances, to justify the work and whether it is reasonable for the work to
be funded by the CLS having regard to any other potential sources of funding.
For Help at Court, they are those tests plus: Is advocacy appropriate, will it be
of real bene¬t to the client and would Legal Representation be more appropri-
ate? For Emergency Representation, the test is merely whether it is in the inter-
ests of justice.
Funding for Full Representation will be refused if the prospects of success
are unclear or poor or are borderline and the case does not appear to have a


above). The Government indicated after the judgment that it did not intend to extend legal
aid generally to defamation cases. (Lord Falconer, House of Lords, Hansard, 22 February
2005.)
140
See also K. Ashton, ˜Public Interest Litigation “ Realising the Potential™, Legal Action, July 2001.
141 142
Legal Aid Act 1988, s. 15(2). Ibid., s. 15(3).
143
For research by the Legal Aid Board into the capacity of solicitors to judge prospects of
success see P. Pleasence, ˜Can Solicitors Pick Winners?™, New Law Journal, 29 January 1999,
144
p. 138. For a description see Legal Action, December 2003, pp. 17“18.
592 Costs and the funding of legal proceedings


signi¬cant wider public interest or to be of overwhelming importance to the
client.
If the claim is for damages and it does not have a signi¬cant wider public
interest, Full Representation will be refused unless:
• Where prospects of success are ˜very good™(80 per cent or better), likely damages
will exceed likely costs. Where prospects of success are ˜good™ (60“80 per cent),
likely damages exceed likely costs by two to one. Where prospects of success are
moderate (50“60 per cent), likely damages exceed likely costs by four to one.
• If the claim is not primarily for damages (including one which has over-
whelming importance to the client) but does not have a wider public signi¬-
cance, Full Representation will be refused unless the likely bene¬ts justify the
likely costs, such that a reasonable private paying client would be prepared to
litigate. If the claim does have a signi¬cant wider public interest, it may be
refused unless the likely bene¬t to the applicant and others justify the likely
costs, having regard to the prospects of success and all other circumstances.
Funding for very high cost cases145 will be refused unless it appears reasonable
for funding to be granted in the light of the resources available and likely future
demands on those resources.146 These cases are handled by the Special Cases
Unit. Each case has an individual contract based on an agreed case plan with
prices costed for each stage.

The means test and contributions
Under the legal aid scheme there were three categories of applicant: (1) those
who quali¬ed for free legal aid; (2) those who quali¬ed for legal aid subject to a
contribution; and (3) those who did not qualify for legal aid because of exces-
sive income or capital or both. The great majority (around 85 per cent) of those
who got civil legal aid paid no contribution.
The CLS has the same basic structure of eligibility tests regarding income and
capital and for calculating eligibility.147 The rates for the year are announced
annually to come into force in April.148
For some kinds of work there is no contribution.149 The contribution in
respect of income in 2006 was payable for those whose monthly disposable


145
In respect of Investigative Help or Full Representation cases where costs are likely to exceed
£25,000 and in respect of Litigation Support cases where a conditional fee agreement is in
place and funding is sought for costs above £15,000 or disbursements above £5,000.
146
This a¬ordability criterion does not apply to Special Children Act Proceedings and judicial
review proceedings in which funding is to continue or other proceedings in which the life or
liberty of the client is at risk. (See 32 Focus, pp. 12“13.)
147
The details were set out in 36 Focus, November 2001, pp. 16“23.
148
For the year from April 2006 the gross income limit was £2,350 per month (more with four or
more dependent children), the limit for ˜disposable income™ was £649 per month and the
capital limit was £8,000 (£3,000 for immigration cases).
149
Legal Help, Help at Court, Family Mediation, Help with Mediation and Legal Representation
before the Asylum and Immigration Tribunal.
593 The legal aid system


income was above £279 and below £649. It was assessed in three income
bands.150 The contribution from disposable capital between £3,000 and £8,000
is either the excess capital over £3,000 or the likely costs whichever is the lesser.
If capital is under £3,000 there is no contribution in respect of capital.
To arrive at the ¬gure for disposable income or disposable capital a consider-
able number of deductions are allowed from the gross ¬gures. Thus for income,
allowable deductions include national insurance, tax, child care expenses
incurred because of employment, rent or mortgage payments up to £545 per
month and a ¬xed amount for each dependent relative. In calculating capital one
may exclude the value of one™s home up to £100,000 after allowing for any mort-
gage again up to £100,000.151

The statutory charge
When a legally aided person won his case, the legal aid fund recouped itself for
his costs ¬rst from costs paid by the loser, secondly, from his contribution and,
thirdly, from any damages awarded to him or from property recovered or pre-
served by the litigation. This so-called ˜statutory charge™ on the damages could
in some cases have the e¬ect of wiping out the net bene¬t of the litigation. The
Legal Aid Board had the power to delay activating the statutory charge.152 This
power to delay was commonly used to avoid a sale of the matrimonial home
by the wife when it had been awarded to her in the matrimonial proceedings
for her and the children to live in, but the claim remained e¬ective and was
met when the wife later sold. Under the CLS, the statutory charge is in most
respects essentially the same. (It does not apply to sums expended by the
LSC in funding Legal Help, Help at Court, Family Mediation or Help with
Mediation.153)
Pre-CLS, the statutory charge was the cost of the funded services or the value
of the house whichever was the lesser. Now when the operation of the charge is
postponed the charge applies to the whole cost of the funded services so that if
the value of the property increases in value above the amount due, the LSC can
take its full pound of ¬‚esh.154

Legal Help
Legal Help (formerly ˜legal advice and assistance™ otherwise known as the Green
Form) permits the solicitor to give advice and assistance short of representation

150
For a monthly disposable income between £280 and £411, a quarter of income in excess of
£275. For a disposable income between £412 to £545, £34 plus a third of income in excess of
£411. For a disposable income between £546 to £649, £78.70 plus a half of income in excess of
£545.
151
The LSC provoked considerable criticism in 2004 when it canvassed abolition of the disregard
of the ¬rst £100,000 of equity but in the event this was not pursued.
152
Hanlon v. Law Society [1980] 2 All ER 199.
153
Unless in the case of Legal Help, Help at Court or Help with Mediation the work was in
connection with family, clinical negligence or personal injury proceedings or a dispute which
154
might give rise to such proceedings. See further 29 Focus, March 2000, pp. 11“13.
594 Costs and the funding of legal proceedings


at a hearing. Within the limits of his contract with the LSC, it is within the dis-
cretion of the solicitor what work he undertakes by way of Legal Help.
There is no merits test. There was a fairly stringent means test administered by
the solicitor himself. Until 1993 a contribution was payable by those just above
the free limit but as from April 1993 Green Form help was only available to those
eligible to obtain it free. That remains the position under the present scheme.
In 2005“6, Legal Help accounted for 708,500 acts of assistance (not includ-
ing immigration matters) provided by solicitors (450,000), not-for-pro¬t
organisations (163,100), CLS Direct telephone advice (73,600), pilots and other
(21,900).155
The Legal Help scheme allows up to two hours™ work (or three hours in
divorce work). If the matter requires more work, the lawyer must apply to the
LSC for an extension.

Help at Court
Help at Court (formerly Assistance by Way of Representation, known as
ABWOR) is a scheme to enable representation in certain matters to be handled
without the full requirement of a legal aid certi¬cate. It applied to domestic pro-
ceedings in magistrates™ courts, proceedings before mental health review tri-
bunals, representation in police applications under PACE for a warrant of
further detention and representation in certain child care proceedings.
It is for the solicitor to determine whether the client is ¬nancially eligible and
whether the case is within the scope of the Act.156 Again, there is no contribu-
tion from the client.

Immigration and asylum work
The LSC™s annual report for 2002“3 reported a signi¬cant increase in services
provided in immigration and especially asylum work. In the two years from
2000“1 the cost had more than doubled from £81 million to £174 million. The
rise was due to various factors including increases in the numbers of asylum
seekers and faster processing by the Home O¬ce resulting in more appeals
(19,395 in 2000, 64,125 in 2002). There was concern about the poor quality of
some of the advice given in this ¬eld. There were particular concerns about the
use of devolved powers by providers to self-grant certi¬cates for judicial review
in immigration cases, the success rate for which was only 13 per cent. ˜Radical
measures™ would be required in 2003“4. The ¬rst such measure was that
devolved power to grant certi¬cates was removed as from April 2003.
Applications for funding had to be made to the LSC.157
In June 2003 the Government published a consultation paper proposing
further radical measures:158
155 156
LSC Annual Report 2005“06, Table 3, p. 18. 29 Focus, March 2000, p. 14.
157
41 Focus, March 2003, p. 2.
158
Public Consultation on Proposed Changes to Publicly Funded Immigration and Asylum Work,
consultation paper 07/03.
595 The legal aid system


• Time limits for number of hours of advice paid for di¬erent types of matter
(¬ve hours for initial advice in an asylum case;159 three hours for non-asylum
immigration cases) and maximum amounts allowed for disbursements. The
maxima to attach to the client and to apply therefore if the client changed
advisers.
• Maximum fees for preparing appeals or for applying for leave to appeal (but
not for substantive hearings).
• Payments would only be made to accredited advisers and case workers.
• The accreditation scheme would also be applied to interpreters.160
• To exclude useless attendances “ for instance at interviews with the Home
O¬ce.
These proposals provoked severe criticism from the advice sector, especially as to
the proposed ¬ve-hour time limit for asylum work. The House of Commons
Constitutional A¬airs Committee in a report in October 2003161 commended the
idea of accreditation of advisers to reduce the amount of poor quality work but
criticised the ¬ve-hour time limit as unrealistic and likely to be counterproductive.
In light of these criticisms, the proposals were slightly modi¬ed so that
instead of an absolute time limit there was a cost or time threshold beyond
which providers require the consent of the LSC to continue working on the
matter. Funding for attendance and making representations at the Home O¬ce
was withdrawn altogether.These changes became e¬ective as from April 2004.
The accreditation scheme became e¬ective as from April 2005. By then all
practitioners undertaking publicly funded work in the ¬eld had to achieve
accreditation by passing two written examinations and a videotaped skills
assessment.
Another important change made as from April 2005 was that legal aid would
only be paid retrospectively, if at all, to appellants challenging appeal decisions
made by the new Asylum and Immigration Tribunal. Lawyers are only paid if
the judge considers the case had a signi¬cant prospect of being overturned
at the outset. (The House of Commons Constitutional A¬airs Committee
described the retrospective payment system as ˜unprecedented™ and expressed
concern as to the negative e¬ect this would have on suppliers.162)
In April 2005 the campaigning organisation Asylum Aid and Bail for
Immigration Detainees published Justice Denied: asylum and immigration legal
aid “ a system in crisis.163 One of the main points made in their document was

159
The ¬ve hour cap on initial advice was in contrast to the fourteen to twenty hours allowed in

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