Tipping the scales against legal aid

Britain’s legal aid system continues to fail, and should be abolished for virtually all compensation claims. Reformed Conditional Fee Agreements (CFAs for short) should take its place. Those are the headline recommendations of the Adam Smith Institute’s latest report, written by legal expert Anthony Barton.
 
It’s not difficult to point to problems with legal aid, but the main one is that it encourages risk-free, speculative litigation, and fuels a costly compensation culture. The fact that claimants receiving legal aid are not responsible for defendants’ costs if their case is unsuccessful essentially puts them in a no-lose situation. Defendants, on the other hand, just can’t win – they’re going to be out of pocket whatever happens.
 
There’s a financial imperative too: the government needs to save every penny it can find. But you can’t be short-sighted about this. Legal rights are only meaningful if they can be asserted, and few people can afford the up-front costs involved. So we do need a system that ensures access to justice. It just needs to be one that doesn’t require taxpayers’ money.
 
CFAs – popularly known as “no win, no fee” agreements – offer an attractive alternative. Indeed, it is largely due to the rise of these arrangements over the last ten years that such a strong case for scrapping civil legal aid can be made. But “no win, no fee” litigation has problems of its own. And I’m not just talking about those ghastly daytime TV ads.
 
In fact, CFAs have the same fundamental flaw as legal aid: the balance of litigation risk is severely distorted in favour of claimants.  Lady Justice Smith has admitted as much in the Court of Appeal, recognizing that the current system allows would-be claimants to “litigate weak cases without any risk themselves”. We’ve all heard stories that confirm that point of view.
 
This issue largely stems from the additional costs of litigation, specifically lawyers’ success fees and after the event (ATE) insurance premiums, which cover claimants against the costs of bringing an unsuccessful action. Both these additional costs are borne by unsuccessful defendants, but neither is usually paid by unsuccessful claimants. That creates a clear incentive for lawyers to charge the highest possible success fees, and drives rising prices for ATE insurance premiums. It also means that litigation is far riskier for defendants than for claimants. Even leaving aside any damages payable, they stand to lose far more by having their day in court.
 
The simplest solution is to cap the level of additional costs that can be recovered from unsuccessful defendants. That would deter claimants from bringing weak cases with no risk to themselves, while still preserving access to justice in the absence of civil legal aid. Cost sharing would also encourage claimants to negotiate lower success fees with their lawyers, and stimulate greater competition on price in the ATE insurance market.
 
From the government’s perspective, it’s a win-win. They save money, crack down on vexatious litigants and venal lawyers, and still ensure that deserving claimants have the resources to go to law. They will be tempted to go for it. 
 
Tom Clougherty is Executive Director of the Adam Smith Institute.