The idea of CLAF (or contingency legal aid fund) is either a brilliant notion that has never had its day or an unworkable one that should have been put out of its misery years back.
It has been knocking around the legal policy world since first being floated by legal charity Justice in 1966, and has predictably resurfaced as a possible ‘access to justice’ solution in light of government plans to cut back legal aid and radically reform conditional fees, most recently in last month’s Legal Aid, Sentencing and Punishment of Offenders Bill.
The ‘classic model for a CLAF’ (as a 2009 Bar Council discussion paper saw it) is where the fund’s administrators agree to fund the claim if the likely chances of success and damages justify support.
‘In return, the client, upon success, pays a percentage of the damages recovered back to the CLAF,’ it said. ‘The costs of the successful case are recovered in the ordinary way from the defendant.
'Contributions received from the successful claimant’s damages fund future activity.’
This model can be varied, the Bar Council noted, adding that ‘statute might render defendants liable for all or part’ of the costs that otherwise would come from the claimant’s compensation.
Over the intervening decades, the prospect of a CLAF has been debated on a fairly regular basis.
Justice has made the case twice since first floating it – in 1978 and 1992 – when it called for a pilot with a small amount of funding from the Treasury (despite a Royal Commission rejecting the idea in 1978).
The CLAF gained momentum in the 1990s when the Law Society, Bar Council and Consumers Association backed it.
The bar has been the CLAF’s chief advocate, particularly in the run-up to the Access to Justice Act 1999; the idea was Tory policy in the 2001 general election.
The 1999 legislation (with its central, controversial innovation of enabling the recoverability of success fees and after-the-event insurance premiums) seemed to put an end to a CLAF because it would struggle to co-exist with conditional fee agreements (CFAs).
As the Legal Action Group explained in 2006, there was a risk that the fund may not be big enough unless it takes a ‘disproportionately high slice’ of the compensation.
It said: ‘If CFAs are available, the cases with the best chances of success will opt for a CFA, so that compensation remains intact, with the CLAF likely to fund cases with low chances of success.
'The risk here is that the fund will diminish as it pays the costs of more losing cases than winners.’
Tentative backing
The CLAF was mentioned briefly and unenthusiastically in the Ministry of Justice’s recent green paper on legal aid, despite being flagged up by Henry Bellingham, the Conservatives’ then shadow justice minister, in the run-up to last year’s election as one of a number of ‘imaginative and radical ways of bringing new money into the legal aid fund from outside the public sector’ (Closing the Justice Gap, Jures, 2010).
Lord Justice Jackson, in his final report, offered somewhat tentative backing. ‘In principle, I support the creation of one or more CLAFs or CCFs [a not-for-profit charitable contingent fund], if a viable financial model for such bodies can be created,’ he said.
He added that ‘all the indications’ were that ‘at least in the short term’ CLAFs could ‘only function as an alternative means of funding a minority of cases’.
However, Jackson concluded that was no ‘reason not to take the project forward’ and called for financial modelling.
A similar call came from the judiciary earlier this year.
The proposed cuts to the legal aid scheme and the coalition government’s revamp of CFAs were ‘likely between them to leave a gap’ which a CLAF or a supplementary legal aid scheme (a Hong Kong scheme that claws back 6% of damages of cases that settle and 12% of those that go to trial) ‘could fill’, reckoned the Judges Council in a response to the government’s legal aid consultation.
The reforms could create financial conditions that might be more favourable to such schemes, the response said. ‘In addition, a CLAF scheme could support cases where a lawyer would not wish to risk a conditional fee agreement,’ it noted.
It reckoned that a proper feasibility study was both ‘justified and necessary’.
In the recent Legal Aid, Sentencing and Punishment of Offenders Bill, ministers are proposing a SLAS funded by a 25% cut on any legally aided case.
The Bar Council recently launched a working group to explore the viability of a CLAF, chaired by former chairman of the bar Guy Mansfield QC.
‘We really need to see what the regulations prescribe,’ says Mansfield about the legal aid bill.
‘But ministers appear to be saying we do not want the legal aid fund to be the first port of call.
'The SLAS idea appears to be designed to leave legally aided claimants in clinical negligence on the same footing as a post-Jackson CFA claimant.’
Collectivised approach
So what does the original architect of the idea make of the CLAF concept now? A good idea in theory, responds Roger Smith, director of Justice.
‘The first problem was that a CLAF stood no chance against legal aid. Then, it stood no chance against CFAs,’ he says.
‘If CFAs are to go, then it could be a starter if the government wanted a collectivised approach and was willing to put up start-up costs or could find a commercial provider who would.’
‘It’s an idea that we don’t have particularly strong views on,’ says Richard Miller, legal aid director at the Law Society.
The bar, with its opposition to CFAs, has always been keener on the CLAF than solicitors.
As Miller points out, its contribution in terms of filling the gap left by a rapidly receding legal aid scheme could be slight.
There are only a small number of damages claims left in the legal aid scheme and so the CLAF ‘might be relevant in clinical negligence, maybe actions against the police, but the vast majority of cases simply would not fit within that structure’.
‘I’m not sure that the Jackson reforms do anything to address the fundamental issues around the CLAF,’ Miller adds.
As for the SLAS proposals, Miller says: ‘There is still a lot of detail to be sorted as to how it might work but the very concept that people would lose 25% of their damages has to be looked at again.
'Say, for example, it is a £10,000 claim and it is settled on the basis of the initial issuing of proceedings; you can have a firm taking £2,500 for a couple of hundred pounds with the work. That cannot be right.’
Mansfield explains that the CLAF as proposed by the Bar Council in its ‘original conception’ in the run-up to the Access to Justice Act was ‘as a potential replacement for legal aid or a different way of handling legal aid for damages claims’.
In the pre-recoverability era, CFAs were seen as a useful bolt-on for the middle-classes and small companies: ‘However, the introduction of recoverability and the impact of adverse selection meant that such a scheme would be difficult to implement.
'It would be difficult for a fund large or small, privately or state-run to get off the ground because it couldn’t compete as the client would lose a slice of damages unlike a CFA.’
But scrap recoverability and the claimant will lose the right to recover success fees and premiums. It will mean clients will have to meet both of those out of damages.
‘What makes the prospect of a fund more interesting is that Jackson has proposed that the amount that can be taken out of damages is 25% and that is to apply across the board but not for third-party funders,’ says Mansfield.
‘So a CLAF could take a bigger slice and back a case which would not be attractive to CFA lawyers. It’s an important distinction.’
Growing demand
The silk argues that in this new world, there are likely to be fewer cases taken by solicitors on CFAs and so there might be deserving claimants out there who simply will not get a look in.
‘As a result of the changes there might well be a demand out there that needs to be met.
'The time for a fund may have come for two reasons: the public interest to fill that gap and, secondly, lawyers’ self interest, insofar as it is work that will be funded through a CLAF that they would not otherwise get.’
Mansfield says the bar does not envisage a scheme necessarily being run by the Legal Services Commission or even being a single fund. ‘We see this as either a private not-for-profit/charitable scheme or perhaps third-party funders moving in on a purely commercial basis,’ he says.
He adds that, in the context of a not-for-profit/charitable fund, they would seek to persuade the government that qualified one-way costs shifting (QOCS) should operate as it does for legal aid.
The silk reckons that a CLAF would be unlikely to fund clinical negligence cases, which is the main idea behind a SLAS because it would not be able to take a slice of future damages.
‘The crucial thing is that we’re not asking the government for money,’ the barrister continues.
‘The most we are asking for is permissive legislation.’ What might that involve? One aspect would be the QOCS regime applying and ‘some sort of clarity about maintenance and champerty might be helpful’.
Political problems
So would the nascent third-party funding industry be willing to run a CLAF? Susan Dunn, who set up Harbour Litigation Funding, says: ‘I would be very happy to look at running or administering a fund subject to a couple of points: what are the cases that are going to go in there and how are the finances going to work?’
Dunn says adverse selection is a concern for third-party funders as well.
But it is more obvious why cases come to funders - these are the kinds of claim which nobody would run on a CFA because ‘they are so big, they take too long and people are not prepared to underwrite the risk’.
Rocco Pirozzolo, solicitor and senior underwriter at QBE, says that it can only be a good thing to have more funding options.
‘But there must be some big question marks over whether the vast start-up costs of establishing a fund can be obtained, and over whether the model is viable,’ he says. ‘Also I wonder to what extent it is as relevant in the new post-Jackson litigation world. What gap is it trying to fill?’
The solicitor queries whether third-party funders are going to find it attractive.
‘If one compares the size of return they tend to make on commercial cases, would a CLAF ever give the same level of return? How do you get your return out of a pool of cases rather than investing in individual cases?
'There is a tension between the administrators of a fund which would like to have more money and more funds and the commercial investor who is thinking that they want their return now, however laudable the aims.’
Roger Smith argues that the Bar Council vision is rather limited.
‘It suggests a peripheral role for a marginal, possibly private fund doing small numbers of cases,’ he says.
‘The essential notion of a CLAF - which is the essential notion of legal aid - is collectivising cost and risk, and you are therefore able to fund cases where there is a high risk because you are making a profit on cases that are low risk.
‘In principle it’s a good idea but I don’t think it has a snowball in hell’s chance because of the politics,’ Smith continues. Why not?
‘It is a collectivised solution at a time where privatisation is the order of the day and, secondly, because lawyers will probably figure rightly they can make more money out of CFAs.’
- This is an updated version of an article that first appeared in the June edition of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.Jon Robins is a freelance journalist
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