Government proposals will not fulfil the aim of enabling the ‘small man to take on the big defendant’.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 caused huge controversy by cutting litigation funding. Part 2 of the act abolished recovery from losing opponents of ‘success fees’ in conditional fee agreements and also recovery of after-the-event legal expenses insurance premiums.

Costs protection by way of qualified one-way costs shifting (QOCS) was provided in personal injury and clinical negligence litigation within the legislation. After the Leveson inquiry, a delay in implementation was given for consideration of costs protection for defamation and privacy claims. Other types of litigation have also been highlighted for potential costs protection, including professional negligence and liability claims, and environmental law claims.

The Ministry of Justice has released a consultation, Costs protection in defamation and privacy claims, which closes on Friday. It seems the government is trying to limit QOCS for defamation and privacy claims to vague financial categories defined as follows:

(i) those of modest means, who should be entitled to costs protection in full (‘nil net liability’);

(ii) the ‘mid’ group of those of some means – who could pay something, but not the costs in full – who should be entitled to costs protection in part (‘capped liability’);

(iii) those of substantial means, who should not get any costs protection because they would not face ‘severe financial hardship’ if they were ordered to pay the other side’s costs.

Eligibility for QOCS is to be determined by the courts. A similar MoJ proposal was discussed at an MoJ experts conference on 31 October 2011. The experts rejected the proposal and the MoJ abandoned it for personal injury and clinical negligence litigation. It seems the ministry has now revived it, hidden within this consultation, despite the experts’ overwhelming disapproval.

The MoJ consultation raises the following key issues:

1. Satellite litigation – financial categories like this were previously abandoned by the government for QOCS in personal injury and clinical negligence litigation mainly because of the high risk of satellite litigation. The MoJ proposal includes the scope for multiple applications for review of QOCS within the same case.

2. Scope for creating court backlogs – if the financial categories get through as proposed, they are to be determined by the courts in individual cases. The Legal Aid Agency is equipped to deal with independent assessments for financial limits – how will the overburdened county court district judges cope with this potential deluge of applications? What impact will this proposal have on delays in progressing litigation through the courts?

3. Litigants in person – there does not seem to be any proposal about how an application for QOCS to the court is to be funded. Will solicitors offer conditional fee agreements for such applications? If not then will many applications to the court be made in practice by litigants in person?

4. Data protection, freedom of information and confidentiality – QOCS applicants will be obliged to file details of their private financial affairs to the court as a public body. How will the courts cope with compliance with the legal requirements for data protection, freedom of information and confidentiality? What liability will the courts face if there is misuse of an applicant’s financial information?

5. Financial disclosure - this proposal means that to obtain QOCS an applicant must reveal all their financial affairs, not only to the court but also potentially to the defendant in order for there to be a fair hearing. This will be an obligation even if the real dispute has nothing whatever to do with the applicant’s finances.

6. David v Goliath as the underlying policy – the previous lord chancellor, Kenneth Clarke, gave evidence to the Joint Select Committee on Privacy and Injunctions on 16 January 2012 on this issue (uncorrected evidence published on 23 January 2012). In answer to a question by Lord Boateng, Clarke said: ‘When it comes to the question of the small man taking on the big defendant, we are making provision for some qualified transfer of costs in order to give equality of arms, as the jargon phrase is often used, to those who wish to take on a bigger institution.

‘We are making provision whereby in certain circumstances you can enable a poor litigant, or one who is taking on a giant, to be relieved of the risk of paying the costs of the defendant. All of that is currently before the House of Lords; it is in the legislation we have at the moment.’

Lord Justice Jackson recommended QOCS should be restricted ‘where the claimant is conspicuously wealthy’ (final report paragraph 4.8 at page 190). The current consultation proposals say: ‘The proposals seek to ensure that poorer claimants would be able to bring claims without fear of not being able to pay substantial costs to the other side if the claim failed. Similarly, poorer defendants would be able to defend claims.’

So why is the MoJ now trying to limit QOCS to highly controversial financial categories?

If the government is concerned about the small man taking on the big defendant, then any QOCS financial test should be about relative wealth between the parties, for example QOCS should apply unless the claimant’s wealth is more than 25% of the defendant’s. In the vast majority of cases it would be obvious that a defamation and privacy claimant has less than 25% of the wealth of a huge newspaper corporation.

However in the event there was a ‘conspicuously wealthy’ claimant there could be a very few cases on the margins but no risk of opening the floodgates based on the MoJ’s newly proposed financial limits. It would be far more fair, just and equitable for both parties to have disclosure obligations to the court about their financial affairs in the event that QOCS eligibility is challenged.

Costs protection by QOCS along the lines proposed in this consultation could be imposed for personal injury and clinical negligence litigation in future and also for other litigation areas of hardship. As a measure to protect access to justice for ordinary people, QOCS on this MoJ proposal may well have little practical effect as well as being hugely costly to the public purse to implement.

Katy Manley is president of the Professional Negligence Lawyers Association