Transparency of legal costs required, but not a panacea

 

LEGAL OPINION:Although the Legal Costs Working Group’s report of 2005 favoured greater transparency of legal costs, the Competition Authority report of 2006 expressed its reservations. It argued that if cost awards were published, they could become a target for lawyers in the issuance of their bills and could inflate costs. It said transparency could “facilitate collusive behaviour in a market”.

The Legal Services Bill keeps the parties’ identities secret in legal costs adjudications where clients challenge their own lawyers’ bills. More significantly – the Bill prescribes that all cost adjudication hearings shall be held in camera. However, our Constitution states that “justice shall . . . save in such special and limited cases . . . be administered in public”. What compelling case is there to suspend the open justice principle for the adjudication of lawyers’ fees?

In 1998 the Supreme Court affirmed the right of The Irish Times contemporaneously to report on court proceedings. Justice Ronan Keane said: “Justice must be administered in public, not in order to satisfy the merely prurient or mindlessly inquisitive, but because, if it were not so, an essential feature of a democratic society would be missing.”

In a 1984 paper, Prof John Leubsdorf of Boston University, argued that the necessity for legal bills to be evaluated in open court, the practice in the US, may be one reason why American lawyers don’t lobby for a “loser pays” system, referred to as the English Rule, and generally applicable in Ireland.

In fact, different interpretations of what is meant by the term “costs” have caused confusion historically. In Britain, a 1278 Statute of Gloucester allowed the recovery by a winning plaintiff of the “cost of his writ”. This was liberally interpreted to include lawyers’ fees as well – according to a 1928 paper by Yale professor Albert Goodhart. This rule was followed in 1607 by a statute allowing winning defendants to also recover lawyers’ fees. Thus, according to Goddard, the recoverability of costs was primarily affected by statutes.

In 1966, the US Supreme Court, in a two-to-one decision, ruled that “costs” recoverable by statute in a particular type of court action did not include lawyers’ fees. Shouldn’t clarity therefore be given to the terms “costs” and “determinations” in the Bill?

Threatened

In February the president of the High Court Mr Justice Nicholas Kearns said that the constitutional right to access to the courts was threatened “when the cost of going to court . . . becomes or remains prohibitive”. Shouldn’t the Government therefore take steps to reduce legal costs?

Let’s look at some reforms that are not in the Bill: 1. No requirement that barristers could be accessed directly by litigants without restrictions and be allowed to advertise the price of their services openly. 2. No prohibition on the withholding of a client’s file. Each of these reforms was recommended by the Competition Authority, subject to advertising being neither disreputable or in bad taste. 3. No increase in the jurisdiction limit of the Circuit Court – it remains stuck in the punt era – being the equivalent of IR£30,000 (€38,092). A statute allowing increased limits for our lower courts was passed in 2002 but never implemented. Should an independent body set the monetary limits of the lower courts to avoid disproportionate representation by lawyers with associated costs?

The chairman of the Fair Trade Commission in its 1990 report said that under an English Rule system “usual market forces cannot operate”, and that “the problems for those of moderate means will persist”.

We should consider the reform adopted in New Zealand in 2000 that requires winning litigants to pay a third of their own costs, thus incentivising the curtailment of costs and, according to the 2010 Jackson report in Britain, virtually eliminating the need for satellite litigation over costs. This approach would reduce the enmity between parties, and the stress borne by winners as well as losers from the threat of an adverse cost award. New Zealand is in 17th place on the 2012 World Bank index of countries for “ease of enforcing contracts”, compared to Ireland’s 63rd position.

The Government may be conflicted in taking steps to lower legal costs for two reasons. First, it receives a large share of legal fees via taxes – 23 per cent VAT, 6 per cent stamp duty and high marginal income tax on lawyers’ fees. Second, lower legal costs could demand greater employment of judges, which would burden the State with considerable expense. At a conference in Australia in 2010, Chief Justice Mrs Susan Denham detailed the employment of judges in 15 European countries. Of this list, Ireland had the lowest number of judges per capita, by far. However, lower legal costs could result in greater employment for lawyers, assist competitiveness and enhance our GDP.


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