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1.43 pm
The Parliamentary Secretary, Lord Chancellor's Department (Mr. Geoffrey Hoon): I thank the hon. Member for South Suffolk (Mr. Yeo) for the clarity of his speech, setting out the position of his constituent Mrs. Stephanie Atkinson. I also thank him for his courtesy in sending me a copy of his speech in advance of today's debate. However, I am disappointed that the detailed explanations provided in my letters to him and in those of the Legal Aid Board have not yet satisfied him. Nevertheless, I shall endeavour to clarify the position once and for all.
I emphasise that my explanation today will not differ in substance from that which I gave in writing to him on 12 August and 22 September 1997. I had read all the relevant correspondence before writing to him on each of those occasions.
Decisions on civil legal aid are made in accordance with the law by the Legal Aid Board, a body which is independent of ministerial control. It is an important principle that such decisions are, and are seen to be, free from political or governmental interference.
The specific case that the hon. Member for South Suffolk has raised was a matrimonial dispute in which both parties were legally aided. Both were therefore of limited financial means. Before legal aid is granted, an applicant must pass both a means test and a merits test, which are conducted by the board in accordance with relevant legislation. An applicant must qualify financially for civil legal aid, by satisfying the Legal Aid Board that his or her income and capital are within current financial limits. It is worth noting that the board will not take into account any matrimonial assets that are the subject of a dispute.
An applicant must also show that he or she has reasonable grounds for taking, defending or being a party to proceedings, and that it is reasonable in the specific circumstances of the case for legal aid to be granted. That is known as the merits test. The board must consider, for example, whether the case has a reasonable chance of success, whether the benefits of litigation would outweigh the cost to public funds, and whether the applicant would receive any significant personal benefit from proceeding, bearing in mind any liability to repay the costs if successful.
Those factors are similar to those which would influence a privately paying client when considering whether to become involved in legal proceedings. In the case raised by the hon. Gentleman, both parties satisfied the means and merits tests, and both were granted legal aid.
Any case before the court, whether privately funded or legally aided, may result in costs being awarded against the losing side at the end of proceedings. The decision on the award of costs lies with the court, which has wide powers of discretion to direct what costs should be paid and by whom. The general rule is that the losing party will pay the winning party's reasonable costs.
In this case, the judge awarded Mrs. Atkinson costs in the amount of £1,884.63 because of the second action brought by Mr. Atkinson, when he attempted unsuccessfully to vary the divorce settlement. Those were Mrs. Atkinson's reasonable costs in resisting his
application to the court. In principle, she would have had to meet those costs regardless of whether she was legally aided.
There are certain special rules on costs in relation to a legally aided party, as there would be little point in making an order for costs against someone who is eligible for legal aid--who is, by definition, of limited means. The court therefore stated that the order for costs could not be enforced without leave of the court. The decision was made under section 17 of the Legal Aid Act 1988, which limits costs against legally aided parties.
The Legal Aid Board considered the matter of enforcement of the costs order. As I said, under the law, the order cannot be enforced without leave of the court--which, in this case, would have to make a determination of Mr. Atkinson's ability to pay. Any application made to the court would require documentary evidence to show that the person's financial circumstances had improved since the original hearing. Originally, Mr. Atkinson must have been granted legal aid on the basis that he was of limited means, and therefore unable to meet any order for costs.
When the board is considering whether to pursue a costs order, it has to consider whether such action would prove cost-effective. The board would have to consider the amount that could be recovered from Mr. Atkinson, and the costs of instructing an agent firm of solicitors to perform the work. Moreover, it should be emphasised that, if the action were not successful, Mrs. Atkinson would become legally liable to pay any additional costs incurred.
I understand that the chief executive of the Legal Aid Board has written to the hon. Member for South Suffolk explaining the position. I have also requested a full report on the case. However, as the hon. Gentleman will be aware, if he is not satisfied with the responses that he has received from the board, he may refer the case to the Parliamentary Commissioner for Administration.
It is important to emphasise that, in principle, at the end of any case, it is for each side to pay their own solicitors' costs. That is the position in principle, regardless of whether the parties are legally aided. Although the successful party may recover his or her reasonable costs against the losing party, in most cases, not all the actual costs are recovered. The balance will still have to be paid by the winner.
In cases where the client is legally aided, the solicitor will receive payment from the Legal Aid Board, which, under the law, will then have to recover its costs from the solicitor's client directly, through a process known as the statutory charge. That charge means that, if, as a result of the case, the legally aided client preserves or wins anything, the Legal Aid Board can recover any deficit from what has been preserved or recovered.
The statutory charge applies irrespective of the personal circumstances of the assisted party, and ensures that the legally aided person is placed as far as possible in the same position as an unassisted party, whose responsibility at the end of the case is to pay any of their own legal costs that have not been paid by the other side.
It is important to appreciate that the Legal Aid Board has no discretion to waive the statutory charge under section 16 of the Act. Section 16(6) of the Legal Aid
Act 1988 makes it clear that the first charge will be for the benefit of the board on any property that is recovered or preserved in the proceedings.
Mrs. Atkinson retained an interest in the marital home, which it was decided had a value of £20,000. It was therefore necessary under the law to apply the statutory charge to the property in order to recover the total legal costs paid on her behalf, including the sum that Mr. Atkinson was ordered to pay to her.
I should emphasise that the statutory charge will apply only to Mrs. Atkinson's legal costs. She has not been asked to pay any of Mr. Atkinson's legal costs. The statutory charge has been an essential feature of the legal aid system since it was established in 1949. Indeed, the hon. Member for South Suffolk may remember that he voted for the legislation that is enshrined in the Legal Aid Act 1988.
It should be noted that the legal aid scheme is designed to put assisted parties on the same footing as privately paying parties wherever possible. As a result, assisted parties are required to pay a contribution, when appropriate, and to repay to the legal aid fund any moneys they receive in the course of the proceedings. Even parties who have received non-contributory legal aid are subject to the statutory charge. In effect, where an assisted person is wholly or partly successful in recovering or preserving goods or properties, the operation of the statutory charge converts legal aid from a gift to a loan.
I am aware that the immediate imposition of the statutory charge can cause undue hardship. For that reason, a legally aided party may, if necessary conditions are met, postpone the operation of the statutory charge. A condition of postponement is, however, the payment of interest. In order to postpone the charge, the legally aided person must agree in writing to pay interest over the period of the postponement.
The rate of interest charged by the Legal Aid Board is 8 per cent. per annum simple interest--not, I emphasise, the compound interest charged by many mortgage lenders. The board has no discretion under the law to waive interest. In contrast, privately paying clients may have to take out a loan to pay their legal advisers, and would be paying a commercial rate of compound interest.
If postponement of the charge is permitted, as in this case, the legally aided person is, in fact, in a better position than a privately paying client, since there is no requirement to sell the property in order to repay the loan. The loan may not be paid back for many years--until, for example, the legally aided party chooses to sell. A private client, however, would be expected to pay their legal costs immediately. When the statutory charge is paid by instalments, the board normally expects a minimum of £25 per payment. The payments are first used to cover any outstanding interest, but any residue reduces the amount of the charge.
The operation of the statutory charge and the accrual of interest should not come as a surprise to someone who is legally aided. From the outset of the case, the solicitor should explain the charge and the possible effects as the case proceeds. The legally aided person
should also be given a leaflet, produced by the board, which explains the operation of the statutory charge. When the legally aided person signs the legal aid application form, he or she acknowledges that the charge has been properly explained to them. Mrs. Atkinson signed an agreement on 17 January 1994 to postpone the charge and to pay interest.
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