HC Deb 08 April 1998 vol 310 cc326-34 1.30 pm
Mr. Tim Yeo (South Suffolk)

I am grateful for the opportunity to raise the issue of the Legal Aid Board and its actions—or more particularly, its inactions—in the case of my constituent Mrs. Stephanie Atkinson.

Mrs. Atkinson was divorced in 1991. At that time a settlement was agreed allowing her to remain in the marital home. She acquired her husband's share of the equity and accepted responsibility for the mortgage, while Mr. Atkinson retained the benefit of two endowment policies. After the divorce, Mrs. Atkinson obtained part-time employment, and was in receipt of income support for a period. Because of the payment of that benefit, the Child Support Agency intervened, requesting that Mr. Atkinson increase his maintenance payment for the two children of the marriage—two boys aged 14 and 12.

Using different solicitors from those who had acted for him over the divorce, Mr. Atkinson attempted to have the original divorce settlement set aside, seeking new terms less advantageous to my constituent, which involved, among other things, the transfer of a share of the equity in the marital home to him. Mrs. Atkinson resisted that, and the matter went to court in Bury St. Edmunds, where, on 8 April 1994, it was decided that there was no case to be heard. The costs of the action were awarded against Mr. Atkinson.

Mr. Atkinson undertook that attempt to alter the original divorce settlement for his own benefit. Mrs. Atkinson's refusal to accept the proposed change was vindicated by the court. In bringing the action, Mr. Atkinson received legal aid, perhaps because he had been out of work for a period following the divorce. However, he was working again by April 1994.

The problem facing my constituent stems from the fact that the Legal Aid Board has a charge over her house resulting from the original divorce settlement. As the charge was not registered until after 1994, she did not know the precise amount until recently. She incurred legal costs of just over £3,000 at the time of the divorce. If she sells her home, she will have to repay that sum to the board. That aspect of the matter is not in dispute, and has always been accepted by Mrs. Atkinson.

Following Mr. Atkinson's subsequent action, the board is seeking to enforce the charge over Mrs. Atkinson's home in the larger sum of about £5,500. That sum appears to include Mr. Atkinson's legal costs from his unsuccessful 1994 action and interest, which is accruing daily at 8 per cent. per annum even on the additional disputed sum relating to Mr. Atkinson's costs.

The Legal Aid Board is seeking to recover from Mrs. Atkinson the costs that were incurred by Mr. Atkinson in an unsuccessful attempt to improve his position at her expense. That is a clear and serious breach of natural justice. Mrs. Atkinson did not initiate the action. Her refusal to accept a change to the original settlement was justified, yet she is required to pay the costs of her ex-husband's legal action, despite the fact that his income is now significantly higher than hers.

Mrs. Atkinson explained the circumstances to me in March last year at my constituency surgery. She is supporting herself and her two sons through full-time employment, and is doing everything she can to avoid becoming a burden on the taxpayer or on anyone else. She is naturally dismayed at having to meet her ex-husband's legal costs.

After our initial meeting, I contacted the Land Registry to seek the removal of the charge that the Legal Aid Board had over her house. As Mrs. Atkinson does not dispute that some money would be payable to the Legal Aid Board if she sold her home, the removal of the charge is not possible. I also contacted people at the Cambridge area office of the Legal Aid Board, who explained that, if they could not recover the costs of the second action from Mr. Atkinson, they would seek to recover them from Mrs. Atkinson. The charge over her home would have to be increased by the amount of the potentially uncollected costs.

In April last year, Mrs. Atkinson made it clear that she did not feel that the Legal Aid Board had made sufficient effort to recover the costs from her husband. I share that view, and conveyed it to the Cambridge office of the Legal Aid Board in a letter on 7 April. The reply simply suggested that, if she was dissatisfied with the board's efforts to recover costs from Mr. Atkinson, she could pursue the matter through its complaints procedure.

After the general election, I contacted the Legal Aid Board head office in London, who wrote to me on 1 July confirming that £1,884.63 of the costs related to Mr. Atkinson's unsuccessful action, and that interest was accruing on those costs. In August, I was informed that the relevant file, which should have been kept by the Cambridge area office, had been destroyed, making it difficult to determine whether the value of the endowment policies that Mr. Atkinson retained after the divorce had been taken into account when the board decided not to pursue him for the recovery of his costs.

I was also concerned to learn that, if Mr. Atkinson had used those endowment policies as security for the purchase of a further home after his divorce, the board would not be entitled to take their value into account when assessing his means for enforcement purposes. That is another serious injustice. Although Mr. Atkinson can shelter his assets to prevent the Legal Aid Board from recovering legal costs from him, Mrs. Atkinson—the innocent party—cannot take similar action. I hope that the Minister will comment on that injustice.

On 12 August, the Minister wrote me a general letter, which did not directly address the issues raised by the case. A further letter from him on 22 September added little to his earlier reply. I have read those letters again this morning, and I find it hard to believe that he read either of my letters to him about the case before sending his replies.

At that point, the Minister asked the chief executive of the Legal Aid Board to contact me. On 19 September, I received a letter containing the extraordinary assertion that the board was not trying to recover from my constituent the costs that had been incurred by Mr. Atkinson. If that assertion was remotely true, I would not need to raise the matter now.

The chief executive of the Legal Aid Board agreed to re-examine the matter of the endowment policies. By that time, I was able to confirm that the policies were not linked to the purchase of another home by Mr. Atkinson— information that had originally been given to the Legal Aid Board, at the beginning of 1997, by Mrs. Atkinson's solicitors.

Although I was assured that I would be kept informed, the trail went cold for almost three months before the Legal Aid Board wrote again, suggesting that Mrs. Atkinson could take action against Mr. Atkinson to recover those costs. However, the board's own view was that it would not be cost-effective for the board itself to do so.

Not only was no reason given to explain why Mrs. Atkinson, rather than the board, should have to take the action, but the suggestion completely overlooked the fact that Mrs. Atkinson is understandably reluctant to initiate an action against her former husband, for fear of the damage that it might to do to their already fragile relationship, the nature of which leaves her extremely vulnerable to retaliation.

There the matter now rests—a situation which is worthy of Charles Dickens. My constituent—a divorced mother, struggling to support herself and her two children—is faced with supine bureaucracy on all sides. When her former husband attempted to vary the terms of a previously agreed divorce settlement to her disadvantage, she wished to protect her position and that of her children. The court found in her favour, but the Legal Aid Board still required her to meet the costs of her husband's failed action.

The same board—having destroyed a file that was clearly still active, and having requested information that had been supplied to it months earlier—has, after a further three months' delay, decided that it is unable, for reasons that are completely unexplained, to take any action to recover the costs from Mr. Atkinson. The sums may not seem enormous to the board, but they are of great significance to my constituent.

Two issues of principle are also involved. First, my constituent should not be expected to pay the costs of an action—which she won—brought against her by her ex-husband for his own purposes. Secondly, it is wrong for the board, with all the resources at its command, to suggest that my constituent should have to initiate the recovery action against her former husband. It was the board's failure to act that caused the problem initially.

I should be grateful if the Minister would address those two issues. I am sure that he will agree that the system should not operate so obviously to the disadvantage of my constituent.

Thirdly, I should be grateful also if the Minister will also explain just what action the Legal Aid Board has taken to try to recover Mr. Atkinson's costs from him. As the Minister knows, the board has a statutory duty to recover money expended on a legally aided case. So far, the board seems to be interpreting that duty in an extraordinarily one-sided manner, by looking exclusively to Mrs. Atkinson for its costs.

As my third request was not in the draft of my speech, which I sent to the Minister's office, I shall understand if he would prefer to write to me with a detailed answer to it.

Finally, and in any event, I shall be grateful if the Minister will now assure me that the Legal Aid Board will make a proper attempt to recover from Mr. Atkinson the costs incurred by him, so that the burden of those costs does not fall on my constituent.

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.

Although application forms contain warnings about the effect of the charge, the board is firmly of the view that it is the solicitor's responsibility to ensure that the client is kept fully informed about its implications throughout the case. As with all legal aid payments, the solicitor's costs and counsel's fees are paid out of the legal aid fund, not out of the charge.

I apologise for the technical explanation of the case. It is unfortunate that the devil is in the detail of the matter. Only by explaining the detail can the facts in this unfortunate case be properly understood. I hope that the hon. Member for South Suffolk now properly understands both the law and the facts of the case.

Mr. Yeo

As we still have a moment or two left, I should like to express my disappointment at the Minister's reply. Although he set out the principles on which legal aid can be granted, and although he explained in some detail—which I was able to follow—the circumstances under which interest is charged, and so on, those are not the matters that have caused the greatest concern to my constituent.

We were aware that there would have to be repayment of costs that arose in the original divorce settlement. There was clearly a gain of property because Mrs. Atkinson received a share of the equity in the marital home—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. The hon. Gentleman cannot speak twice in the debate. He must make a brief intervention.

Mr. Yeo

The substance of my constituent's concern—and my concern—is the failure of the Legal Aid Board to carry out its statutory duty to recover costs in an even-handed way. It is taking the easy route by using its charge on my constituent's property to recover costs. It does not appear to be making any attempt to recover costs from Mr. Atkinson. I hope that the Minister will at least write to tell me what steps the board intends to take to recover costs from Mr. Atkinson.

Mr. Hoon

I have sought to explain to the hon. Gentleman the particular problem, which is that both parties at the outset were legally aided. In those circumstances, the law requires that very careful consideration be given before any procedures are used to enforce payment of costs by a legally aided party. I explained carefully that there is little purpose in cost orders against legally aided parties, since, by definition, having qualified for legal aid, they are unlikely to have sufficient funds to meet any order for costs. That was the position at the conclusion of the second case.

Thereafter, the hon. Member for South Suffolk might make a good point if he were able to point to substantial assets that Mr. Atkinson had. The difficulty that the Legal Aid Board faces is that, if there is evidence that Mr. Atkinson had sufficient funds to meet the order for costs, the Legal Aid Board has to instruct solicitors to act against him in order to recover those costs. Someone has to pay for those proceedings. The person who might have to pay, particularly if the proceedings go wrong, is Mrs. Atkinson.

In the exercise of its judgment, the Legal Aid Board decided that it would not be appropriate to expend more of her money—it is, in effect, her money, because it would come out of the statutory charge—in order to pursue Mr. Atkinson in what might well turn out to be entirely fruitless proceedings, further aggravating the problem that the hon. Gentleman has set out. That is why the Legal Aid Board chooses not to pursue someone like Mr. Atkinson in the absence of any clear evidence of sufficient resources to meet any order for costs.

It being before Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.