Reimbursing acquitted defendants

Ken Clarke, the newly appointed lord chancellor, faced a dilemma within days of taking up his new job. Should he abandon the previous government’s scheme, introduced last October, which for the first time had forced many acquitted defendants to bear most of the costs they had paid for their defence? He was facing a judicial review action brought by the Law Society which was to be heard within days and his prospects did not look good.  In opposition, the Conservatives had opposed the scheme, and it was deeply unpopular with the legal profession and, to the extent that they were aware of it, the public.

It should have been an easy call, but the timing was difficult. How would it look to abandon potential savings of £20m when the government was hoping to achieve £6bn of savings this year? In the end he chose to press on, and duly lost. He now has to decide what to do. Hopefully he will look beyond the briefings of his civil servants, for a different perspective. If he does, he will also learn that there are issues of principle and not just public expenditure at stake.

The power to award costs to successful defendants is contained in the Prosecution of Offences Act 1985, s 16(6) which specifies that the amount shall be such “as the court considers to be reasonably sufficient to compensate the defendant for any expenses which he has properly incurred in the proceedings”. 

Until last October, regulations made under the Act stated that the test to be applied in determining awards of costs was to be the test set out in s 16. Accordingly what was a “reasonable” hourly rate for a solicitors’ firm was determined by reference to the rates charged by comparable firms with similar expertise and in a similar locality. Equally, in relation to the level of counsel instructed, the proper question was the reasonableness of the instruction, and not “whether he could have instructed someone else who would have charged him on a different basis and at a lower overall rate” (R v Dudley Magistrates Court, ex p Power City Stores Ltd (1990) 154 JP 154).
This scheme was regarded throughout the profession as fair and it survived unscathed for almost 25 years. However, it came under scrutiny by the MoJ as a result of budget overruns and the impact of a small number of very high cost cases. It decided therefore to take advantage of a power contained in the Act to set rates or scales for payments of costs out of central funds and to limit the amount which may be recovered by a successful defendant. 

The lord chancellor consulted on a number of different proposals, including a proposal to limit recoverable costs to legal aid rates. Over 90% of respondents attacked the proposed scheme as being unfair. The Law Society said that it struck at the very heart of the principles of justice since it was not acceptable for any individual who had been acquitted to be required to fund their own defence. It also raised concerns that the proposal would lead to an increase in unrepresented defendants.

Notwithstanding these objections, the government pressed on, declaring that “those who can afford to pay towards the costs of their defence should do so”.  It took the view that paying privately for legal representation was the equivalent of paying for private schooling. But this ignored the fact that defendants do not face criminal proceedings through choice. The government estimated that its new scheme would save £20m each year. The cost of this was to be borne by individuals, an average of £16,200 per case in the Crown Court, representing the difference between the average costs of a privately paid case (£19,000) and the average cost of a legally aided case (£2,800).

It was evident that the driving force behind the government’s new policy was public expenditure; indeed in the consultation document there was only token acknowledgement that the legislation required successful defendants to be compensated for the expenditure that they had incurred.

The Law Society’s case

Early this year, the Law Society issued judicial review proceedings. The point at issue in the litigation was relatively simple: can the lord chancellor in setting rates or scales decide what is “reasonable” to allow the defendant, even if as a consequence the amount that will be recovered falls well short of the amount the defendant actually incurred? 

The case was heard on 27 May and judgment was given on 15 June (R (on the application of Law Society) v Lord Chancellor [2010] EWHC 1406 (Admin)).  Lord Justice Elias, giving the leading judgment, made it clear that the statute does not allow the lord chancellor to decide what is reasonable. In setting out a scheme of rates or scales, he had to respect the statutory purpose set out in the Prosecution of Offences Act: see the well known passage from the judgment of Lord Reid in Padfield v Minister of Agriculture, Fisheries and Foods [1968] AC 997, 1030. Section 16 (6) requires that compensation must be “reasonably sufficient”.  That meant that it should be “of such amount as is reasonably incurred for work properly undertaken”.
The judge went on to say that the amount to be awarded could only be determined by reference to prevailing market rates. It was not a legitimate objective for the lord chancellor to try to mould the market to reduce market rates. Nor could he stipulate what sums he deemed to be a reasonable reward for the services of a lawyer. 

The fundamental defect of the lord chancellor’s approach was that it failed to give proper weight to the statutory language in s 16(6). The obligation is to provide a sum of money which is reasonably sufficient to compensate the successful defendant. By implementing a scheme which did not achieve that effect the lord chancellor had acted unlawfully. The court went on to say this: “The new regulations involve a decisive departure from past principles. They jettison the notion that a defendant ought not to have to pay towards the cost of defending himself against what might in some cases be wholly false accusations, provided he incurs no greater expenditure than is reasonable and proper to secure his defence.” [Para 48.]

What next?

The government now has to decide what to do. It is to be hoped that it will leave well alone. The principle described by  Elias LJ is one that the vast majority of people will recognise instinctively is right. There are two further points that should be borne in mind:

The first is that the prosecution system is designed in such a way that it is inevitable that large numbers of innocent people will be prosecuted every week of the year. The policy of the CPS is to prosecute where there is a “realistic prospect of conviction”, a test which is considerably easier to satisfy than the test of proof “beyond reasonable doubt” that is applied by the jury or the court at the end of the case. This approach is not unreasonable, but if that is the way the system is designed, the system ought to compensate those who suffer as a result.

The second is that there is a real danger that defendants will be deterred from properly defending themselves against prosecution if they are unable to recover their costs.  The Law Society demonstrated in its evidence to the court that many defendants choose to plead guilty rather than bear the costs of their defence, particularly where they face only a financial penalty.

Ken Clarke would do well to reacquaint himself with an old Civil Service saying: doing nothing is always an option. The government does not actually have to do anything. The regulations have now been struck down and that achieves the effect that the old scheme revives.  Awards of costs that were made after last October can now be redetermined on the old principles.

Stephen Parkinson, partner & Sophie Kemp, associate, Kingsley Napley public law team
 

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