New Zealand Law Society - Access to Justice: An insurance based proposal

Access to Justice: An insurance based proposal

Access to Justice: An insurance based proposal

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Joss Opie continues the discussion about access to justice issues. He provides his view on mandatory pro bono and increases to legal aid funding, and summarises an innovative proposal: public legal expenses insurance

The May issue of LawTalk included the article by Craig Stephen, “Finding a match: how well does pro bono work in New Zealand?” (LawTalk 928, p.63-67). The article discussed whether pro bono should be mandatory as part of efforts to improve access to justice in New Zealand. It also referred to issues created by restricting legal aid to very low income earners, legal aid repayment obligations, and the low number of lawyers who do civil legal aid work. Potential changes were debated, including increases to legal aid funding.

No mandatory pro bono

I have done a significant amount of pro bono, but I do not think it should be mandatory. If a lawyer offers to work for free it is often because they are motivated by considerations other than money to do the work, and to do the work well. Requiring a lawyer to work for free may impact on the quality of the lawyer-client relationship (ie, ‘I am working for you not because I want to but because I have to’) and on the quality of the work provided. Some lawyers may also want to contribute to the community in other ways, such as by coaching sports teams. Others may feel they do not have time to do free legal work, because of commitments such as family.

Also, as Dr Bridgette Toy-Cronin was quoted as saying in Craig Stephen’s article, pro bono work cannot be relied on to respond to legal aid deficiencies or market failure. I don’t think many people would argue that, for example, doctors should provide more free health services to respond to access to healthcare issues.

Increases to legal aid funding are needed

I agree that legal aid funding should be increased. I am a civil legal aid provider and one of my practice areas is employment law. There are considerable financial disincentives to work on a legal aid employment law instruction coming within the Ministry of Justice’s fixed fee schedule.

For example, applying the schedule to an instruction involving a mediation and an Employment Relations Authority (ERA) hearing of six hours each, plus a costs application, produces a fee of approximately $4,740 plus GST. I think it is safe to say that this is well below what most employment law practitioners would normally charge for this amount of work – see the article on the New Zealand Law Society website by typing the headline into the search function: “Survey shows major ERA median cost discrepancy”.

In addition, the ERA has a notional daily tariff for costs awards of $4,500 for a one-day hearing (see Practice Note 2: Costs in the Employment Relations Authority). Mediation-related costs are not normally included in costs awards and the purpose of an award is generally only to contribute to the successful party’s costs rather than to pay them in full. If mediation-related costs are excluded from the fixed fee schedule calculation in my example above, the resulting fee is $3,660 plus GST of $549: a total of $4,209. So, less than the ERA’s daily tariff. In such a case the ERA arguably could not award its daily tariff as that would result in an award greater than the costs incurred for the hearing. The ERA would also have to think carefully about whether it should award a lesser sum than $4,209. Otherwise it would be awarding an indemnity rather than a contribution.

I am not sure how the fixed fee schedule was set and I understand departures from it may be authorised in limited cases. And the above example is only that. However, the example makes the schedule seem at best unreasonably low, and at worst irrational.

How much of an increase?

In my view legal aid funding should go up. But, how much of an increase is reasonable as well as being sustainable politically and economically?

Work by Kayla Stewart and Dr Toy-Cronin found that the average hourly rate for lawyers in 2016 was $292 (plus GST) – see “The New Zealand Legal Services Mapping Project: Finding Free and Low-Cost Legal Services – Auckland and Otago Pilot Report” (Civil Justice Insight Series: University of Otago Legal Issues Centre, May 2018) at 11. I suspect a reasonable proportion of the New Zealand public would not support legal aid being publicly funded at that average rate. According to an article in Stuff online on 1 March 2018, the 2011 reforms which produced the current situation were caused by public “outrage” over what legal aid then cost (Debrin Foxcroft, “Lawyers question $32 million rise in legal aid spend in four years”).

That does not mean, however, that the 2016 average rate or a greater rate is not justifiable. For example, in a civil dispute involving significant interests and/or monetary values, an hourly rate which the public may consider high could be justifiable depending on the overall fee it produces. The issue in any case will require consideration of the reasonable fee factors in the Rules of Conduct and Client Care. This will include, in general terms, whether the overall fee is proportionate to the benefit or potential benefit from the services provided (reasonably estimated, and taking into account both non-financial and financial benefits).

Further, even if hourly rates were on average $150, many people may still struggle to pay.

So, the difficulty in particular cases may not be so much hourly rates per se. Rather, the greater issue may be the inability of private individuals to fund those rates before a matter is resolved and to take on the risk of failure. Working out appropriate rates and how to fund them is a complicated exercise, requiring a sophisticated knowledge of legal services.

An innovative proposal

In 2012, Sujit Choudry, Michael Trebilcock and James Wilson published an article entitled “Growing Legal Aid Ontario into the Middle Class: A Proposal for Public Legal Expenses Insurance” (in Michael Trebilcock, Anthony Duggan and Lorne Sossin, eds., Middle Income Access to Justice, University of Toronto Press, 2011, chapter 13).

The article refers to concerns about access to justice in Ontario, Canada which appear very similar to concerns here. It expresses the view that increasing legal aid funding to a sufficient level to meet civil justice needs is “an economic and political non-starter”. Instead, it proposes an interesting alternative – a public insurance programme for legal aid services grafted on to Ontario’s existing legal aid programme.

Under the proposal, every Ontarian would be enrolled in the programme by default but could opt out (similar to KiwiSaver). This is to ensure enough participants and a sufficiently diversified risk pool. Cover would be available for legal expenses related to unexpected and costly events requiring legal services (with the programme having the right not to fund unmeritorious claims), and for high-demand legal services such as wills. The authors argue that the concentration of significant demand into one purchaser would exercise downward pressure on the cost of legal services and encourage innovation in service delivery (like the All of Government Panel).

To avoid people opting out, the programme would need to ensure a high quality of service delivery. Part of this would involve paying reasonably attractive rates to lawyers. As the programme would oversee high volumes of work, I consider that it would acquire and/or refine detailed knowledge about rates for legal services and how much particular types of work should reasonably cost. This would inform its purchasing decisions.

Taxpayer premiums

The programme would initially require public funding but would then be paid for by taxpayer premiums. The amount of these would be actuarially-determined rather than by an individual’s ability to pay. The authors argue that once established the programme would have broad support as the middle class would directly benefit from it, unlike legal aid which they assist to fund but for which they are ineligible.

Legal aid, potentially expanded in scope, would remain available on a means-tested basis. Savings would be achieved by having the same agency manage legal aid and the public insurance programme, and having responsibility for the programme would result in a higher level of funding for the agency. In my view, this would also create upward pressure on legal aid rates. The authors do not refer to this possibility, but the agency could require that lawyers providing services related to the programme accept legal aid instructions.

Lawyers could choose to opt in to the programme subject to meeting expertise and other requirements (as is currently the case for legal aid in New Zealand). They would be incentivised to do this by the referrals and rates on offer (the latter currently being a disincentive to do legal aid work here).

Of course, various aspects of this proposal are debatable. For example, I don’t necessarily agree with the authors’ view that increasing legal aid coverage to a sufficient level is an economic non-starter. Apparently three quarters of the Finnish population come under the means cap in the Finnish legal aid system, according to Paul Vayda and Stephen Ginsberg in their chapter “Legal Services Plans: Crucial-Time Access to Lawyers and the Case for a Public-Private Partnership” in Middle Income Access to Justice (at page 249).

Politically, however, it may well be difficult. The authors say that in Ontario, public programmes which benefit the middle class such as health care and education have consistently been preferred over legal aid in contests for increased public funding. It appears the same may have recently occurred here. On 4 June 2019, the Ministry of Justice advised that it had not received Budget funding to address issues identified in a review it undertook of “legal aid policy settings” during the 2018/2019 financial year. These issues included provider remuneration and eligibility (ie, income) thresholds for civil/family legal aid (see the New Zealand Law Society website news story of 4 June 2019, “Lack of Budget funding means no changes in legal aid policy”.)

Further, it could be queried whether opt-out legal expenses insurance should be managed by the Ministry of Justice, or whether there is a role for private-sector insurers (again like KiwiSaver). Potential advantages of this could be increased competition and efficiency gains through insurers using pre-existing knowledge and systems. Potential disadvantages could be losing the benefits referred to above of having legal aid and legal expenses insurance managed by the same agency.

If this is not already occurring, I think the authors’ proposal deserves serious consideration in thinking about solutions for access to justice issues in New Zealand. While we should continue to advocate for increases to legal aid funding within existing frameworks, more fundamental institutional change may produce better outcomes.

Joss Opie is a partner with Wellington-based firm DarrochForrest where he specialises in employment law, health and safety, privacy, civil litigation, and human rights.

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