The Law Society of England and Wales, R (on the application of) v The Lord Chancellor

Factual and Procedural Background

The Law Society initiated judicial review proceedings challenging the lawfulness of a new scheme ("the New Scheme") established by the Lord Chancellor for awarding costs out of central funds to defendants who have faced and successfully resisted criminal proceedings. This New Scheme was implemented by the Costs in Criminal Cases (General) (Amendment) Regulations 2009 ("the 2009 Regulations"), which amended the Costs in Criminal Cases (General) Regulations 1986 ("the 1986 Regulations"). The Lord Chancellor exercised discretionary powers under section 20 of the Prosecution of Offences Act 1985 ("the 1985 Act") to make these regulations, which set rates and scales for defendant’s costs orders ("DCOs") at legal aid rates, resulting in generally lower payments than under the previous scheme. The central issue was whether these regulations, together with the accompanying rates and scales document, complied with the compensation principles in section 16 of the 1985 Act.

Legal Issues Presented

1. Whether the Lord Chancellor lawfully exercised his powers under section 20 of the 1985 Act in setting rates and scales for DCOs that limit recovery to legal aid rates, potentially falling short of actual costs incurred, and whether this is consistent with the compensation principle in section 16(6).
2. Whether the New Scheme is irrational and internally inconsistent by applying only to detailed assessments by the appropriate authority and not to summary assessments by the courts, resulting in unjustified discrimination.
3. Whether the New Scheme unlawfully discriminates between private prosecutors and defendants in setting costs rates, despite similar statutory provisions governing their costs orders.
4. Whether the New Scheme interferes with defendants’ right of access to a fair trial under Article 6 of the European Convention on Human Rights by potentially limiting effective legal representation.
5. Whether the New Scheme was based on a flawed understanding of its likely financial consequences and failed properly to respond to consultation objections.

Arguments of the Parties

Appellant's Arguments (The Law Society)

• The New Scheme fails to give effect to the compensation principle in section 16(6) by seeking improper objectives such as public fund savings and market alteration, thus subverting statutory compensation.
• The scheme is irrational and discriminatory because it applies only to detailed assessments, not summary assessments, causing unjustified differential treatment of defendants.
• It discriminates unjustifiably between defendants and private prosecutors despite similar statutory costs provisions.
• The scheme interferes with defendants’ right to a fair trial by potentially forcing some to self-represent or plead guilty due to inadequate legal representation funding.
• The scheme’s financial assumptions and savings estimates are flawed and insufficiently addressed in government responses.
• Reliance on authorities emphasizing that “reasonable costs” means costs actually and reasonably incurred, reflecting market rates rather than artificially capped rates.

Respondent's Arguments (The Lord Chancellor)

• The Lord Chancellor acknowledges the New Scheme’s objectives of cost savings and market influence but contends these are legitimate within his rule-making powers.
• The compensation principle does not require indemnity; the Lord Chancellor is entitled to determine reasonable fees, including considering public purse constraints.
• Legal aid rates reflect a reasonable level of fees for proper legal services, and it is rational to cap costs to these rates to ensure fair and proportionate use of public funds.
• The distinction between detailed and summary assessments is acknowledged, with plans to align principles in the future; applying new rates partially is not irrational.
• There is no legislative requirement to treat defendants and private prosecutors identically; differences in funding mechanisms and public interest justify the distinction.
• The risk of defendants lacking representation is mitigated by legal aid availability and hardship provisions.
• The government’s consultation and impact assessments were adequate; failure to respond to every peripheral point does not amount to an error of law.
• Authorities cited by the Law Society do not preclude consideration of resource constraints or market effects in setting reasonable rates.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the statutory framework, particularly section 16(6) of the 1985 Act, which requires that costs awarded to successful defendants be "reasonably sufficient" to compensate for expenses properly incurred. The court emphasized that "compensation" entails reimbursement based on actual expenditure within reasonable limits, reflecting the prevailing market rates for legal services.

The court acknowledged the Lord Chancellor’s objectives in implementing the New Scheme—achieving public fund savings, influencing the private legal services market, and aligning costs awards with legal aid rates. However, it found that these objectives, while legitimate in primary legislation, cannot be pursued through the delegated powers conferred by section 20 if they conflict with the compensation principle.

The court rejected the argument that the Lord Chancellor may set rates based on what the government can reasonably afford or what it deems reasonable without regard to actual costs incurred by defendants. It held that the New Scheme’s capping of recoverable costs at legal aid rates results in successful defendants being inadequately compensated, contrary to the statutory requirement.

The court also found the partial application of the New Scheme only to detailed assessments rational and not inherently unlawful, provided the scheme itself was lawful. Similarly, it upheld the differential treatment of defendants and private prosecutors, given rational policy justifications related to funding mechanisms and public interest considerations.

Regarding the right to a fair trial, the court accepted that legal aid and hardship provisions mitigate risks of defendants being unrepresented, and thus the New Scheme does not directly infringe Article 6 rights.

The court dismissed the claim that the government’s consultation process was flawed to a degree invalidating the scheme, finding no fundamental misunderstanding of the issues by the Lord Chancellor.

Ultimately, the court concluded that the New Scheme unlawfully departs from the compensation principle embedded in the primary legislation by setting rates and scales that do not provide reasonable recompense for costs properly incurred, and that this cannot be remedied by the delegated legislation under which it was made.

Holding and Implications

The court held that the New Scheme, as embodied in the rates and scales capping defendant costs at legal aid rates, is unlawful because it conflicts with the compensation principle in section 16(6) of the Prosecution of Offences Act 1985.

The court upheld the judicial review on this sole ground and dismissed the remaining grounds. It declared that the Lord Chancellor’s exercise of delegated powers to set such rates and scales was beyond the scope permitted by the enabling legislation. The court indicated that it would not quash the 2009 Regulations themselves, which do not contain the unlawful rates and scales, but would declare unlawful and quash the specific rates and scales document. Further argument was to be heard on the precise remedy.

No new precedent was established beyond the specific interpretation and application of the statutory compensation principle to the delegated powers exercised by the Lord Chancellor in this context. The decision directly affects the parties by invalidating the current rates and scales, thereby requiring reconsideration or legislative amendment to align the scheme with statutory requirements.