Civil law and the cost of litigation

The right to seek recourse through the courts is universal. But, as with most things, having a right to sue someone is one thing, having the ability to exercise that right is another.

Litigation in civil matters can be a very costly exercise. Often the high cost of litigation removes the incentive to sue even where one has a good case. The right to seek redress through the courts is one which many people cannot afford to enforce. In the final analysis, the enforcement of this right boils down to the resources a party has at his or her disposal. Those without financial resources rarely enjoy the right to sue when their rights are infringed and this in itself is a travesty.

What then can be done to enable all citizens to have equal access to the courts in the practical sense of the term? The introduction of contingency and success fees was an attempt to solve this problem but this has created a new problem – speculative litigation. Around the world society is asking if the problem created by the “solution” needs to be addressed as the rising litigation costs have bankrupted companies – and injured parties receive little of the promised compensation.

The issue of rising litigation costs has recently been considered at policy level in both the United States and the United Kingdom. In the UK, the government appointed Lord Jackson to investigate the issue and in some cases it was found that costs exceeded the damages paid to claimants. Lord Jackson was to make recommendations on how the UK’s civil litigation cost regime can be reformed. He released his preliminary report in 2009 and most of the reforms he proposed were adopted and are due to come into effect on April 1.

The bulk of these reforms relate to the recovery of costs between parties to a civil suit and success fees charged by lawyers. Success fees were introduced by the Blair administration in 1999 and are paid to lawyers on the winning side. Contingency and success fees could create the opposite problem; too many persons taking cases to court for speculative reasons. A balance has to be struck between enabling rights to be enforced and avoiding the culture of speculative litigation.

On March, 29, 2011, the British government announced a wide range of proposals aimed at reforming the litigation regime in the UK. These included: capping success fees; re-aligning incentives so that litigation becomes a less attractive option for citizens; bringing more disputes into the small claims framework where no legal representation is allowed and proceedings are less formal; and providing incentives to encourage people to seek mediation rather than resort to litigation. The British government is concerned that there is a growing litigation culture which, if left unchecked, could have serious implications for the economy and society in general. Whether these measures will have the desired effect is hard to say at this early stage.

Another country, where the issue of rising litigation costs has long been a matter of concern, is the United States of America. Losing a law suit in the US can be very damaging. Many companies across the US have been bankrupted by lawsuits, especially those sued in asbestos litigation.

According to the US Chamber of Commerce’s 2005 Report titled Tort Excess 2005: The Necessity for Reform from a Policy, Legal and Risk Management Perspective, the US has the world’s most expensive tort system which costs more than double that of other industrialised countries.

It also states that, in 1950, tort costs were less than US$2 billion and by 2003, the figure had reached US$246 billion. But perhaps the most worrying feature of the US tort system, according to the report, is that the biggest proportion of money moving through the tort system never gets to the claimants who suffered the damages in the first place. In fact only $0,46 of every dollar awarded as damages under the US tort system compensates the victim and the remaining $0,54 goes towards meeting attorneys’ fees and administration expenses.

Numerous other studies on the US tort system have reached a similar conclusion. In a way, the US tort system is rather deceptive because it gives the impression that the law is pro-plaintiff and that claimants get very high awards when they win cases, yet the reality is that victims are actually being short-changed with a greater proportion of the awards going somewhere else.

Efforts to reform the US tort system have a long history. In 1986, the Republican Administration issued a report on tort reform. Its proposals specifically sought to restore a balance to tort law. Not much by way of fundamental reforms happened subsequent to that report which is not surprising as the Democrats receive considerable financial support from lawyers. Most of the leading US law schools admit that they seldom appoint republicans. The American legal system has thus become polarised. Tort reform is in any event a state matter, with most states being content to pass cosmetic reforms only.

Texas is one US state which, in 2003, began attempts to reform its tort system with the aim of making it more cost–efficient. Some of the reforms introduced in Texas are contained in the so-called “loser pays” Bill introduced in 2011 which seeks to make it less attractive to sue. Pressure to introduce the Bill increased following recent insights showing that the current litigation climate in the state, and indeed across the US, allows lawyers to fleece the system by seeking outrageous, and in some cases absurd, settlements. In some cases the system has clearly been abused by lawyers.

The business community has been particularly vocal in this discourse, arguing that the high awards sought by lawyers in civil cases, coupled with escalating litigation costs, impose huge costs on business and the wider economy thereby stunting growth and causing jobs to be lost. Recent efforts to reform the tort system seen in states like Texas and Mississippi appear to suggest that policymakers are beginning to accept the argument that, what may be good for lawyers is not necessarily good for business, justice or the economy.

What can South Africa learn from these developments? Clearly it is evident that merely allowing or giving people the right to sue does not equate to improving justice.

Recently we have seen mineworkers being given the right to sue their employers for occupational diseases but nothing has been said about the economics of this right. An inevitable consequence of this is that lawyers enter the fray in the name of seeking justice for injured workers.

Of all the areas one could consider compensation to be achieved through litigation, compensation for occupational diseases ought not to be one of them. The expense ratio associated with seeking compensation for these claims through civil litigation is simply too high because of the need to call expert witnesses, the long latency period involved between the alleged negligent act and the manifestation of most occupational diseases associated with mining activities and the determination of appropriate compensation for something as complex as a disease.

Countries with the best compensation systems for occupational diseases tend to be those which have insulated this area from litigation as much as possible. South Africa cannot afford a compensation system for occupational diseases in which litigation is the main source of redress for those impaired. Such an approach is simply too costly for everybody; workers, business and the economy alike.

Legally Speaking is a regular column by Albert Mushai and Hugh-David Hutcheson, both in the school of Economics and Business Sciences, University of the Witwatersrand. Albert holds a master’s degree from the City University, London, and was the head of the insurance department at the National University of Science and Technology in Zimbabwe before joining Wits University as a lecturer in insurance. Hugh-David holds a PhD from Wits and is a lecturer in insurance.