Towards quantifying the wider costs of legal disputes

Our work supports the ambitions of the judiciary and MoJ to shift emphasis and investment into diversion and early resolution of cases. In this article, we explore some of the key findings.

Over one million civil, family, and tribunal legal dispute claims are issued in English and Welsh civil county and magistrate courts, and tribunals every year. The MoJ’s 2021 Call for Evidence on Dispute Resolution found that the “direct” costs of these disputes – the fees paid to lawyers or fees applied by the court – are well understood. But legal disputes can place significant stress on the individuals involved, leading to social, physical, and psychological impacts. The accumulation of these costs can impact negatively on society, creating pressure on services such as the health and welfare systems.

In the context of a justice system that is grappling with backlogs exacerbated by the COVID-19 pandemic, it is now more important than ever to understand the wider costs to individuals and society, so government resources can be best deployed to help reduce them. Our experimental analysis provides three new insights for policymakers to better understand and address the scale of the indirect and wider costs of legal disputes to society and the economy.

1. Gaps in the evidence base limit the understanding of the importance of civil justice

Evidence from the long line of legal needs surveys conducted in this country, and around the world, suggests that legal disputes can have wider social, physical, and psychological impacts. However, our feasibility study found that these costs have been so far under-explored in the civil justice space and identified a clear gap in quantified evidence. This contrasts with other public policy settings such as crime, transport and healthcare, where established methods and guidance exists to quantify and value these costs. This gap has limited decision makers understanding of the importance of the civil justice system, and has made it more challenging to make robust arguments for sustained investment.

2. Applying experimental economic analysis, we illustrated the large-scale societal costs from civil disputes

We agreed with MoJ to quantify two specific wider costs of legal disputes using an experimental methodology that has not previously been used in CFT jurisdictions:

• The stress, mental health, and wider health impacts that an individual involved in a legal dispute may experience; and
• The wider economic impacts of legal disputes, focusing on the labour force impacts from the time taken away from work.

Stress and related mental health conditions, are the most reported adverse consequences by the users of the civil legal system. We used a Quality Adjusted Life Year (QALY) framework to quantify the potential cost of harm from CFT legal disputes in 2021, which we found could exceed £2bn.

Legal disputes can also have an economic cost as proceedings can take individuals away from work and reduce their labour productivity. We used wider economic modelling to quantify a potential £1bn loss to UK Gross Value Added (GVA) in 2021 due to these impacts.

The longer a dispute lasts the more likely an individual is to experience stress or mental health issues, and the greater the impact on the labour force and economy. It should be noted that these estimates reflect an illustrative rather than a definitive assessment of costs, intended to advance pursuit of economic analysis in this area and provide a platform for further debate.

3. This supports the ambitions of the judiciary and MOJ to shift emphasis and investment into diversion and early resolution of cases

These early findings can help to inform the debate on how government resources can be best deployed and help reduce the wider costs of legal disputes, in line with the new government’s commitment to restore and reform the justice system. Important implications from our work include:

• The value of investment in additional diversion/early resolution initiatives that can prevent long drawn-out disputes;
• The importance of recognising the nature of the impacts on individuals – for example the way multiple issues (housing, family etc), in different cases, can come together; and
• The need to consider knock-on impacts to other areas of public spending (for example, healthcare costs and welfare spending) from backlogs in the civil justice system.

The findings from the review can be built upon and used in conjunction with broader evidence on the full range of direct, indirect, and wider costs to think through these questions. Continuing to develop this evidence base, building on our innovative early-stage analysis, will be key to ensure future changes are properly targeted on reducing the costs from legal disputes.

Read the full report.