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Lord Haskel: I beg to move that the House do now resume. In moving this Motion, perhaps I may suggest that the Committee stage begins again not before 8.35 p.m.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

Conditional Fee Agreements Order 1998

7.35 p.m.

The Lord Chancellor (Lord Irvine of Lairg) rose to move, That the draft order laid before the House on 16th July be approved [42nd Report from the Joint Committee].

The noble and learned Lord said: My Lords, the draft Conditional Fee Agreements Order 1998 revokes the Conditional Fee Agreements Order 1995. The 1995 order specified the proceedings in which conditional fee agreements could be made: personal injury cases; insolvency cases; and cases before the European Court of Human Rights. The new draft order increases, to the fullest extent possible under the legislation, the proceedings in which a person may enter into a conditional fee agreement with his or her lawyers. Conditional fee agreements will be lawful in all civil proceedings, except family proceedings.

The Joint Committee on Statutory Instruments has reported the draft order as "making an unexpected use of powers". The committee says that "all proceedings" is not a description of proceedings which can be properly specified under Section 58. I disagree. For the purposes of Section 58(3) and (4) of the Courts and Legal Services Act 1990 the test to be fulfilled is whether or not the proceedings are of a description specified by order. In my opinion the proceedings that can be described can logically range from one specific proceeding to all proceedings. Under the Interpretation Act the singular includes the plural and proceedings of a description can embrace proceedings of all descriptions other than those excepted. In my opinion the order proposed complies with the statute.

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The new draft order also specifies, as I am required to do by the primary legislation, the maximum percentage that may be charged as an uplift on the fees. This is set at 100 per cent., as it was before. Your Lordships will know that I am urged by my noble and learned friend Lord Ackner this evening to go further and to set a cap on the success fee by reference to a percentage of the damages recovered. I have to tell the House that I cannot accept his amendment, not least because I believe the course he urges me to take to be ultra vires.

Parliament has plainly provided, in subsections (2) to (5) of Section 58 of the Courts and Legal Services Act 1990, an exhaustive code by which the maximum uplift of normal fees is to be fixed. It is plain from subsections (2) and (5) that any order to be made by the Lord Chancellor shall prescribe the maximum permitted uplift by reference only to a percentage of the fees of the lawyer. There is no power to impose a cap as a percentage of the damages recovered. Therefore, the noble and learned Lord's amendment to my order, if carried, would produce this absurdity: the House would be inviting me to make an order which in law was ultra vires. Obviously I would not do that; and I would lack the authority of the House to make the order that I propose which is intra vires.

I turn now to the merits of the order. Conditional fee agreements will result in a huge expansion of access to justice. Today only the very rich or the very poor can afford to litigate. In future everyone with a really strong civil case will be able to secure his rights free of the fear of ruin if he loses. They will bring the majority of our people into access to justice. The Law Society has announced today that it strongly supports the order I bring before your Lordships this evening.

Conditional fees have been the means by which at least 45,000 personal injury cases have been brought. Many, in all likelihood, would not have been brought but for the existence of conditional fees.

In our consultation paper, Access to Justice with Conditional Fees, the Government sought views on the possibility of extending the availability of conditional fees as widely as possible. The responses we received showed conclusively that most respondents were in favour of extending the availability of conditional fee agreements more widely.

It is clear that people are enthusiastic to use funding arrangements which give them access to the courts and share the risks of litigation with their lawyers.

If successful, a lawyer is paid his normal fees and, as recompense for agreeing to share the risks of litigation and to take no fee in the event of an unsuccessful outcome, the lawyer charges a success fee. This is fixed in advance as a percentage of the normal fees. This cannot be more than 100 per cent. On average, the percentage is less than 50 per cent. Most lawyers have voluntarily agreed to a further restriction by agreeing that the success fee will not exceed 25 per cent. of the damages. This is of particular value in smaller claims.

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Conditional fees do not give lawyers a direct interest in the amount of the damages. This can be contrasted with contingency fees, commonly used in America, where the lawyer's direct interest is in the amount of the damages because the fee is set as a proportion of the damages secured. A conditional fee agreement sanctions only an uplift on what the fee would be otherwise.

I also find it strange that complaint is sometimes made that lawyers should not have a financial interest in cases, as if our present system eliminated any interest of this kind. As my noble and learned friend Lord Hoffmann so lucidly pointed out to your Lordships on 9th December 1997,


    "lawyers are paid according to what they do and they decide how much they are going to do. It is therefore in their financial interest to do as much as possible".--[Official Report, 9/12/97; col. 66.]

The profession has shown, and will continue to do so, that as professionals they are able to deal properly with any conflict and resolve it without detriment to their clients. It would be extraordinary if the only reason we continued to deny access to our courts through the use of conditional fees is that we cannot trust the lawyers to deal honestly with their clients.

In recent weeks I have spoken to the representatives of several leading insurance companies. I am impressed by the inventiveness and creativity of the industry in seeking to develop new products to meet the demands of clients who may now choose to use conditional fee agreements.

From my discussions with the representatives of the industry, I am confident that newer, even better products will be launched in the coming months, although for obvious reasons of commercial confidentially I cannot go into details at this stage. All of these products will make using conditional fees more attractive.

The Government are also considering making the success fee and the insurance premium recoverable from the unsuccessful defendant. To do so would require primary legislation. My present thinking is that it is reasonable to make those who have been held liable by the court responsible for all the costs the successful party incurs to secure justice, including the insurance premium and the success fee. This would substantially remove the argument that plaintiffs' damages should not be diminished by the amount of the uplifts.

The order demonstrates, if any further demonstration were necessary, the Government's determination to achieve maximum access to our courts. I commend this order to the House. I beg to move.

Moved, That the draft order laid before the House on 16th July be approved.--(The Lord Chancellor.)

7.44 p.m.

Lord Ackner rose to move, as an amendment to the above Motion, to leave out from ("That") to end and insert ("this House calls on Her Majesty's Government to withdraw the draft Conditional Fee Agreements Order 1998 and re-lay it in amended form so that the maximum amount payable under a conditional fee agreement expressed in percentage terms in relation to the amount of any sums which may be recovered shall not exceed 25 per cent.")

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The noble and learned Lord said: My Lords, we live in very strange times. From the Statute of Westminster 1275 until a little less than 10 years ago, speculative litigation was contrary to public policy. That was because it was considered that it affected, as it does, the independence of the lawyer so that his advice might be distorted; he might exploit his client and he might engage in practices which were contrary to the interests of justice and thus undermine its integrity.

Section 58 of the Courts and Legal Services Act 1990 changed the situation and made conditional fee arrangements permissible. It was introduced, I am sorry to say, and, I believe, quite unintentionally, on a false prospectus. We were told initially that only 5 per cent. could be added to the costs of the solicitor. Later it was increased to 10 per cent., then to 20 per cent. and then, with great hostility from the Lord Chancellor's own Advisory Committee, it went up to 100 per cent. However, it was intended that it would have no effect on legal aid. As a result we have provision in Section 15(4)(a) of the Legal Aid Act 1988, which provides:


    "A person shall not be refused representation for the purpose of any proceedings on the grounds (however expressed) that it would be more appropriate for him and a legal representative of his to enter into a conditional fee agreement (as defined by Section 58 of the Courts and Legal Services Act 1990)".

It is now being proposed that legal aid should cease in money recovery cases and in its place should come the conditional fee. I am deeply concerned, as many others are, about the whole system. I appreciate that it is water under the bridge now as regards the whole question of conditional fees being permitted. But although it is water under the bridge, there is some significance that the section was enacted in the teeth of opposition from seven Law lords, the Master of the Rolls, a former Lord Chancellor, my noble and learned friend Lord Hailsham, a former Attorney General and the noble and learned Lord, Lord Rawlinson of Ewell, and the Law Commission as well.

The history has this relevance. It is incontrovertible that in this new field one should proceed gradually and with caution. It was in 1995 that a statement in Access to Justice. A Fair Way Forward produced, I believe, for the Labour Party conference of that year where conditional fees were dismissed as a


    "gimmick designed to mask the chaotic state of the legal aid scheme and the court service".

It went on to say this--and I emphasise it,


    "We regard conditional fees as an experiment to be monitored closely".

The Lord Chancellor's Advisory Committee advised my noble and learned friend's predecessor in 1995 that given the novelty and the potential risk to litigants of this untried scheme, it must be effectively monitored; merely monitoring a sample was not, in the committee's view, sufficient.

Conditional fees were introduced in July 1995 and all that the Lord Chancellor's advisory committee was permitted to do was to commission the Policy Studies Institute to provide a report on a sample. The sample involved only 60 lawyers and 197 cases. The report is

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entitled, The Price of Success. I refer briefly to one of its conclusions, headed, "Assessment of Risk". It is found on page 86 and it states:


    "The research raises serious questions about the way in which solicitors assess the probability of success of cases. Personal injury claims generally have a very high success rate, yet solicitors in this survey rated a large proportion of cases as having relatively small chances of success. There are a number of possible explanations".

Those are referred to. It continues:


    "This is a crucial issue, because it affects the level of fees that the client pays to compensate the solicitor for the risk of not being paid at all. If the public suspects that solicitors are inaccurately estimating the risk, it will undermine their confidence in the whole system. If they believe that solicitors are doing so in order deliberately to inflate the uplift, despite rules on professional conduct, there is a risk that the whole conditional fees system could be brought into disrepute. This would have serious implications for the extension of conditional fees (in other areas)".

The various respects in which further inquiries should be made are then set out.

In my noble and learned friend's speech in Cardiff--published after the report and no doubt at a time when my noble and learned friend the Lord Chancellor had had an opportunity to read it--no mention was made of that report. There was this observation:


    "Conditional fees are working well in the personal injury field".

Were they? Not from the perspective of the litigant. The average level of uplift was 43 per cent. That is in an area where 90-plus per cent. of the cases are bound to succeed. In 10 per cent. of the cases, the uplift was between 90 per cent. and 100 per cent.

In June 1995, the House had the benefit of a debate on the first of the conditional fee orders in which an important contribution was made by my noble and learned friend the Lord Chancellor--he but being a mere shadow of himself. I had attacked the 100 per cent. because, in the view of his own advisory committee, it was excessive. My noble and learned friend said this:


    "Personal injury cases, as the noble and learned Lord"--

that is me--


    "has rightly observed, are a low risk area of litigation from the standpoint of plaintiffs. In the vast majority the plaintiff succeeds in whole or part. In fact I understand that around 95 per cent. settle, to the advantage of plaintiffs, without any court order. In my view the first thoughts of the noble and learned Lord on the Woolsack on this subject were correct. A 10 per cent. or at most 20 per cent.--uplift was sufficient incentive".--[Official Report, 12/6/95; col. 1553.]

The noble and learned Lord should have adhered to that. On that basis, the average being paid out in personal injury cases, the subject matter of the institute's report, is double what my noble and learned friend considered was a generous uplift.

I return to the question of monitoring. In a television programme, "File on 4"--again, this would have been well known to my noble and learned friend's department because featured on it was Mr. Hoon, his right-hand man in the Commons--Mr. Hoon observed--I quote from page 11 of the transcript:


    "There was a specific piece of academic research conducted by the PSI into a number of cases, by no means the total, but which concluded that there were no substantial difficulties about the way that the scheme worked and indeed which encouraged us to consider extending conditional fees".

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There is no indication in that statement that those carrying out the research had any form of reservation or anxiety. That was, in my respectful submission, a classical "spin".

Fortunately, the lady who carried out the research, Miss Yarrow, was also on the programme and, having heard what Mr. Hoon had said, she said:


    "We're concerned that solicitors may not be calculating accurately the risk of success of the case, and it's on that calculation that the whole success fee is based. They seem to be saying that cases are a higher risk than they actually are, and that then means that the client is going to pay more. I think the issues about the way the success fee is calculated have not really been resolved, and more attention needs to be given to this before such a drastic action is taken".

That was a reference to replacing legal aid. She then said:


    "And so far we haven't seen any signs from the Lord Chancellor's department that they are addressing this issue. Instead they've tended to concentrate on the positive aspects of our findings".

I referred to those earlier.

On 18th February, I tabled a Written Question in these terms, to ask Her Majesty's Government:


    "Whether, since the publication in September 1997 by the Policy Studies Institute of its report, The Price of Success, they have carried out or caused to be carried out any research to determine whether the practice of conditional fees is working; and if not why not".

Back came the answer, signed by the Lord Chancellor:


    "In the five months since the Policy Studies Institute report was published, I have not commissioned further research on the practice of conditional fees. As the noble and learned Lord will know, the Policy Studies Institute report concluded that many of the potential problems identified with conditional fees before they were introduced appear to have been successfully addressed. I accept that further research, at the appropriate time, may be necessary and I plan to seek views on what further research might prove useful in the consultation paper that I plan to issue shortly".--[Official Report, 18/2/98; col. WA 49.]

That brings me to a comment made in the paper entitled Access to Justice with Conditional Fees, issued by the National Consumer Council in April 1988, in which it makes the sensible observation:


    "Without knowing the answers to key questions"--

those are the questions about what has happened in the CFA agreements, which have been the subject matter of this very inadequate monitoring--


    "it is impossible for us--or anybody else--to make an informed judgment about how well conditional fees are working and therefore whether they are a suitable alternative to legal aid for personal injury claims. At the very least, the LCD should begin immediately to monitor how CFAs are working in personal injury cases. It will be essential to follow selected cases through from beginning to end and therefore monitoring should begin as soon as possible".

It is the absence of the monitoring which has emboldened me to suggest that there should be the capping of the proceeds of the court action so that no more than 25 per cent. of the damages which are recovered can be taken by the solicitor. A hundred per cent can produce large sums and there may not be an equivalent sum recovered in court; or there may be a judgment for such a sum but it is reduced because of a finding of contributory negligence.

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I have come to your Lordships' House with more than that thin veneer of confidence which I occasionally manage to simulate. I achieve this by going back to the debate on conditional fees in June 1995 to which I made reference. There I find the following observations of my noble and learned friend the Lord Chancellor (he being but a shadow in those days):


    "The next question is whether the noble and learned Lord, if he is insistent on retaining a maximum of 100 per cent., should be imposing a statutory cap on the uplift of, say, 20 to 25 per cent. of the damages recovered. I regard such a cap as an essential protection for the consumer of legal services. Particularly in cases where the damages are low and the fees high, it would be possible to win but to have to pay out literally all the damages recovered in legal costs plus success fee. That would be litigation which would in practice have been conducted--this is how the public would see it--for the benefit of the lawyers alone. The Law Society itself sees the merit of such a cap because it will be recommending to its members a cap of 25 per cent. of the damages recovered. The noble and learned Lord"--

that is a reference to the Lord Chancellor--


    "should himself be imposing a 25 per cent. cap as the only sure means of protecting the consumer".--[Official Report, 12/6/95; col. 1554.]

One understands that from time to time one wears a different wig or hat and that may condition one's views on policy. But what startles me is that my noble and learned friend has changed his view on the law, and that should not be the result of changing status.

I go back to the words of my noble and learned friend in the same column:


    "I, however, for my part, do not agree that Section 58 of the Act does no more than permit the noble and learned Lord the Lord Chancellor to prescribe the level of uplift and so does not permit, or impliedly preclude, a cap being imposed on the amount of the uplift. There is no bar, in my view, on his prescribing such a cap. The issue is whether he should do so".

Before my noble and learned friend addressed the House I set out in detail why the Lord Chancellor had the power and how the chairman of his own advisory committee, the noble and learned Lord, Lord Steyn, had firmly disagreed with the Lord Chancellor, as had my Law Lord colleagues in this House when I informally asked their views. I shall be interested to hear how my noble and learned friend justifies this forensic volte face.

Accordingly, I move my Motion. I have been at some pains to deal with the absence of monitoring because I, and I believe others, wish to have an assurance from the Lord Chancellor that he will now institute the necessary detailed monitoring in order to satisfy us that this strange creature, as the former Lord Chief Justice Lord Taylor described the conditional fee, is working fairly. I beg to move.

8.5 p.m.

Lord Hunt of Wirral: My Lords, I support the order and welcome the opportunity to say a few words about conditional fee agreements. I strongly support the words of the noble and learned Lord the Lord Chancellor in opening the debate. He spoke of the need to improve access to justice. That is a wholly laudable aim with which I am sure everyone participating in the debate agrees. I also strongly support the words he has uttered on other occasions about the need to modernise the whole system of justice.

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Justice is often far too expensive and inaccessible. We must take steps to remove the obstacles. That is why I have always viewed conditional fee agreements as part of the picture, not the whole picture.

I speak as one who has specialised in defendant litigation for some 30 years. Although I started life as a solicitor for the Transport and General Workers' Union, it took me 10 years to learn the error of my ways. For the past 20 years I have acted only for defendants. The reason I see conditional fee agreements opening access to justice is that, notwithstanding the legal aid scheme, there is a gap.

I wish to make four brief points. First, conditional fee agreements must be only part of the picture. There are other ways to improve access to justice, for example, legal expenses insurance. I greatly welcome the comments of the noble and learned Lord the Lord Chancellor about new products. Insurance companies will come forward with new products, and legal expenses insurance is another example of the innovative nature of insurers in meeting market demand. But as a former Minister I see the heavy hand of the Treasury behind this whole scheme and greatly regret any hint that conditional fee agreements will take the place of a wide range of legal aid opportunities that presently allows access to justice.

I am very nervous about suddenly moving to this new system before it is tried and tested. I can understand the urge to move ahead swiftly but I share many of the reservations expressed by the noble and learned Lord, Lord Ackner. I have enormous respect for the noble and learned Lord, mainly because the decisions that he has handed down to me and my firm have always been favourable. I do not seek to court support. However, I must inform him that once again he has encompassed in his remarks many of the reservations that extend far and wide in the legal profession about the new method of conditional fee agreements. It is so important that we get it right, but it is only one of the opportunities to open up access to justice.

Secondly, a good deal of research still needs to be done. The noble and learned Lord, Lord Ackner, made that very point. I have spent some time studying the research already conducted. The report of the Policy Studies Institute, published as recently as last September by Stella Yarrow, sets out several of the reservations that have been expressed. It states:


    "However, there is also evidence which casts some doubt over the way in which risk is assessed and the uplift calculated. Particularly if conditional fees are to be extended to other areas of civil litigation, these problem areas need to be addressed. This survey has simply given an indication that there seems to be a problem with these two fundamental aspects of the scheme ... Any plans to extend conditional fees ... need to take into account that there are many unanswered questions".

I hope that the noble and learned Lord the Lord Chancellor will take every opportunity to extend the monitoring and research that is taking place into conditional fee agreements.

My third point, which I make as a member of FOIL, the Forum of Insurance Lawyers, is about his indication that he might well be minded to introduce primary legislation at a future stage to allow the success fee and

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insurance premium to be payable by the defendant. Surely in CFAs this removes from the plaintiff and his solicitor the risk that they are being asked to bear, which risk sharing has always underpinned the concept of CFAs. The defendant is being asked to pay for those cases he has won through a levy on the cases he has lost. It is as simple as that. Surely access to justice requires fairness on both sides of the equation.

FOIL has made a very strong case. Surely if we are to have a system of no fault compensation for plaintiffs we ought to debate that proposal, just as we did following the Pearson Commission in the 1970s. I am troubled. Christopher Hodges was troubled in the New Law Journal when he said:


    "Is it really right that virtually all risk should be removed from a plaintiff in litigation?"

The defendant stands to pay out far more than he or she does currently. I hope that the noble and learned Lord the Lord Chancellor will listen carefully to the evidence of FOIL.

My fourth and last point is merely to say that there have been a number of developments in the past 12 months which have greatly increased the cost of litigation, not only to insurance companies but to health authorities, the Government and other defendants. We had the retrospective effect of the changes to the Compensation Recovery Unit last October; we had the decision last week in this House in Wells v. Wells, all hugely increasing the cost of claims. The noble and learned Lord the Lord Chancellor has power to rectify the unjust consequences of Wells v. Wells by laying an order under Section 1 of the Damages Act 1996, which no doubt we will be able to discuss in another debate. To include in this a provision that the costs of the action, including the additional success fee and the insurance premium will now have to be borne by the defendant does seem to weight the scales of justice unfairly.

I have enormous sympathy with the amendment of the noble and learned Lord, Lord Ackner. However, I am a spectator in a much more serious battle of legal opinions and I await the views of the noble and learned Lord the Lord Chancellor. Notwithstanding all that I have said, I strongly accept the principle of conditional fee agreements.

8.14 p.m.

Baroness Oppenheim-Barnes: My Lords, your Lordships will be relieved to hear that I intend to intervene very briefly, overwhelmed as I am by the legal expertise which surrounds me. The noble and learned Lord the Lord Chancellor knows that I am second to none in my admiration for him, for his courage and the way in which he has pressed on with reforms which are overdue and very badly needed.

Having said that, I pay great attention to the fact that he made the point that the amendment in the name of the noble and learned Lord, Lord Ackner, would be ultra vires. We shall have to see to what extent this will govern any decision. I was originally seduced by the amendment in the name of the noble and learned Lord, Lord Ackner, because it seemed so simple. Certainly he

23 Jul 1998 : Column 1109

very kindly quoted from the National Consumer Council report Access to Justice which was published at the time when I was its chairman.

Many of the fears which have been quoted have been somewhat overdone. There is always a fear of the unknown. At the same time, quite legitimately, as my noble friend Lord Hunt of Wirral, and the noble and learned Lord, Lord Ackner, have said, people are apprehensive when they are faced with something and they do not know how it will work. It is important that the noble and learned Lord the Lord Chancellor tells us what are his views about the future monitoring of the scheme when it is expanded to the extent that it will be, in a welcome way, by this order.

I suspect that the noble and learned Lord is not keen on conditional fees. I get that feeling from what he has said, but it is mere suspicion. I see a number of difficulties. There will be difficulties; there will be hiccups; there will be all sorts of cases coming up where people will point and say, "There you are. Woe is us. We told you it would happen". I am sure that the noble and learned Lord the Lord Chancellor will want to protect his flank to ensure that people are satisfied that adequate monitoring is taking place.

A point that has not yet been raised--I might be wrong--is that very often those who would benefit from being able to bring a conditional case will have to find lawyers who will also think it is going to benefit them. Insurance or no insurance, they are certainly not going to want to take on that sort of case. Will they ever want to take on a case under those circumstances where the other side is being represented by legal aid? Where will they go for their damages if they win their case? That poses a certain restriction.

I have great sympathy with the points that the noble and learned Lord, Lord Ackner, made about the capping of the fees. I can see where the problem arises in relation to the original Act. There is a structure within Section 58 which is said to provide for a determination with regard to the fees, which should not allow a fee of 100 per cent. to be more than that which would be obtained in the damages. That is the point that is being made.

I hope that the noble and learned Lord the Lord Chancellor will be able to reassure us in relation to monitoring. After all, this is new to practically everyone in the legal world. I hope that he will also be able to give an assurance to the noble and learned Lord, Lord Ackner, with regard to the points that he has raised about the limitation of fees.

8.18 p.m.

Lord Hacking: My Lords, in this my first speech from these Benches, I am delighted to support my noble and learned friend--as I am pleased now to be able to address him--for the order that he has put before the House. I support him for the principal reason that he gave to the House, the great need for increase in access to justice. I also support him because, in the three years of their operation, the evidence from the Law Society is that the conditional fee arrangements are, on the whole,

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working well. I am told by the Law Society that there have been approximately 40,000 cases to date which have used the Society's Accident Line Protect insurance scheme.

I am also told by the Law Society that the fears of the automatic doubling of fees have not been realised. Your Lordships have heard from my noble and learned friend that the evidence is that fees have gone up by an average of no more than 50 per cent. The noble and learned Lord, Lord Ackner, gave a lower percentage of 43 per cent. I am therefore happy to agree that the time has come to expand this scheme.

The noble and learned Lord, Lord Ackner, opposes the scheme and seeks to put an amendment to it. I disagree with the noble and learned Lord for a number of reasons. First, there is a voluntary scheme already in place set up by the Law Society. In my submission, it is better to leave it as a voluntary scheme. Secondly, from my reading of the Act, there is no power for the Lord Chancellor to set up a cap based upon percentage of damages.

Although the noble and learned Lord, Lord Ackner, goaded my noble and learned friend the Lord Chancellor on views that he expressed in a debate in your Lordships' House on 12th June, the noble and learned Lord, Lord Ackner, did not address your Lordships on the basis of his submission that there is a power under the Act. If he examines Section 58(2) and (5) he will not find there a power in the Lord Chancellor to bring--


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