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Lord Kingsland: I thank the noble and learned Lord for his response. In the circumstances, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

10 p.m.

Lord Kingsland moved Amendment No. 217.

Page 16, line 35, leave out ("other authorised bodies (if any)") and insert ("bodies").

The noble Lord said: This is one of those rare occasions in the debate on the Bill in Committee when a request is made for the noble and learned Lord the Lord Chancellor to increase rather than constrain his

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discretion. The simple purpose of the amendment is to remove the qualifying word "authorised" in the expression:

    "other authorised bodies (if any) as he considers appropriate"
in subsection (5)(d) of Section 58A. I see no reason why the bodies consulted should be so constrained. I beg to move.

The Lord Chancellor: I believe that this amendment merits further consideration. Section 58(4) provides that the proceedings for which enhanced fees and the permitted percentage of any enhancement are applicable must be specified by order made by the Lord Chancellor. Prior to making the order, the Lord Chancellor shall consult specified bodies, including any authorised bodies not specifically referred to. Authorised bodies are defined in the Courts and Legal Services Act and they are professional bodies.

I am conscious that limiting consultation to authorised and specific bodies may be too restrictive, given the increasing role and interest of non-professional bodies in the provision of legal services. For that reason, I am willing to consider the matter further and, if necessary, to bring forward amendments at Report. On that basis, I ask the noble Lord to withdraw his amendment.

Lord Kingsland: I shall, of course, do so. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Clinton Davis moved Amendment No. 218:

Page 16, line 38, leave out ("party") and insert ("claimant").

The noble Lord said: It may be for the convenience of the Committee if we also discuss Amendments Nos. 219, 220, 223, 224, and 225. Most Members of the Committee will welcome the proposal made by the Government that success fees in conditional fee cases should be paid by the losing party in the litigation. That is a precondition to the Government's proposals to abolish legal aid in personal injury cases. That is not something I am entirely happy about, but that is another debate. Without it, personal injury victims would face losing up to 25 per cent. of their compensation by way of lawyers' fees.

Amendment No. 218 proposes that the right to recover success fees should be limited to claimants. It is only claimants who lose the right to legal aid under the Bill. It is not to be expected that lawyers acting for defendants will be prepared to act routinely under conditional fee agreements with success fees. There are substantial difficulties in defining successful defendants. Insurance premiums for after-the-event insurance will rise dramatically if costs payable by after-the-event insurers in lost cases rise to include payment of success fees to defendants.

Amendment No. 219 provides that a court order for the losing party to pay costs shall--that is instead of "may"--include payment of the success fee by the losing party. The claimant should not face the uncertainty of not knowing whether the success fee will be recovered. Similarly, this should only be additionally subject to the rules of court if the Government are able

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to publish draft rules dealing with procedure and principles to be applied in the assessment of success fees by cost judges.

As for the other amendments, the Government's proposal that legal expenses insurance premiums in conditional fee cases be paid by the losing party to the litigation is very welcome. But the amendment proposes that this should be restricted to claimants. They are the only people who lose the right to legal aid under the Bill. If defendants can recover insurance premiums, does this include public and employers' liability premiums paid and, if so, over what period?

The amendment provides that the recovery of insurance premiums should be mandatory and not discretionary and should be additionally subject to rules of court only if the draft rules are published in advance. I beg to move.

Lord Goodhart: I am unable to support this amendment for the reason that it clashes with amendments that stand in my name in the next group. I shall develop my arguments when that group of amendments is considered. I am somewhat concerned by the fact that a distinction is sought to be drawn between claimants and others. There may well be cases in which it is the defendant who has to rely on a CFA. For example, I can envisage certain cases in which a landlord seeks an order for possession against a tenant where it will be the tenant rather than the landlord who needs support via a CFA.

The Lord Chancellor: The purpose of this amendment is to make the recovery of the success fee and the insurance premium mandatory in cases where a claimant, and only a claimant, successfully uses a conditional fee to pursue a claim. Although the general rule in this country is that costs follow the event in litigation, the recovery of costs is always at the discretion of the court.

These amendments are supported by the Association of Personal Injury Lawyers (APIL), which argues that clients should have certainty that they will recover the success fee and the insurance premium if they are successful. It also argues that, where defendants successfully defend a claim using a conditional fee agreement, they should not be allowed to recover the success fee; otherwise, the costs of insurance premiums will increase if there is a possibility of having to meet a success fee in addition to the normal costs under the policy.

I am not willing to accept the amendment for two basic reasons. The first reason is that discretion must always be retained by the courts to do justice in individual cases. The second reason is that which appealed to the noble Lord, Lord Goodhart: the provision proposed for defendants would prescribe not an equitable but an inequitable balance of power as between plaintiffs and defendants in civil litigation. The provision would place claimants in a significantly stronger position in litigation where they used conditional fee agreements. The clauses as drafted seek

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to place the success fee and the insurance premium in the same position as normal costs--in the discretion of the court subject to rules of court.

No litigant ever enters into litigation in the certainty that he will necessarily recover all of his costs even if he is successful. Although court rules make a general presumption that costs will follow the event, the court always retains a discretion to decide otherwise. For example, that discretion would be exercised where the behaviour of the successful party had been unreasonable or there had been contributory negligence. For the recovery of the success fee and the insurance premium to work equitably, I think it important that the courts should retain this flexibility. It is for this reason that we have provided for the operation of the recovery of success fees and insurance premiums to be made subject to rules of court. I fully intend to ensure that any rules made under these provisions will continue the principle that costs should follow the event of success, but I am equally sure that it will be necessary to allow the courts to exercise a discretion within this general presumption. I cannot think that it would be right that the courts should be obliged to award the success fee and insurance premium in full when it was otherwise exercising its discretion not to award costs or to award only part of the costs.

There is one respect however where I cannot hope to meet the proponents of these amendments and that is in regard to making recovery of the success fee and insurance premium available only to claimants. I do not regard that as fair. It must be remembered that these provisions will apply across all fields of law, not simply personal injury, in which conditional fees are allowed. I simply could not agree to placing one party at a significant disadvantage from the outset of litigation by the operation of the costs rules.

APIL well knows the benefit for claimants under conditional fee agreements of the provisions of the Bill enabling the uplift and the insurance premium to be recovered--and they will be, in the overwhelming majority of cases which succeed, for plaintiffs under conditional fee agreements. These will ensure the success of conditional fee agreements in practice. But I regard these amendments as going too far and altering the balance of power and advantage in litigation against the interest of defendants to an unacceptable extent. I therefore invite the noble Lord to withdraw the amendment.

Lord Clinton-Davis: My noble and learned friend should not have a monopoly over reasonableness tonight. I thought that his arguments were reasonable. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 219 and 220 not moved.]

Lord Goodhart moved Amendment No. 221:

Page 16, line 39, after ("subject") insert ("to subsections (6A) and (6B) and").

The noble Lord said: In moving the amendment, I speak also to Amendments Nos. 222, 226 and 227.

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It is an important and difficult group of amendments and I am sorry that I have to raise the issue at this late hour of the night. The purpose of the amendments is to provide that the mark-up on an enhanced fee CFA agreement is recoverable from the losing party only if the court thinks it just in all the circumstances to make an order to that effect, and not on the basis, as the Lord Chancellor indicated, that there would be a presumption that the mark-up should be recoverable.

I start from the widely shared belief that there are some quite serious drawbacks to CFAs. The integrity of lawyers is absolutely essential to a properly functioning legal system. But giving lawyers a financial interest in the outcome of their case may tempt some of them to breach professional rules, for example about disclosure of documents. More often they will be subject to a strong temptation to settle cases for too little. As soon as an offer is received which is enough to cover their enhanced fee, lawyers will be under great pressure to accept that offer rather than to press on and risk losing everything.

I am not saying that there will be wholesale breakdown of professional integrity as a result of CFAs. That would be absurd. But there are risks in CFAs. While the legal system should tolerate CFAs, it should not encourage them. I find the enthusiasm of the Lord Chancellor for CFAs somewhat disturbing.

Of course where CFAs give access to justice--where it would not be possible without them--we must have them. They help the problem of those who are too rich for legal aid but too poor to litigate at their own cost. I also accept with some reluctance but ultimately without doubt that public funding should not be provided where CFAs offer a viable alternative, but where someone can afford to litigate at their own expense they should be encouraged to do so. Such a person has an option. He can litigate on a conventional basis: if he loses he has to pay the costs; if he wins he gets the winnings clear and has his costs paid. If he chooses to insure himself against the risk of paying costs by going for a CFA and an insurance policy, that is a matter for him and it should not affect the other party's cost liability. Of course, a poor person does not have that choice. A poor person can litigate only with the benefit of the CFA.

Making enhanced fees under CFAs recoverable more or less as a matter of course, at least as a matter of general principle, will have two undesirable consequences. First, almost everyone will be tempted to go for CFAs, whether they need to or not. If you lose you pay nothing; if you win you get your damages clear. It is a, "heads I win, tails you lose" situation. Secondly, in such a case the losing party has to pay three sets of costs; his own, plus the other party's costs twice over. Not all losing parties have acted unreasonably or are wealthy corporations. I believe that to require a losing party to pay triple costs is seriously unfair.

We therefore propose that the courts should have a discretion whether or not to order payment of enhanced fees under a cost order and should only do so when it is just. Hardship to a successful party is one case where it might be just. Let us take the case where a plaintiff is

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paid a large sum in damages for catastrophic injuries after what has been a difficult and expensive case. In such a case, it would be wrong to deduct 25 per cent. of the damages to pay the lawyer's enhanced fees. Again, where the successful plaintiff had no choice because he could not afford to litigate at his own cost it will usually be just to order the other side to pay those advanced fees. Again, where the defendant has increased the costs by unreasonable displaying tactics, the defendant should bear the burden and not the successful plaintiff. But to say that enhanced fees can be recovered as costs more or less irrespective of the circumstances, even when the plaintiff has had a real choice whether to sue at his own expense or by a CFA, would be unfair to defendants and I believe damaging to the legal system.

The noble and learned Lord the Lord Chancellor seems to regard CFAs as a panacea. They are not; they serve a purpose. Their use should not be encouraged where they are not necessary and I do not think that the consequences of encouraging their use has been adequately thought out.

I turn more briefly to Amendments Nos. 226 and 227. These concern the recovery of costs of insurance premiums under a cost order and seek to apply the same principle. They raise the same issue as enhanced fees for CFAs, though in a less acute form. There are two forms of insurance cover. Pre-event insurance to cover legal costs of actions which may arise in the future is the first. That includes household policy cover for occupiers' liability or a professional negligence policy. If I am sued for negligence and successfully defend the action how would it be possible to identify how much of my premium should be recovered from the plaintiff? Indeed, if I could recover it, it would be an absurd anomaly because I would then be better off than if I had not been sued at all. If I had not been sued the premium would still be the same and there would be no one to recover it from. I do not believe that Clause 28 is intended to cover pre-event insurance, but perhaps the noble and learned Lord the Lord Chancellor will clarify that.

Secondly, there is post-event insurance. That will normally be restricted to cover the opponent's costs and coupled with a CFA. Such a policy will sometimes have a benefit for the other party because if the insured party is poor it will produce a fund for the payment of the other party's costs which might otherwise have been irrecoverable. But that is not true if the insured party could afford to pay the costs from his own pocket if he loses the case. If the winning party has chosen to protect himself against the risk of loss which he could have afforded to meet, why should the loser have to pay the costs for both parties and the premium on top of that?

There is a second type of post-event insurance; that is, insurance to cover one's own costs as well as the opponent's costs. In such a case, the prospective plaintiff will pay the lump sum premium to insurers who will finance all the costs of litigation. Clause 28 would permit the cost of that premium to be recovered without the protection from excessive mark-ups provided by Section 58(4) of the Courts and Legal Services Act. That loophole should be stopped. As with enhanced fees, the courts should be able to order payment of the successful party's insurance premiums only when it is just to do so.

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I ask the noble and learned Lord the Lord Chancellor to consider very carefully the problems which recovery of enhanced fees and insurance premiums will cause in those cases. I beg to move.

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