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Lord Ackner: I support this amendment. I am extremely unhappy about the provision for loading on to the unsuccessful defendant the uplift of the cost of insurance. It seems to me to be contrary to the ordinary principle.

If, before CFAs were allowed, a plaintiff raised, and had to raise, a very large loan in order to bring proceedings, no one would have contemplated that in addition to the damage he recovered, he would also be able to recover the interest which he paid on the loan which was necessary to finance his action. That would be because it was looked upon as too remote.

In principle, the same situation can be applied to CFAs. The only difference is that the Government are so anxious and enthusiastic that conditional fee agreements should work, thereby removing the cost of some legal aid, that they are prepared to do two things: they are prepared to have this form of penal costs order; and they are prepared to avoid monitoring how CFAs are working.

I and others have asked time and time again when the Government will monitor what is happening. We know from the very limited monitoring that occurred in early cases that the average mark-up in personal injury cases is over 40 per cent. We all know that that is far too high because it is accepted that in about 97 per cent. of cases they are dead-cert winners which settle comfortably.

At this late hour, I do not wish to go on further but those are my reasons for supporting the amendment.

Lord Phillips of Sudbury: I too strongly support the amendment moved by my noble friend Lord Goodhart and I identify myself with the remarks just made by the noble and learned Lord, Lord Ackner.

There are many people outside the Committee and in it who are deeply concerned about the potential effect on the probity of the legal process of even the qualified step of conditional fees. The Government extended conditional fee arrangements just before the Summer Recess but they had not given proper or full consideration to the consequences.

There were two considerations. The first was that lawyers should be discouraged from taking on weak cases; and secondly, lawyers should be discouraged from stringing out cases. Both activities are discreditable, but one must accept that some lawyers will act in that way. The irony is that under conditional fee arrangements, those lawyers who are unscrupulous could have a field day because of the potential 100 per cent. uplift in fees.

Perhaps I may give one illustration of why the amendment proposed is needed and, further, why the Lord Chancellor may consider establishing a monitoring process which would look at the wider integrity issues surrounding conditional fees. For example, consider the case of a lawyer retained on a conditional fee to act in a very strong case where the client will not be in a

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position to understand its strength. If unscrupulous-- I repeat, one of the suppositions underlying the need for this conditional fee arrangement was unscrupulous lawyers--the lawyer, far from wanting to hurry the case to a conclusion, will have an incentive under the arrangements to string out the case even more than he might have been inclined to do formerly. For every hour and every step by which he strings out the case he will be paid not once but twice. He will be certain of that double payment because he will know that the strength of the case assures victory in the end.

The conditional fee agreements will also tempt lawyers to embark upon the full panoply of High Court or county court proceedings unnecessarily when they know that the issue of proceedings is not in any way necessary for the conduct and satisfactory conclusion of the case they are handling. Those are but two potential abuses which the conditional fee arrangement, far from reducing or controlling, will inadvertently encourage. That is why the amendment proposed is timely and necessary. There are of course many other examples of where the oversight of the courts must be brought to bear to see both justice to the legal system as a whole and justice to individual parties to litigation.

I add one final point. My noble friend Lord Goodhart surprised the Lord Chancellor when he talked of the defeated party having to pay three sets of fees--that is, his own fees and, in cases of 100 per cent. uplift, two lots of fees of the winning party. But it is worse than that. Under Clause 28 of the Bill, he will also be paying the insurance premium. The large insurance company DAS, which provides after-the-event insurance, charges a premium of 15 per cent. of the damages recovered. It is not confined by contingency arrangements. Therefore, not merely will the defeated party be paying three sets of fees, but he or she will also be paying 15 per cent. damages on top of the damages awarded.

The consequences of the totality of these arrangements and the way in which conditional fees may work could have unforseen results in terms of unfairness and could deter citizens from defending proceedings where they ought to have that opportunity, exacerbated by the proposals to shift out of legal aid categories of cases that are now capable of being dealt with under the conditional fee arrangements. I hope therefore that the amendment commends itself to the Government.

The Lord Chancellor: The purpose of these amendments is to bring on to the face of the Bill considerations the court should have in mind when determining the liability for and the amount of any success fee and insurance premium that a person who has used a conditional fee agreement successfully should recover from his opponent.

Amendments Nos. 221 and 222 to Clause 27 impose on the court a number of considerations before it can make the success fee recoverable, including such things as the hardship towards the person liable to pay the costs and the extent to which the case could have been funded without using conditional fees.

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10.30 p.m.

Lord Goodhart: I apologise for intervening. I think that the noble and learned Lord the Lord Chancellor has, in fact, made a slip. Paragraph (a) does not refer to hardship caused to the party which has been ordered to pay the costs, but to the hardship caused to the successful party if the uplift is not paid.

The Lord Chancellor: If I misread that, I apologise. I shall study Hansard to see whether that is so. Although I shall, of course, also read carefully the fairly lengthy speech of the noble Lord, Lord Goodhart, I feel that to the extent to which these considerations need to be dealt with at all, they are far better dealt with in rules of court. In any event, I am concerned that they would, in effect, establish satellite litigation while arguments are made based on such considerations.

Amendments Nos. 226 and 227 seem to proceed on the assumption that the provisions of Clause 28 apply only to premiums used to support conditional fee agreements. Clause 28 extends to other forms of "after the event" insurance and the premiums paid for such insurance. Consequently, it is not only concerned with the recovery of premiums in cases where a conditional fee is used. I have to say that I would need a lot of convincing--

Lord Goodhart: Can the noble and learned Lord the Lord Chancellor confirm that Clause 28 does not apply to "pre-event" insurance?

The Lord Chancellor: Yes, the noble Lord is right about that.

What I am really concerned about is whether the application of these considerations would create satellite litigation while arguments are made about whether, for example, a person could have afforded to take a case without using conditional fees or an insurance premium in relation to the accuracy of the calculations, and so forth.

I believe that, generally, it is entirely right that a successful party should be entitled to recover any costs to which it has been put in prosecuting or defending a claim. I do not accept that it is in any way objectionable in principle that the costs uplift, or the costs of the insurance premium, should be recovered from defendants who are liable to plaintiffs; those being the circumstances in which plaintiffs can secure justice against such defendants. Therefore, I find it difficult to accept that the court should have to consider the various issues set out in the proposed amendments, particularly in relation to costs orders where one party has used a conditional fee agreement.

I believe that it would be far simpler to allow the normal rules on costs to apply: a presumption that costs will follow the event of the judgment with a discretion to the court to vary this in appropriate circumstances. I would, however, be prepared to consider further the concerns behind the amendments and to read closely the speech of the noble Lord, Lord Goodhart, which he delivered commendably at this hour of the night at a considerable pace, so as to consider whether some of

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the concerns can be met in the context of drafting the necessary rules of court. For the present, I do not accept the amendment and I ask the noble Lord to withdraw it.

Lord Donaldson of Lymington: Perhaps I may take up a point made by the noble and learned Lord the Lord Chancellor. He said that he accepted, or supported the principle, that all costs incurred in litigation should prima facie be recoverable on the basis of costs following the event. That is not the principle. The court has a discretion to award half the costs, a quarter, or those of particular issues. That is a different matter. The taxation of costs always produces something less than the totality of the costs paid by the party. Partly, no doubt, because of the hour of the night and partly because it might be regarded as a detail, although not for the litigants themselves, the noble and learned Lord is failing to take account of the difference between indemnity costs and ordinary party and party costs.

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