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Lord Falconer of Thoroton moved Amendment No. 82:

Page 7, line 29, leave out subsection (8).

On Question, amendment agreed to.

Lord Goodhart had given notice of his intention to move Amendment No. 83:

After Clause 11, insert the following new clause--

Public Interest Litigation Fund

(" .--(1) The Commission shall establish and maintain a fund known as the Public Interest Litigation Fund.
(2) The Lord Chancellor--
(a) shall pay to the Commission the sums which he determines as appropriate for the funding of services by the Commission out of the Public Interest Litigation Fund, and
(b) may determine the manner in which and times at which the sums are to be paid to the Commission and may impose conditions on the payment of the sums.
(3) The purpose of the Public Interest Litigation Fund shall be to finance the provision of services of any of the kinds specified in section 5(1) to a person who is or may become a party to legal proceedings if the conditions in subsection (4) are satisfied and the Commission thinks it appropriate to finance the provision of those services.
(4) The conditions referred to in subsection (3) are--
(a) that the proceedings give rise to an issue of substantial public importance,

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(b) that the person seeking the services is not entitled to have those services funded out of the Community Legal Services Fund or as part of the Criminal Defence Service, and
that neither the person seeking the services nor any other persons having a similar interest in the proceedings can reasonably be expected to pay for such services out of his own financial resources or resources which may be made available for that purpose from another source.
(5) Regulations may be made for the implementation of this section.
(6) In this section "proceedings" include prospective proceedings and any step in proceedings.").

The noble Lord said: My Lords, at this time of night, I propose to give your Lordships' House a little treat by not moving this amendment.

[Amendment No. 83 not moved.]

[Amendment No. 84 not moved.]

Lord Goodhart moved Amendment No. 85:

After Clause 11, insert the following new clause--

Conditionally funded fee agreements

(" .--(1) The Commission shall conduct research into the likely demand for and financial viability of conditionally funded fee agreements (as defined in section 58(6) of the Courts and Legal Services Act 1990).
(2) For the purposes of such research the Lord Chancellor may by order authorise the Commission to enter into conditionally funded fee agreements as the funder subject to such restrictions as may be specified in the order.
(3) The Lord Chancellor shall pay to the Commission such sums as he thinks appropriate to enable the Commission to conduct such research.
(4) The Commission shall submit a report on the results of its research under this section to the Lord Chancellor and shall publish its report.
(5) The Lord Chancellor may, after receiving the report, by order authorise the Commission to enter into conditionally funded fee agreements as the funder to any extent specified in the order.
(6) The Lord Chancellor shall pay to the Commission such sums by way of loan or grant as he thinks appropriate for meeting any liabilities incurred by the Commission in acting under an authority given under subsection (5) and may guarantee discharge by the Commission of any such liabilities.").

The noble Lord said: My Lords, I shall move this amendment but I shall be brief. This amendment is grouped with Amendment No. 144.

This amendment raises the issue of CLAF--the contingency legal aid fund--although those words are not mentioned in the amendment. I shall not explain exactly how a CLAF scheme works, nor shall I explain again the manifold advantages of CLAF over CFAs, which I explained in some detail in Committee.

The amendments tabled in Committee required the legal services commission to set up and fund a full-blown CLAF scheme. I accept that that goes too far. This amendment involves a commitment only to a research project, possibly involving a pilot scheme. The cost to public funds will be very limited. There will be no obligation at all to go ahead if it is shown that the scheme is not viable. If the pilot scheme shows that

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CLAF is viable, a full-scale scheme can be set up on the basis of private funding, the Government's involvement being limited at most to the giving of the guarantee. That guarantee will not be needed until research has shown that the scheme will work and therefore the guarantee, in practice, is unlikely to be needed.

I believe that CLAF has important advantages over CFAs for clients, lawyers and the interests of justice. It deserves a trial and the costs of the trial would be well within the means of the community legal service.

Amendment No. 144, which is grouped with Amendment No. 85, serves a more limited purpose. It would enable the noble and learned Lord the Lord Chancellor to give the go-ahead for an independent CLAF at no cost whatever to public funds. It makes it clear that in that event, the CLAF agreement, described as a conditionally funded fee agreement, is legal if it satisfies the test for legality in CFAs. It requires approval by the noble and learned Lord the Lord Chancellor for any organisation acting as a funder of a CLAF scheme, which seems appropriate, and as Amendment No. 144 involves no expense to public funds and is simply permissive, I hope that the noble and learned Lord the Lord Chancellor will be prepared to accept that, even if he is not prepared to accept Amendment No. 85.

The Lord Chancellor: My Lords, in speaking to the two amendments in this group, I shall speak to the second first because it provides the definition of a conditionally funded agreement which is referred to in the first amendment.

The amendment that is sought to Clause 27 would include in the proposed new Section 58 of the Courts and Legal Services Act 1990 three new subsections. The proposed new subsection (5) allows the Lord Chancellor to direct by order that the provisions of Section 58 shall apply to conditionally funded fee agreements as if they were conditional fee agreements which provide for an enhanced fee, defined by Section 58(2). Subsection (6) goes on to define a conditionally funded agreement as an agreement made between a lawyer, his client, and some third person who agrees to act as funder to the action being pursued by the client which provides for the circumstances in which, first, the costs of the client will be met by the funder to the extent that they are not payable by some other person; secondly, the costs awarded by the court are to be paid to the funder; and, thirdly, the client will be liable to pay his lawyer's fees. Subsection (7) further provides that a person may only act as funder if he has been so authorised by order made by the Lord Chancellor.

These provisions seek to provide a statutory basis for a third party to agree to fund litigation along the lines of the CLAF. That is what was proposed by the noble Lord in Committee. Your Lordships well know from our discussions in Committee that I am not attracted to the

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idea of establishing a CLAF with public money because I believe conditional fees will provide a suitable alternative and that in competition with conditional fees a CLAF would not be viable. I have nevertheless taken a reserve power in Clause 10(2)(c) to establish a CLAF in the unlikely event that it should prove that conditional fees cannot make adequate alternative provision.

Although I am not minded to establish a CLAF, I have in the past encouraged the profession, if they believe that a CLAF represents a viable proposition, to seek to establish one of their own with private financial backing. The amendment seeks to establish a statutory basis on which such a scheme could be established.

I do see that there would need to be absolute clarity about whether or not agreements made with a fund of this kind established in the private sector were lawful. The common law doctrines of champerty and maintenance were intended to prevent third parties encouraging actions by agreeing to fund a person to commence litigation and then sharing in the proceeds to litigation to which they were not a party. It is important that a client who is funded in this way is still able to recover his costs from his opponent if he is successful. Save where statute law or the common law as developed by the courts otherwise provides, any agreement for funding of this kind might be liable to legal challenge and struck down by the courts as contrary to public policy and unlawful.

The noble Lord's amendment appears to have fundamentally the right structure in that it provides a proper mechanism for authorising someone to act as a funder; it also provides for the provisions of Section 58 to apply with necessary modifications specified by order to conditionally funded fee agreements. Therefore I have some sympathy with the intention of the amendment but would like time to consider it further. It is unlikely that I will be in a position to come back to this House before the Bill moves to be considered in another place. However, I shall keep the noble Lord informed and if I was minded to cause an amendment to be tabled in another place, I would try to notify him sufficiently in advance to have his comments before the amendment was tabled. I cannot guarantee that, but I undertake to try.

As I imagine the noble Lord anticipates, I have less cheer for him on his first amendment because I cannot accept it. It seeks to place duties on the commission and to require the commitment of public money in a way which I believe is unnecessary and unacceptable.

Subsection (1) of the proposed new clause would require the commission, in perpetuity so far as I can see, to undertake research into the demand for, and financial viability of, conditionally funded fee agreements. Subsection (2) provides that the Lord Chancellor may by order allow the commission, for the purposes of the research, to enter into conditionally funded agreements with the funder, subject to such restrictions as he may determine.

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Subsection (3) requires the Lord Chancellor to provide the commission with the funds to undertake the research. Subsection (4) provides for a report on the results of the research to be furnished to the Lord Chancellor by the commission, a report which he is required to publish. The final two subsections allow the Lord Chancellor by order to authorise the commission, once the report has been received, to enter into conditional fee agreements as funder to the extent specified in the order and require the Lord Chancellor to make funds available for this purpose by way of loan or grant and to guarantee discharge by the commission of any liabilities.

As I said, I am certainly not minded to establish a CLAF. I have no objection if the profession really has that confidence in the CLAF which it invites the Lord Chancellor to share. I have no objection if it wants to put its money where its mouth is to establish a CLAF and run it in competition with conditional fee agreements, as I am unwilling to do. However, I am happy to consider further whether particular statutory provisions would need to be made to allow that to happen. That is what I have indicated I propose to do.

However, if the profession or another private organisation wishes to establish such a fund, it will have to meet the costs of establishing whether there is a demand for such a fund and whether one can be viable. That is part of the costs of establishing and running a fund of this kind. However, I do not accept that the state should be required to undertake research for the benefit of private organisations. As my noble and learned friend Lord Falconer said in Committee, if, as we believe to be the case, a CLAF cannot operate viably in competition with conditional fee agreements, it cannot be right for the Government to risk public money in seeking to establish its viability. That goes equally for funding cases directly to test viability and funding research.

I would ask the noble Lord, Lord Goodhart, therefore, to withdraw his amendment but with a fair prospect that I may be able to do something later in the Bill's passage through Parliament to meet the intent of the second amendment in this group.

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