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Lord Kingsland: My Lords, I rise to speak to the other two amendments in this group, Amendments Nos. 143 and 151. I seem to recall that in Committee the noble and learned Lord made a most helpful, constructive and thoughtful response to these amendments. I do not remember that just because it was the only occasion on which the noble and learned Lord responded in that way to one of my amendments. I believe the noble and learned Lord said in reply that he would be interested to receive a letter from the Law Society about the scope of the definition of "non-contentious business". The issue that the noble and learned Lord reflected on in some detail was how one could deal with, for example, a case being heard in an employment tribunal where there is no specific costs regime to which a conditional fee agreement could adhere.

I do not know whether the noble and learned Lord has had a chance to reflect further on this matter or whether he has had any exchanges with the Law Society since then. I readily accept that these amendments may not, in any case, satisfy entirely what he would wish to put in the Bill were he to be satisfied that something was necessary. It is with that series of rather open reflections that I leave the matter with him.

The Lord Chancellor: My Lords, the amendments in this group seek in different ways to provide additional conditions to those contained in the Bill which would have to apply to every conditional fee agreement.

The first amendment, in the name of the noble Lord, Lord Hunt of Wirral, seeks to insert a new subparagraph in the revised Section 58(3) of the Courts and Legal Services Act 1990 contained in Clause 27. Section 58(1) provides that where a conditional fee agreement satisfies all the conditions set out in Section 58 it shall be enforceable. Section 58(3) provides for certain conditions which must apply to all conditional fee agreements. It is in this subsection that the noble Lord wishes to insert a new subparagraph after Section 58(3)(b) which provides that the conditional fee agreement must not be used in substitution for before the event legal expenses insurance cover.

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This therefore makes a conditional fee agreement lawful only if it is not used in substitution for,

    "before the event legal expenses insurance cover".
From one point of view, it must be a matter entirely for the individual to decide whether he will take advantage of an insurance product he has already purchased or whether for some reason he prefers to engage a solicitor on a basis that the lawyer will share with him the risks of litigation, and be covered specifically by insurance. As at present advised, I tend to think that this is a choice for the individual to make and not one for Parliament to make for him. On the other hand, I accept that the noble Lord has a point and I undertake to write to the president of the Law Society and enquire of him what the Law Society's view is of the duties of a solicitor who is minded to enter into a conditional fee agreement but who knows that his client already has insurance cover under a before the event legal expenses insurance policy.

I doubt that the market for legal expenses insurance is really at risk here, however. I believe that those who are inclined to insure against unspecified potential liabilities will continue to do so. If they had prudently gone to the trouble and expense of doing so, I would be surprised if they did not avail themselves of that which they had purchased when the need for it arose.

I have said, and I say again, that I wish to encourage greater use of legal expenses insurance because it is the cheapest and most prudent way--I am sure the noble Lord will be pleased to hear me say this--to provide for a potential liability for lawyers' bills. I am sure that the marketing skills of the insurance industry, if properly applied, could achieve greater awareness of legal expenses insurance and increase the use of these products.

I have said to the noble Lord that I think he has a substantial point that the Law Society should address and I have given him my undertaking to write to the president of the Law Society. When I hear from the president I shall, with his permission, pass on his views to the noble Lord.

The second two amendments in this group are related. Amendment No. 143 is substantially the same amendment as was moved in Committee by the noble Lord, Lord Kingsland, which seeks to outlaw contingency fees. Amendment No. 151 responds in part to the reply that I gave the noble Lord in Committee when I pointed out that solicitors were allowed to use contingency fees in non-contentious business as defined by the Solicitors Act 1974. This amendment builds on Amendment No. 143 so that contingency fees used by solicitors would no longer be lawful notwithstanding that the Solicitors Act approves of their use. I dealt in some detail in Committee with the amendment to outlaw contingency fees, and I do not believe that it is necessary to repeat what I said then. I have not changed from the view I expressed in Committee when I invited the noble Lord, Lord Kingsland, to withdraw his amendment on that occasion. However, I expressed my concern in Committee about the use of contingency fee agreements in cases before employment tribunals. I have taken up this matter with the Law Society and I am

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currently considering some preliminary representations that it has made to me on this matter. This is an area in which I continue to take an active interest. I repeat that I do not want to see contingency fees introduced in relation to cases before the courts. I think that there is a crucial difference between arrangements where the lawyer charges his normal fees in the event of success, together with an uplift which is subject to a statutory maximum, and arrangements where the lawyer's direct interest is an agreed percentage of the damages recovered. The two are quite different. That, too, is the view that the courts have taken and continue to take. Contingency fees are at common law unlawful and unenforceable. The Solicitors Act 1974 prevents a solicitor from using a contingency fee in contentious business before the courts. I therefore believe that, employment tribunals apart, the law is sufficiently clear on this point and I am not persuaded of the need to legislate in this area.

But I entirely accept that the situation relating to employment tribunals needs careful thought. The Government, however, are looking at their obligations under EU law and the European Convention on Human Rights before reaching any conclusions. This issue needs to be addressed in that context. As I said in Committee, we cannot simply consider the position of employment tribunals and related issues of costs or publicly-funded support to take cases to those tribunals in a piecemeal fashion. On that basis I invite the noble Lord to withdraw his amendment.

Lord Hunt of Wirral: My Lords, I thank the noble and learned Lord for his undertaking. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.30 p.m.

[Amendments Nos. 143 and 144 not moved.]

The Lord Chancellor moved Amendments Nos. 145 to 147:

Page 16, line 18, leave out from ("proceedings") to end of line 20.
Page 16, line 37, leave out ("to his client").
Page 17, line 5, leave out ("authorised bodies (if any)") and insert ("bodies").

On Question, amendments agreed to.

Lord Goodhart moved Amendment No. 148:

Page 17, line 9, after ("subject") insert ("to subsections (6A) and (6B) and").

The noble Lord said: My Lords, in moving Amendment No. 148 I should like to speak also to Amendments Nos. 150, 152 and 154 which stand in my name and are part of the same group. These amendments bring back a series of amendments debated at Committee stage. I bring them back because I believe that they are of considerable importance. I am aware that a number of others both in your Lordships' House and elsewhere agree with me on that. The amendments concern the right of a successful party who has been funded by a CFA to recover from the losing party both the top-up that he has agreed to pay to his solicitor or

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barrister over the normal fees that are payable and the insurance premium that he has purchased to cover the liability to pay the costs of the other side.

The Bill now provides that a costs order may, subject to rules of court, include an order for payment of enhanced fees--the top-up--and the insurance premium. They are dealt with respectively in Clauses 27 and 28. In Committee the noble and learned Lord the Lord Chancellor indicated that there should be a presumption in favour of including in the costs order the top-up and the premium. However, he also said that it was desirable to retain a certain degree of flexibility as is the case with an ordinary costs order where costs normally follow the event but there is power to direct that they should not do so. I believe that the presumption should be the other way and that the premium and the top-up fees should not be added to the costs order unless there is a clear justification for doing so. There are two reasons for this. The first, and I believe more important one, is that such a costs order will be unfair to the losing party. A claimant who has reasonable means and wishes to bring proceedings has a choice. He can accept the normal risk that if he loses he will have to pay his own costs and those of the other side, or he can in effect insure himself against that risk by entering into a CFA with his own legal advisers and by insuring against the risk of having to pay the other side's costs.

One may ask why the losing party should have to pay extra because the claimant has chosen to protect himself against the normal risks of litigation. That may result in the loser paying three sets of costs: his own, the other side's normal costs and what may be up to 100 per cent. by way of top-up, and also the successful party's premium. Not all losing parties are big corporations with deep purses. Not all losing parties have behaved unreasonably in contesting the proceedings. Indeed, the stronger the case of the unsuccessful party the more he will have to pay if he loses because in such circumstances it is likely that the claimant's top-up fee will be larger. The top-up fee is larger in difficult cases than in easy ones.

I believe that here there is a plain and simple principle that if a claimant chooses to litigate and pay to protect himself against the normal risks of litigation the defendant should not be saddled with the costs of that protection. I recognise that the claimant does not always have that choice. The claimant may not be able to afford to take the risk of losing. The claimant may have no real alternative but to enter into a CFA. In such a case it may well be unfair to the claimant to deprive him of part of the damages that he has won in order to pay the top-up or the costs of the premium. These amendments cover that.

The second reason why I believe that losers should not normally be asked to pay the top-up fee and the premium is that it will encourage people who can afford to pay their own costs to go for a CFA instead. The incentive is obvious. If one loses one pays no fees and no costs; if one wins one gets back one's own costs, the top-up and the policy premium. Therefore, it is a case of heads I win and tails you lose. But CFAs have quite serious defects. Among them is the fact that they lead

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to conflicts of interest between the lawyer and the client. The more money that lawyers have invested in working on a case the greater will be their interest in settling that case even on terms that are unfavourable to the client as long as their costs are recoverable.

Secondly, CFAs will reduce choice because many smaller firms will not want to expose themselves to the additional risks involved in CFAs, and CFA work will go to the big claims firms such as Thompson's which can spread the risk. CFAs have a useful role to play in providing access to justice, but that does not mean that they should be encouraged where access to justice is available without them.

The most serious argument against the amendments is that they will encourage satellite litigation. That is not something I would wish to see. However, I believe that with properly drafted rules there is no reason why satellite litigation should be encouraged. The main issue is likely to be whether a successful party could afford to litigate without recourse to a CFA. Someone wishing to claim recovery of top-up fees would no doubt have to submit a sworn statement of his own assets and liabilities to show that he could not have afforded to risk paying the costs. There is no reason why the accuracy of that statement should be investigated, or why there should be cross-examination on it. Of course if someone deliberately conceals substantial assets, and that fact is subsequently discovered, quite properly he would run the risk of prosecution for perjury. By giving sufficiently careful thought to the drafting of the rules, I believe that it is possible to eliminate most of the risk of satellite litigation arising.

The Bill as drafted is unfair to losing parties and will encourage the use of CFAs when they are not needed and not desirable. I beg to move.

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