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We are very much in sympathy with the amendment moved by the noble Lord, Lord Martin. We on these Benches have found in the past few weeks that regret amendments carry very little weight, but if we were to have put down a fatal amendment, we would be going back to the status quo, which is worse than this very small step that the Government are taking to deal with these abuses.
A 35 per cent cap is proposed for the damages-based agreement. Will that be the cap when the Government are involved? Is it right that the Government should put a cap on damages-based agreements in employment cases, when they are so very often the subject of the case? Your Lordships will realise that we on these Benches think that this proposal is ill timed and ill considered, and that the Government should withdraw it and not put it to the vote tonight.
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6.15 pm
Lord Woolf: My Lords, I declare an interest which causes in me a sense of déjà-vu. I was responsible for the Access to Justicereport which led to the rules which now govern civil procedure in this jurisdiction. At the same time as that report was being implemented, the then Government decided to reduce legal aid. As a consequence, they had to find some alternative method of giving access to the courts, because it was clear that, without legal aid of the sort that had hitherto been available, access would be greatly reduced, which would have made a mockery of the purpose of the report which the Government were implementing and for which I was responsible. That report bore the title, Access to Justice, and its object was to assist people to litigate in the courts. It was clear that they had greater rights as individual citizens than they had hitherto, but that those rights were probably of less value than they should be if the citizen was not in a position to exercise them in the courts. Conditional fee agreements were therefore introduced.
However, then it was found that conditional fee agreements by themselves were not working, because the terms on which they were being used were too big a deterrent for the citizen to take advantage of them. Consequently, the insurance industry was mobilised to provide a product which would link up with the conditional fee agreement and protect the citizen in a way which would otherwise not have been the case; but even that action was not sufficient.
Therefore the decision was taken to make the party who lost the proceedings, in the case of a citizen who had a conditional fee arrangement, pay the uplift of the conditional fee agreement and, in addition, the insurance premiums. That changed the balance between the parties in a way which was unsatisfactory, although that was not appreciated at the time, because it gave the claimant a position which was out of balance in regard to the position of the defendant. That applied to litigation generally.
I do not believe for one moment that the Government wanted to get to the position where the situation between the claimant and the defendant was out of balance in the way that I have indicated. However, the pressure of circumstances caused the Government of the day to make recommendations, which were subsequently reduced into law, which had unintended consequences.
That brings me to these two sets of regulations. On the information which is available to me, it is clear that not enough research or consultation has taken place to see the consequences of what is proposed. Furthermore, it seems to me that there is a very real danger that, although the Government are supportive of the admirable report prepared by Lord Justice Jackson, the Government will undermine his report rather in the same way as my report was undermined. Although the general opinion a decade later is that the recommendations I made have benefited civil procedure, it is undoubtedly the fact that one of their objects has not been achieved: the control of costs. The process, as has already been indicated in this debate, is now far too expensive. Nevertheless, the Jackson report indicates that there are ways of combating that. In particular, what is
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Although it may be said this is a provisional action which is being taken, I would urge the Government, based on my experience, not to go down the road that they are proposing to go down at this stage until the matter has been considered properly. I would suggest very respectfully to them that they are putting the cart before the horse in introducing these two measures before they come to their conclusions on the Jackson report. That is the way to reform properly; to reform in a way in which the results can be constructive.
From the Jackson report, I shall give an example on defamation. It is a weighty report, but it is one of considerable value. On page 406, at paragraph 3(1.1) to (3.3), the report refers to the defamation cost management pilot, which is to find ways in which to have a consensus between both sides of the profession and others involved in this area as to how defamation proceedings can be conducted without incurring costs on the scale on which they are now being incurred. It refers to the pilots taking place in defamation proceedings in London and Manchester for a 12-month period commencing October 2009. It concludes by saying:
"At the time of writing no feedback is available from the defamation pilot. However, it is anticipated that data from the pilot will become available during 2010. I am told by a defamation solicitor, who happens to be experienced in costs budgeting, that it takes him about an hour to prepare an estimate of costs".
It then goes on to deal with that aspect, and I do not need to trouble the House with that. However, I refer to it as a sort of possibility that would change the position with regard to costs.
I am certainly not happy with the position with regard to costs in defamation proceedings at the moment, but I question whether the dangers of reducing the uplift from 100 per cent to a maximum of 10 per cent could not have very damaging effects on the other party to litigation in addition to the media, which has an interest that needs protecting by the courts. I am very grateful for the Motion to amend, which I would support because, in advancing that Motion, the noble Lord made it clear that the personal consequences of not being able to bring proceedings, which could be the result of a 10 per cent cap, can be very serious indeed to the citizen-more serious, if I may say so, than the harm that would be caused to the press. We want not to rush into amendments of a sort now proposed but to carry out the research properly that needs to be done before we seek to change the law in this way.
We have heard from the Opposition that, if there is a change of government, they will look at the position afresh. Are these regulations going to be brought into effect for the period that will elapse between a possible change of government and today? That is surely not the way that we should go about reform. There is a need for a change of culture. One thing that is clear is that change in the legal profession and system is always achieved most successfully when there is co-operation between those involved. From what I am aware, it is clear that the main players in the legal profession are happy to enter into negotiations to find a way through.
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I have focused primarily, so far, on the conditional fees, but I would also say that great caution needs to be exercised with regard to the other regulations as well. They are introducing into our system contingency fees, which of course Members of the House are aware have very different features from conditional fee agreements. I am particularly nervous about those being introduced into the employment field, because in the employment field, very properly, the right to representation before tribunals is wider than that of the legal profession itself. That means that there will be others who can recover up to one-third of the amount of damages which are awarded in an employment case, depriving the citizen of the damages he is entitled to as the consequence of the regulations in regard to the conduct of proceedings.
Lord Scott of Foscote: My Lords, like my noble and learned friend Lord Woolf, I start by declaring some interests. I was so-called Head of Civil Justice. I say "so-called" because the noble and learned Lord, Lord Woolf, was really the Head of Civil Justice at the time of the implementation of his reforms and I attended many meetings with him with the officials of the Government of the day, discussing the issue of costs. As my noble and learned friend Lord Woolf has said, the success of his reforms was always going to be to some extent conditional on appropriate arrangements being made for costs in the civil justice system. I am also a Member of the Merits Committee, which has made a report on these two particular instruments, and as your Lordships have heard, I accompanied the Chairman of the Merits Committee, the noble Lord, Lord Rosser, to the meeting with the Minister and the Secretary of State to which reference has been made.
In order to deal with the question raised by the noble Lord, Lord Thomas of Gresford, the reason I was at that meeting was because I had taken some drafting points on the termination provisions in the damages-based agreement. It had seemed to me that they had not properly covered the questions of what remedies there would be for ordinary breaches of contract. An amendment had been made and the instrument was relaid because of it, but the view I took was that it did not go far enough and the main function of the meeting, I think, was to discuss further amendments to the rule which were then made, so it took the form in which it now stands.
I do not recall anything at that meeting which really impinged on the issues that arise in connection with the conditional fee agreement order that is now before the House. The reason for that was that the Secretary of State made it quite clear that what we were discussing were drafting issues on, in particular-
Lord Bassam of Brighton: My Lords, I am not wishing to stifle debate, but can I politely draw attention to the time? The House usually rises at 7 pm. I realise that this is an issue of great interest, but can I ask noble Lords to try to be as brief as possible in making their sharp comments?
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Lord Henley: My Lords, this could have been tabled so we could have had more time. It was obviously something that was going to generate a lot of discussion, which is why it was moved from the Moses Room where it was originally going to be held- particularly after the comments made. I think it is quite wrong for the Government Chief Whip to start trying to stifle debate at this stage.
Lord Bassam of Brighton: I am not trying to stifle debate, but we have got an hour and three-quarter slot for this and it would be good if we could finish by 7 pm.
Lord Henley: May I assist the House? We do not have an hour and three-quarter slot. We have as long as this House feels it is necessary to take on these orders.
Lord Scott of Foscote: My Lords, having heard the noble Lords, I will continue but I will endeavour to be as brief as I possibly can-
Lord Bassam of Brighton: Thank you.
6.30 pm
Lord Scott of Foscote: I will say no more about the meeting I had with the Minister. I think I have given the gist of it.
Both these instruments raise different, discrete points, but they have one important factor in common: they both raise questions about access to justice. Access to justice in the civil justice system is critical. Of what use is a justice system if it is not available to the citizens whose rights are to be protected or who are to be defended against allegations that they have broken other people's rights? That is all that the instruments have in common, but it justifies dealing with them together. For my part, though, having made those remarks about access to justice, I shall take them separately.
The damages-based agreement, as your Lordships have been told, is the first statutory recognition given to contingency fee agreements where the fees of the lawyers appearing for the claimants come out of the damages that are recovered in the action as a percentage. The successful claimant therefore bears the cost of his successful litigation; the costs are not thrown on to the other side. If the case fails, it is a no-win, no-fee arrangement, but the reward for the lawyers of the successful claimant comes out of the damages that the claimant succeeds, with their assistance, in having recovered. That is a quite different approach from that of conditional fee agreements, where the burden of the fees that are recovered by the lawyers for the successful party falls on to the shoulders of, and have to be found by, the unsuccessful defendants.
The damages-based agreement, as the noble and learned Lord, Lord Woolf, has already said, introduces a means of funding the very narrow type of action-namely, damages actions in front of an employment tribunal-in a way that standing authority holds to be contrary to public policy. Public policy can change, but it is a strong step to take to introduce this by means of a statutory instrument. I am not suggesting that it is ultra vires; authority for it was given in the
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I would call this an interesting experiment to see whether an alternative means of funding civil claims can be found by the contingency fee route. The discussions that I had with the Minister about the termination provisions were the only points that I raised about the instruments, and I apologise to him for now raising others that had not occurred to me at the time when I met him. I hope that he will forgive me, but there are difficulties that arise in connection with appeals.
As I understand from what the Minister said earlier, if there are to be appeals, and there may well be, the funding of the appeal, as far as the successful claimant before the tribunal is concerned, will have to be found by some means other than the agreement itself. It has been suggested that a conditional fee agreement could be obtained for the purpose of the appeals. That makes two different systems of funding the litigation at different stages: the contingency fee, with the fee coming out of the damages and calculated with reference to the amount of the damages for the initial hearing, and the conditional fee agreement route for the appeals.
The calculation of the fee to be paid to the successful lawyers for the trial before the tribunal is expressed in terms of the amount that is actually recovered by the claimant. The amount that the claimant recovers may have to take into account any cost to him of the appeals that he may find himself responding to. If he has lost, of course, he will not have recovered any damages. However, if he appeals and succeeds in getting damages from an appeal court, how does the damages-based agreement then operate? He will have obtained damages not from the tribunal but on appeal. If he succeeds in front of the tribunal and the damages are reduced by the appeal court and he is ordered to pay some costs, what then? Does that also reduce the 100 per cent on which the percentage recovery for the lawyer is to be calculated?
These questions need to be examined with some care. The regulations themselves say nothing about them. It would be left to those who have to construe the instrument as it stands, unless some amendment is made, to determine the correct answers. There is also the possibility, if damages were reduced and costs were awarded against the respondent, of the court ordering a set-off of the costs against the damages, and the question of the solicitor's lien against damages recovered in an action. All of these matters bear upon how the machinery for calculation and payment of the contingent fee, based upon a percentage of the amount recovered by the client, will work.
Two final points of technical detail have not been covered. Is there any reason why, just as the success fee of conditional fee agreements can be subjected to the scrutiny of a taxing master and taxed down if the amount is thought to be excessive, the percentage agreed in a damages-based agreement cannot similarly be subjected to that scrutiny? It seems logical that there should be the same process of checking the
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Finally, has any thought been given to how VAT is charged in a case where the fee comes out of the damages? I had not given it any thought until today. Is VAT to be charged and added to the amount accounted for by the lawyer, or is it to be assessed in some other manner? These are technical questions which I leave with the Minister.
I turn to the much more difficult question of the Conditional Fee Agreements Order. Your Lordships have heard of inadequate consultation; so there was. Your Lordships have heard questions raised about where the 10 per cent as the maximum success fee-it is important to note that it is the maximum-comes from. It appears, from the papers that we have seen, to be arbitrary. The Government's consultation paper, issued on 19 January this year, accepted that,
- "to enable claimant lawyers to balance risk: to cover the costs of cases that failed with an uplift or success fee on those that won",
The justification for the 100 per cent uplift was that cases that arrived at trial could be taken to be 50/50-as likely to win as lose. Otherwise why was the other side fighting it? Consequently, the lawyer who litigated under conditional fee agreements would lose as many as he won, and should therefore get twice his normal fee to compensate him for getting nothing on those that he lost. That is the justification for the 100 per cent uplift. If that mathematics is carried through, the 10 per cent uplift-the maximum uplift that is proposed under the order-would require the lawyers who worked on that basis to succeed in nine out every 10 cases that they took. That record of success would be remarkable for any practising barrister. There are some in the House today. I wonder whether they have ever got near to achieving such a thing as nine successful cases out of 10. Anything less and their books will not balance at the end of the practising year. I spent a little time doing the maths. Assuming the lawyers concerned take 10 cases a year that fall within the requisite publication category, they would need somewhere between a 40 and 50 per cent uplift to make a profit if their success rate was between 60 and 70 per cent. That is a pretty high success rate and it would require a 40 or 50 per cent uplift.
Ten per cent is, with respect, a ridiculous rate. It would deny access to justice to a whole range of people who will not be able to afford to litigate. It would be a denial of the whole purpose of the civil justice system, which is to discourage self-help. It would also be apt to promote a deserved disrespect for the law. The noble Lord, Lord Martin, has tabled a Motion of Regret, which I would support. I say also-echoing others-that this is an instrument which ought to be withdrawn and rethought with proper evidence and full consultation.
Lord Pannick: My Lords, my admiration for the noble and learned Lord, Lord Woolf, and his magisterial work in promoting access to justice over the years has been uplifted by at least 100 per cent for every year that I have had the privilege of knowing him. However,
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I must declare an interest. I represent Mirror Group Newspapers in the European Court of Human Rights. It has a claim that raises the issue of whether the very large sum in costs, including a substantial uplift, that it was required to pay the model Naomi Campbell, after a case involving an infringement of her privacy rights, is a breach of its freedom of expression. That is a pending case.
I suggest to noble Lords that the Government are seeking to address a substantial unfairness in the legal system. Where the claimant has a conditional fee agreement and after-the-event insurance, he or she is at no risk as to costs. By contrast, the defendant is at risk of paying inflated costs. In many such cases, therefore, the defendant is under unreasonable pressure to settle the case to the advantage of the claimant. It is true that this is a problem generally, across the legal system. It has been addressed by Sir Rupert Jackson and I understand that the Government are still considering it.
However, a particular and urgent problem needs to be addressed in the context of libel and breach of confidence law. It is an urgent problem because the consequence of the cost regime today is that it is deterring defendants from exercising their freedom of expression. That is a fundamental right for them and a fundamental condition of a free society in which those who are governed are given information about those who govern us, information that people in power, let us be blunt about it, and influential people would much prefer to keep confidential, even if-indeed, often especially if-it touches on matters of public interest. The Government-and I associate myself with them-place a higher value on freedom of expression than does the noble Lord, Lord Martin of Springburn.
6.45 pm
The inevitable consequence of these success fees today is that newspapers and magazines shy away from publishing information about the rich and powerful to the detriment of the rest of us. The 100 per cent success fee is a deterrent, whether the journalism is lazy or dedicated. The justification for the success fee of up to 100 per cent, as has been explained, was that it would enable otherwise impecunious claimants to bring proceedings to vindicate their reputation on a conditional fee basis and to compensate lawyers, as the noble and learned Lord, Lord Scott of Foscote, has explained, for the unsuccessful cases in which they act on such a basis. It is a swings and roundabouts approach.
This rationale, in my experience, has been undermined by two factors that have not yet been mentioned. First, a very large number of the claims in which these success fees are secured have been brought by claimants who were perfectly capable of paying their lawyers a proper professional fee. There is no restriction on these success fees to the impecunious.
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