Instruments drawn to the
special attention of the house
The Committee has considered the following instruments
and has determined that the special attention of the House should
be drawn to them on the grounds specified.
A. Draft Damages-Based Agreements Regulations
2010
Summary: A Damages-Based Agreement (DBA)
is a private funding arrangement in which the representative's
fee is contingent upon the success of the case, and is determined
as a percentage of the compensation received by the client. In
relation to cases before employment tribunals only, these Regulations
cap the fee the representative can charge at 35% including VAT.
The Committee received a number of representations expressing
concern about the proposal and the robustness of the evidence
used to support a cap, including one from the author of research
cited by the Department, Professor Moorhead. A number also expressed
concern about the restrictions on terminating a DBA which deviated
significantly from normal contract law. On the day of the Committee
meeting a revised draft was laid (the 3rd version laid before
the House), which addressed the conflict between this type of
DBA and normal contract law. We had no opportunity to consider
in any detail the effect of this change as, despite the Government
having to correct errors and twice re-lay the Regulations, the
Department wished to continue with the debate already scheduled
for 18 March. The Committee suggests that the House will wish
to consider further whether these latest revisions have adequately
responded to the concerns expressed in the correspondence about
the termination provision. A number of other issues also require
further clarification, if reassurance is to be provided that the
policy will not result in unintended consequences. The Committee would
also wish to have seen stronger evidence to demonstrate that a
cap is needed and that 35% is the appropriate level. Although
the Ministry is acting with the objective of protecting the consumer
and of balancing the rights of the consumer and the representative
to fair payment, it is not yet clear that the current provisions
will achieve that aim.
These Regulations are drawn to the special attention
of the House on the grounds that they may imperfectly achieve
their policy objective.
1. These Regulations are laid under sections
58AA(4) and 120(3) of the Courts and Legal Services Act 1990,
together with an Explanatory Memorandum (EM) and an Impact Assessment
(IA). The draft instrument laid on 16 March replaces the versions
of 24 February and 1 March.
2. The Regulations set out the requirements with
which a damages-based ("no win, no fee") agreement between
a client and a representative must comply in order to be enforceable
in a matter to be heard by an employment tribunal. A damages-based
agreement is a private funding arrangement whereby the representative's
fee is contingent upon the success of the case, and is determined
as a percentage of the compensation received by the client. The
Regulations set out the information that must be given to the
client before the agreement is signed and the form the agreement
must take. They also limit the fee the representative may charge
to 35%, including VAT, of the sum received by the client, which
the Department states is approximately the current market rate
(paragraphs 8.3 of the EM and 2.19 -20 of the IA).
3. The Committee identified a number of concerns
with the proposals at an earlier stage and they were withdrawn
and re-laid with amendments. However, this did not sufficiently
clarify the rationale behind the unusual termination provisions
set out in regulation 6 which limit both the representative and
the client's ability to terminate the contract close to the hearing
date. The Department's clarification of its policy intention in
doing this is set out in full in Appendix 1. The Department maintains
that the key aim of the regulations is to protect consumers from
unfair and unreasonable agreements in respect of employment matters,
but says that arrangements are also needed to ensure that
representatives are remunerated for the services that they have
provided where the claim is successful.
Termination provisions
4. The Ministry of Justice states that the provisions
in regulation 6 aim to protect both clients and representatives
in a proportionate manner. It aims to prevent representatives
locking clients into unsuitable agreements by the threat of excessive
costs, and to prevent representatives from dropping a case if
it became uneconomical to run. However we received representations
from the Law Society, the Bar Council and Professor Moorhead of
Cardiff University (see Appendix 1) which questioned both the
effects of these provisions and the unintended consequences that
they may have. In particular they set out a number of scenarios
in which the parties wished to terminate the contract due to no
fault on either side, for example if a witness or opponent changed
their stance.[1] In the
3rd version re-laid on 16 March shortly before the Committee met,
MOJ produced an amended regulation 6(5) which provides that these
special provisions are without prejudice to any right of either
party under the general law of contract to terminate the agreement.
This change appears to meet many of the criticisms of the original
regulation 6. However, we emphasise that we have not had the opportunity
to seek further advice on the effect of the change, or to consider
whether it meets all of the concerns expressed in the evidence
we received about the original regulation 6. (For example, there
was a concern that under regulation 6(4) a representative could
terminate an agreement on the broadly expressed grounds that a
client had "behaved unreasonably".)
Appropriate level for the cap
5. The representations also debate whether it
is appropriate to fix a cap on the fee level at all. The Law Society
argues that there should be some flexibility to allow for the
different degrees of complexity that may arise in a case. While
a cap may prevent excessive charging it may also result in representatives
being reluctant to pursue cases on this basis, resulting in a
reduced access for justice to poorer claimants.
6. The Ministry of Justice cite research into
the matter by Professor Moorhead in support of the proposed
35% cap.
7. Professor Moorhead has written to the Committee
to state that in his view the research did not support the view
that contingency fees generally led to overcharging of clients,
and states that the evidence suggested that contingency fees were
generally a better deal for clients than paying on a hourly basis.
He goes on to question the justification for setting the cap at
35% on the basis of the evidence in his research, which found
fees tended to fall into bands of 5-10%, 25-30% and 40-50% according
to the complexity of the case. The 33% figure quoted was simply
the average and he fears the consequence of a setting a cap at
35% will be that complex but meritorious cases will not be able
to find a representative willing to take them on.
Conclusion
8. The 3rd version of these Regulations were
laid just before the Committee met. We decided to consider them
immediately as the change responded to concerns about regulation
6(5), and because we understood the MOJ wished to press ahead
with a debate already scheduled for 18 March. The Committee
regrets that it was unable to complete more thorough scrutiny
and suggests that the House may wish to consider whether these
latest revisions have adequately responded to the concerns expressed
in the correspondence.
9. The proposals to clarify the contract terms
are generally welcomed, particularly as they seek to bring to
conformity when representatives come from a range of disciplines
such as the legal professions, insurance companies and unions.
However there are clear concerns that a cap set at 35% may operate
to raise the general level of fees rather than limit them, and
may restrict the access to justice of those with worthy but complex
claims.
10. The House may think that a number of issues
require further clarification to provide reassurance that the
policy will not result in unintended consequences. The Committee
also considers that stronger evidence is required to demonstrate
that a cap is needed and that 35% is the appropriate
level. Although the Ministry is acting with the objective
of protecting the consumer and balancing the rights of the consumer
and the representative to fair payment, it is not yet clear that
the current provisions will achieve that aim. The legislation
is therefore drawn to the special attention of the House on the
grounds that it may imperfectly achieve its objective.
B. Draft Conditional Fee Agreements (Amendment)
Order 2010
Summary: In defamation Conditional Fee Agreements
(CFA) the lawyer has, until now, been awarded double his costs
if the case is won (ie a 100% success fee, paid by the losing
side) to offset the lost cases, for which the lawyer receives
no payment from the client. There is some consensus that the costs
are bearing unfairly on the losing party, so as an interim measure,
the Department is proposing to reduce the success fee supplement
to 10%. A number of representations have been sent to the Committee
questioning the basis for and timing of this change. Some queried
the reason for rushing this proposal through, ahead of a proper
assessment of the proposals made in Lord Justice Jackson's recently
published review of Civil Litigation Costs. Correspondents also
questioned the evidence MOJ used, and would have liked to
make their own assessment, but were constrained by the compressed
4 week consultation period. The policy objective is to reduce
legal costs, and to reduce the risk of disproportionate costs
unjustifiably restricting freedom of expression for the media
and other publishers. The Order aims to do this by reducing the
100% uplift that is widely considered a disproportionate sanction
on the unsuccessful defendant. However the House may wish to consider
whether a 10% uplift swings the pendulum too far the other way
reducing poorer clients' ability to challenge
misleading published information. We regret
that insufficient time has been allowed to produce a solution
based on more robust evidence or on which there is broad agreement,
and that might seem more likely to achieve the policy objective
without the potential side effects discussed in the correspondence.
The Order is drawn to the special attention of
the House on the grounds that it may imperfectly achieve its objective.
11. The Ministry of Justice (MoJ) has laid this
instrument under section 58 of the Courts and Legal Services Act
1990 along with an Explanatory Memorandum (EM) an Impact Assessment
(IA). It is noted that, as with the Damages-Based Agreement Regulations
2010 reported on above, this Order has twice been withdrawn and
relaid, in order to correct drafting defects.
12. This Order amends arrangements for "no
win, no fee" agreements that relate to defamation cases including
malicious falsehood and breach of confidence cases that involve
material that has been published. This type of Conditional Fee
Agreement (CFA) has been available for some years as an alternative
to paying a legal representative by hourly fee according to the
work done. In defamation CFAs the lawyer has, until now,
been awarded double his costs if the case is won (i.e. a 100%
success fee) but received no payment from the client if the case
is lost. The underlying principle is that the successes offset
the failures with the objective of improving access to justice
for the client, particularly the poorer ones who might otherwise
not be able to defend their reputation as legal aid is not normally
available for defamation proceedings.
13. The Ministry of Justice say that there is
evidence that the costs are bearing unfairly on the losing party
and that more than half the defamation cases that are pursued
are won, i.e. the lawyers are benefiting disproportionately
from the current arrangements. So as an interim measure, pending
the consideration of Lord Justice Jackson's wider review into
Civil Litigation Costs, the Department is proposing to reduce
the success fee to 10%. The Order was preceded by a short consultation
exercise (from 19 January to 16 February 2010).
14. The Committee asked the Ministry why the
Impact Assessment they provided only considered the one option
and did not compare the costs and benefits of intermediate levels
of success fee at say 25% or 50%. They responded (see Appendix
2) that general consultations had been going on since 2007, previous
attempts had been made to construct a phased scheme but consensus
could not be achieved. They argued that the majority of the respondents
to the consultation exercise, even those who were against the
reduction to 10%, conceded that the status quo was not sustainable
and that change was necessary. A number of representations have
been sent to the Committee questioning the basis for and timing
of this change (see Appendix 2). Several respondents make reference
to the "Theobalds Park Plus agreement" an example of
which is attached to the Carter Ruck submission, which illustrates
that other arrangements, staggering the fee uplift according to
the amount of work done, are already in voluntary operation.
15. Some respondents queried the Department's
use of figures on cases provided by the Media Lawyers' Association
to Lord Justice Jackson's review; but said that the truncated
consultation period had prevented further analysis of data. While
accepting a need for change, most challenge the 10% figure as
disproportionate. The conclusions of both Lord Justice Jackson
and the Commons' Culture Media and Sport Committee on this issue
are mixed[2], and we were
not convinced that there was a strong basis for choosing a 10%
uplift over any other figure. In their response MOJ acknowledged
that they do not have comprehensive statistics and were seeking
additional data through the consultation exercise - it therefore
seems difficult to justify the curtailment of the consultation
period to 4 weeks.
16. Some responses query the reason for taking
this interim proposal through when it is not consistent with the
proposals made in Lord Justice Jackson's report, which suggests
that the costs as well as the benefits of a "no win, no fee" CFAs
should be borne by the client rather than by the unsuccessful
defendant. MOJ state that Lord Justice Jackson's proposal
will need extensive consultation with the industry and primary
legislation. In their view the proposed cut to 10% provides a
way forward in the interim.
17. The policy objective is to reduce legal costs,
and to reduce the risk of disproportionate costs having the effect
of unjustifiably restricting freedom of expression for the media
and other publishers. The Order aims to do this by reducing the
100% uplift that is widely considered a disproportionate sanction
on the unsuccessful defendant. Paragraphs 3.9-16 of the Impact
Assessment set out the pros and cons of reducing the sanction,
in the light of which the House may wish to consider whether a
10% uplift swings the pendulum too far the other way, reducing
poorer clients' ability to challenge misleading published information.
We regret that insufficient time has been allowed to produce
a solution based on more robust evidence or on which there is
broad agreement, and that might seem more likely to achieve the
policy objective without the potential side effects discussed
in the correspondence. We therefore draw the matter to the
special attention of the House on the grounds that it may imperfectly
achieve its objective.
C. Education (Student Support) (European University
Institute) Regulations 2010 (SI 2010/447)
Summary: These Regulations provide support for
a number of students taking designated postgraduate courses at
the European University Institute (EUI) in Florence, Italy. They
set out the eligibility criteria, living costs and other support
available for eligible students for the academic year 2010/11.
The Regulations also revoke an earlier set of regulations which
also provided support for a number of students taking designated
postgraduate courses at two other European institutions: the Bologna
Center in Bologna; and the College of Europe (CoE) in either Bruges
or Natolin (Poland). However, following representations, the Government
now intend to reinstate half the number of scholarships at the
CoE for this year, by a separate set of Regulations. The Department
for Business, Innovation and Skills (BIS) explain that the budget
for the CoE places is ring fenced, but due to an increase in fees
and a poor exchange rate, the budget is not sufficient to fund
the same number of students as in 2009/10. BIS explain that the
policy objective for funding places at the three European institutions
was to strengthen the representation of UK nationals in EU institutions.
However, the SI has been developed without any consultation with
key stakeholders and BIS have not presented any solid evidence
to support the policy objectives of their funding decisions. The
House may therefore wish to give some consideration as to whether
the policy development processes for this SI have been sufficiently
robust.
This instrument is drawn to the special attention
of the House on the grounds that it gives rise to issues of public
policy likely to be of interest to the House and may imperfectly
achieve its policy objectives.
18. These Regulations provide support for a number
of students taking designated postgraduate courses at the European
University Institute (EUI) in Florence, Italy. They set out the
eligibility criteria, amounts of living costs and other support
available for new and returning eligible students for the academic
year 2010/11. The Regulations also revoke an earlier set of regulations
which also provided support for a number of students taking designated
postgraduate courses at two other European institutions: the Bologna
Center in Bologna; and the College of Europe (CoE) in either Bruges
or Natolin (Poland).
19. The Explanatory Memorandum (EM) says that
from academic year 2010/11 support fees, living and other costs
are to be withdrawn for postgraduate students attending the Bologna
Center and the CoE (page 7.1). In response to questioning from
the Committee, the Department for Business, Innovation and Skills
(BIS) have provided further information on the background to these
Regulations (see Appendix 3). They explain that a limited number
of scholarships will be reinstated for the CoE for this year and
will shortly introduce a separate set of Regulations to that effect.
20. The numbers of places that have been funded
by the Government at the three colleges are relatively small.
BIS say that that in the 2009/10 academic year, there were 2 places
at the Bologna Center, 22 places at the CoE, and 20 places at
the EUI. Currently the maximum to be funded in 2010/11 (subject
to parliamentary approval) will be 11 at CoE, 20 at EUI and no
places at the Bologna Center. BIS explain that the budget[3]
for the CoE places is ring fenced, and due to an increase in fees
and a poor exchange rate, the budget is not sufficient to fund
22 students (see Appendix 3).
21. The EM says (paragraph 8) that no consultation
was carried out on the SI. The Committee asked BIS why they considered
this approach to be consistent with the Government's policy on
consultation[4]. The response
from BIS was that they had made the decision to withdraw funding
known to the interested parties in the CoE and Bologna Center.
But following representations, the decision was taken to reinstate
funding for the CoE for one year (see Appendix 3).
22. The Committee questioned BIS over the policy
objective behind the funding for the postgraduate places at the
three European colleges. BIS said the original policy objective,
following a 1990 Government review, was to strengthen the representation
of UK nationals in the EU institutions. They said the policy objective
for the reduction of the number of places at the CoE and the Bologna
Center was that the Department does not generally fund postgraduate
students or fund students studying outside the UK, and the existing
funding was contrary to the policy objective of targeting support
at those accessing higher education for the first time. The continued
funding at CoE will be for one year whilst other arrangements
are being considered for funding to meet the Government's policy
aim (see Appendix 3).
23. The effect of this SI is a reduction in the
number of funded places at the three European institutions. The
SI has been developed without any consultation with key stakeholders
and BIS have not presented any solid evidence to support the policy
objectives of their funding decisions. Although the Committee
is appreciative of current budgetary constraints, the House may
wish to give some consideration as to whether the policy aim of
this SI is consistent with the Government's stated broader policy
for the funding of postgraduate places at the three colleges,
and whether recent policy development processes have been sufficiently
robust to ensure that this SI will achieve its objectives.
1 The evidence received and printed in the report relates
to the earlier versions of the Regulations, not the 3rd version
currently before the House. Back
2
See their Report "Press Standards, Privacy and Libel"
published 24 February 2010 paras 286-309 http://www.publications.parliament.uk/pa/cm200910/cmselect/cmcumeds/362/362i.pdf Back
3
The total budget for CoE and Bologna Center was £279,000
for 2009/10: the budget for EUI was £174,000 for 2009/10
(Source: email from BIS to MSIC Secretariat 16 March 2010) Back
4
HM Government, Code of Practice on Consultation (July 2008) Back
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