Committee (6th Day)
Legal Aid, Sentencing and Punishment of Offenders Bill
Relevant documents: 21st Report from the Constitution Committee, 22nd Report from the Joint Committee on Human Rights, 21st and 22nd Reports from the Delegated Powers Committee.
Clause 43 : Conditional fee agreements: success fees
Moved by Lord Thomas of Gresford
118: Clause 43, page 30, leave out lines 4 to 6 and insert-
"(b) the maximum limit must be expressed as comprising either or both of the following-
(i) a percentage of the descriptions of damages awarded in the proceedings that are specified in the agreement; or
(ii) a percentage of the amount of fees which would be payable to the person providing legal services including advocacy if they were not acting under a conditional fee agreement,"
Lord Thomas of Gresford (Liberal Democrat)
My Lords, I have to apologise for the length of my opening remarks, but as your Lordships will have seen, this is a very large group of amendments and it covers some three discrete topics.
Clause 43 deals with the conditional fee agreement-a CFA or no-win no-fee agreement-under which the successful claimant wins from the defendant both damages and costs to pay his lawyer's fees. The fees under a CFA include a success fee, an uplift of the basic fees by an agreed percentage. The rationale behind the success fee is that it is not the lawyer's prize for winning his case but his insurance; an uplift on his fees when this client wins covers the value of his time and effort when another client loses and he receives no fees at all. If the claimant loses, he does not have to pay his own lawyer's fees, because it is no-win no-fee, but he is liable for the money paid out on his behalf for court fees, expert and medical reports, and witnesses' expenses.
The Government's purpose in Clause 43 is to amend the current position under the Courts and Legal Services Act 1990 to provide that the success fee payable to the successful claimant should no longer be payable by the unsuccessful defendant but should be paid instead by the successful claimant out of the damages he receives. All the losing defendant will pay by way of costs is the claimant's lawyer's base fees and his own costs.
When the 1990 Act, led on in this House by the noble and learned Lord, Lord Mackay, was originally enacted by the Conservative Government to provide relief for the MINELAs-middle income not eligible for legal aid-it was expressly provided by Section 58 that the costs payable by a losing defendant to a successful claimant should not include the success fee payable under a CFA. At the beginning, no success fee was paid by defendants, but in 1999 the Act was amended by Labour so that the success fee was recoverable from the losing defendant, along with the claimant's base costs. Labour's policy at that time was to abolish the grant of legal aid to all-the impoverished as well as the MINELAs-in all personal injury cases save clinical negligence. The carrot was that defendant insurance companies would pay the success fee instead of the claimant. The proposals in this Bill seek to return to the original concept of the noble and learned Lord, Lord Mackay, in 1990.
The 1990 Act did not change the general rule that the losing party pays the winning party's costs; costs follow the event. Therefore, if a claimant lost his case, he did not have to pay his own lawyer's fees-no-win no-fee-but under the principle of costs following the event, he was liable to pay the successful defendant's costs, which could be a very considerable sum. To cover this possible liability, an insurance market quickly grew up whereby the claimant would insure himself against the risk of losing; that is, "after the event" insurance, or ATE. The original 1990 Act said nothing about the cost of the insurance premium for such cover and accordingly a claimant was responsible for the premium.
Section 29 of the Access to Justice Act 1999 expressly provided that the premium paid by a successful claimant who had insured himself against the risks of losing was recoverable as well as the success fee. The policy was that an injured claimant would recover his damages in full without any deduction, so the losing defendant-usually an insurance company or a company so large that it was self-insured-paid four times over: the damages to the claimant, the base costs of the claimant's solicitors, the success fee, and the ATE insurance. As it happens, I raised the issue of the extension of CFAs and its impact on insurance in a dinner-time debate some 14 years ago, on
"In his overall review of legal aid, the Opposition applaud particularly his desire to extend legal aid into areas such as the provision of social welfare, immigration and other areas where preventive legal advice will save so much money by avoiding ensuing litigation. All that is to be greatly applauded".-[Hansard, 9/3/98; col. 93.]
In that debate, the noble and learned Lord, Lord Irvine, said:
"Premiums for personal injury proceedings, in which conditional fee agreements have been allowed since 1995, are typically £100 to £150. For many of those who will gain access to justice, which they are denied now, that is not an excessive sum".-[Hansard, 9/3/98; col. 96.]
The legislation was passed in the context that the noble and learned Lord, Lord Irvine, believed that insurance premiums for ATE insurance were £100 to £150. The past 11 years have witnessed the unintended consequences of the 1999 Act and the urgent need for reform.
It was emphasised in the Jackson report that the maxim "once size fits all" is certainly not the way to go. In personal injury cases, the defendant who caused the injury will have acted negligently, not deliberately. In defamation or breach of privacy cases, the harm is quite deliberate, usually with the motive of selling newspapers. Personally, I am intensely relaxed about the newspaper that libels an individual or breaches their privacy having to pay the lot-the injured party's success fee and ATE premium-although I am afraid that neither the Mirror nor the European Court of Human Rights would agree with me. The defendant does not, in a libel case, have to pay for future care or future loss of earnings, and the damages award is usually small. Therefore, different concerns apply in different categories of cases.
The 1999 changes in the recoverability of the success fee have been highly lucrative for solicitors. The Jackson report points out that if 30 per cent of a solicitor's fees represent profit and 70 per cent are administration costs, then a 100 per cent success fee, which is not untypical, doubles his fees and gives him a profit of 130 per cent. Since the claimant never has to pay any part of the success fee under the present provisions, he is totally indifferent as to whether the success fee is 10 per cent or 100 per cent. In Road Traffic Act cases, where the success rate is over 90 per cent, the ramping up of success fees became so blindingly obvious that the success fee was limited by regulation to 12.5 per cent. Other cases may be riskier, where the success fee remains at large. Solicitors say, "We have a merits test to ensure that only meritorious claims go forward". Such a test can easily degenerate into cherry picking, so that risky cases may be dumped and only sure-fire winners taken on. If a lawyer picks only the obvious winners and discards risky cases, why should he have a success fee to insure himself against cases which, by definition, he will never lose?
In today's climate, I support the Government's decision to transfer the burden of the success fee to the successful claimant. That will immediately introduce competition for clients. Some lawyers, in easy, run-of-the-mill litigation, may even advertise that they will charge no success fee at all. Others, who take on the riskier cases, will have to calculate how low they can push their success fee percentages to attract clients, in order to cover their losses on those cases they might lose. The proposal that the claimant pays the success fee introduces competition in this area, which will push down the percentages that solicitors ask for.
That brings me to Amendments 118 to 120 and 162. The Government propose to limit the success fee in personal injury cases to 25 per cent of the damages for pain, suffering and loss of amenity in special damages to the date of the award, but to exclude from that calculation any damages attributable to future loss, whether loss of earnings, medical fees, care costs or the like. I should point out that the maximum limit or cap that was envisaged in the original 1990 Act was a percentage of the whole of the award of damages, not a part, as is now proposed. A maximum limit, specified as a percentage of damages, is inappropriate where the action is one merely for injunctive relief or in an area where damages are, by convention, low, such as actions in defamation or privacy cases. Consequently, Amendment 118 provides for the success fee to be calculated not just as a percentage of damages, but also, as an alternative, as a percentage of the fees which would normally be charged. Amendments 119 and 120 are consequential amendments.
Amendment 162 deals with Clause 53, which provides for an additional sum to be paid by a defendant to a claimant if judgment in the claimant's favour is more advantageous than an offer he made earlier to the defendant which the defendant rejected. The sanctions against a defendant for failing to accept a claimant's offer to settle generally amount to considerably less than the sanctions against a claimant for failing to beat the defendant's offer to settle. Consequently, there is less incentive for a defendant to accept a reasonable offer from the claimant than for a claimant to accept a reasonable offer by the defendant. Amendment 162 clarifies that the court must evaluate the non-monetary benefit of injunctive or declaratory relief or the vindication of a claimant's character in defamation proceedings.
Amendment 137D allows the House to consider one-way costs shifting. This is the second topic with which this group of amendments is concerned. It would mean that a defendant, even if successful, pays his own costs and does not seek them against the losing claimant; namely, one-way costs shifting. It follows that if such a regime were in force, a claimant could bring his action without fear of having to pay the defence costs if he loses. To an ordinary individual, having to pay defence costs takes all his savings and perhaps his home, which would be a significant deterrent to most people from bringing even a gold-plated claim let alone a risky one if he is facing that financial liability.
One-way costs shifting is not a new concept. It has been the rule in legal aid cases since I started practice. An unsuccessful legal aid plaintiff may have an order for costs made against him not to be proceeded with without the leave of the court. I have never known any attempt made by an insurer following such an order to obtain costs or to seek to obtain costs against an unsuccessful claimant. Jackson, in his report, calls it the "legal aid shield". One-way costs shifting exists in legal aid.
In formulating his proposals, Lord Justice Jackson was assisted by calculations made by the Medical Protection Society, which over an 18-month period calculated that it had paid out £2.8 million in ATE insurance premiums which had been recovered by successful claimants as part of their costs. The Medical Protection Society had itself paid more than £9 million of defence costs of which it had recovered only £380,000 in costs orders against unsuccessful defendants. It had recovered only £380,000 but had had to pay £2.8 million in ATE insurance premiums to successful claimants. It follows that it would be far better financially for it not to seek costs at all when it wins if it could avoid paying the claimant's ATE premium when it loses. Lord Justice Jackson concluded:
"On the basis of the material provided during the Costs Review, it seems to me inevitable that, provided the costs rules are drafted so as (a) to deter frivolous or fraudulent claims22 and (b) to encourage acceptance of reasonable offers, the introduction of one way costs shifting will materially reduce the costs of personal injuries litigation. One layer of activity, namely ATE insurance against adverse costs liability, will have been removed from the personal injuries process".
Jackson recommended the introduction of qualified one-way costs shifting. The Government intend to introduce, through the civil procedure rules, such a regime. In my view, it is essential that the principles to be applied in formulating these civil procedure rules for one-way costs shifting should be on the face of this Bill. If the Bill provides on its face that the premiums for ATE insurance should fall upon the claimant, as it does in Clause 45, so should the provisions of one-way costs shifting, the other side of the coin, also appear in the Bill and be properly debated.
At the moment, I understand from discussions with the Government that no precise formulation of the alterations proposed to the CP rules has yet taken place. These rules are made by the Civil Procedure Rule Committee, which is an advisory non-departmental public body sponsored by the Ministry of Justice, headed by the Master of the Rolls and comprising five High Court judge members, one circuit judge member, two district judge members, three barristers, three solicitors and two consumer affairs lay members. I think that Parliament should give the rule committee its parameters and that it should not be left to the Executive, or for the committee simply to follow the recommendations of the Jackson report as it sees fit.
The qualifications in this Bill follow the precedent of Section 11 of the Access to Justice Act 1999 in respect of legal aid; namely, that in making a costs order against a legally aided person, the judge may take into account his financial circumstances and the reasonableness of his conduct. In the course of discussions with representatives of the insurance industry, I have found that they are not concerned about the financial circumstances of the losing claimant. It is so rare that such a claimant can meet the defendant's costs personally that it is simply not worth the while of the industry to formulate the mechanisms that would be required to assess every claimant's means. In other words, we do not want means testing, and neither does the insurance industry. Further, Jackson was concerned to say that the claimant must be at risk of some adverse costs in order to deter frivolous claims and applications in the course of otherwise reasonable litigation. He suggested a formula for the proposed alteration to the Civil Procedure Rules at page 190 of his final report:
"the formula suggested above will enable the court to make a costs order in three specific situations where such an order would be appropriate: (a) where the claimant has behaved unreasonably (e.g. bringing a frivolous or fraudulent claim); (b) where the defendant is neither insured nor a large organisation which is selfinsured; or (c) where the claimant is conspicuously wealthy".
Amendment 137D refers, first, to the one-way cost shifting applying to a claimant "regardless of" his means. The insurance companies do not want it and neither should the Government. It refers to actions which are brought against defendants who are insured or self-insured. We are not dealing with one-way costing where the action is brought against an individual. The amendment also proposes the extent of one-way cost shifting and seeks to add clarity in defining unreasonable conduct. Provision is also made for Part 36 offers. The amendment seems to deal with the objections that might be made to Lord Justice Jackson's original formulation, which the Government have accepted, and puts forward significant amendments.
As I previously outlined, the expectation of the noble and learned Lord, Lord Irvine, in 1998 was that the premiums for ATE insurance would be in the region of £100 to £150 when he took the decision in 1999 to switch the responsibility for those premiums from the claimant to the losing defendant. But there were unintended consequences. Market forces took over. The claimant was happy to agree to any size of premium which he himself was never going to have to pay, win or lose. If he lost the case, the insurance company customarily waived the premium, in effect it self-insured itself against loss in such circumstances. In the case of Rogers v Merthyr Tydfil County Borough Council, Lady Justice Smith pointed out that cases were being advanced by claimants protected by ATE insurance when no private litigant would dare to take the risk. This judge, who is very experienced in personal injury claims-as I know to my cost-said:
"At present, the insured claimant can notionally pay the high premium which reflects his poor chances of success, secure in the knowledge that, if he wins, the premium will be recovered and, if he loses, he can walk away unscathed. I find it hard to believe that Parliament intended that claimants should be in so much better a position than the private litigant".
This change has meant that the claimant does not have to worry because he is not going to pay the premium, whatever happens.
Costs judges who were asked to assess a successful claimant's costs found it impossible to challenge the size of the premium. In that same Rogers case, Lord Justice Brooke said:
"District judges and costs judges do not ... have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces."
So the judges who are supposed to tax costs found that they could not enter into any discussion or sensible judgment as to what a premium should be. The claimant does not care about how much the premium is because he will never have to pay, and the taxing masters-the judges who deal with costs-will not enter that area at all, so that insurance companies can charge whatever premiums they like.
Lord Justice Jackson cited one of the illustrative cases provided to him by the Commercial Litigation Association, where the claimant's profit costs in a particular case were £425,000, disbursements were £561,000, but the ATE insurance premium was £976,000. In other words, the ATE insurance premium in that case was more than all the other aspects, costs and disbursements put together. I am familiar with premiums in the region of £80,000. Evidence produced to Jackson showed that when these premiums are charged by ATE insurers, 65 per cent of premium is attributable to risk, 15-20 per cent is attributable to brokerage fees and 15-20 per cent to administration and profit. ATE insurers under this system have been charging whatever premium they can get away with, because it is not challenged by anybody, and only 65 per cent of those premiums are attributable to the risk that they are undertaking.
Jackson advanced two solutions. His first, and preferred, solution is that the premium should be paid by the winning claimant out of his damages to reverse the present situation. His second solution, alternatively, is that the cost of the premium be shared between the claimant and the losing defendant. Under either alternative, the claimant then has an interest in the size of the premium. If he is going to pay it himself, he is worried about how big it is; if he is going to pay a share of it, he is concerned about the size of the premium. Absent some cartel, competition ought in practice to keep the premium at a level which is a true reflection of risk.
The Government have opted in this Bill for the first solution, subject to an exception in clinical negligence cases whereby part of the ATE premium which covers disbursements in the way of expert and medical reports will be recoverable from the losing defendant. That part of the premium, which covers the risk of paying the defendant's costs, will be paid by the winning claimant out of his damages even in these extreme cases.
If one-way cost shifting applies, as I have previously argued, the defendant pays his own costs whatever the result, the losing claimant does not pay his own lawyers-no win, no fee-nor under such a regime the defendant's lawyers, so it is obvious how crucial it is to introduce such a regime as a vital part of the reform of the system.
A claimant, even if successful, will remain liable for court fees and expenses paid out on his behalf for experts' reports and so on. In a typical case, those expenses would amount to between £2,000 and £5,000, which is enough to deter a genuine claimant from advancing his claim.
ATE insurers, faced with the destruction of a very large market by reason of one-way cost shifting, say that they are not interested in covering merely the costs of disbursements of such small sums. But obviously if the amount of money at risk is £2,000 to £5,000, the premiums will be back in the realms envisaged by the noble and learned Lord, Lord Irvine, in 1998. So although I have conceded ground on the claimant paying the success fee out of his damages, I retain enough of my purity of principle from 1998 to prefer the second option advanced by Jackson, with some changes, and hence the amendments under discussion.
Amendment 144A would extend Clause 45 to all personal injury litigation and not just to that for criminal negligence. Amendment 144B makes the important point that the provisions apply only in favour of those who take out ATE insurance at the beginning of the claim. Jackson found instances of ATE insurance being taken out after liability had been admitted, when there was no possibility of an adverse costs order against the claimant, and the full premium being then claimed against the defendant as part of the costs order. If claimants take out ATE insurance at a later stage of the proceedings, when the wind appears to be rather less fair than they thought, the market might be too small for the risk to be properly spread.
Amendments 144C to 144E are for clarification. Amendment 147A makes the important point that the amount required to pay in respect of the premium must not exceed a prescribed maximum amount, which is,
"proportionate to the damages or other relief claimed".
Amendment 148A introduces the concept of sharing the cost of the premium but also incentivises the defendant to settle the case at an appropriate time. It provides that if the case is settled within the pre-action protocol period, or its equivalent, the premium remains payable by the claimant, but at each stage of the proceedings the premium is shared. If the claimant is successful and obtains judgment, he will still have to pay 20 per cent of the premium. I would argue that sharing the premium for ATE insurance, reduced as it would be, because it would refer only to disbursements and not to defendants' costs, would be a far more satisfactory way in which to vary the cost, much reduced by one-way cost shifting from the huge premiums currently demanded.
Amendment 149A is consequential. Amendment 156AB makes the obvious point that one-way cost shifting and this reform go together, and the regulations on each aspect should come into force in the same day.
I started by apologising to the House for the length of time that I would take in presenting these amendments. I repeat the apology and I beg to move.
Lord Beecham (Labour)
My Lords, I speak rather earlier than I might have expected. I congratulate the noble Lord, Lord Thomas of Gresford, on the lucid way in which he has presented a very complex argument on very complex issues. I do not entirely agree with everything that he said, but the Opposition and I have considerable sympathy for a good deal of it.
This House is familiar with Henry VIII clauses, but in the year of the World Shakespeare Festival this Bill could perhaps best be described as a Henry VI Bill, since it is in three parts. This is Part 2-and in Part 2 of "Henry VI", there is the famous phrase:
"The first thing we do, let's kill all the lawyers".
I cannot recall whether that was part of the coalition agreement or the extent to which it would in any event receive approval from a majority of your Lordships.
However, it is necessary for me to give an opposition view of the generality of the case and then speak more particularly about the amendments tabled in my name and the name of my noble friend Lord Bach. I want to be clear that the Opposition agree that costs in litigation are an issue and have to be dealt with. Equally, we dislike the claims management industry and the commercial referral fees charged by companies seeking to promote litigation. We would go a long way with the Government in restricting the scope of conditional fee agreements, success fees and the like in relation to road traffic accident cases, most of which are settled and with relatively modest damages. I would extend that to slip and trip cases as well, which are much the same category. We agree with the noble Lord and indeed with Lord Justice Jackson in promoting qualified one-way cost shifting for all cases and not just for personal injury claims, as the Bill proposes. However, there is a concern about "after the event" insurance, particularly if QOCS were to be limited.
In passing, the noble Lord, Lord Thomas, referred to positions where there is no incentive on claimants to settle, but of course insurers like to have it both ways. They charge, it appears inflated, premiums for "after the event" insurance but then seem to want to shift the cost on to claimants. In exactly the same way, they complain about whiplash injury claims but sell details of possible claimants to claims management or claims referral companies, so one's sympathy with the insurance industry is tempered by the experience of what it actually does.
There are, however, principles that need to be borne in mind. The overriding principle should be that successful claimants should not see the compensation on their loss eroded by meeting the costs of the insurance, or indeed the success fee in the event of a successful claim. The noble Lord did not deal with the myth of the compensation culture-perhaps he does not have to-but it is a myth, as the noble Lord, Lord Young, made clear in his own recent report to the Government. The fact is that there has been something like a 14 per cent reduction in civil claims cases in the past year and a four-year downward trend in the number of claims brought, but the principle must surely be to maintain access to justice for people of modest means. That was the whole theory behind the changes made under the Access to Justice Act and the introduction of conditional fee agreements.
The Access to Justice Action Group surveyed 69,000 cases in the light of the Government's proposals and concluded that around a third of those would not be brought if the legislation were to go forward in its present form. Given that we are seeing savage reductions in legal aid, so that the very poorest in any case would be in great difficulties, we are perhaps now seeing a returned-to category of what might be called the legally squeezed middle. Interestingly the same survey showed that around 50 per cent of those who would in effect be expected to bear success fees, and if necessary the cost of "after the event" insurance, would be around the higher rate tax threshold of around £40,000-odd a year-not an inordinately affluent group of people.
That conflicts with the original concept. As it happens, I remember discussing the proposals to take personal injury cases out of legal aid with the noble and learned Lord, Lord Woolf, a professional colleague, after he had spoken at a meeting in Newcastle, his home town. He was full of assurances that all would be well in the volume of work that would be promoted for solicitors and that the system would work very effectively. We are seeing that that is perhaps no longer the case.
There are other consequences, which have yet to be measured fully, that are adverse to the public purse. If good cases are not brought that would have resulted in a recovery of damages, at least two parts of government in the context of personal injuries claims could lose out: the National Health Service for the non-recovery of the costs of treatment-there is an estimate of around £93 million a year for that-and the compensation recovery unit of the Department for Work and Pensions, which, under the current benefits system, reclaims from defendants benefits that have been paid where a claimant has been entitled to those benefits as a result of injuries. Those factors need to be borne in mind.
As the noble and learned Lord has pointed out, the Bill makes success fees irrecoverable from defendants, and in personal injury cases limits the success fee to 25 per cent of general damages, to be uplifted in theory to compensate for that potential deduction by some 10 per cent. Amendments have been tabled that deal with this aspect, but it is perhaps as well to make it clear now that a 10 per cent increase would be an increase on a level of damages that in any case involving personal injuries is regarded as too low. As long ago as 1999, a report indicated that general damages for personal injuries ought to be increased by some 50 per cent. Action was not taken by either the courts or indeed the then Government to secure that change.
We are facing a perverse effect of these changes. Successful claimants lose because they will not cover the cost of "after the event" insurance and the success fee will be taken out of their damages. The principle of English law has hitherto been that the person should be put in the condition that he would have been but for the negligence, in the case of personal injury claims-or other failures, in the context of other types of claim-of another party. That rather disappears under this proposal. In fact, it does disappear. Equally, successful defendants lose because they will not be covered by "after the event" insurance from claimants. Alternatively, they will be faced with qualified one-way cost shifting and so cannot recover costs either.
The people who gain-paradoxically, it might be thought-are the unsuccessful defendants: people who lose their cases. Unsuccessful defendants do not have to pay a success fee or, obviously, the cost of insurance. Unsuccessful plaintiffs gain under the qualified one-way costs system. In my submission, it is a perverse outcome of the cases that those who fail are protected while those who succeed see a substantial cost falling on them.
We argue that costs would be better controlled through better case management and the proper assessment of costs, including a determination of the relevant level of the success fee. It might be possible to prescribe the levels applying to cases in regulations, but in all events the courts should be robust in assessing what is a legitimate success fee. The noble Lord rather dismissed the notion of pooling risk, which would allow for the swings and roundabouts of lawyers undertaking cases with less than 100 per cent probability of success-perhaps substantially less than that. It is the basis of the whole of the Woolf reforms that that risk should be accepted.
There will undoubtedly be cases involving very little risk. I repeat that you can take RTA and trip and slip cases out of the equation, which leaves you with a core of inevitably rather more difficult cases where certainty is by no means apparent. However, I suggest that it is for the courts to make the appropriate adjustment when looking at the success fees. There is a danger that we will see the "after the event" market decline, and unless there is a substantial move to one way costs shifting across the board there is a real risk of fewer people gaining access to justice. That is the basis on which the Opposition approach these matters. I will now-I hope to the relief of the Committee-speak briefly to the amendments.
I agree with many of the noble Lord's amendments, particularly the amendment to Clause 53 and Amendment 137D, although we would like to see that measure extended to all types of claims, not just to those that he listed, although they are significant. Equally, we agree that clinical negligence should be left out of Clause 45, as proposed in Amendment 144A. We agree with Amendment 144B but not with Amendment 144C. Amendment 148A concerns splitting the "after the event" premium. If that is to be retained either under the Bill or in practice-there are doubts about whether it would survive in practice-that might be a fallback position to explore.
Had the noble Lord, Lord Martin, been here, I would certainly have supported his Amendment 127, which would make it clear that success fees would not include the payment by one party of a success fee payable by another party under a conditional fee agreement. I think that is designed to protect, for example, trade unions supporting their members.
I come briefly to the amendments in my name and that of my noble friend. Amendment 131 deals with the position where a defendant has been unreasonable and where the success fee would be permitted in that event-a success fee to be payable by the defendant would be provided for. That seems to be perfectly straightforward. Amendment 133 would allow success fees for appealed cases. By definition these are not straightforward matters. If an appeal goes forward, there are surely issues to be determined, and there must be a risk in such appeals.
Clause 43 looks at the up-rating of general damages, particularly in personal injury cases. This needs a moment of explanation, and perhaps I can exemplify what the position would be if an award of general damages of £10,000 were to be made. The uplift at 10 per cent would increase the total award to £11,000, but a success fee of 25 per cent in a personal injury case would reduce the amount payable to the claimant to £7,750. The first amendment is, in effect, the Government's position. To be frank, I am not quite sure why we have tabled it. However, Amendment 137C would restore the £10,000 damages, because it would increase the general damage figure to £13,330, and a 25 per cent fee would reduce the general damage figure back to £10,000. Hence the uplift in respect of general damages only-not special damages-with a net loss to date, would at least shelter the successful claimant from a large reduction in his recovered costs.
Our amendments to Clause 45 raise the issue of the recoverability of costs in clinical negligence cases. They would allow the recoverability of premiums for ATE insurance in such cases, even after QOCS was introduced. The problem with clinical negligence cases is the cost of the experts' reports; hence these amendments seek to cover those.
In our amendments to Clause 53, under the heading "Offers to settle", we seek a mandatory uplift, which would encourage parties, particularly defendants, to settle. Very often, the delay in cases is the result of defendants unnecessarily prolonging matters. I have to say that that is often a feature of clinical negligence claims. Hospital authorities and others can take a long time to come to terms.
Amendments 190 and 192 put the emphasis on qualified one-way cost shifting, because they deal with the fact that there is no scheme at the moment. The Government are still considering one, and it would be interesting to know from one or other of the noble Lords opposite-I take it that the noble and learned Lord, Lord Wallace of Tankerness, will reply-how far those discussions have got, where they are heading and what kind of scheme we may be facing. If we are going to agree on a scheme that we can support, we need to know what it would actually involve before any of these changes, which will be critically dependent on a robust scheme, are made.
Equally, Amendment 193 would delay commencement until the general damages uplift and an effective system of disbursements for unsuccessful claims are dealt with by the Government or the courts.
We have set out the three issues that need to be determined: an increase of 25 per cent in personal injury damages, an effective system of qualified one-way cost shifting, and an effective system to meet the disbursements. These are procedural matters. Subsequent groups of opposition amendments will deal with the following: injury cases in group 2, non-injury cases in group 3, and judicial review and public authority liability in group 4.
Lord Phillips of Sudbury (Liberal Democrat)
I support my noble friend. My name is on most of the amendments in his name, although not Amendment 137D. I commend him on the clarity with which he spoke to what is an extremely complex set of issues. I wonder whether putting 30 technical amendments in a single group is really an efficacious way of legislating. I am bound to say that the background to these intensely complex practical and theoretical issues does not seem to have been adequately prepared. I endeavoured on day five of Committee to move an amendment calling for a review of clinical negligence cases, which are in a special class of sophistication of their own, and I hope to move it again on Report. I hope that the Minister will not mind my saying that I believe that there has been insufficient preparation for our debates on those matters.
I add only a couple of facts to the underlay to the group spoken to by my noble friend Lord Thomas of Gresford. The position in respect of claims and litigation generally is a mess, let us make no bones about it. It is in a fiendish mess. I speak as one who has always been deeply concerned about the whole concept of conditional fees, which seem to me to be in permanent danger of undermining the professionalism of lawyers, because they have a deep conflict of interest when acting on a conditional fee basis vis-à-vis both their clients and their professional obligations. That is where we are, and perhaps one day we will consider how other countries deal with the problem of how to fund bringing cases to law. Perhaps Germany would be a good example, where the whole field of costs insurance is infinitely further developed than it is here and seems to provide their citizens with a rough equality of access to justice that we no longer have with the progressive dismantling of the legal aid scheme.
To undermine the points made by my noble friend Lord Thomas, one fact struck me forcefully. According to a general insurer from whom the Ministry of Justice has obtained statistics in preparation for the Bill, costs as a proportion of the damages have risen from one half in 1999-whatever the client got by way of damages, the costs were roughly one half-to being roughly equivalent by 2004 and costs now exceed damages by 50 per cent. In the space of just over 10 years, that huge swing in the division of spoils between the lawyers and the insurers on the one hand and a client on the other has taken place. That must give rise to intense concern on the part of anyone and everyone. As I said, I think that the amendments in the group in the name of my noble friend Lord Thomas to which my name is attached improve things a bit, but we should not deceive ourselves that we will end up with fair access to justice.
Baroness Turner of Camden (Labour)
I am not a lawyer, and this is a very complicated set of amendments in a single group. My concern arises because for many years I was a trade union official with responsibility for the legal cases service that we provide to our members. My concern, and that of the TUC, is that the Bill changes the balance away from people who are poor who have had an accident at work and want to seek compensation for their injuries. It has destroyed the balance, as they see it, between the wrongdoer and the injury victim, denying claimants access to the courts and with the money taken from them simply serving as a windfall for negligence defendants and sometimes for their insurers. Even if representation can be obtained, many on a low or middle income may not claim because they are unable to fund disbursements upfront or because of a general feeling regarding the costs, or the risk of the costs, involved. Trade unions collectively assist up to 150,000 personal injury claimants a year. There is a concern that their ability to look after their members will be impacted by the Bill, and in particular by Clauses 43 and 45, which we are currently discussing with this group of amendments.
As has already been explained, back in 1999 mechanisms were put in place to ensure that all reasonable legal costs could be claimed by a successful claimant from the negligent party to protect access to justice, particularly for those on a low or modest income, and to protect claimants' entitlement to their compensation in full. Such costs include success fees and after the event, or ATE, legal insurance. In our opinion, Clauses 43 and 45 would probably reverse that position, destroying injured claimants' rights.
Clause 43 stops recoverable success fees. Currently, claimants can find lawyers to take on their cases on a no-win no-fee basis using a conditional fee arrangement because the lawyer is paid a success fee. This is an additional cost paid in successful cases to cover the risk of running a whole basket of claims, some of which will be lost. It is the recoverability of this success fee from the insurer that the clause will ban. Instead, the claimant might have to pay up to 25 per cent of their damages to their lawyer as a success fee-if they can find a lawyer to take the case. As Jackson knows-we have been talking about the Jackson report because it is on his recommendations that a lot of this legislation is based-this will harm claimants, and he proposed an increase in damages for the injury alone of 10 per cent to compensate. However, this will not work. Those pursuing employer liability claims will lose out, and this uplift may prove largely unnecessary if the Bill relates only to RTA claims. We are concerned not about that but about accidents at work in this particular briefing.
So far as concerns accidents at work and industrial injury, there is a further concern that if this legislation takes effect there will be a reduction in the number of compensation cases that can be pursued, and that that in turn will have an effect on safety at work, health and safety legislation and so on. That is another impact that this legislation will have on compensation for injuries that workers may sustain in their employment.
Clause 45, at the stroke of a pen, stops a claimant recovering the cost of ATE insurance to cover the risk of paying a defendant's costs or disbursement. Without ATE, many claimants will not be able to take the risk other than in very straightforward cases.
For those reasons, those of us who are concerned with trade union cases and with work injuries and so on are worried about the impact that this legislation, if not amended, will have on the possibility of people injured at work being able successfully to pursue compensation cases. The Government sometimes seem determined to prevent individuals who feel that they need compensation pursuing their cases. I sometimes think that they have been taken in by all the publicity in recent years about our becoming a compensation culture. I do not think that that is true at all. It is obviously true that many people feel that, if they are injured at work or through somebody else's negligence, they have a right to claim compensation for their injury and they therefore looks for means to secure that compensation. Sometimes they go to a union if they belong to one, or they may go to other organisations that provide advice and support to individuals. Those individuals will not feel able to do so if there is a risk that they will not get their case taken, or will be landed with fees that they have to pay themselves because they will not get full recovery, having had to pay the compensation success fee to the lawyer involved.
That is terribly unfair, and I hope that during the passage of this Bill we will be able to table amendments that will deal with some of those concerns. Some of the amendments in this group will deal with the concerns that I have voiced this afternoon. They were expressed previously when we had the Second Reading debate and I do not want to repeat everything that was said then, but I want to emphasise that I am talking about people who have very little money. When they are injured at work, often the compensation is no more than £3,000, which may not appear to be a very large sum of money, but to somebody working as a cleaner, it is an enormous sum. Certainly, it is not a trivial amount. People with small claims, who feel that they have been injured and are entitled to compensation for their injuries, may have doubts about whether they can proceed, and they will not find people willing to take up their case. That would be a great pity; it would block people's access to justice. I thought that in any reform, we should be concerned with improving access to justice. The Bill, especially in these clauses, does not do that. I hope that we can amend them during our discussions.
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
My Lords, I join the noble Lord, Lord Beecham, and my noble friend Lord Phillips, in thanking my noble friend Lord Thomas of Gresford for introducing this compendious set of amendments. It is useful to do that because it brings together all the different strands of this package. As the noble Lord, Lord Beecham, said, my noble friend Lord Thomas introduced the issue and spoke to the amendments with great clarity. In doing so, he raised a number of important issues to which I hope to respond. I shall, obviously, deal with the amendments, but if accepted, they would completely undermine the reforms that we are trying to make to civil litigation costs.
I shall try to take the amendments together in some of the natural groupings: Amendments 118 to 120 and Amendments 127, 131 and 133 all relate to Clause 43; Amendments 138, 143 to 146, 147A and 148A all relate to Clause 45; Amendments 158, 159, 160 to 162 and 190 to 193 all relate to Clause 53; and Amendments 137B and 137C would insert a new clause.
To respond to the general comments that have been made, both by my noble friend Lord Thomas and the noble Lord, Lord Beecham, perhaps it is worth emphasising the importance of Part 2 of the Bill, even though I shall not go down the Shakespearean historical paths of the noble Lord, Lord Beecham. Part 2 includes provision to implement fundamental changes to the current no-win no-fee conditional fee arrangements regime. As my noble friend Lord Thomas has indicated, it is taking us back to the regime introduced by my noble and learned friend Lord Mackay of Clashfern when he was Lord Chancellor in the 1990s. We believe that the Bill will restore a fair balance to civil justice. It is worth reminding ourselves that conditional fee agreements were used successfully then without the substantial additional costs that have followed the changes introduced by the previous Government in the Access to Justice Act 1999. Under our changes in this Bill, meritorious claims will be resolved but at a more proportionate cost, while unnecessary or avoidable claims will be deterred from progressing to court. We believe that these changes can help businesses and other defendants who have to spend too much time and money in dealing with avoidable litigation-actual or threatened. It is worth reminding ourselves that if a defendant feels pushed into a position where they feel they have to settle a claim that they think does not have any merit at all because of the potential costs that they might incur if they proceeded to defend the action, it is not justice. It is not justice if unmeritorious claims are allowed to succeed.
The noble Lord, Lord Beecham, claimed that there would be additional costs across government as a consequence of the measures. We believe that that will not be the case. Taking the Bill as a whole, it is estimated that the changes will lead to savings of up to £50 million per annum, for example, for the National Health Service.
The noble Lord, Lord Beecham, and the noble Baroness, Lady Turner, mentioned road traffic cases. The noble Baroness also mentioned cases arising from employers' liability. For completion of the picture, it is worth reminding the Committee that the existing road traffic claims process, which was negotiated under the previous Government, came into effect in April 2010. It covers claims of up to £10,000 where liability has been admitted. There is a general consensus that it has worked well. Following a recommendation of the 2010 report Common Sense, Common Safety from the noble Lord, Lord Young, the Prime Minister announced that we would extend the scheme upwards in value to £25,000, and to other types of personal injury cases, including employers' liability and public liability. The Government intend in due course to set out a way forward on extending the scheme, and we look forward to working with stakeholders on the detail.
Clause 43 seeks to abolish the recoverability of a success fee under a conditional fee agreement from the losing party in any proceedings. This will require claimants pursuing claims under CFAs to take an interest in keeping down their costs and will reduce the disproportionate impact of their costs on those who face the claims. At the moment, a claimant has no interest at all in tackling mounting levels of costs. The costs that losing parties must pay can comprise their own legal costs and the winning party's basic legal costs. That much is reasonable and applies generally in civil litigation. However, under CFAs the losing party also has to pay the winning lawyer's success fee of up to 100 per cent of the base costs, as well as the "after the event" insurance premium that can be very substantial, as we heard from my noble friend Lord Thomas. That is why a losing defendant in a CFA case can expect to pay more than double the legal costs of a defendant in a non-CFA funded case. This in turn can put CFA-funded parties at a significant disadvantage over those whose cases are funded by other means.
Lord Martin of Springburn (Crossbench)
I apologise for being late for the Committee; I was travelling from Scotland. I am sure that the noble and learned Lord will acknowledge that cases that involve 100 per cent recovery are those that go to court. There are stages where settlements can be made. The defendant can make an offer that can be accepted. If it is done at an early stage there will not be the 100 per cent costs that we were talking about.
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
My plane from Edinburgh, too, was delayed today; I understand the noble Lord's difficulties. He mentioned the arrangement for making offers. Part 36 arrangements were spoken to by my noble friend Lord Thomas when he moved the amendment. I will come to the matter in responding to the debate.
As I indicated, very often these cumulative costs can lead defendants to feel under pressure to settle a claim when they have no legal reason to do so, through fear of incurring payment of excessive costs as the case proceeds.
Without Clauses 43 and 45, high and disproportionate costs in civil litigation will continue. Access to justice will not become more meaningful for all parties, as we intend. If all the amendments to Clause 43 were agreed, the fundamental elements of the Government's reform package would be lost, and defendants would continue to be liable for significant additional costs across a range of cases. It is useful to put the level of costs in some context. My noble friend Lord Phillips pointed out that one general liability insurer indicated that, in 1999, claimants' solicitor's costs were equivalent to just over half the damages paid; by 2004, average claimants' costs were roughly the same as the damages; and, by 2010, average claimants' costs represented one and a half times the damages received by the injured victims, and indicated that while average damages paid have increased by one-third since 1999, average claimants' costs have increased by two and a third times over that period. These figures reflect Sir Rupert Jackson's findings that claimants' costs are substantially higher than defendants' costs, and that claimants' costs in CFA cases are substantially higher than in non-CFA cases.
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
We will come to increased damages. Damages are totally to one side in this. The point I was making was about the difference between claimants' costs and defendants' costs. For example, in clinical negligence cases in the period 2005 to 2010, claimants' costs paid increased by 45 per cent while the NHS Litigation Authority's legal costs declined by about 30 per cent. That reflects Sir Rupert Jackson's findings that claimants' costs are substantially higher than defendants' costs. That is one of the things that we seek to address.
It might be helpful if I indicate at this stage our current timetable for the implementation of Lord Justice Jackson's proposals in Part 2-subject, of course, to parliamentary approval. We believe that these are important measures and we want to implement them as soon as possible in order to control the costs of civil litigation. However, I will reflect on some of the specific issues that were raised by my noble friend Lord Thomas. These proposals will require the making of new regulations and changes to the Civil Procedure Rules. We wish to make sure that we get the details of these regulations and rules right, and that will inevitably take some time.
We are also conscious that stakeholders will need appropriate notice of when the changes will be implemented and how the details will affect them. We have already announced that the legal aid provisions in Part 1 will be implemented in April 2013, subject to parliamentary approval. For these reasons, I can inform the Committee that, subject to parliamentary approval, the Government intend to implement the Jackson provisions in Part 2 in April 2013 as well.
As I have outlined, Amendment 127, tabled in the name of the noble Lord, Lord Martin, if allowed to stand, would allow continuation of the current regime of recoverable success fees-which, for the reasons I have indicated, we are determined to tackle. Therefore, we will resist that amendment.
I turn to Amendments 118 to 120. The Government have said that in personal injury cases there will be a cap on the amount of damages that may be taken as a success fee. It is important to remind ourselves that the cap of 25 per cent in personal injury cases is a maximum in order to protect claimants' damages. Lawyers do not have to charge a success fee of 25 per cent of damages. Indeed, in many personal injury cases where there is little risk of difficult legal issues arising, it may well properly be the case that a zero success fee, or a much smaller success fee, would be appropriate. Indeed, there is no need to claim a success fee at all. As my noble friend Lord Thomas said, an element of competition will start to emerge, and no doubt some firms of solicitors will get a reputation for taking on cases with very modest or no success fees, whereas other firms prepared to take on more risky litigation would have higher success fees. The cap will be set at 25 per cent, but that is intended in personal injury cases only and is to protect claimants' damages. In particular, it will not apply to damages for future care and loss, which can be very substantial. I do not accept that the amendments tabled by my noble friend are necessary, because he mentioned some non-personal injury cases where that 25 per cent cap will not apply, albeit that the fee under the Bill would refer to a percentage of damages. Obviously, in non-personal injury cases, the 25 per cent rule would not apply. Amendment 118 would allow lawyers to increase the notional fee and overall costs, whereas the policy intention is to reduce these costs. Therefore, we do not believe that Amendments 118 to 120 are necessary or appropriate.
Amendments 131 and 133 seek to exempt certain types of claim from our package of reforms to the existing CFA regime. We cannot accept these amendments as they undermine the Government's reform of civil litigation funding and costs. Under our reforms, people will still be able to bring cases on CFAs in areas where they are currently used. We are also making improvements that will help claimants wishing to fund claims on a CFA that were not available previously, and we are protecting claimants' damages. I just referred to the 25 per cent cap; as has also been recognised, there will be a 10 per cent increase in non-pecuniary general damages such as those for pain, suffering and loss of amenity. This change is being taken forward by the senior judiciary.
Amendment 131 proposes that the success fee should be recoverable where,
"the defendant has been unreasonable (in whole or in part)".
This relates to the recoverability of success fees from the defendant, which we do not believe should be the case. To allow for recoverability where the defendant is alleged to have been unreasonable, at least to some extent, is a recipe for satellite litigation and even more costs being generated. It will introduce uncertainty and the opportunity to allege unreasonable behaviour in every case-one can see the certain incentive to do so-which would not be acceptable.
I will return later to the point made by the noble Lord, Lord Martin, but we are introducing changes that will require defendants to behave properly in relation to offers. The changes to Part 36 of the Civil Procedure Rules-Offers to Settle-are touched on in Clause 53 and the amendments that have been moved in relation to that. The changes will incentivise defendants to make earlier and better offers; otherwise, they will suffer increased financial penalties. With regard to Amendment 133 and the question of funding of appeals, the same general arguments apply as for unreasonable behaviour by the defendants. The Government are not persuaded that any special provisions need to be made in respect of appeals, and appeals can be funded on the same basis as cases in the first instance.
As has been acknowledged in this debate, in personal injury cases we are introducing a system of qualified one-way cost-shifting-QOCS-which will protect losing claimants from having to pay the defendant's costs. Although these measures are being taken forward outside of the Bill, including through the Civil Procedure Rules, they are an important feature of the overall package. To maintain a level playing field, these changes should apply equally and to all categories of cases. Otherwise, in cases covered by these amendments, the losing party will still be liable to pay not just the winning party's ordinary costs but all the additional costs associated with CFAs, without any justification.
The effect of Amendments 137B and 137C is almost identical, the difference lying only in the amounts they suggest. I have spoken about the changes we are making to CFAs. As part of his package of reforms, Lord Justice Jackson recommended that the level of general damages in tort cases such as for pain, suffering and loss of amenity should be increased by 10 per cent. The Government have accepted this recommendation, and the increase will apply to all cases, however they are funded.
However, Amendment 137B seeks to make this increase part of primary legislation by incorporating it into the Bill. Amendment 137C specifies that the increase should be 33 per cent. I believe that an increase of 33 per cent would be an overcompensation. As well as exceeding the level of the proposed cap on success fees, it would be a substantial windfall for claimants not on CFAs, who would not be liable for any success fee. It would also increase the burden on defendants, which goes against the grain of these reforms.
I understand that noble Lords wish to see a commitment to a 10 per cent increase in the Bill. However, we have given the matter much thought and we do not believe that to do so is either necessary or practical. The level of general damages has historically been for the judiciary to decide. This was so in the Court of Appeal case of Heil v Rankin, which increased the level of such damages. Again, we believe it would be appropriate for the senior judiciary to take this increase forward, as indeed it is.
It may also be helpful at this stage if I deal with a question raised with me by my noble friend Lord Faulks at Oral Questions on
I will now turn to Amendment 137D, which seeks to insert a new clause in Part 2 of the Bill, with the intended effect of extending the scope of one way costs shifting in other areas of civil proceedings. The burden of costs would remain solely with the defendants and the culture of risk-free litigation by claimants would continue. We believe that this is neither acceptable nor conducive to a package of reforms to no-win no-fee conditional fee arrangements.
Amendment 138 would limit the effect of Clause 45 to areas of law where qualified one-way costs shifting operates. As the Government indicated in response to their consultation, this will initially apply in personal injury cases only. If Amendment 138 was accepted, the recovery of ATE insurance would continue in all areas of civil litigation except personal injury. My noble friend Lord Thomas raised an important issue, namely whether QOCS should be included in the Bill. We have obviously considered this. We believe, however, that it should be implemented by means of an amendment to the Civil Procedure Rules once we have finalised the policy details on how the rules should be drafted. The Civil Procedure Rules are made under the Civil Procedure Act 1997 and have the overriding objective of enabling the court to deal with cases justly. They set out the rules which govern how civil cases should be conducted, including, for example, the costs sanctions that should apply in certain circumstances. They are made by the Civil Procedure Rule Committee and agreed by the Master of the Rolls and the Lord Chancellor, coming into effect by way of statutory instrument.
We will, however, continue to work with stakeholders on the detail of a QOCS regime for personal injury cases. We acknowledge and are grateful for the expert stakeholder contributions that have been received. That work will resume in earnest once the details of this Bill are finalised. However, there are some difficult issues which we are addressing, and which need to be got right for the hundreds of thousands of personal injury cases dealt with each year: what does "unreasonable behaviour" mean? How can we balance certainty for the claimant with the need for the claimant to face at least some litigation risk, the absence of which is a major flaw in the current regime? How can we ensure fairness to all sides, and reduce the scope for satellite litigation? We all recognise that these are important, but nuanced, issues and we believe that they are best resolved by the Civil Procedure Rules. We cannot, as I have indicated, finalise a policy on the rules until we know, for example, the primary legislation as set out in this Bill, but I can say that there does appear to be broad agreement that it should not be a primarily financial threshold in personal injury cases, although that would not necessarily apply were, at some future date, QOCS to be extended to other categories.
Lord Thomas of Gresford (Liberal Democrat)
Before my noble and learned friend leaves this issue, he knows that my concern is that this amounts to a dialogue between Government and the Civil Procedure Rule Committee, with no input from Parliament whatever, and no guidance to the Civil Procedure Rule Committee on how it should proceed and what the parameters are. What I was seeking to do, in broad terms, with my amendment was to introduce certain specific things-for example, that the word "unreasonable" should not be used in these procedure rules, but we should revert to familiar territory, such as "frivolous", "vexatious", "abusive of process" and "fraudulent claim", actually spelling out where a judge should have a discretion and where he should not. "Unreasonable" has such a broad meaning that it would put any litigant off if he were to be told by his solicitor, "We will take this case forward, but you have got to appreciate that, at the end, the judge may look at it and say that your conduct is unreasonable". What does that mean?
As I endeavoured to show in my remarks, in explaining that concept in the report Lord Justice Jackson used the term "fraudulent, frivolous", although he did not use "vexatious". I am seeking clarity. The Civil Procedure Rules will come out of the air from somewhere and will not have any proper parliamentary scrutiny. They will have been drawn up as a result of discussion between the Executive and the Civil Procedure Rule Committee, which is entirely made up of judges and lawyers. I would have thought that there would be a constitutional position. It is more serious than anything else in the Bill.
The Civil Procedure Rule Committee should have guidance, as elsewhere in this Bill it does. Over and over again in the Bill, we come across regulations being made by the Lord Chancellor. There is specificity about that. But this position is highly unsatisfactory. If the Minister cannot put something in the Bill in the way in which he has described, what assurances will Parliament have that the Civil Procedure Rule Committee will act in accordance with certain principles?
Lord Beecham (Labour)
I absolutely agree with everything that the noble Lord has just said. This is a fundamental change in the way in which litigation is to be conducted. It should not just be referred to a wholly unaccountable, although no doubt extremely worthy, group of people on the rules committee. Obviously, they are very eminent but they are not accountable, in the sense that the normal framework would be, to approve changes of this significance. Perhaps, as he develops his reply, he would deal with the point of restricting this significant change to personal injury cases when Lord Justice Jackson advocated it across the piece. Perhaps he would care also to reflect on a point made when colleagues and I met the Association of British Insurers no less, which, for example, said that it did not support means testing for qualified costs shifting at all. But, as I understand it, that is to be part of the scheme-if that is what presumably the rules committee, since it will not be part of the Bill, will say.
The noble Lord is absolutely right to raise these issues and I hope that the Minister will take this back and think again about how matters are to be progressed given the significance of the change.
Baroness Butler-Sloss (Crossbench)
Perhaps the Minister will not mind if I add a very few words. I had not intended to intervene but, as a former chairman of a rules committee, I have to say that I have considerable faith in the good sense of the way in which it does its work. But the points that have been made are extremely relevant. It is not really the business of a rules committee to change something so dramatic. As the noble Lord, Lord Thomas of Gresford, has said, I would add that "unreasonable" is extremely difficult. The words used by the noble Lord are the standard words that have been used from time immemorial, as the lawyers say. "Unreasonable" is nothing like as serious as the other term but is liable to cause considerable difficulties of interpretation.
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
My Lords, it is very evident from the three interventions that this matter is clearly exercising the Committee. I certainly note from the experience of the noble and learned Baroness, Lady Butler-Sloss, having chaired a rules committee that perhaps we are going into territory which we may not have been in before. As to what my noble friend has said, I sometimes hesitate to put things on the face of the Bill because, as we all know, once there, they limit what a rules committee might be able to do if faced with an obvious set of circumstances where it does not believe there should be one-way costs shifting, and it can inhibit that. However, I take the point that unreasonableness could be going too far towards the other extreme in terms of its lack of clarity.
My noble friend asked: if it is not possible to put something in the Bill, what assurances could be given? That is something we shall certainly want to reflect on when considering these contributions. I am sure that we shall have an opportunity to address this again at the next stage of the Bill, and if there are assurances that can be given, I would hope that we would be able to do so. Perhaps I may leave it at that for the moment. We recognise the importance of the points that have been made.
I should restate that there already appears to be broad agreement that there should not be a primary financial threshold in personal injury cases for QOCS, although that would not necessarily apply were QOCS to be extended at some later date to other categories of personal injury. I hope that reassures my noble friend on that particular point.
Amendments 143 and 144 seek to replace the Lord Chancellor's discretionary power under Clause 45(2) with a duty to make regulations in respect of the recovery of "after the event" insurance premiums relating to expert reports in clinical negligence cases. I can give the Committee the assurance that we intend to allow for this recoverability so that poor people can get expert reports in clinical negligence cases without having to pay for them upfront. However, we have deliberately kept a degree of flexibility around the drafting of the regulations.
The effect of Amendments 144A to 144D is to extend the recoverability of ATE insurance premiums to all civil cases. Unlike the current exception for clinical negligence, the proposed exception is intended to apply to ATE insurance which covers the risk of paying opponents' costs as well as funding expert reports.
Lord Thomas of Gresford (Liberal Democrat)
My Lords, with great respect, I advanced the amendments in the context that one-way cost shifting will go through, as the Government say it will, in which case the defendant's costs are immaterial. The only ATE insurance that will be required will be for the disbursements of the claimant himself, which would not otherwise be covered. That is the area to which I am referring in those amendments.
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
My Lords, we believe that the package of proposals seek to end ATE insurance premiums being charged to the defendant with the specific exception of clinical negligence cases. To start unpicking it in such an important respect would not retain integrity of the proposals as a whole. I hope that I am not misinterpreting what he said, but my noble friend has suggested that it might be possible to split or share the recoverability of success fees or ATE insurance premiums. Indeed, I think that the Bar Council has suggested that some success fees or ATE insurance premiums should be payable by the losing side with the remainder payable by the claimant. Lord Justice Jackson made alternative recommendations on partial recoverability of success fees and ATE insurance premiums in the event that his principal recommendations were not accepted. But the Government had a full public consultation on both the primary recommendations and the alternatives and gave careful consideration to the responses. We decided to take forward the primary recommendations-abolishing the recoverability of success fees and ATE insurance premiums-as the best way of restoring proportion and fairness to the CFA regime.
"have regard to the financial and commercial viability of the insurance market",
in making regulations under Clause 45(2). I accept that the changes the Government are seeking to implement are fundamental, but we expect the insurance market to respond positively to them. It is easy to say ahead of an event that all sorts of appalling things will happen, but after 1999 the market certainly adjusted to the opportunities with ATE premiums, and it is not surprising that those who wish to maintain the status quo are making substantial representations to that effect.
Ministry of Justice Ministers and officials have met a substantial number of different insurers as the proposals have been developed since Lord Justice Jackson's recommendations were published. Although some providers have said publicly that they will pull out of the ATE market if the changes go ahead, others have indicated that they will look positively at developing products which meet market needs as the details of the proposals are finalised.
Amendment 145 seeks to ensure that the costs of disbursement and any additional insurance taken out against adverse costs after the introduction of QOCS can be recovered from the losing side. The amendment goes against the objectives behind Clause 45, which is to reduce costs associated with ATE insurance.
Amendments 147A and 148A would have almost the same effect in that they would allow the ATE insurance premium to remain recoverable by way of a costs order, which may potentially be set at a much higher level than what is being proposed in the Bill. An inflated cost burden will remain with the losing side, which cannot be right in the circumstances.
My noble friend Lord Thomas and the noble Lord, Lord Martin, referred to offers to settle, which are dealt with under Amendments 158 to 162. Again, the Government do not feel able to accept the amendments, which are either unnecessary or inappropriate.
It might help if I say something about part 36 of the Civil Procedure Rules, dealing with offers to settle. The current rules permit the court to impose what are, in the main, costs sanctions against a party that refuses an offer made by the other party but then does not beat that offer at trial. The sanctions are designed to encourage early offers and early settlement of cases, as the noble Lord, Lord Martin, indicated, so that both parties are spared substantial costs in both time and money. Lord Justice Jackson argued that these costs sanctions need redressing in favour of claimants. As we set out in our consultation response, we intend to amend the rules in order to encourage claimants to make offers and defendants to accept them. Clause 53 enables rules of court to be made to permit a court to order an additional amount to be paid to claimants by defendants who do not accept a claimant's offer to settle which is not subsequently beaten at trial.
As I have said, the intention is to set the additional amount payable at 10 per cent, but there are issues to be resolved as to whether 10 per cent is appropriate in every case, in particular in higher-value claims. We will continue to work with stakeholders on what the details of the rules should be, but I hope the Committee will agree that these are matters best left to the rules. For example, the amendment would apply the increase in all cases, whatever the value of the claim, whereas we are discussing with stakeholders whether there should be some cut-off or tapering in higher-value claims.
Amendment 162 seeks to include in the value of non-monetary benefit any,
"injunctive, declaratory or other non-monetary relief and any form of vindication of the claimant's reputation".
The amendment is unnecessary. It is the Government's intention that such matters would be included in the definition of non-monetary benefit awarded to the claimant in any event should the additional penalty be calculated in that way. Clause 53 gives some flexibility to make sure that the rules are appropriate across all categories of law, and it is our intention that they should be.
Amendment 161 seeks to establish a procedure to review every three years the level of the additional amount payable by the defendant. This is not necessary, particularly if the flexibility currently afforded by Clause 53 is maintained. The Lord Chancellor will have the power to review the level of sanctions and can be called to account for that if necessary. The Government are committed, as has already been indicated to the Committee in previous debates, to a post-legislative review of their reforms between three and five years after the Act is passed, which could include the level of the additional amount.
Finally, Amendments 190, 192 and 193 seek to prevent the implementation of the reforms until certain requirements have been met. The Government have given a commitment to implement the measures, which we have outlined outside of this Bill. I hope that the detail of that has given the necessary reassurance.
I am grateful for the indulgence of the Committee in answering a considerable number of amendments. However, I think that it has been useful to consider this-as it were-omnibus set of amendments, which have raised all the different elements of the package. I urge noble Lords not to press their amendments.
Lord Martin of Springburn (Crossbench)
On the incentive to settle early-I am trying to put this in lay man's terms-is the noble and learned Lord saying that a claimant can, through his solicitor, put it to the defendant that it would be a reasonable settlement, for example, to pay X amount or to print something in a particular magazine that would help the defendant to get his reputation back? Is the noble and learned Lord saying that, if such an offer is refused by the defendant, that would be taken into consideration by the court?
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
I think I understand what the noble Lord is saying and I think I gave an indication on that point. Let me just try to find that-
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
As I said in response to my noble friend Lord Thomas, we do not believe that that is necessary because it is the Government's intention that such matters would be included in the definition of non-monetary benefit awarded to the claimant in any event should the additional penalty be calculated in that way. Clause 53 gives us the flexibility to do that so that the rules can be made across all categories of law. It is our intention that they should be. However, perhaps I may put that in writing, in a letter to the noble Lord that I will circulate to other Members of the Committee, to explain the matter in more detail.
Lord Thomas of Gresford (Liberal Democrat)
My Lords, I am most grateful to all noble Lords who have spoken in this debate and, in particular, to the noble and learned Baroness, Lady Butler-Sloss, for her support on the issue-which I regard as having constitutional significance-about whether the Civil Procedure Rules should be formulated without Parliament having any input into them at all. It seems to me that it is for us to decide, one way or the other, what the particular parameters should be.
Let me just pick up on two points. First, should the means of the claimant come into it at all? The insurance industry does not want that, but the proposal in the Bill is that the claimant's means should be taken into consideration. What about the meaning of "unreasonable"? The meaning is so broad that it should really be narrowed down. On that issue, I want to hear further from my noble and learned friend and I shall be talking to him about it between now and Report. I will take the issue further if necessary.
Secondly, on the question of splitting the burden of the insurance premium, it seems to me that that is a sensible way to go forward. The corks from the champagne bottles will be popping down in the City when people read my noble and learned friend's response that the premium will fall entirely upon the claimant. Why should it not be split? There would be advantages both ways in splitting the premium: first, there would be an incentive for the claimant to ensure that premiums are not too high and are not, as at the moment, left completely in the air; on the other hand, if you split the premium in the staged way that my amendment proposes, there would be a great incentive on the defendants to settle. The course that I have suggested includes advantages beyond the mere way in which the liability falls. I would like to hear a little bit more about why the Government prefer Lord Justice Jackson's first proposal, as opposed to his alternative proposal, which I am not persuaded is the better one. I shall certainly return to that matter again.
I remind my noble and learned friend that, on this side, I have accepted that the success fee should be paid by the claimant from his damages, subject of course to a limitation of up to 25 per cent. I agree with him-in fact I made the point earlier-that the probability is that solicitors involved in non-risk litigation will advertise, "No success fee payable here". Those bigger firms that get involved in the riskier litigation will do a very determined assessment of what risks they are prepared to carry in advertising their own services subject to a success fee. I see that there is an advantage in that. I shall read and study what the Minister has said and, I hope, discuss the matter further with him and come back on specific issues at Report. At the moment, I beg leave to withdraw my amendment.
Amendment 118 withdrawn.
Amendments 119 and 120 not moved.
Moved by Lord Beecham
121: Clause 43, page 30, line 12, at end insert-
"( ) The amendments made by subsections (2) and (4) do not apply in relation to proceedings that include a claim for damages for-
(a) death; or
(b) physical or psychological injury,
resulting from any breach of duty trespass to the person."
Lord Beecham (Labour)
I will not detain the House long on this group of amendments, which sets out a menu-perhaps almost an à la carte menu-of cases in which it might be appropriate to depart from the general principle that the Bill advances. In other words, it would extend the success fee exemption into personal injury cases more generally.
Amendment 121 is of a general nature and perfectly straightforward. It is my understanding that, at the time when the changes were introduced to legal aid for personal injuries and the initial scheme established under the Administration of Justice Act and Access to Justice Act 1999, reservations were expressed by the then Opposition-both parts of it-which I personally shared at the time and still share. I have already outlined the problems that we have with the nature of the uplift and deduction that is contained in the Government's proposals. I shall not expatiate on those any longer.
Amendment 122 looks to complete exemption for employment liability personal injury cases. These are usually intrinsically more difficult than, for example, the RTA case, which all of us agree should not carry the position in relation to success fees and the like that currently apply. Certainly, as a practitioner who spent a lot of time on those cases, I would have thought that there was a strong case for taking those out of the arrangements proposed by the Bill, and that success fees and ATE insurance should rest where they currently do on defendants.
Amendment 129 looks at a different category of case-cases of maximum severity on which the Judicial Studies Board guidelines lay down parameters. These cases are necessarily more complicated, certainly in relation to disbursements and the like, and generally heavier to promote than the conventional claim. It may be that in those cases a different regime should apply.
Amendment 130 deals with the case of occupier's liability. There are not all that many personal injury cases arising out of occupier's liability claims. I am advised that there was a watering down of protections under the Occupiers' Liability Act 1984, although I have to confess that I do not recall quite how much watering down took place at that time. Nevertheless, these are cases in which, again, there are rather more involved in pursuing them than in a straightforward claim and this is also a possible case for modifying the general approach of the Bill.
On Amendment 134, the noble and learned Lord has referred to a welcome provision for increasing the damages for bereavement, which are generally thought to have been too low in any event. That increase will also assist in these cases, but the proposal in this amendment is to deal with success fees and to provide that they might also be levied in these cases, which are often somewhat more difficult to pursue for the very reason that the unfortunate deceased cannot give an account of what happened. It is not always the case that that is what makes it more difficult to pursue but it very often will be, and in those circumstances the success fee argument about that falling on the defendant becomes correspondingly stronger.
Amendment 136A also refers to an area of law which I think we come on to later. The noble Lord, Lord Alton of Liverpool, has an amendment on asbestosis, which is a terrible disease-I have some professional experience of it-but not the only disease that has caused great pain and suffering for many people. There is a whole raft of cases, such as pneumoconiosis cases, while others such as repetitive strain injuries are somewhat different. They are troublesome but by no means as serious, yet nevertheless quite complicated, and some of them have given rise to compensation schemes negotiated nationally. There is of course still the issue of pleural plaques, which has been adequately dealt with in the noble and learned Lord's jurisdiction although not in the constituency, as it were, of his noble colleague the Minister. England has not taken the same view about pleural plaques as Scotland, which is unfortunate, but again that underlines both the complexity of the system and therefore, in our view, the need not to restrict the successful claimant's damages by reducing them to paying for success fees and "after the event" insurance.
Amendment 136B makes the point that in personal injury cases where a public authority is liable it seems reasonable that such an authority, representing as it does the whole community, should participate in pooling the risk which the scheme was originally designed to promote rather than the cost of it being met by successful plaintiffs. In this context, the whole community should be involved since it is authorities acting on its behalf who will have been deemed liable, whereas in other cases it is sectional interests represented by separate insurance companies-for which we would still argue, but this is a different case.
Those amendments refer to the success fees and the following amendments deal with costs orders. Again, there is a general application of the principle to all personal injury cases, unless of course we have QOCS fully implemented in a way which goes somewhat further than the Government currently propose, with the limitations that we have already discussed. Again, Amendment 152 would make ATE costs recoverable in the case of employers' liability cases, while Amendment 156AA makes the same argument in relation to disease cases and Amendment 156C preserves cost liabilities by agreement for industrial illness liability cases.
It would be welcome if the Government were to welcome all these. I anticipate that that will not be the Minister's response, but it may be that, on further consideration, some of these categories of case would evoke more sympathy, and possibly a modification in the Government's stance, than others. For that reason, I invite the Minister, if not today then later, to peruse the menu with particular care and maybe select some, if he cannot select all, of these improvements, as we would regard them, to the scheme that the Bill lays out.
Lord Newton of Braintree (Conservative)
My Lords, I wonder whether I might come in briefly, not least because of the reference to the later amendment of the noble Lords, Lord Alton and Lord Wigley, and others that is acknowledged to be related to asbestosis, which in effect is raised by one of the amendments in this group. I hope that the noble Lord, Lord Alton, will understand. I had indicated that I might speak in support of his amendment but I hope that he will take this as a speech in support; I do not expect to be here if this drags on as it looks like doing. Am I allowed to say that kind of thing?
The main thought that occurred to me was-I say this before coming more positively to the noble Lord's amendment-that this and the two subsequent amendments look to me like a pretty scattergun approach. By the time I had read through them over the weekend, there appeared to be almost nothing that noble Lords on the Front Bench opposite were not seeking to exempt, and on a very wide front. I would like to know, for example, what Amendment 121 means by "physical or psychological injury". We can all understand what is meant by death, but "physical or psychological injury", which I think is referred to in that amendment-I hope I have got this right-appears to be of a breadth that could cover anything from a cut finger to hurt feelings when someone was nasty to you, and I am not aware of a definition of "physical or psychological injury" that would narrow it. If I am wrong about that, no doubt the noble Lord, Lord Beecham, will tell me. Some of his other amendments are more closely defined and relate, for example, to definitions in the criminal injuries compensation scheme. If he wishes to intervene, by all means he may, but I thought that this was a blunderbuss approach.
Lord Beecham (Labour)
Well, I am sometimes guilty of blundering, but a good example of psychological injury would be post-traumatic stress disorder, which is not at all uncommon in the case of severe accidents. That is the sort of territory. This is a fairly conventional term in personal injury litigation.
Lord Newton of Braintree (Conservative)
As a non-lawyer trespassing with great trepidation into this lawyers' paradise territory I am prepared to accept that, but to a layman "physical or psychological injury" as a definition of any serious kind would cover pretty well anything. If I am told I am wrong then I will accept that, but at the moment I think it is in doubt.
Having made that point, which will indicate that were there to be any question of pressing some of these amendments to a vote-I understand that there is not-then my noble friend on the Front Bench will be thrilled to hear that I would not be minded to support them, I turn to the more positive point about Amendment 156A and the amendment later on of the noble Lord, Lord Alton, relating to asbestosis. I have some experience of claims relating to that disease-or rather to mesothelioma, the form of cancer to which it often gives rise-in my capacity as both Minister for Disabled People and Minister for the industrial injuries compensation scheme, and latterly as chairman of a hospital sometimes concerned with these respiratory diseases. I think there is a real case for wondering whether we should not maintain assistance to that group of people.
There are two reasons for that. One is that this condition is what you might call very slow burn. Exposure to asbestos that occurred very many years ago may give rise much later to mesothelioma, one of the nastiest forms of cancer. In consequence, there could be significant difficulties in proving the causation. Therefore, there is a case for making sure that legal aid is available in such cases. The nature of this disease and the problems associated with it also make a strong case in ordinary human terms for ensuring that people who have contracted it through no fault of their own as a result of something that happened during their employment should be helped to establish whether their employer could be held liable for that, or, indeed, whether they should get compensation in any other way. Therefore, I hope my noble friends on the Front Bench will not consider that this amendment would have a scattergun effect but that it is well targeted and deserves careful consideration. I hope that the noble Lord, Lord Alton, will make his case alongside mine in an hour or two or whenever we reach the relevant amendment.
Lord Alton of Liverpool (Crossbench)
My Lords, I wish to intervene briefly to support the terms of the amendment spoken to by the noble Lord, Lord Bach, specifically on industrial-related injury such as mesothelioma-the issue to which the noble Lord, Lord Newton, has just alluded. We will debate that whole question later but it is worth reinforcing the point that 30,000 people have died of mesothelioma over the past 30 to 40 years and that 60,000 more people are predicted to die of this terrible disease in due course. From the time of prognosis to death, the period which elapses is usually about nine months. Whatever else, it is obvious that this is not a group of people who can bring in vexatious or frivolous cases. If the Government are minded to look for some exceptions-the rifle-shot approach that the noble Lord, Lord Newton of Braintree, has just advocated, not the blunderbuss approach-clearly this is one of those groups which I hope they will look to exempt. The measure does not even ask for legal aid; it simply asks for the status quo, which is that success fees can be paid in such cases.
Baroness Butler-Sloss (Crossbench)
My Lords, the noble Lord, Lord Walton of Detchant, would have wanted to speak at this moment or, indeed, on the amendment of the noble Lord, Lord Alton. He reminded me of the appalling stories of the miners and the solicitors who eventually took virtually all their money. Whatever else is done, it is of enormous importance that one should be very strict about how much can be taken from the damages that may be received. However, more important than that is this special class of asbestos sufferers. They are not large in number, although the noble Lord, Lord Alton, gave extremely worrying figures that I did not know about. The life expectancy of these people is dependent on whether they are suffering from blue asbestos or white asbestos. They are a very special case. One entirely understands what lies behind the Government's need to introduce this measure. However, whatever else they do, one hopes that they will recognise this particularly special case.
Lord Newton of Braintree (Conservative)
My Lords, given that this is Committee, perhaps I may intervene again. I forgot to say, because I stood up in some haste, that the numbers point is interesting, as a consequence of what I call the slow burn, where a lot of cases that are appearing now relate to injury caused many years ago. My understanding is that cancer is one of the few whose incidence is, if anything, increasing rather than decreasing, because of the delay from the time of causation in such cases coming through. I think I have got that right, but whether I have or not I am delighted that the noble and learned Baroness, Lady Butler-Sloss, joined us in support of this point.
Lord Wallace of Tankerness (Advocate General for Scotland; Liberal Democrat)
My Lords, perhaps I may deal with Amendments 121, 122, 129, 130, 134, 136A, 136B, 151, 152, 156AA, 156AB and 156C together. All seek to exempt certain types of cases from the Government's reforms of no-win no-fee conditional fee agreements-CFAs. My noble friend Lord Newton described some of these amendments as being parts of a blunderbuss approach. I think that the noble Lord, Lord Beecham, described it as a bit of a shopping list. I shall come on to the issue relating to mesothelioma sufferers.
The amendments clearly stem from concerns that individuals may be unable to afford to bring certain personal injury cases. My noble friend Lord Newton of Braintree anticipated later amendments in the group beginning with Amendment 137A, which will be moved by the noble Lord, Lord Alton. I recognise that other issues arise such as the difficulty in trying to track down previous employers. I know that my noble friend Lord McNally will respond to that group of amendments and bear in mind what my noble friend Lord Newton said. When I was a Justice Minister in Scotland, I remember the plight of many mesothelioma sufferers, who were trying to get the process expedited so that their cases could be brought to court because many of them had a very short life expectancy. I certainly recognise the importance of those cases and I am sure that there will be a fuller debate on the back of the amendments to be moved and spoken to by the noble Lord, Lord Alton.
The difficulty with the other amendments in this group, as my noble friend Lord Newton said, is that when taken together they do not leave very much of the original intention of the Bill. With regard to recoverable or non-recoverable success fees being shifted to the defendants, it was pointed out in the previous debate that such fees have led to an escalation of costs. A plaintiff does not have the same interest, or may have no interest, in seeking to contain costs in those circumstances. One amendment relates to situations in which the defendants are public authorities. Some people have to pay the price of these additional costs. In motor insurance cases, we pay them through increased premiums. Council tax payers will no doubt bear some cost when escalating costs are picked up by public authorities.
The changes that we are bringing about will lead to costs becoming more proportionate. Equally, claimants will still be able to bring necessary and meritorious claims, and receive damages when they are due. However, as with privately paying clients, claimants on CFAs may have to pay some of their legal costs out of damages recovered. However, as I have indicated, we are introducing a number of measures that will help claimants to pay their solicitors' success fees. The point was well made by my noble friend Lord Thomas of Gresford, in response to the previous debate, that in many cases no success fee is charged and some solicitors may have a selling point: "We will litigate for you, and no success fee will be charged". That is more than likely to happen.
We must also remember that there will be a 10 per cent increase in general damages for non-pecuniary loss such as pain, suffering and loss of amenity. There will be a cap on the success fee at 25 per cent of damages awarded but, significantly, that will not apply to damages for future care and loss in personal injury cases. That will help to protect a claimant's damages.
We have already discussed qualified one-way cost shifting. That will mean that losing claimants in personal injury cases who act reasonably will not have to pay a winning defendant's costs, which in turn will reduce the need to have expensive ATE insurance products. Amendment 156AB is intended to ensure that the changes to the ATE insurance arrangements under Clause 45 do not come into force until the QOCS regime has come into force. I assure the Committee that we intend the package of reform to come into force at the same time.
On Amendment 156C, Clause 46 prohibits membership organisations from claiming the costs incurred by self-insuring against risk. That point was made by the noble Baroness, Lady Turner, in our previous debate. As I understand it, under the Access to Justice (Membership Organisation) Regulations 2005, bodies are listed by the certification officer. Trade unions represent an important number of those bodies, but a number of others have also been listed under Section 30 of the Access to Justice Act 1999.
As has been said on many occasions, the Government have decided to abolish the recoverability of ATE insurance premiums, and believe that this change should apply equally to arrangements for membership organisations. Retaining the recoverability of ATE insurance premiums for membership organisations would create an unfair advantage and mean that defendants in claims brought by members of such organisations would continue to be liable for significant additional costs in such cases and be placed at a disadvantage.
Lord Justice Jackson made no formal recommendations in reference to member organisations. In such a compendious report, one may wonder why not. Nevertheless, in his response to the consultation, he supported the Government's proposal that changes to the recoverability of ATE insurance premiums ought to apply equally to the arrangements for membership organisations in order to remove any unfair advantage. That view was shared by 63 per cent of respondents to the consultation, who thought that retaining recoverability of the self-insurance element for membership organisations would create an unfair advantage. It is to ensure that that unfair advantage does not occur that we resist the amendment, and I invite the noble Lord to withdraw it.
Lord Beecham (Labour)
My Lords, I reassure the noble Lord, Lord Newton, that this is a group of probing amendments to see which, if any, the Government might feel on reflection ought to be accepted and the scope of the current scheme in effect retained. Clearly, the answer has not been one to encourage optimism on this side of the House, but there are cases, particularly the last one to which the noble and learned Lord referred, where the Government are trying, as so often, to have it both ways.
In previous debates we have heard trade unions invoked as a source of advice and support for their members once legal aid goes. This is an area in which trade unions have for a long time been active in promoting the interests of their members. They will now lose that benefit. In my view, there is a strong case for the Government to look again at the position. I accept that they want organisations such as trade unions to support their members in the field of legal advice, but if so, they ought to endeavour to facilitate that, not at the Government's expense but by retaining success fees and the self-insurance element that the noble and learned Lord proposes to remove.
Asbestosis is probably the most acute of the diseases involved, and when we will come to a debate on it I will strongly support the noble Lord, Lord Alton. It is sometimes forgotten that it is not just direct exposure to asbestos that causes problems and has resulted in litigation but indirect exposure. There have been cases in which wives dealing with laundry and clothes that have been contaminated with asbestos fibres have themselves suffered injury. They have eventually succeeded in obtaining compensation, but that is an illustration of the kind of difficulty and complexity that can arise. There may well be other cases. Every few years, a new condition reaches the courts. Asbestosis was one; miners' lung disease, pneumoconiosis, was another; and there are others. Although it is certainly true that, as the noble and learned Baroness, Lady Butler-Sloss, pointed out, some lawyers rather exploited the position in some of those cases involving minters, on the other hand many lawyers took these cases on over a very long period at considerable risk to themselves before obtaining settlements. That eventually led to the sensible outcome of a national scheme that determined a scale of damages and, for that matter, the scale of costs. There will be other cases. One imagines that cases may arise over time in the nuclear industry. There have already been some in which radiation has caused damage. I hope that at the very least the Government will look at those cases sympathetically.
The noble and learned Lord referred again to the number of cases that are being pursued. However, I remind him of the figures that I quoted in the first debate: the very detailed analysis of 69,000 cases showed that a third would simply not have been brought under the proposals presently in the Bill. A significant proportion of cases would therefore be pursued, many of them no doubt successfully although others not.
If we are still in the business of trying to promote access to justice by spreading the risk so that it is not always against lawyers' interests to run cases with a lesser probability of success, that is something that the system should encourage. The fear is certainly that cases with less than a 75 per cent chance of success will just not reach the courts. A very respected firm, Thompsons, which acts for a number of trade unions, indicates that at the moment it takes cases with a risk level as low as 50 per cent, and it cannot see how it could conceivably do that in the future. Yet some of the very cases that we have been talking about involving asbestosis, pneumoconiosis and so on started off with a probable success rate of 50 per cent at best and arguably even worse. If we are not to close the door on emerging cases of that kind or on cases with perhaps a two-thirds chance of success, we have to have a balance to which success fees can contribute. The Opposition's case is that that ought not to be simply a matter for successful defendants; it ought to be a collective insurance risk. That is the position that we seek to get to.
Lord Lester of Herne Hill (Liberal Democrat)
I am very grateful to the noble Lord; I had not intended to intervene. Does he agree that in the public interest we ought to be concerned not only with securing a fair balance between claimants and defendants but with being quite clear that there must be adequate safeguards against abuse by members of the legal profession in relation to conditional fee agreements and success fees? I have encountered abuses, for example in the equal pay area, where claimants' lawyers have insisted that in cases against public authorities the women concerned should enter into binding agreements to ensure that a cut from the damages for equal pay for these poorly paid women goes to the lawyers and that no individual settlements are made without the consent of the lawyers. Should we not be very concerned about those kinds of things and about driving up the level of unnecessary litigation?
Lord Beecham (Labour)
I entirely agree with that and I think that there ought to be a regime for the determination of the size of the success fee in any event. If a case is brought, that matter should be capable of being decided by the court. The noble Lord's point is one which unfortunately will see damages being taken willy-nilly precisely from claimants in that category. They will not have the opportunity of getting the success fee paid by the other side. In a sense the noble Lord is supporting the case I am making. I entirely agree that members at both ends of the legal profession need to be monitored and that the courts ought to be taking a more positive role both in case management, as I indicated in the first debate, and in the assessment of what is an appropriate success fee. I beg leave to withdraw the amendment.
Amendment 121 withdrawn.
Amendment 122 not moved.
Moved by Lord Bach
123: Clause 43, page 30, line 12, at end insert-
"( ) The amendments made by subsections (2) and (4) do not apply in relation to proceedings that include a claim for damages for loss resulting from any breach of duty to exercise professional care or skill."
Lord Bach (Labour)
My Lords, in opening this group of amendments, I shall do my best to be as brief as I can. The Committee is obviously in very tolerant mood this afternoon, as was shown to the noble Lord, Lord Thomas of Gresford, who made an excellent speech in favour of his amendments in the first group. His speech was almost as impressive as the report of Lord Justice Jackson in its completeness and, I was going to say, in its size. Both pieces of work are very much to be commended.
Before I discuss Amendment 123, I shall also speak to Amendments 124, 126, 132, 153, 154 and 156 in the group. It is worth pointing out to the Committee that for shorthand purposes we talk about the Government, as it were, accepting Lord Justice Jackson's report. They have accepted part of it and rejected other parts. It is important to remember that at all times. Lord Justice Jackson himself, as all people in his position do, when putting forward his report before the previous general election, made it clear that it was to be seen as a package or not at all. Of course, the Government have decided to pick and mix-maybe all Governments, to be fair, would have decided to pick and mix, but this Government have certainly done that. What we meet in Part 2 of the Bill is not pure Jackson; it is very much a part of Jackson that the Government like but not the part that they do not like. In particular, that relates to legal aid and to clinical negligence. Other matters in Part 2 are not just not pure Jackson; they are anti-Jackson.
I shall set the scene for Amendment 123. An elderly pensioner places her life savings of, say, £40,000 with an investment adviser. That adviser assures her that he will keep it ticking over so she has some moderate income but will not be exposed to risk. Instead, the adviser, who has not his client's but his own interests at heart, places the money in a high-risk instrument for which he gets a hefty broker fee. This otherwise impecunious pensioner loses all her money in the first year. Today, if she sued that investment adviser for professional negligence and won her case, he would have to give her back the £40,000-her own £40,000-pay her lawyers' costs and a success fee which can range up to, as we have heard, 100 per cent of basic costs if he denies liability for as long as possible, and the insurance premium that the pensioner takes out to cover herself should she lose the case.
Under the proposed legislation, should it go through unamended, things would change dramatically. The pensioner would get her money back but then her lawyer's success fee and the cost of insuring against losing would be deducted from her original capital. In short, the £40,000 might become £20,000, or even less. Surely the Committee would agree that that is an inequitable outcome, and not one that many in Parliament or outside could welcome. It is simply a by-product of legislation that purports to deal with tens of thousands of road traffic personal injury cases-largely whiplash-that drive up the cost of motor insurance, rather than the few hundred professional negligence cases which is what this amendment is about, that are heard each year.
It is only common sense that we should not seek to legislate for a system of litigation that allows professional people to prey on their impecunious and weak clients. The Committee today is full of professional people of one sort or another and the House is even more full of them when it is sitting. As we all know, being in a profession is a privilege. When a professional takes on contractual fiduciary and moral duties to do their best to help their clients, they take on an important responsibility. We have professions in our society because we need experts who specialise, whether it is expertise in finance, in my example, the law, engineering or medicine. They should know that society takes seriously if and when they act negligently, with malice, or breach their duty of care. Should we make it so difficult for the individual to take action and claim back their damages in full? Would that not have a corrosive impact on trust in the professions and their regulation, which is something that professions and the professionals themselves should not and do not welcome. We think that the answer to this dilemma is to listen to what Lord Justice Jackson said and extend one-way costs shifting to all litigation, not just keep it to personal injury. That in one fell swoop would deal with the problem that the Government talk about with regard to losing defendants' paying the insurance premiums of winning claimants, which we are told simply inflate costs without adding a huge amount of value.
Secondly, perhaps we could limit the non-recoverability of success fees to 80 per cent of the litigation market-the side of the market that has more nuisance and abuses- which is low-value road traffic cases and public liability personal injury cases. Should we fail to do this, and leave the Bill unamended, the perpetrators of the PPI mis-selling scandal-the mortgage mis-selling scandal of the 1980s and 1990s which noble Lords will remember-and thousands of other instances when rogue professionals have abused their position of trust, will go unpunished and unheard. Their victims will multiply in a system where those who have been wronged are dissuaded from taking action against rogues, knowing that Parliament will have legislated to substantially limit their rights to redress. It would be something of a rogues' charter.
I end what I have to say about this amendment by citing the views of the president of the Professional Negligence Lawyers Association who said that many litigants face the dilemma of having had their trust betrayed by one professional adviser and that their only redress by way of litigation is to risk remaining assets and perhaps insolvency by trusting another-meaning another professional adviser-to win their case. That is not a satisfactory position and we ask the Government to think again.
The subject of Amendment 124 is privacy and defamation. Both matters are-as always, but particularly at the moment-the subject of intense discussion. We are still living through a scandal that was as devastating to the reputation of the media industry as the expenses scandal was to the political world. Every Member of this Committee believes in both the freedom and the viability of the press; clearly that is something that unites us. At the moment we have the potential of major reform of the law of defamation being pursued through Parliament. The Minister who will respond to this group of amendments has responsibilities in that area. I commend what he has done up to now and I am delighted that the noble Lord, Lord Lester, is in his place, because he is in many ways the author of the reform of defamation that I hope we will see before long.
We welcome discussion and reform, which are important. The balance is wrong between the freedom of the press and the rights of the individual to be free of tortious defamation; we should look at that. However, the impact on the law of the legislation that we are discussing will be too grave for us to stand by while it passes. The impact of Part 2 of the Bill will be to make defamation and privacy proceedings in the main completely inaccessible to the average citizen. It is not just the Official Opposition who see this problem. The Liberal Democrats tabled amendments on Report in another place to exempt these cases from the reforms. The Joint Committee on the Draft Defamation Bill stated:
"Nonetheless we are sufficiently concerned about",
the Government's proposals,
"to ask the Government to reconsider the implementation of the Jackson Report in respect of defamation actions, with a view to protecting further the interests of those without substantial financial means".
I come to the Dowler case. As the Committee will know, Bob and Sally Dowler lost their daughter Milly. They wrote to the Prime Minister, asking for the reforms that we are debating to be withdrawn. They wrote:
"What we wanted to make clear to you is that we could not have done this without a "no win no fee" agreement ... What helped was the fact that we would be insured if we lost a case and a premium for the insurance would be taken from the other side if we won. Without that we would not have been able to start a case or even threaten it ... We are sure that you do not want to go down in history as the Prime Minister who took rights away from ordinary people so that large companies could print whatever they like and break the law without being able to challenge them".
That is perhaps the best example I can give the Committee this afternoon. It shows what is at stake here.
Let us imagine that, in the wake of a scandal as extraordinary as the hacking scandal-the hacking of the phones of hundreds of innocent people-our response in Parliament was to make it more difficult, or even impossible, for the victims to take action and expose further scandals. Without the powers of the court to compel disclosure as part of litigation, we would not have seen the mountain of evidence that we now know exists. There would have been no information, no investigation and no justice.
Why are privacy and defamation cases so problematic in this legislation? It comes down to the fact that in general the courts here do not award huge damages to victims of defamation or invasion of privacy. Damages are very low-an average of some £4,000. According to research analysis by Mr David Howarth, a Cambridge law professor better known to us as the shadow Justice Secretary in the previous Parliament and MP for Cambridge, average costs are around £11,000. According to Lord Justice Jackson, insurance fees are around £65 for cover of £100, and I am afraid that defendants sometimes rack up costs in denying liability for as long as they can. So the costs of the claimant and defendant dwarf the damages that are sometimes involved.
Should I successfully sue a newspaper now for defaming me, I will receive small damages and the satisfaction of redress. My lawyer's fees will be paid by the paper, as is normal, as will their success fee and the premium for my insurance. Under the new system, I would receive a small uplift of 10 per cent in damages, taking the figure in my example to £4,400. My lawyer would receive his costs from the wrongdoer-the defendant-as is normal. However, the success fee would come from my damages. If the paper had stretched out the litigation, the success fee might be as high as 100 per cent of base costs: £11,000. In this example, I now have a net loss of £6,600 from winning my case.
However, we argue that it might get worse. My insurance premium will also be taken from me as a winning claimant. The defendant has stretched this out and built up costs. My insurance premium, which of course reflects the potential cost liability, is perhaps £10,000. We should remember that the Government have no plans for one-way cost shifting in this type of case, even though the case for it has been well argued by the noble Lord, Lord Thomas of Gresford, and by my noble friend Lord Beecham, among others. There is no succour for me to be had there. Suddenly, despite winning my case, in my example I am left with a bill of £16,600. Who on earth would take action to defend their good reputation if they faced being left with an enormous bill?
According to Lord Justice Jackson, we are talking about between 200 and 250 cases a year. It does not appear to be a great crisis in a compensation culture. Without doubt the result of the Bill would be that the ability to take action would be very much restricted for ordinary people and would allow media companies, if they were so inclined, to print whatever they liked without challenge.
I have no problem with fixing the law around defamation if we find it to be broken-and I think that changes need to be made. However, making it unenforceable would be something quite different. I hope that the Government will think about cases of this kind and will deal with this credibly, instead of carrying on with their approach so far: namely, the blanket dismissal of a compelling argument advocated by this side of the House, by the Liberal Democrats in another place, and by a Joint Committee of both Houses.
I will now be very quick. Amendment 126 is about small businesses. We are trying to deal with small businesses suing large ones for breach of contract. Like professional negligence cases, these cases do not involve general damages per se but concern past loss. It is hard enough now for small businesses, even without being in that situation. If they sue for breach of contract, they do not get all their losses back. It is difficult for them to find a lawyer to take their case. I fear that this may be a serious miscalculation. There is no award of general damages that will increase by 10 per cent in these cases. There is no capping of how much lawyers can take, either. We know of the general sympathy that there is for small businesses around the Committee and in both Houses of Parliament. If the Bill is not amended, they will be prey to the worst kind of economic uncertainties at a time when they are struggling.
Finally, I come to Amendment 132. I hope the Government will think about this as well. Cases of public importance are highly risky, and we want to encourage lawyers to take them on because they set precedents and help make our law by evolving the common law, which is crucial, as the Committee will agree. If those cases are restricted to just the wealthy, then the cases in which the rights of the impecunious are in question will just not come before the courts. They are difficult and tough cases. We want to make sure that they get a fair hearing. It is something we want the Government to consider amending before the Bill goes through.
I am sorry to have taken up so much of the Committee's time on these important amendments. They could, of course, have been split into different groups, but perhaps it is right that they have not been. I hope that the Government will listen carefully to what has been said in this group. I beg to move.
Lord Lester of Herne Hill (Liberal Democrat)
I shall just say something about Amendment 124 in relation to defamation and privacy. This could take hours of a separate debate, but I am going to try to be extremely brief. As the noble Lord, Lord Bach, has indicated, this has to be seen in the context of a defamation Bill that has not yet been published. We have had my Private Member's Bill, a government draft Bill and consultation, and I hope very much that there will be an actual Bill in the Queen's Speech in the next Session.
I suggest that it is perhaps not appropriate to be moving amendments at this stage so far as costs and insurance are concerned until one knows the substance of the actual defamation Bill. I take it-and the my noble friend the Minister will slap me down if I say something that he strongly disagrees with-to be one of the objects of the reform of defamation law to secure a fair balance between the rights of claimants and the rights of defendants; and between the fundamental right of claimants to vindicate their reputation and their right to personal privacy on the one hand and the right of defendants to freedom of expression on the other. Claimants, so far as libel is concerned, have tended to be the rich and the wealthy, not always, but mainly. The rich and the wealthy, whose lawyers are also rich and wealthy, have abused their power in the past, as the previous Justice Secretary, the right honourable Jack Straw, recognised when he introduced his proposals about capping success fees and conditional fee agreements in this area. They have abused their power by running up enormous legal costs, even in cases where there was no real defence, with the result that the defendant, normally a regional or national newspaper, was faced with a situation where the damages might be £20,000, but the legal costs might be £250,000. It was that abuse that led the European Court of Human Rights in the Mirror Group case to indicate that that had a serious and unnecessary chilling effect on the freedom of speech of publishers. I emphasise that.
The second thing I want to emphasise is that just as claimants have tended to be rich and powerful, although one wishes that the poor would also be able to vindicate their reputations, defendants are not alway rich and powerful national newspapers. They may be the citizen critic accusing a public authority of abusing its power, an NGO or a small regional newspaper with very little funds to meet legal costs. I take it to be an objective of the defamation Bill to reduce the costs of litigation and to discourage litigation in the area of reputation and privacy by encouraging the use of lower courts, say county courts, not just the High Court, focusing on alternative dispute resolution and finding ways of securing equality of arms, to use the European phrase, between the parties where there is inequality of arms at the moment. All that needs to be tackled in the context of a future defamation Bill, when we can look at procedures and costs in relation to those reforms which must be designed to secure a fair balance, not a charter for rich newspapers or rich claimants. I think that until we know the Government's final thinking on this and are able to debate it, it is premature to try to adjust the costs and insurance provisions of this Bill in order to try to tackle the kind of issues that I have inadequately summarised.
Lord Prescott (Labour)
My Lords, I apologise for missing the first few minutes of this debate. The debate I listened to earlier on Clause 43 showed that there is a great deal of feeling about an injustice being perpetrated here in all forms of the use of no win, no cost. I have been in an interesting situation that I would like to relate to noble Lords as an example of what can happen under these new changes.
At Second Reading, I made it clear that I thought this Bill moved power and resources to the wealthy and more powerful and away from the individual, and that the individual was going to be the victim because they were seeking legal redress. These amendments will make it much more difficult to achieve that. It is really about strengthening the more powerful in our society, particularly in regard to individuals and the press. The evidence is clear in the many examples. They do this by changing the rules of no win, no cost under the 1999 Act and other legislation. Under this Bill, the cost of the insurance to take out these cases and, indeed, the changes in the risk payments, will transfer not from the loser, but from the one who has won the case. If you win the case, you are still going to pay a penalty.
In looking at the circumstances-and I shall refer to my court case on telephone hacking-one can see the fundamental difference. I am talking about individuals who see their rights being breached by the media. For example, under the system we have at the moment, I was awarded £40,000 damages. My solicitor's costs were about £80,000. That means that I got £40,000, my solicitor got £80,000 and the insurance and the risk were included in that. What we are proposing now is to limit the amount of money paid to lawyers for the risk factor-I shall not go into all the arguments that have been made here-which is how they secure more money to take on more risky cases for more people to get access under this no win, no cost situation.
In my mind, that is straightforward. The damages come to me, they are mine. The lawyers get their full costs. Who carries all these costs? The people who lost the case, the ones who have been phone hacking, who have been breaking the law, which we are all aware of, and who have even been paying the police. In those circumstances, why should they not pay the full penalty? I understand that they quote the Mirror Group case at the European Court of Human Rights. In that case, the costs were high. Why? It has always been the practice of the press to fight until the last minute. If anybody wishes to pursue them with no win, no fee, they say, "Sue us". You may well have a case, but they will make you sell your house and everything else before you have sufficient resources. At the end, when you have done all that, they say, "Okay. We'll concede the case", and they will offer you some kind of damages. That is the pressure that puts costs up in the courts in these cases.
What would have been the effect if I had pursued my case under these new rules? Believe me, this press is not going to go away; it is still going to be committing the same offences. We have a PCC that is particularly useless and will continue to be unless we make fundamental changes. Anyone listening to the Leveson inquiry must hear that the press has not changed its mind; it is still going to go ahead and do the same things because that is how it sells newspapers. Let us assume I have a complaint of a similar nature against the press. This would mean that I would have to get a no-win, no-fee situation. Given that they have already reduced the risk costs, it is highly unlikely that they may find this a risky situation. In fact, when I was complaining in this House and elsewhere about what the press was doing about phone hacking and about Murdoch, I was almost a lonely voice.
I do not think that will go away but if you reduce the risk costs, those lawyers will say, "This is a big risk, I am not going to take the case". You will be on your own to see if you can pursue it. Let us say you find a lawyer who is prepared to do that; they will sue for damages and make the claim. Taking my case, let us even assume that the lawyer is successful, after those difficulties, and that damages are awarded to me. Under these new rules, I will have to carry the insurance cost and the risk cost, given that the difference is limited to 110 per cent. If that is the case, I will be the one who is penalised.
I worked out what the costs were under this formula. It would mean that nearly all my damages would have gone in paying the costs that I am expected to pay if I win the case, and the people who have their costs reduced are the people I am suing, even though they have admitted they are wrong. Therefore, the one who has actually won the case is worse off. They would take nearly the £40,000-I have looked at these figures and that is the possibility. Does that strengthen the individual or does it strengthen the more powerful party in this unequal relationship? Indeed, this clearly shows that the latter is the case.
A survey has just come out-I do not know whether Members have seen it-of 16 press organisations. It was conducted by the Ministry of Justice. Question 1 was:
"Do you agree that CFA success fees should not longer be recoverable from the losing party in any case?".
The answer was:
"Yes, for the reasons set out in the response enclosed. UK law also needs to be amended to comply with Article 10 of the European Convention on Human Rights"-
and that is quite apart from being shattered from our people claiming the human rights when they are spending most of the time trying to defeat it. But the point is that there are 16 identical replies-every one of the replies from television, radio, the Guardian, the Mail, Sky, BBC, was exactly the same, to all 60 questions. All of a sudden, when they are usually divided about many issues, when it comes down to money, all 60 answers are that they should keep their position. Even the good old liberal Guardian sided with Dacre, for God's sake-that takes a bit of thinking about. They are now agreed that they should be able to keep more of their money, even though they are the ones that transgressed in this situation. For those 16 to get together-some lawyer has written the answer to every one of them. If a trade union did that, we would be in trouble. It would be all over the front pages: "60 identical replies, it must be a conspiracy". Of course it is a damn conspiracy. That they have come together in this survey to give exactly the same answers is perhaps not a crime, but it is near to it. They have the power for to do it.
It is not new to me. When I was in the other place, they made exactly the same request to the Labour Government. The Labour Government did not agree- there was a bit of quibbling around at times but I will not go into that-and the change was prevented. We explained that it would reduce the possibility of people taking cases, it was putting the burden on the most vulnerable individual and reducing the burden on the press. That is totally unacceptable, so we rejected the change. Why have this Government come along and said, "Now we are going to give permission"? They must have in the records the reason why we refused it-they are always exploring our past records. They believe that we should shift the power to the more powerful group and reduce the individual's rights in these circumstances. That is unacceptable.
You may think that the press has changed, but I do not and so we will wait and see. I have been a victim of many of its attacks, and I live with that. I have an example of a political action in the past week by the Daily Telegraph. I announced that I might stand for the job of police and crime commissioner and I got a full page on that in the Telegraph. What worried me was that it used as evidence all personal facts. When I got on to the paper and asked, "Where did you get that information, because it is lies?", I was told, "We got it from Wikipedia". It did not even ask a question; it just pumped it out. Why? Because it was a political action to attack somebody from another political party for decisions they have made.
I have an action for a judicial review. What would happen now with judicial review? I get no-win, no-fee; it helps me to take against the police. You can hardly argue that it is not a public interest. They have not carried out their jobs and I hope that shortly they will make an apology for that, but I could not have won that without no-win, no-fee. That is the reality of it. If that is removed, how would you take an action on judicial review? What I also find offensive is that I will be told I should not have the assistance but the Metropolitan Police will use all the money in its accounts employing the best barristers to take me on-and that is taxpayers' money-while I am told as an individual that I cannot have that right. That is what this Bill is going to do. It will make it more difficult to say to the Metropolitan Police, "You have got it wrong"-and I hope shortly that will come out.
The whole point of this is that we are shifting power from the vulnerable to the powerful. We are shifting the cost and putting it onto the more vulnerable. This is what these amendments are opposing. At Second Reading, the noble Lord, Lord McNally, said this was a radical shift. Well, it is, but I did not think it was as radical as I now understand it to be. It is a radical shift away from the weak and to the strong, and it is going to make it more difficult, particularly in these media applications. This Bill is not about better civil justice, it is about disadvantaging the vulnerable. That is what we should not accept and that is why we are moving these amendments.
Lord Martin of Springburn (Crossbench)
My Lords, I support the noble Lord, Lord Bach. I listened with interest to the noble Lord, Lord Lester, and his comments about the rich and famous being able to take cases to court. This is what worries me about the lack of no-win no-fee. I am not concerned about the rich and famous, I am concerned about ordinary men and women, who maybe only once in their life have been defamed by a newspaper. At the Leveson inquiry one former editor said, "If it sounds good or if it sounds like the truth, just lob it in"-just to lob it in for a woman or a man who is living a quiet life is very cruel and hard.
For those of us who have approached newspapers and said, "What you have said about me is wrong", their first reaction is, "If you don't like it, write a letter and we will print it in the readers' column". How insulting is that, that I or anyone else should then make a contribution to a newspaper-which is usually a nasty newspaper that you would not even have in your home-by putting a letter into their column? That is even the line that they take with the Press Complaints Commission. Everyone knows that when anyone takes up a complaint with the Press Complaints Commission, they are not even looking for money, they are looking for some redress, and that is the first course of action that they take.
Years ago, perhaps in the 1950s, 1960s or 1970s, it used to be the case that if a newspaper printed something that was wrong about you, it was a matter between you and the newspaper. This is not the case nowadays, because when a newspaper prints an allegation, there is a press preview on Sky News or the BBC, where they get some talking heads to chew over what has been said about you that day. That means that even when you are deeply embarrassed about what has gone out, and you have not even had a chance to redress the balance, within hours of that newspaper being published hundreds of thousands of viewers are able to get a look at that newspaper because they are invited to do so by another press organisation.
I note the point that the noble Lord, Lord Lester, has made about local newspapers. When is it that people take offence at a local newspaper? There is maybe the odd individual. But a local newspaper says to itself, "We do not have the resources to involve ourselves in a law suit, so we had better be careful before we go to print". My local newspaper is the Springburn Evening Times. While there have obviously been people who have taken exception to what it has had to say, I have never known anyone to take it to court, because as an organisation it is careful about what it does.
Lord Lester of Herne Hill (Liberal Democrat)
Has the noble Lord read the evidence that was given to the Joint Committee on the Draft Defamation Bill by various NGOs and regional newspapers, indicating the ways in which the existing law of libel has a very similar chilling effect on their ability to report and comment on matters of public interest?
Lord Martin of Springburn (Crossbench)
I have not read the document, but now that the noble Lord has drawn it to my attention, I will. What I am talking about is the experiences that I have had of local newspapers. Of course, they are careful that they do not get involved in any litigation, in the same way as we-as people who have privilege in this Chamber-will be very careful about what we say out in the street, because we know that we would be subject to litigation.
However, the national newspapers are not concerned about being subject to litigation. Some of them are very rich organisations indeed. They know full well, when someone comes along-well, we have covered the rich and famous. Let us take a different situation. We, as a House, encourage people to go into public life. Once you get into public life, you are under the microscope. It may well be that Members of Parliament down the corridor are paid a better salary than your average journeyman or journeywoman-a blue-collar worker, I take it-but they are not paid so well that they can take on some of the people in the media who are vicious and nasty, and are willing to have a go not only at them, but also at their wives and families.
I know that this is about an amendment and therefore I had better not go on for too long about the whole thing. I will say, however, that ordinary men and women should be able to go and, if necessary, take their case to court. I take the noble Lord's point that if there is a lower court that can handle it, that might be all the better. I will end by saying this: how ordinary can this situation be? An unemployed man in Liverpool, who was a pass-keeper in his local church-the person who does the collection plates and opens the church ready for the service-was accused in a publication of taking money from the collection plate that he put around. His difficulties were so great that he had to get the cheapest bus ticket from Liverpool to London to see a no-win no-fee lawyer to make sure that the balance was redressed. He won. Are we going to say of a man like that, who is unemployed, who was doing his duty in his church-someone who is respected not only by the congregation but by the whole community-and who has an accusation like that made against him, that we cannot allow him to get to court and put his case?
Lord McNally (Minister of State, Justice; Liberal Democrat)
My Lords, this has been a very useful debate, with a good deal of passion. During parts of it, I was reminded of a saying that my old mentor, the late Lord Callaghan, used to be fond of, that a lie is halfway round the world before truth has got its boots on. He used to say that 30 years ago; what would he say today, with the internet, tweeting, blogging and the rest? Perish the thought.
We are in a very difficult area. Many of the issues that have been raised today are currently before various inquiries and committees of the other place, and, indeed, in litigation, so I shall tread carefully on this. I have to tell the noble Lord, Lord Prescott, that even under the present regulations, legal aid for judicial review is means-tested, and so I doubt whether he would get legal aid even in the present circumstances.
A number of very emotive cases have been raised. I saw the publicity around the Dowler case letter. I thought at the time, and I still think, that it is almost inconceivable that the Dowlers would not have been able to pursue their case under conditional fee agreements. The idea that they would have been powerless in the case that they had is perhaps countered by the fact that the matter was settled out of court-and if reports are to be believed, at a cost of £3 million to the offending company. I am not so sure that the argument that they would have been left powerless stands up in those circumstances.
I shall deal with the various issues raised. First, it is true that the Government are looking for an opportunity to legislate on defamation. We will have to await the Queen's Speech to see whether it can be taken in the next Session, but we have made a lot of progress on it. We have had my noble friend Lord Lester's Private Member's Bill, which I then took to a government draft Bill. It has now had a very good and thorough examination by a Joint Committee of both Houses for pre-legislative scrutiny, under the chairmanship of my noble friend Lord Mawhinney. In turn, that committee has produced a very good report.
We are certainly ready to look at reform of defamation, but I would say-and again, this touches on much of what has been discussed today-that we are looking to try to remove some of what has been described as the "chilling effect" of our present defamation laws on the rights to free speech, as against the rights of the individual which the noble Lords, Lord Prescott and Lord Martin, have outlined today. It is important that we get the balance right.
I say with no sense of bitterness that 10 years ago, when I tried to introduce a modest amendment to strengthen and put some backbone into the Press Complaints Commission, I was told from this Dispatch Box by the Labour Minister of the day that my proposals were the,
"slippery slope to state control"-[Hansard, 6/5/03; col. 1067]-
of the press. That is where the Labour Government were 10 years ago.
We have to get the balance right between freedom of the press, which is so important to a functioning democracy, and proper responsibility on the part of that press. I hope that one of the things to come out of the recent discussions, debates and inquiries will be a much better form of accountability and regulation that addresses the very point made by the noble Lord, Lord Martin, about the speedy and cheap resolution of damage to reputation. We have come a long way from the time when people went into libel or defamation cases expecting to come away with football pools-sized awards. That is not the case. As has been said on a number of occasions, these days the likely costs of litigation always outstrip the likely awards.
I think that there is a good and useful account on this. We have to await the outcome of the Leveson inquiry, although I strongly believe that the opportunity to reform defamation is a separate matter. I would be very worried if Leveson produced a kind of tsunami of debate that swept away the real opportunity to go ahead with defamation reform.
Let me go back to the point with which the noble Lord, Lord Bach, opened the debate, after which I will comment further on the media issue. He mentioned professional negligence claims. Under our reforms people will still be able to bring cases on CFAs in areas in which they are currently used. After all, we are returning the CFA arrangements to their original form. I am aware of concerns about professional evidence claims that can involve, for example, claims against negligent building surveyors, accountants or solicitors. We have carefully considered the consultation responses on these types of case but remain unconvinced that there is anything fundamentally different about them to justify an exemption from the general principle of no recoverability of success fees and "after the event" premiums.
The noble Lord also mentioned financial services. A number of bodies could deal with those kinds of cases, including the Financial Ombudsman. As to how these reforms would affect small businesses, the Federation of Small Businesses, which is not always ready to support the Government's approach, supports the proposals in this Bill.
The noble Lord, Lord Beecham, frankly said that this is one of a number of probing amendments to see whether the broad architecture, which provoked the original debate today, would be changed in any way. This and a number of debates to come will test whether we are likely to change our mind and make any exceptions from that broad architecture. The Government do not see that any exception to this is justified except in relation to ATE insurance premiums in respect of clinical negligence expert reports that we have previously discussed.
I therefore resist all these amendments, as they seek to undermine the Government's reform of civil litigation funding and costs. The current arrangements with a recoverable success fee and ATE insurance allow for risk-free litigation where claimants have no real interest in the legal costing incurred on their behalf. This has led to an increase in the costs of civil litigation and must be addressed. The judgment of the European Court of Human Rights in the January 2011 case of Mirror Group Newspapers against the UK, usually called the Naomi Campbell case, found that the existing CFA arrangement with recoverability in that case to be contrary to Article 10, on freedom of expression, of the convention. Changes are therefore necessary and the current regime cannot continue.
The Government are aware of concerns about access to justice and the ability of those with modest means to pursue claims against often powerful media organisations. However, we do not believe that it is necessary to make any special provision in relation to the costs of privacy or defamation proceedings. We will continue to monitor the position following the introduction of the CFA reforms and other reforms to the law and procedure for defamation claims on which the Government have recently consulted.
As the coalition agreement made clear, we are firmly committed to reform of the law on defamation. The right to speak freely and debate issues without fear of censure is a vital cornerstone of a democratic society. We want to ensure that a fair balance is struck between the right to freedom of expression and the protection of reputation. There are real concerns that the threat of libel proceedings is being used to frustrate robust scientific and academic debate, and to impede responsible investigative journalism and the valuable work undertaken by non-governmental organisations. The draft Bill, which we published last year, aims to bring the law up to date and ensure that the right balance is achieved. We are also looking at ways of speeding up court cases so as to cut the costs involved in defamation proceedings, and encouraging the use of the alternative dispute resolution in order to facilitate early settlements.
The Government are also aware of concerns about professional negligence claims, which can involve, as I have said, claims against surveyors, accountants or solicitors. We carefully considered the consultation responses in respect of the impact of professional negligence cases, but remain unconvinced that there is anything fundamentally different about them that would justify an exemption from the general principle of abolishing the recoverability of success fees and "after the event" premiums. I can assure noble Lords that the Government have considered all these amendments individually and in the round. If accepted, the amendments to which I have referred would undermine the overriding objectives of the package of reforms, which are to make the costs of civil litigation more proportionate. The Government believe that lawyers will take on meritorious cases without recoverable success fees, including in cases to which these amendments relate. It is not unreasonable for any success fee to be paid by the party entering the CFA.
In respect of the risk of an adverse costs order, different considerations apply in respect of different proceedings. The Government have said that qualified one-way cost shifting should apply in personal injury cases. Lord Justice Jackson suggested that QOCS might be considered for introduction in some non-personal injury claims as an alternative to recoverable ATE insurance. The Government are not persuaded that the case for this has been made at this stage.
Personal injury cases, as a class, are different form other types of litigation. There are hundreds of thousands of personal injury cases each year. They are typically run on CFAs with ATE insurance and involve claims by individuals against generally well resourced or insured bodies. These claims have a high overall success rate and the primary remedy sought is damages. The position is different and less clear-cut in non-personal injury claims. CFAs are very much a minority form of funding in these claims, and rolling out QOCS to these would distort the market by imposing substantial changes on all cases in a particular category of proceedings for the benefit of a small number of claimants.
The Government will examine the experience of QOCS in personal injury claims before considering whether it should be extended further. Different considerations apply in different types of case. Environmental claims, for example, typically involve more than one claimant who can contribute towards the costs. "Before the event" legal expenses insurance may be available in relation to the provision of goods and services.
I have listened carefully to the arguments advanced in respect of exceptions in individual areas covered in this group of amendments. However, I am concerned that making these exceptions could undermine the benefits of these reforms. I therefore urge noble Lords not to press their amendments.
Lord Bach (Labour)
I thank the Minister for his response, but he will not be surprised to hear me say that I found it deeply disappointing and unsatisfactory. I do not think that the arguments he has employed deal with the gravity of the issues raised in these amendments. I thank noble Lords who have spoken in this debate, in particular the noble Lord, Lord Lester of Herne Hill, with his expertise. In a moment I will respond to one or two things he said, which he will be able to see in Hansard because he is not in his place at the moment. I am particularly grateful for the contributions of my noble friend Lord Prescott and the noble Lord, Lord Martin of Springburn. They made this debate come alive with their powerful and passionate speeches which dealt with real-life situations as opposed to the theory that we so often talk about when we are dealing with this kind of legislation. If nothing else, I hope very much that the Government will read carefully what those noble Lords said before deciding their next step.
On the law of defamation, perhaps I may make my position absolutely clear. I believe that it should be changed and I look forward to the reforms. I have spoken on them before. We shall see what the Bill looks like but I am in favour of the reforms. Of course we want to see the right balance between claimant and defendant in defamation cases, as I hope we do in every part of our law. But we are not talking about that. You can have the best system in the world, but if only very few people can actually use it, it is not much good. That is the real criticism here. The system will be changed, it is hoped for the better, with a better balance for those who manage to get proceedings off the ground, but if it is only the rich and the powerful who can sue for defamation, then as I say, it is not much use and goes against the British system which should allow all people to have access to justice. If we leave it to the Defamation Bill itself, this Bill will already have passed in its present form. Is it really believable that the Government will then suddenly say, "Oh, we were wrong in the Legal Aid, Sentencing and Punishment of Offenders Bill and so we will change it now that we have the Defamation Bill"? I do not think so. That is why these issues have to be raised in this Bill.
The noble Lord, Lord Lester, was right to say that there are defendants in defamation cases who are not powerful, but I remind the Committee that defendants can and sometimes do use CFAs in cases of this kind. They, too-good, successful defendants-if they are not able to use CFAs because of the risks attached to the costs position, may find themselves not using them when they do already.
In theory, the Minister is absolutely right to say that the CFA system still exists and that people can still use CFAs, but in practice the question that arises from these amendments is this: will they, when they stand to lose their assets even if they win their case? That is the issue. We gently warn the Government now that it is no good looking at this four or five years down the line when it is discovered that the Government have been so inflexible in their approach to this part of the Bill that justice is denied to a large number of ordinary people because of the statute that will then be in place. The Minister said that there was coalition agreement about defamation reform. Indeed there was, but I remind him and the Committee that there was no coalition agreement at all about Part 2 of this Bill.
If the Minister accepts that damages are outstripped by costs, surely the Government must agree that success fees plus "after the event" insurance will dwarf the damages that are awarded; that is, victims will be left out of pocket. If they fear being left out of pocket, they are not going to sue, even if they have a good case. The original form of CFAs was also prayed in aid by the Minister. He should be reminded that the original form was only for PI and insolvency, certainly not for defamation cases. Here, of course, if the Government have their way, the changes will relate to defamation for privacy and professional negligence. If the Bill remains unamended, the effects will be very severe indeed.
Amendment 123 withdrawn.
Amendment 124 not moved.
Moved by Lord Bach
125: Clause 43, page 30, line 12, at end insert-
"( ) The amendments made by subsections (2) and (4) do not apply in relation to proceedings that include a claim for judicial review of a decision, or of a failure to decide, by a public body."
Lord Bach (Labour)
My Lords, judicial review proceedings offer a chance for the ordinary citizen to review decisions made by the state or by an emanation of the state, be it local government or powerful governmental bodies, if they have a justifiable interest in that decision. It is often the last chance for the law to review the decisions of lower courts and tribunals or state decisions that are not in themselves subject to appeals. The costs of bringing a judicial review claim are considerable, in the region of £10,000 to £20,000 for a straightforward case, and obviously higher for a more difficult one. If the claimant is unsuccessful, they are likely to be liable for the defendant's costs as well as their own. They are therefore looking at legal bills of perhaps upwards of £30,000 if they lose and they must be prepared for this eventuality bearing in mind the unpredictability of judicial review proceedings by their very nature, and, of course, costs orders.
Conditional fee agreements are in theory available as a means of funding judicial review proceedings, although they are relatively rare. We are therefore not discussing the standard way of funding, but rather the minority of cases that are taken by CFA for judicial review. These are cases that are not being picked up by legal aid or other mechanisms of funding. In some instances, what is called a protective costs order may be the only way in which the claimant can bring the claim, or it may be necessary to consider applying for a protective costs order in combination with one of the options I have mentioned. However, protective costs orders are themselves available only in relatively limited circumstances based on the rules set out under the leading case of Corner House Research and subsequent decisions. We put this to the Minister in another place but felt that his answer was unsatisfactory. I ask the Committee also to find it so. I hope I may be forgiven for quoting him at length:
"Responses to our consultation indicated that CFAs are less commonly used outside the area of personal injury and are not frequently used in judicial review proceedings. In addition, ATE insurance is rare in judicial review In our view, therefore, the abolition of recoverability of CFA success fees would have relatively little impact on judicial review claims, and the key driver for the introduction of QOWCS to reduce the need for and costs of ATE insurance is not present. Although there is already some element of one-way cost shifting in judicial review cases where the claimant is legally aided-
the noble Lord, Lord Thomas of Gresford, explained to us the rule about QOCS in legal aid-
"or obtains a protective costs order, the introduction of QOWCS for all judicial review cases would be a significant change that could distort the market and significantly affect public authorities, which could face large numbers of unmeritorious claims that would have to be defended, at least until the permission stage".
He went on:
"Under our reforms, people will still be able to bring cases on CFAs in areas where they are currently used, as we are returning the CFA arrangements to their original form. In judicial review proceedings, which raise issues of general public importance, claimants can, in appropriate cases, apply for a protective costs order to limit the amount of the defendant's costs that they may be required to pay if they lose, and legal aid is also being retained for the vast majority of judicial review cases currently funded. Legal aid recipients will continue to benefit from cost protection".-[Official Report, Commons, Legal Aid, Sentencing and Punishment of Offenders Bill Committee, 13/09/11; col. 555.]
On qualified one-way costs-shifting, this is plainly in contravention of what Lord Justice Jackson's position appears to be. His recommendations were these:
"Qualified one way costs shifting should be introduced for judicial review claims ... If the defendant settles a judicial review claim after issue and the claimant has complied with the protocol, the normal order should be that the defendant do pay the claimant's costs".
He pointed out that protective costs orders and legal aid did not pick up all cases and many meritorious cases.
"A public law costs regime should promote access to justice. It should be workable and straightforward. It should facilitate the operation of public law scrutiny on the executive, in the public interest. This is the key point. For judicial review is a constitutional protection, which operates in the public interest, to hold public authorities to the rule of law. It is well-established that judicial review principles 'give effect to the rule of law'...The facilitation of judicial review is a constitutional imperative".
With regard to the success fee, we believe that Lord Justice Jackson may not be right. He said in his report:
"If qualified one way costs shifting is introduced, in my view that will strike the right balance as between claimant and defendant in judicial review proceedings. There is no justification for imposing upon defendants the additional burden of paying, potentially huge, success fees. Significantly, a number of respondents from both sides of the fence have recognised this principle during Phase 2. The success fee payable, if any, must be a matter between the claimant and the claimant's solicitor".
How, then, will the impecunious settle the success fee and from which non-existent bank account? Furthermore, if public law practitioners cannot retrieve their success fee, what will be the impact on their decision to take on 90 per cent to 10 per cent cases, let alone 50 per cent to 50 per cent cases? It is in the interests of justice that those cases are sometimes taken on, but many may not be in future. How will the Government protect the constitutional imperative, if they agree that it is one, that administrative law should be allowed to be pursued by the ordinary citizen in cases of judicial review when legal aid is not available? I beg to move.
Lord McNally (Minister of State, Justice; Liberal Democrat)
My Lords, like the noble Lord, Lord Beecham, when speaking to the first series of amendments, the noble Lord, Lord Bach, continues to jab away at the broad architecture of these reforms. In these reforms we do not accept every last jot and tittle of Lord Justice Jackson's report but, in the main, we accept its major thrust. It is a package of reforms and we are concerned not to dismantle it by accepting this series of amendments. The reasons for that are clear. The Jackson report was motivated not by government initiative but by judicial demand. Both the Master of the Rolls and the Lord Chief Justice wanted to look at a dangerous inflation in civil costs which in their view-a view that we share-was having an impact on access to justice. Whether there was or is a compensation culture, we can debate for a very long time, but we know that in many parts of the law there has been a quite worrying inflation in costs. A number of examples given by noble Lords on all sides suggest that action is needed. The Official Opposition's view on the Jackson report was not clear from the remarks of the noble Lord, Lord Bach-he said that he did not agree with this bit of it. The noble Lord, Lord Beecham, looks like a greyhound in the traps, but perhaps at the end of the debate he can tell us his party's general approach to Jackson.
Lord Beecham (Labour)
My Lords, before my noble friend answers, perhaps the Minister can say which bits of the Jackson report he is in favour of, because there is quite a lot of it that he has not adopted.
Lord McNally (Minister of State, Justice; Liberal Democrat)
The bits that we are in favour of are in the Bill.
As someone who firmly supported the Hunting Act, I am not sure that I am allowed to use the term "shot my fox", but the arguments that I was intending to deploy were very accurately read out by the noble Lord, Lord Bach. They remain the same as those which my honourable friend Jonathan Djanogly deployed in the Commons-that is, under our reforms people will still be able to bring cases on CFAs in areas where they are currently used in judicial review. After all, we are returning the arrangements to their original form. Legal aid is being retained for the vast majority of judicial review cases that are currently funded. Legal aid recipients will continue to benefit from costs protection. Although I understand what the Opposition are doing in testing various parts of the architecture of the reforms, I can only say again that we will resist the amendments, as they seek to undermine the Government's reform of civil litigation funding and costs.
I have listened carefully to the arguments advanced in respect of exceptions in individual areas. However, we should not revisit arguments that have already been fully and properly aired in these debates. I am concerned that making the exceptions that the amendments advocate would undermine the benefits of our reforms. I therefore urge the noble Lord to withdraw the amendment.
Lord Pannick (Crossbench)
Does the Minister accept that claimants in judicial review cases will not be able to pay success fees, because victory in a judicial review almost never results in the payment of damages to the claimant?
Lord McNally (Minister of State, Justice; Liberal Democrat)
Yes, I would think that that was true. I understand that such cases are extremely rare. A success fee would not be the enticement to take the case.
Lord Bach (Labour)
My Lords, I thank the Minister for his response. When I first accused the Government of not having accepted the Jackson package, I was very careful to say that whatever Government were in power would probably not have accepted every word of such a major report. However, it is interesting what this Government have accepted and what they have left out. In short, they have left out any defence of legal aid, whereas Lord Justice Jackson was very concerned that there should be no more cutting in civil legal aid. That is also very much the view around the Committee on Part 1 of the Bill as well as, in relation to Part 2, in the case of clinical negligence if nothing else. We think that the Government have picked the wrong bits of Jackson to support, and they have left the best bits out, which is rather careless of them.
Three senior costs judges, who deal with some of these issues daily, said in their submission on the Jackson report:
"we do not agree with the proposals set out in the Report ... The CFA regime has undergone many changes and improvements since implementation. Having taken a decade for these to have been achieved, now is not the time to made radical changes which give no guarantee that access to justice at reduced costs will be delivered under Jackson"-
they go on, perhaps rather unfairly, to say-
"where it failed under Woolf".
That was their view. So there is a difference-a justifiable difference-of opinion, both in this Committee and outside this Committee among those who have to decide these cases.
The Government should be warned that they should not just stick so rigidly to their formula for changing without looking at individual areas of the law. Flexibility is important, as well as having rules. If the Government are just going to say no to every exception to Jackson, I fear that, certainly in some areas, the reforms that will then go through, if the Government get their way, will be disastrous for civil justice in this country because they will mean that so many people will not be able to get justice who are currently able to do so.
Amendment 125 withdrawn.
Amendments 126 and 127 not moved.
Moved by Lord Thomas of Gresford
128: Clause 43, page 30, line 16, after "(6)" insert "Subject to subsection (7),"
Lord Thomas of Gresford (Liberal Democrat)
Lord Thomas of Gresford (Liberal Democrat)
Yes, or the other place.
The noble Lord, Lord Bach, pointed out something that I think should not be overlooked: in the 1995 order that introduced CFAs, insolvency litigation was recognised specifically, along with personal injury litigation, as a category to which CFAs should apply. The one principle-perhaps it is not so much a principle as a rule-that underpins the Jackson report is that no cap fits all, whereas the Government's approach seems to be that they have a package that applies to everything, regardless of what it is. That is not the approach of Lord Justice Jackson, who was very careful to distinguish between various areas in his report. Insolvency litigation is a category that should be considered because of the particular features that affect it.
What is insolvency litigation? Insolvency practitioners undertake litigation on behalf of creditors against company directors or third parties whose actions have caused serious harm to a business. This includes taking money out of the business for personal use, concealing assets and committing fraud. In some cases, these actions-of directors and third parties-have led to the business's failure. The insolvency practitioner, who is brought in to deal with the disaster that has occurred, has a legal duty to maximise the returns to creditors. In cases where directors have acted improperly, this may involve undertaking litigation to return money rightfully owed to creditors, including the business community and Her Majesty's Revenue and Customs. Without the use of litigation, directors could get away with dishonest practices and businesses would lose money.
In insolvency situations, a company by definition has no money. Consequently, there are no funds available to the insolvency practitioner, who is trying to clear up the mess, to pay the legal costs involved in pursuing litigation. The creditors' only realistic hope of recouping money owed to them is for the insolvency practitioner to engage solicitors on a conditional fee arrangement. In addition to this, insolvency practitioners may be personally liable for costs incurred as a consequence of litigation and therefore require protection with "after the event" insurance. As the system currently exists, the success fees under a CFA and the ATE insurance premiums are recoverable from the defendant if a judge, on the merits of the case, considers them to be liable.
What are the impacts of this? First, let us consider the impacts on the business community. The current system is particularly helpful in insolvency litigation because it allows insolvency practitioners to maximise the assets available for distribution to creditors. If the success fee and ATE insurance premium were instead to be borne out by the insolvent estate, it would substantially reduce the amount of money returned to creditors. So the proposals here would mean that the defaulting directors or fraudulent third parties who caused the failure of the business would escape the burdens of success fees and insurance premiums, and that would reduce the funds available to pay the genuine creditors of the insolvent company. At a time when businesses are struggling, it would seem counterproductive to implement measures which would reduce their returns.
In addition to lost revenue, the business community would also suffer, as the Government's proposals would discourage an insolvency practitioner from taking action against a delinquent director. Given the considerable risks involved in insolvency litigation, an insolvency practitioner will only commence litigation on advice and once satisfied that it is economically justifiable for the creditors. Generally speaking, these people are not carrying out risky litigation; insolvency practitioners are going after the people who owe money or who have defrauded the company for which they were acting. The trade body for insolvency professionals analysed a sample of 23 case studies where insolvency practitioners undertook litigation against a director or third party, using CFAs and ATE insurance. The trade body's assessment was that, if the Government's proposals were to go ahead, the total impact on creditors in the 23 cases analysed would be a loss of £3.6 million-a 47 per cent reduction in returns to creditors. That would be the effect on the business community.
Her Majesty's Revenue and Customs is the largest unsecured creditor in formal insolvencies in England and Wales. It is the single largest beneficiary of the ability of an insolvency practitioner to avoid dilution of returns to creditors by the recovery of success fees and ATE premiums from unsuccessful and fraudulent directors in litigation. So it benefits the Revenue to keep the current system in place, and it is counterproductive to implement measures that will remove this revenue.
The present system is a real and tangible benefit to society and to the business community. Not only does it ensure that delinquent directors do not get away with sharp practice, it also increases the returns available to creditors, including the Revenue and business community.
Amendment 135, which is the main amendment that we have put down, seeks an exclusion from the general rule so that a cost order may include provision requiring the payment of fees payable under a conditional fee agreement, which provides for a success fee in proceedings by a company being wound up or entered into administration; proceedings brought by a person acting as liquidator or trustee of a bankrupt's estate; and proceedings by a person acting as an administrator under the Insolvency Act. This is a benefit to the business community and to the Revenue, and I wait to hear why the Bill proposes to take away those advantages for no apparent gain. I beg to move.
Lord Bach (Labour)
My Lords, we on this side very much support the amendment, in very much the same terms as the noble Lord, Lord Thomas of Gresford, has moved it. As he said, insolvency practitioners are appointed to help insolvent companies sue directors in order to recover money for creditors of the insolvent company. The companies are insolvent; they cannot pay for a lawyer-they have no assets. The practitioners' job, which is sometimes a difficult one, is to recover as much money as possible. It is always in the public interest that they are able to do so, and I am sure that the Government would agree with that proposition. As both practitioners and regulators have warned, alongside HMRC and the Insolvency Service, these sorts of actions will be severely compromised in future. As the noble Lord has just told the Committee, HMRC is a major creditor, if not the major creditor, to many insolvent companies, so the public purse will itself be hit to the tune of £200 million. I remind the Minister that that is more than half of the total legal aid cuts and enough to pay for social welfare law at least twice over.
"we are deeply concerned that the legislation in its current form could have a harmful impact on the insolvency process. Unless claims brought by insolvency practitioners are exempted, this legislation would prevent potential recovery from incompetent or fraudulent directors or bankrupts, which will result in greater losses being borne by innocent creditors when a business is made insolvent ... Those creditors are usually small businesses or HMRC, who would lose potential tax receipts, a cost ultimately to the taxpayer. Furthermore, fraudulent directors and bankrupt sole traders would keep the gains they made from irresponsible management of their business".
That is why Revenue and Customs and the Insolvency Service have lobbied the Ministry of Justice for an exemption, but to no avail.
Let me take noble Lords to the Guardian newspaper on
"A spokesman for the Ministry of Justice said: 'We are considering the impact of abolishing CFA [conditional fee arrangements] recoverability in insolvency and related proceedings. These proceedings can bring substantial returns to creditors, including Her Majesty's Revenue & Customs. We are therefore discussing the specific implications with a view to reaching a satisfactory conclusion.' ... A spokesman for Revenue & Customs said: 'HMRC is in discussion with the Ministry of Justice about the implications of the Jackson Report but is unable at present to comment further on this matter'".
The Minister can comment further on this matter in a few minutes' time. What was the outcome of the negotiations between the Ministry and HMRC? We have heard why these cases need protection, but nothing on how this will be achieved. If the Minister is to support what is contained in the Bill, he should tell the Committee how he intends to protect against the arguments used by the noble Lord, Lord Thomas of Gresford, and myself in moving and speaking to the amendment. This is a good-if not the best-example of how wrongdoers will benefit at the expense of victims. In this case, it is even more serious, because the victims are us, potentially-the taxpayers and people of this country. That is why this particular amendment supports the proposition that a one-size-fits-all package is not right for the civil justice system and that a degree of flexibility needs to be built in. If the Government maintain their position on insolvency, the wrongdoers will gain and the creditors will lose. I look forward very much to hearing how the Minister defends this particular proposition.
Lord McNally (Minister of State, Justice; Liberal Democrat)
My Lords, I feel as any Minister would, who sees an amendment signed by the noble and learned Lord, Lord Mackay, and noble Lords, Lord Thomas and Lord Bach-the names sound like one of those formidable halfback lines from a 1950s soccer team. I know that it would be the wrong game for the noble Lord, Lord Thomas.
The amendments refer to both success fees and ATE insurance in insolvency. Just for information, Lord Justice Jackson recommended the abolition of recoverability of success fees and ATE insurance premiums in insolvency proceedings. However, we have already established that we do not simply use Lord Jackson as a defence in all matters. As the Government indicated in the other place, we are aware of the specific concerns around the impact of the CFA changes in insolvency cases. The use of CFAs in these cases, under the Insolvency Act 1986, can bring substantial revenue to creditors, including Her Majesty's Revenue and Customs.
I cannot go a great deal further. The noble Lord, Lord Bach, has now introduced a new system whereby he makes my speech and his own speech and leaves not a lot for me to say. I am nevertheless grateful that on the record we had speeches from the noble Lord and from the noble Lord, Lord Thomas, setting out the problem in probing amendments, as they have acknowledged. As the noble Lord, Lord Bach, revealed in his speech, there are ongoing discussions between HMRC and MoJ, and the Government are considering the position in respect of insolvency proceedings. Until we have come to a conclusion-
Lord Bach (Labour)
The quotation I read from the Guardian was from June 2011. We are now very near the end of January 2012 and the Bill is now in your Lordships' House. When are these negotiations going to finish?
Lord McNally (Minister of State, Justice; Liberal Democrat)
They are ongoing. I admit that sounds like that song "Reviewing the Situation" from "Oliver!" but I have no doubt that the good relations between the MoJ and Her Majesty's Revenue and Customs will produce a satisfactory result, which I will report to the House at the earliest possible moment. In the mean time, I request the noble Lord to withdraw his amendment.
Lord Thomas of Gresford (Liberal Democrat)
While I am most grateful to my noble friend for that reply, it would be helpful for these negotiations to complete before we have to vote on this matter on Report-as we undoubtedly will, along with the people who have signed it. Can I suggest to my noble friend that he talks to whoever he has to in order to get a move on? It seems a no-brainer to me that this amendment should be accepted and the quicker it is resolved, certainly before Report, the better.
Amendment 128 withdrawn.
Amendments 129 to 135 not moved.
Moved by Baroness Coussins
136: Clause 43, page 30, line 18, at end insert-
"( ) After subsection (7) insert-
"(8) The Lord Chancellor may by order prescribe that sections 58(4A) and (4B) and subsection (6) shall not apply to any conditional fee agreement where all of the following conditions are met-
(a) the proceedings include a claim by an individual or group of individuals for damages,
(b) the loss or injury allegedly caused has occurred in a developing country,
(c) a judge of the High Court has certified, whether before or after the commencement of court proceedings, that-
(i) the proposed litigation raises issues which ought, in the interests of justice, to be considered by a court in England and Wales;
(ii) the resources of the proposed claimant or claimants are significantly less than those of the proposed defendant or defendants; and
(iii) in the absence of the provisions of this subsection there would be a significant risk that the proposed claimant or claimants would be unable to secure effective legal representation in England or Wales.
(9) In subsection (8) "developing country" means a country, not being a member state of the European Union, whose per capita gross national income was less than 50 per cent of the per capita gross national income of the United Kingdom in any of the three years prior to the year (or if more than one year, the first year) in which the injury or loss is alleged to have occurred."."
Baroness Coussins (Crossbench)
My Lords, Amendments 136, 137 and 140, which are in my name and supported by others, are designed to protect access to justice for vulnerable victims of human rights abuses committed in developing countries by UK multinational companies. I thank the Minister for meeting me to discuss these amendments, and I know that he shares my commitment to ensuring that this Bill will do nothing to undermine or impede access to justice for some of the world's poorest and most vulnerable people. Unfortunately, without these amendments-or amendments along these lines-there will be a serious risk of doing exactly that. I am grateful also to CORE, the corporate responsibility coalition which includes CAFOD, Amnesty, Oxfam and other leading international NGOs, for their support for these amendments. I should also declare an interest as an independent consultant on corporate responsibility.
The sort of cases I am referring to are few and far between. There have been only nine or 10 in the past 15 years, which reflects the high cost and high risk of bringing such cases in the first place, so we are not looking at a situation where any floodgates are likely to be opened by retaining the current system. We are talking about cases such as the one against Trafigura in 2006 on behalf of 30,000 residents of Côte d'Ivoire who were affected by the dumping of toxic waste, or the one against Monterrico Metals in Peru, where 28 people who objected to the mining company's development plans were detained and tortured. That case was finally settled in 2011, five years after the incidents.
I will not recite details of all the other cases but I assure your Lordships that whether we are talking about asbestos miners in South Africa, campesinos in Colombia or Peru, or communities living in Abidjan, these are people who face indescribably difficult hurdles in seeking justice against the multinational companies which have harmed them. In a context where there is a clear imbalance in influence, economic clout and access to legal expertise, the odds are stacked against them already and it is vital that we do not close off the route to justice in the UK courts that occasionally can be pursued.
In theory-and I acknowledge that this is the Government's present position- these human rights abuse cases could still be brought. The Bill does not actually say that they are forbidden in any way but I would argue that in practice, the changes proposed to the structure of the costs regime for civil litigation mean that such cases would effectively be too costly and too risky for any law firm to undertake. As a consequence, vulnerable people will be abandoned and denied justice. The Bill, as we have heard in debates on other amendments, proposes that success fees should be taken from the damages awarded to the claimants instead of from the company in cases such as the ones I have described, and that they should be capped at 25 per cent of costs. In addition, the Bill would abolish the recoverability from the company of "after the event" insurance premiums if the company loses.
Together, these two reforms would effectively annihilate the chances of any legal firm being in a position to start the lengthy process of such a case, inevitably involving a great deal of expensive overseas travel, the commissioning of scientific and medical expertise and so on. Indeed, there are already massively high legal hurdles which have to be cleared before a case can reach the courts in the UK-for example, proving to the court that no relevant in-country resolution is possible and that corporate liability at a global level is indeed arguable, rather than the human rights abuse being the result of some error or misdeed by a local subsidiary.
I stress that I have no quarrel with the Bill's intention in principle to rationalise the costs system and to save money, but my amendments do not interfere with that overarching objective. They do not seek to spend a single penny of taxpayers' money from the public purse; they simply seek to retain the present system, under which damages may be paid by the company itself. When it comes to the recoverability of "after the event" insurance premiums, the Bill already includes an exemption for cases of clinical negligence and I hope that the Government agree that it would be right-and equally, in the public interest-to extend that exemption to human rights abuses in the sort of cases I have mentioned. As I said earlier, I believe this can be done without opening any floodgates. However, if the Minister feels that this perhaps could be achieved with more precise wording than I have managed to craft in my amendments, I hope he will agree to take this away and give it further thought, and perhaps come back on Report with something that can do an even better job.
I am also aware, thanks to the helpful meeting with the Minister, of the Government's view that damage-based agreements, or DBAs, would in future provide an arguably better route to justice for human rights abuse victims, because they are particularly suited to group actions where lawyers' fees may be recovered as a percentage of the damages awarded to successful claimants. However, I urge real caution before the Government satisfy themselves that this would be the right way to go. In a jurisdiction such as the US, where claimants receive much higher levels of damages, DBAs may well be appropriate but in the UK, where compensation payable by defendants is relatively modest, victims would be denied a proper remedy if the costs burden associated with litigation is shifted from defendants on to claimants, as the Government intend in this Bill. This would apply particularly to claimants from developing and emerging countries, where damages are calculated at local rates whereas the lawyers' fees reflect the UK's high level of legal costs.
By contrast, our present system has been praised by no less a figure than Professor John Ruggie, the United Nations special representative on business and human rights. His Protect, Respect, And Remedy framework was adopted only last year by the UN Human Rights Council and was warmly welcomed by the UK Government, who took an admirable and leading position in discussions at the UN to commit to translating the framework's principles into practice in the UK, and to encourage others to do likewise in their countries. Professor Ruggie himself highlighted to the UN Human Rights Council the UK's current system of deferred ATE premium payments as an example of how innovative, market-based mechanisms can help keep the costs of bringing a legitimate claim to a reasonable level. Why on earth would the Government want to ditch such an important and well recognised system now?
Even more recently, the Joint Committee on Human Rights published its report on the Bill, also drawing attention to the views of Professor Ruggie and the dangers of the proposed changes to litigation funding, which in his view could,
"constitute a significant barrier to legitimate business-related human rights claims being brought before the UK courts in situations where alternative sources of remedy are unavailable".
The Joint Committee urged the Government to introduce appropriate amendments to the Bill, and I hope the Minister will agree that the amendments that I have put forward are a good place to start. They are not anti-business but pro-responsible business and will help to drive up standards. There may well be a risk that, without them, some businesses will find it easier to regard themselves as off the hook when it comes to observing their human rights obligations in developing countries. I really do not want the UK to be responsible for that, and I am sure that the Minister does not either.
I should add for clarity that the definition of a developing country in subsection (9) of Amendment 136 is taken directly from the World Bank's definition, and I understand that there is general consensus that that definition is fair and workable.
These are sensible amendments, in line with government policy and the basic objective of the Bill with zero cost implications for the public purse, that would continue to provide access to justice for some of the world's most vulnerable people. There are enough obstacles in their way already; please let us not add another. I beg to move.
Lord Pannick (Crossbench)
My Lords, the noble Baroness, Lady Coussins, makes an overwhelming case here. I support her. I share the concern that she has expressed that, without the substance of the amendments that she proposes, there is a very strong risk that the Bill will fatally undermine the limited access to justice-it is very limited-that is currently available in practice, and I emphasise "in practice", in relation to allegations of serious wrongs committed by British companies in developing countries. I very much hope that the Minister will listen favourably to what the noble Baroness has said and be able to accept the principle of the amendments. If there is concern that further safeguards need to be added into the amendments, and there may be, I hope that the Government will come back on Report with an amendment of their own.
Baroness Hooper (Conservative)
My Lords, it was drawn to my attention that the changes introduced by the Bill would make it almost impossible for foreign victims of human rights abuses committed by UK companies to access justice in this country. These are indeed sensible amendments that would protect access to justice for, as the noble Baroness has said, a very small number of vulnerable people affected by poor business practices while ensuring that there is no additional cost to the public purse.
Because of my particular interest in Latin America, I am aware of some of the cases quoted by the noble Baroness, Lady Coussins, in setting out the reasons behind the amendment. As has been said, she has made the case so clearly and fully that it is not necessary for me to go on at any length, but I wish to record my support for these amendments. I hope that the Government will give serious consideration to them.
Lord Judd (Labour)
My Lords, I, too thank the noble Baroness, Lady Coussins, for having spoken so well to her amendment. I remind the House that I have been involved for much of my professional life in the kind of issues that arise in the matter that we are discussing; I am of course a former director of Oxfam. It is difficult to put on record just how concerned the voluntary agencies are, all of which I think are deeply respected in this House, and the anxiety that they have about the consequences of the new proposals.
As I have said before when I have dared to intervene in these highly expert legal arguments, it is important sometimes to spell out the social realities. The noble Baroness did this commendably in her introduction but I would like to fill that out a little more. I make no apology for doing so because we must remember what we are talking about.
In the 1996 case against Cape plc by 7,500 South African asbestos miners who had developed a range of sinister asbestos-related diseases following prolonged exposure to asbestos dust in the workplace, evidence came to light that the company had actively lobbied to conceal the nature and extent of the health risks associated with asbestos exposure and had knowingly exposed thousands of workers to the deadly dust. The courts decided that the case could be tried in England rather than South Africa. The company reached a final settlement with the claimants in 2003 to the amount of £10.5 million.
Take another case: the experience of Monterrico Metals in Peru. In August 2005, 28 people were detained by police, bound and hooded and then held for three days at the Rio Blanco mine in a remote area of northern Peru. They had been protesting against the development of the mine, the principal asset of Monterrico Metals. According to their witness statements, the protestors were held against their will and subjected to physical and psychological torture, including beatings and, in some cases, sexual abuse. The company denies involvement in the police operation but witnesses reported that the mine's management were co-ordinating the police operations. Five claimants were shot, one lost an eye and another protestor bled to death. This case was finally settled in August 2011, shortly before it was due to come to the English High Court and six years after the incident took place. As part of the out-of-court settlement, the mining company imposed a gagging order on the amount of the compensation payouts, which applies both to the farmers and to the legal firm representing the protestors.
Both these cases were brought on a no-win no-fee basis. Under those arrangements, as we all know, the victims' lawyers took on a significant burden and risked considerable financial costs if the case was unsuccessful. The Government's proposals would significantly increase the cost and the risk of taking on cases relating to corporate abuses of human rights abroad, which by their nature are extremely complex and expensive to investigate and pursue. For victims of alleged abuses in the developing world, the cost of insurance premiums would be prohibitive if they could no longer be recovered. Even if they won their case under the proposed regime, the success fee would be taken out of the victims' damages rather than paid by the defendant company. I could go on in some detail about the implications but the legal arguments have been very well put, and they relate to many of the legal arguments that have been put forward in a domestic context.
I make this plea to the coalition Government. They have held high the flag of their moral commitment to the third world. How, consistently with the stand that they are making, can they allow the new proposals to go forward with all the consequences of injustice, hardship and suffering that would follow?
Lord Alton of Liverpool (Crossbench)
My Lords, I wish briefly to raise my voice to support my noble friend Lady Coussins in moving this amendment, and in so doing mention that I am treasurer of the All-Party Parliamentary Friends of CAFOD group, one of the groups that has made representations about the amendments before the Committee.
Some 6 million people have died in the fighting in the Democratic Republic of the Congo over the past 30 years. A lot of the conflict and the human rights abuses, which continue to this day in places such as Goma and the Kivus, where rape is used daily as a weapon of war-a Question on that subject was raised on the Floor of your Lordships' House as recently as last week by the noble Baroness, Lady Kinnock-have been driven on by a culture of appropriation whereby mineral assets have been taken, particularly in the past by companies based in Belgium but also by some British companies, and in a culture of impunity.
Unless it is possible to test such cases in western courts, those violations will go on in the future. That is why it is so important to maintain at least this small opportunity-the opening that exists in domestic law at present-for such cases to be brought before our courts. I hope that when the Minister replies to this amendment, he will be able to tell us precisely how often this provision has been used, whether there has been any cost to the public purse and how much that has amounted to, and whether he thinks that in any event that is a price worth paying to uphold the rights to which my noble friend referred in her admirable speech in moving the amendment.
Lord Avebury (Liberal Democrat)
My Lords, I do not believe that any cost whatever has fallen on public funds but I shall be as interested as the noble Lord, Lord Alton, to hear from the Minister about that aspect of the amendment. Both the noble Baroness, Lady Coussins, in moving the amendment, and my noble friend Lady Hooper, underlined the fact that we are talking about a very small number of cases that would not encourage the development of a litigation culture; quite the contrary. In the few cases that we are talking about, there would be a significant impact not only on the lives of many thousands of people who are directly affected but, as has also been emphasised, on corporate practices and international norms in business and human rights.
I declare an interest as president of the Peru Support Group, which was particularly concerned in the Monterrico Metals case described by the noble Lord, Lord Judd. This is a paradigm case because there is no doubt whatever that the poor indigenous inhabitants of Peru would have been totally unable to mount this action if the proposals in the Bill had come into effect. Is that really what your Lordships want-to say that people in the third world who are victims of appalling human rights abuses by United Kingdom or United Kingdom-based companies are not going to be able to bring proceedings in the courts of law? I do not believe that that is what your Lordships would like to happen. Therefore, I beg my noble friend to listen very carefully and come forward with proposals that, if they are not word for word on the lines of these amendments, at least convey their sense, as the noble Baroness, Lady Coussins, said.
Lord Elystan-Morgan (Crossbench)
My Lords, I, too, support this amendment, which was presented with such lucidity and articulation by my noble friend Lady Coussins. The exact motivation behind the changes that are being incorporated into the Bill is not clear to me. Is it to save the public purse some money, or is there some other purpose? If it is a case of saving the public purse some money, what aspects of the possible results have been examined? Exactly what evidence has been collected? How satisfied are the Government that a net saving in that regard will be brought about? It is obviously not the Government's intention to deprive worthy people of a redress that they have at the moment, albeit in an imperfect state, as my noble friend Lord Pannick suggested. That cannot be the motivation, but undoubtedly that would be the result.
It is true that the number of cases is not immense, but justice is one and indivisible. The stain on the name of justice in these matters is considerable indeed. I remember in the early 1970s being a member of Lord Elwyn-Jones's chambers. He was briefed by some South Sea Islanders whose island had been abused by the rapacious acts of mining companies that were registered in the United Kingdom. Out he went for a conference. As the launch was drawing into harbour, hundreds of people were drawn up on the quay-a very high percentage of the islanders-all singing, "Oh God our help in ages past, our hope for years to come". Elwyn-Jones, being the man he was, was greatly inspired by that and, indeed, the islanders won a redoubtable victory. It is in defence of such situations that I greatly welcome the initiative brought about by the noble Baroness.
Lord Stevenson of Balmacara (Labour)
My Lords, this has been a very interesting debate that has been well supported all round the House. I hope the fact that so many noble Lords have spoken in support of these amendments will weigh on the Minister when he responds.
I would like to spend a few minutes talking about the dichotomy between the rhetoric that we have heard from the Government about the importance of human rights, which we support, and the impact of the measures before us. Under the existing regime, it is already extremely difficult for the cases that we have talked about to be brought in the UK. In the past 15 years, only nine or 10 such cases have been brought. However, these cases have had a significant impact not only on the lives of thousands of people directly affected but-this is important-on corporate practices and international norms in business and human rights.
When the Prime Minister met the Colombian President Juan Manuel Santos in London on
"Governments of the United Kingdom and Colombia reaffirm their shared commitment to respect, protect, and promote human rights. We reaffirm our commitment to uphold the human rights treaties and agreements we are signatories to, in particular the Universal Declaration of Human Rights, and the International Covenants on Civil and Political Rights and Economic, Social and Cultural Rights".
I am sure the Minister and his Government want to match reality to that rhetoric. The problem is that, possibly as a result of an unintended consequence or possibly of trying to get one cap to fit all cases, the considered view from all those involved in this area is that the practical result of the proposed changes will be that it will be almost impossible for poor individuals and communities from the developing world to pursue justice in UK courts. We think that this is wrong in principle but also because of the message that it sends to multinational companies based in the UK. Our amendments would create an exemption so that vulnerable victims of human rights abuses in the developing world would still be able to bring cases to the UK. There is no evidence of any need to address the possibility of a spate of spurious claims here; the truth is that it is already very difficult to bring these kinds of cases against UK-based companies in our courts.
Amending the Bill will be essential if the UK is to meet its commitments on business and human rights and to avoid giving the impression that somehow the Government have gone soft on the way they wish to treat business that causes abuse overseas. The rhetoric is good. We know that the Government have consistently supported the UN "protect, respect and remedy" framework for business and human rights and the guiding principles developed by Professor John Ruggie and adopted by the UN in June 2011. In those framework and guiding principles, Principle 26 explicitly states:
"States should take appropriate steps to ensure the effectiveness of domestic judicial mechanisms when addressing human rights-related claims against business, including considering ways to reduce legal, practical and other relevant barriers that could lead to a denial of access to remedy".
As recently as December 2011, the UK submission to the UN Working Group on Business and Human Rights stated:
"The United Kingdom has placed human rights as central to and indivisible from the core values of British foreign policy. We believe the potential of business to impact on the human rights of individuals worldwide has only been fully recognised in recent years. The endorsement by the Human Rights Council of the UN Guiding Principles on business and human rights in June 2011 marks a high point of international consensus on the issue".
In light of the praise for Professor John Ruggie's achievements, it is vital that we keep open the chance of mounting human rights actions in the United Kingdom. The reality of today's world is that global companies play an increasingly important role and can impact on almost all aspects of our lives. While many UK transnational companies act responsibly, it is important that in situations where human rights abuses occur abroad, poor and vulnerable victims can still seek justice in our courts.
As the noble Baroness, Lady Coussins, said, the Government have already made an exception in the Bill for ATE in clinical negligence cases. Is it not possible to do the same for this limited set of cases? As has been mentioned, the mover and supporters of the amendment met last week the noble and learned Lord, Lord Wallace of Tankerness, and the noble Lord, Lord McNally, who I thank for their time and courtesy in listening to us. I came away from the meeting feeling that there was a willingness to find an accommodation on this issue. If the Minister is happy to signal his willingness to continue those discussions, I am sure that there will be a way of resolving the differences, and I look forward to having a chance to do that.
Lord McNally (Minister of State, Justice; Liberal Democrat)
My Lords, I pay tribute to the noble Baroness, Lady Coussins, and her record in this area. Looking down the list of noble Lords who have spoken in this debate, I see the names of many with whom I have been shoulder to shoulder in many debates. I do not think that there is any division between us on that.
To address the point made by the noble Lord, Lord Stevenson, about the Government's rhetoric on human rights, I shall, to quote Tony Blair, "leave it to history" to make judgments about the coalition Government. However, one thing that I am absolutely proud of is that in a time of great austerity the sustaining of our aid programme and the follow-on impact on human rights around the world will always be to our Government's credit-as, too, will their decision to implement the Bribery Act, to take the lead in international anti-corruption campaigns and to be strong advocates for human rights around the world. There is more than rhetoric in this Government's record on this issue.
I talked with the noble Baroness, Lady Coussins, and the noble Lord, Lord Stevenson, on these issues and, as they know, I am not convinced that the amendments are necessary or appropriate. Let me try to explain why. The Government believe that it is still possible to bring claims against multinational companies once our changes to CFAs are implemented, but the costs involved will be more proportionate to the sums at issue. The proposers seek to address not the validity of the claims but the iniquity of a system that can allow legal costs to escalate to significantly more than the damages at issue.
It is worth emphasising at this stage that the current system of recoverable success fees and recoverable ATE insurance premiums, with the consequence of high civil costs, is not seen in any other jurisdiction in the world. However, I should emphasise that while we should do all we can to ensure that UK business continues to flourish abroad, this will never be done at the expense of violating any of the rights and laws of the host country. The Government are committed to ensuring that UK companies continue to conduct themselves to the highest standards, especially when carrying out trade and transactions in other countries.
CFAs will continue to be available, but the Bill also extends another funding option, to which the noble Baroness, Lady Coussins, referred: the Government are making available alternative methods of funding-such as the use under Clause 44 of damage-based agreements, DBAs, which could be used to fund group actions against multinational companies. Some say that our proposals will decrease the number of these claims, while others, including the Confederation of British Industry and some American companies, are concerned that DBAs will in fact increase the number of such claims. The Government believe that they have the balance right between protecting access to justice and making costs more proportionate. Our aim has been to ensure that litigation is available to stop corporate harm.
It has been mentioned that we were among the champions of the Ruggie guidelines, and it is true that the Government strongly support the UN guiding principles on business and human rights that were developed by Professor Ruggie. We co-operated closely with him on his mandate and fully support the international working group that has been established to take his work forward. I was pleased that I was able to announce that support immediately after that report was published.
One of the problems that have been referred to is the disproportionate difference between the amounts at issue and the legal costs involved. The Trafigura case is often cited as an example where claimants would have been denied access to justice had our reforms already been in place. However, I must stress that once our reforms are implemented, overseas victims of alleged corporate harm by UK multinational companies will still be able to bring claims in England and Wales against such a company.
We are not, as some have suggested, denying access to justice; we are simply trying to restore a much-needed sense of proportion and fairness to the current CFA regime. I can only repeat the extraordinary costs that were claimed in the Trafigura case. The costs sought by the claimant's lawyers were in excess of £100 million, while the damages amounted to £30 million. I am not questioning the merits of that case but only the costs involved, which the Court of Appeal ruled were disproportionate. That is why we are pressing ahead with these reforms.
We are addressing the excessive costs that can be claimed. In addition, these amendments would not meet the objectives of our reform, which are to reduce litigation costs. Rather, the amendments would allow those costs to continue to escalate. The certification process proposed in the amendment opens up uncertainty and significant prospects of satellite litigation in individual cases around the criteria for certifying claims as being suitable for exemption.
The Government believe that our proposals to control legal costs should apply across the board. We are not persuaded that the case has been made for any exemptions-
Lord Judd (Labour)
I am very grateful to the noble Lord for giving way and I would not question at all his personal sensitivity to the issues that have been raised. Over a lifetime, I have known that he cares deeply about these things. However, can he assure the House that in their considerations the Government have taken fully into account one of the complexities that have arisen since 2009, when the Rome II regulations were introduced? They mean that the damages are related to what normally prevails in the country in which the harm occurred, whereas the costs may well be related to what applies within the United Kingdom. This means that there is a huge obstacle to taking on a case of this kind because of the risks involved and what the bill might be if the costs had to be met by those endeavouring to make the claim.
Lord McNally (Minister of State, Justice; Liberal Democrat)
I am aware of that. As the noble Lord said, that issue was to a certain extent present in the Trafigura case, where 30,000 people each received £1,000 and the lawyer got-or tried to get- £100 million.
Lord Elystan-Morgan (Crossbench)
I am most grateful to the noble Lord for giving way. Without detracting in any way from the point made by the noble Lord, Lord Judd, is not the difference between the damages counted and the costs incurred in many cases indicative of the inequality of arms between the situation of the claimants and that of the defendants, many of which are multinational companies with a gross turnover per annum greater than that of 50 of the least privileged countries in the United Nations?
Lord McNally (Minister of State, Justice; Liberal Democrat)
Part of the problem of answering a debate such as this is the horror stories, abuses and problems raised about the capability of multinational companies to misbehave. No one denies that. I have spent most of my life in politics being greatly suspicious of many such operations. We cannot funnel that down to a change in an area that, it has been admitted, has covered 10 cases in the past decade. I understand noble Lords' commitment to take on those abuses, but to suggest that the English legal system is in any way able to meet the point is to put too much of a burden on it.
As I told the noble Baroness, Lady Coussins, I do not believe that such cases will not be brought because often the motive is not profit; it is many of the motives that have been explained tonight. What is at stake for the companies concerned is often not money but reputation. I do not believe that we are creating an insurmountable barrier to take cases where English or Welsh companies are at fault, but I will draw the debate to the attention of my right honourable and learned friend the Lord Chancellor, because the speakers list should be respected. My right honourable and learned friend and I believe that the fear of the effect of what we are doing is exaggerated. The opportunity that the Bill offers for other forms of financing of litigation is underestimated, but I will ask him to read the debate, look at the arguments deployed and consider the amendments. For the moment, I ask the noble Baroness to withdraw her amendment.
Baroness Coussins (Crossbench)
My Lords, I thank all noble Lords who have contributed to the debate and the Minister for his reply. I remain convinced that it would be much better to avoid an undesirable, unintended consequence than to worry about adding something to the Bill that might not be 100 per cent technically, strictly necessary. If the lawyers behind CAFOD, Oxfam and Amnesty are convinced that the amendment is necessary, the Government should take them seriously. I look forward to the Minister's response after he has spoken to his colleagues. This issue will not go away, but, for now, I am happy to withdraw the amendment.
Amendment 136 withdrawn.
Amendments 136A to 137 not moved.
House resumed. Committee to begin again not before 8.55 pm.