Clause 41 — Conditional fee agreements: success fees

Devolved Administrations (Armed Forces Covenant Reports) – in the House of Commons at 5:25 pm on 2nd November 2011.

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Votes in this debate

  • Division number 389
    A majority of MPs voted in favour of increased regulation no-win no-fee arrangements for charging for legal services including capping success fees.
  • Division number 390
    A majority of MPs voted against exempting defamation cases and privacy cases under the right to respect for private and family life from regulation, including caps, on success fees in no-win no-fee arrangements for charging for legal services.

Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

With this it will be convenient to discuss the following:

Amendment 150, in clause 41, page 29, line 36, at end insert—

‘(4A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a claim for damages for loss or bodily injury resulting from exposure to a harmful substance or process where the claim is made against a person who—

(a) carries on business in more than one country, or

(b) owns (wholly or partly) one or more businesses carried on in more than one country or in different countries.’.

Amendment 164, in clause 41, page 29, line 36, at end insert—

‘(4A) The amendments made by subsections (2) and (4) do not apply in relation to a success fee payable under a conditional fee agreement made in relation to—

(a) any proceedings in relation to a claim for—

(i) libel,

(ii) slander,

(iii) misuse of private information;

(b) any proceedings arising out of the same cause of action as any proceedings to which sub-paragraph (a) refers.’.

Amendment 163, in clause 41, page 29, line 41, at end insert—

‘(7) The amendments made by subsections (2) and (4) do not apply in relation to a success fee payable under a conditional fee agreement made in relation to—

(a) any proceedings based on a claim of defamation; or

(b) any proceedings based on a claim of privacy under Article 8 of the European Convention on Human Rights; or

(c) any proceedings arising out of the same cause of action as any proceedings to which paragraphs (a) or (b) refer.’.

Amendment 22, page 31, line 1, leave out clause 43.

Amendment 151, in clause 43, page 31, line 45, at end insert—

‘(6) This section does not apply in relation to a costs order made in favour of a party to proceedings which include a claim for damages for loss or bodily injury resulting from exposure to a harmful substance or process where the claim is made against a person who—

(a) carries on business in more than one country, or

(b) owns (wholly or partly) one or more businesses carried on in more than one country or in different countries.’.

Amendment 165, in clause 43, page 32, line 4, at end insert—

‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings in a cause of action in relation to a claim for—

(a) libel,

(b) slander,

(c) misuse of private information.’.

Amendment 72, page 32, line 5, leave out clause 44.

New clause 39—Road traffic accident pre-action protocol—

‘(1) The Table in Rule 45.29 of the Civil Procedure Rules 1998 (SI 1998/3132) (Amount of fixed costs under the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents) is amended as follows.

(2) The figure for Stage 1 shall be £200.

(3) The figure for Stage 2 shall be £400.

(4) The figure for Stage 3 for Type A fixed costs shall be £125.

(5) The figure for Stage 3 for Type B fixed costs shall be £125.

(6) Any further amendment to the Table shall not be made by the Civil Procedure Rule Committee but may be made by the Lord Chancellor by rules made by statutory instrument and may not be made until a draft of the rules has been laid before and approved by resolution of both Houses of Parliament.’.

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

This is an important group of amendments to part 2 of the Bill, which deals with a complex and vital area of access to justice. Because there are only 20 minutes left to debate this group, and I want to be fair to the Minister and give him 10 minutes to reply, I shall speak quickly in the hope of getting through the main part of my argument. I should make it clear at the outset that I wish to press to a vote amendment 21, which would undo the destruction of conditional fee agreements that the Government are pushing through in the Bill. I also ask, with the leave of my hon. Friend Chris Bryant, the lead signatory to amendment 163, that we press that amendment to a vote.

Conditional fee agreements, also known as no win, no fee agreements, were brought in by a Conservative Government to preserve access to justice for those on moderate means at a time when vast areas were being removed from the scope of legal aid and eligibility criteria were being removed. The provisions were amended, with a remarkable lack of contention from the Conservative Opposition, in the Access to Justice Act 1999, to create their modern form.

The idea of contingency fee agreements was to create a viable market in legal services by introducing success fees paid by losing defendants—wrongdoers, in other words—to compensate lawyers for the cases that they lost, for which, of course, they received no fees. For lawyers, that form of payment by results meant not that they would take on spurious cases, but that they were allowed to take on cases that might be 75:25 or 50:50. That has created a system that works, for the main part, very well. It has created a viable market in legal services and permitted access to justice for millions since it was introduced.

What sort of people have availed themselves of contingency fee agreements? More than half of those who have used them have had an income below £25,000 a year and only 18% have had an income of more than £40,000 a year. Government Members carp on about footballers and models using them, but the average claimant is the average constituent.

How do the Government’s proposals work? First, winning claimants will lose. Victims will have to pay the costs of their insurance and their lawyer’s success fees from their damages—up to 25% of damages, aside from damages for future care, can be taken by the lawyer, and the insurance premium will take up even more of those damages, perhaps wiping them out altogether. To make up for part of those losses, the Government plan a 10% increase in damages for pain, suffering and loss of amenity. Simple maths should be sufficient to show that that will not make up for all losses.

Losing claimants, including those bringing speculative and nuisance claims, will gain. They will benefit because it is unlikely that they will have to pay the costs of the winning defendant—that is part of the perverse, qualified one-way cost-shifting scheme that the Government intend to introduce when the Bill passes.

Losing defendants—wrongdoers, in other words—and their insurers will gain. Wrongdoers will benefit, because they do not have to pay the cost of after-the-event insurance or the victim’s lawyer’s success fees, thus limiting their liabilities and those of their insurers. Winning defendants will lose out. A winning defendant will no longer be able to reclaim the cost of their defence, thanks to qualified one-way cost shifting. To summarise, winners lose and losers win. That is simply wrong.

There was a time when the Conservative party worried about access to justice, but now it appears to be nothing more than the parliamentary wing of the insurance lobby, which according to an investigation by The Guardian has donated £4.9 million to the Tories since the Prime Minister became leader.

I have spent the past few months speaking to victims who have used contingency fee agreements to get justice. I have heard them tell me how our justice system helped them, and their fears that others who suffer in future will not get the help they need. A number of areas of law will be badly—

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

I would love to give way to the Secretary of State, but I have very little time—[ Interruption. ] If I have time at the end I will do so.

A number of areas of law will be badly affected by this legislation, and I should like briefly to touch on a few of them—[Hon. Members: “Give way!”]

Photo of Kenneth Clarke Kenneth Clarke The Lord Chancellor and Secretary of State for Justice

I am sorry that the hon. Gentleman had to be bullied to give way to me, but there we are. I do not want him to exaggerate his case. No win, no fee was introduced by the Major Government and worked perfectly satisfactorily until the previous Government amended it. We are talking about how much winning lawyers are paid. The principles of access to justice and of no win, no fee are agreed on a bipartisan basis. They are not threatened at all by the Bill.

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

I began my speech by informing the house how contingency fee agreements came about. Because the Secretary of State has merely repeated that, I will penalise the Minister by taking a minute off his time.

The Secretary of State believes that there are faults in the current system whereby lawyers are unjustly enriched—he may be right, and my right hon. Friend Mr Straw and I, and many other hon. Members, would probably agree with him—but let us cure those faults. Let us not throw the baby out with the bathwater.

Photo of Chris Bryant Chris Bryant Shadow Minister (Home Affairs)

Some categories of proceedings are particularly expensive to advance, yet lead to relatively minor awards. For instance, the largest award in a privacy case is £60,000, and below that, £13,000. The vast majority of libel cases end up with awards of less than £100,000. The problem is that in those cases, families such as the Dowlers, and people such as Christopher Jefferies, who was on the radio this morning, would have no chance of access to justice.

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

That is why I will be very pleased to support amendment 163, which is in my hon. Friend’s name. As I have indicated, there are some cases—libel is a good example—when damages are small, but the defamation is important. Under the Secretary of State’s scheme, more than the sum of the damages could therefore be taken in fees.

Let me go through other areas of law, and I will come to privacy at the end if I have time. On clinical negligence, it is unavoidable that there will be good and bad doctors, just as there are good and bad in any profession. It is just and proper that compensation is paid to anyone harmed as a result of inaction, negligence or incompetence when a medical professional fails to live up to their obligations. I say that despite the fact that when the Secretary of State gave the figures, he conflated the cost of damages, claimant costs and defendant costs and pretended that they were a cost figure in themselves, for which he had to make another apology to my right hon. Friend Sadiq Khan.

On professional negligence, taking on a professional is always risky. No one knows the system better. People are never 100% likely to win such cases. Without success fees to compensate for the risk, many such cases will not be brought in future. So who will lose out? It will be the first-time home buyer whose surveyor negligently fails to spot subsidence, the pensioner whose financial adviser negligently makes a high-risk investment, the hard-working small businessman whose accountant negligently fails to prepare accounts and lands him with a huge tax bill that he cannot pay, and the bereaved family whose probate solicitor takes three years to deal with the case and then charges huge fees. Those are the kinds of case that our constituents experience.

Business and human rights cases perhaps highlight the problems even more starkly. My hon. Friend Lisa Nandy has tabled an amendment, which I fear she will not have time to speak to, that addresses precisely this issue. It is backed by Amnesty International, the Catholic Fund for Overseas Development, Friends of the Earth and Martyn Day of Leigh Day and Co., who brought Trafigura to justice on behalf of 30,000 Côte d’Ivoirians who were poisoned by toxic waste.

I move on to employers’ liability and breach of duty by an employer. We have created some of the safest workplaces in the world in Britain, and our incidence of accidents at work is among the lowest in the world. That is thanks in large part to the labour and trade union movement, which has made it a priority over the past 100 years. In one fell swoop, victims will have their rights taken away and employers will be incentivised to act negligently and capriciously.

Insolvency practitioners—for whom even Her Majesty’s Revenue and Customs and the Insolvency Service are lobbying for an exemption—have told us that they will not be able to bring cases. Given that HMRC is the largest creditor, with 25% of all unsecured credit, the public purse will lose out by up to £200 million a year. It will actually cost us money to enact the Bill.

I will move on to industrial diseases. The Association of British Insurers, an organisation that the Minister knows well and has met many times, is still obstructing victims of pleural plaques to try to avoid paying out. In the Insurance Times, it described a recent ruling in favour of victims of pleural plaques as a “disappointment”.

Finally, in the minute or two I have left, I turn to privacy cases and the amendment in the name of my hon. Friend the Member for Rhondda. No one can forget the case of Milly Dowler. It remains a great source of anger throughout the country. When we heard that the phones of Milly’s parents, Bob and Sally, had been hacked by News International, we were all rightly outraged. We often hear about rich and powerful people having their privacy or reputation trashed by the press. However, there are thousands of cases that happen quietly to weak, vulnerable people who are exploited for cheap and tawdry scandal. Their only recourse is through the courts, and the only means to achieve justice is no win, no fee. The Dowlers bravely put their case to the Prime Minister. Without no win, no fee, they could never have taken on the leviathan of News International.

I will quote briefly from the Dowlers’ letter to the Prime Minister:

“What helped was the fact that we would be insured if we lost a case and the premium…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 were lucky that we fell under that system. We understand that the new law will affect thousands of people who want to sue News International and other newspapers. We had understood that you were on the side of the people not the press. Please do not change the law so that the ability to sue the papers is lost.”

They end by saying:

“We are sure you do not want to go down in history as the Prime Minister who took rights away from ordinary people”.

I put those comments to the Minister and the Secretary of State today. That is the question being asked of us. Do we want to go down as the Parliament that took rights away from ordinary people so that large companies could break the law and behave as they like, without people being able to challenge them?

Part 2 of the Bill is appalling. Access to justice is being destroyed. When the Minister challenged me earlier and said that I was talking about part 2 during our discussion of part 1, as so often he missed the point.

Photo of Ben Wallace Ben Wallace Conservative, Wyre and Preston North

PPSs are allowed to make points of order. Throughout the proceedings on the Bill Opposition Front Benchers, particularly Mr Slaughter, have made points about the perceived failure of Government Front Benchers to declare their interests. However, the hon. Gentleman has failed to point out that on 119 separate occasions the Labour party has received donations from lawyers who make their money from success fees.

Photo of Lindsay Hoyle Lindsay Hoyle Chair, Panel of Chairs, Deputy Speaker and Chairman of Ways and Means, Chairman of Ways and Means

Order. That is not a point of order and the matter was dealt with earlier in the week. Let us have no more of that.

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

Let me just say that if the Government start talking about conflicts of interest on this Bill, they will open a Pandora’s box.

Mr Deputy Speaker:

Order. We are not going to open Pandora’s box. We are going to deal with the amendments before us.

Photo of Andrew Slaughter Andrew Slaughter Shadow Minister (Justice)

I was not talking about the Minister; I was talking about the Bill. I am not surprised that the Minister’s PPS is embarrassed by the Bill, after sitting through our proceedings in Committee.

The common link between parts 1 and 2 of the Bill is the destruction of access to justice in a way that we have not seen since the introduction of legal aid by a Labour Government after the second world war. The insurance industry is being given one of the biggest pay-offs in history which, as we know from experience, will go into the pockets of their directors and shareholders. While other aspects of this Bill display the startling incompetence of this Government, none shows their intent more truly than the provisions in part 2, which would give the whip hand to large public and private corporations, while taking rights away from ordinary people. What is the point in having rights if they cannot be enforced?

I ask the Liberal Democrats to look at amendment 21, which would deal with cases such as Trafigura and pleural plaques, and amendment 163, which would deal with cases such as that of Milly Dowler, and join us in the Lobby tonight.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

Amendments 21, 22, 72, 163, 164 and 165 all seek to undermine a fundamental element of the package of reform of civil litigation funding and costs based on the report prepared on behalf of the judiciary by Sir Rupert Jackson and now included in this Bill—the abolition of recoverability of success fees and after-the-event insurance premiums. I must say that I am rather perplexed by the amendments as in Committee Mr Slaughter agreed that the intention of part 2 is

“perfectly sound, and it is one with which we have a great deal of sympathy.”––[Official Report, Legal Aid, Sentencing and Punishment of Offenders Public Bill Committee, 13 September 2011; c. 501.]

I will also deal with new clause 39, which is on the related but slightly separate matter of recoverable costs for low-value road traffic accident claims.

It is worth emphasising, as the Justice Secretary has just said, that we are not proposing to end conditional fee agreements or no win, no fee deals. What we are addressing is the substantial legal costs that go to lawyers under the current no win, no fee regime. Our reforms are designed to make these legal costs more proportionate, while enabling meritorious claims to be brought. This applies equally to defamation and privacy claims and multinational claims as to other categories of case, but it is worth reminding ourselves of some of the disproportionate costs that have arisen and that emphasise the need for our reforms across the board.

Photo of Chris Bryant Chris Bryant Shadow Minister (Home Affairs)

The Minister referred specifically to defamation and privacy cases. The problem is that in the vast majority of cases—and in every single instance case in privacy cases—the awards are so small that if there is no success fee, it will be completely uneconomic for a lawyer to come forward with a CFA. That may not be the Minister’s intention—I take him at his word—but the effect will be to stop CFAs in libel, defamation and privacy cases.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

In some cases, where the balance is against, that perhaps should be the case. In Naomi Campbell’s defamation case against the Daily Mirror, she received damages of £3,500 but the total costs exceeded £1 million.

In relation to clinical negligence claims, which can of course include substantial damages in catastrophic injury cases, lawyers’ costs are about half of the total damages that are paid out. In 2009-10, for example, the NHS paid out £297 million in damages and £121 million in legal costs, over half of which were no win, no fee costs. One of the leading no win, no fee cases against a multinational company is that against Trafigura. In that case, the claimants’ legal costs were more than £100 million, but the damages recovered were only £30 million. As a result, 30,000 claimants in the Ivory Coast received damages of an average of only £1,000.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

I will not—[Hon. Members: “Go on!”] I am afraid that I do not have time to give way.

It is these high legal costs which led to Sir Rupert Jackson’s review. Specifically in relation to defamation and privacy, it is these high legal costs which led to Mr Straw, when he was Justice Secretary, seeking to introduce similar changes to those we are now proposing to reduce excessive legal costs, but he mistakenly limited them only to defamation and privacy cases. In effect, that is the exact opposite of what Chris Bryant proposes in his amendment. The sands seem to have been shifting dramatically in the Labour camp on this issue.

New clause 39, tabled by the right hon. Member for Blackburn, would reduce the amount of fixed recoverable fees on the pre-action protocol for low-value road traffic accidents in the light of the impact of the ban on referral fees. The Department is now reviewing the situation, but to achieve this outcome does not require primary legislation. Instead, a reduction can be implemented through changes to the Civil Procedure Rules. I can give the commitment that we are looking at this. Indeed, my officials plan to consult on appropriate changes to the level of recoverable costs, and any changes will be placed before the Committee for approval. I can also tell him that I do not intend to go to all the trouble of stopping referral fees being paid to claims management companies, only to see those same fees staying with the lawyers rather than going back to consumers in lower insurance premiums or prices in the shops.

Photo of Jack Straw Jack Straw Labour, Blackburn

I am grateful to the Minister for those undertakings.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

I shall take each amendment in turn. Amendment 21 would remove clause 41, the effect of which is to amend the Courts and Legal Services Act 1990 so that success fees under a conditional fee agreement will no longer be recoverable from a losing party in any civil proceedings. Amendment 22 would remove clause 43. I should make it clear that we have listened carefully to specific concerns about the abolition of recoverability of after-the-event insurance premiums in clinical negligence claims and the impact it would have on funding expert reports. Such reports, which can be expensive, are often necessary in establishing whether there is a case for commencing proceedings, which raises particular issues if recoverability of ATE insurance is abolished. In responding to these concerns, clause 43 provides, by way of exception, for the recoverability of premiums in respect of ATE insurance taken out to cover the cost of expert reports in clinical negligence cases.

Amendment 72 would remove clause 44, which abolishes the recoverability of the costs incurred by membership organisations, such as trade unions, of insuring themselves against the risk of paying costs to another party in the event of losing a claim. I strongly believe that the abolition of recoverability should apply equally to the arrangements for membership organisations in order to maintain a level playing field. Amendments 150 and 151 seek to allow the recoverability of success fees and ATE insurance premiums from a losing party in certain claims for damages against a person who carries on business in more than one country or who owns one or more businesses carried on in more than one country or in different countries.

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

We understand that these amendments seek to protect the rights of individuals—[Hon. Members: “Go on. Give way.”] Oh, all right. How can I resist?

Photo of Lisa Nandy Lisa Nandy Labour, Wigan

I thank the Minister for finally recognising just how strongly so many of us on both sides of the House feel about this issue and how unfortunate it is that we have not been able to make the case today. Unfortunately, we have not had sufficient answers to make Members on both sides of the House feel that these cases will be able to continue. Will he therefore agree to meet a cross-party group of us before the Bill is sent to the other place, so that e can make at least make our case before the Bill becomes law?

Photo of Jonathan Djanogly Jonathan Djanogly The Parliamentary Under-Secretary of State for Justice

The hon. Lady will be pleased to hear that I have met the Corporate Responsibility Coalition—CORE—and the solicitors who acted for Trafigura. I have acted for a number of people, and of course I shall be prepared and happy to receive additional representations from her.

We understand that the amendments seek to protect the rights of individuals in developing countries to claim damages against large multinational companies, but the amendments go much wider than that, and would provide that a losing defendant should pay the success fee and ATE insurance premium based on whether it is a multinational company, regardless of the nature of the claim or status of the claimant.

Given the concerns that I have been raising in relation to cases brought by claimants in developing countries, I shall concentrate my response on those cases. The amendments are neither necessary nor appropriate. The Government believe that it will still be possible to bring claims against multinational companies, once our CFA reforms are implemented, but—this is one of the major reasons for our reforms overall—we believe that the costs involved will be more proportionate to the sums in issue. What the proposals in the Bill seek to address is not the validity of the claims, but the iniquity of a system that can allow such disproportionate costs. It is worth emphasising that the current system of recoverable success fees and recoverable ATE insurance premiums, with the consequences for high civil costs, is not seen in any other jurisdiction in the world. CFAs will continue to be available, but the Bill also extends the funding options. The Government seek to allow damages-based agreements to be used for the first time to fund such claims. Group actions in particular are suited to DBAs, as legal representatives may recover their fees as a percentage of the damages awarded to each successful claimant.

Amendments 163, 164 and 165 seek to ensure that success fees continue to be recoverable in defamation and privacy claims. The Government are aware of concerns about access to justice and the ability of those with modest means to pursue claims, often against powerful organisations. I am aware that there are slight definitional differences, which I will not go into. However, all hon. Members will be aware of one of the most high-profile cases, involving the Dowler family, who were successful in their claim against News International.

Deba te interrupted (Programme Order , 31 October ).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the amendment be made.

The House divided:

Ayes 223, Noes 315.

Division number 389 Legal Aid, Sentencing and Punishment of Offenders Bill — Clause 41 — Regulation of No-Win No-Fee Arrangements

A majority of MPs voted in favour of increased regulation no-win no-fee arrangements for charging for legal services including capping success fees.

Aye: 223 MPs

No: 315 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Absent: 108 MPs

Absents: A-Z by last name

Question accordingly negatived.

The Deputy Speaker then put forthwith the Questions necessary for the disposal of business to be concluded at that time (Standing Order No. 83E).

Amendment proposed: 163, page 29, line 41, at end insert—

‘(7) The amendments made by subsections (2) and (4) do not apply in relation to a success fee payable under a conditional fee agreement made in relation to—

(a) any proceedings based on a claim of defamation; or

(b) any proceedings based on a claim of privacy under Article 8 of the European Convention on Human Rights; or

(c) any proceedings arising out of the same cause of action as any proceedings to which paragraphs (a) or (b) refer.’.—(Chris Bryant.)

The House divided:

Ayes 222, Noes 305.

Division number 390 Legal Aid, Sentencing and Punishment of Offenders Bill — Clause 41 — Regulation of No-Win No-Fee Arrangements

A majority of MPs voted against exempting defamation cases and privacy cases under the right to respect for private and family life from regulation, including caps, on success fees in no-win no-fee arrangements for charging for legal services.

Aye: 222 MPs

No: 305 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Absent: 119 MPs

Absents: A-Z by last name

Question accordingly negatived.