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Committee (7th Day)

Legal Aid, Sentencing and Punishment of Offenders Bill – in the House of Lords at 3:38 pm on 1st February 2012.

Alert me about debates like this

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 45 : Recovery of insurance premiums by way of costs

Amendment 141

Moved by Lord Thomas of Gresford

141: Clause 45, page 31, line 30, at end insert ", (2A) or (2B)"

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat 3:59 pm, 1st February 2012

My Lords, Part 2 of the Bill has its complexities, but all sides are agreed on two principles.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

All sides are agreed on two principles-access to justice must be maintained and undue cost must be squeezed out of civil litigation. The issue is what the best framework is for achieving these ends. Unlike with Part 1 of the Bill, public money is not directly involved in supporting the litigation that we are referring to in Part 2.

All sides recognise the unforeseen and unintended consequences of the Access to Justice Act 1999, which threw the burden of the success fee and the ATE insurance premium on to losing defendants and removed from the claimant any interest in the amount of the success fees and premiums that they were only theoretically obliged to pay. Save for the recent changes introducing fixed fees in Road Traffic Act litigation, lawyers have been able to charge 100 per cent success fees, whether or not they undertake other, riskier cases. Insurers have fixed levels of premiums with which not even the costs judges on taxation are able or willing to quarrel.

This policy may have helped claimants by allowing them to retain the full amount of the damages awarded to them. However, the removal of the restraint of competition as to the size of success fees and ATE premiums has put an undue burden of fourfold cost on defendant insurers. Ultimately, this is not in the public interest, because insurers take their profit and pass the burden on in increased premiums for motoring, household, employers and public liability insurance. Self-insured large companies and public bodies such as the NHS and public authorities that are funded from the public purse generally carry the burden themselves.

The Bill proposes to shift the burden. The claimant will pay the success fee, which will be limited to 25 per cent of his damages for pain, suffering and loss of amenity and loss of earnings and expense to the date of trial. He will also carry the burden of the ATE premium to an amount that is not limited. The champagne corks will indeed be popping in the City by relieved liability insurers and in NHS trusts, town halls and board rooms all over the country. If these defendants win, all their own costs will be paid by the ATE insurers-assuming, of course, that there is still an ATE market and that the premium is affordable-unless a regime of one-way cost shifting that I talked about on Monday last is introduced at the same time, which will require defendants, win or lose, to pay their own costs.

The Jackson report, which sets out all the consultations that Lord Justice Jackson undertook, demonstrates that insurers and public bodies are up for it and accept that one-way cost-shifting, a system that has operated in legal aid cases since 1949, is a fair price for removing from them their present liability for uncontrolled success fees and uncontrolled "after the event" premiums. If one-way cost-shifting is introduced, at a stroke a claimant will lose the fear of having to pay the defendant's costs if he loses the case, costs that might ruin him and remove the roof from over his head. At a stroke, the "after the event" insurance premium, which is currently in place largely to cover the defendant's costs, will be savagely cut back. A claimant will have to cover only the risk that if he loses he will be responsible not for the defendant's costs but for his own disbursements, court fees, expert and medical fees. Just as it is conceivable that in competing for business a solicitor might advertise that he will not charge a success fee, a solicitor with a large standard practice might well be prepared to absorb disbursements in the cases that he loses. We shall have to see whether that happens.

All this is by way of introduction to my amendments, which deal with a discrete area of litigation-environmental law, involving public law and private claims and the tort of nuisance. Public law cases are judicial review claims brought mainly by individuals concerned by inappropriate development-for instance, whether planning permission has made proper allowance for the effect on local flora and fauna by a particular development or whether a waste dump is in the right place. Private nuisance has enjoyed a real renaissance through the help of independent solicitors since the access to justice scheme came into being. A private nuisance is an interference to land or to rights associated with land caused by the unreasonable conduct of the defender. It is the last resort for local residents who need injunctive relief from a polluter who will not run his enterprise with proper concern for his neighbours, and where the regulator is unable or unwilling to take steps to abate the problem.

I am indebted to Stephen Hockman, Queen's Counsel, a former chairman of the Bar, Stephen Tromans, Queen's Counsel, named as environment/planning Silk of the Year at the Chambers Bar Awards 2011, and Gordon Wignall, a barrister specialising in nuisance cases and editor of the third edition of the Law Society's Guide to Conditional Fees. I have circulated copies of their joint opinion on the impact of the Aarhus convention on costs and funding rules that are applicable in environmental cases.

The Aarhus convention is concerned with access to justice in environmental matters and was ratified by the United Kingdom in February 2005 at the same time that it was ratified by the European Community. The relevant text is set out in the opinion, but the effect is that the United Kingdom is bound to provide "adequate and effective remedies" in this area,

"including injunctive relief as appropriate, and be fair, equitable, timely and not prohibitively expensive".

The convention applies both to judicial review claims in the administrative court and to private law actions in nuisance. The Supreme Court, in a recent case, has referred the question as to the test to be applied in order to determine whether proceedings are "prohibitively expensive" to the European Court of Justice. In one case that is quoted in the opinion, for example, a defendant's costs amounted to well over £3 million. Is that prohibitively expensive?

Since the Minister and others already have a copy of the full opinion, I will simply put the conclusions of the learned counsel on the public record. First, the current costs rules run contrary to the international treaty obligations of the United Kingdom, which the United Kingdom voluntarily accepted. Problems arise largely out of the insistence on the "costs follow the event" rule, which tends to lead to inconsistency with the aims of participating in environmental justice and results in a claimant's liability to pay prohibitively expensive costs.

Secondly, the compliance committee's last deliberation in the ClientEarth case required the United Kingdom to review its costs rules and recommended rectification. Thirdly, two detailed reviews relevant to environmental proceedings in England and Wales have subsequently been undertaken and presided over by members of the Court of Appeal. The learned counsel are referring to the Jackson report, which we have been discussing, and to the report of Lord Justice Sullivan on access to environmental justice. These have been endorsed by the senior judiciary, and the primary recommendation was that the use of qualified one-way cost-shifting in environmental cases would have a dramatic inroad into the "costs follow the event" principle.

Fourthly, by withdrawing the recovery of "after the event" premiums, the size of which cannot be met by claimants or their legal representatives, without providing at the same time for one-way cost shifting as a replacement in environmental claims, the Government have elected to retreat from the full proposals of the Jackson report and the Sullivan report, which were conducted by those eminent Lords Justices. Fifthly, the consequence is that the United Kingdom, already in breach of its convention obligations, is diverging from rather converging with its own environmental expectations and those of the international community.

Sixthly, the further consequence is that claimants who wish to protect the environment and participate in environmental justice are even less likely to be able to do so than at present. This is predominantly because of the risk of incurring a liability for defendant's costs that may well be prohibitively and grossly expensive in any event, but also because of the uncertainty that claimants face about their liability for those costs, which under the Government's proposals will be known only once the litigation, whether public or private, has been concluded.

Claimants in environmental cases do not want damages; they want relief from the consequence of poor decision-making by public bodies or protection from the degradation of their environment. Even in multiparty actions, damages-based agreements are not a solution. My amendments would enable the Government to honour their international environmental obligations rather than turn their back upon them.

Amendment 147 would provide in subsection (2A) that in an environmental claim the losing defendant would pay the premium in respect of disbursements by way of fees for expert reports paid by the claimant. In subsection (2B), the losing defendant would pay the premium on the costs insurance policy if he had agreed to do so prior to the commencement of the proceedings. There are occasions when a defendant will agree to pay the claimant's premium for "after the event" insurance whether he wins or loses, because if the defendants succeed then they will get all their costs from the ATE insurers.

Amendment 150 defines "environmental claim" by the same definition as is contained in the Aarhus convention. The use of this definition would ensure that only nuisance cases that were truly environmental in nature would be within the scope of my amendment. Insurance recovery claims and private nuisance-for tree-root subsidence, for instance-would not get the amendment of the amendment.

Amendment 157 would introduce qualified one-way cost-shifting in both environmental claims and other claims. The amendment was drafted before I had refined my own views, which I explained at small length on Monday last on this topic. The word "unreasonably" therefore appears in the amendment but I repeat my objections to the vagueness of the word "unreasonable" and reiterate the necessity for clarity by expanding what is unreasonable, as Lord Justice Jackson did, into the familiar expressions of "fraud", "frivolous and vexatious conduct" and "abuse of the process of the court".

Why should we single out environmental law for different treatment from other areas of litigation? Essentially, I am not. In the amendments I am arguing for one-way cost-shifting as a precondition for change and for the premium for cover for disbursements-a far lesser amount than the current premiums recovered against the potential defendant's cost liabilities-to be recovered from the losing defendant. That is very similar to what I was saying on Monday, when I suggested that there are positive benefits in dividing liability for these lesser premiums between the claimant and the defendant in a staged way. In any event, the issue is far more urgent in environmental cases because of our obligation to comply with the Aarhus convention.

A tidy mind might try to bring every aspect of litigation into one structure, one piece of architecture-the word that the Minister used on Monday-but litigation is not like that. Time and again the Jackson report emphasises that one size does not fit all. I quote from page 44:

"many submissions during the Costs Review have emphasised that 'one size does not fit all'. The Bar Council, for example, states: 'What is abundantly clear, from Jackson LJ's Preliminary Report and from the Bar Council's review, is that "One size does not fit all." Particular types of litigation give rise to particular issues, be they funding issues, case management issues or otherwise".

That is a recurring theme in the Jackson report and every practising lawyer will agree.

Photo of Lord Carlile of Berriew Lord Carlile of Berriew Liberal Democrat 4:15 pm, 1st February 2012

I apologise for interrupting my noble friend. Before he sits down, will he help us on this matter in relation to his narrower point on the Aarhus convention? He was kind enough to circulate the learned opinion of Mr Hockman and others, including, as I understand it, to my noble friend the Minister. Will my noble friend tell the House whether he has had a response to the opinion of Mr Hockman and others? If not, does he agree with me that it might shorten the debate if, after he has sat down, the Minister were to indicate whether or not the Government accept the premise of the Hockman opinion?

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

I am most grateful to my noble friend for interrupting me with one paragraph to go, which would have relieved your Lordships a great deal. The opinion has only recently been produced to me and the Bill team has had it only for a day, so I could hardly expect an immediate response. I hope that my noble friend the Minister will be able to deal with some of the issues that are raised and the issues that I am raising in my remarks.

To conclude, the one size does not fit all is a recurring theme in the Jackson report. Every practising lawyer will agree with that. Proof of the issues that arise in litigation-sometimes liability, sometimes causation, sometimes quantum, and so on-gives rise to different risks and therefore to different solutions. This very Bill, for example, proposes different statutory instruments making different provision for different types of case. I look forward to hearing my noble friend's response in due course. I beg to move.

Photo of Lord Lester of Herne Hill Lord Lester of Herne Hill Liberal Democrat

My Lords, I must choose my words carefully because I do not wish what I say to be taken to be outright opposition to my noble friend's amendments, although I have a certain degree of agnosticism, if not scepticism. I suggest that those who are interested in this area might read the New Yorker article of a couple of weeks ago, which described the abuse of power by the claimant lawyers in the Exxon South American environmental litigation case. That indicates the need for very careful safeguards, even in an environmental setting.

The only reason I speak at all is because it occurs to me that there is a less radical solution to some of the problems that has been fashioned by the courts themselves without any legislative intervention: namely, the protective costs order. I see that the noble Lord, Lord Beecham, shakes his head. I shall explain what I am talking about. The problem with English cost rules is, of course, the winner-takes-all rule, which can, as my noble friend has indicated, have a seriously chilling effect on the ability to bring public interest litigation. It is the fear of claimants and their advisers of having to pay the legal costs of the defendant that has a chilling effect.

I was involved in the Corner House case for a small NGO that was seeking to challenge the lack of proper consultation by the Secretary of State in relation to anti-corruption provisions in the export guarantee area. This was not an environmental matter but it did concern public law. The problem was that the little NGO had absolutely no funds to pay for me but, more importantly, the department. The department would not give an assurance in advance that if it succeeded, it would not ask for the whole of its costs against the NGO. Therefore, the puzzle was how the NGO could bring the public interest proceedings not simply by dealing with the claimant's position but dealing with the other side.

Sir Henry Brooke, to whom I pay tribute and who throughout has led thinking on this issue within the judiciary, advocated the use of a protective costs order, which enabled us to go before the court and say, "Even if we lose, can we please have a protective order that protects us against the risk of having to pay the other side's legal costs in advance, so that we know that the worst thing that could happen to the Corner House NGO would be if it had to pay its own costs?". I am glad to say that that was what was eventually decided and the result was that the Corner House was able to litigate.

I am embarrassed to say that I signed a 100 per cent success fee agreement without realising the consequence, which was that I actually profited from what I had thought to be a public-spirited case. I did not return the money, since it was being paid by the Government. I am against 100 per cent success fees and I would never do it again-ever.

However, the point I am making is not about success fees, but that if one develops through the courts, on a case-by-case and flexible basis, a way of softening the winner-takes-all rule in appropriate cases-not just environmental but all cases-that would enable the weak and impecunious to avoid the effect of that rule. The Constitutional Court of South Africa has decided that the winner-takes-all rule should never apply in important constitutional cases, and that in a proper public-interest case each side should at least bear its own costs and, in some circumstances, the Government should be required to pay the claimant's costs, or give an undertaking in advance to give that protection.

This is a slightly long-winded way of saying that there are other means that perhaps are to be encouraged by the legislature, or perhaps not. There are other means that the courts themselves have been developing that can deal with some of the points made by my noble friend without something quite as radical as the proposals suggested in his amendments.

Photo of Lord Avebury Lord Avebury Liberal Democrat

My Lords, does my noble friend agree that the protective costs order that he was successful in obtaining in the case he mentioned was a one-off, that it was not a general rule of law but a matter of luck that his clients were indemnified against the likelihood that they would have to pay the other side's costs, and that in the amendment that would be a general rule of law that would apply to all such cases?

Photo of Lord Lester of Herne Hill Lord Lester of Herne Hill Liberal Democrat

Actually, I cannot agree, because the Court of Appeal's decision was a kind of precedent and it has been followed. There have been arguments about what limits there should be on claimants-whether they should be like an NGO or otherwise-but it would be perfectly possible for a rule to be made by the Lord Chancellor expressly empowering the courts to apply protective costs orders on a more general basis. This was not just a one-off decision; it applied in a line of cases and has been developed since.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

I am sure that my noble friend would agree, however, that protective costs orders are matters of discretion for the judge who hears an application, and that the threshold is extremely high. In his particular case, he obviously advanced matters of considerable public interest that were much wider than only the issues in the litigation that affected his clients. So a protective costs order can be applied for in such cases. However, I was involved in the case following the flooding of houses at Aberfan that occurred as the result of the spoil banks placed there after the disaster. In that sort of case, where individual householders were affected, protective costs orders would not have met that threshold.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

My Lords, at the risk of being accused of unqualified one-way sycophancy, I must again congratulate the noble Lord, Lord Thomas, on the clarity of his presentation of this complex issue. Although I somewhat dissociate myself from the preamble to the substantive part of his speech, I entirely concur with his amendments. At this stage, I should also express my thanks to the learned counsel whose advice has instructed me in a matter about which, hitherto, I knew nothing. Aarhus meant absolutely nothing to me up till now. It seems that I may have shared that failing with Her Majesty's Government. We shall see from the Minister's reply whether that is a correct inference or not.

The noble Lord referred to the ClientEarth case in which the Aarhus Convention Compliance Committee observed that the cost rules pertaining in the United Kingdom placed it in systemic breach of Article 9.4 of that treaty. The committee concluded that we had not as a country adequately implemented our obligation to ensure that procedures are not prohibitively expensive. Counsel's opinion, to which the noble Lord referred, identified two particular issues. The first is that of uncertainty. The second is the sheer amount of the defendant's costs that might fall on unsuccessful claimants. The noble Lord referred to the case of Barr and Biffa waste company, which arose from a complaint about odours emanating from a landfill site, where the costs were indeed nearly £3,250,000.

Lord Justice Jackson has much to say about those issues. His remedy is, as the noble Lord pointed out, a move to qualified one-way cost shifting. He gave six reasons for his conclusions, which are germane to the thrust of the amendments. He said:

"This is the simplest and most obvious way to comply with the UK's obligation under the Aarhus Convention in respect of environmental judicial review cases".

He continued:

"For the reasons stated by the Court of Appeal on several occasions, it is undesirable to have different costs rules for ... environmental judicial review and... other judicial review cases".

His third reason was that the requirement for permission,

"is an effective filter to weed out unmeritorious cases. Therefore two way costs shifting is not generally necessary to deter frivolous claims".

They simply do not arise. His fourth point was that,

"it is not in the public interest that potential claimants should be deterred from bringing properly arguable judicial review proceedings by the very considerable financial risks involved".

He pointed out that:

"One was costs shifting in judicial review cases has proved satisfactory in Canada".

His final point, which goes to the issue raised by the noble Lord, Lord Lester is that the protective costs order regime,

"is not effective to protect claimants against excessive costs liability. It is expensive to operate and uncertain in its outcome. In many instances the PCO decision comes too late in the proceedings to be of value".

So with respect to the noble Lord, the protective costs order regime is not, in the view of Lord Justice Jackson, an answer to the difficulty.

Photo of Lord Lester of Herne Hill Lord Lester of Herne Hill Liberal Democrat

I hesitate to disagree with the Lord Justice, but I do not understand that point, as one can apply at the very beginning, a very early stage, for a protective costs order-certainly in judicial review proceedings. I do not know why he thinks that it is too expensive or comes too late, because that has not been my experience.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

I cannot answer for Lord Justice Jackson, but that is a subsidiary point. His point is that it is expensive to operate and uncertain in its outcome. Therefore, he regards it as an inadequate to the one-way costs shifting which the noble Lord, Lord Thomas, has rightly advanced as the best way to deal with these matters. Lord Justice Jackson's approach was, as counsel's opinion, to which the noble Lord and I have both referred, makes clear, endorsed by Lord Justice Sullivan's working party, which was very clear in saying:

"An unsuccessful Claimant in a claim for judicial review shall not be ordered to pay the costs of any other party other than where the Claimant has acted unreasonably- to go back to the noble Lord's earlier point-

"in bringing or conducting the proceedings".

I rely heavily, as noble Lords will have gathered, on the opinion of learned counsel, which some of your Lordships will have seen, and certainly the Minister, and more particularly-and perhaps in a sense, in fairness to him, more relevantly-those who advise him will have seen. Counsel make some interesting observations. They say:

"It is disappointing to see that whilst the senior judiciary increasingly recognises the relevance of the Aarhus Convention as a requirement of the rule of law, the Government's own legislative proposals do not recognise, or are not concerned with, the United Kingdom's difficulties in complying with the Convention.".

They go on to say, among other points, that,

"it does not appear to have been appreciated by those responsible for Part 2 of the Bill- this very Bill-

"that if the intention of the Government's proposals is indeed to reduce the costs of litigation, then the replacement of the need for ATE insurance altogether by the use of QuOCS would have a massive positive effect, particularly when combined with the inability to recover success fees: it would genuinely encourage participation in matters concerning the environment as envisaged by Aarhus. Lord Justice Jackson's proposals would stand some prospect of success in his aim of promoting rather than impeding access to justice".

Learned counsel conclude:

"In the circumstances, it is clear from the Aarhus Convention Compliance Committee that current costs rules run contrary to the international treaty obligations of the United Kingdom which the UK voluntarily accepted".

They go on to say:

"Two detailed reviews relevant to environmental proceedings in England and Wales have subsequently been undertaken and presided over by members of the Court of Appeal. They have been endorsed by the senior judiciary. The primary recommendation was"- again-

"the use of QuOCS in environmental cases, which would have a dramatic inroad into the 'costs follow the event' principle".

Counsel say:

"By withdrawing the recovery of ATE premiums (... which cannot be met by claimants or their legal representatives) without providing at the same time for QuOCS", the Government have retreated from the full proposals of the two reviews conducted by the judiciary. Furthermore, they say:

"The consequence is that the UK, already in breach of its Convention obligations, is diverging from, rather than converging with, its own environmental expectations and those of the international community".

Finally, they say that,

"claimants who wish to protect the environment and participate in environmental justice are even less likely to be able to do so than at present".

That is a pretty comprehensive and damning indictment of the Government's approach to their responsibilities under the Aarhus convention to international law and, more particularly, to potential claimants in this country dealing with significant issues concerning the environment and what is adversely affecting the environment.

The remedy is in the Government's hands. It is, in their cherry-picking process of dealing with Lord Justice Jackson's report, to pluck this particular cherry and use it for the benefit not only of the citizens of this country but of this country's observance of its international obligations. I strongly support the noble Lord's amendment.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords 4:30 pm, 1st February 2012

My Lords, I am most grateful to the noble Lord, Lord Thomas, for his usual thorough presentation of these amendments and for sending me this opinion of learned counsel, which, as he rightly said, was delivered only 24 hours ago. Even though, as the noble Lord, Lord Bach, will know, the Ministry of Justice is one of the most efficient and speedy departments in Whitehall, the matter is still in the hands of my advisers, and I am sure that we will take it on board. In passing, I should say that I had to clear another piece of paper the other day about asking the advice of learned counsel, and I saw just how much it costs to ask for such advice, so I thank the noble Lord for such an expensive gift.

I was also interested in the confession of my noble friend Lord Lester about accepting success fees. As the debate has unfolded, it has occurred to me that this is indeed a money Bill, but perhaps not in House of Commons terms. Let me also deal with another canard or slur that has been put across the Chamber from the noble Lord, Lord Beecham: that the Aarhus convention is something new to the Government or to government Ministers. Perhaps I can draw his attention to the fact that on 19 October, we in the Ministry of Justice sent out a consultation paper, entitled Cost Protection for Litigants in Environmental Judicial Review Claims,with the specific aim of enabling the UK to implement its obligations under the Aarhus convention. Yet again, when the facts are known, it is clear that the Government are on the case, on the ball and moving forward, despite the attempts of the Opposition to say otherwise.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

It is said that they are in breach of their obligations under the convention.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

As I said, we are consulting. I shall return to the question of getting it right. The problem is that the noble Lord, Lord Beecham, is impetuous in so many ways, whereas this Government are determined to get things right-you can see the advice that I get on getting things right.

On Monday, we spent some time discussing QOCS and we heard the concerns of my noble friends and others that the matter should appear in the Bill. This afternoon, I do not want to repeat the more general arguments on these matters, but we need to get the details and the rules right to ensure that they are tailored properly in respect of the category of proceedings to which they apply. For example, in personal injury cases, it may well be that there should not be an initial financial test. However, the position is likely to be different for defamation, and perhaps for environmental cases too, which typically involve more than one claimant-sometimes many claimants. In such cases the costs involved can impact considerably on the ability of the public bodies that are under challenge to perform their general functions.

As the noble Lord, Lord Thomas, explained in moving his amendment on Monday, he was looking for specific words rather than words like "unreasonable", which he said had such a broad meaning. Indeed, the noble and learned Baroness, Lady Butler-Sloss, added that the word "unreasonable" was liable to cause serious difficulties of interpretation and yet, as the noble Lord, Lord Thomas, has confessed, the word "unreasonably" is in Amendment 157.

It is precisely for those reasons that we are not yet ready to crystallise in statute, and ring-fence away from development in rules, words which are more properly left to the rules, where they can follow detailed discussions with stakeholders. They can be tailored and nuanced for the particular category of proceedings and, of course, the Lord Chancellor will remain accountable for the policy on these issues which is reflected through the Civil Procedure Rules.

Amendments 141, 147, 148, 149 and 150 deal with the recovery of ATE insurance premiums in respect of environmental claims under the Aarhus convention. Amendment 157 would introduce a new clause to provide for costs protection in the form of qualified one-way costs shifting-QOCS-for claimants in environmental claims and, it would appear, for all judicial review claims, whether concerning environmental issues or not.

The Government are, of course, conscious of their obligations under the Aarhus convention. Put simply, the convention requires us to ensure that parties have access to a procedure to challenge relevant environmental decisions that is, among other things, not prohibitively expensive. How we discharge those obligations has been a matter of debate for some time. It was addressed by Lord Justice Jackson in his report and was considered in a number of cases in the High Court and above. Amendments 141, 147, 148 and 149 seek to allow ATE insurance premiums to be recoverable from the other party in these cases. As I indicated in our debate on Monday, the Government's policy is that ATE insurance premiums should no longer be recoverable except in the particular instance of clinical negligence expert reports. Therefore, we do not favour this or any other extension of ATE premium recoverability.

Amendment 157 seeks to apply QOCS to environmental claims, subject to qualification in respect of unreasonable behaviour. The proposed clause would displace any rules of court in this area and provide for the Lord Chancellor instead to have the power to make regulations to extend QOCS to other areas in future. That seems to be something of a departure from the general principle that in civil proceedings, matters relating to costs are regulated in detail by rules of court. It is not clear why the departure would be beneficial.

As noble Lords are aware, the Government are introducing a regime of QOCS in personal injury cases to help balance the impact of the changes to no-win no-fee conditional fee agreements, and in particular as an alternative to "after the event" insurance. Claimants will continue to be able to take out ATE insurance if they wish, but they will pay the premium, which will be lower than the rolled-up premiums presently never paid by anyone other than a losing defendant. Although Lord Justice Jackson suggested that QOCS might be considered for use in some non-personal injury claims, the Government are not persuaded that the case for this has yet been made.

I noted the dispute between the noble Lord, Lord Beecham, and my noble friend Lord Lester about protective costs orders, which are also part of this consultation. As a matter of principle, the Government's view is that protective costs orders can provide appropriate costs protection in environmental cases. Environmental organisations and the working group chaired by the then Mr Justice Sullivan, to whom noble Lords referred, expressed a preference for QOCS, having argued, including in a submission before the Aarhus Convention Compliance Committee, that an appropriate PCO regime could provide full compliance with the requirements of the convention. With a PCO, it will be clear from the outset what costs the claimant will have to pay if their claim is unsuccessful, while ensuring that some contribution is made toward the costs of public bodies that have successfully defended the claim. As I said, we have consulted on the issue.

The Ministry of Justice consultation Cost Protection for Litigants in Environmental Judicial Review Claims outlines proposals for a cost-capping scheme for cases that fall within the Aarhus convention. The consultation closed on 18 January and we will announce the way forward in due course.

Photo of Lord Lester of Herne Hill Lord Lester of Herne Hill Liberal Democrat

I had not realised that there was a consultation, and I am delighted to hear that that has now been done. The issue seems to go beyond environmental litigation. Perhaps further thought might be given within the costs rules to a user-friendly procedure in all public interest cases whereby the individual can obtain an order quickly and at the beginning, as recommended by Lord Evershed's committee in 1950. Lord Evershed recommended that the Attorney-General should be able to certify an issue of public interest where the costs rules would be displaced. I realise that this matter would be for the rules committee, but could consideration be given to that sensible procedure that would be not generalised but case based, on a user-friendly procedural basis, with the judge giving a decision so that people will know where they are from the beginning?

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords 4:45 pm, 1st February 2012

I am not sure that I am able to commit to anything as rash as following up a recommendation that is a mere 62 years old. As always with interventions by my noble friend, I will take that away, but I should also make the point, given that this is the last of a series of amendments chipping away at-to use the term that I used the other night-the central architecture of the reforms that we are trying to introduce, that we have consulted on these matters. We have indicated the idea that PCOs may be a way forward in our commitment under the Aarhus convention. I will certainly make sure that the learned counsel's opinion is fully studied. As I have explained, the Government's view is that the best way forward is within the rules rather than within legislation, but this has given a good airing to the issue. The whole House is now more familiar with the Aarhus convention-I understand it is a Danish town-and we are the better for that debate. I therefore ask my noble friend to withdraw his amendment.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

My Lords, it is a relief to know that the Ministry of Justice, like New York, never sleeps. No doubt the opinion will be pored over and there will be further discussions before we get to Report.

I invite my noble friend to do this now. He says that the proper way to proceed is for one-way cost-shifting to be introduced by tailored Civil Procedure Rules. Your Lordships will recall that on Monday the noble and learned Baroness, Lady Butler-Sloss, and I made the point that there should be guidance from Parliament, not simply a discussion between the Executive and the Civil Procedure Rule Committee, about the parameters of those rules and what the boundaries and structure are to be. I would be grateful to know from the Minister the position on this particular point. He is shifting the burden of the success fee and the ATE premium over to the successful claimant. Is that going to be co-ordinated and timed to come into effect at the same time as one-way cost-shifting? That is the key issue. If you do not have one-way cost-shifting, you are shifting to the claimant the liability for the defendant's entire costs, if he should lose, and consequently an enormous premium. We heard of premiums of £900,000. I am familiar with a premium of £80,000. I think that the standard is in thousands for any sort of claim. If, on the other hand, one-way cost-shifting comes in and the defendants' costs are paid by the defendants win or lose, we will be concerned with a premium for a much smaller thing, which is the disbursements of the claimant, should he lose. The risk is that much smaller.

Photo of Lord Bach Lord Bach Shadow Spokesperson (Justice)

We on this Front Bench agree absolutely with the question that the noble Lord, Lord Thomas of Gresford, has asked the Minister. It is crucial. To broaden the point slightly, the great danger in the Bill is that we are changing the current arrangements, but the way that they will work in practice is subject to regulations of which there is no sight at present. We need from the Government a statement about how they intend to implement this part of the Bill if they get it through. We have no idea at all. The example that the noble Lord gave is the best one of all. It is critical, but there are other examples where a great deal relies on regulations that are to be made at a later stage, sometimes to be passed by affirmative resolution, sometimes by negative resolution. It is not really a satisfactory way of changing the civil law in such a fundamental way. I would be grateful if the Minister, in his reply to the noble Lord, Lord Thomas of Gresford, would deal with the general point as well.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

The noble Lord is absolutely right. I have given my reply. That was the reply of the noble Lord, Lord Thomas, to my reply. But I am very happy to take the point. We are considering a consultation. We have said that our judgment is that it is better in rules rather than in the Bill.

Photo of Lord Bach Lord Bach Shadow Spokesperson (Justice)

Should all that not have been done before the legislation comes before one House, let alone a second House of Parliament? The result of the consultation, or the Minister's consideration of it, will probably not be known until this Bill has become law. Is that not much too late and entirely the wrong way round?

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

The pained look with which the noble Lord, Lord Bach, comes to the Dispatch Box and implies that the Government is the first Government in the world to bring forward legislation with further consultations needed about specific regulation is a bit rich. The implications of this Bill will come into force in April 2013. We have a period of time for such consultations. As I said before, I take the point that there has to be a synchronisation in these matters. I do not think we are doing anything unusual by legislating in this way, but we take on board the points made in this debate.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

I am grateful to my noble friend for saying there will be synchronisation. The scales of justice have been tipped against defendants by this fourfold cost that they have been calling for over a period of time. The purpose of this Bill is to even the scales of justice up. If there is any period between shifting from that side to this side the success fee and the ATE insurance without providing one-way costs as the balance, the scales will go completely in the opposite direction, and it is the suffering claimants who will come out the worst in a situation like that.

I cannot resist coming back to the question of protective costs orders, having heard my noble friend Lord Lester. Protective costs orders are applied for in public interest cases. I am not concerned simply with public interest cases. These could be the private individual, the householder whose house is flooded, in the example that I gave-

Photo of Lord Lester of Herne Hill Lord Lester of Herne Hill Liberal Democrat

They are also applied for in private lawsuits.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

It is as my noble friend says. Lord Justice Jackson examined it and he came to the conclusion that the noble Lord, Lord Beecham, referred to. There is much more discussion to be had. I shall take my noble friend outside-as I once said in relation to one of the Ministers in the previous Government-and have a discussion with him there. For the moment, I withdraw this amendment.

Amendment 141 withdrawn.

Amendments 142 to 156AB not moved.

Clause 45 agreed.

Clause 46 : Recovery where body undertakes to meet costs liabilities

Amendments 156B and 156C not moved.

Clause 46 agreed.

Amendment 157 not moved.

Clauses 47 to 52 agreed.

Clause 53 : Payment of additional amount to successful claimant

Amendments 158 to 162 not moved.

Clause 53 agreed.

Amendment 163

Moved by Lord Thomas of Gresford

163: After Clause 53, insert the following new Clause-

"Third party litigation funding

(1) A third party litigation funding agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of it being a third party litigation funding agreement; but any other third party litigation funding agreement shall be unenforceable.

(2) A third party litigation funding agreement is an agreement under which a third party ("the funder") agrees to fund (in whole or in part) the provision of advocacy or litigation services to another person ("the litigant") by a person other than the funder in exchange for remuneration.

(3) For the purposes of subsection (2), "remuneration" includes-

(a) a payment or any other transfer of value representing or calculated by reference to the value of a judgment or settlement; and

(b) an assignment of the proceeds (in whole or in part) of any judgment or settlement.

(4) The following conditions are applicable to a third party litigation funding agreement-

(a) it must be in writing;

(b) it must not relate to-

(i) proceedings which by virtue of section 58A(1) and (2) of the Courts and Legal Services Act 1990 cannot be the subject of an enforceable conditional fee agreement;

(ii) a multi-party action, representative action or any proceedings which are the subject of a group litigation order; or

(iii) any other proceedings of a description prescribed by the Lord Chancellor;

(c) it must comply with such requirements as shall be prescribed by the Lord Chancellor.

(5) Regulations under subsection (4)(c) may-

(a) require any person which enters into a third party funding agreement with a litigant to first obtain a license from a licensing body to be designated by the Lord Chancellor; and

(b) set out conditions to be satisfied in order to obtain such a license.

(6) In this section "advocacy services" and "litigation services" are as defined in section 119 of the Courts and Legal Services Act 1990."

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

My Lords, in June 2007, the Civil Justice Council-a body headed by the Master of the Rolls and comprising members of the judiciary, the legal professions, civil servants and lay people with knowledge of consumer affairs, CABs, businesses and employers-published advice to the Lord Chancellor recommending the proper regulation of third-party funding; that is, investment by an external party otherwise unconnected to a claim in a lawsuit in order to gain a maximum return upon its investment. In this country, it used to be called maintenance and champerty, and it was both a crime and a civil tort. In 1641, maintenance was described by the jurist Coke in his Institutes as:

"A taking in hand, a bearing up or upholding of quarrels or sides, to the disturbance of the common right".

"Champerty" is the "maintenance" of a person in a lawsuit on condition that the subject matter of the action is to be shared with the maintainer. It was abolished as a crime in the United Kingdom in 1967 but as recently as July 2009 a solicitor in Hong Kong, where the offence still exists and carries a maximum sentence of seven years, was sent to prison for some 15 months. It remains illegal also in New Zealand but not in the United States.

As the practice has spread across the water into this country, specifically targeted at claim by small and medium business enterprises against large corporations, the Civil Justice Council formed a working party to consider the issue further. Consultations took place in February and July 2008 when a draft code of conduct for a third-party funding, which the working party had produced, was considered.

Following Lord Justice Jackson's recommendations -he obviously considered this as well as conditional fee agreements-the draft code of conduct was revised. In February 2010, the Civil Justice Council held another stakeholder event to consider the revised code. The working party, under the chairmanship of the very eminent solicitor and Queen's Counsel Michael Napier, chairman of Irwin Mitchell, which is essentially a leading claimants' firm, produced a voluntary code of conduct for litigation funders, which was published on 23 November 2010. This voluntary code sets out standards of practice and behaviour to be observed by funders who are members of a newly founded Association of Litigation Funders of England and Wales. Without in any way impugning the very hard work of the members of the working party or the motivation of the new association, I am not at all content that this development in litigation funding should be subject to a voluntary code without any parliamentary debate, approval or control-of course I appreciate that it was put together under the auspices of the Civil Justice Council.

When Lord Justice Jackson considered this issue in his final report, he recommended that a satisfactory voluntary code to which all litigation funders would subscribe should be drawn up, and to that extent his preliminary recommendation is followed up by this code. But he went on to say that the code should contain "effective capital adequacy requirements" and should place appropriate restrictions on the ability of funders to withdraw support for ongoing litigation. His second recommendation was that,

"the question whether there should be statutory regulation of third party funders by the FSA ought to be revisited if and when the third party funding market expands".

It is expanding and is continuing to do so and, as Lord Justice Jackson recommended, the question of whether there should be statutory regulation is the question I am raising in this debate.

His third recommendation is very important. He said that,

"third-party funders should be potentially liable for the full amount of adverse costs, subject to the discretion of the judge".

In the voluntary code, which was published in November, there are manifest weaknesses. Rule 7(a) says that a funder will ensure that a litigant has received "independent advice" on the terms of the agreement, but then states specifically that such advice can be obtained,

"from the solicitor instructed in the dispute"- the very lawyer who is to be funded by the funding arrangement. The conflict of interest is obvious in such a situation. Rule 8 says that the funder must state in the funding agreement whether he is undertaking "liability for adverse costs". It certainly does not say that the funder must undertake such a liability. This is directly contrary to the third recommendation made by Lord Justice Jackson, which I made clear to your Lordships a moment ago. The funder could walk away and leave a small business to carry the costs of the other side, which would leave it completely broke. If a funder is to take a percentage of the damages awarded to its clients, which is the purpose of the funding agreement, the funder should bear the risk of paying the other side's costs if he loses.

Rule 9 of the voluntary code provides that the funding agreement,

"shall state whether (and if so how) the Funder may ... provide input to the Litigant's decisions in relation to settlements".

It further provides that the funder may terminate the agreement if he,

"ceases to be satisfied about the merits of the dispute;

(ii) reasonably believes that the dispute is no longer commercially viable".

In other words, the funder may dictate to the litigant that a particular offer to settle must be accepted under the threat that he will withdraw his support. If there is to be fairness, the funder should continue to fund disputes until they are finally resolved. Further, a funder may dictate to counsel how to conduct a case, putting counsel in the particular case in the impossible position of having to choose between the interests of his client and the interests of the funder, who is actually paying his fees and the fees of his instructing solicitor. Rule 9 simply does not match the first of the Jackson recommendations. As I say, for the moment Lord Justice Jackson was prepared for there to be a voluntary code, but that it,

"should place appropriate restrictions upon funders' ability to withdraw support for ongoing litigation".

In the face of that recommendation, what does the voluntary code say? "Oh well, he can withdraw if he decides that the case is not going very well." He can terminate it if he ceases to be satisfied about the merits of the dispute.

I have had a very constructive discussion with Mr Leslie Perrin, who facilitates litigation funding and is a former solicitor. I accept, as he has argued, that if a wrong is done to a business, it is very frequently a contractual wrong that hurts that business's profitability, so that damages will include not only the cost of putting right the immediate damage but also the profits lost as a consequence of the wrong-it is a commercial situation. A commercial litigation claim could be said to be a business asset and tradable as such. But there are many areas of litigation where a wrong has been done, of which personal injuries is a prime example, where the litigation is not an asset and should not be traded as such. No speculative hedge fund looking for somewhere to get a good return on its money should have an interest, for example, in a share of the damages of a seriously brain-damaged claimant.

While as yet, so far as we can tell, litigation funding has not spread into personal injuries as it has into divorce litigation, there is nothing in the voluntary agreement of November last to prevent it. No categories of case are excluded. According to Mr Perrin, the industry asked the working party to limit the code and the association to commercial litigation but, for some reason that I do not understand, it did not agree to that, so it is wide open for third-party funding to be available in serious personal injury litigation where large sums of money are at stake. I do not regard this as assisting in access to justice; rather, it takes us back to the old days of maintenance and champerty-hence, my amendment.

I do not suggest in my amendment that third-party litigation funding should be banned, provided that it complies with conditions, some of which I set out and others to be prescribed by the Lord Chancellor and brought forward for proper parliamentary scrutiny. It is all very well having voluntary codes, but Parliament, which represents the people of this country, has absolutely no say in what goes into codes of that sort. Under my amendment, proceedings which cannot be the subject of a CFA under Section 58A(1) and (2) of the 1990 Act, which I refer to, are essentially criminal proceedings but they also include family proceedings for divorce, for adoption and for the welfare of children. Sometimes, large sums are at stake in divorce proceedings. That is not an appropriate area for litigation funding to intervene. My amendment also seeks to regulate funders by requiring them to obtain a licence from a designated licensing body so as not to be operating without any control.

Some of your Lordships may have received a letter from an American association. It is not that it wishes to spread the American type of litigation into this country; rather, it wants to prevent it, because it can see from its own experience what problems it can give rise to.

I concede that if in a commercial case a company wanted to give away a third or four-10ths of its damages to a funding firm of this sort, it could do so but, so far as other areas of the law are concerned, the barriers should remain up. I beg to move.

Photo of Lord Davies of Stamford Lord Davies of Stamford Labour 5:00 pm, 1st February 2012

My Lords, I was not intending to intervene in this part of the debate, but I was absolutely fascinated by what the noble Lord, Lord Thomas, said. He has done a great service to the House and to the country by bringing forward this matter for parliamentary debate. I am going to disagree with what he actually said, but had he not taken the initiative, we would all have been the poorer. We would not have had to focus on this important subject in the way that we will now need to do.

My concern is quite simple. We are in the process in this Bill of restricting access to legal aid. We thereby reduce the scope for businesses or individuals, whether in a tort action or some other kind of action, to pursue their civil rights in court. I take it for granted that an individual who does not qualify for legal aid but is at the other end of the income spectrum, where he or she can easily afford the costs of pursuing cases and the risks of potentially paying defendants' costs as well, will prefer to do that and would not want to go into any artificial risk-sharing arrangement with a third party or with lawyers by means of contingency fees or conditional fees. Those lucky enough to retain access to legal aid despite this Government's restrictions on its access, who are perhaps in the bottom 5 per cent of the population in terms of income or capital levels, and the top 5 per cent of the population who are rich enough to consider litigating and hiring solicitors and barristers will continue to have access to civil justice. But there is an enormous problem for the 90 per cent of the population who will be between those two extremes. We should be concerned about them.

I know that lawyers always like to say that any individual who acts as a litigant in person is making a fundamental mistake-the old lawyers' joke is that such a person has a fool for a client-and one can understand why lawyers like to put that about. Those people who may feel confident in taking a case forward themselves would probably rightly prefer to do so rather than go into some sort of risk-sharing arrangement with somebody else. Any such risk-sharing or cost-sharing arrangements involve a potential conflict of interest.

There is a conflict of interest in the case of hiring a lawyer on a conditional or contingency fee basis. Clearly, there may come a point when the lawyer himself does not think it worth pursuing the case because it is not a good risk from his point of view but his client wishes to continue to do so. There is that conflict, which the noble Lord, Lord Thomas, discussed with regard to other third-party funding in the case of classical contingent or conditional fee arrangements. But if we now say that such arrangements are not possible and we wish to make it a matter of law that certain types of third-party funding shall not be allowed, we further restrict access to justice.

I put it to the noble Lord and to the House that cases where one is brain damaged, has had a bad accident or suffered medical negligence have great resonance with all of us because they are horrible situations for anyone to find themselves in. Like other noble Lords who have served in the House of Commons, I have come across many cases of that kind. Clearly, any arrangement under which somebody else has a share in any potential damages seems at first sight to be obnoxious. But if the alternative is that one cannot get justice at all because one does not fall into the bottom 5 per cent or the top 5 per cent of the population as I have described, we are in an even worse position.

I accept that the amendment was conceived with the best possible motives and on the basis of considerable familiarity with civil justice, but the effect would be to exclude certain people from any chance of pursuing a case at all because they do not feel able to pursue the case as a litigant in person and they do not have the funds required to arrange a conventional civil action hiring lawyers in the classic fashion. Maybe no lawyer is willing to take them on on a contingency or conditional fee basis, because lawyers do not take a sufficiently optimistic view of the risks involved or the return involved in relation to the risk in particular case. However, some third-party entrepreneur or investor may be willing to do so. The noble Lord does not want to exclude such third-party funders in commercial cases, but he would exclude them in personal cases in a large number of circumstances. The House should think carefully before we exclude or shut off anybody from access to civil justice by any means. The important thing is that there should be full disclosure of the risks and full explanation by those who will undertake to invest in a case as to what the conditions are.

It may well be that there will be points along the line at which there will be a difference between the investor and the litigant as to whether it is worth pursuing the case. That can arise in the case of a commercial third-party investor, or of a friend or family member who is prepared to support a friend or relation in a case. When it comes to the question of a settlement offer, they may take a different view. It is in the interest of everybody that there should be a clear contractual basis, agreed at the outset, as to what happens in those circumstances. I do not think we should exclude anyone from coming to an arrangement that happens, with full disclosure and understanding on both sides, maybe in less than desirable circumstances, to best meet the needs of the case.

Photo of Lord Boswell of Aynho Lord Boswell of Aynho Conservative 5:15 pm, 1st February 2012

My Lords, I rise in support of my noble friend Lord Thomas of Gresford's amendment with considerable diffidence, as a layman tiptoeing for the first time into consideration of this legislation. As the noble Lord, Lord Davies of Stamford, has already reminded the Committee, the context is the further constriction of legal aid. I think the concern of all lay people, as well as practitioners, must be that this will in some way inhibit people's access to justice unless they fall within narrow categories.

I do not wish to detain the Committee at length on personal cases, but I first had experience of this-as typically happens, by chance-in relation to a personal injury claim involving a member of my family, which took place in the 1970s. As it happened to take place on a British-registered ship, which was at that time within United States territorial waters, it gave rise to a certain interest in the forum. At that time there were no contingency fee arrangements at all within the United Kingdom. However, as it was possible to bring litigation within the United States, I was able to avail myself of such an arrangement. I will say no more about it other than that it did provide an opportunity that would otherwise not have been available to me.

Nobody wishes to make it impossible for individuals to pursue their personal injury claims or indeed for small and medium-sized enterprises to have redress for their commercial disputes with large multinational or well-funded companies or bodies. However, it has become clear recently that third-party litigation funding was growing in potential and was a growing practice-and, potentially, a growing problem across virtually all developed countries, broadly simultaneously. I have sought to inquire further into this by means of Parliamentary Question. I go along with my noble friend who moved this amendment very much in the spirit of inquiry to try to focus on the issue and see that it is properly handled. However, I am a little less optimistic than the noble Lord, Lord Davies of Stamford, as to whether arrangements that are based on transparency and the market solution will in fact work to the wishes of the public at large.

It seems that we need a fairly robust code. My noble friend has sketched such a code to manage this, with further details to be supplied in due course by the Lord Chancellor. Those who are practitioners in the field will accept that there has to be some boundary to it. My concerns are threefold. First-and my noble friend has already referred to this-the potential for conflicts of interest can be pretty explicit in the arrangements, where it may be in the interests of the funder to stop the case but not in the interests of the litigant. Secondly, there is the question of transparency. I do not spend my life reading court reports, but they have the names of counsel, the instructing solicitor and, obviously, the parties, so you do broadly know what is going on. However, in cases where people are operating behind that, with arrangements that are being concluded privately, it becomes less clear what is happening.

Thirdly-and I confess considerable distaste for the potential here-one can imagine a situation where it is not merely a matter of somebody taking on a particular venture but where these claims are warehoused, securitised or packaged in a bundle and sold on to third parties who have no interest in the interests of the litigant and probably no knowledge of who they are. It might simply become a kind of impersonal transaction. I feel myself very uncomfortable with that. If I go no further than members of my family who, unlike myself, happen to be lawyers, there is a certain resonance-even if they are not specialists in this area-in the concepts of maintenance and champerty. Those are enshrined in our traditions for a very good reason. We do not want to have a purely commercial interface in these matters. On the other hand, we do not want to stop access to justice or stop perfectly reasonable and above-board arrangements by responsible people operating within a framework.

I feel a welling-up of some disquiet in this area. I have a feeling that we need to set boundaries on it and a fear that there might be potential for some hard case or scandal that would excite public interest-and the public would then ask how we had slept on this. I look forward to the Minister's reassurance that the Government are on the case and that it will be sensibly-not restrictively but properly-regulated and observed.

Photo of Lord Mackay of Clashfern Lord Mackay of Clashfern Conservative

My Lords, the introduction of conditional fees into our system was an innovation in the rules against maintenance and champerty. Therefore, this is an area with which, at least some time ago, I had a certain degree of familiarity. It carries with it the risks recognised in these prohibitions that went back to the very beginnings of the system of common law.

When I sought to introduce the conditional fee, I tried to do it with a good deal of care as to the areas in which it would operate, as my noble friend Lord Thomas of Gresford reminded us. I was certainly of the view that it would be developed according to our experience of how it worked. On the whole it has worked in the sense in which I thought that it was likely to work when I proposed it. It was to deal with the area that the noble Lord mentioned of those who did not qualify for legal aid but were not sufficiently well resourced to undertake litigation on their own. It met quite a considerable degree of need in that area, and it has been allowed to develop.

Of course, changes were made. When I introduced the conditional fee, I did so on the principle that the defendant had no real responsibility for the relationship between the claimant and his lawyer and therefore that the arrangement by means of a conditional fee should not affect the liability of the defendant. Those of your Lordships who are old enough to remember the presence of Lord Simon of Glaisdale in this House will remember that very often, when anything about legal aid came up, he dealt with the development under which, if a party had legal aid, the defendant would not be allowed to recover costs without leave of the court. The contribution of the claimant with legal aid to the defendant's costs was limited-often to zero. Lord Simon of Glaisdale thought that was completely unjust, and your Lordships may remember that it was not once that he said that. Ultimately, I began to understand the force of his argument. However, that remained the law on legal aid, and I suppose that it is still the law on legal aid.

When I was introducing the conditional fee I did not feel that it was the same thing as a statutory provision for the claimant which was provided by legal aid. It was a private arrangement between the solicitor or the lawyers involved and the claimant, so I did not have any such effect. In due course, my successor introduced effects on the defendant of that particular relationship and the result was, as we know, a considerable escalation in the cost of litigation, which Lord Justice Jackson analysed in a report that cannot be criticised for its brevity. The consideration was very detailed indeed, but I think that in the end he came to the conclusion that the system as it originally operated was more just than the new system. I, of course, therefore support Lord Justice Jackson's conclusion in that regard.

The noble Lord, Lord Bach, points out to me from time to time, when we have a chance to discuss this, that we are not just going back to my situation because legal aid was even more liberal in my time than it seems to be now. If this Bill is passed without any effect on the legal aid proposals, then it will continue to be so, but if the legal aid proposals are effected, there will probably be rather less legal aid than at the moment-certainly a good deal less than when I was dealing with these matters. To that extent it is a different situation, but from the point of view of the litigant in connection with conditional fees, what Lord Justice Jackson recommended was to go back to my system.

That was, as I said, an innovation on the rules against maintenance and champerty because the lawyer was given an interest in the outcome of the litigation, which on a strict view of these rules might not have been allowed. However, statute was able to allow it and there was no further question about that. Third-party funding is a further development, which goes into the area where these dangers had been seen for many years. I therefore respectfully suggest to your Lordships that is an area in which a good deal of caution is required before we allow it. For example, in relation to the conditional fee we allowed it in certain areas but not in others. In particular, as my noble friend Lord Thomas reminded us, it was not allowed in the criminal area or in family law. If third-party funding is to become at all common in our courts, it needs to be subject to fairly careful control. Otherwise the dangers foreseen in the old law will occur.

I cannot think of a better way of doing that than by giving the Lord Chancellor power to regulate the situation. He can, of course, from time to time, alter these regulations as he sees the practice developing. For example, if some unforeseen difficulty arises he could restrict further. If on the other hand it seems to be successful, he could open the scope further. I strongly support the principle of the amendment moved by my noble friend Lord Thomas of Gresford. The detail of it will require to be worked out-primarily by regulation, I should have thought-and the question is whether the scope of this amendment is adequate to give sufficient power to the Lord Chancellor to control all aspects of the matter.

This seems to be a pretty thorough kind of amendment, but obviously I await the Minister's comments on the matter. That regulation is required seems absolutely clear. A voluntary code, particularly one that falls short of Lord Justice Jackson's recommendations on the matter, is not at all sufficient. This needs statutory control under regulation, particularly in relation to the costs that the third party will have to bear if the litigation is unsuccessful. For example, if the third party can get out of the contract before the case goes to full proof, is he thereby going to escape the costs of the litigation that he has taken responsibility for helping to start?

There are difficult issues connected to this that are dangerous to the justice of the system that we all prize. It therefore seems very wise that the matter should be the subject of statutory control by regulation in the hands of the Lord Chancellor.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health) 5:30 pm, 1st February 2012

My Lords, this has been a short but interesting debate. I shall not detain the House long. I very much welcome the contributions by my noble friend Lord Davies, the noble Lord, Lord Boswell, and in particular the noble and learned Lord, Lord Mackay. I have some sympathy with my noble friend's approach; he sees in third-party funding arrangements an alternative source of funding for cases that might not otherwise be advanced because of other changes that are in hand. My problem with that is that in effect he is throwing a lifeline to the Government to pursue that very restriction, and that does not serve the cause of access to justice.

The noble Lord, Lord Boswell, rightly drew attention to the concerns about this matter, and the remarks by the noble and learned Lord, Lord Mackay, clearly constitute a significant degree of support for the case advanced by the noble Lord, Lord Thomas. It is clear that we are potentially seeing a sea change in the way that some litigation will be funded in a way that runs contrary to the traditions of justice in this country. I note that the noble Lord, Lord Thomas, referred to hedge funds, and I think he is right; there is a danger here of legal hedge funds, as it were, being created and a secondary market developing, and who knows whence the funding of those organisations will derive? Experience in the United States is not encouraging, as the noble Lord, Lord Boswell, reminded us. I understand that in America, particularly in divorce cases, huge sums are in play.

The noble Lord, Lord Thomas, has done the House a great service in identifying the issues here and in coming up with a viable framework that could be put in place in order to deal with the potential difficulties. I think that the view of the House, from those noble Lords who have spoken, is that a voluntary code simply will not suffice, however well intended the motivations of those who sought to produce one-and they clearly were well intended. There needs to be a more rigorous structure, and the reference by the noble and learned Lord, Lord Mackay, to the Lord Chancellor making regulations, coupled with the ideas set out in the noble Lord's amendment, offer a way forward.

If at this stage the Minister cannot give a clear nod to the amendment, and I can understand if he cannot, then I hope at least that further discussions can be held on the matter and an agreed position put forward on Report. We do not want this genie getting out of the bottle, to which it could not be returned, by default. There are issues here of great significance and we hope the amendment will provide the basis for taking matters forward in a way that can be agreed across the House-I think there is a general interest across the House in this-to the advantage of litigants and the cause of justice itself.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

My Lords, in 1962-which is now, sadly, 50 years ago-part one of my degree course contained a subsidiary paper on English legal institutions. About the only thing I can remember from that course is the concept of champerty and maintenance. It therefore came as something of a shock to be told that it no longer applied, and indeed had not applied for some time.

Photo of Lord Bach Lord Bach Shadow Spokesperson (Justice)

The Minister has been misleading us all along. He has played the role of a non-lawyer with immense skill during the debate. I have asked him many questions in our debates but now the truth is out-he is a lawyer.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

I have been trying to keep that quiet. The paper I mentioned was one of nine papers that I took in 1962 for my economics degree. The other day I found the statistics paper, which evidently I had passed. However, not only did I not know the answers to the questions, I could not understand the questions.

Photo of Lord Dubs Lord Dubs Labour

Nothing has changed.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

My Lords, this has been an interesting and useful debate and I am grateful to my noble friend for outlining the matter with his usual thoroughness. Third-party litigation funding has developed and-to use the phrase deployed by the noble Lord, Lord Boswell-there is a welling up of disquiet about it. The noble Lord, Lord Davies of Stamford, takes what I would describe as the Robin Hood approach to this matter and views it rather optimistically as a way for the rich to help the poor. The noble Lord, Lord Boswell, was a little more sceptical about that scenario and drew on his American experience of how the process works. I think that people are a little worried when investors and investment opportunities are mentioned-the noble Lord, Lord Davies, mentioned that matter-when we are talking about the law.

I was delighted to hear the noble and learned Lord, Lord Mackay of Clashfern, mention Lord Simon of Glaisdale, who I remember speaking from the Cross Benches. You used to see the colour draining from a Minister's face as he realised that Lord Simon of Glaisdale had thoroughly read and filleted the relevant Bill and knew exactly the contradiction in the government amendment that he was about to dissect. I experience that same feeling of foreboding whenever the noble and learned Lord, Lord Mackay, rises to speak. The noble and learned Lord said that Lord Justice Jackson could not be criticised for his brevity. All I can say to him is that Lord Justice Jackson is not alone among lawyers in that failing. I look at no one in this House in saying that.

Like other noble Lords, however, I take on board the noble and learned Lord's point about the need to exercise caution in this matter. I think that the noble Lord, Lord Beecham, caught the mood of the House when he referred to the concept of legal hedge funds being established and cases being bundled up as investment opportunities as something that gives rise to rightful concern.

The code of conduct was drawn up with the specific requirement that the matter would be revisited if and when third-party funding expanded. It is a question of whether it has now expanded to a point where the matter should be revisited. As the noble Lord, Lord Thomas, explained, the Civil Justice Council published a voluntary code of conduct for litigation funders on 23 November. It was drawn up with the co-operation of the Association of Litigation Funders.

What I can say is that some serious points have been made during this debate, to which I have listened extremely carefully. My right honourable and learned friend the Lord Chancellor would like further time to reflect on these matters. They are serious, and some serious and worthwhile advice has been given. I see that the noble Lord, Lord Davies, is about to leap to his feet, and perhaps I may say that there was good and useful advice on both sides of the argument. I ask my noble friend to withdraw his amendment so that the Lord Chancellor can reflect on this issue. I shall not sit down if the noble Lord, Lord Davies, wishes to intervene.

Photo of Lord Davies of Stamford Lord Davies of Stamford Labour

The noble Lord is extremely kind. Does he agree that the best way of looking at this situation is to try to find the least undesirable possibility, or a less undesirable possibility, of a whole lot of very undesirable possibilities? Those are the only possibilities that exist. It would be lovely if legal aid was universally available for civil justice, and there were people in the 1940s who thought that that might happen. Sir Hartley Shawcross was saying at the time that he thought that legal aid could be turned into a kind of National Health Service equivalent for civil justice. We know that that is not financially conceivable.

The Government are engaged in further cutting back access to legal aid. I disapprove of that because it is an undesirable objective. We introduced conditional fees. I remember having a conversation with the noble and learned Lord, Lord Mackay, after I introduced an access to civil justice Bill in the House of Commons. He asked me not to take it any further because he was thinking of introducing conditional fees as a government initiative. I agreed with that at the time. He said that the Bill had certain inadequacies and did not cover all cases. However, when we introduced contingency fees, a lot of perversities were attached. I concede that, at first sight, investment in a tort case just as a commercial transaction seems unedifying and unattractive. However, I put it to the noble Lord that all these solutions are undesirable. The most undesirable solution of all might be further to restrict access to civil justice for whole categories of potentially meritorious cases.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

My Lords, I am sure that that postscript will be studied by the Lord Chancellor, and he will carefully study this debate. As I was saying in my concluding remarks, I thank my noble friend Lord Thomas for introducing this subject and noble Lords for expressing a variety of views on it. The Lord Chancellor would like further time to reflect and I ask my noble friend to withdraw the amendment.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

My Lords, I am most grateful to all noble Lords who have spoken. I accept that the opposing view, put forward by the noble Lord, Lord Davies, was certainly an arguable one. I have not suggested that third-party funding should be banned but that it should be subject to statutory regulation, as opposed to the voluntary code.

I could not help reflecting on my rugby days and the occasional game in which the leader of the forwards, an extremely formidable person, would observe the scrum-half dropping the ball and say to us in the pack, "Boys, they've had their chance. We're not going to give it to them again". Consequently, everything changed and we adopted a different tactic.

Here, a voluntary code has been brought in. They have had their chance. In formulating the voluntary code, they did not include what Lord Justice Jackson rightly set out as the essential needs of such a code. They decided not to do that. When approached by the industry to say that they should limit themselves to commercial litigation, they decided not to do that. A two-page code has been produced of nine clauses which gives the broadest possibilities to the funders for the way in which they operate. I am not satisfied with that. I am most grateful to the noble and learned Lord, Lord, Lord Mackay, and the noble Lord, Lord Boswell, for their support. There is a perception of a genuine problem arising.

I look forward to further discussion with my noble friend and, perhaps, the Lord Chancellor, and we will see whether we can take forward this matter for Report but, for the moment, I beg leave to withdraw the amendment.

Amendment 163 withdrawn.

Amendment 164

Moved by Lord Thomas of Gresford

164: After Clause 53, insert the following new Clause-

"Third party's insurance company

(1) A third party's insurance company may not solicit a claimant who has a cause of action for personal injuries against its policy holder, to settle that cause of action where to the knowledge of the insurance company, the claimant is legally represented either under legal aid or a conditional fee agreement.

(2) A third party's insurance company may not make an offer to settle in circumstances not prohibited by subsection (1), unless-

(a) it has obtained adequate medical evidence of the personal injury and has disclosed it to the claimant; and

(b) the claimant is advised when the offer is made of his right to obtain legal advice; and

(c) the offer is in full and final settlement of the cause of action.

(3) Any settlement made in breach of subsections (1) and (2) shall be void."

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat 5:45 pm, 1st February 2012

I apologise for wearying your Lordships once more. The amendment would ban the practice of third-party capture life insurance companies. Third-party capture is something with which many people, including many insured people, will not be familiar, but I have heard about it. Frankly, it is a nefarious practice.

The amendment would ban an insurance company-we are talking about banning in this amendment, not regulation-from directly contacting third parties who have been involved in accidents. That is currently commonplace behaviour following road traffic accidents. An accident happens, two drivers exchange with their details, driver A submits full details to his or her insurer and that insurer contacts driver B and offers an early settlement, usually at a much lower rate than would be achieved through due legal process. Insurers frequently make offers to accident victims that are far lower than the claim is worth, denying a person who has suffered an injury caused by someone else from the redress that they deserve. They frequently make settlement offers without proper medical examination to ascertain the full extent of the injury, again denying the accident victim real evidence-based representation.

In this way, insurers seek to close off a claim without offering accident victims the opportunity to seek independent legal advice. There is obviously a conflict of interest. Insurers are acting both for the defendant, their policyholder, and the accident victim. Given that the insurers' primary objective is to minimise the level of payments, they have little interest in securing a fair deal for accident victims.

There is another, equally unpleasant practice carried out by insurance companies where they contact a third party who has been injured in an accident with one of their policyholders and suggests that he or she makes a personal injury claim through their legal services arm. Other insurers simply refer the case details on, at a price-we will be dealing with referral fees shortly-to an independent personal injury lawyer. That is a major revenue stream for insurance companies, but it overrides common sense and is a substantial conflict of interest for insurers.

Since I tabled the amendment, I have been approached by the Association of British Insurers. It has kindly sent me its code of practice. The ABI code of practice for third-party assistance occupies some 11 pages, unlike the two-page code I was referring to in the previous amendment, and presents advice for insurers on how to contact unrepresented claimants, what they are to say to them about the injuries that they have received, how they are to deal with the damage to their vehicles and how to hire other vehicles. A section headed "Managing the Relationship" says:

"This section sets out how the insurer will manage the relationship with the unrepresented claimant where they have agreed on a provision of services, and covers where a claimant goes from unrepresented to represented".

It sets out the policy, how to arrange medical treatment and so on. I suppose that in one way this could be said to be good practice. If the insurer is to be allowed to interfere with the other side in this way and to make offers of settlement, it is good practice to advise him to get a proper medical report and so on, as the ABI code says. However, there is absolutely nothing to enforce it. An insurer-and there are many insurance companies-may have a copy of the ABI code of practice but there is nothing to require him to adhere to what it says. Therefore, not only can the insurer ignore the provisions of his own code of practice but he can directly approach the other side. That is what my amendment seeks to prevent. I beg to move.

Photo of Lord Dubs Lord Dubs Labour

My Lords, I should like to speak to Amendment 164ZA in my name and give my support to Amendment 164, which has just been moved by the noble Lord, Lord Thomas of Gresford.

The Bill contains a series of proposals that attempt to dent access to justice for people who have suffered harm. It reduces their damages quite dramatically by taking away the recoverability of success fees and "after the event" insurance premiums. The referral fee ban may go some way to curbing the abuses of some claims management companies, but it will also sweep up many organisations, including important victims' charities and membership organisations, that do a lot of good hard work in ensuring access to justice, and it will do nothing to curb some of the abuses that have inhibited access to justice.

The noble Lord, Lord Thomas, referred to third-party capture. What is it and why is it so controversial? Perhaps I may quote from the Financial Services Authority's guidelines on third-party capture:

"Third-party capture (or third-party assistance) is when an insurer deals directly with a person who has a potential claim against their policyholder, in order to investigate and settle the claim. Typically, an insurer offers a compensation payment to settle the claim directly to a third party, rather than settling through a legal representative for that party. This is mainly used for third-party motor claims. But sometimes it's used in other types of insurance, such as employers' liability.

Concerns have been raised by industry bodies and consumer groups that this practice could mean third parties do not receive fair and reasonable treatment and compensation.

The handling of all insurance claims by insurers-including third-party claims-is regulated under the Financial Services and Markets Act 2000. This means that an insurer's conduct towards third parties must comply with our Principles for Businesses and, where relevant, the claims handling rules in chapter eight of our new Insurance Conduct of Business Sourcebook ... Complying with our Principles for Businesses includes acting with integrity, due skill, care and diligence and observing proper standards of market conduct".

The trouble is that that is not how it works in practice, as the noble Lord, Lord Thomas of Gresford, has clearly shown.

The system is used by insurers, in their drive to maintain and increase profits, to collect premiums but reduce the amounts they pay out. In short, the insurers want to be their own judge and jury. The system should protect legitimate claimants who may have suffered great harm and be in great mental anguish and who are therefore susceptible to an approach that undermines their rights but ends the process quickly. They should receive what the law says they are entitled to, not what the insurance company says it is prepared to pay, and there is a big difference between the two. In the old days, it was not unusual for the same solicitor to represent both purchaser and vendor in a conveyancing transaction. Of course, there were clear conflicts of interest and major problems as a result. Thankfully, that practice no longer occurs.

Third-party capture has the same risks to consumers attached to it. The insurer, who has a responsibility for paying out on a claim, also decides how much to pay, more often than not on the basis of no, or inadequate, medical evidence and without the claimant having the benefit of legal advice. There could not be a clearer conflict of interest between a big insurance company playing the numbers and an unrepresented, unadvised claimant, but the great irony is that insurers end up actively encouraging claims with the direct approach of offering to settle quickly without the purported inconvenience of a medical examination.

A further irony is that the idea of putting forward a whiplash claim can be put in the mind of a claimant when they had not originally thought of claiming. Of course, the newspapers are full of such behaviour. The insurers are, in some respects, playing the numbers. They think that if they can buy off 10 whiplash cases for, say, £1,000 or so-even if some of them are, dare I say, fraudulent-it will cost them less than paying out the correct compensation to properly advised claimants on, say, four or five of them. That benefits insurers significantly. It can be no surprise that that has led to an increase in low-value whiplash claims and the undersettlement of more serious claims.

The insurance industry and the personal injury industry have been playing games for too long at each other's expense. The result has been that genuine victims of harm lose out-and lose out significantly. Third-party capture is a damaging practice and I urge the Minister to accept either this amendment or the other one.

Photo of Lord Neill of Bladen Lord Neill of Bladen Crossbench

I support this amendment. The practice that it outlaws seems to be absolutely disgraceful, with an insurance company being paid by its own side-by the defendant-and then approaching the plaintiff to try to do a cheap deal with him for the benefit of the defendant. It seems to me that the conflict of interest is so gross that it ought not to be permitted at all. I am a little surprised by the words in the amendment, which mention knowing that the plaintiff is represented, because I am not quite sure how the amendment would cover a situation where the plaintiff had no representation. When thinking about how one would refine the language, I think one might consider taking out that qualification, because, with a general ban on this practice, your Lordships would simply agree with the amendment.

Photo of Lord Bach Lord Bach Shadow Spokesperson (Justice)

My Lords, we welcome Amendment 164 in the name of the noble Lord, Lord Thomas of Gresford, and Amendment 164ZA in the name of my noble friend Lord Dubs. I also welcome the remarks of the noble Lord, Lord Neill of Bladen.

Amendment 164 is really about motor insurance and motor accidents. All Members of the Committee will agree that motor insurance is a social good. It is unique among financial service products in that it is not just necessary but carries with it the coercive powers of the law. As we all know, failure to insure a motor vehicle is a criminal offence with a fixed penalty of having the vehicle wheel-clamped, impounded or destroyed or facing a court prosecution and the imposition of a maximum fine.

That is all well and good and we all agree with that philosophy, but the private industry that delivers this social good is, as has already been said in this short debate, frankly deeply dysfunctional at present. That is perhaps an understatement. Its protagonist, the road traffic personal injuries sector, which comprises 75 per cent of all litigation, has developed deeply dysfunctional behaviours too. The arms race between road traffic personal injury lawyers and the insurance industry is completely dysfunctional.

The Transport Select Committee in another place has studied this twice in the past year. My right honourable friend Jack Straw has led a campaign to fix these structural issues in a market that is very flawed. We have seen the rise of an industrialised road traffic accident personal injury market, aggressively marketed as though it were a consumer good and operated a bit like a sweatshop, with non-lawyers hired at cheap rates to process hundreds of thousands of claims a year. This number is still growing at a startling rate.

Success fees, much criticised in our debates, are not to blame for the rise in the case load. We introduced an RTA portal that has operated for nearly two years. It compresses timelines, fixes costs and increases efficiency. It has done well. No less a figure than the Prime Minister commended it and wants to expand it to other areas of low-value claims. The portal has a maximum success fee of 12.5 per cent. The Association of British Insurers and Keogh and Co-well known lawyers in this field-told me and my colleagues in a recent meeting that ATE insurance is very low in this field: well below £100. However, the burden of litigation keeps increasing, despite the fact that the post-1999 regime of success fees and ATE simply does not exist in this area. Why does this happen? It is partly the result of decisions taken by the industries themselves, including the rise of aggressive marketing techniques, which we will debate shortly. The corollary to the personal injury market dysfunction has been the behaviour of the insurance industry itself, as the noble Lord, Lord Thomas of Gresford, said in his opening remarks.

The issue gives rise to the claim, believed by 83.6 per cent of the population, that we live in a compensation culture, when all the reports that have been received, including that of the noble Lord, Lord Young of Graffham, suggest that this is more of a perception than a reality. It gives a bad name to other, legitimate claims. For example, 5 per cent of claims are employers' liability claims, often made by trade unions on behalf of their members. They get a bad name because they are meant to be part of a compensation culture, but they are not; for the most part they are legitimate claims. What are not legitimate are claims that are suggested, recommended and almost forced out of people who have been involved in road traffic accidents.

The insurance industry and those who push claimants toward getting money are colluding-that is not too strong a word-in damaging each other. As the Transport Select Committee in another place found, by loading charges such as expensive car hire and body shop bills on to each other, they try to damage each other's profitability. This mutual sadism would seem almost economically rational if it did not seem so irrational in every other way. The incidence of third-party capture, which we are debating, has risen. It is a technique whereby insurers get referral data, cold-call often genuine victims and try to get them to settle early-and cheaply, as has been said. They claim that they are doing so to lock out personal injury lawyers, and certainly that is the effect. However, people who have been genuinely injured and deserve compensation are often attracted by the thought of a lump sum up-front without knowing their rights to full restitution.

We need to address this all together. No doubt we agree on the basics. I hope that the Government are seriously thinking of putting down on Report the provisions of the Private Member's Bill that my right honourable friend Jack Straw MP introduced. If they do, I suspect that they will have not only our support but that of practically the full House. The insurance industry is trapped in practices that drive up premium costs. I commend the noble Lord, Lord Thomas of Gresford, and my noble friend Lord Dubs on tabling their amendments and starting the debate in this House. The matter was discussed in the other place-perhaps not as well as it should have been-and the discussion must continue. We look forward very much to the Minister's reply.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords 6:00 pm, 1st February 2012

My Lords, I thank my noble friend Lord Thomas and the noble Lord, Lord Dubs, for introducing the matter. I also thank the noble Lords, Lord Neill and Lord Bach, for their contributions. Part of the latter's contribution was a warm-up for the further debate that we will have on referral fees, and I will make two points about his comments. First, he said that the insurance industry was trapped in practices that drive up premiums. That would be fine if the insurance industry paid the penalty for that merry-go-round, but the reason that there is so much indignation is that the cost falls on the poor consumer. That is why there seems not to be much incentive in the industry to deal with this; companies casually pass on increased costs to the consumer, as we have seen with the escalation of insurance premiums in this area. Secondly, I join my right honourable friend the Prime Minister in praising the road traffic accident portal, which is working extremely well and we are actively looking at where else it could be applied.

As my noble friend Lord Thomas and the noble Lord, Lord Dubs, explained, Amendments 164 and 164ZA would prohibit an insurer making an unsolicited approach to potential claimants in a personal injury case if the insurer was aware that the claimant had legal representation. The amendments also specify the requirements that must be met before an insurer may make an offer to settle such a claim where a claimant does not have, or is thought not to have, legal representation. This includes a requirement to obtain adequate medical evidence of the injury and to advise the claimant of their right to obtain full legal advice before accepting the offer, and to make it clear to the claimant that the offer to settle is full and final. In either of these cases, a failure on the part of the insurer to observe the provisions would render any settlement void.

Third-party contact is the practice by insurers of making an early settlement offer to a claimant or third party where the insurer's policyholder is at fault in a car accident. The Financial Services Authority regulates the insurance industry and requires that insurers treat their customers fairly at all times. This would cover third-party claimants. I should explain that apparently the industry prefers the term "third-party contact" to "third-party capture". I will leave it to noble Lords to make their choice on that.

Photo of Lord Clinton-Davis Lord Clinton-Davis Labour

Speaking from years of experience in this field, I know that the term "full and final settlement" is often used by insurers at the very beginning of proceedings and negotiations, but I do not think that it is adhered to. It is often possible to obtain a better settlement, so the term is ignored.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

The noble Lord says he speaks from very long experience. As this Bill progresses, I have found that quite often noble Lords on all sides of the House who have more experience than me of the legal profession tell me that there is often a gap between what is written down and the reality of the day-to-day practice.

Third-party contact does not, in itself, cause detriment to consumers and may be to their advantage as a claim can often be resolved quickly. In addition, this practice can allow insurers to reduce the legal costs associated with handling a claim, and this in turn reduces costs for all policyholders. However, I am aware of concerns around the potential risk of conflict of interest and the need for the claimant to have independent legal advice before any settlement is agreed. The FSA undertook a review of third-party contact during 2009-10 and did not find conclusive evidence that unrepresented third parties could have achieved higher compensation had they obtained independent legal representation.

Following the FSA's review, which was referred to by the noble Lord, Lord Thomas, the Association of British Insurers published a code of practice, to which he referred, in June 2010. The code contains specific guidance for insurers on contacting claimants. This limits unsolicited contact. For example:

"Insurers will not make unsolicited visits to an unrepresented claimant at their current address, including hospitals".

I know we will be returning to some of this later. The code also requires that claimants are informed of their right to seek independent legal advice and of other options available to them to resolve their claim. As I have indicated, the practice was reviewed in 2009-10 but was not found, overall, to be disadvantageous to claimants.

In summary, most of the issues that these amendments seek to address in respect of the handling of third-party contact claims are already covered by existing regulation. The FSA rules require that insurers fully inform third-party claimants of their legal rights, including to independent legal advice, and of alternatives to settling directly with the insurer. In the light of this, we do not believe it is necessary to go along the lines of the noble Lord's amendment, and I ask him to withdraw it.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

I am disappointed with that response. I do think it adequately addresses reality as it exists today in the approaches by insurers to accident victims.

In answer to the noble Lord, Lord Neill of Bladen, subsection (1) of my amendment prohibits the third party's insurance company soliciting a claimant,

"where to the knowledge of the insurance company, the claimant is legally represented".

Subsection (2) refers to a situation where that is not the case: the claimant is not legally represented or the insurance company does not know that he is legally represented. It sets out three terms: that the offer to settle can be made only when the insurance company,

"has obtained adequate medical evidence ... and has disclosed it to the claimant; and ... the claimant is advised when the offer is made of his right to obtain legal advice; and ... the offer is in full and final settlement of the cause of action".

The sanction that I have quite deliberately put into this amendment is not that it is an offence or anything of that sort but that a settlement made in breach of those subsections shall be void, which means, in effect, that if a person has been bought off for a small sum, he can reopen the matter without any problems. He can go to a solicitor, get proper advice, get a proper medical report and come back. To my mind, that appears to be the right way forward.

Photo of Lord Neill of Bladen Lord Neill of Bladen Crossbench

Another sanction would be that if a settlement has been made, the money is irrecoverable. Under a void agreement, insurers might get their money back again, but you could have a provision expressly about "money paid by way of settlement", because a claimant may not find out until later that he has been swindled.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

I am very grateful to the noble Lord for that suggestion.

This problem will become more and more obvious as time goes on. As I said, I am disappointed with my noble friend's reply, but for the moment, I beg leave to withdraw the amendment.

Amendment 164 withdrawn.

Amendment 164ZA not moved.

Clause 54 : Rules against referral fees

Amendment 164A

Moved by Lord Beecham

164A: Clause 54, page 39, line 20, at end insert-

"and in either case, the regulated person and the person by or to whom the business is referred, each act in the course of a business carried on for profit"

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health) 6:15 pm, 1st February 2012

My Lords, the amendments in this group refer to referral fees. Recent years have seen an explosion of growth among what might best be described as parasitic commercial organisations-claims management companies and the like-seeking to obtain part of the financial stream that flows when litigation occurs by charging for the referral of clients to lawyers. Paradoxically, it might be thought, some of this is fuelled by the very insurance companies that complain about the compensation culture and the costs of litigation. Clause 54 very properly seeks to prohibit referral fees to and by regulated persons, who will include claims management companies, lawyers, insurers and perhaps others. Perhaps slightly counterintuitively, for the purposes of the legislation a referral fee need not take the form of a payment, but could, for example, be an offer by a lawyer to take on work at a reduced rate or for no fee. However, the potential for abuse of the system is apparent, and the Bill seeks to address it.

The amendments tabled in my name and in the names of other noble Lords seek to improve the wording of the Bill. Perhaps I may briefly outline what they do. Amendment 164A would exempt not-for-profit organisations from the operation of the ban on referral fees. It would take them outside the category of regulated person for the purposes of the ban. Of course, there will be many membership organisations-charities, for example-that will come into that area. I understand that some charities refer people for legal and medical advice and any sums arising from those referrals go back into the work of the charity or the membership organisation. That seems a perfectly reasonable category to take out of the provisions of the Bill.

Amendment 164B is a consequential amendment making it clear that regulated persons would be businesses carried on for profit. It is a corollary of Amendment 164A, as is Amendment 164C, which is another consequential amendment. More substantively, Amendment 166 provides:

"A regulated person is not in breach of this section if ... that person is a solicitor; and ... the body to which the payment is made for the prescribed legal business is a registered charity that has been granted an exemption by the claims management regulation unit".

Again, both the person making the payment-the solicitor-and the body receiving it-the charity-would be taken out of the scope of the provision.

We support Amendment 166ZA, tabled by the noble Lord, Lord Pannick. The noble Lord will of course address this matter, but the thrust of the amendment seems to be to except from the ban a referral from one solicitor to another. This can easily arise in the course of practice where a case, either from the outset or it becomes apparent, is somewhat beyond the experience and expertise of a particular firm but a good deal of work may have been done on it and in any event it is not unreasonable for a referral fee to be paid.

Perhaps more significant is Amendment 166ZB, in the names of the noble Lords, Lord Martin of Springburn and Lord Elystan-Morgan, and my noble friend Lord Collins of Highbury, which would take out of scope of the ban the relationship between trade unions and their members. I speak with long experience of these matters because I personally acted-the firm, for which I am now an unpaid consultant, continues to act- for a number of trade unions. The relationship there is not simply the passage of a name of a member but, as your Lordships will no doubt hear, one in which a good deal of administration is required and where the union is performing a service on the part of the member that will ultimately benefit the conduct of the case and therefore the solicitors involved in it. Again, it seems quite reasonable in that instance that a fee might become payable and it is unnecessary to bring that sort of relationship within scope.

Finally, Amendments 169 to 171 to Clause 56 are connected amendments. Instead of allowing the Treasury to make regulations enabling the Financial Services Authority to monitor and enforce compliance, they make this an obligation. Amendment 169 substitutes "shall" for "may" and Amendment 170 requires rather than enables the FSA to take action. Similarly, under Amendment 171 it would become a requirement for the Treasury to make rules outlining circumstances where payments are not to be treated as a referral fee. This echoes the Lord Chancellor's powers proposed under Clause 55(8).

None of this seeks in any way to detract from the thrust of the Bill's proposals but to tailor them to the realities of the issues that the Bill seeks to address and to make better sense of what is in principle a sound proposal that the Opposition support. Accordingly, I beg to move.

Photo of Lord Pannick Lord Pannick Crossbench

My Lords, Amendment 166ZA in this group is in my name. I am grateful to the noble Lord, Lord Beecham, for expressing support for it.

The amendment would exempt solicitor-to-solicitor referral fees from statutory prohibition. I am puzzled as to why the Government think it is appropriate to impose a statutory prohibition on such referral fees. I am puzzled for two reasons. First, there is a public interest in solicitors having an incentive to transfer a case-with the consent of the client, of course-to another solicitor; for example, if the latter solicitor has greater expertise or if the former solicitor will not be able to deal with the case expeditiously. Secondly, any such referral fees from one solicitor to another are regulated by the SRA, which has ample powers to impose sanctions on either of the solicitors if there were any abuse of proper professional standards to the detriment of the consumer.

I ask the Minister-and it is a genuine inquiry-why, in the light of these factors, it is necessary or appropriate to regulate referral fees paid directly from one solicitor to another.

Photo of Lord Clinton-Davis Lord Clinton-Davis Labour

Does the noble Lord agree that it is common practice for one solicitor to transfer a case to a solicitor in another part of the country? Speaking from personal experience, I quite often had to deal with cases in London that were transferred from the north of England because it was more convenient to deal with the insurers in that way.

Photo of Lord Pannick Lord Pannick Crossbench

Yes, I agree. Of course, the Bill will not in any way prohibit such transfers; it will prohibit only payment. However, prohibiting payment will deter what may be a very sensible economic arrangement that provides an incentive to the first solicitor to transfer to the second solicitor a case which the second solicitor can deal with far more efficiently-in the interests of the client; that is the point. As I say, all these matters are properly regulated by the SRA. If the SRA is not properly regulating it is not doing its job. I ask the Minister why and also whether there is any evidence that the SRA is not doing its job properly in regulating referral fees in relation to transfers between solicitors.

Photo of Lord Martin of Springburn Lord Martin of Springburn Crossbench

My Lords, Amendment 166ZB is in my name and those of the noble Lords, Lord Elystan-Morgan and Lord Collins of Highbury. Of course, I am supportive of the other amendments that have been moved and spoken to.

I note that the other amendments mention payment to charities. When I signed up to the metal workers' union as a young apprentice, it was regulated under the Friendly Societies Act. It was the same as the insurance companies such as the Co-op, the Salvation Army or the Wesleyan-they were charities. The trade union movement has always had a tradition of not only looking at wages and conditions within the factory but trying to go beyond that to help the member and his family. It knew that there was no point in just fighting for wages and conditions alone; there were many problems outside the place of work. Often that meant that, particularly when workers were involved in an accident, the unions had to get in touch with a solicitor who was willing to help, particularly in the bad old days.

Not so long ago in my native city of Glasgow, the Kelvingrove Art Gallery-which I would recommend anyone who visits Glasgow to go and see-had an exhibition of trade union banners. Trade union banners today tend to have big messages saying "Cameron out!"-and before that it was "Thatcher out!" or, even before that, "Heath out!"-but these old trade union banners were absolute works of art. They displayed exactly what the trade was all about. I remember the coach builders' banner; one of the members had had an accident in the street and you saw the accident-the poor man had broken his leg-and another part of the banner showed him in bed and the officers of the branch turning up, and the caption underneath was, "When I was ill, you visited me". My point is that there was always care within the trade union movement.

I know that many people, particularly in the media, can point to the salaries of the trade union leaders and make negative comments about them. But it must be remembered that the vast majority of people working in trade unions do so on a voluntary basis without any financial help.

As regards accidents in the workplace, some people would think that an engineering workshop is very dangerous but I know, through my work with the National Union of Public Employees, that a hospital kitchen can be a very dangerous place. A person can break a hand through a fall in a kitchen. Usually, the person who starts an inquiry is a shop steward who gets the information together. Then there is a visit from the full-time trade union officer who would need transport and an office from which to operate, with secretarial back-up, in order that the paperwork can be put together to send to the solicitor. It is only right and fitting to have a referral fee which can help with the ongoing costs of a trade union office. Again I go back to the point that most people think, when they join a trade union, that it is for wages and conditions, but this is another area of help that is given. There is a financial cost and it is right and fitting that the trade union should get a referral fee to offset those costs.

Photo of Lord Collins of Highbury Lord Collins of Highbury Opposition Whip (Lords) 6:30 pm, 1st February 2012

My Lords, I obviously have an interest in that I have put my name to Amendment 166ZB. First, I want to state clearly that, as a former full-time trade union official for what is now Unite, on this issue I have had its assistance and that of the solicitors with whom I worked over many years. I want to separate the principle of referral fees from what we have heard in terms of the scandalous behaviour of certain commercial operations, including insurance firms, in road traffic accidents. It is important to do that because, as I said at Second Reading, we are using a sledgehammer to crack a nut. I fear that a lot of deserving people will be adversely affected by these changes.

The consequences will be devastating on working people and their unions. It is important that I set out-I am sorry if I take up a bit of time in doing so-precisely the sort of help and package that most unions offer to their membership. I also draw attention to the Prime Minister's remarks about the importance of the big society-that is, members helping themselves. We are talking about organisations of members for members who are, as the noble Lord, Lord Martin, said, regularly supporting their fellow members, very much in an unpaid capacity. No matter how much we have changed things, industrial accidents and diseases are still unfortunately far too common. We should be defending that principle of big society.

As a senior officer in the Transport and General Workers' Union, I took considerable time in building a relationship with solicitors and in ensuring that we had a clear understanding about the sort of services that solicitors should provide to our members. Referral fees were not about extracting huge sums of money but about ensuring that we could build services for our members. More than 6 million people in the UK, and their families, can take advantage of those services. I was proud to build them.

We talk about representation in personal injury cases but we also provide free wills and free telephone legal advice help. The services go beyond employment matters to consumer rights, neighbour disputes and a whole host of issues and services. There is free personal injury cover for members injured at work, including devastating industrial diseases caused by exposure to asbestos and other dangerous chemicals. We provide free personal injury cover for members' families if they are injured away from work, criminal law representation for work-related matters and criminal injury representation for members who are assaulted at work. As members of the Transport and General Workers' Union, that was quite a common occurrence for bus drivers and conductors. I know that we do not have too many conductors now but there is still a huge problem. We do not hear about these issues in the newspapers and we certainly have not heard enough about these issues in this debate.

Representation, legal representation and relationships with solicitors are vital for working people. In an open and transparent way, referral fees have been used to build that relationship and to extend the services provided by specialist law firms. As I have said, that relationship is about building the quality of service. The union is able to monitor and regulate the relationship. Of course, unions are highly regulated and required to register all their finances and services with the certification officer.

This relationship is also able to provide appropriate complaint procedures and mitigation. If there are failures on the part of the solicitor, the union is able to intervene, which takes the burden away from other agencies. It is important that we are able to continue to do that work. The last figures I was able to get hold of were for 2010, when, for example, Unite, UNISON and the GMB's legal services helped more than 25,000 members to win damages through industrial accidents and personal actions. That figure applies just to cases with damages and ignores the tens of thousands who got other services. When I left Unite, we had established the legal telephone helpline through the introduction of referral fees. Now, 25,000 people ring it every year for advice. I feel like ringing it at the moment because the draught coming through here is potentially hazardous to all our health. I will ring it when we have finished.

Noble Lords:

Hear, hear.

Photo of Lord Collins of Highbury Lord Collins of Highbury Opposition Whip (Lords)

I accept that there is no justification for excessive commercial referral fee arrangements, but we could establish criteria for these fees to ensure that they are reasonable in amount and provided wholly or mainly in services rather than in direct financial payments. We have talked about other organisations that are able to build legal services, and I am sure that other noble Lords will refer to campaigning and charitable organisations that rely on these services, particularly for work on industrial diseases. It may be an unintended consequence of this Bill, but that is why I want to stand up and be explicit about and proud of the sort of services that unions have been able to build up and give their members as a consequence of the arrangements they have made in an open and transparent way with solicitors.

I return to the point I made about road traffic offences in my Second Reading speech: this is a sledgehammer to crack a nut. My noble friend referred to the RTA portal and those arrangements. I wish that the department would not only build on that success, but also examine its impact. Maybe it needs to be improved, but not by introducing a piece of legislation that is going to hurt. After all, the statistics speak for themselves. Figures collected by Datamonitor and the Compensation Recovery Unit reveal that between 2007 and 2011, motor claims increased by 43 per cent to 799,000, but employer liability claims were down by 6.6 per cent to just under 81,500. Are we dealing with like for like here? Let us address the road traffic accident issue-but why damage the interests of ordinary working people? They need their own organisations to defend them, with the support of professional solicitors who those organisations work with and regulate. I ask the Minister to see whether the Government can pay attention when considering these amendments and look at the specifics rather than let them be drowned in the road traffic accident problem, to which I know we have a solution, and on which we could do more.

Photo of Lord Alton of Liverpool Lord Alton of Liverpool Crossbench 6:45 pm, 1st February 2012

My Lords, claims management companies are sometimes described in more popular language as "claims farmers", and they are a real pest. Inasmuch as the Government are seeking to do something about the claims farmers, I am totally in support of them. However, I have added my name to Amendment 166 to which the noble Lord, Lord Beecham, has just spoken. As the noble Lord, Lord Collins, has rightly said, in these provisions are all the seeds of the law of unintended consequences. Just as the trade union organisations which do a superb job for some of their members will be caught by some of these provisions, so too will the campaigning charities, to which the noble Lord referred in his remarks. Amendment 166 suggests that a regulated person would not be in breach of the rules set out in Clause 54 if,

"(b) the body to which the payment is made for the prescribed legal business is a registered charity that has been granted an exemption by the claims management regulation unit".

As my noble friend Lord Pannick said a few moments ago, they have been doing a pretty good job up until now, so why do we not have confidence in the work they undertake?

I want to return to an issue that I raised at an earlier sitting of the Committee: mesothelioma and asbestos victims. The example I want to give your Lordships is that of a charity that works specifically with the victims of asbestos exposure. I shall quote Mr John Flanagan, on behalf of the trustees of the Merseyside Asbestos Victim Support Group, who wrote to me to say that if the Bill goes through in its present form,

"it will have catastrophic results for us if it goes through without amendment".

For that reason, I hope that noble Lords and the Government will look favourably on the amendment tabled by the noble Lord, Lord Beecham. The Merseyside Asbestos Victim Support Group was formed in 1992 and became a registered charity in 1993. The founding members were ordinary working people who had been struck down with asbestos-related diseases of the sort I have described. They and their families felt that there was a lack of help and assistance for those suffering from asbestos-related diseases and that the only way to solve this was by creating their own support unit for people in the same situation as themselves. Given the emphasis the Government rightly place on voluntary endeavour, encouraging people to get engaged in the big society, I would have thought that they would thoroughly approve of a group like this, which is made up of people who are trying to help themselves.

The work of the group is primarily that of visiting victims who have been diagnosed with an asbestos-related disease, including the terminal condition of mesothelioma. As I said during our last proceedings, the prognosis once the disease has been diagnosed normally means that the victim has nine months to live. Victims of asbestos in almost all cases have not contributed in any way to their condition and they were not informed of the associated dangers or presence of asbestos in their workplace by their former employers. The idea that such people could be vexatious litigants or that these are frivolous claims is patently absurd and I do not think that anyone would advance that in your Lordships' House.

MAVS is supported by and works closely in association with local clinicians on Merseyside to provide a holistic support framework. It is an impressive community. Services are based locally and work is carried out with other voluntary organisations-at no cost to the patient or to the community. Clinicians give out leaflets to patients on diagnosis with the recommendation that they should contact the support group. Again, this is highly compatible with the plea that voluntary organisations should take up more of the burden. This is something that they are doing already, and yet they are going to be hit by the provisions in the Bill. A full range of advice and support is provided to patients and their families, including help with welfare benefits such as industrial injuries disablement benefit, pension credit, attendance allowance, disability living allowance and carer's allowance. They assist with the completion of complex application forms and offer practical help and support, providing assistance wherever it is needed. Sometimes victims and their families just need the support of a friend at the end of the telephone who understands what they are going through when times are really hard or challenging. They also provide details of legal advice experts, thereby preventing victims from falling into the hands of the claims management companies that the Government say quite properly that they want to deal with. Other asbestos victim support groups around the United Kingdom work tirelessly to provide the same services.

The majority of the people who run MAVS are volunteers, just like those described by the noble Lord, Lord Collins, in the trade union movement. I might add that the volunteers include those who themselves have been diagnosed with asbestos-related diseases. The management body, the trustees, also includes patients diagnosed with an asbestos-related disease and family members whose loved ones have been lost through asbestos-related illnesses. The Merseyside group co-ordinates with the Cheshire Asbestos Victim Support Group to hold an annual Action Mesothelioma Day, which helps to bring about awareness among the general public of asbestos disease and serves as a memorial day to commemorate those who have died from this insidious disease. I gave the figures during our last proceedings, but I remind noble Lords that some 30,000 people have already died of this horrible malignant disease, and it is predicted that before the terrible legacy of industrial disinterest in the past ends, there will be another 60,000 fatalities. The day is also used to raise much-needed funds for the Mick Knighton Mesothelioma Research Fund and the June Hancock Mesothelioma Research Fund; both organisations are working to try to find a cure for the disease.

The majority of the individual asbestos victims groups' charities within the United Kingdom attend the All-Party Parliamentary Group on Occupational Safety and Health's sub-group on asbestos, thus providing invaluable expertise and insight on this disease and the situation of those who have been affected. The Merseyside group also gives talks to the local community, including the Liverpool Community College's building and construction section, to warn and educate upcoming apprentices of the dangers of asbestos and how to deal with it when it is discovered in their workplace. The charity works on a global scale with organisations such as the International Ban Asbestos Secretariat, which works towards a global ban on the use of asbestos. This collaboration has already produced a ban on asbestos in many countries which took the lead from the European Union ban back in 1999.

The charity was successful in obtaining lottery funding in 1997 for three years. It made a further bid for continued funding but was unsuccessful, being told that it was in the envious position of being able to attract donations from the legal sector for the work that it undertook. It set up financial arrangements under the solicitors' code of conduct with several asbestos-related disease specialist solicitors to ensure its continued funding and existence. It considered the term "referral fee" objectionable, as this funding from solicitors is in recognition of continuing work for and on behalf of victims and certainly not in the same context as payments made to claims farmers. This essential funding, together with donations from victims, is vital to its continuing existence.

Inasmuch as the Bill will scrap referral fees, particularly those payments to claims farmers, it is to be commended. However, there is an irony in that CMCs will set up alternative business structures-so-called ABSs-to avoid their demise and that the hounding of the public will continue unabated. They will find a lacuna; they will find a way around, as those groups who are about just making money invariably do. The people whom the Government want to catch will escape, while those who have been performing this extraordinary public service out of an altruistic spirit will be caught. Genuine charities such as MAVS will have their funding from expert lawyers specialising in asbestos-related diseases cut altogether. If ever there was a case of throwing out the baby with the bathwater, this is surely it.

The Government do not seem to realise the impact that the Bill will have if the amendment is not accepted. Terminally ill people do not have the energy to fight their own corner and are often beaten into psychological submission, especially when their mind is on what will happen to their family when they are no longer there. Surely it is the Government's responsibility to ensure that those least able to defend themselves are not treated as collateral damage in this Bill. That is why the amendment of the noble Lord, Lord Beecham, is so important. Let us remember those words from John Flanagan, who said that, if the Bill is enacted,

"it will have catastrophic results for us if it goes through without amendment".

That is an intolerable, unconscionable situation which I hope the Minister will take very seriously.

Photo of Lord Monks Lord Monks Labour

My Lords, I support the amendments. I declare an interest as a non-executive director of Thompsons Solicitors, the largest company of trade union-related solicitors in the country. I am very pleased that noble Lords who have spoken before me have recognised the value and extent of trade union legal work-the noble Lord, Lord Collins, gave the figures. Looking at the government Benches just in the course of this debate, I have spotted distinguished barristers who have worked for trade union legal services and solicitors over the years. They include the noble and learned Lord, Lord Howe, the noble Lords, Lord Carlile, Lord Lester and Lord Hunt, who is with us at the moment, and the noble Lord, Lord Thomas. All of them have earned a few quid from the trade union movement in their time, looking after the interests of people who have hit hard times and need help.

The Minister referred movingly on Monday to a family illness that developed from one of the old ICI works. In a way, unions' role in litigation is only a relatively small part of their work on health and safety; the majority of their work is preventive. If you go to anyone in the chemical industry in Britain today, where conditions have improved immeasurably since the days of ICI in the 1960s, they will pay full tribute to the role of the trade union movement.

As others have said previously, the number of personal injury cases generally is falling, with the huge exception of road traffic accidents, where we know that something is going on that needs to be stopped, as my noble friend Lord Bach said earlier. Unions are getting a dirty name because some in the media, and perhaps in the Government, too, believe that unions should somehow be lumped together with the shroud-waving, ambulance-chasing, daytime TV-advertising groups of lawyers who go around inciting claims all over the place.

The need to differentiate is clear. At the moment, we are not being differentiated in any way. We are losing on conditional fee agreements, on "after the event" insurance, on legal aid in tribunals and now on referral fees, which is the subject of this debate. These are all ways in which we are able to fund a substantial legal service and which will be much restricted if and when the Bill goes through in its present form. The different provisions impose major limitations on unions' ability to run effective legal services. At a time when legal aid is being cut, a double whammy is being inflicted on many working people and a great victory is being enjoyed by the insurance industry.

Will the Minister and others in the Government give some recognition on Report to this imbalance? Not all aspects of trade union work are uncontroversial, but their legal services are widely appreciated and widely respected. They should be supported by the Government, not hit and curbed as they are in the Bill.

Photo of Lord Elystan-Morgan Lord Elystan-Morgan Crossbench

My Lords, I join all those who have spoken in favour of the amendments, in particular Amendment 166ZB, to which I have appended my name with those of my noble friend Lord Martin and the noble Lord, Lord Collins.

If one were to ask whether Britain is an overlitigious society, the answer would be yes and no. There are massive abuses that we are all aware of; there have always been abuses in the law. A small percentage-a minority, I like to think-of the profession to which I belong, and I have belonged to both sides of it, belongs to that class that Dr Johnson spoke about when he said:

"The fell attorney prowls for prey".

There have always been brethren who have been involved in that way, but they are, as I said, a very small minority.

The Government are absolutely right to aim their weapon at such malpractices, but the weapon that they are aiming, it seems to me, is a blunderbuss with a very wide barrel, throwing a huge cloud of shot many yards wide that will hit many targets, some of them worthy and some of them not. My appeal to the Minister who will reply to this debate is not to express a Molotovian no to these appeals, which have been so sincerely and so solidly made. It would be utterly wrong to allow many worthy referral schemes to be destroyed wantonly just because the Government may not be sufficiently imaginative to look at each and every one of these situations separately.

It was very proper of the noble Lord, Lord Collins, to remind the Committee of the primary origins of so many trade unions: friendly societies and societies of brethren, uniting in brotherhood to try to bring about a justice that society as a whole was not able to give them at that time. It is a very worthy history. Therefore on that basis, speaking with the experience of one who has been a solicitor, a barrister and for some 20 years a judge, I concur completely with everything that I have heard. These are deserving cases and it would be wrong, unjust and utterly unworthy of the Government to lump them all together and treat them as if they were pariahs to be attacked in this way.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords 7:00 pm, 1st February 2012

My Lords, we have heard some powerful speeches about the good work of trade unions and charities, but that is not what this debate is about; it is about the ban on referral fees. In their reports, both Lord Justice Jackson and the noble Lord, Lord Young of Graffham, supported the ban on referral fees. The Government believe that the current arrangements under which lawyers and others are able to pay and receive fees for referring personal injury claims have led to higher costs and the growth of an industry that pursues claims for profit.

Lord Justice Jackson recommended that referral fees should be banned as part of his comprehensive package of recommendations to make the costs of civil litigation more proportionate. The prohibition will be enforced by the appropriate regulators, for example the Solicitors Regulation Authority for the Law Society, the Bar Council, the Financial Services Authority or the claims management regulator. The regulators will also be responsible for taking appropriate action against "regulated persons" for any breaches. The Government believe that requiring regulators to enforce the ban is the most effective and proportionate response.

The noble Lord, Lord Alton, made a powerful case, as he did the other night, for help for those suffering from exposure to asbestos, but I do not believe that he should then link that deep concern to one form of fundraising for charity. Indeed, it is debatable whether it is any healthier for a charity than any other body to have such a dependency relationship with lawyers who are supposed to be providing a professional service, so we are not convinced that any exemption should be made for charities.

Photo of Lord Alton of Liverpool Lord Alton of Liverpool Crossbench

My Lords, if there is a depletion of funds of charities such as the one that I described today, are the Government saying that if those charities cannot raise that through voluntary endeavour and voluntary giving, the Government themselves will fill their coffers?

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

No, of course the Government cannot do that. There was one thing that I was interested in. I do not know this because it is always dangerous to think aloud at the Dispatch Box, but on the powerful case for aid for charity I do not see why wealthy solicitors' firms or wealthy solicitors could not make donations to that charity as long as there was no link with the search for work. It is worrying to have a charity that is dependent on making referral fees to certain solicitors. I am more comfortable with our banning referral fees.

In a way, the same applies to what has been said about trade unions. I fully accept the point made by the noble Lords, Lord Collins and Lord Martin, about the services that trade unions offer working people in this country. My father worked for 47 years for ICI and was a lifetime member of the National Union of General and Municipal Workers. When I hear attacks on health and safety, I know the importance of health and safety in industry, but that should not be linked to a relationship with a professional service organisation.

Photo of Lord Martin of Springburn Lord Martin of Springburn Crossbench

I may have failed to declare an interest in that I am a member of Unite. It used to be the metalworkers' union and then it became another union. When I looked today, it was still called Unite, but it might change its name tomorrow.

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

It might. Some of them sound like coffee bars rather than trade unions these days, but perhaps that is part of the marketing. Certainly, the case of the trade unions was made very strongly by those who intervened. The service that trade unions provide their members no one gainsays-it is important-but we do not believe that that link between referrals and certain legal firms should be exempted from a general ban on referral fees. There must be those who have worked for trade unions who do not pay referral fees. I do not know. As a layman, I see referral fees as a distortion of the market, but there is nothing to stop trade unions having a good close working relationship with particular law firms. Some have had long-standing relationships. However, I cannot tell the House that we are willing to make an exception.

The noble Lords, Lord Pannick and Lord Clinton-Davis, referred to the payments by solicitors to other solicitors for the transfer of prescribed legal business, and we believe that that argument is rational and sensible. If for any reason a solicitor decides that a piece of business needs to be transferred, perhaps for the geographical reason that the noble Lord, Lord Clinton-Davis, gave or because the solicitor realises that it is beyond the competence of his or her firm, it would be perfectly reasonable to see a transfer. When the transfer is made, the solicitor concerned is able to claim an appropriate amount of money for the work dispersed before the transfer was made. We accept that logic. However the Government's view is that reasonable payments of this type are not captured by the ban as long as they only cover the work undertaken by a firm in respect of the claim prior to it being transferred to a new firm. If there is a referral fee element to the payment, this would be subject to the referral fee prohibition and is a matter best dealt with by the regulator rather than by legislation.

Although I know that parts of this reply will disappoint noble Lords, we appreciate the widespread support for our ban on referral fees. We believe that this is the best way to lead our proposal to provide the most effective and proportionate way of preventing payment for personal injury claims and squeezing a bad practice out of the industry. We therefore invite noble Lords not to press their amendments.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

My Lords, the noble Lord, Lord Hunt, has signified his support for the Government, but he is the only member of your Lordships' House who has done so in respect of these amendments. We have had some powerful speeches from a variety of people with an interest in and experience of litigation of this kind: distinguished lawyers such as the noble Lords, Lord Pannick and Lord Elystan-Morgan; people with direct experience of the shop floor, such as the noble Lord, Lord Martin; people with a lifetime in the trade union movement, assisting members and no doubt helping them to make their legitimate claims for compensation and advice, such as the noble Lords, Lord Collins and Lord Monks; and the noble Lord, Lord Alton, with his extensive experience of the voluntary sector. They have all made a very clear case for exempting trade unions and charities from the restrictions of this Bill.

We agree that there is a problem with the referral of claims and the industry that has grown up around them. That is commercial exploitation, which may well lead to expectations being aroused and cases perhaps being brought that should not be brought. That is why we support the thrust of the Government's proposals. However, the Government and the noble Lord appear to be comfortable with third-party funding of litigation-subject, as we have heard and discussed in a previous debate, to possible regulation-but not at all comfortable with an arrangement by trade unions or charities for a referral fee for passing instructions, and no doubt assistance as well, to solicitors that they are recommending on behalf of their members. There is an element of quality assurance in that too. I do not understand, in this context, what the evil is that the Government's proposals on referral fees are supposed to be curing. Who loses by the process that is being advocated in these amendments by those who support them? Where is the loss? There is no loss to the public purse, the insurance industry or defendants. There is no loser. It is not at all analogous to the commercial exploitation about which we spoke.

This curious matter, to which I referred in moving the amendments in the first place and which I will take a little further now, arises under Clause 54(8) of the Bill, which provides that:

"Payment includes any form of consideration (but does not include the provision of hospitality that is reasonable in the circumstances)".

You can take somebody for a drink but you cannot provide any other service. Page 47 of the Explanatory Notes says:

"Subsection (8) provides that a referral fee can be any form of consideration (which would include, for example, an offer by a solicitor to take on other work at a reduced rate or for no payment at all), other than normal hospitality".

As part of my firm's relationships with trade union clients, I used to offer a free will to a client for whom we acted after being referred to us by a trade union. We would offer free initial advice about other matters not connected with their personal injury claim, such as a matrimonial, employment or even a criminal matter. All of that would be caught by the Bill as it stands and as set out in these explanatory notes.

Perhaps I am being naive, but I cannot believe that the Government really intended those consequences, even though they appear to flow from the Bill as drafted. It means that the expectation that has developed over many years between trade unions and their solicitors-and I dare say the same applies to charities and the solicitors that they recommend as well-that a service would be offered, either free or at a lower charge than might otherwise have been the case because of that connection, would be prohibited by law. That would be the consequence of this Bill. I do not know whether the noble Lord has addressed his mind to that. I would not be surprised if it has not occurred to him, given all the other matters he has to address. However, I would urge him to look again at that aspect even if he is reluctant to look at the other aspects, to which we will undoubtedly have to return on Report. What is being suggested here is a gross interference with a relationship of many years' standing, covering both the categories of organisation we have talked about. With all respect to the Minister, I do not understand-

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat 7:15 pm, 1st February 2012

My Lords, before the noble Lord does what he is going to do with his amendment, I just make one comment. He said that the Minister was on his own. When I was a young solicitor, I would have given my eye teeth to secure some union work. I did some at the Bar, but it was very difficult in a small firm to compete with a large firm, as I am sure the noble Lord will agree. If I thought I had to pay money to the union to get their work, that would have made it considerably worse. The money that is paid to the union by the lawyer is ultimately reflected in the hourly rate that the lawyer charges to his client-it eventually falls on the client, or on another client. It is not just disappearing or being absorbed by the large firm.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

Not all firms are large firms, and it will not surprise Members to know that my firm was not-and is not-a large one. However, we have had that kind of relationship. The profitability of firms conducting litigation of this kind is not high in any event, even without the question of referrals. I do not think that there are the kind of consequences that the noble Lord assumes to be the case. Equally, organisations with members seeking to derive the best service that they can for their members ought to be free to do that. I repeat that I do not think this Bill is at all on the right lines in what it is seeking to do. I again respectfully direct the Minister's attention to the peculiar circumstances that subsection (8) proposes.

I was going to finish by commending again the amendment tabled by the noble Lord, Lord Pannick, about solicitor-to-solicitor arrangements. He made a very strong case there, and I regret that the Minister seems to have just dismissed it out of hand. Certainly-

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords

I ask the noble Lord to read Hansard tomorrow. We have made it extremely clear that we do not think that the kind of relationship outlined by the noble Lord, Lord Pannick, will be caught by this ban. It will be regulated by the Solicitors Regulation Authority, and I hope my statement from the Dispatch Box will give it some help in carrying out that duty. The Government do not believe that that kind of relationship, where a solicitor transfers business and takes a reasonable charge for the work already done, is covered by this ban.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

I do not think it is necessary to confine the payment to precisely the basis that the noble Lord identifies.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat

In the new, highly commercial context within which soliciting is carried on today, and in an era when we have these alternative business structures where we can be owned by virtually anybody, does the noble Lord not think that there is a real risk that some of these new ABSs will, as a matter of business, solicit work if they can then pass it on subject to a substantial referral fee? I can see that in the offing.

Photo of Lord Beecham Lord Beecham Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Health)

I can see a case for regulating the fees. I am not an enthusiast for alternative business structures as the noble Lord has defined them. But in any event, we are not discussing soliciting as such-despite the noble Lord's use of the phrase. We are talking ultimately about a system that has been used successfully from the point of view of trade unions, charities and their members, as well as the professions, for some time. The Bill is seeking to intervene because of a different set of circumstances and set of relationships, with different causes and consequences. If there is no movement on this we will have clearly have to return to the matter on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 164A withdrawn.

Amendments 164B and 164C not moved.

Amendment 165

Moved by Lord Clement-Jones

165: Clause 54, page 39, line 24, at end insert ", or

(c) arranges for another person to provide, for a fee, marketing services by unsolicited SMS text message, unsolicited telephone calls or any marketing in a hospital or other primary treatment centre."

Photo of Lord Clement-Jones Lord Clement-Jones Liberal Democrat

My Lords, in moving Amendment 165, I shall speak to Amendments 167 and 168. We are still on Clauses 54 and 55, but we are dealing under these amendments with a rather different set of considerations. Both my noble friend the Minister and the noble Lord, Lord Bach, have mentioned the report from the noble Lord, Lord Young of Graffham, Common Sense, Common Safety. He was explicit in stating:

"The problem of the compensation culture prevalent in society today is, however, one of perception rather than reality".

I suspect that a major reason for the public's perception that a compensation culture exists has been driven by the actions of ambulance-chasing claims management companies. The existence of referral fees is another major cause of that perception. I very much support the Government's attempt to solve the problem with Part 2 of the Bill, but legislation designed to end their influence must be watertight. In recent years, it is clear that there have been differing views on how to achieve this. Insurers allege that referral fees are directly responsible for the enormous increase in motor insurance premiums; others allege that insurers themselves have profited from receipt of referral fees for several years by selling details of their customers to panel solicitors or claims management companies. As we have heard from a number of noble Lords, Lord Justice Jackson in his review of legal costs, which reported in 2010, recommended that referral fees in personal injury cases should be banned. Others, however, such as the Association of Personal Injury Lawyers, fear that a ban will simply drive fears underground.

The insurance industry does not agree that transparency is sufficient and has welcomed the proposed ban. So too has the Law Society, of which I am a member, but it wants it extended beyond personal injury cases. Others, such as the right honourable Jack Straw, want to go further and make it a criminal offence-not just a matter of regulation-to solicit, offer or pay referral fees in road traffic accident claims. He proposed an amendment to the Bill to that effect last November. The Justice Select Committee, under the chairmanship of my right honourable friend Sir Alan Beith, believe that it should be punishable with a custodial sentence. This has been rightly resisted by the Government on the basis that circumstances could be very varied and complex and best dealt with by the regulator. I believe that the current provision strikes the right balance.

There are a number of issues, however, that arise in the course of consideration of the ban. First, the Legal Services Board highlighted the difficulty of defining referral fees. The Motor Accident Solicitors Society, in its evidence to the Transport Select Committee, highlighted the importance of a definition being wide enough to cover all potential commission fees, administrative costs, transfers and any other payments that may be disguised.

Secondly, the purpose of a ban on referral fees is to reduce insurance premiums in future. But how is that to be judged? The benefits derived from a ban may not necessarily be passed on to consumers. Indeed the impact assessment of the proposed ban admits that, overall, claimants might lose out from a ban on referral fees on personal injury cases, with individuals expected to be affected more than business. However, lawyers are apparently likely to incur no net additional costs.

Thirdly, are any other sectors in contemplation that could be activated by Clause 54(4)(b)? Last October, the House of Commons Justice Committee, to which I referred earlier, called for that ban to be extended for other types of case. My right honourable friend Sir Alan Beith, chair of the committee, said that it was "disappointing" that the Government had chosen to limit its enforcement capacity for the most serious cases of abuse of personal information. He added:

"It is likely that Ministers will have to return both to this issue and to the issue of referral fees in areas other than personal injury, where they are taking welcome action".

It is important, however, that the ban extends to the full range of malpractices. They include nuisance marketing in personal injury, specifically advertising in hospitals, cold calling and spam texts; third-party capture, which was debated earlier; financial incentives to claim; selling of contact and case details of personal injury victims without their consent; auctioning claims to the highest bidder; and marketing that is not accompanied by a service to filter out spurious claims. This is the reason for Amendment 165. The amendment would ban nuisance marketing, which fuels perceptions of a compensation culture and impacts on the ability of genuine accident victims to obtain redress. It would have the benefit of driving the really unscrupulous operators out of the market.

Health Minister Mr Simon Burns recently told English NHS hospitals that it was not acceptable to display adverts for law firms that encouraged no-win no-fee compensation claims. Surely, however, any conflict with the Compensation Act 2006, which allows businesses to operate in NHS trusts with the approval of the facility's management, must be resolved through primary legislation.

However, there must be clear exceptions. National Accident Helpline exists as a national brand for the marketing activities of more than 100 leading solicitors' firms around the country. They have told us that this scale of marketing allows tens of thousands of people who would otherwise find it very difficult to access legal support to obtain legal representation and pursue legitimate claims, and that they-the NAH-strictly filter those who respond to marketing. Every year, it tells more than 150,000 people who contact it that they do not have a claim. The NAH contends that if such legitimate marketing, already regulated by the ASA and others, were to be banned, thousands of genuine accident victims would be left without legal representation. That is the reason for Amendment 167.

The ban on purely commercial referral fees must exclude provision of legitimate marketing services that enable innocent injury victims easily to access the requisite legal representation. The ban should also exclude other services under a scheme, such as sales, marketing, product development, vetting of clients, upholding solicitor standards and debt control. Amendment 168 would remove Clause 55(9), which is potentially very damaging to the ability of accident victims to obtain high-quality legal representation.

Some believe that the ban could also be read as banning or capping the legitimate costs of genuine, high-value services. These include the provision of necessary medical reports for clients, quality assurance for solicitor firms, sales and product development. To ban or limit those commercial activities would drastically restrict the ability of legal firms to offer the best advice to genuine claimants. My noble friend the Minister will, I hope, be able to give assurances that any cap excludes these legitimate services such as I have mentioned. I beg to move.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I shall speak to Amendments 166A and 166B, standing in my name on the Marshalled List, and to declare my interest as a partner for 44 years in the international commercial legal firm DAC Beachcroft LLP, and the other interests contained in the register.

This gives me an opportunity to respond to one or two comments in the earlier debate. In this important group of amendments we need to focus on the underlying problem of legal costs as much as on the problem of referral fees. As my noble friend Lord Clement-Jones just reminded us, the Government are implementing another of the main recommendations of Lord Justice Jackson's review of civil litigation costs. Perhaps I should mention here my personal pride that one of my partners, Andrew Parker, was an assessor to Lord Justice Jackson's review.

The intention so clearly expressed is firmly to reduce disproportionate legal costs in our system. As I was able to say on Second Reading, and I make no apologies for repeating it, Sir Rupert Jackson was able to produce a report which balanced all the special pleading of the various vested interests and came up with recommendations which were firmly in the public interest. It is that balance which we have to keep in view throughout the passage of the Bill in this House, particularly on these clauses.

I fully support the Government's proposal to ban referral fees, and these amendments in my name are intended simply to clear up some points of relatively fine detail in the drafting because any ban implemented must work effectively and not allow easy ways around the ban. We are already aware that there is quite an industry out there now, which will be thinking of innovative ways of defeating the intention of both the Government and Lord Justice Jackson.

Amendment 166A makes a minor change to Clause 54(4)(a) by inserting,

"which consist of or include damages", so that the paragraph would be:

"the legal services relate to a claim or potential claim for damages which consist of or include damages for personal injuries or death".

The point is that many injury claims include claims for other items such as motor repairs or hire charges. In my view, the current wording imposes the ban on payments for only the injury element, so we could get the unfortunate situation where the same referral fee is instead paid for the repair or hire claim, neatly sidestepping the Government's intentions. Better surely to pick up the whole of any claim where there is an injury element, as my wording is intended to do.

Amendment 166B inserts,

"whether received by the person referring prescribed legal business or not", into Clause 54(8). I fear there is a gap in the drafting which will be exploited by those business models in which the referral is made by a regulated person, but the payment for that referral is made back to an unregulated subsidiary. This amendment is intended to stop that. I understand entirely that the payment for that referral could be banned, but it is vital in my view that where both payment and receipt can be caught, that should be done. It is not just about balance or fairness, but about removing the incentives from the system. Speaking for one moment about incentives, this is as much about legal costs as about the rather distasteful practice of buying and selling people's injuries as some sort of commodity. Essentially the payment of referral fees demonstrates that, despite efforts to contain legal costs in low-value claims, solicitors acting for claimants can still afford to pay out over half their fees to a third party whose only role is to buy and sell on the details of an injured person.

I shall remind the Committee of some figures. This is not just about motor claims, but they illustrate the point clearly. We now have a system in which a solicitor can conduct a routine motor claim for personal injury, in which liability is not disputed, and be paid £1,200 profit costs by the defendant or the defendant's insurer. We hear that out of that sum of £1,200, many solicitors are apparently content to pay up to £850 to a middleman-namely, a claims farmer. What do the claims farmers then go out and do? They go and pester more people to bring claims to them, so that they can farm more lots at £850 a time. This is what is driving the compensation culture today, in which it is now becoming evident that we have the weakest necks in Europe. It is not just about whiplash and road accidents; this is a real issue for those businesses and households struggling to pay insurance bills.

In conclusion, what this demonstrates beyond any reasonable doubt is that the claimants' solicitors are being paid too much. In debates on this Bill in the House of Commons the Minister, Mr Djanogly, committed to consult on reducing that £1,200 fee but was unable then to give any commitment about timing or about the critical question of how much the reduction ought to be. The Government have also previously made it clear that they intend to extend the reduced fixed fees into employers' liability and public liability claims. I look forward to hearing my noble friend the Minister clarify the Government's intentions and I hope that we will hear about plans for such extension, which is sorely needed to contain costs for business, for hospitals and for other public authorities, et cetera.

Only by removing the cost from the system can the Government achieve their objective of bringing down insurance premiums. Any ban will immediately be the subject of attempts to work around it, however watertight the drafting. The key to making Clauses 54 to 58 work is not just to get the drafting right, but to remove the incentive for referral and profit share by removing the excess from the system. While I am of course merely speaking to my amendments, I urge noble Lords to join me in calling for an £850 reduction to the fixed fees, because that would stop at source this practice of trading people's claims.

Photo of Lord Carlile of Berriew Lord Carlile of Berriew Liberal Democrat 7:30 pm, 1st February 2012

My Lords, I want to say a few words in support of these clauses and indeed of all the amendments that my noble friends have spoken to. One of the most unwelcome trends in litigation in recent years has been its commoditisation, and if this is not stopped I see the development of litigation futures as a commodity that will be traded, just like potato futures and metal futures.

I do not know whether any of your Lordships has had an experience like mine a few months ago. I was involved in a road traffic accident as a rear-seat passenger in a vehicle on a country road in Northern Ireland at about 11 o'clock one morning. I came back by air to Heathrow the same afternoon. I had not been injured in the accident, although it was quite unpleasant. As I was standing on the Heathrow Express platform, coming back into central London, I received a text message from a claims-farming business that referred to the accident I had had the same morning. Now if it happened to me, it must be happening to an awful lot of other people. I suggest that Amendment 165 nails this problem for that kind of activity. That kind of low-level claims farming, but on a very large scale, is putting up insurance premiums and the cost of litigation. Perhaps worst of all, it is encouraging people to make claims that they otherwise would not have made, and which may in the end cost them if not money, a great deal of anxiety.

Photo of Lord Thomas of Gresford Lord Thomas of Gresford Liberal Democrat

Does my noble friend not agree that in the instance that he described and in which he was involved there could have been an element of corruption with people being paid when they gave information about that accident?

Photo of Lord Carlile of Berriew Lord Carlile of Berriew Liberal Democrat

There is certainly that possibility.

I wanted to add something else about hospitals. When I was a Member of another place, I often visited a celebrated orthopaedic hospital in the next county. At that time-I cannot say whether it is the case now-at the end of a long corridor in that hospital there was a solicitor's office. That was an unusual arrangement but one that no doubt brought some rent to the hospital. I have real reservations about that kind of arrangement. I am all in favour of general advertising and it is right that solicitors' firms should be able to advertise in local and national newspapers so that people are aware of the kinds of specialist services that they provide. But we must take this opportunity to reject anything that smacks of ambulance-chasing.

Photo of Lord Bach Lord Bach Shadow Spokesperson (Justice)

My Lords, the Committee seems to be at one in its attitude towards the amendments, and I include those of the noble Lord, Lord Hunt, as well as those in the name of the noble Lord, Lord Clement-Jones, who has spoken so persuasively. I hope that we are as one and that that includes the Minister. The amendments really cannot be argued against.

I intend to be pretty short in what I have to say as there is other business waiting to get on and we have had a long session today, but I have to say to the noble Lord, Lord Hunt, who talked about the Jackson report, that it is wrong to ally the Jackson conclusions with the conclusion that the Government have reached on his report. Lord Justice Jackson's balance obviously appeals to the noble Lord and no doubt to many others, but it did not appeal to the Government, who have picked and mixed from Lord Justice Jackson's findings.

In particular-I am afraid that I have used this example before and no doubt I will use it again-Lord Justice Jackson could not have been clearer that he did not believe that civil aid should be cut further, particularly with regard to clinical negligence. Indeed, when the Government decided that that was exactly what they were going to do, Lord Justice Jackson made his now quite famous Cambridge speech, which attacked-if that is the right word; a better word might be "criticised"-the Government for the stance that they have taken. So there is a difference between what Lord Justice Jackson said in his report and how the Government have responded. I am not saying that any other Government would have taken everything that Lord Justice Jackson said, although of course he saw it as a package. But I am saying that in this instance there is a difference.

On the question of claims management cases, I shall briefly mention that my right honourable friend Jack Straw, whose name has come up already in discussions today, gave the example in another place of a friend of his who, just like the noble Lord, Lord Carlile, was bombarded with texts and personal calls from claims management firms following a minor accident in which he suffered no injury. In that case, apparently, the details had been sold to the claims management firms by his own insurance company. I just wonder whether that might have been a possibility in the noble Lord's case, although it may be that his insurance company did not know about the accident. Actually, there is no reason why it should have known as he suffered no injury and he was a back-seat passenger. It is interesting to consider exactly how the company found out in the time that it took for him to get back to Heathrow, but the point that he makes is clear.

Unsolicited spam, which we are talking about here too, is incredibly intrusive. Worse than that, it must be appalling to have a minor prang and find people trying to prey on you for, effectively, a quick buck. This is a real problem.

It is not as though whiplash does not exist; it does. There are genuine cases and it can cause real pain, discomfort and disruption in people's lives. However, when ordinary people are encouraged or persuaded to exaggerate their symptoms, knowing that it is difficult for a doctor to diagnose the degree of impairment in a particular case, that is when the problem really shows itself. We support the amendments and hope that the Government can indicate today their intention to bring forward amendments on Report in these or similar terms.

Once again, I put to the Minister a question that-inadvertently, I am sure-he failed to answer on an earlier amendment but which is relevant now. Do the Government intend to move on Report the contents of the Private Member's Bill that my right honourable friend Jack Straw moved in another place?

Photo of Lord McNally Lord McNally Deputy Leader of the House of Lords, The Minister of State, Ministry of Justice, Liberal Democrat Leader in the House of Lords 7:45 pm, 1st February 2012

My Lords, if I am wrong I will write to the noble Lord, but I do not think it is our intention to move that Bill on Report.

On the noble Lord's final remarks about whiplash, my advisers' hearts will sink but they knew this was coming at some point in this debate. I had personal experience of a minor bump, which at the time was settled by my saying, "Send me the bill and I'll pay for it". This somehow escalated over the next few weeks into a case handled by a solicitor's firm 200 miles from where the accident happened, with a doctor's verification of whiplash made in Manchester, 180 miles from where the accident happened. Worst of all, when I wrote to the insurance company and said, "This is a scam and a fraud, and we're willing to give all kinds of evidence that it is", I got a letter back saying that they would settle for £5,000. Presumably the doctor, the solicitor and the injured party with his whiplash all got a cut, but who paid for it? Not the insurance company but the payers of insurance-the customers.

A number of similar stories have been told around the House; there have been two or three today. To my mind this is rampant corruption, not just an abuse. Whether or not there actually is a compensation culture, the behaviour of these companies feeds the perception that there is because so many of our citizens have experience of this. That is reinforced by these companies' adverts, which I asked Questions about over 10 years ago when I first came into the House. I had been off with a dose of flu and that was the first time I had been exposed to daytime television and advert after advert that looked almost like a lottery win, showing someone with a big cheque that they had won for some minor injury. That is where the idea of the compensation culture came from.

This has been a good debate. I say to my noble friend Lord Clement-Jones that the Government have sympathy with the intention behind Amendment 165. Unsolicited calls about personal injury are a nuisance at best, and at worst create precisely the impression of a compensation culture to which he referred. However, there is existing legislation on unsolicited calls. We will need to consider whether further legislation is needed and, if so, whether this is the right way forward, but the Government will consider the amendment further.

The intention behind Amendments 166A and 166B seems to be to make the ban more effective and harder to evade. The Government believe that the referral fee clauses as drafted should cover the concerns that the amendments seek to address, although of course we wish to ensure that the ban is as effective as possible. I therefore thank my noble friend Lord Hunt of Wirral for raising these two issues. We are sympathetic to the intention behind them and would like to consider them further. I am afraid that I cannot give him a more specific timeline about those considerations, but we take due note of the points that he made.

In response to Amendments 167 and 168 to Clause 55, I assure noble Lords that Clause 55 requires regulators to have arrangements in place to monitor and enforce the prohibition on the payment or receipt of referral fees. Under this clause, any payment can be treated as a referral fee unless the solicitor or other party can show that the payment was for the provision of a particular service. However, I noted my noble friend's points on that. It will be up to the regulators to define that issue in a way that does not prohibit legitimate activity. However, the amendments tabled by my noble friends would alter the way in which legitimate payments for services are defined. Amendment 167 to Clause 55 would ensure that pooled marketing would be a service exempted from the ban. Amendment 168 would remove the Lord Chancellor's powers to make regulations specifying the maximum amount that can be paid for those services.

Under our provisions, it will be for the relevant regulators to enforce the ban on referral fees and impose appropriate sanctions. The regulator will also have the power to require the regulated persons to show that payments for "marketing" do not include a referral fee-that is, that any marketing costs are reasonable and appropriate. The pooling of marketing resources-my noble friend Lord Clement-Jones referred to this-in our view does not in itself breach the prohibition on referral fees. However, it is important to understand that any potential breach will depend on how the information provided by the claimant is passed on by the organisation that holds it to the solicitor who takes on the claimant's case.

The Government believe that the appropriate regulators are best placed to monitor and assess payments made in these circumstances, particularly in taking a view as to whether a breach has occurred. That said, the Lord Chancellor's powers to make regulations are essential if the prohibition on referral fees is to be effective. The Government need to be able to respond to situations as they arise. I believe that these amendments are unnecessary and would serve only to hinder the Government and the appropriate regulators in enforcing the referral fee ban. In addition, the likely effect would be to encourage inflated marketing costs in order to get around the ban on referral fees. I therefore invite my noble friends not to press their amendments.

I am sorry to have delayed noble Lords who are due to speak in the pensions debate, which is the next business. If they can get the Chamber warmed up while we are away, we will be eternally grateful.

Photo of Lord Clement-Jones Lord Clement-Jones Liberal Democrat

My Lords, I thank the Minister for that reply. Apart from the metaphorical slap on the wrist at the end of his response, it was generally helpful. I thank those who have spoken to the amendments. The noble Lord, Lord Hunt, made some interesting contributions and it is good to hear that the Minister is looking favourably on those amendments. The phrase about removing the excess from the system is very powerful. My noble friend talked about commoditisation and the possibility of litigation futures. The lawyers are probably salivating at that prospect. A number of noble Lords have recounted their experiences in this area. I will not add to the list of those who have spoken on that. However, I have even received a text message when I have not had an accident, which just shows the assiduity with which these characters operate.

I enjoyed hearing the noble Lord, Lord Bach, going well off piste when discussing the Jackson report in responding to my humble reference to a single aspect of that report, which was then inflated into a general reference to the whole of the Jackson report.

Photo of Lord Bach Lord Bach Shadow Spokesperson (Justice)

I say with the greatest respect to the noble Lord that of course I remember his comment on Lord Justice Jackson's report, but in this instance I was referring to what the noble Lord, Lord Hunt, said about that report.

Photo of Lord Clement-Jones Lord Clement-Jones Liberal Democrat

It is very useful to explain it in that way.

I thank the Minister particularly for his sympathy for Amendment 165. I very much hope that he will carry that forward to Report. Having looked at the existing legislation, I think it would be extremely useful to signpost that measure explicitly in this legislation. I also thank him for his assurance about pooled marketing and legitimate activities on the part of those pooled marketing schemes. They perform a very useful service and it would be a retrograde step if they were not able to continue. I will read with great care what the Minister said about Clause 55(9). I beg leave to withdraw the amendment.

Amendment 165 withdrawn.

Amendments 166 to 166B not moved.

Clause 54 agreed.

Clause 55 : Effect of the rules against referral fees

Amendments 167 and 168 not moved.

Clause 55 agreed.

Clause 56 : Regulation by the FSA

Amendments 169 to 171 not moved.

Clause 56 agreed.

Clauses 57 and 58 agreed.

House resumed. Committee to begin again not before 8.56 pm.