Clause 138

Legal Services Bill [Lords] – in a Public Bill Committee at 4:00 pm on 26th June 2007.

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Limitation on value of directions under the ombudsman scheme

Amendment moved [this day]: No. 234, in clause 138, page 72, line 32, leave out ‘£20,000’ and insert ‘£100,000’.—[Simon Hughes.]

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

I remind the Committee that with this we are discussing the following: Amendment No. 265, in clause 138, page 72, line 32, leave out ‘£20,000’ and insert ‘£50,000’.

Amendment No. 266, in clause 138, page 72, line 39, leave out subsection (3).

Clause stand part.

Photo of Simon Hughes Simon Hughes Shadow Attorney General, Party Chair, Liberal Democrats

Thank you, Sir Nicholas. We are very glad to welcome you back to the Chair. I know that you have come here flushed with excitement at events elsewhere and I would not dream of suggesting anything out of order, other than to say that the amendment proposes a change far less unexpected than the events of the past hour, which could be called the Lincolnshire development.

Photo of Bob Neill Bob Neill Conservative, Bromley and Chislehurst

Will the hon. Gentleman give way? I just want to say—

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

Order. There can be no reason whatever for the hon. Gentleman, who is a lawyer, to intervene at this point.

Photo of Simon Hughes Simon Hughes Shadow Attorney General, Party Chair, Liberal Democrats

A consensus of view was just about to break out in the Committee. However, we will try to bring ourselves back to the more mundane and predictable matters in hand.

The amendment would increase the total amount that the ombudsman could decide was an appropriate remedy in financial terms from £20,000, which is the figure in the Bill, to £100,000. I hope that the Minister, refreshed by her three hours in other places, will be as positive on this amendment as she was earlier. The temperature is slightly warmer, and the Minister’s perfume is still reaching this side of the room, where it is very much appreciated. [Interruption.] Her colleagues may not appreciate it, but we do. We hope that she will feel generous in any event and because of our keenness to see her back in her place.

The figure in the amendment was not plucked out of the air, nor was it chosen just for the purpose of having a debate. I have a very clear view that if we limited the upper amount that the ombudsman could award for everything—it is the inclusive, total amount, the aggregate amount, as clause 138 goes on to describe—to £20,000, that would be too low in many circumstances. If the Office for Legal Complaints is to be effective and seen to be effective—if justice is to be done and seen to be done—consumers need to know that they can have decent redress for high-value claims.

There are various examples, but I shall give two obvious ones. Let us say that something went terribly wrong in a personal injury action that someone had taken; the solicitor had completely messed it up. It is well within the realms of contemplation that £20,000 would be an entirely inadequate remedy. If someone’s conveyancing was completely messed up, it is very possible that the damage suffered would be worth more than £20,000.

It is not clear why the figure of £20,000 was chosen. The Law Society’s current limit is £15,000, but other ombudsman schemes have significantly higher figures. Again, I have drawn on the best parallel that we all have, which is the financial ombudsman scheme, for which the redress limit is £100,000. There should be a comparable starting point.

There are non-statutory regimes such as the ombudsman scheme for estate agents. Incidentally, it is probably good to know that there is one. I was not previously aware of it, but I can imagine people being angry with estate agents, too, and feeling that they have been misled by them on occasions. Even that non-statutory scheme has a maximum redress limit that is higher than that proposed in the Bill—I think that it is £25,000.

The Minister will tell the Committee, if I do not, that clause 139 allows a variation in the redress limit, on the recommendation either of the consumer panel or of the OLC. In my honest view, that is to allow, quite properly, for relatively small adjustments to take account of inflation or other things. It is not intended to allow for a significant change. Similar provisions have been made in other legislation to allow for flexibility, but not for a fundamental change of starting point.

I propose that we start at a realistic level. If we do not, there will soon be pressure to change it. It is better to set it too high and to allow it to be the upper level from the beginning. Otherwise, there is a severe danger that people will say that the legislation is a lot of sound and fury signifying not very much when it comes to delivery. We might get an apology or an admission of failure, but in a day and age when, on Lewisham or  Borough high street, house prices do not start at £20,000 or even £100,000, but at £200,000 or £250,000 for a one-bedroomed flat, we need to compensate complainants at a realistic 2007 level for their financial loss.

Photo of Kevan Jones Kevan Jones Labour, North Durham

In speaking to amendment No. 265, I am working on the reverse principle of the one that I used as a trade union official. The hon. Member for North Southwark and Bermondsey suggested a limit of £100,000; I thought that I would be modest and say £50,000, on the basis that the Minister, given some options, might wish to accept the lower amount.

The hon. Member for North Southwark and Bermondsey made some serious points. I can give an example from my experience of a situation in which the £20,000 limit would be have been unacceptable and would have failed to deliver justice to one of my constituents. I raised it on Second Reading. I shall refer to the constituent as Mrs. X, because I do not think that she wants her name in the public domain. She was a miner’s widow from Stanley, in my constituency, who had the misfortune to be involved with a solicitors’ firm in Newcastle called Mark Gilbert Morse. She was making a chronic obstructive pulmonary disease claim for her late husband. She is an elderly lady—she is in her 70s—who does not understand the law or the way that lawyers work, and she rightly expected the solicitors to act in her best interest.

Last year, the Department of Trade and Industry made an offer to Mark Gilbert Morse to settle the claim for £42,000. Without Mrs. X’s knowledge and without contacting her, the solicitors rejected that offer on her behalf and said that they would like a higher figure. There was great shock six months later, when the Department of Trade and Industry came forward with its next offer, which was only £22,000. She contacted me at that point. I must give credit to the Legal Complaints Service, which investigated the complaint and shamed Mark Gilbert Morse into paying the £20,000 difference between the higher and the lower offers, so she got the original sum of £42,000.

Under the Bill, the original figure would have been £20,000. People may argue that there are other means open to individuals such as Mrs. X, who could go to litigation, but there is no way in which she could afford that process or would risk the possibility that she might not get the higher figure. The figure as it stands—£20,000—is too modest in the case that I cite.

Mining compensation cases have thrown up many cases in which solicitors have clearly not only given bad advice, but have not always dealt with the cases so the clients have had second best advice. I am worried about how many people have had the same experience as Mrs. X, but whose cases have not come to light.

The figure in the provision is modest and, as the hon. Member for North Southwark and Bermondsey said, the financial services ombudsman can award £100,000. I was not aware that there was an ombudsman for estate agents, but he can award £25,000. If we do not initially put a high enough figure in the Bill—I know that clause 139 allows the Legal Services Board to increase the amount—the resistance of the legal profession’s vested interests will prevent any great increase in the compensation figure. The Minister has  said throughout the progress of the Bill that it should be about the rights of consumers, and the best way of protecting those rights is to set the figure at a high enough level to protect their interests. I would not hold out a great deal of hope that it will rise substantially over a period.

On the broader issue of compensation, something that has frustrated many of my constituents and those of my hon. Friend the Member for Bassetlaw is the prevarication by some solicitors in trying to settle cases, and the threats that they make. It never ceases to amaze me that in mining compensation cases, which involve poor and vulnerable individuals, arrogant solicitors do not seem to care how many threats they issue—for example, that if clients do not pay up or agree to a certain course of action, they may be held legally liable, even when they may not in fact be held liable for further costs. It is important to get the figure right now for consumers’ protection. If the Minister does not concede that today, it should be considered on Report.

I do not intend to speak to amendment No. 266, so I ask the Minister seriously to consider increasing the figure substantially today.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

The point to recognise, particularly when dealing with claims against solicitors, is that if the claim is not made through the ombudsman process, another firm of solicitors must generally be employed. This area of regulation is complicated because there are all sorts of difficulties.

I shall cite a couple of cases in which a firm of solicitors let down their clients but monetary compensation was not the whole story. One of my constituents, who suffered from mental illness, was imprisoned because the court believed that he wanted a hospital order. He ended up being imprisoned because the solicitor failed to notice certain things in the paperwork. Oddly enough, I managed to draft an appeal, and the good news is that it will be heard. The difficulty was that the solicitors had clearly failed to do their job properly, and when they were asked for the paperwork they did not respond in a timely manner. One difficulty with appeals is that they generally have to be made within 21 days, and it causes great problems if people sit on the paperwork. If they do so for more than 21 days, it is a greater problem.

In another example that I have been looking at recently, it seems that some children were taken into care and adopted because correspondence went to the wrong address. The firm of solicitors involved is failing to respond to me, so I have written to the Law Society to ask it to intervene.

In such cases, there is no easy way of quantifying the loss, but in cases where someone will arguably have £1 million or £10 million—I was an expert witness in a case involving more than £250 million—people can afford to go somewhere and control the whole process. However, when it involves £25,000, someone could easily lose out. If we consider that somebody may have lost five years of their life in jail because of the incompetence of a firm of solicitors in not doing some basic things, it is clear that the system is quite difficult as it stands. Therefore the limit of £20,000 is far too low and my hon. Friend’s probing amendment—I presume that it is a probing amendment—is very good.

Photo of John Mann John Mann PPS (Rt Hon Richard Caborn, Minister of State), Department for Culture, Media & Sport 4:15 pm, 26th June 2007

I support the principle of increasing the figure to £20,000, but I am not particularly inclined to support the Liberal Democrat proposal because there needs to be a balance between regulatory financial remuneration and other actions that can be taken. It is important to recognise the need for balance.

The figure of £20,000 is a modest increase on the current limits for solicitors, but is too low because it would not catch those people who have lost out financially and do not want to trust another solicitor to engage in civil action to sue for financial remedy. Indeed, the amounts of money fall between what it is viable for a solicitor to present to a client in terms of likely incentive gain, because £100,000 would seem well worth fighting for through the courts if there was a loss. If it is a much smaller amount, people are much less likely to consider it worth fighting for. A balance must be drawn somewhere, but the figure of £20,000 is too low.

I am dealing with a number of ongoing cases in which the amount of financial loss that can be quantified, aside from any compensatory loss, is between £20,000 and £30,000. Those cases are in a range of different areas—they are not all about industrial disease—but they are the exception and in the majority of cases the figure is much lower. The limit should incorporate the potential exceptions to the rule precisely because that would provide the full parameters and should not create any expectation of an upward drift overall. There is no logic in suggesting that there would be an upward drift. What the upper quartile of potential claims might be is important.

I suggest that £20,000 is not sustainable and that the figure needs to be higher. I am attracted to the suggestion of £50,000 made by my hon. Friend the Member for North Durham, but if the Minister proposes something more realistic that might also be acceptable. However, £20,000 is too low because there are too many cases in which the individual would win, but would lose out financially. That is why the figure needs to be increased somewhat to a more realistic amount.

Photo of Simon Hughes Simon Hughes Shadow Attorney General, Party Chair, Liberal Democrats

From the hon. Gentleman’s experience of the sort of cases that he has shared with us, can he tell us about examples where, in his assessment, there was the highest loss relative in what someone was able to obtain?

Photo of John Mann John Mann PPS (Rt Hon Richard Caborn, Minister of State), Department for Culture, Media & Sport

The highest loss that I have dealt with without having to go through regulation was £31,500. That was the actual financial loss. I have a significant number of ongoing cases in which I estimate the loss will average around £25,000. Therefore, in that context, there is a significant difference between £20,000 and £25,000, and £20,000 and £30,000. Such losses are significant, especially when they are the result of poor representation of whatever form. People’s health might be affected, so the money is not only compensation for a wrong, but a remedy that is calculated to take account of necessity.

Industrial compensation payments is the best example of what happens when lazy solicitors manage not to put  in claims. It might not be deliberate; a solicitor might not have said “I won’t put in for that because I don’t get paid much and I’m not bothered”. The laziness is of systems and approaches whereby solicitors manage to tick boxes, but fail to ask additional questions. The miners compensation scheme compensates people for things that they will not be able to do in future because of their industrial disease and amounts are calculated precisely. Financial compensation is required for things that need to be done—it is not a charitable donation or a sum in principle; it is for practical purposes.

A maximum of £30,000 would do in the cases that I know of, but there might be cases that would require a higher figure. A maximum of £20,000 would leave too many cases in which a person could win, but would have the trauma of taking civil action and of going to another solicitor. That is not sensible, both practically and with regard to the profession’s reputation.

Photo of Simon Hughes Simon Hughes Shadow Attorney General, Party Chair, Liberal Democrats

I hear the figures. The hon. Gentleman is aware that there are two sorts of loss: a direct financial loss of wages, income, salary and pension; and a loss of the damages that compensate for injury such as the loss of the use of a limb. Is he saying that, in his experience, the total of the prospective claims would only be of the order of £30,000-plus? I know of cases in which the combination of loss of income plus damages would be considerably higher than £30,000.

Photo of John Mann John Mann PPS (Rt Hon Richard Caborn, Minister of State), Department for Culture, Media & Sport

No, I am not saying that. There are exceptions to any rule.

The more endemic problem is when the obvious part of the claim is put in, but the less obvious parts are not. The more I investigate, the more that that type of case appears to be endemic in the system. The average necessary amount—the figure will vary—is around £20,000 or £25,000. Therefore, the figure of £20,000 is somewhat low, but there is no logic in setting the figure too low. The figure of £20,000 has been set by updating the current figure. That is rational, but it does not fully incorporate what will, by definition, be exceptional cases of actual loss, rather than compensatory loss for less quantifiable things. It would be prudent and sensible to increase the maximum amount—both sides of the Committee will feel that.

Photo of Bridget Prentice Bridget Prentice Parliamentary Under-Secretary, Ministry of Justice

Let me explain the rationale behind the £20,000 limit. It is based on the current maximum of redress in the Law Society, which was recently increased to £15,000. The Bar Council figure remains £5,000. Taking into account the fact that, on average, the awards made by both the Law Society and the Bar Council are somewhere between £400 and £500, the Government decided to increase the limit from £15,000 to £20,000 to take account of the time between now and when the OLC will be up and running. For the moment, that is an appropriate figure, but that does not mean that it cannot be increased in the future. That is why the hon. Member for North Southwark and Bermondsey mentioned clause 139, which allows for the Lord Chancellor, by order, to increase the limit if the board, the OLC or the consumer panel recommend it at any time. It is perfectly possible, for example, for the consumer panel on day one to make a recommendation that the limit be increased.

I want to make it absolutely clear that this rise is not just about dealing with inflation. It is also about allowing the board and the other interested bodies to increase the amount substantially if they thought that that was the right thing to do. It is on that basis that I ask the hon. Member for North Southwark and Bermondsey to withdraw his amendment.

It may be some comfort to the hon. Gentlemen to know that I have no personal attachment to the figure of £20,000. I hear the arguments that all parts of the Committee are making. A figure of £100,000 would be going way too high to begin with and if we look at some other ombudsman’s schemes, we see that their upper limits are slightly higher than £20,000. It may be worth considering the average figure of some of those schemes.

I also add that a series of groups gave evidence to the pre-legislative scrutiny Committee and almost all were in favour of a figure above £20,000, and I heard their arguments. Interestingly, the one group that was not in favour was the Legal Aid Practitioners Group, which said that it could not really imagine a situation in which the redress would be of that scale, or far beyond it. However, that is not the argument on which I am basing this limit.

As I said, I am not personally attached to the figure of £20,000. I would be happy to look at it again and to consider, across the board, other schemes to see whether another figure is more appropriate. However, it is important not to get too carried away, so that the consumer panel and the board itself can respond with a figure that they think is appropriate at the time; this measure is obviously not going to come into effect for a little while yet. Having argued in this Committee about the flexibility that we must give to the board, and so on, I do not want in any way to undermine that flexibility now. However, I would ask the hon. Gentleman to withdraw his amendment on the basis that I will look again at how this figure of £20,000 compares with the upper figures of other ombudsman’s schemes.

Photo of Simon Hughes Simon Hughes Shadow Attorney General, Party Chair, Liberal Democrats

I hear what the Minister says, but I would like to press her on one matter; I do not think that she addressed it, so I apologise if she did and I missed it. Does she accept that the Financial Ombudsman Service has a £100,000 upper limit, which is the only absolutely comparable, or very nearly comparable, scheme? Does she accept that that is the upper figure for that scheme?

Photo of Bridget Prentice Bridget Prentice Parliamentary Under-Secretary, Ministry of Justice

The Financial Ombudsman Service certainly has that upper limit of £100,000 and there is quite a good argument as to why that scheme has that upper limit. However, I would like to see how many cases have got anywhere close to that £100,000 limit and consider where the awards are being given. That might help us to come to a better conclusion at a later stage.

Photo of Simon Hughes Simon Hughes Shadow Attorney General, Party Chair, Liberal Democrats

I am grateful to the Minister for that response. Rather than us all trailing through the FSA’s ombudsman’s track record, if the Minister would be kind enough to press her buttons to produce that information, that would be really helpful.

I agree that, even if we get those figures, they will not be absolutely comparable, because we are talking about two different types of organisations and two different types of issues. However, I am very clear that we need a higher limit. I hear the Minister saying that she is not wedded to the current limit. She has heard voices from her own party arguing, from different perspectives, for a limit higher than £20,000. I sense that a higher limit would be where the centre of gravity of the debate is.

On the basis that the Minister will give us the comparable figures from other schemes and will then give us a chance to consider those figures and that she is not closed to the idea of us increasing the limit on Report, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 138 ordered to stand part of the Bill.

Clause 139 ordered to stand part of the Bill.