Damages-Based Agreements Regulations 2013

Lord Beecham Excerpts

Tuesday 26th February 2013 Grand Committee

[Lord Phillips of Sudbury]

I have only one simple point to make. It is a question to the Minister regarding the Conditional Fee Agreements Order, particularly the 25% cap, which does not apply to any future losses. In proposing this legislation, the Minister rested his case heavily on proposals made by Lord Justice Jackson in his review. Is the Minister aware of a lecture Lord Justice Jackson gave on 29 February last year? In this lecture, he made a point, which appears in the footnote, stating:

“The Personal Injuries Bar Association (PIBA) and the Bar Council have recently sent to me forceful submissions that the 25% cap should apply to ALL damages, as it did before April 2000. I can see the sense of allowing that dispensation in appropriate cases provided that the success fee is only payable by the client as it was pre-April 2000”.

That seems reasonable and it seems doubly reasonable given that the author of these proposals, Lord Justice Jackson, himself had second thoughts which he expressed in public last year. I am wondering, therefore, why the limitation to past losses survives into this statutory instrument and whether the Minister could take this away and follow the latest thinking of Lord Justice Jackson, which is supported by the Bar Council and, I suspect, the Law Society.

[Lord Beecham]

My Lords, I always like to be consistent and it certainly would be inconsistent of me not to begin with a complaint about the process here. These regulations come to us some five weeks before they are to take effect. The Bar Council has drawn attention to this, rightly stressing that a major change in the law, particularly in relation to DBAs, is being introduced with very little time before they come into effect for people to work out how they are going to be applied.

As the Minister has said, it has always been permissible for damages-based agreements to be implemented in non-contentious matters in tribunals. As he has also said, these were extended by regulations to employment cases. That opened the way to the revival of what used to be called “champerty” in previous times, which of course was unlawful. We are now legalising it under the new nomenclature of damages-based agreements and I can see that there is a case for doing that. Nevertheless, significant issues and questions arise from the Government’s proposal.

Reverting to the timescale, it should be pointed out that other changes affecting contentious litigation are in hand. These include changes to the Road Traffic Act portal and small claims limits in cases, including, potentially, personal injury cases. With all that happening, one might have thought that it would be sensible to bring all the changes together and to do it at a time which allows the parties and the professions to prepare adequately. I hope that the Minister will look again at the timetabling with a view to deferring implementation of whatever regulations finally emerge for six months until October of this year. I am particularly indebted to those who have briefed me, and no doubt other Members of your Lordships’ House and perhaps of this Committee, in relation to these matters, including the Association of Personal Injury Lawyers, the Bar Council, the Law Society and, especially, Professor Rachael Mulheron.

A number of issues arise and I hope that the Minister will be patient while I list them. If he is not able to reply to them all today—he may well not be—I hope that he will take these matters back and consider them. I was going to raise the question of the cap, which was raised by the noble Lord, Lord Phillips. I, too, identified the change of mind by Lord Justice Jackson, to which the noble Lord referred. It is notable of course that the 25% cap in terms of damages-based agreements applies only to personal injury cases. It is a 35% cap in employment cases, which can equally be quite substantial, although not, I guess, running into the millions of pounds of the exceptional cases of clinical evidence and the like to which the Minister referred. Nevertheless, it certainly can be comparable with many ordinary personal injury cases. In those cases, the cap is 35% including future loss, so there is a serious question about the composition of the figure against which the percentage is to be calculated.

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[Lord Phillips of Sudbury]

Before the noble Lord, Lord Beecham, sits down, does he agree that in his own extremely eloquent exposition on these two statutory instruments, and indeed in my own offering, there was a notable absence of reference to the basis upon which I suspect he, and certainly I, put forward our points—that is, access to justice? The majority sitting in this Grand Committee are lawyers, and we take it so much for granted that what we are seeking to amend in these regulations is exclusively for the benefit of improving access to justice. I invite him to concur with me that anyone reading Hansard who saw no reference to that in the course of our two offerings should know that this underpins everything that we have said.

[Lord Beecham]

I am grateful to the noble Lord for making explicit what was certainly implicit in what he and I were saying. Access to justice is certainly the core argument here. I should perhaps also have declared an interest in that from time to time as we have discussed these matters I have put in time as a now unpaid consultant with the firm of solicitors in which I was formerly a partner.

[Lord McNally]

My Lords, as a non-lawyer—perhaps the only one in the Room—I fully appreciate that the noble Lords’ interventions were about access to justice. As I have told the noble Lord, Lord Beecham, on earlier occasions, my legal qualifications rest on one of nine papers that I did for part one of my degree on English legal institutions. I remember champerty and maintenance from that paper. It came as quite a shock to me to find, in the process of the Bill, that not only was champerty not outlawed, it was now to become legal. But there we are—such is the passage of time.

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I am pleased to see my old adversary, the noble Lord, Lord Bach, in his place. I hope he thinks that the young man who succeeded him is doing a—

[Lord Beecham]

He is actually an older man.

[Lord McNally]

Actually, I knew that. As Harold Wilson said when he retired and Jim Callaghan succeeded him, “I have made way for an older man”.

I take the point made by the noble Lord, Lord Phillips, but let me be blunt. I am always suspicious of Ministers who at any time rest too much on a report, no matter how learned. I do not rest the case for the 25% cap on that being Lord Justice Jackson’s original recommendation, although indeed it was. A sharp-eyed lawyer would say that the noble Lord’s quote about Lord Justice Jackson did not endorse the counterview but simply said that it had merit, which is not the same as advocating that the Government change their policy. Even if it were, this is the Government’s policy. It is the right policy because it protects the future earnings and the future cover for victims in these cases. It remains our policy on that merit, and we are willing to defend it on that basis.

I understand the point made by the noble Lord, Lord Beecham, about speed. I pointed out that very little of what we are doing is entirely new. We fully recognise that at this time there is a need for ability, nimbleness and fleetness of foot in all parts of the legal profession, if we are to take advantage of the changes that are going through. We are not persuaded that the timescales we have set are unreasonable, and we will not be deferred from the course that we have set. We have taken account of reasons for delay regarding mesothelioma and privacy, which I quoted. However, these orders will go through to take account of the fact that LASPO comes into effect on 1 April 2013.

Perhaps I might deal with a number of the specific questions that the noble Lord, Lord Beecham, raised. He was very correct to raise the issue of the American experience in DBAs. I also met the organisation that came over to present its case. I left that meeting with some of his concerns about what this might bring into our legal system. The noble Lord’s description of hedge funds for legal claims is something that we are very conscious of. What we have decided so far is to keep the matter under review. That phrase can often hide weasel words and weasel intent, but we want to see just how much this is going to become a factor in our legal system, while making sure that some of the warning signs that the noble Lord has quite legitimately raised are on the radar of Ministers as well. We will keep this matter closely under review.

The noble Lord raised the issue of VAT on the 25% cap. The 25% cap on success fees is as recommended by Lord Justice Jackson. Including VAT on the success fee on lawyers’ fees within the cap will provide further protection for the claimant’s damages and add certainty for the claimant as to the likely deduction from their damages. This approach is also consistent with the existing cap of 35%, inclusive of VAT, on payments to be made from damages in respect of DBAs in employment matters. The noble Lord also asked about the indemnity principle. DBAs are an alternative method of funding and it would be for solicitors to advise their clients on the most appropriate method of funding according to the circumstances of each case. He also mentioned there being one set of regulations. There is one set of regulations covering both civil litigation and employment cases, as recommended by the Civil Justice Council. We have listened to the concerns of the Law Society and others that there should not be too much regulation in respect of civil litigation in these instruments. This is because failure to comply with the provisions in the instruments would make the agreements unenforceable. As I have said, lawyers are properly regulated in any event.

The noble Lord asked whether the cost of ATE insurance is within or outside the 25% cap. This is an expense and is therefore outside the cap. On why DBA regulations do not contain requirements on termination for civil litigation, as in employment cases, the DBA regulations of 2010 made provisions for employment cases which can be taken forward by non-lawyers. Detailed safeguards need to be built in as a result. Civil litigation can be conducted only by lawyers, who are subject to their own professional regulations.

I think that that covers most of the issues. If not, perhaps I might say to the noble Lord that I welcome the thoroughness with which he has examined these regulations and, as I say, if I have not covered the questions in precisely the detail that I should have done I will make sure that a suitable letter is lodged in the Library of the House. I nevertheless think that the timetable that we have set, the consultation that we have undertaken and the changes that we have made after that consultation, with our having listened to the Bar Council, the Law Society and other interested parties, make the regulations fit for purpose. I therefore recommend them to the Committee.

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[Lord Beecham]

It is a clear answer, but there does not seem to be a particular rationale for excluding defendants from this process. If they secure the retention of a sum of money claimed under the agreement, why should the DBA not be available to them? To confine it to claimants seems too narrow a concept. If the intention of the Government, as it clearly is, is to use the DBA as an alternative method of financing, it should be available to both sides because nobody is being compelled to undertake a DBA. That still requires some further thought.

[Lord McNally]

I will certainly give it further thought, but the question was whether the regulations as presently set out debar the use of DBAs by defendants. The answer is yes. I will reflect and put those further reflections in the letter.