Legal Aid, Sentencing and Punishment of Offenders Bill

Lord Stevenson of Balmacara Excerpts

Tuesday 27th March 2012 Lords Chamber

[Lord Brennan]

My Lords, the topic under debate appears to involve general agreement that this class of case is a proper one to be brought in the courts of this country. The critical question therefore is: is it financially possible to bring such a case under the proposed reforms in this Bill? These are long cases, which take years, and they are complex and very expensive. They involve defendants with economic might who are prepared to take on the claimants remorselessly. I remind the House that the Trafigura case actually reached the stage where this Parliament was debating whether that company’s obtaining of a super-injunction meant that Parliament could no longer debate the issues raised by the case. That is might.

The idea that such a case can readily be brought and financed under these reforms is one with which no one whom I know in the law agrees. I have been involved in four of these 10 or 12 cases in the past decade and they have all involved millions of pounds on both sides. In Trafigura, the published costs of the defendants without a trial were £14 million. I await with interest to hear from the Minister any mathematics or economic analysis that explains to this country how lawyers here under these new arrangements—a reduced success fee and no “after the event” insurance—could fund such a case. Everyone I speak to says, frankly, that it is impossible.

If the Minister comes forward with some mathematics that are realistic and not ethereal, and if he gives us financial analysis that is not far distant from reality, the House might still be persuaded. As yet, no one in public has produced such material. The result is that we expect the developing world to open its doors to our great companies to make large profits for the benefit of our country but, when those investments produce adverse consequences, we in this country close our doors of justice to the people who have suffered. That cannot be acceptable, and the Government should think again.

[Lord Stevenson of Balmacara]

My Lords, the noble Baroness, Lady Coussins, has introduced this group of amendments with her customary fluency and passion, and she has been joined by other speakers who have made the case well. As has been pointed out, this measure risks damage to the UK’s reputation for justice to those people who have suffered damage to their human rights caused by companies based in the United Kingdom. I am sure that none of us wishes to see that happen.

We have support from all around the House, and we are grateful to those who have joined in on these amendments. The settled view of your Lordships’ House is clearly that there is a real danger that, if this Bill goes through in its present form, the changes that it makes to the way in which international human rights cases are to operate, combined with the restricted damages that the Rome II regulations impose on the level of damages that can be awarded to claimants, will make it impossible for such cases to be mounted in the UK in future.

As the House has heard, several very important independent charities have been lobbying hard on this issue. Several meetings have been held with the Minister and correspondence has been exchanged. We hoped that an accommodation could be reached, and we went to see him yesterday in the hope that that might be possible. He e-mailed us today to say that he could not accept our amendments.

It is clear to me that while on the one hand the Government do not want to be responsible for preventing these cases continuing in future, they have not so far been convinced that it is highly probable that they will occur in future. Why is that? The arithmetic, as has been said, is very clear. We seem to be in a situation where the department’s overriding concern that the architecture of the Bill should be retained is working here against good legislation. What other arguments can there possibly be? We have heard from those directly involved in these cases and we know what the figures are. It is clear that the facts outlined by the noble Baroness, Lady Coussins, and my noble friend Lord Brennan that the Government are wrong. I hope that when the time comes the noble Baroness will test the opinion of the House, and we will be supporting her in the Lobby.

[Lord McNally]

My Lords, I confirm that we have been in regular discussions about these amendments, and I regret that I am not able to accept them today.

There have been a number of comments about costs and indeed about the Trafigura case. What strikes me most about that case is that the £30 million that was won in damages worked out at about £1,000 per victim—against, as has already been accepted, legal costs that at one time, until they were beaten down, were running at £100 million. To me, that is an obscene system.

With regard to the reforms that we brought forward, we have said that we believe CFAs will continue. We are also introducing damages-based agreements. Far from welcoming them, though, the CBI and others worry that those may well provide funding in this area. So, it is not that the Government are opposed to bringing companies to account for their behaviour. I just do not believe in the rather broad claims by the noble Lords, Lord Brennan and Lord Judd, that this issue will dramatically affect the lives of people in developing countries. There are other areas of policy that are going to do much more than that.

I make clear that the Government strongly support claims arising from allegations of corporate harm in developing countries being brought, and we support the protection of damages for personal injury. Where we disagree with the supporters of the amendment is that we do not believe that our plans would prevent such cases being brought or ultimately damage the ability of NGOs and others to hold big business to account.

An exception along the lines proposed is in our view neither necessary nor justified. It is not necessary because reformed “no win no fee” arrangements will still allow cases to be brought. It is not justified because it would undermine the wider rationale for the Jackson reforms in Part 2 of the Bill, which should apply across civil litigation without any exceptions. In doing so, it would introduce unfairness between different types of claimant.

We recognise, however, that, following the Rome II regulations, damages in these cases can be relatively low, and they will not be subject to the 10 per cent increase available for other claims. The costs awarded can nevertheless be extremely high, as was demonstrated by the Trafigura case. The question is whether any exception should be made for these cases either on a wider basis, as proposed in Amendments 21, 22, 23 and 26, or on a narrower basis, as proposed in Amendment 27. I concede that in putting forward Amendment 27, the movers tried to put forward a narrow-based solution.

The Government have listened to this debate and those that went before, and we have reflected carefully on the points raised. We have held many meetings with interested stakeholders and NGOs over the past months, and the Government are fully aware of the strength of feeling on this issue. I have looked again at the evidence that has been presented, including reports by Professor Rachael Mulheron of the University of London and Mr Smith of First Assist. Both reports make the general case for recoverable success fees and insurance premiums to continue in these cases, but they do not present any figures showing why these cases could not be brought in future. During our discussions with the NGOs we have asked for such evidence but it has not been forthcoming, even though we have asked them for more detailed figures.

The truth is that the available evidence shows that these cases, though few in number—about 10 in a decade—have historically been highly profitable for the legal firms involved. Although under our plans the margins available would be reduced, they are still likely to remain attractive. I remind noble Lords of the sums involved. Since the previous Government introduced the recoverability of success fees and insurance premiums in 2000, we know that there have been only around 10 of these cases, mainly undertaken by a single firm of solicitors. Most of these cases have succeeded or settled, but some claims have been pursued in which costs have not ultimately been recovered. The figures suggest that in those cases that were not pursued to trial, there were disbursements of some £131,000 and legal costs in the region of £1.4 million. I appreciate that those figures will not cover all costs in all cases but they should be a fair ball-park indication. £1.4 million sounds like a lot of money for a firm to bear in what are effectively losses on a case not pursued and won until the substantial sums that have been received in success fees are considered. We know that in the case of Trafigura alone, success fees—intended to cover the costs in lost cases—of around £29 million were allowed by the Court of Appeal. Those figures amount to a net gain for claimant lawyers from these cases over the past decade of more than £27 million from the success fees for Trafigura alone. That does not include all the success fees in the other successful cases.

These figures speak for themselves. They cast all emotion aside and demonstrate the substantial gains in legal costs from these cases and the proportionately much lower costs expended. When the ratio of earnings to losses is more than 10:1, the current system can, to put it mildly, bear some reform. Therefore, while I recognise that claims against multinationals can be complex, the changes that we are making to the CFA regime will not prevent these cases being brought in the future. They can still be brought but the costs will be more proportionate. As Lord Justice Jackson recognised, a greater incentive for claimants’ lawyers to work more smartly is needed so that they incur only costs that are justified when bringing a claim, rather than allowing costs to escalate.

It is worth pointing out, as I have previously in the House, the criticism by the Court of Appeal of the costs claimed by the claimants in the Trafigura case. In that case, the court itself questioned whether some of the work undertaken by the claimants’ lawyers was necessary. It criticised them for seeking costs of £100 million in a case that resulted in payment of £30 million in damages. It is not for me to question the conduct of those involved, but it needs to be borne in mind when looking at the extraordinary costs claimed in that case alone. I should add—again, as I have pointed out to the House previously—that in that case the defendant’s costs were approximately £14 million, which is around one-seventh of the costs claimed by the claimants.

I turn now to Amendment 27, which seeks to allow for the recoverability of “after the event” insurance premiums to pay adverse legal costs, including expert fees and other disbursements. In doing so, the amendment goes much wider than just the cost of funding the expert reports for which we have provided in the special situation of clinical negligence cases. The amendment would potentially cover paying the other side’s costs, too, but this is not necessary because we are introducing a system of qualified one-way cost shifting in personal injury cases, which will protect losing claimants from having to pay the other side’s costs. We have discussed making exceptions in relation to expert reports in other contexts, but we do not believe that an exception is more needed here than in other cases. As I have said, the costs recovered in successful multinational cases have been substantial and could provide funds towards paying up front for reports where needed.

As I indicated on Report, on several occasions my officials and I have met representatives of the NGOs that support these cases. However, we have not been persuaded that such cases cannot continue to be brought when our changes are implemented. Nor are we persuaded that they justify an exception in the Bill that would be unfair to other, no less deserving claimants.

The House will be aware of all the arguments that I have rehearsed today, in Committee and on Report. We have treated subsequent discussions with the seriousness they deserve, and we have listened carefully. However, the Government continue to believe that reform is unavoidable, necessary and overdue. In this case in particular, we should not mix up a challenge to overgenerous costs with a denial of access to justice. Access to justice is precisely what the reformed CFA regime will protect, but as part of a more proportionate and balanced system. Therefore, I urge the noble Baroness to withdraw her amendment.