Damages-Based Agreements Regulations 2013

Viscount Simon Excerpts

Tuesday 26th February 2013 Grand Committee

[The Minister of State, Ministry of Justice (Lord McNally)]

My Lords, as regards the draft Conditional Fee Agreements Order 2013 and the draft Damages-Based Agreements Regulations 2013, perhaps I may remind noble Lords that conditional fee agreements, or CFAs, are means of funding litigation that are usually entered into by claimants where the lawyer agrees not to take a fee if the claim fails. If the claim is successful, the lawyer may charge an uplift known as a success fee, in addition to their fee. Under the existing regime, the success fee is recovered from the losing defendant, in addition to the base fee.

The statutory power under which the draft Conditional Fee Agreements Order 2013 is made governs the regulation of CFAs and the recoverability of success fees payable under a CFA. Under Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012—the LASPO Act—the success fee payable under a CFA is no longer recoverable from the losing party, but will be payable by the successful client subject to a prescribed cap.

Lord Justice Jackson, in his report, Review of Civil Litigation Costs, argued that the current regime had led to excessive costs in civil litigation, with risk-free litigation for claimants and additional costs being paid by defendants. He therefore recommended that recoverability from the losing side should be abolished in all cases, and this has been reflected in the provisions of Section 44 of the LASPO Act.

Lord Justice Jackson also recommended that CFA success fees in personal injury cases should be limited to 25% of damages, excluding damages awarded for future care and loss. The Government accepted this recommendation and agreed that claimants who have been compensated for personal injury should have their damages protected from having too much deducted by their lawyer as a success fee.

The draft order revokes the 2000 CFA order, but replicates its provisions in Articles 2 and 3. Subject to the cap in personal injury cases, the maximum success fee that can be charged remains 100% of the solicitor’s base costs.

Article 4 makes provision for a cap on success fees in personal injury cases only. The aim of the cap is to protect claimants’ damages, specifically those relating to future care and loss, which can run into many thousands of pounds in the most catastrophic injury cases. This cap will apply similarly, although not identically, to lawyers’ fees under damages-based agreements—or DBAs—under the draft Damages-Based Agreements Regulations 2013, to which I will come later.

Article 5 sets the cap. This means that in personal injury claims, the CFA must not provide for a success fee which is greater than 25% of the damages awarded to the claimant, excluding those for future care and loss. In effect, this means that the success fee can be taken only from general damages for pain, suffering and loss of amenity, and damages for past loss.

I know that there has been concern about the 25% cap and some representatives argue that this should be against all heads of damages. However, the Government have said consistently—including on many occasions during the passage of the LASPO Act through Parliament—that there will be a cap on the amount of damages that may be taken as a success fee of 25% of the damages, excluding damages for future care and loss. This follows Lord Justice Jackson’s recommendation and, as I said, is intended to protect claimants’ damages, and specifically those relating to future care and loss.

Article 6 contains a transitional and a saving provision. Essentially, this means that the order will not apply to any CFA entered into before Section 44 of the LASPO Act comes into force on 1 April 2013.

Furthermore, the order will not apply in respect of those proceedings for which implementation of Part 2 is delayed. Those proceedings are personal injury claims in respect of diffuse mesothelioma, privacy and defamation proceedings and proceedings in respect of and relating to insolvency.

I now turn to the draft Damages-Based Agreements Regulations 2013. A damages-based agreement or DBA is a privately funded arrangement between a representative and a client whereby the representative’s agreed fee is contingent on the success of the case, and is determined as a percentage of the compensation received by the client. Until now, DBAs have not been permitted in litigation before the courts, but their use has developed in non-contentious business—that is, work that falls outside the courts, including employment matters. However, Lord Justice Jackson recommended that DBAs should be extended to all areas of civil litigation. He argued that this would provide litigants with a choice of funding methods and the freedom to choose the one that they considered most appropriate for their case.

Section 45 of the LASPO Act therefore permits the use of DBAs in all areas of civil litigation. This section enables the Lord Chancellor to regulate their use and, in particular, to specify the maximum payment that may be made from damages under a DBA in particular proceedings. The draft regulations revoke the 2010 DBA regulations but replicate their provisions in respect of employment matters. The draft regulations prescribe the requirements with which an agreement between a client and a representative must comply in order for it to be an enforceable DBA in both civil proceedings and employment matters.

Under the existing regulations governing DBAs in employment matters, the maximum percentage of damages that a representative may take as a fee is 35%, and that continues. Lord Justice Jackson recommended that the lawyer’s fee under a DBA in personal injury proceedings should not exceed 25% of the claimant’s damages, excluding damages for future care and loss. The Government agree that claimants should have their damages protected from excessive legal fees.

As I mentioned earlier, a similar, although not identical, approach has been taken for CFAs. The Government believe that there should be a cap of 50% of the damages that may be taken as the lawyer’s fee in all cases outside of personal injury and employment matters. This is to protect claimants’ damages, and is based in part on a recommendation by the Civil Justice Council.

In order to be enforceable, a DBA in civil proceedings must meet the requirements specified in these regulations. Regulation 3 requires the DBA to specify the circumstances in which the payment from the claimant’s damages will be payable. It will be for the representative in civil proceedings to consider his likely costs before reaching agreement as regards the payment to be made from the claimant’s damages. The definition of payment excludes expenses—for example, medical reports—but specifically includes counsel’s fees, which would be paid for as a disbursement by the representative.

Regulation 4 sets the cap as I have outlined. Regulations 5, 6, 7 and 8 replicate the provisions from the 2010 regulations for employment matters. These detailed provisions in relation to information and other matters are necessary because employment matters may be undertaken by non-lawyers such as claims managers. On the other hand, civil litigation can be undertaken only by qualified legal representatives, who are subject to regulation by their professional bodies and whose conduct may be subject to challenge through those bodies. It is therefore considered that further regulation at this stage is not required.

In drafting these regulations we have borne in mind the indemnity principle. Put simply, the indemnity principle means that the losing party cannot be ordered to pay more in costs than the successful party has already agreed to pay his representative. The Civil Procedure Rules have been amended to provide that the court may not order the losing defendant to pay a claimant any costs that exceed the agreed payment, and thus breach the indemnity principle.

The claimant will need to pay his lawyer only if the costs recovered are less than the agreed payment. This means that, as well as possibly paying a sum directly from their damages, claimants might also be required to pay an additional sum to their representative to meet these expenses.

Both these instruments are important elements of our reforms.

[The Deputy Chairman of Committees]

My Lords, there is a Division in the Chamber. We will adjourn for 10 minutes.

Defamation Bill

Viscount Simon Excerpts

Tuesday 15th January 2013 Grand Committee

[Lord Lester of Herne Hill]

I am sure my noble friend Lord Phillips understands that I am speaking clothed in the majesty of the Joint Committee on Human Rights as well as my personal view. That committee and its advisers came to the view that simply saying “defamatory” was not good enough. All that “defamatory” means is that there is a false statement which is seriously harmful to the reputation of the claimant, whereas “unlawful” means that one also looks at what the Bill defines as unlawful and what the defences are. We are attempting to make that as clear as possible. Therefore, the complainant, in order to invoke this whole procedure, ought to do something more. It seems as through the draft regulations are aimed in that direction. I beg to move.

[The Deputy Chairman of Committees (Viscount Simon)]

Before I propose Amendment 26, perhaps I may ask noble Lords to curtail their enthusiasm in asking questions before the amendment has been proposed.

[Viscount Colville of Culross]

Clause 5 is very welcome as it recognises the huge problems facing both complainants and defendants in libel cases with the introduction of the internet and its increasingly important position, as we have all discussed, in the arena for the dissemination of information. I want this amendment to build on the amendment put forward by the noble Lord, Lord Lester. I hope that Amendment 27, in the names of myself and the noble Lord, Lord Allan, will expand the discussion and set out the criteria for the definition of “unlawful”.

I am acutely aware of the ability of the internet to cause great damage to an individual’s reputation, as we have seen with the dreadful case of libel committed against Lord McAlpine, who has sued against many people who defamed him on Twitter. It is easy to focus on the high profile and serious cases such as that of Lord McAlpine and not on the many thousands of other libel complaints about online material where the distinctions between fact and opinion are more difficult to ascertain. We do not hear about these cases because, when in doubt, the website operators’ practice has been, in far too many cases, simply to remove the materials.

Smaller websites, such as Mumsnet and news and business blogs supported by WebPress, both of which support this amendment—indeed, they are not Goliaths, as the noble Lord, Lord Mawhinney, suggested—do not have the knowledge and capability to give their complaints proper scrutiny; nor do they have the legal resources to fight libel action and risk liability. The safest thing for them and many other internet intermediaries is just to take down the postings, which I believe would be damaging to free speech. It is therefore very important that Clause 5 strikes the correct balance between the right to protect the reputation of the individual and the freedom of expression on the internet. I want the notice of complaint procedure to be a cheap and easy means of striking this balance.

In Committee on the Defamation Bill in the other place, the Government rejected an amendment rather along the lines that I am putting forward today on the basis that it would be too onerous on claimants to have to consider the potential defences to defamation. The Joint Committee on Human Rights acknowledges this argument but considers the risk of website operators simply removing the material, rather than engaging in a proper analysis on the merits, as being too great.

The Government are correct to worry about whether claimants can be expected to understand the subtleties of libel defences, honest opinion and qualified privilege, and should not be forced to take legal advice in order to put forward the initial notice of complaint. However, complainants should at least be able to address the factual matters relevant to the complaint, including stating why any comments are unsupportable and why the claimant is likely to suffer serious harm. I want all the conditions to reach the threshold for the notice of complaint to be on the face of the Bill. Surely, if claimants are required first to check the Bill and then the regulations to find out what to put in the notice of complaint, as Clause 5(6)(d) suggests, it will only complicate matters.

I hope that the sub-paragraphs in my amendment will allow claimants to state basic factual information within their knowledge in relation to their complaint without having the need for lawyers. Paragraph (e)(i) under Amendment 27 asks the complainant why the allegations against them are defamatory. This already exists under Clause 5. Factor (ii) asks the complainant to state why the statement complained about is “inaccurate or untrue”. This addresses the possible defence of truth.

Factor (iii) asks the complainant to state why “any opinion” in the words complained of is “unsupportable”. It also might play in favour of the complainant because it asks them to provide any evidence to show that the comments in the posting are unsupportable. That would enable website operators to have some regard to the available defences of truth and honest opinion. This simply requires that the complainant provides factual evidence and so not have to get into a legal debate about whether the words complained of are statements of fact or comment.

Factor (iv) seems to be in line with the spirit of the Bill outlined in Clause 1, which ensures claimants should show that “serious harm” has been done to their reputation. It also fits with the interim guidelines put forward by the DPP on 19 December, which suggest that prosecutors should proceed against authors on social media only if the communication is more than offensive, shocking, disturbing, or satirical, or is more than the expression of unpopular or unfashionable opinion about serious or trivial matters, or banter or humour, even if distasteful to some or painful to those subjected to it.

The noble Baroness, Lady Hayter, suggested that Amendment 4 was a better way of dealing with this issue of seriousness. My concern is that that amendment is about commercial bodies, and not all comments on a site such as Mumsnet will be against commercial bodies; they might be against authors or experts in a field. It seems wise to have a seriousness threshold included in the notice of complaint.

In December last year I expressed my concerns to the Minister about the criteria for the notices of complaint. They are addressed in paragraphs 8 and 9 of the Ministry of Justice consultation sent out last week. I am grateful to the Minister for having included three of these factors from my amendment in subsection 9. However, I am concerned, as the noble Lord, Lord Lester, suggested, that the two paragraphs might add to the confusion over the difference between the words defamatory and unlawful. Paragraph 8 sets out what are called the core elements to be included in the notice of complaint, which are the same as those stated in Clause 5(6) of the Bill, which will raise them to a defamatory standard. Paragraph 9 goes on to state that the regulations have the option of looking at other factors, including the three that I have suggested, which would make them unlawful. Surely this would only compound the confusion between UK and EU standards, which I have already expressed.

I move on to factor (f) of my Amendment 27. I gather that there is a technical problem, and that it should in fact be in subsection (7), so it is perhaps more of a probing amendment. I will, in any case, put it forward for the Committee to consider. It will make provision for a procedure whereby a complainant, a website operator or an author who wants to dispute whether the contents of a notice of complaint under subsection 3(b) have met the requirements of subsection (6). This is meant to deal not with serious allegations of libel, which will have to end up in court, but with grey areas of more trivial cases.

After all, the notice of complaint will only contain the information provided by the complainant. The website operator or author could have reasons to question these contents; for instance, where there is a dispute about whether the original posting is defended by fair comment or is a statement of fact.

The Ministry of Justice, in its consultation paragraphs 23 and 24, explains what will happen if the author refuses to give full contact details to the operator. In that case, the website operator will be required to take the posting down, if it is to rely on this Clause 5 defence. This will leave them in much the same position as they are now—needing to remove large amounts of potentially non-defamatory material in order to avoid liability.

Paragraph 24 suggests—and the noble Lord, Lord Phillips, picked up on this—that if the complainant wishes to take further action, he will need to seek a Norwich Pharmacal Order for the website operator to release the identity and contact details that it has in relation to the author. My concern, and that expressed by the noble Lord, Lord Phillips, is that this order can cost at least £3,000 in legal fees and may not deliver the identity of the author in the end. The complainant could end up with an IP address through the broadband provider, but that will not guarantee that the identity can be uncovered. It might in fact be necessary to get another Norwich Pharmacal order to trace the IP address through a further website, which may turn out to be an internet café, the email of which may be [e-mail]. The complainant would then be out of pocket and still unable to contact the author.

Commercial sites such as TripAdvisor, as well as non-commercial websites such as Mumsnet, support this suggested procedure, as do commercial platforms like WordPress, which host small blogging sites, covering a wide range of subjects, some of which I hope your Lordships would regard as being in the public interest, such as news from Nigeria, advice on spare car parts and even which baby lotion to use. Many of these small websites and blogs cannot afford lawyers to defend a libel action, but would like to have a legal view on a disputed notice of complaint from a legal authority.

This procedure would also benefit the complainant, who would then be able to use the declaration by the master or a procedural judge, if it is in their favour, to deal with the problem of anonymous internet users repeatedly reposting the same material on other websites once the original website operator has decided to take it down. However, the noble Lord, Lord McNally, in his letter to me last month, and the noble Baroness, Lady Hayter, in her speech of 19 December, expressed concerns that the procedure would allow any author to hide behind anonymity by claiming that they were whistleblowers, while placing an extra burden on the complainant to fund the procedure. I want to emphasise that the procedure would be a means for dispute resolution about the contents of the notice of complaint, and one which could be initiated by the claimant, the author or the website operator. I hope that this goes some way to mitigating their concerns.

I am not a lawyer, I am just a journalist, but I am advised that the new procedure could simply latch on to the present master’s application procedure on the Queen’s Bench Division of the High Court. There could be a new section to the Queen’s Bench Division website with simple, procedural guidelines and copies of the standard form application and draft declaration for the claimant. The claimant could fill out the form, provide a copy of his notice of complaint and explain why it needs the Clause 5 criteria. That could be put before a master, who would decide whether to grant the declaration that the Clause 5 criteria have been met. Claimants would not need to lodge hard copy documents with the courts, as under the existing application procedure.

The master could ensure not just that the claimant had complied with the requirements of Clause 5 but that the claim met the basic requirements of a libel claim: that the words are defamatory, likely to cause serious harm and have no obvious defence. I ask noble Lords to consider my amendment favourably.

Legal Aid, Sentencing and Punishment of Offenders Bill

Viscount Simon Excerpts

Monday 21st November 2011 Lords Chamber

[Viscount Simon]

My Lords, as has already been mentioned by the noble Lord, Lord Hunt of Wirral, in February of this year three senior cost judges made a report about the proposals of the Ministry of Justice for reform of civil litigation and costs in England and Wales. I suspect that the Law Society is not alone in disagreeing with various parts of the report. It is thought that the problems which affect the conditional fee regime will not be resolved by the abolition of the recoverability of success fees by paying parties, as the Ministry of Justice proposes. On the contrary, shifting the burden of success fees away from tortfeasors and on to claimants will not only cause injustice, but cast aside the many commendable steps that have already been taken by interested parties over the past decade to iron out the malign aspects of the conditional fee arrangement regime, which is widely recognised as having been a blight on the English and Welsh legal system.

Under the conditional fee agreements it is often said that claimants have no interest in the costs of their claim. Quite apart from the fact that claimants will not want the stress of a long and more expensive case if they can possibly help it, they will in fact have a deep interest in matters affecting their well-being, especially if they have suffered an injury. The claimant solicitor will also have a strong interest in keeping costs down because if they lose they will have to absorb them. In some senses the clue is in the well known phrase “no-win no-fee”. However, while the recoverability regime can be described as anything but having teething problems, the reality is that where improvements need to be made, the majority of difficulties have been resolved and those remaining can be dealt with without dismantling the existing regime. I find it interesting that the Law Society thinks that the changes contained in Part 2 of the Bill will cause years of satellite litigation as people argue about the new rules.

I now turn to medical accidents and the impact on injured patients and their families who are not able to challenge the NHS with the help of legal representation. Practically every clinical negligence claim represents a failure in patient safety, even if the case successfully results in negligence liability and causation is proved and compensation paid. The vast majority of cases are robustly defended by the NHS simply because there is no understanding of serious errors made which have led to avoidable harm to patients. It is often only because the case has been investigated independently that it becomes clear that errors have been made, resulting in some learning taking place to help prevent the same errors being repeated. The reforms under this Bill, particularly taking clinical negligence out of the scope of legal aid, will prevent vast numbers of people ever having their case properly investigated, thereby denying the NHS vital lessons for improving patient safety. This is due to the very high costs encountered by medical experts. If there is no legal aid, solicitors will be able to cherry pick the more clear-cut cases. Because the vast majority of clinical negligence victims are harmed at the hands of a state body—the NHS—there is a strong moral argument that the state should ensure that these people have access to justice.

There are many more areas of concern which I am sure will be raised by other noble Lords but I would like to mention citizens advice bureaux where, under the Legal Help scheme, thousands of people are assisted with their varied problems. According to the Government, this kind of assistance should not be within the scope of legal aid and these people should be able to represent themselves. The proposed changes will prohibit eligibility for assistance and restrict people’s access to justice. It will also have a serious financial impact on CABs and other non-profit agencies. We are told frequently that the Government listen. However, Citizens Advice has told me that 93 per cent of those who responded to the consultation did not support the proposed changes and raised serious concerns about them. These responses have not received the scrutiny they deserve and should be looked at in much more detail. The Government may well listen but they do not seem to take into account the concerns of so many people.

There are many aspects of this Bill which will cause all kinds of difficulties and I suspect that there will be numerous amendments to address them.