Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017

Lord Faulks Excerpts

Thursday 2nd March 2017 Lords Chamber

I argue that now, five years on, we are at that point. Whether statutory regulation is the right answer I do not know but I argue strongly that the present regulatory regime is inadequate. The Government have a choice. They can stand by and await an inevitable scandal and, I fear, be caught in the backwash, or they can now set in train, with the various regulators, a scheme to bring forward a regulatory system which has the transparency and accountability to maintain public trust and confidence. I urge the Government to choose the latter course now. In particular, I regret that they have not chosen the introduction of this statutory instrument to make that choice. I beg to move.

[Lord Faulks (Con)]

My Lords, I am grateful to the noble Earl for outlining the regulations and to my noble friend Lord Hodgson for his contribution to the debate and for drawing my attention to this opportunity to alert Her Majesty’s Government to what I believe is a highly significant development in the funding of litigation in the United Kingdom. He speaks as someone with experience of business and I speak as a practising lawyer.

As a law student I was introduced to the rather mysterious rules concerning barretry, maintenance and champerty. These rules meant, as I understood them, that it was only the parties to litigation who should finance or benefit from it. For a recent and authoritative discussion of the issue, I recommend the lecture delivered by the noble and learned Lord, Lord Neuberger, as President of the Supreme Court at Gray’s Inn in May 2013.

At the heart of the problem is that the law is expensive and yet it is important there should be access to justice. Yet there was a historical prohibition on litigation funding by third parties, based in part on the acknowledgment that the law could become an instrument of oppression and injustice. Parliament itself, in setting up the legal aid scheme post war, provided an exception to the principle, one which was broadly welcomed. Similarly, insurance-funded and trade union-funded litigation made significant inroads into that prohibition.

Things moved on with the gradual restriction on what was an extremely expensive legal aid scheme with the development of conditional fee arrangements. After a modest beginning in 1990, they were extended through the Access to Justice Act 1999 but eventually got out of hand. What had once been a scheme intended to help indigent litigants turned out to be a bonanza for lawyers and oppressive to defendants, including government bodies such as the NHS.

Sir Rupert Jackson was invited to investigate the matter and the result was legislation in the form of the LASPO Act, which has done much to rebalance the CFA system. CFAs are not as profitable now and thus less likely to be employed. Damage-based agreements, which are in effect contingency fees as opposed to conditional fees, allow lawyers to a certain extent to share the fruits of litigation with their clients but they have not had very widespread take-up.

Although CFAs were primarily funded by insurance companies, there has now developed, as my noble friend Lord Hodgson said, a substantial third-party litigation funding market. There is, as I understand it, very little hard evidence as to the extent of the market and the evidence is anecdotal. But it is becoming increasingly clear that large-scale litigation is now regularly funded by third-party financiers.

The Civil Justice Council has had some engagement with the issue and has helped develop the code referred to by my noble friend but I wonder whether the Government have any idea how extensive this market is. The code is voluntary and the penalties for failing to follow it are derisory so that in effect this is a large and unregulated market. There is a real risk of abuse. Of course, even conventional litigation presents challenges to those involved. A lawyer’s interests may not always be entirely congruent with those of his or her client. But where the litigation is an investment, and those running the case are not regulated, as are solicitors and barristers, the risk of a wholly commercial approach to issues of justice is worrying.

Once a party knows that the other side has third-party funding, this can bring about a form of bullying in relation to the non-funded party. The temptation not to be straight with opponents is considerable. Accepting offers early because of external financial pressures nothing to do with the litigation can distort the process. Commercially driven pressures from expert serial litigation funders on lawyers themselves can result in, to put it gently, ethical challenges. These challenges are compounded by the innovation of alternative business structures. The explosion of litigation following the Access to Justice Act 1999 resulted in the evolution of a number of parasitic organisations, not least claims management companies. Although these are increasingly regulated, many lawyers doubt they need to exist at all or that they have much to do with the interests of justice.

What should the Government do? I respectfully suggest that the Government should get a real grip on what the market is doing. I am aware that the Ministry of Justice is reviewing the LASPO Act in terms of whether it has resulted in a loss of access to justice. This will mean considering the availability of legal aid and how the new post-LASPO CFA system is working. This would also provide an opportunity for the Government to consider third-party funding of litigation generally.

I do not expect my noble friend to respond in detail to these points. He may well say that this statutory instrument is concerned with consumer rights and it needs a little time before the Government decide how well matters are working. But experience shows that this is a vigorous market which reacts quickly to economic pressures. America is not a good example of a satisfactory litigation system. For the Government to make any meaningful interventions, they need to know what is going on. Should they not require far more information to be provided by litigants about the source of their funding than is currently the situation? All government departments are, to some extent, affected by litigation and there is room for some cross-departmental work. I hope my noble friend will alert other departments to this troubling phenomenon.

Finally, I remind the House that personal injury litigation has just got a great deal more profitable. This week, the Lord Chancellor altered the discount rate. This will affect the NHS and every motorist in the country. It may help to fan the flames of third-party funding. It is time the Government seized the initiative.