Justice: Civil Litigation Reform

Lord McNally Excerpts

Tuesday 29th March 2011 Lords Chamber

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

My Lords, with the leave of the House I will now repeat a Statement made in another place by my right honourable friend the Lord Chancellor and Secretary of State for Justice:

“With permission, Mr Speaker, I wish to make a Statement. I have today laid before Parliament two documents: the Government’s response to our recent consultation on Lord Justice Jackson’s recommendations for reforming no-win no-fee arrangements, and a fresh consultation document on proposals to overhaul the civil justice system. Copies of both documents will be available in the Vote Office and on the Ministry of Justice website. I hope to bring forward legislation on the Jackson reforms as soon as parliamentary time allows.

To many people in this country, the prospect of legal action is an expensive, daunting nightmare. One of the worst features of our compensation culture is that our justice system has increasingly become closed to vast rafts of the ordinary public by legal costs out of all proportion to the dispute or the claim. The proposals I am announcing today will, I hope, begin to restore proportion and confidence in our system of justice for both claimants and defendants.

First, following careful consideration of the consultation responses, I have decided to reform no-win no-fee arrangements to stop the perverse situation where fear of excess costs forces defendants to settle, even when they know they are in the right. I can therefore announce that the Government will seek to legislate to return the no-win no-fee system to first principles. We plan to end the recoverability of success fees and insurance premiums which drive up legal costs, award claimants a 10 per cent uplift in general damages where they have suffered loss, and then ensure that they take an interest in controlling the bills being run up on their behalf by expecting them to pay their own lawyers’ success fee. We will also bring forward our plans to encourage parties to make and accept reasonable offers, to protect the majority of personal injury claimants from paying a winning defendant’s costs and to allow claimants to recover the cost of expert reports in clinical negligence cases.

Secondly, I am publishing a consultation paper which I believe paves the way for the most effective and efficient delivery of civil justice after 15 years of stagnation. The current system is slow, stressful and expensive and change is long overdue. My aim is to help people avoid court wherever possible while reducing costs where that is unavoidable. We are proposing that small-value cases should automatically be referred to mediation so that many people are able to avoid the experience of court entirely; the maximum value for small claims will be raised from £5,000 to £15,000 to enable more cases to be heard through the simple small claims process rather than a more costly, complicated trial; to increase the value below which claims cannot be brought in the High Court to £100,000 so that the county court jurisdiction is extended and the High Court is reserved for only genuinely complex or high-value cases; new measures which will improve the ability of courts to tackle those who evade payment of their debts even though they have the means to do so, while ensuring that those who cannot pay continue to be protected—for example, by setting a minimum level of consumer debt at which property could be put at risk for non-payment—and, my final example, the extension of a successful online system to cut waiting times and legal expenses in personal injury cases, as recommended by my noble friend Lord Young of Graffham.

We have a duty to deliver a civil justice system which is more equitable, accessible and just. Resorting to the law need not be the long, drawn-out, expensive nightmare which so many people experience today. It could become a sensible, affordable way of resolving disputes in a proportionate manner. I believe these reforms will help to restore those fundamental values of proportion and fairness in our civil justice system. I commend this Statement to the House”.

My Lords, that concludes the Statement.

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[Lord McNally]

My Lords, I am grateful to the noble Lord, Lord Bach, both for his welcome for the discussion on the county court proposals and for the general level of his questioning. I think that if we are to touch a system like this, there is bound to be some concern about whether there will be a reduction in access to justice. We are looking at that carefully in our impact assessment and in other approaches. On the question of legislation, we intend to legislate as soon as possible and as soon as there is a suitable vehicle.

I do not think that we have cherry-picked Lord Justice Jackson’s report. We have retained a certain hold-back on protecting clinical negligence claimants in the help that they will get. Lord Justice Jackson made 109 recommendations, and the Government are taking the reform of conditional fee agreements as a matter of priority because of the potential cost saving for the Government and others. He conducted a year-long review of current arrangements and considered the likely impact of these proposals. Much of the necessary data are held in private hands by lawyers and defendants in civil litigation. Data were provided during Sir Rupert’s review and further data were received by the Government during the consultation. The Government’s initial impact assessments were published alongside the consultation and comments were specifically sought on the assumption. A final impact assessment was published alongside the Government’s response. Our impact assessment shows that successful claimants in personal injury cases will generally end up in a similar position to now, although overall most will gain.

As the noble Lord said, the road traffic scheme, to which the noble Lord, Lord Young of Graffham, also referred in his report, seems to have been a considerable success, and we are examining ways of how it could be extended. On the impact on insurance it is difficult to be precise, but it is interesting that today the Association of British Insurers has issued a statement saying that it expects insurance costs to fall as a result of these reforms.

Why should claimants pay? Claimants with meritorious claims will still be able to bring them. The Government believe that it is important that people with serious injuries should be able to receive compensation for negligence. That will continue. Indeed, the general damages for non-pecuniary loss, such as pain, suffering and loss of amenity, will be increased by 10 per cent under these proposals and there will be an incentive to reduce costs compared with now, such as improving incentives to settle. This will improve justice overall.

As the noble Lord will know, one of the main criticisms of the post-2000 operation of this scheme was that claimants had no real incentive to put a check on their legal costs on the assumption that they would never be responsible for it. The Government also believe that damage-based agreements will provide an additional method of funding for claimants. Like conditional fees, they are a type of no-win no-fee agreement under which lawyers are not paid if they lose a case but may take a percentage of the damages awarded to their client if their case is successful.

I hope that I have covered most of the points that the noble Lord covered. If I have not, I will give him opportunity to intervene again. In aid of these proposals, I call upon two statements. One was made by Mr Jack Straw, who originally commissioned the Jackson report.

[Lord Bach]

No, he did not.

[Lord McNally]

Did he not? Sorry. You were there; I was not. Thank you very much. Mr Straw said that the Jackson proposals,

“are designed to reduce the costs of civil litigation overall. Those costs have risen too high, and that is a bar to proper access to justice”.—[Official Report, Commons, 9/2/10; col. 740.]

Perhaps he was pointing to what the noble Lord, Lord Bach, just said. As the noble and learned Lord, Lord Neuberger—the Master of the Rolls—commented:

“Critics do not appear to have been able to provide an alternative model for a comprehensive package to tackle what seems universally acknowledged to be a non-sustainable problem of rising civil litigation costs. The time for analysing the problem has come to an end. The time for action has come”.

The Lord Chancellor has brought these proposals forward in that spirit.

[Lord Lloyd of Berwick]

My Lords, I welcome the review of civil justice. One problem with the civil justice system is that we have, over the past 10 years or so, succeeded in creating what amounts to a parallel system of criminal justice enforced by the civil courts, thus adding to the burden that already exists for the civil courts to discharge. I have in mind in particular the serious crime prevention order and the violent offender orders. Those are just examples of what we are doing; there are many others. Would it not be better for what are essentially matters of criminal justice to be dealt with in the criminal courts and not in the civil courts, thus relieving the pressure on the civil courts? Could the Minister see his way to somehow looking again at the serious crime prevention orders and the violent offender orders and repatriate them, if that could be done, to the criminal courts rather than the civil courts?

[Lord McNally]

My Lords, I will certainly not bluff the House that I am able, with no legal training, to assess the noble and learned Lord’s suggestion. These are still proposals, and his intervention will be reported back to the Lord Chancellor. If his suggestions have merit—and coming from that source, I have no doubt that they do—I am sure they will be given full consideration before we bring forward our final proposals.

[Lord Thomas of Gresford]

My Lords, centuries of English law produced a position whereby, in civil and criminal cases, it was a principle that the lawyer should not have a personal interest in the outcome of the case. In other words, he would be paid whether he won or lost. That was mitigated to ensure that there was proper access to justice by the introduction of the legal aid scheme. It was on that principle that during the previous Government’s period we on these Benches opposed the introduction of no-win no-fee schemes.

It is interesting to look at this Statement to see what are now said to be the problems resulting from the change from the basic principle that we had had for so long. The Statement refers to,

“the perverse situation where fear of excess costs forces defendants to settle, even when they know they are in the right”.

The proposals are also said to,

“begin to restore proportion and confidence in our system of justice”.

What has happened in the mean time, over the past 10 or 12 years, is that advertising has been allowed to proliferate and non-lawyers have collected and farmed claims. By advertising, they have drawn to themselves hundreds and thousands of claims and have then farmed them out to various firms of lawyers. All these ills have done nothing to improve the lot of the claimant who has been injured or who has a grievance that he wishes to be resolved.

It is because I have such a basic objection to no-win no-fee that I cannot completely endorse these proposals, but they are undoubtedly an improvement on what has gone before and they redress some of the problems that have arisen. Success fees and insurance premiums are recoverable; that is to say that I as a claimant can insure myself against losing the case and then charge the insurance premium, which I know can be tens of thousands of pounds, to the defendant, provided that I am successful. I can do that not if the case goes to court but if the case is settled at some stage, so the cost of litigation has been a huge problem that has faced defendants and insurance companies.

Another problem that arises because of that is that a plaintiff has very little interest in the amount of costs in the case. He is insured against paying the defendant’s costs, he will recover if he wins and if he loses, and he has none of his own costs to pay. It has been very damaging to permit no-win no-fee cases to go in the way that they have. The proposal to ensure that claimants have an interest in the result and are restrained from allowing their lawyers to run up massive bills of cost, as proposed, is something that I, unlike the noble Lord, Lord Bach, think is a way forward.

The second part of the Statement dealing with the consultation paper on the improvement and efficient delivery of civil justice is also to be welcomed. The proposals to give greater jurisdiction to small value cases, for small claims cases to be heard through the simple small claims process and to increase the threshold for going to the High Court are all to be welcomed.

--- Later in debate ---

[Lord Newton of Braintree]

My Lords, I apologise. I was thinking it was a debate.

[Lord McNally]

In fact, we are trying to cut out the middle man, as my noble friend Lord Newton is now.

I could listen to my noble friend Lord Thomas of Gresford all day on these matters. On his comments about no-win no-fee, I recall very well the debates about that and about the removal of the principle of no self-interest on the part of the lawyer in the outcome and of it simply being a matter of delivering a professional fee. Against that was the very real motivation that the system could and would provide access to justice that might not otherwise have been there.

On balance, as I said in my response to the noble Lord, Lord Bach, we are trying to get the system back more to how it was when my noble and learned friend Lord Mackay of Clashfern introduced the system in the early 1990s and to avoid some of the inflation that has occurred in the past 10 years. For reference, a general liability insurer has indicated that in 1999 claimants’ solicitors’ costs were equivalent to just over half the damages agreed or awarded at 56 per cent. By 2004, average claimant costs were 103 per cent of damages. By 2010, average claimant costs represented 142 per cent of the sums received by the injured victims. The insurer also indicated that, while average damages paid had increased since 1999 by 33 per cent, average claimant costs paid, including disbursements and insurance premiums, have increased 234 per cent. It is that kind of inflation that we are trying to tackle in these proposals.

On the other point made by my noble friend, we are aware of concerns about referral fees. This matter was raised in a recent report by the House of Commons Transport Committee on the costs of motor insurance. The committee called for greater transparency in referral fees. The Government are now awaiting the legal services report on referral fees, which is due shortly.

[Lord Beecham]

My Lords, I declare an interest as an unpaid consultant in the firm of solicitors at which I was for many years a senior partner. Like the noble Lord, Lord Thomas, I am no great fan of the no-win no-fee scheme. I recall a discussion with the noble and learned Lord, Lord Woolf, on a social occasion many years ago at which I outlined some objections. He was much more confident about it. The problem is the disappearance of legal aid for so many of these claims, particularly in the realm of personal injury claims.

In a letter today in the Guardian, the president of the Law Society makes two points on which the Minister might like to comment. The first is in relation to the high costs incurred in clinical negligence claims. The president says that much of that is incurred because of the way in which the National Health Service contests these claims. It is very slow and, in far too many cases, the claims go right to the door of the court instead of seeking to settle them earlier. Savings could be made if those cases were better dealt with.

The second point relates to the thrust of the Government’s proposals today around mediation. Does the Minister agree with the president of the Law Society, or does he have a view about her comments, that mediation is suitable in cases where the parties are roughly comparable in their status, economic position and so on but much less so where there is a disequilibrium between the two parties? Is there not some danger in pressing the mediation route, as the Government seem intent to do with these reforms, at the expense of having matters properly adjudicated on with a determination that is perhaps more suitable in more cases than the proposals imply?

[Lord McNally]

My Lords, I take on board what the noble Lord has said about the way in which the NHS fights its cases. I am not sure whether I have the exact costs to hand but they are enormous. Certainly any way of making settlements easier and less costly will save literally hundreds of millions of pounds for the NHS. Certainly the lowest figure for the impact on these settlements would be £50 million a year, but many people believe it would be far more.

I agree that mediation will work in disputes only up to a point. However, many people find themselves drawn ever deeper into the litigation process, with its associated costs, when a matter might be dealt with much earlier. Mediation offers the opportunity to nip problems in the bud and to avoid the stress that can often accompany a drawn-out legal process. The noble Lord made a point about inequality of arms, and a great deal will depend on the quality of the mediator and their ability to judge these matters.

I now have the figures for the NHS. In 2008-09 the National Health Service paid out £312 million in damages, but it paid out far more in lawyers’ fees—£456 million. That is the wrong way round and it is not where the NHS should be spending its money.

I have the highest respect for the Law Society, which has an absolute duty to represent its members and to put forward its views. However, I am not sure that the invitation on its website at the moment is within the dignity of the profession. It states:

“Defending legal aid: send us your case studies … What we urgently need from you are cases studies of individuals with interesting stories that will chime with the general public. It is clear from our research that cases of medical negligence (especially obstetrics), education matters and private law family matters will resonate very well with the public. Those cases based on clients who are happy to discuss their case with the media and be photographed would be particularly helpful. High profile cases will also be gratefully received”.

That is one way of representing its members, but I would not describe it as research.

[Lord Newton of Braintree]

My Lords, first, in the light of what has been said, I declare an interest as the chair of a health trust. I have a good deal of sympathy with what has been said both on that front and about mediation. Secondly, I declare my solidarity with those on both Front Benches as they seem to agree that the underlying issue is access to justice. That means looking at the small print alongside the proposals for legal aid.

I have two, perhaps three, questions. First, do these proposals relate only to the civil courts or to other bodies that are, in effect, part of civil justice—namely, employment tribunals, land tribunals and others? Secondly, do they apply in any way to the great raft of tribunals that involve citizen v state and have not normally been seen as civil justice? Thirdly, how many people have recourse to the civil courts and how many people have recourse to tribunals?

[Lord McNally]

My noble friend is right that the proposals will be linked in with those for legal aid. The Government have still not made their final decisions on the legal aid package on which they have been consulting, although they have indicated that they want to make cuts on the civil side of legal aid and how they want to make them.

We are trying to reduce the cost of our legal services by reforming court procedures, by introducing mediation, which may avoid the greater costs of court, and by following Jackson and putting some responsibility on claimants for managing legal costs. I had better come clean with my noble friend about how far the proposals extend into the world of tribunals. I shall write to him on that, because I am not quite sure of the answer. I would imagine that they do, but I had better make sure and write to my noble friend.

[Lord Laming]

My Lords, the noble Lord, Lord Thomas, and the Minister referred to the rather seductive advertisements that appear very frequently in many places—the Minister gave a vivid illustration of one such advertisement. Is there anything in these proposals that will have an impact on that kind of advertising?

[Lord McNally]

No, not in these proposals, but, as I said earlier, we are waiting for a report on that matter. It must be at least 10 years ago, and perhaps more, that I raised from the Benches opposite the fact that you have only to watch the television any afternoon at home—I know that noble Lords do not often do that—to see those adverts, which make the winning of a case seem akin to winning the lottery. You see a smiling client with a large cheque, having successfully referred their case to some organisation or another, without the general public being aware that the organisation with which they were in contact would not have dealt with their case but farmed it out to a solicitor, thereby only adding to the costs. My right honourable friend the Lord Chancellor is very well aware of this and we await the report. I suspect, knowing him as I do, that he will want to take action on something which irritates and angers a lot of people.

The third question of my noble friend Lord Newton was how many people have recourse to the civil courts. In 2009, some 1,460,000 money claims were issued. I hope that helps my noble friend.

[Lord Campbell of Alloway]

My Lords—