Litigation Funding Agreements (Enforceability) Bill [HL]

Lord Sandhurst Excerpts

2nd reading
Monday 15th April 2024 Lords Chamber

[Lord Sandhurst (Con)]

My Lords, I rise, rather like the Arctic roll, to complete the speeches from the Floor. I congratulate the Government on moving swiftly and decisively to introduce the Bill. I congratulate the Minister too on his very clear opening. It has been a privilege to listen to today’s speeches, with many valuable insights that have opened our minds to a lot of issues that need to be addressed.

As we have heard, the Supreme Court’s decision in PACCAR rendered unenforceable third-party litigation agreements between claimants and third-party funders who finance litigation in return for the right to payment, usually set as a percentage of the damages. It was at once clear, as we know, after that decision on 19 July this year, that most current litigation funding agreements did not comply, and that it was very hard, if not impossible, to draft one that would comply. This, as we now know, has had serious ramifications for existing and future claims. It needed swift action, which is why we must all congratulate the Government on the course that they have taken.

It is interesting and important to remember that it has been government policy for at least 10 years, and in fact rather longer, to positively favour litigation funding agreements. I remind the House, as I have done previously, that the then Parliamentary Under-Secretary of State, the noble Baroness, Lady Neville-Rolfe, said in this House, in Committee on the then Consumer Rights Bill, on 3 November 2014 that

“there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers. Blocking access to such funding would result in a collective actions regime that is less effective”.—[Official Report, 3/11/14; col. GC 583.]

As we all know, the High Court group action by which the sub-postmasters obtained the critical findings exposing the defects in the Horizon system was possible only because they obtained very large sums of funding from litigation funders. After PACCAR, such litigants, and others like them, were left without the potential for an effective civil remedy. Group actions by individuals and smaller companies in the Competition Appeal Tribunal were at a stroke bereft of the means to litigate, and, as we know, so I shall not spend time on it here, that applied to other actions in the High Court.

Legal aid, as we have heard, is no longer available for claims of this sort or for any claims for damages, other than in clinical negligence and certain other categories, nor is it likely to be reintroduced. However, let us all remember that the promise of a property-owning democracy rings hollow if citizens do not have the opportunity to assert or defend rights through the legal system. The happy functioning of society requires that individuals have a reasonable opportunity to obtain legal remedies. The recovery of compensation and a judgment is not just about money; it is about redress. It is about an individual sense of fairness, of being valued by society, and of good name and reputation. The sub-postmasters epitomise that.

In the absence of legal remedies, much of the fabric that maintains our economic system is damaged or lost. The sense of individuals that we live in a society in which harm done falls to be recompensed, or that obligations made will be honoured, or that we will not be bullied by monopolists, is an important contribution to the individual’s sense of well-being and the value we place on the society in which we live. Concern to find funding mechanisms to achieve legal remedies for these individuals, and for smaller companies and the like, who do not have the resources to achieve this is a concern to preserve social value. It is the pursuit of the public interest. A market economy in which people do not have effective access to justice and cannot enforce their rights is not worthy of the name. The market, in turn, ceases to operate fairly or efficiently. I remind this House that, in December 2019, the Conservative Party’s election manifesto rightly included a commitment to access to justice for ordinary people.

Litigation funding agreements, whatever the complicated issues they bring, are an important plank of our justice system. For the reasons my noble friend the Minister has explained, there is an unusual retrospectivity provision. Like him, I believe it to be justifiable, but no doubt we shall have to look at it in Committee to see that it really works properly and fairly.

While congratulating the Government on the Bill, we must also ensure that defendants to claims funded by such funders are not going forward improperly harassed. We must ensure that payments recovered by the funder are reasonable for the risks involved and the money laid out. Successful claimants must be left with broadly fair recompense. Those issues are complex; they require difficult balancing arguments and it would be difficult to regulate or to manage, but they are not reasons for allowing the PACCAR decision to stand. This Bill is necessary.

Like other noble Lords, therefore, I applaud the Lord Chancellor for asking the Civil Justice Council to review the current operation of such agreements and to consider the need for further regulations and safeguards. This will ensure that those who provide such funding do so on an appropriate and fair basis. Funders must not be free to take excessive proportions of recoveries or harass defendants. I do not suggest that they do, but we must ensure that they do not going forward.

In this review process, I urge that proper attention is paid to a forthcoming report, of which we have heard, by the European Law Institute. The noble and learned Lord, Lord Thomas of Cwmgiedd, is an important member of the working party, of which he has spoken. I remind noble Lords that this project seeks to develop

“principles containing safeguards in order to provide an environment in which”

third-party litigation funding

“is allowed but balances the availability of the tool with the interests of claimants and defendants and a healthy litigation market”.

Finally, I agree with the noble Lord, Lord Meston, that the Government should look again at the draft Damages-Based Agreements Regulations 2019. They came in at the time when I was just finishing my practice before retirement. It was a mystery to practitioners at the time that, after all the work that had gone into them, they were never laid. We should look again at those. Looking forward, I commend this Bill to the House.

Litigation Funding Agreements (Enforceability) Bill [HL]

Lord Sandhurst Excerpts

Committee stage
Monday 29th April 2024 Grand Committee

[Lord Sandhurst (Con)]

My Lords, like others here today, I support the Bill and the amendments which the Government have laid. Like others, certainly including the noble Lord, Lord Carlile of Berriew, I am grateful for the Bingham Centre’s helpful briefing note. It sets out the issues clearly, in particular in respect of retrospectivity and the need for the Government to give good reasons for that, which I believe they have done.

What is important in this case is that before 19 July 2023, government policy endorsed the use of litigation funding agreements. There had been discussion about whether they should be regulated and how they should be managed, but the policy was absolutely clear. I referred to that at Second Reading. The Supreme Court, for good reason, did not have to address that issue of policy as it was not appropriate, but the effect of its decision is that litigants have lost much-needed support. If we are to ensure access to justice, particularly against monopolists, we now require a statute to undo that Supreme Court decision and do the best we can to restore the status quo ante. We have to hope that this legislation does not induce a spate of future litigation of the wrong satellite nature, but simply allows matters to proceed as they were until July last year.

For good constitutional reasons, retrospective provisions are not the norm, but when Parliament reaches a considered decision to pass legislation that is fully retroactive and does so for good reasons then, providing the legislation is drafted carefully, the Supreme Court has ruled that it is not contrary to our constitutional norms. In that respect, I refer to its decision in AXA General Insurance Limited and others v Lord Advocate and others, reported at [2011] UKSC 46.

I agree entirely with the noble Lord, Lord Carlile, that we should not fear challenge at some later date in the ECHR. The balancing reasons are absolutely clear: this is for access to justice. There may be no perfect answer, but this is the right route—or the least bad route. I am confident that the Government will look further at the detail of the retroactivity provisions and will not bring this Bill to finality without taking care to ensure that it is properly addressed. In doing so, they will have weighed the public interest in access to justice and in established positions that might be damaged by the Bill. It is pretty clear to me, and I think to others here, that the overwhelming public interest is in allowing matters to be restored to the general form of what everybody thought they were in the summer of 2023.

While I am sympathetic to the noble Lord, Lord Marks, and his amendment, I am persuaded and now agree that the appropriate course is to leave this to the Civil Justice Council. It is now seized of the matter and will have the benefit shortly of the report from the European Law Institute—the noble and learned Lord, Lord Thomas, is a member—and will guide this country into making good regulations. Regulation will not be straightforward, but it has been managed with some trial and error in conditional fee agreements, and we are now without problems there. It has been managed in damages-based agreements, so I would be surprised if it could not be managed in litigation funding agreements, albeit that I am sure that some lawyers will do well out of satellite litigation in the early stages.

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I thank the Government again for bringing this matter with such expedition before this Committee. I wish to make two observations. First, I warmly welcome the Constitution Committee’s report, which is helpful and will no doubt help the Government further on the retrospectivity point.

Secondly, I am glad that the noble Lord, Lord Marks, put forward his amendment because it enables us to thank the Civil Justice Council and the Government for putting the terms of reference in such broad forms. As I mentioned at Second Reading, there is a lot of experience worldwide on that, but since then I have discovered more about the position in Australia and hope that the work done by the European Law Institute will in part reflect the substantial Australian experience. The Civil Justice Council will be able to look at that. Having heard what has been said in Australia, one has to take care, as not all are as responsible as the members of the litigation funders’ body. Others are tempted to enter into this area, so one might see that Australia has a lot of experience of how to deal with this, looking not to the creation of yet another regulatory body but to whether the courts themselves, through the Civil Procedure Rules, can be given the powers and guidance necessary to deal with the issues.

No doubt we will return to this in the autumn of 2025 for a very interesting debate.