Legal Aid, Sentencing and Punishment of Offenders Bill

Lord Thomas of Gresford Excerpts

Wednesday 14th March 2012 Lords Chamber

Might it be that some reforms could be adopted later than others? The answer to that question is no. To target one feature of the landscape will not work. That question and its answer are not mine; the question was posed and answered by Lord Justice Jackson himself in a recent edition of the New Law Journal. Therefore, the question that the Government must answer, should they choose to oppose this amendment, is: if they intend to implement both aspects of Lord Justice Jackson’s plans, why do they oppose an amendment that would ensure that they are implemented simultaneously? In that event, how will the Government ensure that access to justice is continuously facilitated? I beg to move.

[Lord Thomas of Gresford]

My Lords, conditional fee agreements—no-win no-fee arrangements—were first permitted by the legislation introduced by the noble and learned Lord, Lord Mackay, in 1990. In the beginning they were limited to personal injury cases, insolvency cases and cases before the European Court of Human Rights. They were a radical breach with the principle that a lawyer ought not to have a financial interest in the outcome of a case, and drew at the time much opposition from Law Lords and the Law Commission. Your Lordships are familiar with the way this system now works. If the case is lost, the lawyer receives no fees and therefore he needs to win or to settle to earn a living. To recompense him for the risk of losing, he is paid a success fee when he wins, a percentage uplift of his standard fees, which in theory recompenses him for those completely unrelated cases he has taken on and lost. He recovers the standard fees, which are payable by the losing defendants, but the initial concept was that the winning claimant should pay the success fee—the uplift—out of his damages. When the scheme was initially introduced, the uplift was limited to 20 per cent of standard fees. That was increased in 1995 to 100 per cent uplift to cover the most unlikely case—that was how it was introduced—where the risk of losing was 50:50.

Under the normal costs-shifting rules, the losing claimant was open to pay the tax costs of the defendants. He was not protected, as he would have been under a legal aid certificate, from the costs that the defendants had incurred in defending the case. Under legal aid an order was very often made that a losing plaintiff—as he then was—should pay the costs of the defendant. However, it was almost never enforced, so effectively he was not at risk of paying the defendant’s costs; but if he was, he could not pay. In answer to a query from Lord Hailsham, who was concerned that defendant insurers were left out of pocket even when they won, the noble and learned Lord, Lord Mackay, said:

“I understand that the Law Society is in the final stages of organising a form of insurance policy to protect clients against a costs order under a conditional fee agreement … If that is implemented it will be a complete answer to the anxiety to which my noble and learned friend has just referred”.—[Official Report, 18/7/94; col. 5.]

So “after the event” insurance was born to protect the losing claimant against the defendant’s costs.

There are further matters to which I may refer later such as caps on damages, but in 1999 the noble and learned Lord, Lord Irvine of Lairg, as Lord Chancellor, extended conditional fee agreements to all civil proceedings except family law. However, the most radical change he introduced was that the success fee and the “after the event” insurance premium should then be paid by the losing defendant. In a debate on 23 July 1998 he resisted Lord Ackner’s amendment that success fees should be capped. I said on that day:

“There has been no research as to whether solicitors overestimate the risk in order to justify an excessive uplift of the fees. There may be a doubling of fees now that 100 per cent. uplift is permitted. But the solicitor who is charging the fees, who determines that uplift, has to justify that uplift, assessing the risk himself. Is he doing it properly?”.—[Official Report, 23/7/98; col. 1112.]

Even then, in 1998 when I was speaking, the evidence suggested that the cherry picking of risk-free cases was occurring. I was a teller for Lord Ackner on that amendment, which was, unfortunately, lost. I hope that your Lordships will forgive me for quoting my own speech but it indicates that I was involved at an early stage in the discussions that were taking place in 1999.

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[Lord Wallace of Tankerness]

My Lords, this may not be quite what the noble Lord was thinking about, but in some cases, as my noble friend Lord Faulks indicated, if there is a question of a claim following a bereavement, we have indicated that we intend that there should be an uplift in these cases.

On the question of why we are not introducing QOCS for judicial review claims—this may be the circumstance to which the noble Lord was referring—the responses to the consultation indicated that conditional fee agreements were less commonly used outside the area of personal injury and were not frequently used in judicial review proceedings.

[Lord Thomas of Gresford]

I hope my noble and learned friend will forgive me for mentioning that I have tabled an amendment dealing with precisely that point. It is for debate at a later time and proposes that QOCS should apply in cases where, for example, there is a death in custody—and to other matters referred to by the noble Lord, Lord Ramsbotham.

[Lord Wallace of Tankerness]

I am grateful to my noble friend. Debate on his amendment might allow a better exploration of the important point raised by the noble Lord, Lord Ramsbotham.

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[Lord Howarth of Newport]

My Lords, as another co-signatory to the letter to which the noble Lord, Lord Alton, referred, I endorse the argument so ably put forward today by the noble Lord and the noble Lord, Lord Avebury. I do not need to add anything to what they have said. The speech of the noble Lord, Lord Alton, today follows the magisterial speech that he gave in Committee. These arguments are irrefutable. To trammel the access to justice of mesothelioma sufferers would be a terrible thing to do. I am sure the Minister, as a kind and good man, will agree with that.

[Lord Thomas of Gresford]

My Lords, I add my tribute to the noble Lord, Lord Avebury, for his 50-years’ celebration of Orpington. It was life-changing for me because I joined the Liberal Party a fortnight afterwards. Therefore, in a fortnight’s time it will be my 50th anniversary as a member of the party and, shortly after that, my 50th anniversary of failing to win a seat. That is how it goes.

The amendment seeks to retain the status quo in relation to one industrial disease—mesothelioma. Your Lordships will appreciate from what I said in Committee that these cases are terrible. I feel that completely. I told your Lordships about a lady who lives very close to me in Gresford. She came to this House and spoke, and no doubt a number of your Lordships will remember her vividly. Her husband died as a result of being exposed to asbestos in Brymbo steel works, which is perhaps three miles from where I live. But if you give mesothelioma a special, unique status, what about the people in my village who were in Gresford colliery—that has a certain resonance, as your Lordships may recall the disaster in 1934—or in Llay Main colliery, about two miles away, which was the deepest pit in the United Kingdom? I refer to those who suffer from pneumoconiosis, another industrial disease. How can I say, “I’m supporting that lady but I’m not supporting your claims to have the same treatment for pneumoconiosis”?

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[Lord Bach]

I must be under a misapprehension. I thought that this group was about the amendments that the noble Lord, Lord Alton, had so succinctly moved and about my own amendments to which I also hope to speak, perhaps even more succinctly in due course. I am listening carefully to the noble Lord, as I always do, but it seems that his amendments are part of the group that begins with his Amendment 132B. I am surprised that the noble Lord has not waited to speak to his group as it appears on the Marshalled List. Perhaps he can explain to the House why he is doing this.

[Lord Thomas of Gresford]

I am very happy to do that. I will speak to it further in due course. Frankly, I am anxious not to make the 31-minute speech that I made when we last discussed this particular issue and to relieve your Lordships of that burden. I am splitting what I intend to say, which I think is necessary to cover the whole field, so that it becomes a little more understandable. I take the noble Lord’s rebuke in good part, but let me repeat that asking for the status quo in mesothelioma cases only is not the way to go forward.

[Lord Alton of Liverpool]

My Lords, I would draw the noble Lord’s attention to the actual words in the amendment and indeed in the amendment of the noble Lord, Lord Bach, which is in this group. We have corresponded about this and he has been good enough to share with me prior to the debate some of the points that he has made eloquently this afternoon. I am grateful for that. However, this amendment goes slightly wider than he is suggesting in his remarks today and would cover, for instance, pneumoconiosis as well.

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Moved by

[Lord Thomas of Gresford]

132B: Clause 43, page 30, line 10, after “are” insert “, subject to subsection 4C,”

[Lord Thomas of Gresford]

My Lords, this group of amendments sets out the refinements to the architecture of the Bill that I have previously suggested. Noble Lords heard from me at some length before and I do not propose to repeat everything I said. I would just remind your Lordships that the model I am suggesting is that lawyers’ success fees should not be paid if the case settles or liability is admitted before proceedings are commenced. The reason for that is that there is no risk to the lawyers that they will not be paid. Noble Lords will recall that I quoted from my own speech back in 1998 when I indicated then that the question of risk was important, but had never been properly assessed. That is the first limb of my argument, and it is set out in Amendment 132C.

I went on to draw attention to the significance of the point of allocation within proceedings where a case is sent to the fast track of small claims or becomes one of the multi-track cases. In the multi-track cases, I suggested that the success fee should be paid, but split 50:50 between the successful claimant and the losing defendant. While in this area, I suggested that the claimant would have an interest in the amount of the success fee and that there would be the possibility of competition. Those points are set out in Amendments 132E, 133B and 133E.

That is the point I reached when the noble Lord, Lord Bach, suggested that I had gone on for too long, and no doubt I had. It is interesting because we are supposed to have these discussions about legislation on Report. The last time I spoke on this issue, the noble Lord, Lord Newton, said that he was in a fog and someone leant across to ask, “What on earth is he talking about?”. That suggests that legislation on these detailed points should not be on the face of the Bill but should be dealt with in secondary legislation following negotiations between interested parties. This system builds in a form of solidity that it is very difficult to remove.

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We are not persuaded that the refinements proposed by my noble friend would lead to a fair or workable solution. We believe that we have struck the right balances, abolishing the recoverability of success fees, and ATE insurance premiums will mean that claimants have an interest in the cost being curbed on their behalf, which will help to restore proportion and fairness in the current regime. We are also clear that special damages for future care and loss, which provide for necessary care and equipment, should be protected and not apportioned among those representing the claimant. I cannot accept that to change the overall package in this way at this time would lower the costs of civil litigation across the board. Against that background I urge my noble friend to withdraw his amendment.

[Lord Thomas of Gresford]

My Lords, I am not so much disappointed as hurt by my noble and learned friend’s reply. I am hurt that he thinks that my amendments would increase the cost. The whole purpose of tabling these amendments was to come forward with a system that squeezes the excess costs of litigation out of the system. This is one area where he is wrong to make that suggestion.

The other matter that concerns me is that the Minister should suggest that I am in some way completely wrecking the architecture of the Bill. I am not; I am trying to make it better for one reason. The one factor that was missing from his response was whether litigation solicitors and barristers will take on difficult and risky cases under the regime that is now proposed. It is not about the Jackson proposals in toto, although various things are left out. This is the issue. Only time will tell. Will solicitors take these cases on when the success fee has been squeezed down in the way that is proposed?

I was suggesting that for one level—for settlements and so on—there should not be a success fee because there is no risk. That brings down the cost of litigation as a whole. However, where there are risky cases lawyers need a proper reward. That factor was not mentioned in my noble and learned friend’s response. I hope to talk to him more about this matter before we finally dispose of the Bill but, for the moment, I beg leave to withdraw the amendment.

Amendment 132B withdrawn.

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Moved by

[Lord Thomas of Gresford]

133A: Clause 43, page 30, line 24, at end insert—
“( ) In section 58A of that Act, after subsection (6), insert—
“(7) A costs order may include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee in the following proceedings—
(a) proceedings in England and Wales by a company which is being wound up in England and Wales or Scotland;(b) proceedings by a company which has entered administration under Part II of the Insolvency Act 1986;(c) proceedings in England and Wales by a person acting in the capacity of—(i) liquidator of a company which is being wound up in England and Wales or Scotland; or(ii) trustee of a bankrupt’s estate; (d) proceedings by a person acting in the capacity of an administrator appointed pursuant to the provisions of Part II of the Insolvency Act 1986.(8) In subsections (7)(a) and (7)(c) “company” means a company within the meaning of section 1 of the Companies Act 2006 or a company which may be wound up under Part V of the Insolvency Act 1986.”.”

[Lord Thomas of Gresford]

My Lords, I return to a subject which we addressed in Committee: proceedings brought by a liquidator of a company, the trustee of a bankrupt’s estate or an administrator appointed pursuant to the provisions of Part II of the Insolvency Act 1986 to recover the assets of a business or company which has gone into liquidation or has become financially insolvent.

The point is that insolvency practitioners who engage in that important work have to bring proceedings to recover the assets of the company, or money representing the assets of a company, from a company director or partner in the firm. They can be very expensive proceedings, because a lot of investigation has to be undertaken. Often, the director or partner who is in default has disappeared—or hopped it overseas—so it is not easy to bring those proceedings. The liquidators, and so on, cannot bring the proceedings themselves. They employ solicitors to do that and to carry out those investigations. From time to time, they are forced to go to court to try to get a court order against an individual. In so doing, a conditional fee agreement is entered into, and a success fee is part of that conditional fee agreement.

As all of us will know, one of the major creditors is Her Majesty’s Revenue and Customs. Consequently, it seems a little silly to employ insolvency practitioners to recover all this money and then to have a reduction, contrary to the interests of the Revenue and Customs, from whatever has been recovered in order to pay the success fee. It seems to me that the success fee, when these proceedings are successful, should be paid by the person who is in default—the person who has hopped it. That is the current situation.

I mentioned earlier today that back in 1990 when the noble and learned Lord, Lord Mackay, introduced conditional fee agreements for the first time, there were three categories: personal injuries, insolvency proceedings and applications to the European Court of Human Rights. So from the very beginning, from the inception of this type of agreement, insolvency practitioners have had this protection for the proceedings that they have to bring. From the point of view of making sure that the defaulter pays and in the interests of the Revenue and Customs and perfectly decent creditors which may be a large firm or a small firm, it seems only sensible that the amendment should succeed. I beg to move.

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[Lord Thomas of Gresford]

Can my noble friend tell us when these proposals will be finalised and whether it will be during the currency of this Bill?

[Lord McNally]

I am trying to work out the vaguest reply that I can give to that. Discussions are going on and, as I said, we will make an announcement as soon as possible.

[Lord Thomas of Gresford]

I am very much enlightened by my noble friend’s formulation. The noble Lord, Lord Bach, made a very good point. It is the taxpayer’s money that we are talking about here, and not just the taxpayer but the worthy creditor, the small businessman or even the large businessman who has given credit to a firm that has gone into liquidation, sometimes through fraud and sometimes through incompetence. However, the taxpayer and the businessman are going to suffer because of this provision, unless my noble friend is saying that these proceedings are never going to be brought because there is some other way of doing it. The vagueness has left us all a little in the air. However, for the moment and subject to further discussions between now and Third Reading, I beg leave to withdraw the amendment.

Amendment 133A withdrawn.

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Moved by

[Lord Thomas of Gresford]

142C: After Clause 53, insert the following new Clause—
“Third party litigation funding
(1) A third party litigation funding agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of it being a third party litigation funding agreement; but any other third party litigation funding agreement shall be unenforceable.
(2) A third party litigation funding agreement is an agreement under which a third party (“the funder”) agrees to fund (in whole or in part) the provision of advocacy or litigation services to another person (“the litigant”) by a person other than the funder in exchange for remuneration.
(3) For the purposes of subsection (2), “remuneration” includes—
(a) a payment or any other transfer of value representing or calculated by reference to the value of a judgment or settlement; and(b) an assignment of the proceeds (in whole or in part) of any judgment or settlement.(4) The following conditions are applicable to a third party litigation funding agreement—
(a) it must be in writing;(b) it must not relate to—(i) proceedings which by virtue of section 58A(1) and (2) of the Courts and Legal Services Act 1990 cannot be the subject of an enforceable conditional fee agreement;(ii) a multi-party action, representative action or any proceedings which are the subject of a group litigation order; or(iii) any other proceedings of a description prescribed by the Lord Chancellor;(c) it must comply with such requirements as shall be prescribed by the Lord Chancellor.(5) Regulations under subsection (4)(c) may—
(a) require any person which enters into a third party funding agreement with a litigant to first obtain a license from a licensing body to be designated by the Lord Chancellor; and(b) set out conditions to be satisfied in order to obtain such a license.(6) In this section “advocacy services” and “litigation services” are as defined in section 119 of the Courts and Legal Services Act 1990.”

[Lord Thomas of Gresford]

My Lords, the amendment raises the issue of third party litigation funding. I made a lengthy contribution in Committee which I do not propose to repeat. The basis of the amendment is to bring under government control third party litigation funding. Your Lordships may recall that a voluntary code has been entered into by those who are concerned in third party litigation funding and I suggested in Committee, and I repeat, that it is far better that the Lord Chancellor should take a look at this and bring in something along the lines of what I have suggested in my amendment. I beg to move.

[Lord Bach]

We agree with the amendments in the name of the noble Lord, Lord Thomas of Gresford.

[Lord McNally]

My Lords, I have said before that we are grateful to my noble friend for raising this issue. It is a possible problem and a number of noble and learned Lords and lawyers outside have given warning signals. At the moment we are looking at how voluntary regulation is working in the area. However, my right honourable friend the Lord Chancellor is very aware of the situation and is keeping it under review. We do not think that statutory regulation through this Bill is either the right place or the right time but we welcome the fact that my noble friend has put this issue on the political radar. Both lawyers and legislators will have to follow the matter closely to see whether we will need to return to it at some future date. In the mean time, I ask my noble friend to withdraw the amendment.

[Lord Thomas of Gresford]

On this occasion I am grateful to my noble friend for his reply. My purpose was to highlight the insidious advance of third party litigation funding. It is essentially an American concept that has advanced into this country. So far it has reached commercial litigation, with which I have no quarrel. It has also got into family law and I shall be extremely concerned if it were to get into personal injury cases. The fact that the Lord Chancellor now has it on his agenda and will monitor the way in which the voluntary code operates is of great comfort to me and it is on that basis that I beg leave to withdraw the amendment.

Amendment 142C withdrawn.

Moved by

[Lord Thomas of Gresford]

142D: After Clause 53, insert the following new Clause—
“Third party offers to settle
It shall be an offence for a third party insurance company to solicit a claimant who has a cause of action for personal injuries against its policy holder, to make an offer to settle that cause of action unless—(a) it has obtained adequate medical evidence of the personal injury and has disclosed it to the claimant; and(b) the claimant is advised when the offer is made of his right to obtain legal advice; and(c) the offer is in full and final settlement of the cause of action.”

[Lord Thomas of Gresford]

This amendment concerns the third party insurance company, which approaches a prospective claimant and offers to settle without there being adequate medical evidence, without the claimant being informed that he has a right to legal advice and without the offer being in full and final settlement of the cause of action. In Committee, I hesitated to suggest that it should be a criminal offence, and suggested that the best way of dealing with the matter should be that such settlements would be void, which would enable a claimant who subsequently discovered that he was in a far worse condition than he had thought to reopen the matter and to claim damages for the injuries that he received. That is a practice that has crept in. It means that people accept settlements without proper advice or evidence of what is wrong with them and without a proper calculation of their losses. It seems to me that a lot of people are vulnerable to that type of approach. That is one side of the problem. The other side is that it encourages people with no basis for a claim at all to make one and accept a sum of money that means that, over a large range of cases, the insurance company benefits. That is just as bad as that people should be incited to put forward fraudulent claims.

My noble friend’s answer in Committee was that the FSA rules are sufficient to cover the matters of which I complain. That immediately makes me ask who enforces the FSA rules. What control is there over the employee of a third-party insurance company who, quite clandestinely, makes offers of this sort to settle cases that are perfectly valid and which he knows to be valid? So at this stage I put forward the suggestion that it should be a criminal offence for people to engage in this type of behaviour. That may be going a step further. Perhaps my original concept that the alleged settlement obtained should be void was the right way to go. But certainly there is an abuse going on and I expect the Government to do more than to refer to FSA rules when there is no one to enforce them. I beg to move.

[Lord Bach]

The Minister would be well advised to give serious consideration to the amendment proposed by the noble Lord, Lord Thomas of Gresford. This is not one that he moved in Committee—he has moved it for the first time today. The House knows that he has become an expert in this field of litigation over the months that he has spoken to me about it. He may well be right that it is no good the Government taking a position that looks like it may take some time to develop. It is something that needs to be done and thought about pretty promptly. Therefore, as far as we can, we support the amendment.

[Lord McNally]

My Lords, I think it was the noble Lord, Lord Martin, who talked about the proper role of the House of Lords. Although the hour is late, my noble friend Lord Thomas has demonstrated one of the benefits of this House in bringing to the Government’s attention an area where there already is or could be a malpractice that will have to be dealt with. As he explained, this is a practice where an insurer approaches a claimant directly, usually immediately after a road traffic accident, with a view to settling the claim, where an insurer’s own policyholder is at fault in a car accident. As I understand it, claimant representatives refer to this practice as third party capture, whereas defendant representatives call it third party assistance. As I indicated in Committee, I shall continue to refer to this practice as third party contact.

Amendment 142D would make it an offence for an insurer to make such an unsolicited approach to a potential claimant in a personal injury case. The amendment also specifies those requirements which must be met before an insurer may make an offer to settle such a claim. This includes a requirement to obtain adequate medical evidence of injury and to advise the claimant of their right to obtain full legal advice before accepting the offer and making it clear to the claimant that the offer to settle is full and final.

It is unclear what my noble friend means when he says that this practice should be an offence. If he refers to this as being a criminal offence, I do not believe that a criminal sanction is appropriate or proportionate. You would have to prove beyond reasonable doubt that something amounted to an unsolicited approach. As I explained in Committee, the Financial Services Authority regulates the insurance industry and requires insurers to treat their customers fairly at all times and that this covers third party claimants.

Third-party contact does not in itself cause detriment to the consumer and may be to their advantage, as a claim can often be resolved quickly. In addition, this practice can allow insurers to reduce the legal costs associated with handling a claim and this in turn reduces costs for all policyholders. However, I am aware of the concerns around the potential risk of conflict of interest and the need for the claimant to have independent legal advice before any settlement is agreed. This matter was looked at by the FSA in its review of third-party contact during 2009-10 and it did not find conclusive evidence that unrepresented third parties could have achieved higher compensation had they obtained independent legal representation.

Following the FSA’s review, the Association of British Insurers published a code of practice in June 2010. The code contains specific guidance for insurers on contacting claimants. This limits unsolicited contact. For example, and I quote:

“Insurers will not make unsolicited visits to an unrepresented claimant at their current address, including hospitals”.

The code also requires that claimants are informed of their right to seek independent legal advice and other options available for them to resolve their claim.

Most of the issues which this amendment seeks to address in respect of the handling of third-party contact claims are already covered by existing regulation. The FSA rules require that insurers fully inform third party claimants of their legal rights, including to independent legal advice and alternatives to settling directly with the insurer. The Government do not believe it is right or appropriate to introduce further sanctions or regulation in this area, especially when a scheme already exists to monitor insurers’ activities. That said, I can reassure my noble friend that if a serious concern arises in the future in this area—and we will keep it under review—we will not hesitate to take this up with the Treasury and with the FSA.

I am therefore grateful to my noble friend for raising this issue with us, but for the reasons that I have mentioned I hope that he will agree to withdraw the amendment.

[Lord Thomas of Gresford]

My Lords, I am grateful to my noble friend. I am glad that some publicity has been give to this practice which I believe to be fairly widespread and causing a great deal of concern. As long as the Government keep their eye on this area, I shall be satisfied. I beg leave to withdraw the amendment.

Amendment 142D withdrawn.