Legal Aid, Sentencing and Punishment
of Offenders bill
The Committee consisted of the following Members:
Chairs: †Mr Philip Hollobone , Jim Sheridan
† Blunt, Mr Crispin (Parliamentary Under-Secretary of State for Justice)
† Brake, Tom (Carshalton and Wallington) (LD)
† Buckland, Mr Robert (South Swindon) (Con)
† Crockart, Mike (Edinburgh West) (LD)
† Cunningham, Alex (Stockton North) (Lab)
† Djanogly, Mr Jonathan (Parliamentary Under-Secretary of State for Justice)
† Fovargue, Yvonne (Makerfield) (Lab)
† Goodman, Helen (Bishop Auckland) (Lab)
† Green, Kate (Stretford and Urmston) (Lab)
† Hinds, Damian (East Hampshire) (Con)
† Lee, Jessica (Erewash) (Con)
† Llwyd, Mr Elfyn (Dwyfor Meirionnydd) (PC)
† Reynolds, Jonathan (Stalybridge and Hyde) (Lab/Co-op)
† Slaughter, Mr Andy (Hammersmith) (Lab)
† Truss, Elizabeth (South West Norfolk) (Con)
† Turner, Karl (Kingston upon Hull East) (Lab)
† Wallace, Mr Ben (Wyre and Preston North) (Con)
Watts, Mr Dave (St Helens North) (Lab)
† Wright, Jeremy (Lord Commissioner of Her Majesty's Treasury)
Kate Emms, Committee Clerk
† attended the Committee
Public Bill Committee
Tuesday 13 September 2011
(Morning)
[Mr Philip Hollobone in the Chair]
Legal Aid, Sentencing and Punishment of Offenders Bill
Written evidence to be reported to the House
LA 86 Firstassist Legal Expenses Insurance Ltd (“FLEIL”)
LA 89 Centre for Mental Health
LA 93 Manley Turnbull Solicitors
Clause 41
Conditional fee agreements: success fees
10.30 am
Kate Green (Stretford and Urmston) (Lab): I beg to move amendment 192, in clause 41, page 29, line 21, at end insert—
‘(2A) After subsection (7) of that section insert—
(8) The Lord Chancellor may by order prescribe that section 58(4A) and (4B) and subsection (6) above shall not apply to any conditional fee agreement where all of the following conditions are met—
(a) the proceedings include a claim by an individual or group of individuals for damages in tort/delict or breach of contract;
(b) the damage is alleged to have occurred in a developing country;
(c) a judge of the High Court has certified (whether before or after the commencement of court proceedings), that—
(i) the proposed litigation raises issues which ought, in the interests of justice, to be considered by a court in England or Wales;
(ii) the resources of the proposed claimant or claimants are significantly less than those of the proposed defendant or defendants; and
(iii) absent the provisions of this subsection there would be a significant risk that the proposed claimant or claimants would be unable to secure effective legal representation in England or Wales.
(9) In subsection (8) ‘developing country’ means a country whose per capita gross national income was less than 50 per cent. of the per capita gross national income of the United Kingdom in the year (or if more than one year, the first year) in which the relevant tort is alleged to have been committed.”.
(2B) In section 120(4) of that Act (regulations and orders subject to parliamentary approval) after the amendment made by subsection (5) of this section, insert “58A(8)”.’.
The Chair: With this it will be convenient to discuss amendment 193, in clause 43, page 30, line 31, leave out subsection (1) and insert—
‘(1) In the Courts and Legal Services Act 1990, after section 58B insert—
“58C Recovery of insurance premiums by way of costs
(1) A costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless—
(a) the party is one to whom section 58A(8) applies; or
(b) such provision is permitted by regulations under subsection (2).”’.
Kate Green: Good morning, Mr Hollobone. It is a pleasure to be back in Committee this morning under your chairmanship. The amendment would exempt business and human rights cases from the proposed changes under the Bill to conditional fee arrangement matters when United Kingdom-based multinational corporations have been challenged on actions that they have taken that have caused harm and damage to individuals in developing countries. In other words, I am referring to cases when exceptionally rich and powerful corporations have caused harm to some of the poorest and most disadvantaged people in the world.
The most famous recent such case was Trafigura with which members of the Committee will be familiar. It was debated extensively on Second Reading, when my hon. Friend the Member for Wigan (Lisa Nandy), in particular, made a powerful speech. There have been several other cases of similar ilk, and my contention is that over the years, those cases that have come to court would not have been able to do so, nor would future such cases, if the Government’s proposals proceed unamended. At present, cases involving multinationals that are being challenged by individuals in effectively what are class actions are being funded through the use of conditional fee arrangements. That follows the removal of legal aid for such cases a number of years ago.
My hon. Friend the Member for Hammersmith will be talking more fully later about the general concept of the operation of CFAs and some of our wider anxieties about the Government’s proposals, so I shall confine my remarks to the specific aspects of such arrangements as they affect human rights cases between multinationals and individuals in the developing world.
Such matters involve cases when the abuse or harm arises outside this country, usually in a developing country, but as a result of corporate actions and corporate behaviour when the corporation in question is either a UK company or part of a multinational organisation where oversight and control rest ultimately with a UK parent. It is therefore appropriate that actions should be brought in the UK courts. Class action cases being brought back home to the UK jurisdiction are evidence of a trend that can also be seen in several other countries. In the United States in particular, a substantial number of similar cases have begun to be seen in the courts. They have also been seen in Europe. Similar cases are being brought in France, Germany and the Netherlands, as they are increasingly in Canada and Austria.
Mr Andy Slaughter (Hammersmith) (Lab): I do not want to pre-empt what my hon. Friend is about to say, but there is the Alien Tort Claims Act in the United
States, which is why there is specific provision there. In other jurisdictions, including the UK, such cases are developing gradually. They are still at the beginning stage of development and my research shows that no more than a dozen have been brought. We are talking not about a proliferation of law in such matters at the moment, but of development over the period since they first came into the courts 20 years ago.Kate Green: My hon. Friend is right. As he says, cases in the US have been brought under the US Alien Tort Claims Act, and different routes to justice have been followed in some of the other jurisdictions I mentioned; for example, actions in France have been taken in part through the criminal legal system, although there is a private action element to such cases. My hon. Friend is right to highlight the point that despite the underlying global trend to secure justice for very poor people in the countries and jurisdictions where control of behaviours is ultimately exercised, very few such cases come to the UK courts. It would be wrong, therefore, to characterise the trend as an instance of conditional fee arrangements leading to the out of control swamping of our legal system by unmeritorious cases—jurisdiction shopping—coming to the UK without any basis to do so. As I hope I can demonstrate to members of the Committee this morning, that is absolutely not the case.
To ensure that such cases can continue to come to the UK courts when appropriate, amendment 192 makes a number of proposals that would vary elements of the Bill as proposed by the Government. First, it proposes that the Lord Chancellor should be endowed with a power to exempt by order certain conditional fee arrangements from the new provisions, specifically those limiting the success fee to 25% of the damages recovered and those prohibiting recovery of the success fee from the opposing party, the defendant in the case.
I stress that the amendment creates only a future power for the Lord Chancellor to make an exception. It would not introduce an exception in every case and with immediate effect. I hope that will give the Minister and his ministerial colleagues the opportunity to reflect in detail on how the amendment could be adopted in a way that is fair and secures access to justice for the poorest. I hope that breathing space will be taken advantage of.
The potential exception proposed in the amendment is limited to cases that include claims brought by individuals in tort. It would not apply to businesses making claims against other businesses and to commercial disputes. The amendment is aimed at the imbalance of power and the inequality of bargaining position between poor individuals and the large multinationals that they might seek to proceed against.
Mr Slaughter: I might be stating the obvious, but a theme of this group of amendments will be inequality of arms. It is good that we start with this pair of amendments, because there can be no greater disparity than between people from the developing world living in the most basic circumstances and the most powerful corporations in the world.
Kate Green: My hon. Friend makes absolutely the right point. If there is concern that we would see better-off individuals who could rely on actions in their own countries being tempted to bring such cases to
court, the amendment suggests a further limitation that torts must occur where the damage has taken place in a developing country. The amendment defines a developing country with reference to per capita gross national income. I have not made up that definition; it is used by the World Bank. I accept that that could bring in a number of countries in eastern Europe as well as in Africa, Asia and south America, so I am certainly open to considering other definitions of “developing country” if Minsters want to put forward alternatives. None the less, we are all clear that, as my hon. Friend said, we are talking about some of the poorest people in the poorest countries in the world.The exception would be further limited to cases certified as appropriate by a High Court judge. Those cases could not reach court without going through the preliminary hurdle of a judge verifying that it was appropriate for them to be heard in the UK. The judge’s criterion would be that the proceedings should be considered by a court in England or Wales to be in the interests of justice. That would exclude weak cases, because we do not think it right in the interests of justice that such cases should go to court. It would exclude cases without adequate links to the UK jurisdiction. I am not suggesting that every activity undertaken in a developing country by a multinational with a UK base or UK interests has to come back to the UK; a clear link to the UK parent would have to be demonstrated if such cases were to be heard here. It would also exclude cases involving very low-level complaints, because it is clearly inappropriate for civil cases to be heard in court if the subject matter is trifling.
We would also expect the judge to apply a criterion relating to the disparity of resources between the claimant and the defendant, to which my hon. Friend has just alluded. The exception would be reserved for cases where claimants are weak and defendants are strong. Of course, the reality is that defendants would probably be sued only if they were substantial concerns, as otherwise the ability to give effect to the judgment and to award damages would be worthless.
Cases would be able to come to the UK courts only if, in the absence of the ordinary rules on success fees, the claimants would be at significant risk of being unable to secure effective legal representation. Claimants would qualify for the exception only if they could show that an apparently meritorious claim would be stifled if it was impossible to recover a success fee.
The concept of certification by a High Court judge may seem an extra procedural and bureaucratic hurdle to put in the way of such cases and therefore likely to cause additional cost. I recognise that, but as I have said, such cases are serious, significant, and few and far between. An example of the concept of certification by a High Court judge is in domestic cases where such factors pertain and it is important that cases are brought to justice. In that respect, the amendment is based on the tried and tested position in public law cases; for example, for judicial review. In that instance, cases brought in the public interest that might otherwise be stifled by the risk of having to pay costs to a successful defendant can be subject to a pre-emptive order by a High Court judge either preventing the defendant from recovering any costs or limiting the defendant to recovering a specified sum that the claimant could afford to pay.
Hon. Members will be familiar with those protective costs orders and will have seen them applied in judicial review in UK courts.In effect, amendment 192 would provide that a High Court judge may allow a success fee to be recovered if that is the only realistic way to bring a claim in cases involving multinational corporations, where it is in the interests of justice to bring such cases to court. Similarly, amendment 193, which I shall say more about, would protect the recoverability of after the event insurance premiums in those cases.
The amendments enjoy support from several important organisations and development charities concerned with the well-being of people in the poorest countries in the world. I am grateful for the support of CAFOD—the Catholic Agency for Overseas Development—Traidcraft, Oxfam, Amnesty International, Friends of the Earth and CORE, the corporate responsibility body. As hon. Members may have seen, some of those organisations joined together yesterday to write to The Guardian expressing their concerns about the Government’s proposals. I am also grateful to Martyn Day of Leigh Day & Co. solicitors, which has been the leading firm in the UK taking such cases in recent years, and to Ben Williams, of Thirty Nine Essex Street chambers, who has provided me and, I am sure, other Committee members with a helpful briefing.
10.45 am
All those individuals and organisations say clearly that, if the amendments I propose are not made, it will be impossible to bring cases involving multinational corporations and human rights abuses overseas to courts in future. That will be of real concern to all hon. Members, who are anxious about our obligations to some of the poorest people in the world. I was pleased to note that the Lord Chancellor appeared to be listening with particular attention during the excellent speech made by my hon. Friend the Member for Wigan on Second Reading; I hope that means he will think carefully about possible solutions to improve the Bill’s operation. I am also aware that human rights around the world has been a long-standing concern to many Liberal Democrat colleagues—and rightly so. They have spoken up courageously many times about the importance of protecting individuals against human rights abuses by large organisations, so they will share my concerns.
It is very important that we protect access to justice in the UK in such cases; it shames this country if we do not. We in the UK should aspire to and achieve the highest standards of corporate governance for UK-owned and controlled multinational corporations, not only for the obvious ethical reasons that go with such behaviour, but in the interests of business fairness. It is right to reward good behaviour by corporations and to penalise bad behaviour; not to do so creates an imbalance between those organisations that abide by corporate responsibilities and those that do not. It gives unfair business advantage to the unscrupulous, which cannot be in the interests of good commerce.
As I have said, it is important that we offer access to justice when people have suffered real harm. Such people must be able to bring their cases to the UK courts and to access UK law in pursuing their claims for compensation,
because of the significantly stronger protections and general propriety and integrity of the UK justice system. Such cases and the harm caused are shocking. In the Trafigura case, as hon. Members will know, some 100,000 people in Ivory Coast, which is one of the poorest countries in the world, suffered from the dumping of toxic waste on their doorstep—their coastline—with no regard for their well-being, health and quality of life. It must be possible for those who suffer such harm to challenge the dismissive and arrogant attitudes of those who cause it. In that instance, I am pleased to say, a substantial settlement of more than $150 million was—[ Interruption. ]Mr Ben Wallace (Wyre and Preston North) (Con): What are the costs?
Kate Green: I am coming to the costs and why it is important that we have conditional fee arrangements to meet them. The point is that for people in Ivory Coast, $152 million is a substantial sum of money. It is important that they can come to the UK courts to get those meaningful levels of compensation, although, as I shall describe shortly, some limitations have affected the levels of the compensation that they can achieve. If the hon. Gentleman is trying to suggest that people who are already the most vulnerable should not be able to claim legitimate compensation because it costs a lot of money, I am shocked. That is an unethical and disappointing position for him to take.
Mr Slaughter: I am looking forward to hearing Government Members defend Trafigura and other companies. Perhaps before they rise to do that, they will reflect on the fact that costs accrue in the period up to and including trial, as much because of the attitude of defendants because of as the attitude of claimants. Had Trafigura thought about its responsibilities, rather than how to get a super-injunction, costs may not have been as high.
Kate Green: I am grateful to my hon. Friend, who makes in temperate tones an important point that was deeply felt by all of us.
I will allude to another such case, which may bring home the depth of the outrage and abuse that we are talking about. In the Monterrico case in Peru in 2005, a multinational corporation, through its local security company, in an attempt to drive away farmers who were seeking to defend their land and prevent the development of mining activity, subjected some of those very poor farmers to beatings and sexual assaults, and held them captive and subject to hooding. That was a fundamental abuse of their human rights, so it is right that they were able to bring their case to court and in due course received a substantial out of court settlement. We are talking about significant abuse and a huge imbalance of power. It is essential that people are able to take those cases to court to seek redress.
Mr Wallace: I beg your patience for breaking the convention and rising to speak, Mr Hollobone, but the hon. Lady made a point to me in response to a sedentary comment. I share her outrage at what the people of the Ivory Coast suffered at the hands of a corporation, but does she not agree that the issue is not the damages
but the success fee that the legal team could have, had they felt equal outrage, shared with the victims in the Ivory Coast? They did not, so the question is: why did the legal team not match our outrage and share some of that success fee with the victims?Kate Green: The hon. Gentleman makes a good point. I want to discuss why the success fee as proposed by the Government simply could not be shared in the way he suggests and still allow those cases to come to court. He will, I am sure, listen to what I say and intervene if he feels that there are gaps in my argument. I take his point of principle. As my speech unfolds, I hope he will come to understand that if the success fee is shared in the way he suggests, those cases probably could not come to court.
Mr Slaughter: As my hon. Friend has said that she will explain to the hon. Gentleman how success fees work, I will not attempt to do so. If the Government’s principal concern is the level of cost being paid to claimant’s solicitors in such cases, there is a simple way to reduce costs overnight: they could restore legal aid. As Lord Justice Jackson would say, that would the most efficient and cheapest way of doing that. I do not know whether that is what the hon. Gentleman is proposing.
Kate Green: My hon. Friend is a lawyer, so it is unsurprising that he is able to come up with yet another variant on the argument, which I had not thought of. I am sure that Ministers will consider it.
I will say a little more about the moral context before I go on to success fees, after the event insurance premiums and so on, because that is the meat of the amendment and hon. Members are anxious to address it. In 2005, John Ruggie, the UN Special Representative for Business and Human Rights, produced a framework that I think provides the governing principles under which these cases should come to court and the UK’s obligations in relation to them. The framework imposes a duty on Governments to protect the human rights of individuals against third parties, including business; creates a responsibility on business to protect human rights; and requires that Governments secure the existence of adequate legal mechanisms to provide a remedy for individuals whose rights are harmed.
It is to the credit of the UK Government that they accept the importance of the framework and the international human rights obligations on our country that arise from it. I am pleased that they endorsed the protection, responsibility and remedy framework as recently as June this year at the Human Rights Council in Geneva, where the Government reaffirmed their commitment to implementing the guiding principles that accompany that framework, including principle 26, which states:
“States should take appropriate steps to ensure the effectiveness of domestic judicial mechanisms when addressing human rights-related claims against business, including considering ways to reduce legal, practical and other relevant barriers that could lead to a denial of access to remedy.”
Although the UK Government have confirmed their support for provision of access to legal remedies in such circumstances, the proposals in the Bill will prevent such cases from going ahead, in breach of those international obligations. To understand why, it is important
that we understand the drivers of cost, as I think the hon. Member for Wyre and Preston North suggested, how such costs are currently funded and shared, and the impact of the proposed changes.Such cases are inevitably costly and complex, for a number of reasons. First, there are logistical factors that drive up the costs—the victims and the evidence that needs to be gathered are overseas, so it costs extra to collect the information required and to bring the case fully prepared to court. The fact that the claims are usually against the UK parent company rather than the operating subsidiary means that claimants need to overcome the corporate veil obstacle and investigate any relationships that may exist between various entities within the multinational conglomerate. Although that was not the case for Trafigura, it often is when large multinational groups are involved. That adds a further level of complexity and cost.
The financial and reputational implications for multinational corporations challenged in such cases are absolutely huge, so they inevitably and understandably instruct the best, top-quality international lawyers, who are not cheap. They rightly, on behalf of their clients, seek to unpeg each element of the claimants’ case, so a high number of procedural and substantive challenges and diversions is therefore possible as a case proceeds. The evidence is likely to be technically complex, often involving and requiring highly specialist expert reports in a range of professional fields—engineering, environmental science, chemistry and medicine.
To have any prospect of securing justice for victims in such cases, claimants’ lawyers will need to allocate substantial resources to them—comparable, or at as comparable as they can achieve, to those deployed by the lawyers for the multinational corporation. It is important to note there is a high level of public interest in such cases coming to court, so while I accept that they are not low-cost cases—quite the opposite—it is exceptionally important that such cases can proceed. Because legal aid is no longer available for such cases, most are now funded through conditional fee agreements, under which claimant lawyers are paid only if they win. The model enables a slightly more level playing between the victims of human rights violations, who are often poor, and multimillion-dollar corporations, but it also means that claimants’ lawyers shoulder a significant financial burden before the case is resolved and face the risk of losing all costs if the case is unsuccessful. It is in recognition of those risks that claimants’ lawyers have been allowed to charge success fees—an uplift on their standard fees that is recoverable from the multinational corporation if the case is successful.
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Mr Slaughter: Where the defendant is a multinational company, it goes without saying that it has very large resources. If we look at the American experience—we are behind America, so this is useful—such corporations do not only exert their resources in a conventional way, but they use money and the court system in America, which is somewhat notorious from films and from what we read, in a deliberate tactic to stretch the resources of and to exhaust the claimant simply by making repeated applications, dragging out the time and extending the litigation as far as possible.
Kate Green: My hon. Friend is right. When we talk about the cost of such cases being driven up, it is important that we look at the behaviour of the lawyers of all parties in conducting the cases and implications of that for the ultimate costs.
Such cases bring significant risks of complexity, uncertainty and financial outlay such that the success fee is often set at 100% if that accurately reflects the risks of taking the case. However, it is important to note that the success fee need not be 100% in all cases; the court, when it assesses costs at the conclusion of the case, can reduce it.
Mr Slaughter: The 100% success fee is not set in stone. As my hon. Friend has said, it can be reduced by the court, and often it is not 100%. Equally, the reason for having the 100% success fee—I will not defend it when I speak—is that it is a major incentive to defendants to settle early, when they should do so. That is what many other provisions, including those being introduced in part 2 of the Bill, aim to do.
Kate Green: My hon. Friend is right. Another argument for the success fees would be to bring cases to a swifter and an agreed conclusion, so bringing down the costs.
Costs are driven by several factors, including the fact that the cases are costly to bring, that lawyers have to bear the risks and the associated costs while the cases proceed and that there is clearly a huge imbalance in the ability of the parties to meet the costs. As my hon. Friend has said, we should look at the operation of success fees in the round to ensure access to justice in what is only a small minority of cases.
The Parliamentary Under-Secretary of State for Justice (Mr Jonathan Djanogly): The hon. Lady would do well to consider why success fees are so often set at 100%. They do not have to be; they can be negotiated down by the claimant, but the reality is that they never are, because we have a system in which the claimant has no interest in the amount that they pay to the lawyer, and that is the system that we need to change.
Kate Green: I am aghast at what the Minister says, as though success fees are driven up by poor claimants represented by largely public interest lawyers who ultimately make very little money out of such cases. They start work on a number of cases that never come to court—they simply identify those that are not too difficult to take forward—for which there is never an agreed settlement and for which they receive no fees whatsoever. The success fee enables them to take the very small number of meritorious and likely to be effective cases through the courts to redress the imbalance of power between a very well funded multinational and a very poorly funded claimant. As he rightly says, the success fee need not be 100%, but there is an imbalance of power in negotiations on it. If the court felt that success fees were so unfairly weighted to the claimant, it could take the opportunity to reduce them. It is important that the Minister considers why that does not happen and whether the fees are, in fact, an accurate and fair reflection of the risks borne by the claimant.
Cases might last for years, requiring the deployment of substantial resources and expense, which claimants’ lawyers have to carry for the whole duration of the case, with the attendant financial and cash-flow burden that
that brings. The disbursements involved in such cases are usually exceptionally high, often running to hundreds of thousands of pounds, sometimes millions. It is therefore important to note the development of after the event insurance, which is a market response to cater for such risk and which serves to reassure usually very poor claimants that they can pay their costs if the claim is successfully defended.Firstassist Legal Expenses pointed out that even where such insurance is in place, defendants may seek to increase the costs or try to seek security for the costs, which is a further barrier to a poor claimant bringing forward a claim. They might argue that after the event insurance cannot be relied upon; that the policy will be voided by the actions of the claimant and the insurer will seek to wriggle out of the obligation; or that it is not set at a sufficient level, although in practice that is rare. Claimants could seek a cost-capping order themselves, but as the case proceeds defendants often seek to challenge such orders and try to have them revised.
The combination of success fees and after the event insurance offers the only way to even up the imbalance of power and enable cases to proceed. The Government’s proposals would undermine the effectiveness of the approach that has evolved and result in cases being kept out of court. The non-recoverability of success fees in jurisdictions such as Australia and South Africa, where they are not allowed, has shown that in such jurisdictions the cases virtually never come to court. If success fees are capped at 25%, as the Government propose—I think the Minister sought to address that point a moment ago—in the majority of cases that will prove to be insufficient to meet the risks and costs of proceeding with cases. It is not that the costs are being unnecessarily driven up and that the success fee is a driver of high levels of costs. The costs are endemic to the nature of such cases, and a cap of 25% on a success fee would mean that the costs were not adequately covered by the success fee.
It is also right to note that the compensation secured by victims is often too low to meet the success fee. For example, when having regard to compensation and the loss that the victim has suffered, the monetary value of such loss will be lower in a poorer country and the value of compensation reduced. That combination—the triple whammy of non-recoverability of after the event insurance premiums, non-recoverability of success fees from a defendant and the capping of them at 25%, and non-recoverability of basic costs to the extent that they fail the proportionality test—would make it impossible for cases to proceed.
The success fee cap and the limitations that Ministers propose will bear especially harshly on victims if compensation is—as it often is—less than the amount of the costs incurred. The disparity between compensation and costs in multinational human rights cases has become worse as a result of the Rome II regulation 864/2007 coming into force. The effect of articles 4 and 15 is that compensation will usually be assessed in accordance with local law, which in the case of developing countries will invariably be significantly lower than compensation awarded by a UK court. Previously, the House of Lords in Harding v. Wealands had held that assessment of compensation would be assessed in accordance with English procedure. However, Rome II will completely undermine any prospect of recovering success fees from
claimants’ compensation in multinational human rights cases. The effect of Rome II is even more serious in relation to the proposed changes to the principle of proportionality, which I will say a little about.I think I am right in saying that Ministers propose to increase the level of general damages by 10% to ameliorate some of the adverse effect of the non-recoverability of success fees from defendants. The problem with that is that the disparity between costs and compensation common in such cases is such that such an increase would not be anywhere near sufficient to rectify the position in the vast majority of cases. It is also difficult to quantify what the damages would have been and so what would constitute a 10% uplift. There is no objective figure that we can say would have been the position and would be the extent to which a 10% uplift would improve matters.
Mr Slaughter: That is another point that we need to develop as the day goes on. A 10% uplift sounds good, but there is nothing in the Bill about it; it will be dealt with elsewhere. The mechanisms for doing that have to be absolutely clear and transparent so that there will be a 10% uplift on whatever the sum is. I hope that the Minister will address that when he has the opportunity, because we do not have anything on that at the moment.
Kate Green: My hon. Friend is absolutely right. As he says, we will discuss the subject in other contexts later today.
We have a situation where success fees are set at a level that enables cases to come to court and are recovered from defendants, without which it would be impossible for claimants to take the risk of bringing such cases. Already, only a tiny number of legal firms are prepared to take such cases, and without the availability of success fees, I suspect that there would be no market, and no lawyer would be willing to take such cases.
Mr Robert Buckland (South Swindon) (Con): I want to develop the point raised by the hon. Member for Hammersmith regarding the mechanism by which a 10% uplift would be applied. That may well be amplified later, but I would have thought that any court dealing with that would first assess the level of damages. For example, if the case was about personal injury, the court would take guidelines, look at the type of injury, assess the level of damages according to those guidelines, and then impose a 10% increase. I suppose an analogy is that when a criminal court comes to a view of passing, say, a three-year sentence, it applies the discount of one third for a guilty plea. The Minister may be able to help us, but that is how I think it would work in practice.
Kate Green: I am grateful to the hon. Gentleman, and I am sure that the Minister will be grateful for that description, which I understand. The difficulty is that many cases do not reach the point where damages are settled by the court but are resolved through negotiations. It is therefore difficult to know whether an extra element has been built in to cover the earlier costs of bringing those cases to settlement. The other difficulty is that in any event, even with a 10% uplift, the compensation may still be insufficient to meet the costs of bringing the cases.
Mr Slaughter: The hon. Member for South Swindon has just illustrated my point. That is not how I envisage it being done. There are several other ways in which it could be done—for example by adjusting the Judicial Studies Board guidelines, so that there are new levels and so that we know what the enhanced levels are. That has been done before, during a review of general damages. The onus could be put on the parties, if they come with a negotiation settlement, or in submissions to say, “This is where we are, and this is where we will be with 10%.” Or it could be simply be, as my hon. Friend the Member for Stretford and Urmston says, a matter for negotiation. One just has to assume that that has been incorporated. That is four ways to do it. Perhaps the Minister will tell us which one it will be.
Kate Green: The Bill offers a field day for lawyers. It is clear that they are enjoying applying their minds to the various possibilities for effecting the Government’s intentions and the intentions of my amendment. We seem to be going down a number of potentially blind and complicated alleys to identify ways in which the outcome that I seek could be achieved, which do not look any less complex or costly than the application of success fees, particularly if, as is the case, it is at least possible that success fees could be reduced by the court from their inappropriate level of 100%.
11.15 am
Mr Buckland: I read the amendment with great care and interest, and I have a lot of sympathy for the excellent points that the hon. Lady has raised about the challenges faced in litigation involving developing countries. She mentioned the Trafigura case, and all of us in the House share her great concern about it.
I note with interest the wording of amendment 192. Proposed new sections 58(8)(a) and (b) of the Courts and Legal Services Act 1990 say that proceedings would
“include a claim by an individual or group of individuals for damages in tort/delict”—
“the damage is alleged to have occurred in a developing country”.
I certainly understand “damages” in the context of tort, but I am not clear about how a breach of contract would be interpreted, because a breach of contract could take place here in the UK. I am not sure that “damages” relate faithfully to the concept of breach of contract. My worry is that issues could arise about the venue and the place where the breach occurs. Although the sentiments behind the amendment are admirable, I am not sure that it has been carefully worded.
Kate Green: I am very grateful to the hon. Gentleman. He has raised an important point. Had I had the benefit of his advice before I drafted the amendment, I would have understood his worries about the provision being unworkable. I accept the argument about where a contract is to be in force, where its effect applies and whether there is associated and additional damage for which there might be a legal possibility of achieving compensation in addition to the element of contractual loss. I accept that they would add extra complexities in such cases, which, perhaps rather naively, I had not fully worked through with my amendment.
In the light of that helpful and informative comments, I hope that the Minister will tell us how he thinks such issues could be dealt with in the context of improving the Bill to achieve the outcome that both the hon. Gentleman and I—and I hope the Minister and others—want to achieve. We want at least to ensure the possibility of bringing meritorious cases, so that in a tiny number of circumstances where significant damage is suffered by some of the poorest at the hands of some of the richest, those cases can come to the UK courts. I am grateful to the hon. Gentleman for his helpful intervention.
Time is pressing, so I shall make some progress. I want to say a little more about after the event insurance premiums. The Bill proposes that after the event premiums would not generally be recoverable from defendants in such cases. There is a contrast to be drawn with the proposals that Ministers are bringing forward in respect of clinical negligence cases, where I understand they intend to exempt the exclusion of after the event insurance premiums. If that is true, it is welcome and would recognise the specialist and costly expert evidence that is required in many clinical negligence cases. However, as I have been trying to explain, multinational human rights cases often require equally specialist and costly expert evidence. To meet those costs, claimants in such cases will still need to obtain after the event cover. The magnitude of after the event premiums is such that unless they are recoverable from multinational corporations, claimant firms will be deterred from taking such cases on, further undermining the viability of the claims.
Finally, let me say something about proportionality. The Government indicated in their response to Lord Justice Jackson’s proposals that a new test of proportionality would be introduced to assess the recoverability of base costs, replacing the existing test, whereby a court may still award base costs that are disproportionate to the compensation awarded, provided that such costs were necessary to the success of the claim. I accept that this issue is not raised in the Bill, but I should be grateful if the Minister would clarify the Government’s intentions. Are changes expected to the provisions on proportionality and base costs, and if so, might they be effected through changes to court rules or through regulations?
As I have said, costs in multinational cases invariably exceed the compensation awarded, yet those costs should still be regarded as proportionate, on the grounds of complexity and the importance of the litigation or because the additional costs were generated by the conduct of the defendant—the specific let-out that Lord Justice Jackson proposed. However, when it comes to the assessment of costs, multinationals will always argue that the recoverable costs should be limited to the level of compensation awarded and that factors of importance and complexity should not be applied for the benefit of claimants.
As a result, claimants’ lawyers will face the prospect of investing enormous amounts of time, money and resources without knowing whether they will recover anything more than a fraction of the costs, even if a case is successful. Consequently, if implemented without the let-out clause proposed by Lord Justice Jackson, this proposal would constitute a strong disincentive against claimants’ lawyers taking on such cases. Claims on behalf of victims in the developing world, where
compensation levels are already generally much lower owing to the Rome II regulation, would become almost impossible to litigate under the new test. Very early on in the case, legal costs would surpass the levels of compensation achievable, thus becoming potentially disproportionate. That would be a further disincentive to claimants’ lawyers taking on such cases. Claimants from the developing world would be particularly disadvantaged.In the current context, where already, only a tiny handful of lawyers are able and prepared to take on such cases—because of the high risk, the uncertain prospects of success, the uncertain duration of such cases, which could be long, and the high level of resources needed to run them effectively, all of which will put significant pressure on the legal firm’s cash flow, even if the case is eventually won—the Bill’s overall impact is likely to worsen the position, which means that no lawyer in this country will be able to take on such cases in future. Leigh Day has said that it could not, morally or practically, take after the event costs and success fees out of compensation paid to poor and vulnerable victims, and that success fees would be insufficient at 25% to cover the risks of taking such cases. The conclusion is that access to justice for those in developing countries in our courts would be removed.
Tom Brake (Carshalton and Wallington) (LD): Like the hon. Member for South Swindon, I have some sympathy for what the hon. Lady says, but does she acknowledge that there are other ways that the Government can tackle some of those issues, such as by trying to stop some of the abuses at source? The measures to tackle corruption in the extractives industry are a good way of trying to pre-empt the need for legal cases.
Kate Green: I totally agree with the right hon. Gentleman, but we have to accept that we also need an ultimate legal sanction—access to law—which drives good corporate behaviour just as it drives good individual behaviour. Although we hope that the measures that he proposes could reduce the need for such litigation, we all have to accept that it will never disappear.
Mr Slaughter: The right hon. Member for Carshalton and Wallington makes a good point and we all agree that that needs to be done. However, as we will find when we look at areas of law such as criminal negligence, the stick—the long-stop of litigation—and the example that cases such as Trafigura set are a good encouragement to multinational companies to put their houses in order. The other factor that we should bear in mind—this is why the issue is particularly pertinent—is that we are talking about British-based firms and that is why they are being sued here.
Kate Green: I agree with my hon. Friend, and as the trend of such actions being facilitated in courts in other jurisdictions around the world increases, we do not want to go in the opposite direction either. It would be to the shame of this country if we sought to restrict access to justice in our courts in such cases as other jurisdictions sought to open it up.
In conclusion—you will be glad to hear that I really am drawing my remarks to a close, Mr Hollobone—the consequence of the Government’s proposals, if unamended, would be that only the strongest and most straightforward
cases would be able to go ahead, and those cases would be few and far between. Defendants would put more pressure on claimants to settle—and to settle for less—rather than claimants risking costs that might not be recoverable even if they win. I have done my best in drafting the amendments to put tight constraints on when success fees and after the event costs could be recovered, and to put constraints on the nature of such cases. However, I accept that the detailed drafting of the amendment could be improved, as the hon. Member for South Swindon rightly pointed out. If the Minister takes on board the spirit of the amendment today but comes up with more tightly drawn proposals later, I should be interested to hear them.It is important to note that my proposals would not cost a penny to the public purse—the costs would be borne in the industry—nor are they anything to do with an out-of-control compensation culture. That idea has already been discredited thanks to the work of Lord Young: it is certainly not the case that poor and vulnerable people in far-away countries are ambulance-chasing through the UK courts. Also, if anyone is concerned that tightening up our jurisdiction and allowing such meritorious cases to come to our courts will drive multinationals away from doing business or basing themselves in the UK—that concern has not been raised, but it might be in someone’s mind—I should say that those jurisdictional battles were fought a decade or so ago, and they seem to have made no difference to the willingness of multinationals to base themselves here.
To conclude, the amendments go to the heart of driving the good corporate governance and behaviour to which my hon. Friend the Member for Hammersmith referred. Most importantly, they go to the heart of our moral responsibility as global citizens to provide justice and protection from the strongest and the richest for the some of the poorest people in the world.
Mr Slaughter: It is a pleasure to see you chairing our proceedings again, Mr Hollobone.
My hon. Friend the Member for Stretford and Urmston should not apologise for the length of time that she has taken, because every word was relevant and she has addressed an important topic. I praise her for the amendment’s drafting, notwithstanding the interesting debate that she had with the hon. Member for South Swindon. It is much better than my amendments, which we shall debate shortly, because it is much more explicit and goes into detail. I do not need to go into such great detail, but I shall make one or two comments. As my hon. Friend indicated, I shall make some general remarks on our approach to part 2 and what is wrong with the Government’s approach when I speak about my amendments in the next group, but for now I shall address amendments 192 and 193.
The matter of proportionality is raised, which the Government might think is the easiest to sell. It is good for proportionality to be discussed at an early stage, because prima facie costs should not be excessive—they should not be greater than damages. Most men or women in the street will find the prospect of lawyers raking in money while meritorious claimants or defendants are financially limited obnoxious. The Minister has built his case against CFAs partly on that basis, which we shall discuss shortly.
Proportionality is not always an infallible doctrine, however, as in Trafigura-style cases, to use the shorthand. My hon. Friend has described the view on both sides. The defendants are organisations with deep pockets that are keen—for their financial or reputational benefit—to maintain that they are not liable, even when they clearly are. As I have mentioned in interventions, it is not beyond such organisations—particularly those in US, but also those here or in other jurisdictions—to manipulate the justice system by drawing out and delaying proceedings in the hope that the claimant runs out of money, patience or time.
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Claimants are often likely to be impecunious people. My hon. Friend the Member for Stretford and Urmston mentioned Rome II, and since 2009—contrary to the previous practice of the British courts, but this is now binding—in such cases, damages are likely to be based on an assessment of what is appropriate for the particular circumstances of the claimants. Therefore, for a group of miners in Peru or a group of fishermen or villagers in west Africa, damages will not be of the same order as for claimants recovering general or special damages in the UK, even given the criticism of the value of general damages in the UK, which we will discuss later.
In that situation, particularly if it will not be permitted for ATE premiums to be recovered from defendants, two consequences might result. First, costs will inevitably be higher than damages in some cases, and the Government will have to state whether that means that none of those cases should go ahead. Clearly, not only do claimants have a moral and legal right but, as the right hon. Member for Carshalton and Wallington mentioned, the importance of those cases goes way beyond their significance to the individual claimants, even in multi-party actions, because corporations—they sometimes have the resources of small states—will be held to account, and there is therefore a wider public interest.
Should the Government’s proposals go ahead, the second consequence is that if such cases go to court—lawyers are strongly arguing that they will not, and that there is simply no possibility of claimants’ lawyers funding those cases—and claimants win, the success fee costs or the ATE premiums will be greater than the damages awarded in almost every case. The Government’s solution to what they see as abuses is therefore nonsense, particularly in such cases.
We have international obligations. I pay tribute to colleagues at the Department for International Development for having maintained through difficult financial times a role in the international community in our trying not just to do our bit, but to give some leadership on aid to developing countries. It would be good if other developed countries showed the same attitude as the previous Government showed and which, I hope, this Government will continue to show. Those are international obligations, and we should be just as proud of our civil justice system as we are of what we give in international aid.
The good amendment of my hon. Friend the Member for Stretford and Urmston closely prescribes the circumstances in which the success fees would apply. It gives a great deal of discretion and provides several hurdles that claimants must overcome to take such cases to court, apart from such obvious difficulties as the complexity of the cases and the difficulties, which we have heard about, of dealing with that kind of client.
Given all that, I am sure that the Government accept that we should take pride in the ability of our justice system. We do not have the US legislation that makes specific provision, but we have a well-established and developed law of tort, which provides for such cases and evolves in the way that common law often does. It is regarded as an example internationally. There are cases in Canada and other common law jurisdictions. There are also cases in Europe, although I think they are more likely to be based on breach of regulations or contractual disputes rather than on tort. To that extent, we are leading the way outside the US.
Now, because of Government proposals, we have had an about-face and the UK is being criticised. My hon. Friend mentioned the letter from the Special Representative of the Secretary-General for Business and Human Rights that was published in the press earlier this year. I know the Government will take it very seriously, because of what it states. Whereas:
“The Government’s response includes the understandable aims of ‘seeking to reduce the unfair costs suffered by the many businesses, individuals and other organizations…’…Three related aspects of the proposed reforms could, when implemented together, constitute a significant barrier to legitimate business-related human rights claims being brought before UK courts in situations where alternative sources of remedy are unavailable. They are: abolishing the recoverability of the Conditional Fee Agreement (CFA) success fee from the losing side; abolishing recoverability of ‘after the event’ (ATE) insurance premiums in non-personal injury cases; and introducing a new test of proportionality in costs assessment.”
I hope the Minister will give the amendment the attention it deserves and answer it in detail. I hope that in doing so he will deal with the point that the commissioner has raised and also deal with criticisms from the Committee on the Elimination of Racial Discrimination:
“the Committee encourages the State party to take appropriate legislative and administrative measures to ensure that acts of transnational corporations registered in the State party comply with the provisions of the Convention. In this regard, the Committee recommends that the State party should ensure that no obstacles are introduced in the law that prevent the holding of such transnational corporations accountable in the State party’s courts when such violations are committed outside the State party. The Committee reminds the State party to sensitize corporations registered in its territory of their social responsibilities in the places where they operate.”
Allowing for the international language, with which we all struggle, I think that what is being said is very clear. International organisations, to which we are party and to which I hope the Government will have regard, are seriously worried about the effects of the proposed legislation on cases of this kind.
In the UN Special Representative’s letter, a reference was made to concessions in personal injury cases in relation to ATE insurance—perhaps a slight misunderstanding—but there are concessions in relation to clinical negligence. I hope that the Minister will clarify or at least give an indication of what the regulations are likely to say about what precisely is being exempted. We know that the Government have considered the matter and that it will be near impossible to get clinical negligence cases into court without some provision being made for recovering ATE costs. We will come on to the practicalities of that.
What is different in such cases? The ATE market is more developed now than it was 10 years ago, which allows some cases to go forward. However, even if the Government wish to cherry-pick and to say that there
are some meritorious types of claim and some less meritorious types, surely the Government should be interested in a species of negligence causing personal injuryMulti-party actions are not always founded on personal injury claims. They might be founded on environmental claims, so—the Minister can clarify matters—presumably they will fall outside the concessions under the legislation on personal injury claims, including the 10% uplift. We have talked a little about that, but even if it were absolutely clear how that will happen and what the quantum would be, it is likely, given that local circumstances would dictate the level of damages, to be a fairly nugatory sum compared with costs. Even if that applies, it is not likely to make a difference.
The hon. Member for South Swindon referred to the letter from several extremely well-respected organisations, and members of the Committee will have received briefings from the Corporate Responsibility Coalition, Amnesty, CAFOD, Friends of the Earth, Oxfam, Traidcraft and others. The Government regularly consult those organisations, greatly respect them and will want to take notice of them. It is not only the Opposition and the lawyers whom the Government think might have a vested interest in such matters, but those organisations that speak up most often for those people throughout the world who suffer, whether from natural disasters or man-made disasters caused by companies that make their profits, are registered and are responsible to legal authorities in this country. My hon. Friend the Member for Stretford and Urmston has dealt with most of what needs to be said, but will the Minister say who will benefit from the change in the law that he proposes in respect of multi-party actions against multinational companies? The answer is—it is perhaps the clearest example of all those that we will investigate today—that benefit will go to those who already have power, wealth and influence against those who do not.
I have read the Government’s consultation documents and the Minister’s statement in preparation for the Bill. The Minister maintains that both access to justice and fairness in the ability between the parties in litigation will not be affected by the Bill. I have set out the clearest possible example of when that will happen, so I ask him, as well as dealing with the issues of detail that my hon. Friend the Member for Stretford and Urmston raised, to deal with that point of principle, too. Does he accept that, if the amendments are not accepted, the ability to make multi-party claims, of which there have been no more than 10 or a dozen over the past 20 years, but which is a growing—albeit slowly—area of law, will simply disappear? It might be arguable in respect of other matters. We could be talking about cases with a 50%, 55% or 60% chance of success, what risks lawyers will be willing to take and whether the market will adapt to a contingency fee rather than a conditional fee agreement, but in such cases all those who have considered such matters and spoken about them will say that there is no prospect of such litigation continuing.
As my hon. Friend the Member for Stretford and Urmston said, the Liberal Democrat party has had a long interest in such areas of law. It is an internationalist party. I genuinely believe that it is concerned about such actions, so I will put the same question to the right hon. Member for Carshalton and Wallington: does he accept,
or is he prepared to accept, that passing the Bill unamended will mean that there will be no more Trafigura cases in the UK?11.45 am
Mr Djanogly: Good morning, Mr Hollobone. We have moved on to part 2, which deals with litigation funding and cost. Clauses 41 and 43 will amend the Courts and Legal Services Act 1990 so that success fees under a conditional fee agreement—subject to one exception, which is after the event insurance premiums—will no longer be recovered from a losing party in any proceedings. I say to the hon. Member for Hammersmith that we have nothing against CFAs per se or against developing the law of tort in that area. Our problem lies in the distortion to CFAs that took place under the last Administration.
The amendments tabled by the hon. Member for Stretford and Urmston seek to permit the Lord Chancellor, by regulation, to continue to allow the recoverability of success fees from a losing party and certain claims of damages or breach of contract where the damages are alleged to have occurred in a developing country, and in those cases, to continue to allow recoverability of ATE insurance premiums. The hon. Lady has explained that amendments 192 and 193 seek to protect the rights of individuals in developing countries to claim damages against large multinational companies. However, the amendments go much wider than that and would give such claimants an advantage over other claimants without real justification. Given the concerns that have been raised about multinational companies, I will concentrate my response on those cases.
Let me first address the hon. Member for Hammersmith, who said that the cheapest way to fund the cases would be through legal aid. Many cases that are primarily concerned with obtaining damages are excluded from the scope of the current legal aid scheme. There is a scheme for excluded cases that allows individual cases to continue to receive legal aid where, in the particular circumstances of the case, the failure to do so would be likely to result in a breach of the individual’s rights to legal aid, the Human Rights Act 1998 or European law. Claims of such type would be considered for public funding on a case-by-case basis, but Lord Justice Jackson did not recommend retaining legal aid for such cases. I should also advise the hon. Gentleman that he seems to have committed his party to some £50 million of cost to the taxpayer.
Let me also address the 10% uplift in general damages. Although the hon. Gentleman is right in saying that that is not directly relevant to the amendments, the issue was raised by various hon. Members, so let me address it here. Not all the measures in the package of reform require primary legislation. Qualified one way costs shifting and the new proportionality test will be implemented through changes to civil procedurals. The senior judiciary has agreed to look at how to take forward the increase in general damages for non-pecuniary loss, such as pain, suffering and loss of amenity in tort cases, by 10%.
Mr Slaughter: We had a little sidebar argument about the increase in damages, and I think we will come on to that later. The Minister raised the issue of cost. I have
been listening to him for about a year on the subject now, and he always says that everything, whatever it is, costs £50 million. I am at something of a loss as to how claims against multinational companies funded by a CFA would cost £50 million.Mr Djanogly: The hon. Gentleman misheard me. He referred to legal aid being the cheapest way to fund such cases. I am advising the Committee of the cost to the legal aid fund of including such cases.
Mr Slaughter: I am slightly deaf, but the Minister seems to have a strange type of hearing that manipulates everything I say into something else. The point that I was making to the hon. Member for Wyre and Preston North was not that we supported the restoration of legal aid for that, but that if that was the Government’s principal concern—that they were so concerned about claimants’ cost in such actions—that was a remedy that they could look at. It is a matter for the Minister.
Mr Djanogly: I am grateful that the hon. Gentleman made that clarification, which is important from his point of view. As the Committee might know, the Civil Justice Council is an independent body, which is chaired by the Master of the Rolls. We have asked the CJC to undertake work in three areas: the behavioural test for QOWCS, the operation of the original part 36 penalty in higher-value claims and non-money claims, and the content of a possible practice direction to support the new test of proportionality. The CJC is actively pursuing that work, with input from all key stakeholders.
Following the CJC’s preliminary work, a conference of experts on the detail of how the proposals will be implemented is to be organised by the CJC at the end of October. There will also be some secondary legislation under the Bill—which I say for completeness—specifying the cap on success fees that lawyers may deduct from the claimant’s damages in personal injury cases at 25% of damages, excluding damages for future care and loss under clause 41(2), and setting out the detail of the recovery of ATE insurance experts’ reports in clinical negligence cases under clause 43(2).
Mr Slaughter: I am grateful to the Minister for generously giving way. I always look at how many pages of notes he has, so I am not really trespassing on the time of the Committee because his answers to the points made by my hon. Friend the Member for Stretford and Urmston look embarrassingly brief.
So many regulations are to be made under the Bill that I would not expect to have them all in front of us—we had that debate a couple of weeks ago too—but on this issue I would have expected a much clearer indication from the Minister as to how the Government intend to implement their replacement for CFA. QOWCS and a 10% uplift are absolutely fundamental, yet we do not have anything.
Mr Djanogly: I have just outlined the process, but let me speak a little more about proportionality, because the hon. Member for Stretford and Urmston was as interested in what that would involve as she was in the process. The Government will introduce a new test of proportionality to recoverable costs and a new definition of proportionality. The requirement would be, first, to assess the reasonableness of the work done item by item; the court would then only consider the proportionality
of the resulting total amount in accordance with the new test. If the total costs are deemed to be disproportionate, the court would make a reduction to a proportionate level. The new test will introduce the requirement for the courts to consider the proportionality of global costs as the dominant test in civil litigation, over either reasonableness or necessity. The new test will not only look at the sums at issue but also take account of the complexity of the litigation, the additional work generated by the defendant and wider factors such as reputation or public importance.The amendments under discussion are neither necessary nor appropriate. The Government believe that claims against multinational companies will still be possible once our CFA reforms are implemented. One of our major reasons overall for the reforms, however, is that we believe that the costs involved will be more proportionate to the sums at issue. The Bill seeks to address not the validity of the claims but the iniquity of a system that can allow legal costs to escalate significantly more than the related damages. That is core to the next group of amendments, so I will save most of my comments for that debate.
Kate Green: I am disappointed in that philosophical approach. Is the Minister saying that the effect of Rome II, which will inevitably depress the level of the compensation awarded, is an opportunity that Ministers have seized so that it will be almost impossible for some such cases to come to court?
Mr Djanogly: The hon. Lady will hear my later comments, which will be that we have a system in this country that is not replicated anywhere else in the world. It is worth emphasising that: the current system of recoverable success fees and recoverable ATE insurance premiums, with the consequence of high costs, is not seen in any other jurisdiction in the world. The impact of the amendments would preserve the unique threat of high costs against British firms that does not exist for other firms from other countries in the world. That cannot be good for British businesses operating abroad.
CFAs will continue to be available, but the Bill also extends funding options. Under clause 42, the Government will allow damages-based agreements to be used for the first time to fund such claims. Group actions, in particular, are suited to DBAs, because legal representatives can recover their fees as a percentage of the damages awarded to each successful claimant.
Mr Slaughter: The Minister’s comments will become another passage of Hansard that might come back to haunt him. First, he is wrong, because, as we have said, specific legislation in the US allows for that type of litigation, which is far more developed than it is here. Secondly, other developed jurisdictions are catching up with the position here. The conclusion that one may reach is not that the Minister perceives an unfair advantage to British companies—excluding their being held to account for the appalling things that they might do in the developing world—but that he generally intends to ensure that there is impunity for multinational corporations against the people to whom they do harm.
Mr Djanogly: I hardly think that I said that and the record will show that to be so. I point out that the United States has neither recoverability of success fees nor ATE insurance.
The hon. Member for Stretford and Urmston is concerned that damages may become too low under CFAs. As I said, DBAs will be available, and group actions are particularly suited to them because legal representatives can recover their fees as a percentage of the damages awarded to each successful claimant. In Trafigura, there were 30,000 claimants, so DBA might have been an attractive option. As the hon. Member for Stretford and Urmston said, Motto and others v. Trafigura was one of the leading cases brought against a multinational company under a no win, no fee agreement. In that case, the defendant paid out some £30 million in damages to the 30,000 claimants in the Ivory Coast, which was, on average, £1,000 damages for each claimant.
The costs claimed by the claimants, however, were almost £105 million, including success fees and an after-the-event insurance premium of £9 million. I repeat: damages awarded totalled £30 million, with an average of £1,000 each; legal costs sought by the claimant lawyers were almost £105 million, which is some three and a half times as much as the damages secured. Those costs are currently before the courts for assessment.
Kate Green: I appreciate what the Minister says. The costs of such cases are very high, but will he tell us to what degree such costs are driven by the nature of the case and the behaviour of the multinationals? He seems to imply that the costs arrive out of the ether at an exceptionally high level, but there are underlying drivers, which, it seems, the Minister cannot address.
Mr Djanogly: The answer to the hon. Lady’s question depends on the circumstances of the individual case.
The amendments would not meet the intended purpose of the legislation, which is to reduce litigation costs; it would allow such costs to continue to escalate as I have described. The proposed certification process would open up uncertainty and significant prospects of a satellite litigation—which, again, would increase costs—relating to the criteria for certifying claims as suitable for exemption from the new CFA regime. For example, where the amendment refers to the proposed claimant’s resources, what is meant by “significantly less”? Would that mean that claimants and their solicitors would be uncertain whether the exemption proposed in the amendment would apply at the outset of the claim?
Mr Slaughter: The Minister is using one of the Government’s—or his—favourite tactics, which is: “Let’s quote this figure of £100 million.” As my hon. Friend the Member for Stretford and Urmston has said, they are ignoring why costs reach that sort of level. Costs must be justified and, as the Minister has said, they are currently being assessed. That is particularly important in cases such as that of Trafigura, which, as we know from its involvement with the super-injunction, was the most obdurate and stubborn defendant, when it should have considered its own liability and made an admission sooner.
The Minister may not agree and he may want to come up with a different theory, but he must accept that the purpose of success fees is not to allow lawyers’ firms to feather their nests, but to fund future litigation. He should be considering how success fees operate rather than simply trashing the system by selective use of figures.
Mr Djanogly: Trafigura was settled, and it never got to the courts. I note with interest that the hon. Gentleman is passing judgment on the case, but I will not join him in that speculation.
I confirm to the hon. Member for Stretford and Urmston that the Government are carefully following developments in this area. She is right in saying that the Lord Chancellor is, as I am, keen to maintain a provision for human rights protection. She asked whether the courts routinely reduce success fees. The courts can reduce the level of such fees recoverable from the other side, but it is a long and expensive process. Since Rogers v. Merthyr Tydfil, a 2006 Appeal Court case, it is difficult to challenge the level of ATE insurance premiums because specific evidence is needed to show that comparable reasonable cover might have been obtained at a lower price.
I return to the accusation that the Government have taken no notice of developments in the area, particularly the Ruggie mandate. We strongly support the UN guiding principles on business and human rights developed by Professor Ruggie. We co-operated closely with him in the course of his mandate, and will fully support the international working group that has been established to take forward his work. We are aware of the concern raised by Professor Ruggie and others about the impact of our proposals for CFA reform in this area, and I have been in correspondence with him about it.
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My officials have met representatives of the Corporate Responsibility Coalition—CORE—and I am due to meet them in the near future. However, it remains the Government’s view that it will still be possible to bring claims against multinational companies when our CFA reforms are implemented. We are not persuaded that there is anything fundamentally different about these cases that would justify an exception in the Bill. The package of reform includes some balancing measures that will assist claimants in the new regime.
In personal injury cases, there will be a cap on the amount of damages that may be taken as a success fee under a CFA. The cap will be set at 25% of damages awarded, other than those for future care and loss, and will help to protect claimants’ damages. In addition, qualified one way costs shifting will mean that in the majority of personal injury cases the claimant will not be at risk of having to pay a winning defendant’s costs. That should significantly reduce the need for ATE insurance products.
Karl Turner (Kingston upon Hull East) (Lab): Does the Minister accept that there may be some unintended consequences from the qualified one way costs shifting?
Mr Djanogly: Sorry, there may be some—
Karl Turner: Unintended consequences.
Mr Djanogly: There are pluses and minuses in any suggestion that is ever made. Yes, we have had to weigh those up, not least in our consultation documents.
On the basis of what I have said, I urge the hon. Lady to withdraw her amendment.
Kate Green: I came in this morning hoping that I would be in a position to withdraw my amendment. I hoped that the moral case that was presented and the strong endorsement that it has received from some highly respected organisations outside this House would have persuaded the Minister, if not to give me firm guarantees of what the Government would do to meet the concerns that we have debated this morning, but at least to assure me that they understand the seriousness of those concerns and that he would go away and look for ways to address and to ameliorate them. I am very disappointed that he has instead largely sought to defend the system that the Bill will introduce, and the harm that it will do to some of the poorest claimants.
Mr Slaughter: While the Minister was concluding, I was looking at some of the other cases. There have not been many, but they include South African workers poisoned by mercury, Namibian uranium miners claiming for throat cancer, asbestos miners, torture claims by Peruvian anti-mine protestors, and Colombian campesinos who suffered damage to land. Those are the sort of claimants in such cases. We have had no evidence from the Government that such cases with such claimants against such defendants will be possible. We have not seen such evidence in impact assessments, and we have seen no evidence on how the new system will work, so does my hon. Friend agree that we have no basis on which to trust the Government’s assertion?
Kate Green: I am deeply disappointed that the Government appear to have taken a simplistic view of such cases, based solely on the imbalance that they perceive between the low compensation secured, for understandable reasons, and high costs, which are also driven by a range of understandable factors. They have completely missed the ethical and moral dimension to our arguments.
My hon. Friend the Member for Hammersmith mentioned the pride we in the UK take in our leadership role in relation to the treatment of developing countries. The Labour Government were the first to introduce a commitment to the level of financial support for developing countries through aid, which I am delighted that the present Government have picked up and continued. The proposals will undermine that international reputation for leadership in that field, and I am very disappointed by what the Minister has said.
The Minister’s priority is to minimise, in his own words, the
“threat of high costs against British firms”,
with no regard to the damage, pain and suffering, and the loss of livelihood, health and well-being that is suffered in developing countries as a result of the malpractice of a small—very small—number of British-based multinationals. I am surprised and shocked that his priority should focus so much on big business rather than on individuals in the most deprived and disadvantaged circumstances imaginable.
I accept that the nature of such cases, which are long in duration and require highly technical evidence, drives up costs. The opposite party, the multinational defendant, will be advised by highly qualified, very expensive and large legal teams, which means that the claimant must also seek to acquire the best possible, and therefore costly, legal advice, if there is to be any equality of arms. Those cases inevitably involve gathering evidence from overseas and from people who may be poorly educated. There may be language barriers or geographical and environmental barriers to obtaining the evidence. Costs are high not because greedy lawyers are driving up success fees and not because there is no incentive to keep costs down, but because the cases, if they are effectively run, are costly.
The Minister provided absolutely no evidence of those costs having, in some way, spiralled out of control. He seemed to think it sufficient to argue that they were very high in comparison with the level of compensation that would be paid. However, that is inevitable, as compensation is set in the context of the countries where the harm occurs. People live on exceptionally low incomes in those countries, so the value of the damage that they suffer in monetary terms—measured by the impact on their income rather than on their general well-being—will inevitably be very low. Rome II has underpinned the monetising approach to the quantification of the harm that people suffer. It is not that the cases are undeserving, unmeritorious or trivial; it is the legal context that has ensured that the damages have become so low.
The Minister has been unable to present any evidence that costs are being driven up to bankroll lawyers, which was partly implicit in what he said. If he is correct that fees and costs are being driven up by lawyers in this country, why are only a tiny number of firms—so few that we can count them on the fingers of one hand—willing to take such cases? If they were so remunerative, would we not see UK legal firms piling in to run them? The contrary is true: only one or two firms have been able and prepared to take the risk of taking on such cases. Predominantly, they are public interest firms that specialise in high-risk cases for vulnerable claimants, for whom levels of compensation will always be low. If these cases were so lucrative, we would, I venture to suggest, see a much larger market for them. Far from there being evidence of lawyers driving up costs, there is an absence of lawyers willing to take on such cases, which suggests costs are in no way out of control.
I know the Government take their international human rights obligations seriously, but I do not see how these proposals can possibly meet the standard we are required to achieve if we are to comply with the human rights obligations in the framework set out by the special representative. Not only might that constitute a formal breach of international obligations, but it will certainly cause, and has already caused, considerable damage to the UK’s moral reputation in the world.
It seems that this country can be seen as a place where access to justice will be denied to the poorest; that we are prepared to tolerate poor corporate behaviour and to leave it unchecked; that we have no real interest in levelling up the playing field so that good business practice is rewarded and poor practice is punished; and
that we are prepared to dump classes of poor and vulnerable people in developing countries in the interests of the insurance industry and big business. I am at a loss to understand why Ministers feel that is a defensible, desirable or moral position for this country to be in.I am sad the Government have not accepted the wording of the amendments, but I would have been prepared for the Minister to say, “The amendments are not satisfactorily drafted, but I agree with the spirit and the intention behind them.” Had he said that, I would have withdrawn the amendment with pleasure and with pride in the Government and in our collective position on our international obligations towards the developing world. Instead, he produced a mealy-mouthed protection of the interests of big business, and I am deeply distressed that that is the position he has chosen to take. I therefore intend to press the amendment to a Division. I am deeply disappointed that I have to do that, but the Minister’s response has left me no alternative.
Question put, That the amendment be made.
The Committee divided: Ayes 8, Noes 11.
AYES
NOES
Question accordingly negatived.
Mr Slaughter: I beg to move amendment 196, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a claim for damages or other relief in relation to an act in the nature of an interference with personal information or privacy.’.
The Chair: With this it will be convenient to discuss the following: amendment 198, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a claim for damages for death or for physical or psychological injury resulting from breach of any duty owed by an employer to an employee.’.
Amendment 200, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a claim for damages for death or for physical or psychological injury resulting from any breach of duty or trespass to the person.’.
Amendment 202, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a claim for damages for physical or psychological disease or illness resulting from any breach of duty or trespass to the person.’.
Amendment 204, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a claim for damages for loss resulting from breach of any duty to exercise professional care or skill.’.
Amendment 206, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a money claim for the benefit of the estate or creditors of an insolvent body corporate or partnership against persons concerned (or formerly concerned) in its management.’.
Amendment 208, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to clinical negligence proceedings (within the meaning of section 58C).’.
Amendment 210, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings which include a claim for judicial review of a decision or of a failure to decide by a public body.’.
Amendment 212, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings in which—
(a) the parties are businesses, and
(b) one of those parties is a business which is a sole trader, partnership or limited liability private company whose turnover is less than 20 per cent. of the other or another party, and
(c) the success fee is part of a conditional fee agreement made by that party.’.
Amendment 214, in clause 41, page 29, line 21, at end insert—
‘(2A) The amendments made by subsections (2) and (4) do not apply in relation to proceedings in which—
(a) one party is an individual who has purchased, commissioned or ordered goods or services from the other party, and
(b) the other party is in business to provide such goods or services, and
(c) the success fee is part of a conditional fee agreement made by the party referred to at (a) above.’.
Amendment 197, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings which include a claim for damages or other relief in relation to an act in the nature of an interference with personal information or privacy.’.
Amendment 199, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings which include a claim for death or for physical or psychological injury resulting from breach of any duty owed by an employer to an employee.’.
Amendment 201, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings which include a claim for damages for death or for physical or psychological injury resulting from any breach of duty or trespass to the person.’.
Amendment 203, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings which include a claim for damages for physical or psychological disease or illness resulting from any breach of duty or trespass to the person.’.
Amendment 205, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings which include a claim for damages for loss resulting from breach of any duty to exercise professional care or skill.’.
Amendment 207, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings which include a money claim for the benefit of the estate or creditors of an insolvent body corporate or partnership against persons concerned (or formerly concerned) in its management.’.
Amendment 209, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section, other than the definitions of “clinical negligence”, “clinical negligence proceedings” and “proceedings” which subsection (2) inserts into the Courts and Legal Services Act 1990, do not apply in relation to a costs order made in favour of a party to clinical negligence proceedings (as so defined).’.
Amendment 211, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings which include a claim for judicial review of a decision or of a failure to decide by a public body.’.
Amendment 213, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings where—
(a) both parties are businesses, and
(b) the receiving party is a business whose turnover is less than 20 per cent. of that of the paying party and the receiving party is a sole trader, partnership or limited liability private company.’.
Amendment 215, in clause 43, page 31, line 37, at end insert—
‘(4) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings where—
(a) the receiving party is an individual who has purchased, commissioned or ordered goods or services from the other party, and
(b) the paying party is in business to provide such goods or services.’.
12.15 pm
Mr Slaughter: Trafigura, if I may refer to the amendments tabled by my hon. Friend the Member for Stretford and Urmston in that way, has thrown up some interesting issues, but only raised the curtain on some of the points that need to be addressed in relation to part 2, on both personal injury and CFA and ATE generally.
To be clear, there are a number of areas of law that we want to discuss in some detail. I hope that is acceptable to the Committee. In each case there is a pair of amendments, one referring to clause 41 and one to clause 43, relating to where the Government’s proposals
are so unclear or faulted that it would be wrong to proceed in repealing success fees and ATE as they wish and replacing them, if at all, with damage-based agreements.We will debate those points in the round, and I will speak now to the amendments in my name. There are some in the names of my hon. Friends the Members for Kingston upon Hull East and for Stretford and Urmston. I will not address those; I do not want to steal their thunder. If anything needs to be added, I will do that later this afternoon. I am sure, however, that that is unlikely to be necessary. As I indicated on the previous set of amendments, I will preface speaking to each amendment with the common theme going across them. I will not make a long speech about part 2 in the round, because it is not appropriate, but there are some common themes to link up. I will use the various amendments, as we reach them, to illustrate some of the problems that we have with the Government’s approach.
First, so that the Minister is clear that we will not always be critical of him or his stance, the intention of part 2 is perfectly sound, and it is one with which we have a great deal of sympathy. Were it better drafted and more of a scalpel than a sledgehammer, he might find us supporting it. The origins are the wake of the Woolf reforms, which were highly successful reforms of the civil justice system. They came in just when I thought I had understood and learned the old rules and all the precedents, details and footnotes. I was priding myself on that, and then they all went away. Notwithstanding that and the fears that the Bar would become redundant, because everyone would understand the new CPR so clearly that lawyers would no longer be necessary, that proved, as the Minister would say, not to be the case.
Woolf has transformed civil litigation in this country. It has been hugely successful. It has simplified matters, it has given clarity and it has sped up court processes. As Lord Woolf himself said, however, it has not been as successful as he or others wished in reducing costs in the civil justice system. It is in everyone’s interest that costs are reduced. Why would anyone wish costs to be more than absolutely necessary? As an end in itself, there should not be unjust enrichment by lawyers or anyone else in the system. There should not be inefficiencies. It is not just an end in itself; it is also about discouragement to litigation or an undue penalty on those who are litigated against if costs are excessive. If the Minister says, “I am bringing forward part 2 to control costs, whether it be through malpractice and profiteering, or whether it be simply through reducing them,” we can all sign up to that.
After hearing the Minister speak on the matter many times, I consider that he believes that reducing costs is an end in itself and that that can get in the way of the merits of cases and the fact that sometimes there has to be litigation, which sometimes involves high costs, often because of the misconduct of one of the parties and not always the claimant. While welcoming the general approach and intention of the Bill, we argue first that the methods it uses are imperfect per se or are introduced at the wrong time in the wrong way and, secondly, that there will be unintended consequences of what are laudable aims. There is a principle of unintended consequences. Turning what is always a difficult to be balanced system
of law for parties with disparate means into one that is no longer a level playing field is unfair, especially on those of limited means.To illustrate that point, we have set out in the amendments eight to 10 separate areas of law, each with different problems. It is not an exhaustive list. Last night, I was looking at amendments on environmental law that we have not tabled because we could go on endlessly finding other anomalies and exceptions. However, environmental law is an important area, and I suspect that it is about to become much more important because of the Government’s intention to chuck the planning regime out the window and allow a free-for-all for developers. That could be another area where there should be more provision to allow cases to go to court.
Some of our amendments are related to personal injury. Clinical negligence is interesting because it is one of the few areas where the Government have made a concession in ATE premiums—we will explore exactly how far that goes—yet the Government will not extend such a concession to related areas of law, such as industrial injury and the multi-party actions that we have discussed. We will also debate non-personal injury areas of law, which are caught in exactly the same way, but do not have the same concession and safeguards. For example, they are not subject to QOWCS. The Minister said that he wants to talk about the pros and cons of QOWCS, but at least that will give some protection although we believe it to be imperfect protection. Why, for example, should there be that degree of protection in clinical negligence or personal injury, but not in professional negligence? Why should someone taking a professional negligence claim against a solicitor have less protection than someone taking a clinical negligence case against a surgeon or a hospital? There is no logic in that.
The Government present themselves—the Minister has done so this morning—as business friendly, even to the extent of showing a reckless disregard of the interests of vulnerable people in the developing world. The hon. Gentleman sets out as his stall that that is what the Government seek to be, yet the provisions under part 2 of the Bill will have a catastrophic effect on insolvency claims. Most of the wronged parties are likely to be businesses, many of which will be small and medium enterprises. Small businesses themselves often make use of no win, no fee against suppliers or other organisations that they do not have the financial clout to take to court. Perhaps those organisations are a bit like the multinational companies and rely on that. If CFAs are not available, and there is the risk of having to pay the other side’s costs at the end of the procedure, claims simply will not exist.
We will also talk about media law and privacy law, which could not be more topical. I do not know whether most of the claims brought against the News of the World and other media organisations over privacy matters are funded through no win, no fee agreements, but a substantial number are. For reasons I will give when I reach that part of the Bill, it seems very unlikely that people will still be able to bring such claims in that way. We are therefore handing more power to another big player—the big media corporations, the media conglomerates and the Murdochs of this world. If they did not have enough power already, they are having one of their few vulnerabilities taken away.
The Minister started his argument by mentioning the phrase “compensation culture”. He believes that this part of the Bill is designed to address that culture. In that—he has probably heard me say this before—he relies on what Lord Young’s report said. Of course, Lord Young’s report said that the compensation culture is “perception rather than reality”, but that never seems to stop the Minister endlessly repeating the phrase.
I agree with the Minister that abuses have grown up, particularly in the personal injury system—or racket, one might say—and those abuses need to be tackled. One such abuse, which has perhaps had the most attention recently, is referral fees. It has had the most attention because of the very effective campaign run by my right hon. Friend the Member for Blackburn (Mr Straw). The Minister will hear more from him at oral questions today; indeed, my right hon. Friend will also introduce a very timely ten-minute rule Bill on this subject on the Floor of the House this afternoon, and I hope we will all be able to be there, although we may not, given the timing.
We can, therefore, all agree about referral fees. However, the clear briefings given by the Ministry of Justice up until two or three months ago said that nothing would be done about them. Following the campaign by my right hon. Friend, however, there was a volte-face, and the Government are now going to ban them. We know that because the Minister issued a written ministerial statement last Thursday in which he said he would ban them. In the press statement accompanying it, he said he did not know how he was going to do that, and he certainly gave no indication of when he was going to do it. I would be happy to hear—either now or when the Minister responds—when we will have an amendment, or how he intends to deal with referral fees.
Mr Djanogly: As the hon. Gentleman will have heard, I hope to introduce provisions into the Bill at a later stage, subject to the business managers’ consent to that proposal.
Mr Slaughter: That does not tell me much more than I knew already, but perhaps I did not expect to learn much more. However, let me ask another question, which the Minister may want to think about that. Why have we got ourselves into this situation? We have known about the Bill for the best part of a year, and referral fees have been an issue for longer than that. The Minister has met the Association of British Insurers and other organisations on many occasions. The reason he gave—I am not stalking him; I was just listening to him on the radio—
Mr Djanogly: The hon. Gentleman is allowed to do that.
Mr Slaughter: Yes, I am sure that is still permissible. The Minister was asked last Friday morning why he had not done anything previously. On the “Today” programme, he was asked, “Have you come round to the idea of a ban?” His response was, “We are waiting to hear what the Legal Services Board say.” We know what the Legal Services Board said: “Don’t ban referral fees.”
12.30 pm
Mr Djanogly: The position of the Legal Services Board is much more complicated than that. It referred the decision down to individual regulators. We held the decision until the board came out with its report, and then we took a view.
Mr Slaughter: I do not want to nit-pick. It was a good interview; the Minister got all his soundbites in, but I thought that the weak part of it was his saying, “I was hanging around for some advice from someone so I could ignore it.”
The other interesting thing about that series of interviews with the Minister and the Association of British Insurers, who often seem to do a Tweedledum and Tweedledee act on such occasions, was the question: will insurance premiums go down? I would love that question to be answered with “yes”, but it was not. It was answered with, “Well, there are lots of considerations. Perhaps. Who knows? Depends on what the weather is like”, and so on. I was not that surprised by that.
I was slightly more surprised when I read in The Daily Mail—[ Interruption. ] I only read it online; I do not buy it. The article cites Admiral, which is clearly the most successful of the top 10 insurers in financial terms. It gives the lie to what the other nine in the top 10 say—that they are all doing us a favour in the premiums that they charge us, because they are all making a loss. In fact, they make a substantial profit. We then find out why. The Mail story said:
“Motorists face even higher insurance premiums if the Government presses ahead with a ban on controversial injury ‘referral fees’, the head of insurer Admiral has warned…Shares in the company plunged seven per cent after the clampdown was announced, wiping more than £260 million off its value…Justice Secretary announced the end of ‘referral fees’—a cynical scam in which insurers trade details of accident victims with claims-shark lawyers…Speaking before the ban was announced, Admiral chief executive…said: ‘The Government needs to set a cap for injuries such as whiplash’”—
the Government would agree with that. The article also states:
“Referral fees account for six per cent. of Admiral’s profits.”
Therefore, Admiral says that if we go ahead with a ban, insurance premiums would rise. That is not the way the Government have been selling the proposals. I understand that they want to be populist about what can sometimes be an arcane subject, but they must get their house in order. They are proposing significant changes to the operation of civil litigation across the board in this country. They cannot do that on the basis of a few soundbites about car insurance premiums going up or down. That is a serious issue that needs to be addressed.
The matter can be addressed by tackling what the Minister calls the compensation culture, but what most people simply call a series of abuses in the system that can be tackled—the text messaging, the adverts that we see on daytime television, the related scams that go with selling insurance details, in which insurance companies are one of the leading offenders, as we have seen, and car hire. Credit hire for motor vehicles is a disgrace that should have been dealt with earlier, and which needs to be tackled at some stage. What is the logic of introducing fundamental changes in the civil justice system before dealing with relatively straightforward abuses?
There are arguments over the amount of fraud and about how to deal with injuries, whiplash injuries in particular. Those matters are being effectively—far more effectively than by the Government—pursued by my right hon. Friend the Member for Blackburn in his ten-minute rule Bill. Even if the Government do not adopt that Bill, I hope that they will respond at the appropriate time to the proposals and the specific issues raised by my right hon. Friend.
At this stage of proceedings, given that we are already well into Committee stage and discussing part 2, why are the Government still so far from introducing any proposals to tackle such obvious abuses? Instead, they have leapfrogged that by deciding that CFAs need to be done away with wholesale. It may be that there is a better system than the current one, but surely it would be logical to deal with that as it is before completely overturning the apple cart and adopting a system that previously proved unworkable and works only with difficulty in other countries.
If the Minister believes that success fees are too high and that there are abuses in the ATE market, he can regulate on those matters. The Minister wishes to control abuses such as referral fees and amend the civil procedure rules to encourage early settlement by claimants and defendants—we agree with that—and the issues in clauses 41 and 43 could be dealt with in exactly the same way. Rather than take that option, however, the Minister has decided to go for the big bang and pursue a different path.
Let us look at some of the facts that the Minister has chosen to ignore. First—Lord Justice Jackson is clear about this—the introduction of CFAs was a replacement, in part at least, for either the restriction of eligibility for or the abolition of legal aid, particularly in personal injury matters. I remember—as no doubt the Minister does—when that happened in the 1990s, because there was some furore about it at the time and about whether the system would work. The ensuing 15 years have been a process of trying to make the system work. There has been a lot of satellite litigation and improvements in the system. There are undoubtedly still deficiencies, but its original purpose, which was to provide a recourse to the civil justice system for those who could not, for whatever reason, afford the substantial costs—there are always likely be costs beyond the means of the average person— still exists. The Government have not addressed that matter.
The Minister ignores the fact that CFAs are a swings-and-roundabouts system. Everybody knows that to be the case, so for the Minister to be outraged by the level of success fees per se, and to concentrate on success fees from celebrated cases where defendants may have behaved badly and where substantial uplifts of 100% were given, is somewhat disingenuous. It ignores cases that appear to have merit, and which the claimant’s solicitors take on in good faith to help those whom they believe are meritorious claimants but who, for one reason or another, including the litigation process or perhaps because of the discovery of more information, prove to be losers. In such cases, the claimant’s solicitor gets nothing, which is the single greatest discouragement to pursuing unmeritorious cases.
The second great discouragement is the ATE market, which works on the proviso that an assessment will be made about the merits of the claim. I ask, in parenthesis, how that compares with the regime under QOWCS in which there is no discouragement, or not the same level, to a claimant from entering into litigation. It might be nuisance or opportunist litigation because there is no restraining insurance market.
Mr Djanogly: The hon. Gentleman has got mixed up. The discouragement would be to the defendant, who would be encouraged to settle knowing that the claimant would not have to pay costs if he lost.
Mr Slaughter: That is an interesting answer. The Minister is urging defendants, such as the NHS Litigation Authority, to settle unmeritorious nuisance claims, because that is the only way they can avoid running up costs that they cannot recover.
Mr Djanogly: I do not think I said that. I am saying that we are looking for a balance between the parties, which does not exist at the moment.
Mr Slaughter: I am not sure I agree, but we will come on to that later. Another one of the Minister’s catchphrases is, “Are there too many lawyers? Too much litigation and too many lawyers. Do you need a lawyer?” Well, I will give him one practical example of why we need lawyers. [ Interruption. ] I am being heckled. If the hon. Member for Ipswich wants to ask a question, I suggest he intervene rather than shout at me from a sedentary position.
Ben Gummer (Ipswich) (Con): The hon. Gentleman has quoted the Minister, but when did he say that?
Mr Slaughter: I will tell you when the Minister said that, as long as Hansard has recorded it. For example, he issued the consultation paper on increasing small claims limits to £15,000 or even £25,000. If that is not a clear indication of civil litigation without lawyers, I do not know what is.
Ben Gummer: The hon. Gentleman claimed that the Minister said that there should be less litigation with fewer lawyers. When did the Minister say that?
Mr Slaughter: I am not going to debate points of pedantry with the hon. Gentleman. The whole thrust of the legislation—
Mr Djanogly: Will the hon. Gentleman give way?
Mr Wallace: You need some help.
Mr Slaughter: I will give way in a moment. Let me answer the point that has been made. If the Minister wants to clarify that he thinks litigation should take place when appropriate and that there is nothing in the Bill that encourages litigants in person, litigation without lawyers or alternatives to litigation, I would like to hear him say that.
Mr Djanogly: The hon. Gentleman misses the point. He claimed that I had said that there are too many lawyers. Will he state when I said that, because I do not recall it?
Mr Slaughter: We are either going to have a serious debate about the issues or we are not. [Interruption.] I am not getting into silly debates—as usual—with the hon. Member for Ipswich.
Mr Wallace: Jack Straw said it in 2010.
Mr Slaughter: I did not say that there are not a lot of lawyers who do not seem to like lawyers any more.
I want to give a practical example of the role of lawyers. The Colossus system, which is a sophisticated computer system that insurance companies use for assessing damages, produces figures that are about 20% below the level of damages that courts award. I have met insurers individually or through their representative bodies on several occasions. They say—I am sure they are absolutely sincere in this—that PI claims in particular can be settled very quickly. This is what should happen: someone has an accident and the other party is at fault; once the details are passed on, the person gets a phone call from the offending party’s insurers, who say, “We will offer you so much for it.” That means that, rather than going through an 18-month litigation process and all the paperwork, the problem or personal injury remedy can be sorted out, with a cheque, within a matter of days. However, if the programme that insurers use regularly delivers figures significantly less than what a court would award, who can blame injured parties for seeking redress through the courts? The complexity of personal injury law means that they are then likely to need a lawyer.
12.45 pm
I will attribute nothing to the Minister—I learnt my lesson on that—but another issue that floats around in the briefings miraculously appearing in The Mail on Sunday, without any assistance from the Ministry of Justice, the ABI or anyone else of that kind, is that the parties who use CFAs are somehow unusual or not the man in the street—that the scheme does not help individuals. However, the typical male claimant with a CFA is aged under 39 and has an annual income of a little more than £29,000; the typical female claimant is aged under 44 and has an income of a little more than £19,000; and 53% of claimants earn less than £25,000 per year and only 18% of them more than £40,000 per year. Nor is it the case, as is sometimes alleged, that such people are serial claimants and regularly make multiple claims.
It is also true, which the Minister and the previous Government can both take credit for, that the real problems of inflated costs are being brought under control: 75% of personal injury claims are road traffic claims, and in the main they are now administered through the portal. I think that my figures are right, but that has roughly halved costs. They might well still be too high, in particular in straightforward cases or when there is early admission of liability and early settlement, and yet the fact is that they have been brought under control relatively swiftly and effectively by simply amending the existing system. Further proposals, which I believe that the Minister supports, will extend that to other areas of personal injury litigation, which will eventually cover about 95% of all cases; also, the tariffs will be raised and, therefore, a greater number of road traffic claims will be brought within the arrangement.
There was an attempt, when we were still in government, to bring down the level of success fees for defamation cases. I will talk about privacy later on, but there was such an attempt. It failed—it was voted down—but nevertheless it showed that it is perfectly possible for the Government to control success fees, perhaps through primary rather than secondary legislation, which might have been the lesson of that attempt, and perhaps not as draconically as bringing them down from 100% to 10%.
I set out those facts because they are needed as the background to the reality of the claims that is often not heard in the media or, I am afraid, on the Floor of the House. I am not in any way defending the status quo but simply saying that, if we start with the status quo and look at what it actually is and at what abuses need to be cured, we might not come up with the Minister’s solution. Behind such matters are important questions of right and wrong.
To go to the heart of our problems with clauses 41 to 43, the first net effect, however one dresses it up, will be that it will be more difficult for people who have suffered some injury or damage, whether to their reputation, person or finances, and who wish to have redress, to go to court. I will look in some detail at how much more difficult it will be and at the percentage of people with meritorious claims who will not now go to court, but a proportion of them—I do not know if it will be a third or less than that—will no longer be able to do so. They are people who deserve some redress, but they will not receive it.
Secondly, under the new system, if claimants prevail on a firm of lawyers to take their case, it will make sophisticated calculations about whether it has a sufficient chance of success commercially. At the end of the day, such firms, which are not charities, have to continue to run and to make some profit, as I am sure that, given his background, the Minister appreciates and supports. If the case is taken and won, the success fee, such as it is, will be recovered from the claimant’s damages. However the 10% is calculated—even if it is calculated perfectly sensibly—it will not be adequate to cover the success fee that the claimant’s lawyer is entitled to. [ Interruption. ] The hon. Member for Ipswich again says that the lawyer does not have to take that fee, but the Minister will realise that that proposition is silly. A law firm is a commercial organisation, like any other business, and it has to be able to pay its costs and make adequate recompense. It is doubtful whether, in many cases, there will be sufficient equity in the system to allow firms to continue to take such cases, but if they do so, they will take that money from meritorious claimants who have taken their cases to court and won.
In addition to suffering the harm, whether it is an industrial injury or it is damage to their reputation, and all the stress and strains of litigation, when claimants win and recover their damages, they will be told, “I’m sorry, but a quarter of that will now have to be taken away to pay for the costs of litigation.” It simply seems inequitable that those costs should be deducted, as the price of claimants not being able to afford privately funded litigation in the first place.
Where QOWCS does not apply and ATE insurance is not available, because it would be unaffordable even if there was a market for it, the actual value of the success fee will be greater than that of the damages. That is not due to greedy lawyers. As in multi-party and perhaps
defamation cases, in which for one reason or another quite small damages are often awarded—properly so, because other things are going on—the amount awarded in costs will not be sufficient to cover even the lawyer’s fees.It is interesting to see what is and what is not in the Bill. Clearly, what is in the Bill is that there will be no more success fees or, except in very specialised circumstances, ATE premiums. What is not in the Bill is qualified one-way costs shifting or the 10% uplift. We have had this debate in part already. The Minister says, “Well, that’s because we are still working on that, and that’s because we’ve decided that those things are better in regulations.” I say that that is not good enough. If we are to legislate on the basis of a completely new way of dealing with civil litigation claims—civil litigation costs—we need to see the package in the round before the Committee and before it is voted on on the Floor of the House. I am sure that when the Bill goes to another place, those points will be made even more amply.
I am not implying any mala fides on the part of the Government. I am sure that they will come up with proposals on QOWCS and that they are sincere, as Lord Justice Jackson was in saying that there must be mitigation for the quite stringent changes that the Government are proposing—those parts of his report that they have chosen to go with. However, what the effect of QOWCS will be is highly relevant. All we know at present is that they will mean that in most cases—we are talking about personal injury cases—there will be no ability for a successful defendant to recover their costs from an unsuccessful claimant, but what does “in most cases” mean in that context?
It has been said that only the very wealthy need fear what is happening. Perhaps the implication is that the very wealthy should be finding other ways of funding their litigation, but who is to make that judgment? What form of words or formula will be used? It is not one-way costs shifting; it is qualified one-way costs shifting. Let us say that the same type or form of words will be used as is used in legal aid cases. That generally means that a legally aided party will not, other than under lottery clauses, pay the other party’s costs, but by definition a legally aided party is an impecunious party.
The category of people who typically take CFA cases at the moment are those called MINELA cases—middle income, not eligible for legal aid. I have indicated the sort of income levels that we are talking about. How can someone in that position be sure that they will not be subject to a costs order? I do not see how we can legislate for something that removes so many abilities for people to get into court; the compensatory elements of that, which will still give some protection, are not made clear.
The fear of costs is the biggest element that prevents people from taking litigation. I have the results of a survey that suggests that that is exactly the case, even under CFAs, whether that is because of a misunderstanding or because of a fear. We are not a litigious society. The survey is a public opinion survey from January of this year. Only 50% of those questioned—a large cross-section of the general public—said that they would claim at all if someone else was to blame.
Whether one considers claims against the NHS or slip-and-trip claims in the street, what is surprising is not the volume—not the compensation culture that the Minister talks about—but the fact that in most cases, people just accept these things as hazards of everyday life. If they want anything at all, they want an apology, an explanation and the rectification of the problem so that what has happened does not happen to someone else. They are not interested in going through two or three years of litigation to acquire what is often quite a small amount of damages. However, that does not mean that they should not be entitled to that if they need it; and quite often, for poorer people, even £2,000 or £3,000 as a response to a personal injury that has caused them loss—that has caused them to take time off work or otherwise lose income—is an important sum. In the survey, 77% of people said that they would not start a claim even if the costs risk was very small.
1 pm
The Chairman adjourned the Committee without Question put (Standing Order No. 88).
Adjourned till this day at Four o’clock.