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Lord Ackner: My Lords, before the noble and learned Lord sits down, perhaps he can help me with regard to the suggestion that he has no power to cap the amount which can be taken out of the damages. Has the noble and learned Lord had the opportunity to reconsider an amendment that he moved on Report on 22nd February 1990 to the Courts and Legal Services Bill? The amendment proposed that the conditional fee agreement,

Perhaps I may remind your Lordships that the matter arose in this way. In discussing the amendment the noble and learned Lord said:

    "Your Lordships will see that the second of the two amendments provides for the prescribing of requirements rather than information. While the former includes the latter, it also seemed wise on reflection to include the possibility of prescribing, for example, how conditional fee agreements should define success in the client's action".

The noble Lord, Lord Mishcon, made this short intervention:

    "None of us quite knows how it is going to work"—

that is, conditional fees—

    "I should have thought that when one has something which is highly controversial, when one needs to see how it works out and how it ought to be regulated—indeed, how it may be stopped—the requirement is for flexibility, to give this power to make regulations from time to time to condition the fee, to limit rights or to extend them in some way".—[Official Report, 22/2/90; cols. 490-1.]

In moving the amendment, the noble and learned Lord said that the fact that the matter is somewhat controversial is a very good reason for giving the Lord Chancellor power to make additional requirements if that seems to be necessary. In saying that there is no power, has the noble and learned Lord overlooked the fact that it appears that that power was taken specifically by the amendment moved on Report?

The Lord Chancellor: My Lords, your Lordships have heard what was said about that matter. It will be seen that there is no reference whatever to any suggestion of a modification of the idea that control should be by reference only to the percentage uplift.

The amendment to which my noble and learned friend Lord Ackner has referred sought to make it clear that I would have power to make requirements not only in relation to the substance of the agreement but also as to information which would be laid before the client preparatory to that agreement. I was of the view at the time, and I remain so, that it was wise to make it clear that those powers included the power to require information to be laid before the client as well as to require the agreement to take a particular form. I am absolutely satisfied that I never intended to add any power to prescribe a cap for the very good reason that I sought to devise a scheme which would answer the criticism made by my noble and learned friend Lord Hailsham of Saint Marylebone that the contingency fee system, which we were not accepting, had the disadvantage that it applied only to plaintiffs. I was devising a scheme to apply equally to plaintiffs and

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defendants. Therefore, it was not in my mind at any stage that a power of the kind to which my noble and learned friend has drawn attention should be added. I certainly did not have that in mind when I was moving the amendment to which he referred.

Moved, That the draft order laid before the House on 20th April be approved [17th Report from the Joint Committee].—(The Lord Chancellor.)

3.33 p.m.

Lord Ackner rose to move, as an amendment to the above Motion, to leave out from ("That") to end and insert, ("this House calls on Her Majesty's Government to withdraw the draft Conditional Fee Agreements Order 1995 and re-lay it in a form which gives effect to the following recommendation of the Lord Chancellor's Advisory Committee on Legal Education and Conduct that either:

(1) the maximum permitted percentage by which fees may be increased in respect of each description of proceedings specified in article 2 of the order is 20 per cent.; or

(2) the maximum amount payable expressed in percentage terms in relation to the amount of any sums which may be recovered shall not exceed a specified figure.").

The noble and learned Lord said: My Lords, in moving the amending Motion standing in my name on the Order Paper, I should like to stress at the outset four quite distinct points. First, my Motion recognises fully that, as Parliament nearly five years ago approved the principle of conditional fee agreements, full effect must be given to that decision so as to enable such agreements to work effectively and fairly. As is apparent from the terms of my amendment, it is in no way a wrecking amendment; quite the contrary.

Secondly, the purpose of my Motion is to protect the client from, in the words of the Lord Chancellor's Advisory Committee on Legal Education and Conduct, "the glaring injustices" which could arise if the proposals of my noble and learned friend the Lord Chancellor were accepted.

The uplift of 20 per cent. which I propose, instead of 100 per cent., is not a figure which I have conjured out of the air. In fact, it was proposed originally by the noble and learned Lord the Lord Chancellor and represents double his initial suggestion.

Fourthly, my amendment, which would reduce the uplift from 100 per cent. to 20 per cent., or alternatively cap—that is, prescribe the maximum amount expressed in percentage terms; I would suggest 25 per cent.—the amount which the successful lawyer may take out of any damages or other sums which may be recovered from the litigation, represents the recommendations consistently, vigorously and forcibly put forward by the Lord Chancellor's Advisory Committee which was presided over by my noble and learned friend Lord Steyn.

In case it should be suggested that those recommendations are in any way impractical or out of touch, I should point out that among the 17 members of that committee are a recent past president of the Law Society, the head of the litigation department of one of the City of London's most respected firms of solicitors and a recent past

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president of the Institute of Chartered Accountants. The majority of the committee, who are laymen, were appointed by the Lord Chancellor to ensure, so we were informed, that:

    "the views and interests of the users of legal services are properly and fully represented".

Perhaps I may now explain why we should be especially concerned to protect the client and why we should proceed with particular caution in this new field. Conditional fees are a species of contingency fees and were so described in the Government's 1989 Green Paper. In undertaking a case on the basis of no-win, no-pay, a lawyer is clearly involved in speculative litigation. By allowing the lawyer to have a personal financial interest or stake in the outcome of a case, it has hitherto been accepted generally that that might affect his objectivity, distort the advice that he gives and, further, might lead to improper practices, thereby undermining the integrity of the administration of justice. Of course, the greater the stake, the greater the danger. Those were the essential reasons why, since the Statute of Westminster in 1275, contingency fees were considered to be contrary to public policy and therefore unenforceable; hence Section 78 of the Courts and Legal Services Act 1990 which for the first time made an agreement to enter into that species of speculative legislation enforceable.

Of course, it is water under the bridge that the section was enacted in the teeth of opposition from seven Law Lords, the Master of the Rolls, a former Lord Chancellor, my noble and learned friend Lord Hailsham, a former Attorney-General, the noble and learned Lord, Lord Rawlinson of Ewell—who I am delighted to see in his place—and the Law Commission. But the history that I have recounted and the opposition to which I have just referred surely make it incontrovertible that in this new field one should proceed gradually and with caution. Indeed, the approaching five-year period since the enactment of that section without, as yet, the approval of the necessary order and regulations is clear confirmation of the validity of that proposition. Why else has there been that delay?

I turn now to what has been happening during the past five years since Section 58 was enacted. The prospectus under which your Lordships were invited to accept the clause which became Section 58 was fundamentally different from that which provides the basis of the current invitation made by my noble and learned friend the Lord Chancellor to approve his draft order and regulations. In 1990 the proposal was to limit the uplift to a "small" or "modest" percentage of the solicitor's proper costs. Indeed, in Committee the noble and learned the Lord Chancellor gave an example using a 5 per cent. uplift. In 1991, a year later, he issued a consultative paper in which it was proposed to set the maximum uplift at 10 per cent. The Lord Chancellor's Advisory Committee agreed that that maximum uplift appeared to be about right.

However, two years on the noble and learned Lord the Lord Chancellor proposed to double the figure to 20 per cent. But apparently that did not satisfy those solicitors who might be interested in this new field of work. In August 1993, the Lord Chancellor announced—I stress this—without further consultation with his own advisory

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committee, that he intended to set the maximum permitted uplift at 100 per cent; that is, 10 times the initial figure which he had proposed in his consultative paper.

The Lord Chancellor's Advisory Committee was so concerned that the practical implications of the decision should be understood by my noble and learned friend the Lord Chancellor that it issued a press notice in November 1993 stating in terms that the Committee was not persuaded that,

    "the startling implications of the 100 per cent. permitted uplift have been fully appreciated".

The committee pointed out that in personal injury litigation, which will form the bulk of the litigation affected by the new proposals, the plaintiffs were often vulnerable people of limited means, the typical victim being relatively unsophisticated in both his knowledge of legal matters and his capacity to bargain over legal fees. Moreover, the rate of success in those claims is exceptionally high, most of the litigation being straightforward, with little risk of a lawyer not being paid his fee. In fact, the noble Lord, Lord Hacking, gave two examples when we debated the matter last November of victims in two railway disasters whom his firm were proceeding to act for without any fees to be paid until the matter was concluded.

If your Lordships need further confirmation, it is to be found in the remarkably low premium—less than £100—payable by a plaintiff for a policy of insurance recently negotiated by the Law Society against his liability to pay the defendant's costs and his own disbursements in the event that his action failed. As the Lord Chancellor's Advisory Committee pointed out in its press notice, it is common for a plaintiff's costs to reach an amount equal to half or even more of the damages recovered. Accordingly, if the 100 per cent. permitted uplift comes into force, the successful plaintiff may have to pay his solicitors an additional sum equal to the whole of the damages awarded to him.

Of course, if there is a finding of contributory negligence, those damages are reduced accordingly and the risk of losing everything to his advising lawyer is that much greater. Indeed, in correspondence passing between my noble and learned friend the Lord Chancellor and my noble and learned friend Lord Simon of Glaisdale (of which I was sent copies), the Lord Chancellor accepted that there may well be cases where the damages could be swallowed up even with an uplift lower than a 100 per cent. He gave examples of such a situation. It was for that reason that in its press notice the Lord Chancellor's Advisory Committee pointed out that,

    "one way of eliminating some of the most glaring injustices would be to restrict the uplift to a limited part of the damages";

in other words, to cap the proportion of damages which the successful plaintiff has to sacrifice to his lawyer. Indeed, I have already referred to the 25 per cent., as has my noble and learned friend the Lord Chancellor, being the figure which the Law Society will put in a model agreement.

Following the debate that I initiated on 1st November last year, my noble and learned friend the Lord Chancellor revised the drafts of the Conditional Fee Agreements Order and supporting regulations and sent the final drafts to my noble and learned friend Lord Steyn on 13th March.

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My noble and learned friend the Lord Chancellor was not prepared to restrict the uplift to a limited part of the damages. All he was, and is, prepared to do is to provide in Regulation 3 that a conditional fee agreement should state whether or not the amount payable to the lawyer is to be limited with reference to the amount of damages recovered.

While, of course, that will ensure that the question must be addressed in every case, it imposes no cap on the proportion of the damages which can be swallowed up by costs. I respectfully submit that the provision does not provide adequate protection for the client. That was the view expressed by my noble and learned friend Lord Steyn in a letter dated 24th March this year to the Lord Chancellor (of which I was sent a copy), following a meeting to discuss his current proposals. In his letter my noble and learned friend Lord Steyn said:

    "The chief difficulty remains your proposal to permit a maximum uplift of 100 per cent. of the legal adviser's fee. The Committee is still concerned that such a high percentage will create far too great a risk that any damages recovered will be swallowed up in legal fees ... I have to say that none of the arguments against this view appears convincing to the Committee. As you know, the Committee much preferred your original proposal of a maximum of 10 per cent. increase. However, subject to safeguards, the committee was prepared to accept that 20 per cent. maximum would be reasonable. But, for the reasons repeated above, I must leave you in no doubt that the Committee remain wholly opposed to the current proposal to permit a maximum increase of 100 per cent. The primary position of the Committee is that the maximum uplift should be no more than 20 per cent".

He continued:

    "On the assumption that you might wish, despite the Committee's view, to permit an increase of 100 per cent., the Committee took the view, as set out in my letter to you of 26th May of last year, that an essential safeguard would be for the Regulation to set a limit on the proportion of damages payable towards legal fees. On this matter, too, I have to say that the Committee is not convinced by the argument that it has heard against the implementation of that safeguard".

Your Lordships may remember that in the debate on 1st November my noble and learned friend the Lord Chancellor took the point that he is taking today; namely, that he has no power to make the provision to cap. I respectfully submitted that I and a number of my judicial colleagues with whom I informally discussed the matter did not accept that view. I drew attention inter alia to his wide regulation-making power in Section 120(3) of the Act which provides:

    "Any such regulations ... may contain such incidental, supplemental ... provisions or savings as the person making the regulations ... considers expedient".

In his letter of 24th March of this year, my noble and learned friend Lord Steyn informed the Lord Chancellor that the committee did not agree that he had no power to impose such a limit or that to do so would be to attempt to modify his power to set a maximum increase in fees. My noble and learned friend gave his reasons in detail. They were as follows:

    "The committee finds that in the Act no express or implied restriction on that power such as to prevent its exercise in order to limit the proportion of damages payable to the legal advisers. The Committee recalls your substitution of the words 'requirements' for 'information' in an earlier draft of the provision at the Committee stage in the House of Lords. You then explained that 'requirements' included, and went further than 'information' so as to include, for example, the power to prescribe how conditional fee agreements should define success in the action. The Committee does not agree that a limit on the proportion of damages would modify your power to set

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    a maximum uplift. Permission to increase a fee is logically distinct from any limit on the proportion of a particular source from which that increase may be satisfied. Moreover, the argument has no reasonable limit; it could presumably be said to apply even to your own example of a prescription of the way success in the action is to be defined. Such a definition would undoubtedly affect the amount of fees the legal adviser could recover".

As I pointed out in the debate on 1st November, if the Lord Chancellor does not have the requisite power then he should obtain it. After all, nearly five years have gone by since the Act was passed and a little extra delay in ensuring that the very real concern expressed by his own advisory committee is met would be time well spent.

If the Lord Chancellor does not have the power, as the noble Lord, Lord Hooson, said in the debate of 1st November,

    "for heaven's sake, he should seek it".

He added:

    "I do not believe that there would be any impediment either in this House or the other place in obtaining the power".—[Official Report, 1/11/94; col. 802.]

Perhaps I may end by again emphasising that I am in no way seeking to prevent effect being given to Section 58 of the Act; on the contrary, both I and the Lord Chancellor's own Advisory Committee are concerned to ensure that the client receives proper protection from—again I quote from that committee—

    "the glaring injustices which could arise",

as a result of the implementation of the draft order and regulations. Surely this is an area in which one should proceed with great caution. Why not start with a 20 per cent. uplift and see how it works? It can always be increased. If you start with a 100 per cent. uplift, the prospects of it ever being reduced are exceedingly remote.

These are the essential reasons for tabling my amendment. My noble and learned friend Lord Donaldson of Lymington, who is currently abroad, has written to me supporting my Motion. I beg to move.

3.50 p.m.

Lord Irvine of Lairg: My Lords, the noble and learned Lord, Lord Ackner, has made his arguments so fully that I can be brief. I oppose the proposal of the noble and learned Lord the Lord Chancellor that the draft order and regulations be approved and support the amendments of the noble and learned Lord, Lord Ackner. I do so not on the basis of opposition to conditional fees in principle, but in the interests of protecting consumers of legal services. I start therefore from an acceptance that Parliament has sanctioned conditional fee agreements which comply with such requirements as the noble and learned Lord the Lord Chancellor may prescribe for them. The issue therefore is what the requirements should be and what minimum floor of protection should be prescribed as mandatory terms of conditional fee agreements.

Conditional fee agreements may, in an age in which the eligibility limits for legal aid have been cut most harshly provide an alternative means of access to justice. But that must not be achieved at the expense of what might reasonably be thought to be the exploitation of litigants for the benefit of lawyers. I would add that the noble and learned Lord should use his powers under the 1990 Act to

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legislate for consumer protection in a way that is both clear and certain and not in a way that is dependent for its effectiveness on the good will of the legal profession.

First, "no win, no fee" does not mean exactly what it seems to say. Even under a "no win, no fee" agreement the client who does not win still has to pay the costs of the successful party and the expenses, the disbursements, which his solicitor has incurred; for example, barristers' fees. Secondly, I accept that conditional fees are not contingency fees in the full or traditional sense. A contingency fee arrangement means that the lawyers are entitled to a percentage "slice of the action"—that is, of the damages recovered—whereas under a conditional fee agreement the solicitor will be entitled if the case is won—admittedly, that is a contingency—to an agreed uplift on the amount of the fees for the work he has done above the level they would otherwise have been. So the basic question seems to be this: how much uplift is necessary, in the category of cases to which these arrangements will primarily apply, to compensate solicitors for the cases they lose where they will recover no fees for themselves?

The principle surely should be that the maximum permitted uplift in cases that win should not be disproportionate to the risk of losing. The Law Society has said that the current proposals,

    "will enable conditional fees to be widely used in personal injury cases whilst also providing appropriate measures to ensure proper consumer protection".

I agree with the first part, but not the second. Personal injury cases, as the noble and learned Lord has rightly observed, are a low risk area of litigation from the standpoint of plaintiffs. In the vast majority the plaintiff succeeds in whole or part. In fact I understand that around 95 per cent. settle, to the advantage of plaintiffs, without any court order. In my view the first thoughts of the noble and learned Lord on the Woolsack on this subject were correct. A 10 per cent. or at most 20 per cent. uplift was sufficient incentive. He should have adhered to that.

I endorse also a point made by the noble and learned Lord, Lord Ackner. The fact that insurance cover against the risk of losing can be purchased through the Law Society's accident line scheme for less than £100, demonstrates that in the class of case, personal injuries, to which conditional fee agreements will primarily apply in practice, the risk of loss is very low. I therefore think that a 20 per cent. uplift for succeeding is proportionate to the low risk of losing.

It is argued—we have heard the noble and learned Lord on the Woolsack argue in this way—that a maximum success fee of 100 per cent. is necessary for lawyers to undertake on a "no win, no fee" basis cases with only a 50:50 chance of success. I could at least see that argument if 100 per cent. success fees were confined to 50:50 cases. But they are not. In any event I think that solicitors practising in the personal injuries field would be compensated for their unremunerated time in cases they lose by their 20 per cent. uplifts in the vast majority of cases where they win. I would predict that unless a 20 per cent. maximum is fixed we will be returning in future years to figures that will show that uplifts close on 100 per cent. will have been applied in a disturbingly high proportion of cases.

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The next question is whether the noble and learned Lord, if he is insistent on retaining a maximum of 100 per cent., should be imposing a statutory cap on the uplift of, say, 20 to 25 per cent. of the damages recovered. I regard such a cap as an essential protection for the consumer of legal services. Particularly in cases where the damages are low and the fees high, it would be possible to win but to have to pay out literally all the damages recovered in legal costs plus success fees. That would be litigation which would in practice have been conducted—this is how the public would see it—for the benefit of the lawyers alone. The Law Society itself sees the merit of such a cap because it will be recommending to its members a cap of 25 per cent. of the damages recovered. The noble and learned Lord should himself be imposing a 25 per cent. cap as the only sure means of protecting the consumer.

The noble and learned Lord maintains that he lacks the power to impose such a cap. I am not entirely clear what his position is. Is the noble and learned Lord saying that he would impose such a cap if he had the power to do so, or is he simply maintaining that he lacks the power to impose a cap which he would not wish to impose in any event?

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