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Lord Renton: My Lords, before he sits down, will my noble and learned friend confirm that he is therefore saying that when, for example, a London solicitor makes an agreement with a British subject who happens to be abroad at the time in relation to conditional fee arrangements before the European Court of Human Rights, the terms of the order which my noble and learned friend is asking the House to approve would not apply?

The Lord Chancellor: My Lords, I am saying that if the conditional fee agreement in question falls to be judged by English law then these regulations will apply if the agreement is covered by the regulations.

Since the point has been raised, perhaps I should say that I originally intended to limit the conditional fee regulations to personal injury cases. However, the Law Society and insolvency practitioners pointed out special problems in that regard, to which I need not refer in detail, and others concerned with European legislation pointed out problems there. It seemed to me relatively easy to deal with those problems. However, I have limited the scheme. It does not apply to all forms of action which are permissible. As my noble and learned friend the Lord Chief Justice said, I have approached the matter with a degree of canniness in relation to the types of proceedings which can be covered.

It would be wrong for me to detain your Lordships further. I strongly suggest to your Lordships that what I propose here is correct in principle and that your Lordships should approve it in principle. Otherwise your Lordships would be approving a kind of fudge which would only encourage people not to treat these as individual cases but as if we were allowing a form of modest taxation on all successful plaintiffs in order to service the claims of those who fail.

I invite your Lordships not to support the amendment of my noble and learned friend Lord Ackner.

6.18 p.m.

Lord Ackner: My Lords, I have appeared in this House on a number of occasions on matters relating to legal subjects. This is clearly an important debate because I have never seen the House so well attended on any legal issue. It is an important debate because if the noble and learned Lord the Lord Chancellor has got it wrong, then very serious injustices, which his committee warned him about, would come about.

At the outset I wish to thank noble Lords who have taken part in the debate, particularly those who have supported my amendment. It is fundamental to the whole

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of the submission of the noble and learned Lord the Lord Chancellor that the uplift should not be disproportionate to the risk. The strange thing is that one finds no reference to that in the order or the regulations. The uplift features in the very last paragraph in the order which states:

    "For the purpose of section 58(5) of the Courts and Legal Services Act 1990 the maximum permitted percentage by which fees may be increased in respect of each description of proceedings specified in article 2 is 100%".

That is all. No indication is given as to when one should charge what.

My noble and learned friend the Lord Chancellor says, "We are giving thought to taxation so that we have a method of dealing with the situation." Why has it taken nearly five years for thought to be given and for nothing to be achieved? The noble Lord, Lord Mishcon, indicated the practical problems with regard to seeking to relate the uplift to the proportion of the risk, and, once an agreement has been reached, how difficult it is to challenge.

My noble and learned friend the Lord Chancellor has a detailed letter from his own advisory committee dated 7th April, 1995. It is a long letter stating that the committee remains gravely concerned that taxation will not in practice prove an effective safeguard. The letter states that there will be clear difficulties regarding a taxing master who is not an expert on assessing risk in actions and who will have considerable difficulty in knowing at what stage he should reach that decision. However, an important comment is made on page 2 that it will undoubtedly be argued, and probably successfully, that Parliament has sanctioned increases across the personal injury field of up to 100 per cent., that the client agreed the increase and that no reduction is therefore warranted. But taxation does not follow as night follows day. It could do so if the Lord Chancellor looked upon that method as being the system to provide such vital control. He could provide in the regulations that taxation must take place in every case. He could do better still. Instead of leaving it to a taxing master post hoc to seek to unravel the degree of proportionality to the risk, he could provide that before every agreement is put into effect it should receive the approval of a master of the High Court who would be expert in such matters. The written agreement would be handed in to the master with any supporting statements, and he would be asked to approve it. There one has the control.

However, we do not have obligatory taxation, and taxation is expensive. If the litigant demands taxation—he will have to demand it, the solicitor will not offer it—he will be told, quite rightly, "This can be a very expensive operation and if you do not accept what I am telling you about the reasonableness of my uplift, then you go ahead. But if you fail you will pay a costly figure for querying my judgment."

This matter has not escaped the attention of the Lord Chancellor's own advisory committee. If I were standing before your Lordships saying, "Would you please implement my views on what is appropriate and my views as to how to protect the litigant who is often vulnerable and at a difficulty?", I could understand the situation. But the Lord Chancellor has had the consistent, definite and quite firm advice—firm enough for the committee to feel so concerned that it published such advice in the press—that what is being done is fraught with danger for the

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litigant. That committee of 17, presided over by a Lord of Appeal in Ordinary, includes judges and other experts and has a majority of laymen. I have already described how the committee—so that it should not be thought to be in any way out of touch—has among its members a past president of the Law Society, a partner of the litigation department of one of the most experienced firms, and a past president of the Institute of Chartered Accountants.

Its detailed criticism is brushed aside as fudging. Some committee to fudge in the way in which the noble and learned Lord the Lord Chancellor suggests! The committee is concerned with one essential feature. If you bring in this new concept, as must happen—it is accepted—of conditional fees you have to take great care to ensure that the litigant is properly safeguarded.

I have dealt with taxation. Perhaps I may now turn to the question of the cap. As the committee said to the Lord Chancellor, "If you will not come down to 20 per cent. and insist on 100 per cent., the only way of safeguarding the litigant from having the whole of his damages swallowed up in the 100 per cent. figure"—a situation which the Lord Chancellor has conceded in correspondence can easily happen—"is to impose a limit from which the damages can be resorted to".

Perhaps I may deal with the points raised. First, my noble and learned friend Lord Nicholls accepts that there is potential abuse available, that the 100 per cent. could be an excessive figure. The figure of 100 per cent. without abuse can still absorb all the damages; it does not have to be a "guilty" 100 per cent. It is a question of figures. However, the noble and learned Lord accepts that there is potential for abuse. The idea of the cap is to prevent that abuse. Therefore, why not have it?

Secondly, there has been reference to the fact that the conditional fees are designed to apply not only to a plaintiff but to a defendant. How can one operate a cap on a defendant? The answer to that is perfectly simple. A cap has no relevance to a defendant. A cap protects damages or other sums recovered from being swallowed up. The defendant is present, unless he has a counter claim, in order to resist the claim. When he has resisted the claim successfully, there is no cap and therefore the risk of damages being swallowed up does not arise in any way.

The reason that the damages aspect is so important is this. The Law Commission brought out a short paper representing its views on the conditional fees and other proposals made by the Lord Chancellor in his Green Papers in 1989. One of the observations that the paper made was that to require the litigant—this must be the plaintiff—to pay any significant sum out of his damages detracts from the fundamental principle of English law that the courts strive to put a wronged person back into the position in which he would have been had he not been wronged. One writer said that any time a litigant has to pay representation expenses from his award, justice is not done. Those were the views recorded by the Law Commission. The cap seeks to face up to the position that the uplift will come out of the damages, but it will not wipe out the damages. That is its function; that is its principle. That is why the Lord Chancellor's own advisory committee has stated consistently that if one wishes to hang on to the 100 per cent., the only way

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to avoid a situation in which the litigant receives nothing, or virtually nothing, is a cap. What on earth is against that? I wave to one side the absence of power. It can be obtained. I do not accept, and nor do others who have considered it, that there is no power. What is against it? There is the reference to the defendant. It is an irrelevant concept to cap the defendant.

The other point is structured settlements. There can be an exception in regard to structured settlements. We spent five years contemplating the regulations and it is not beyond the wit of man to allow an exception. The noble Lord, Lord Coleraine, obviously realised that it is a difficult point. It is significant that a cap of 25 per cent. appears in the model agreements drafted by the Law Society. Why has the Law Society said in those agreements that there should be a cap of 25 per cent.? Because it realised the injustice of the applicant winning and then being left with under 75 per cent. Even 25 per cent. would not give him 75 per cent. because there is a difference between the costs that he receives by order of the court and what are called indemnity costs which he has to pay to his solicitors. So the cap is the opportunity to safeguard the situation.

I have had the greatest difficulty understanding the constant firm resistance of the noble and learned Lord the Lord Chancellor. The suggestion that he had no power came late in the day and it is followed similarly late in the day with structured settlements. It is now said that the defendant's position would produce an anomaly. That is not so.

There have been references to the consumer and consumer organisations and what they wish. I have received briefs from such organisations for the purpose of the debate and they all accept that the cap provides an enormous amount of protection. One said that if matters did not work out by the optional opportunity, then legislation would have to be considered. But the concept of the cap is obvious. It provides the protection. If, as the Lord Chancellor's committee suggested, the noble and learned Lord insists on 100 per cent., this is the appropriate compromise.

I make only one point about Scotland. If I had realised that point would be raised, I would have brought the document with me. There was a Bar meeting not long before our debate on 1st November when either the dean or the vice-dean informed the company present that conditional fee agreements were not being used. On Thursday or Friday I spoke to the Lord President about the experience in Scotland. He said that there was a small take-up and explained why. It was because the 100 per cent. was kept down. Because of the base fee, as he called it, to which the 100 per cent. could be applied, the method of taxation and fixing fees which can be obtained is quite different. Those were not his words but generally the base fee being screwed down meant that the 100 per cent. was of little advantage. Perhaps it is not a useful analogy to draw between the two countries. They are in an entirely different situation with regard to the supply and demand of that form of litigation.

I respectfully but, I hope, not too emphatically emphasise that if my noble and learned friend's proposals come into force without the cap being

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available, there will be occasions when this country will exceed the worst excesses of the United States. Let me make that proposition good. In the United States matters differ from state to state but the fee that is earned on the conditional fee basis is a percentage of the damages—30 per cent., 40 per cent. But one cannot obtain more than 40 per cent. So the litigant is always left with 60 per cent. of the damages that are recovered. But, as the Lord Chancellor's advisory committee pointed out, what the noble and learned Lord proposes without a cap—as he has conceded over and over again—can result in the litigant who has won obtaining nothing at all. In my respectful submission, that situation is worse than the American system. Not only is it worse. To introduce such a situation would do a great disservice to the administration of justice in this country.

In the edition of The House Magazine of 22nd May, there is an article by the noble and learned Lord the Lord Chancellor vigorously defending some of his law reforms. The penultimate paragraph contains this sentence:

    "If on any aspect of my reform proposals they can suggest improvements, I would be most grateful and delighted to consider them".

While, of course, I accept without hesitation the sincerity of the noble and learned Lord's expression of gratitude and delight—which no doubt applies to this debate—his lack of sensitivity to the weight of argument not only in this House but to the continued representation by his own advisory committee obliges me to seek the opinion of the House on my amendment.

6.37 p.m.

On Question, Whether the said amendment shall be agreed to?

Their Lordships divided: Contents, 100; Not-Contents, 105.

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