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Lord Mishcon: My Lords, will the noble Lord accept a humble compliment from this side of the Chamber? Is he not aware that he indulges in specialist cases of great complexity where it would be impossible even to forecast what any judge might decide?

Lord Lester of Herne Hill: My Lords, I always find it extremely difficult to forecast what any judge will decide. That is why I would never hazard a 75 per cent. prospect of success, in particular before some of my best friends on the Bench. But I cannot recall any case in which I have been so confident of persuading, for example, noble and learned Lords who sit in this House, that I have been able to advise a 75 per cent. prospect of success. A threshold as high as that will severely restrict the less well-off in their access to legal services and to justice.

The Lord Chancellor has recognised that it would be right to make special arrangements for the public funding of public interest cases. That is most welcome; and I am glad that he has recognised also the contribution that lawyers make in such cases. I am sure that he did not mean to confine his praise only to that class of case. He has not been able to give information about how much will be available for this special fund for public interest cases, how it will be available, according to what criteria, or who will be the judge. Nor has he made clear whether it would be administered independently of the state and its agents. I very much hope that he will be able to give the House more information about what is intended when replying to the debate.

With respect to the other alternatives for controlling public expenditure and increasing access to justice, I am glad that the Lord Chancellor has not ruled out the sensible proposals first advocated not by the Bar Council but by Justice in 1966 for a contingency legal aid fund (CLAF). My noble friend Lord Goodhart is one of the main architects of the Justice scheme. I am sure that he will wish to explain its virtues in a way that I cannot. But a CLAF scheme such as that successfully operated in Australia would allow people requiring financial support to pursue a money recovery case to have their legal costs covered by the fund on condition that they agree to contribute to the fund a proportion of any damages recovered. The fund would be self-financing and could operate alongside conditional fee agreements and civil legal aid for those for whom neither CLAF nor conditional fee agreements are available. I very much hope that the Lord Chancellor, who has an open mind on the question, will look

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favourably on the idea as modified by the Law Society in its memorandum, Better Value Better Justice, published in June 1996.

Almost 30 years ago I was privileged to work with the Lord Chancellor's former pupil master, the wise and compassionate Morris Finer QC, and Professor Michael Zander and Geoffrey Bindman, when we wrote a Society of Labour Lawyers' report, Justice for All. In it, we examined the problems of the unmet need for legal services and the various factors contributing to the failure of the urban poor to obtain equal access to justice. We pointed out that the legal aid scheme had been grafted upon the traditional structure of the legal profession and had therefore been shaped and restricted by the limits of that structure. Those limits may mean, for example, that there is only one firm of solicitors in a particular working-class neighbourhood which is open only during working hours, which discourages unprofitable work and whose solicitors know much about conveyancing and little about social security. Within such a system the legal aid scheme works fairly well; but the legal profession is simply not organised to provide a social service in areas of special need.

Instead of recommending a vast increase in legal aid, our alternative strategy was, and remains, comparatively inexpensive and cost-effective: a community legal service of legal centres and legally-supported CABs in the heart of areas of special need, staffed by properly paid, full-time qualified lawyers, open in the evenings as well as during the day, giving expert advice on the special legal problems of local residents and, where necessary, referring cases to social workers or private lawyers. Such centres would be independent of government, and would provide a means of protecting the weak against the abuse of government or private power. They would not undermine the independence of the legal profession, nor would they erode its private structure. They would supplement the services already given by lawyers in areas where legal services are not adequately provided.

I still hope that the Lord Chancellor will be able, as he would wish, to give a community legal service high priority, together with the speedy and effective implementation of the vital proposals of the noble and learned Lord, Lord Woolf, to reform the civil justice system. I hope he will reconsider his other proposals in the light of this debate.

In his powerful essay in Law Reform for All, published last year, the noble and learned Lord the Lord Chancellor wrote:

    "The ambition of any Labour Lord Chancellor must be to restore legal aid to the status of a public social service which is so highly regarded for its economy and efficiency in securing access to justice that, with the support of the public, it can compete for scarce resources with the most highly regarded services such as health ... Legally enforceable rights and duties--enforceable in reality and not only in theory--underpin a democratic society under the rule of law. Rights without a means of enforcement make a mockery of justice".

Those are the ideals of those of us on these Benches, too. I hope that this New Labour Government will transform them into practical reality in the lifetime of this Parliament.

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5.43 p.m.

Lord Ackner: My Lords, fellow feeling makes us wondrous wise, and I feel for my noble and learned friend the Lord Chancellor. Many years ago, when I was a judge of the Queen's Bench Division, I was addressed by a highly eccentric Irish litigant in person as, "your worshipful holiness"! Having read much in the newspaper recently about the Lord Chancellor, I can well understand his anxiety at the prospect of early canonisation.

I respectfully express my deep disappointment at the Lord Chancellor's attitude to civil legal aid and his proposals basically to abolish it. At the end of September last year my noble and learned friend was the Shadow Lord Chancellor. The shadow was to change to substance in less than nine months. He gave the keynote address to the Bar Conference, a "tour d'horizon", as he described it, across legal policy. When I read it I was immensely cheered by his statement:

    "let me begin with some basic points. I accept that a Lord Chancellor should fight his corner for justice in Cabinet. He must not be a mere hand-maid of the Treasury".

He spoke at length about legal aid, pointing out that, by its very nature being demand led, it attracted Treasury hostility. But under the heading, "Success of legal aid", he made the observations which have already been quoted by the noble Lord, Lord Lester. Perhaps I may read on from where the noble Lord ended:

    "Personal injuries litigation for assisted persons is as a category conspicuously successful. Obviously the greater the success rate the closer the legal aid system can approach self-funding. These success figures tell against any argument that legal aid is generally granted too readily, but it must be remembered that there are a small number of very high cost cases which account for a large proportion of expenditure".
I interpose here to say that I understand that when credit is taken for the costs recovered in successful legal aid cases together with contributions made by the plaintiff to his legal aid, plus the clawback of social security payments, the cost to the Revenue is only approximately £100 million. I say "only" because, relative to the total costs of legal aid--some £1.5 billion--it is a very small proportion.

A little later in his address, the Lord Chancellor went on to say:

    "There may however be a case for tightening the merits test so that, for example, legal aid should only be granted if Counsel can advise that on current information the prospects of success are at least 60/40".
I believe that 75 per cent. is quite unrealistic. I only once advised that a case would succeed--and succeed it did, in the county court. When it went to the Court of Appeal, my opponent was led, and the entire case was recast. It bore no relation to the pleadings at all. I protested, and the noble and learned Lord, Lord Denning, said, "Oh, we don't worry about that in my court"--and I lost. That cured me once and for all in relation to ever being dogmatic about the prospect of success.

To answer the noble Lord, Lord Mishcon, in regard to the difference between complex and simple cases, perhaps I may give him an example of what I thought was a very simple case. I refer to Smouldon v.

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Whitworth and Nolan, 1997. The plaintiff's neck was broken when a scrum collapsed during an under-19 colts rugby game. The referee was sued for negligence. I should have thought that that was pretty straightforward and simple. It was the first case of its kind. The case was lost at first instance, and on appeal. Leave to appeal to the House of Lords was refused, and there was an appeal against that refusal. When it reached the House of Lords on its fourth hearing, the plaintiff was successful. Now what on earth does one do about the 75 per cent. costs? Are you forecasting for success in the House of Lords, or are you forecasting for success at first instance?

I also wish to refer to another part of my noble and learned friend's remarks in the course of his speech today which has not been mentioned. He said that, one way or another, he was going to bring the legal aid budget into control. This is what he said nine months ago, when he was but a shadow of himself:

    "The legal aid budget is currently within estimate and under broad control so there is no immediate imperative for cost-capping".
I fear that, despite the macho image that has recently been spun around the Lord Chancellor and the unparalleled powers that he apparently wields in and out of Cabinet, imposing his authority on warring political heads of departments, he is, when all is said and done, as he said:

    "a mere handmaid of the Treasury".
Having listened to or read the speech to which I made reference, who would have thought that a little over a year later he would be proposing to deprive the poorest in society of access to justice by abolishing legal aid and putting in its place a form of speculative litigation, of which those who have been in receipt of legal aid would be unable to take advantage--if "advantage" is the right word.

Speculative litigation has in recent years been covertly a favourite of the Treasury. It was banged firmly on the head by the Royal Commission on Legal Services, presided over by the late Lord Benson. His recommendation was accepted some four years later in a White Paper by the then government. There was a civil justice review within the Lord Chancellor's Department, presided over by a layman, with a majority of laymen on the review body. That review suggested that conditional fees--or contingent fees--should be looked at again.

Two Green Papers were produced by the then Lord Chancellor at the behest of a sub-committee of the Cabinet Economic Committee, chaired by the then Chancellor of the Exchequer. There was a separate Green Paper all on its own about conditional fees, based on the fact that in Scotland conditional fees were permitted but with no uplift. It was proposed that there should be an uplift of a mere 5 per cent. In due course Section 58 of the Courts and Legal Services Act was passed. The uplift proposed by the Lord Chancellor was 10 per cent. It was later proposed to be 20 per cent., which was agreed to by his advisory committee. It was later proposed to be 100 per cent., 10 times the initial figure he had proposed, so keen was the Treasury to ensure that the system could be put into operation,

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would work and be capable of being extended. That was firmly disagreed to by his advisory committee.

The noble Lord, Lord Mishcon, with wise cynicism, said: "Hey, if you are going to have this new procedure, it should not impinge in any way upon legal aid". As a result, provision was made in Schedule 19 to that Act to the effect that legal aid should not in any way not be granted merely by reason of the fact that the case was equally appropriate to be taken on a conditional fee basis. Now, without prior consultation either with the professions or, more importantly, with the insurance companies, this radical proposal is made. Yet in his speech in Cardiff the noble and learned Lord the Lord Chancellor had said:

    "The thing to do with change is to manage it through consultation and in the spirit of consultation".
By reason of the inadequacy of consultation, not only has insufficient thought been given to the practicabilities of the proposals but they have proceeded on a false basis.

In his Review of Civil Justice and Legal Aid, published in September, Sir Peter Middleton expressed the following view:

    "Since 1995, solicitors and their clients have been allowed to make conditional fee agreements in limited areas of work. Although the results of the research into this experiment have not yet been published, there seems to be a widespread consensus that conditional fees have worked well and achieved their primary purpose of improving access to justice for those who do not qualify for legal aid. It seems to me that the value of conditional fee agreements has now been sufficiently well established. Their scope should therefore be widened to embrace all civil proceedings (although in practice, of course, they are mainly relevant where a money claim is involved)".
Sir Peter Middleton, not being a lawyer, did not appreciate the ethical problems that the extension of conditional fees gives rise to. They are conveniently summarised in Chapter 16 of the report of the Royal Commission on Legal Services to which I referred.

The commission accepted, having consulted widely with the public and the professions, that:

    "The fact that the lawyer has a direct personal interest in the outcome of the case may lead to undesirable practices including the construction of evidence, the improper coaching of witnesses, the use of professionally partisan expert witnesses (especially medical witnesses), improper examination and cross-examination, groundless legal arguments designed to lead the courts into error and competitive touting".
The results of the very limited research, to which I shall refer in a moment, were published in September. In his Cardiff speech on 18th October--after the publication of the report--the Lord Chancellor made no reference to it but said:

    "Conditional fee agreements have been working well in the personal injury field".

As long ago as 1995 the Lord Chancellor's advisory committee had advised that, given the novelty and potential risk to the litigant inherent in setting up conditional fees agreements, there must be effective monitoring of the results. The committee did not believe that monitoring would be effective if it had to rely on a sample which might well be unrepresentative. Nevertheless, all the advisory committee was permitted to do was to commission the Policies Studies Institute to provide a report on sampling.

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The institute surveyed 300 firms, all specialists in personal injuries; only 120 responded. Those 120 firms were doing on average less than one conditional fee agreement a month. A figure of 28,000 conditional fee agreements to date has been advanced, though one has yet to see any authoritative source for that. Even if it is accurate, it is a remarkably small figure, bearing in mind that conditional fee agreements are available in personal injury cases for the majority of the population who do not qualify for legal aid. The figure for legal aid certificates issued in personal injury cases over the same period is of the order of 250,000.

Far from confirming that conditional fee agreements have been working well, the following was stated in the report entitled The Price of Success:

    "However, on the basis of the evidence so far available, there is potentially cause for serious concern about the way risk is being assessed and uplift calculated.

    Fairness of the uplift does, of course, hinge on the accuracy of an original assessment of risk and there are some doubts about the accuracy of risk assessment among solicitors' firms. Information about the outcome of these cases, the damages, costs and fees paid is necessary for a full evaluation whether the uplift is fair. However, on the basis of the evidence currently available there is potentially serious cause for concern about whether the scheme is operating fairly and consistently.

    The proportion of conditional fee cases with low estimated chances of success is surprising and raises questions about the way in which solicitors are assessing risks. This could cast doubt over the fairness of the entire scheme".
I am surprised that no reference was made to that work, particularly as the Lord Chancellor, in the debate in 1995 on the order to be made with regard to conditional fees, accepted that 95 per cent. of personal injury cases succeed and that in his view a 20 per cent. uplift was quite sufficient. In fact, the uplift has averaged 42 per cent.

I end by saying this. The present position, put quite bluntly, is that we simply do not know enough about the manner in which conditional fee agreements are operating to switch to a system for which they are primarily a means of funding litigation. Matters are still at an experimental stage. There is insufficient material to make a properly informed decision.

The Lord Chancellor recently left the Bar, where he operated with considerable success. Indeed, he is a self-confessed "fat cat". It would be a tragedy of gargantuan proportions if he should rush in, abolish legal aid and take away from the poor and those suffering from various disabilities the means of access to the courts which have been recently referred to as a fundamental constitutional entitlement.

6.1 p.m.

Lord Mishcon: My Lords, perhaps a very slim cat can express his sympathy to his brethren and sisters in this House who, whenever there is a debate in regard to legal matters, find themselves afflicted by one lawyer after another delivering at times rather obscure speeches.

I am reminded, if your Lordships will permit it, of a famous story about Serjeant Sullivan, who was known, as the Irish representative that he was at the Bar, as being fearless. He was addressing the Court of Appeal on behalf of a workman who had suffered injuries at

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work. The presiding judge of the court turned to Serjeant Sullivan, "Has your client never heard of the maxim of volenti non fit injutia?"; to which Serjeant Sullivan replied, "My Lord, it is the sole topic of conversation in the little village of Antrim from which my client comes."

I feel for your Lordships when somewhat complex arguments are advanced in legal language, and I shall endeavour, if my arguments are not forceful, to at least make them easy to understand. But before I say anything, perhaps I may say that my intervention when the noble Lord, Lord Lester, was speaking was meant as a compliment to the very abstruse cases in which he deals.

Percentages are difficult. I can remember when I was a young solicitor practising in the suburbs. It was at a time when, if anybody walked into my waiting room, there were strict instructions that the door was to be locked and so was the door to the few steps that took one up the stairs of that office. However, a gentleman did come to consult me. He told me that his son had been injured while walking on a pavement by a vehicle which had mounted the pavement. Memories of my final examination reared in front of me and I muttered the words, Res ipsa loquitur, saying to him, "My dear sir, you cannot lose. This case speaks for itself; the very facts speak for themselves". On inquiring further into the case a week later, I found that the gentleman whose vehicle had mounted the pavement had had a heart attack and had never had one before. The result was that my 100 per cent. had to be reduced to 0 per cent., since obviously there was no negligence.

These percentages are difficult for any lawyer to work out. One cannot summarise the speeches so far by saying that they were laudatory in favour of the speech made by the noble and learned Lord. But they have not been particularly constructive in regard to the main task that fell to the noble and learned Lord on his accession to office. We have all made remarks in shadow capacities and turned out to be shadows of ourselves later on. I do not believe that that is particularly relevant.

My noble and learned friend faces a dilemma with which we have been trying to deal for years but never really grasped. It is often said in your Lordships' House that justice for the very poor is all right, and that it is all right for the very rich. But what about the people in the middle? They find it impossible to enter into civil suits by virtue of the costs of their own lawyers, let alone the risk of the cost of the lawyers on the other side if they lose. Yet nobody--I say this with deep respect to those who preceded me--dealt with that question at all.

It is a fact that if one was brought up in the generation of lawyers in which I was brought up, the words "maintenance and champerty" would make one tremble. If one was in the generation of lawyers that I had the privilege of being among, questions of conflict of interest made one worry oneself into insomnia. They were matters of grave importance professionally.

But time marches on. In order to make a constructive contribution to your Lordships' debate, I have been trying to think of a solution. If we take for granted that

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we adopt all that is in the eminent report of the noble and learned Lord, Lord Woolf, and take for granted that we do not make the lawsuits into the nightmares into which they sometimes develop so that they are speedily heard, we still find a gap in our justice system. It is still too expensive for people in the medium income group.

Incidentally, I am indebted to my noble and learned friend for merely quoting some of the average fees of the Bar and not walking into the sphere of a solicitor's income. I know that it was because he realised how much less those incomes are.

My Lords, where do we go from here? I am forced to the conclusion that, unless we walk into the sphere of conditional fee agreements, there is no answer, unless we have a Treasury that is prepared to pour out not only what we are faced with--that is bad enough at £1.4 billion--but also however many billions we would have to pay if we were trying to cover the medium income group.

I have but one concern, having reached that conclusion. It is this. There is no doubt that if we remove from legal aid most of the money and damages claims, there is a gap in the programme. It is the question of the other side's costs if you lose; it is therefore the question of the insurance premium; and it is the question of disbursements that would have to be incurred.

One of the major problems one faces in this context is one that the noble and learned Lord was good enough to mention. I refer to medical negligence claims. This featured in a letter to The Times sent by members of the Bar who specialise in this field. One of the instances of those claims is brain-damaged children, where parents are agonised by the cost of such children during infancy and childhood and who say to themselves, "What will happen when we are no longer here?" That is the field in which the investigatory work to be carried out by psychiatrists, neurologists, and a whole gamut of expertise, has to be gone through with the lawyers before getting to the stage--you do not measure 75 per cent. or 50 per cent.--of being able to make any adjudication on whether the case is likely to succeed.

Are these people to be dumped into walking into one solicitor's office after another, with the solicitor saying, "I am perfectly prepared to take on this case. I would have taken it on a year ago under legal aid; I would have got the preliminary expenses for the investigatory fees paid. But I am afraid that I am not here as a philanthropic institution--I wish I were. I cannot pay £5,000, which may be incurred in all those experts' fees and investigatory work, or £2,000 or £1,000. I have enough hardship as it is".

I say this to the noble and learned Lord--it is said in a letter to The Times this morning, not just from the Bar Council but from the Consumers' Association, the Law Society, and other bodies which are interested on behalf of the man in the street--let there be a trial of this and more research into this. That research is so necessary because it is idle to talk in terms of experience, if I may humbly say this, since 1995 when personal injury cases, European Court cases and some insolvency cases were transferred out of legal aid. We all know that personal

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injury cases will, once in a lifetime of professional activity, require a deep knowledge of the law. They are factual. They are easy to assess as a rule. If a car bumps into the rear of another car, we all know that the driver of that car must be negligent. These are cases where conditional fee arrangements work very well. There is little expenditure in any event in investigating them. You have only to apply for a police report and take statements.

The noble and learned Lord has--I say this with deep respect--behaved very gallantly in taking on these challenges. They have been largely neglected up until now. I repeat the need for the middle-income group to be allowed to walk through the courts of justice. He has tackled it. I personally admire him for that. I admire him for bringing these matters before the House and before the country. But I ask for further time for this research to be done and I ask for further consideration to be given to the parents of whom I have spoken.

6.15 p.m.

Baroness Wilcox: My Lords, I contribute to the debate not as a lawyer but as someone whose sole concern today is to ensure that the ordinary person, particularly the poor and vulnerable, will benefit from the changes the noble and learned Lord the Lord Chancellor proposes. I want to concentrate particularly on conditional fees and whether they will be an adequate replacement for legal aid.

When I chaired the National Consumer Council, following as I did my noble friend Baroness Oppenheim-Barnes, who is to speak later in the debate, we supported the cautious introduction of conditional fees. Perhaps I can begin with their advantages. They are likely to increase access to justice for those of moderate means by enabling them to limit the costs of losing. And conditional fees are potentially fairer than legal aid to a winning party, who is able to recover costs from an opponent funding the case by a conditional fee agreement. By comparison, legally aided parties do not normally pay the other side's costs.

If, despite all this, I am rather tentative in my hopes for conditional fees, it is for the reasons I now give. I should like to concentrate on three aspects of the proposed changes to conditional fees and legal aid: safety, outcome and quality. On the point of safety, I have before me the model agreement for a conditional fee drawn up by the Law Society and widely used by solicitors. It is written in commendably plain English and every effort has been made by the Law Society to make it understandable. However, the terms of the agreement are fiendishly complicated. I doubt that many non-lawyers would understand them. But even my non-legal mind can see that a lot of things could be going wrong with conditional fee agreements such as people being rejected unfairly or agreements coming to a premature end. And yet, the noble and learned Lord the Lord Chancellor seems to be proceeding on the assumption that they are trouble free. I wonder by what evidence he judges that.

As far as I am aware, the only research into conditional fee agreements was undertaken by the Policy Studies Institute at a very early stage in the short

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life of conditional fees. The PSI, mentioned earlier by the noble and learned Lord, Lord Ackner, looked at the initial terms of 197 of the first conditional fee agreements, a tiny proportion of the 30,000 or so now in existence. That research only examined the initial terms of the agreements. It did not follow any of these cases to completion. It did not ask any of the clients how they felt the agreement worked in practice. It did not attempt to identify any problems that arose beyond the original calculation of risk and setting of a success fee. The research raised concerns about the ability of solicitors to estimate risk consistently and to charge a success fee that was commensurate with risk. That is understandable in the early days of conditional fees. But it is vital to know that things are improving with time.

The PSI referred specifically in its research report to what further information would be needed in order to support a decision to withdraw legal aid and replace it with conditional fees. It said:

    "Until information is available ... on outcomes, costs, damages and the eventual fees paid, a full assessment will not be possible. Any plans to extend conditional fees or ... to substitute them for legal aid in areas of law where they are available, needs to take into account that there are many unanswered questions".

It appears that the noble and learned Lord the Lord Chancellor has chosen to proceed without knowing the answers to any of those questions. I hope it is not, but it may now be too late for research into clients' experiences of conditional fees in advance of the withdrawal of legal aid. The objective is to withdraw legal aid from most money and damages claims by the middle of next year. However, it is not too late to begin a programme of monitoring clients' experiences so that they can inform the further development of conditional fees.

I ask the noble and learned Lord whether he will commit his department to undertake this vital monitoring; publish the results of that monitoring and take steps to deal with any problems arising from such monitoring.

In my view, one piece of client monitoring is particularly urgently needed. It is vital to know who is being turned down by solicitors for a conditional fee agreement and on what grounds. The fear of consumer groups is that solicitors--who will only be paid when they win a case--will choose the most straightforward cases and reject cases that appear complicated. A case may be entirely winnable, but raise complex issues of law or fact. A complicated case is not necessarily a weak case, yet under the new payment regime, as far as I can see, complexity may become considerably less attractive to solicitors.

In other cases, it may be the client, and not the issues, that is perceived to be the problem. Clients who are not articulate, or whose first language is not English, may not be attractive prospects to solicitors seeking sure, quick or easy winners. Therefore, will the noble and learned Lord ensure that the grounds for refusal of a conditional fee are based on merit and not unduly influenced by other, less justifiable factors? Will he undertake to monitor this aspect of conditional fees particularly carefully?

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Next I come to outcomes. Compensation in cases involving money and damages claims is carefully calculated to reflect loss. Its objective is, as far as possible, to put people back where they were before they suffered the loss. I am aware that even under legal aid, people are sometimes required to repay money out of their damages to the Legal Aid Board to make up shortfalls in costs recovered from the other side. However, conditional fee agreements introduce new deductions from compensation that could far exceed those deducted under legal aid.

I have a fear on this point and I hope that the noble and learned Lord will put my mind at rest. As far as I am aware, successful clients will still have to make up any shortfall between their own costs and what is recovered from the other side. That will come out of the compensation. In addition, clients will pay a success fee of up to 25 per cent. of the compensation. And, in addition to that, clients will have to pay the cost of the premium to insure against losing, which could run to hundreds or even thousands of pounds, and may not be recoverable from the losing opponent.

My concern is that, with all of these additional deductions, people made vulnerable through loss will not recover enough to have made the ordeal of litigation worthwhile, or to enable them to put the loss behind them. And I have a further concern: that the deductions from compensation could increase over time.

Once the commercial reality of running a legal practice substantially dependent on conditional fees begins to bite, I fear that the success fees demanded by solicitors will start to creep up. At the same time, solicitors will feel under pressure to settle cases as quickly as possible, and certainly at the first sign of difficulty, whether or not an adequate offer of compensation has been obtained. If cases settle quickly, that is often in the client's interests, but not if they settle badly.

My fear is that compensation could be squeezed progressively from various directions: higher and higher success fees; higher and higher insurance premiums from one direction, and lower and lower settlements in another direction. Will the noble and learned Lord reassure us that he will monitor the levels of damages actually recovered by successful litigants under the new arrangements? We need to ensure that the costs of the new payment regime do not outweigh the benefits, particularly for the poorest.

My final point is about quality. Over several years, the Legal Aid Board has been developing an extensive system of franchising for solicitors' firms. While franchising criteria are not yet perfect, they are nonetheless a useful indicator of certain aspects of quality for inexperienced consumers. Holding a franchise suggests that a firm is well-managed, has a reasonable standard of client care, and is experienced in a particular area of law. Once legal aid is withdrawn from all claims for money or damages, franchising for these areas is likely to be abandoned. Perhaps the noble and learned Lord can tell us how he intends to replace those signposts which reassure consumers. Perhaps, if the Legal Aid Board paid the insurance premiums for those previously eligible for legal aid, some form of franchising would remain.

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We all want to improve access to the civil justice system and to get value for the money we spend. At the same time, we must be sure that the changes we make to improve access to justice for the middle income earners offer adequate protection for the poor. When we close one door to the poor, we must ensure that what replaces it is not narrower and less accessible to those who deserve entry.

6.25 p.m.

Lord Taverne: My Lords, the Lord Chancellor has described the dilemma which we face. We clearly cannot allow the costs of legal aid to escalate in the way in which they have done in recent years. On the other hand, the system in which only plutocrats or paupers can litigate is a denial of justice: indeed, it is a blot on our claim to be a fair society. So I welcome most of the proposals which the Lord Chancellor has made and in particular the commitment to block contracting on the basis of fixed fees.

But like previous speakers, I want briefly to discuss the major issue; namely, the basis on which lawyers are to be remunerated. The law is a noble profession and I have no doubt that the majority who practise law are concerned to do the best for their clients and are concerned with justice as well as their own rewards. But lawyers are human and how they behave depends partly on the incentive which the legal system provides. Unfortunately, these incentives do not always encourage them to put their clients, or the interests of justice, first.

The Lord Chancellor's solution of extending no win, no fee would set our legal system on the road towards the American system. That has appalled a number of American lawyers who are only too aware of the low regard in which that profession is held in the United States. I do not believe that American lawyers are individually any less honourable than British lawyers, but the incentives of contingency fees have almost certainly had a corrupting effect. One can see that from the way in which they have given rise to an ever-growing, yet far from effective, concern with codes of ethics.

I quote from an excellent lecture recently given by Professor Colleen Graffi of Pepperdine University in California, who also happens to be a member of the English Bar:

    "God was able to set out the code of conduct for all of mankind in Ten Commandments, with no commentary, on two tablets of stone. While in the United States, the American Bar Association's code of conduct for lawyers amounts to over 400 pages of text, comment and footnotes. At that rate Moses would have needed the Rock of Gibraltar and full time professional engravers to set out the rules for just one profession".

In the long run there is bound to be very considerable conflict under a no win, no fee system, between the needs of justice and the interests of lawyers. I quote one example from a speech recently made by the chairman of the Bar Council, Mr. Robert Owen, to the Bar Parliamentary Group:

    "What happens when a lawyer, who may be a year or two into the litigation and has committed considerable resources to it, suddenly turns up a document which demolishes the case?"
A conflict is clear.

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Professor Graffi also points out in her lecture that intensive competition has led to excesses in the adversarial system and a decline of courtesy and civility among lawyers. In my relatively short career at the Bar, when I had to refer to my opponent as "My learned friend", it was rare that he was my friend and there were many cases in which it could in no way be said that he was learned. But the formalities at least acted as a restraint against abuse. Civility will not necessarily last if lawyers market themselves on getting results or through more competitive pricing.

My main objection to the direction in which we appear to be proceeding is that the incentives would tend to turn the law into a business instead of a profession, as they have done in the United States. However, we cannot rest on the status quo. If the only way out which will enable middle income citizens to litigate is to have a conditional fee arrangement, we may have to accept it. However, if I may make a submission "with the greatest respect" (as lawyers tend to say when they intend to show a total lack of respect), the legal profession itself must bear a large part of the blame for the escalation of legal aid costs. That is because the incentives of the present system, whereby lawyers are paid by the hour, also have a harmful effect. At present, there are no incentives whatever to simplify or shorten trials. There is every incentive to complicate proceedings and to draw them out and however dedicated some lawyers--most lawyers--may be to promote justice and not their own earnings, as in America the incentives work in the other way, in the wrong way.

The report produced by the noble and learned Lord, Lord Woolf, proposes a move towards greater judicial control. I welcome the announcement that that will be in force by April 1999, but fixed fees would still play only a limited role in our system. I know that it goes against national sentiment to suggest that we should learn from other countries and, with some justice, we are proud of our own legal traditions. But it is worth noting that there is a system of fixed fees which seems to work well. I refer to Germany where the national costs of legal aid per head are much lower than those in this country. The ordinary citizen can still afford to litigate and lawyers still seem to make a good living. I know that the German system is very different, with many more judges who are professional judges. We cannot simply transplant the German system even if we want to. But there is no reason why a system of fixed fees should not be more widely applied in Britain.

I realise that the idea of extending the principle of fixed fees has been received by the legal profession with well concealed enthusiasm, but lawyers cannot have it both ways. They rightly argue that no win, no fee provides the wrong incentives and they are right to argue that a system of incentives matters; but the same argument also applies to the system of payment by the hour or day. The taxi meter principle is no way to limit costs; it should be urgently reviewed.

6.32 p.m.

Lord Hoffmann: My Lords, the provision of justice to the people was the noble aspiration of the legal aid scheme introduced in 1949. Justice is a public good of

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very high importance. But it cannot be pursued regardless of cost because the provision of, for example, education, health care and public housing are also important public goods and justice has to compete with them for resources. Lawyers sometimes speak as if justice was a thing of infinite value; whatever resources are needed to attain it should be provided. I have detected some of that this afternoon. Doctors feel the same about life and health and teachers about education. They all want to do the best possible job and quite naturally feel that the state should provide whatever is necessary. However, it cannot be done: hard choices have to be made and the consequence has to be faced that, inevitably, some people will suffer injustice. It is easy for noble Lords to produce examples of an injustice which may be suffered as a result of any change in the procedures--there are always winners and losers--but there are people who will not get justice and that must be accepted.

A government can do only two things: the first is to try to reduce legal costs overall, so that there is more money to go round. The second is to allocate the available resources so that they go to the more deserving cases rather than the less deserving ones.

The Lord Chancellor's proposals on civil justice and legal aid recognise these truths and I say at once that they seem to me a bold and imaginative attempt to improve matters on both the points which are within the power of government.

Let me first address the question of reducing costs. The noble and learned Lord, Lord Woolf, has put forward some admirable proposals for simplifying the civil procedure. This will provide a framework within which justice can be delivered at lower cost. It is, however, only a framework. It is one thing to provide a set of rules which will enable lawyers to litigate more cheaply. It is quite another to ensure that they actually do so. The fundamental problem is that under the present system lawyers are paid according to what they do and they decide how much they are going to do. It is therefore in their financial interest to do as much as possible.

It is no moral reflection on lawyers to point this out because this is a case in which the lawyer's self-interest and his duty to his client go hand in hand. The lawyer wants to do the maximum for the client, out of a sense of professional duty and in order to avoid being sued for omitting some step which he might have taken. The same pressures cause the problems of overuse of drugs in the National Health Service. But with lawyers there is the additional factor that they have a personal financial interest in as much as possible being spent on the case. So the result is that rules of court are not the whole answer to reducing the cost of litigation: what lawyers do is driven not only by what the rules say, but by what they can charge for. This is a classic situation in which decisions on the amount of production are wholly in the hands of the producer, who cannot lose by producing

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too much. Even where the client is paying out of his own pocket, he usually lacks the expertise to exercise proper control. With a fund like the Legal Aid Fund or an insolvent estate or an insurance company, there is even less control because the interest in keeping control is more diffuse.

Perhaps I may give your Lordships an example. I recently attended a conference on the use of information technology in the law. I heard the registrar of the High Court in Liverpool (it may have been Manchester) say that he had introduced a system of video conferencing so that lawyers in London who had cases before him need not send someone up to conduct the case because it could be conducted via the video conference link, thus saving costs. The registrar said that he had been operating the system for six months and that not a single firm had used it--because more could be charged for sending someone up on the train in order to appear at that High Court and then sending them back again.

The noble and learned Lord, Lord Woolf, recognised the problem and his solution is to have more hands on control by judges. They will take a grip of the case and cut down on unnecessary work. Sir Peter Middleton, in his admirable report on the noble and learned Lord's proposals, is willing to take this proposal on trust and see how it works. I must confess to being rather less sanguine. Judges are good at deciding disputes on arguments presented to them by opposing sides. They are much less good at protecting the interests of people who are not represented before them, like the Legal Aid Fund. It is hard for a judge to go against the arguments of both the parties before him and it is often in the interests of the lawyers on both sides to agree that the case is very difficult and important and needs a lot of money spent on it.

These difficulties arise whenever the cost of litigation is being met out of some fund and it is for that reason that I am equally sceptical about the proposal for a contingency legal aid fund. I think that my noble and learned friend the Lord Chancellor's proposals address the problem in the right way, by giving the lawyers a stake in the outcome of the case. It means that when they decide that more work needs to be done, they are potentially spending their own money and must take into account whether the expense is likely to be cost-effective in terms of the prospects of success and the amount likely to be recovered; and they are the people best placed to make an informed judgment on these matters. It seems to me that there is no other way in which principles of cost-effectiveness, or what the noble and learned Lord, Lord Woolf, calls proportionality between cost and outcome, can be properly enforced.

Furthermore, the scheme also advances what I have called the second thing which a government can do, which is to ensure that the more deserving cases come to court. Again, it will be the lawyers, those best placed to make a proper judgment, who will decide which cases they will back with their own money and which they will not.

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I would indeed urge my noble and learned friend the Lord Chancellor to adopt the suggestion of Sir Peter Middleton and take his proposal to its logical conclusion, by allowing the lawyers to agree to act simply for a proportion of the amount recovered. For one thing, that would satisfy the requirement of the noble Baroness, Lady Wilcox, that the agreement should be less complicated.

The present scheme, under which they are allowed to charge at a higher rate up to a certain proportion of the amount recovered, still encourages them to do as much work as possible in cases where the recovery is likely to be high and even charging at a higher rate would produce a figure within the maximum proportion of the recovery. I think that it would be in everyone's interest for that incentive to be removed.

It is said that giving lawyers a financial stake in the litigation would tempt them to resort to unethical practices to win. Reference has been made to the practice in the United States of America. I think well enough of our own legal profession to doubt whether this is a serious problem, but in any case if lawyers behave unethically the other side will complain. There will be no collusion as there is now over costs and judges will be able to resolve these questions and impose penalties much more easily than they can keep control of costs. I have no doubt that they are much better at that. That is what they are trained to do.

I turn finally to the distribution of resources and the proposal of the Lord Chancellor that those cases which continue to be funded by legal aid should be certified as having a very high prospect of success.

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