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Lord Kingsland moved Amendment No. 213A:

Page 15, line 44, at end insert ("; and
(d) the amount of the increase must not be calculated (expressly or otherwise) by reference to the amount or value of any money, property or other benefit recovered or preserved in the proceedings").

The noble Lord said: The object of this amendment is to prevent anyone, solicitor, barrister, claims assessor--whoever--from acting on a pure contingency fee; that is, one fixed by reference to the amount of damages awarded or property recovered or preserved in proceedings. The background to this is that contingency fees were, and probably remain, unlawful at common law except in certain specific instances. For example, a solicitor may charge on a contingency basis for non-contentious business which includes debt recovery by writing letters or negotiating settlement of any claims without starting proceedings. It also includes acting in tribunal cases, planning inquiries, criminal injuries compensation claims and any other tribunal case. That is because the definition of non-contentious business in the Solicitors Act 1974 is seriously outdated. It only covers litigation before courts making no mention whatsoever of tribunals. The definition dates back to the 19th century when there were hardly any tribunals.

The solicitors' practice rules prohibit the charging of contingency fees only in contentious businesses. Clause 27 covers Thai Trading arrangements. However, that begs the question as to what is a normal fee. The noble and learned Lord the Lord Chancellor will take the opportunity, I hope, to clarify the law and to prohibit pure contingency fees. The noble and learned Lord has often said that he is opposed to contingency fees on ethical grounds. On the other hand, he strongly supports conditional fees. The problem about their use in employment cases is, as I believe he pointed out last week, that the normal costs rules do not apply, so a case conducted under a conditional fee arrangement requires the client to pay from the compensation awarded. As there is no limit to damages in a discrimination case, such arrangements may be possible. However, from a client's perspective, they look indistinguishable from contingency fees. I beg to move.

9 p.m.

Lord Clinton-Davis: I support the principle underlying the amendment. It is extremely important. I have alluded to it in another context. I am not entirely convinced that we have the right instrument to deal with it here, but it is the principle that matters. I support the noble Lord, Lord Kingsland, in saying that this is a good opportunity for my noble and learned friend to clarify the situation so far as concerns the law; and, I hope, to move decisively against contingency fees.

Lord Goodhart: I, too, support the noble Lord, Lord Kingsland. Contingency fees are part of the reason why civil litigation in the USA has become completely out of hand. It has now reached a level which is seriously damaging to the economy. Admittedly, we do not have juries in civil actions, as the Americans do. That is another cause of that problem. However,

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I believe that contingency fees should continue to be forbidden as a matter of common law and should not be validated under the legislation of this Bill, which will authorise conditional fees.

Lord Phillips of Sudbury: I support the amendment.

Lord Mackay of Clashfern: If such an amendment is necessary, I, too, strongly support it.

The Lord Chancellor: The matter is a little more complex than has been indicated to the Committee. The noble Lord, Lord Kingsland, wishes to ensure that contingency fees--that is, fees which are fixed as a percentage of the value of the successful claim--are made unlawful. The purpose of the amendment is to amend the proposed Section 58(4) of the Courts and Legal Services Act 1990 set out in Clause 27 to include a new paragraph (d) to make it a requirement of a conditional fee agreement which provides for enhanced fees that the amount of the enhanced fee may not be calculated by reference to the,

    "amount or value of any money, property or other benefit recovered or preserved in the proceedings".

Section 58 seeks to bring the effect of the judgment of the Court of Appeal in Thai Trading into statute law. As my noble and learned friend Lord Falconer of Thoroton said a little time ago, that decision does not sanction conditional fee agreements prescribing a costs uplift in the event of success. It sanctions solicitors agreeing with their clients to recover less than their normal fee if they lose--and in theory they could recover nothing--but, if they win, to recover the full costs from the unsuccessful opposing party despite the agreement for a reduction with their own clients.

It was not the intention of this legislation to make unlawful other kinds of fee agreements that solicitors presently use. For example, it is perfectly lawful for solicitors to work on a contingency fee basis where they are undertaking work in "non-contentious business" as defined by the Solicitors Act 1974. When we turn to contingency fees in relation to other work undertaken by lawyers, I am not convinced that the use of contingency fees in relation to non-contentious business should be unlawful. I have a different view, of course, in relation to contentious business properly so described. There are many services provided on a similar basis to conditional fees by professional people other than lawyers. I think, for example, of estate agents selling homes, or other persons who are remunerated on a commission basis. I do not see any reason why lawyers especially should be prevented from ever being able to offer their services in this way in relation to the many other services they provide apart from conducting litigation.

"Contentious business" is defined by Section 87(1) of the Solicitors Act 1974 as proceedings before a court or arbitrator. "Non-contentious business" means any business not within the definition of "contentious business".

The noble Lord, Lord Kingsland, referred to proceedings in employment tribunals. Under the Act, non-contentious business includes all proceedings in

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employment tribunals because they are neither proceedings before a court nor an arbitrator. However, everyone knows that in practice they are just as contentious as court proceedings. It is only the employment appeal tribunal which is treated as contentious.

I am told that solicitors regularly undertake cases in these tribunals on a contingency basis. Since July 1998 conditional fee agreements have been made available in these tribunal proceedings. There may not be much point in that because of the availability of contingency fees and, a matter to which we referred previously in Committee, costs do not follow the event in these tribunals. Under a conditional fee agreement in employment tribunal proceedings, the uplift would have to come out of the compensation recovered.

That is a state of affairs about which I have some concern. I intend to invite the Law Society to make representations to me. Indeed, the amendment has focused my attention upon that. The revised Section 58 is intended only to give effect in statute law to the decision in Thai Trading and to go no further. My department has received representations from the Bar and the Law Society about whether that has been satisfactorily achieved. I will consider the representations which have been made. It may be that I will see a need to revisit the terms of Clause 27 on Report.

I have indicated my concern about the position in relation to the employment tribunals. That needs careful thought. As I told the Committee previously, the Government are looking at their obligations under European Union law and the ECHR Convention before reaching any conclusions about employment tribunals. It seems to us that this issue, too, needs to be addressed in that context. I do not believe that we should simply consider the position of employment tribunals and related issues of cost or publicly funded support to take cases to them in a piecemeal fashion. However, I am aware of the concern about equality and treatment of the kinds of fee arrangements which barristers and solicitors may use when appearing before employment tribunals and I believe that we must look at the matter with care.

I turn to the strict terms of the amendment. I am not sure that it would have the intended outcome. It would not affect conditional fee agreements which do not provide for enhanced fees and it could not affect contingency fee agreements currently used by solicitors in non-contentious business. I do not believe that the noble Lord intends it to. The proposed Section 58(4), in which the additional words would be inserted, does no more than provide the conditions that are applicable to a conditional fee agreement which provides for enhanced fees; that is to say, fees increased by a specified incentive in the event of success. The earlier provisions of Section 58(4) provide that these agreements may be entered into in respect of proceedings specified by order by the Lord Chancellor; the agreement must state the percentage by which the fees of the lawyers are to be increased; and the percentage must not exceed the maximum amount specified by the Lord Chancellor by order. Therefore, I see nothing in these provisions or anywhere else in

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the proposed Section 58 which legitimates the use of contingency fees. Calculations of the sum payable in the event of specified circumstances occurring will always be by reference to the fees of the lawyer and not by reference to the award of the court. Consequently, as I see it, the position envisaged by the amendment cannot arise. Therefore, I am not minded to accept the amendment for those reasons and I invite the noble Lord to withdraw it. But I repeat my hostility to contingency fees, strictly so-called, in contentious court proceedings.

9.15 p.m.

Lord Ackner: I do not at the moment follow why there should be that hostility to contingency fees. In many ways it is an argument about semantics. I have not brought it with me but the Middleton Report is really quite in favour of contingency fees and it gives its reasons. The conditional fee can, in given circumstances, be much more unfriendly to the plaintiff than the contingency fee. The 100 per cent. uplift which is allowed--and there is no bar on it going up to 100 per cent.--could wipe out entirely the award of damages made, particularly in a personal injury case where contributory negligence is found.

The contingency fee cannot do that. As I understand it, it provides a maximum of the proportion which can be taken out of the damages recovered. I believe that it is 40 per cent., at most, in most American states. Therefore, one is being emotionally illogical in being so hostile to the contingency fee when the conditional fee is merely a species of contingency fee which in certain circumstances may prove more expensive to the plaintiff than the contingency fee. One should think a little more clearly as to what difference, if any, there is.

I remind the Committee that the Green Paper, as I recall it, which first raised the ugly head of this method of remuneration was called Contingency Fees because, quite clearly the conditional fee depends on a contingency. The contingency is success. If that is achieved, then--and I use that horrible phrase--the uplift in costs is permitted.

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