Draft Damages-Based Agreements Regulations 2010 / Draft Conditional Fee Agreements (Amendment) Order 2010 / Education (Student Support) (European University Institute) Regulations 2010 / Correspondence: Post-Implementation Review Inquiry - Merits of Statutory Instruments Committee Contents


Instruments drawn to the special attention of the house


The Committee has considered the following instruments and has determined that the special attention of the House should be drawn to them on the grounds specified.

A.  Draft Damages-Based Agreements Regulations 2010

  Summary: A Damages-Based Agreement (DBA) is a private funding arrangement in which the representative's fee is contingent upon the success of the case, and is determined as a percentage of the compensation received by the client. In relation to cases before employment tribunals only, these Regulations cap the fee the representative can charge at 35% including VAT. The Committee received a number of representations expressing concern about the proposal and the robustness of the evidence used to support a cap, including one from the author of research cited by the Department, Professor Moorhead. A number also expressed concern about the restrictions on terminating a DBA which deviated significantly from normal contract law. On the day of the Committee meeting a revised draft was laid (the 3rd version laid before the House), which addressed the conflict between this type of DBA and normal contract law. We had no opportunity to consider in any detail the effect of this change as, despite the Government having to correct errors and twice re-lay the Regulations, the Department wished to continue with the debate already scheduled for 18 March. The Committee suggests that the House will wish to consider further whether these latest revisions have adequately responded to the concerns expressed in the correspondence about the termination provision. A number of other issues also require further clarification, if reassurance is to be provided that the policy will not result in unintended consequences. The Committee would also wish to have seen stronger evidence to demonstrate that a cap is needed and that 35% is the appropriate level. Although the Ministry is acting with the objective of protecting the consumer and of balancing the rights of the consumer and the representative to fair payment, it is not yet clear that the current provisions will achieve that aim.

These Regulations are drawn to the special attention of the House on the grounds that they may imperfectly achieve their policy objective.

1.  These Regulations are laid under sections 58AA(4) and 120(3) of the Courts and Legal Services Act 1990, together with an Explanatory Memorandum (EM) and an Impact Assessment (IA). The draft instrument laid on 16 March replaces the versions of 24 February and 1 March.

2.  The Regulations set out the requirements with which a damages-based ("no win, no fee") agreement between a client and a representative must comply in order to be enforceable in a matter to be heard by an employment tribunal. A damages-based agreement is a private funding arrangement whereby the representative's fee is contingent upon the success of the case, and is determined as a percentage of the compensation received by the client. The Regulations set out the information that must be given to the client before the agreement is signed and the form the agreement must take. They also limit the fee the representative may charge to 35%, including VAT, of the sum received by the client, which the Department states is approximately the current market rate (paragraphs 8.3 of the EM and 2.19 -20 of the IA).

3.  The Committee identified a number of concerns with the proposals at an earlier stage and they were withdrawn and re-laid with amendments. However, this did not sufficiently clarify the rationale behind the unusual termination provisions set out in regulation 6 which limit both the representative and the client's ability to terminate the contract close to the hearing date. The Department's clarification of its policy intention in doing this is set out in full in Appendix 1. The Department maintains that the key aim of the regulations is to protect consumers from unfair and unreasonable agreements in respect of employment matters, but says that arrangements are also needed to ensure that representatives are remunerated for the services that they have provided where the claim is successful.

Termination provisions

4.  The Ministry of Justice states that the provisions in regulation 6 aim to protect both clients and representatives in a proportionate manner. It aims to prevent representatives locking clients into unsuitable agreements by the threat of excessive costs, and to prevent representatives from dropping a case if it became uneconomical to run. However we received representations from the Law Society, the Bar Council and Professor Moorhead of Cardiff University (see Appendix 1) which questioned both the effects of these provisions and the unintended consequences that they may have. In particular they set out a number of scenarios in which the parties wished to terminate the contract due to no fault on either side, for example if a witness or opponent changed their stance.[1] In the 3rd version re-laid on 16 March shortly before the Committee met, MOJ produced an amended regulation 6(5) which provides that these special provisions are without prejudice to any right of either party under the general law of contract to terminate the agreement. This change appears to meet many of the criticisms of the original regulation 6. However, we emphasise that we have not had the opportunity to seek further advice on the effect of the change, or to consider whether it meets all of the concerns expressed in the evidence we received about the original regulation 6. (For example, there was a concern that under regulation 6(4) a representative could terminate an agreement on the broadly expressed grounds that a client had "behaved unreasonably".)

Appropriate level for the cap

5.  The representations also debate whether it is appropriate to fix a cap on the fee level at all. The Law Society argues that there should be some flexibility to allow for the different degrees of complexity that may arise in a case. While a cap may prevent excessive charging it may also result in representatives being reluctant to pursue cases on this basis, resulting in a reduced access for justice to poorer claimants.

6.  The Ministry of Justice cite research into the matter by Professor Moorhead in support of the proposed 35% cap.

7.  Professor Moorhead has written to the Committee to state that in his view the research did not support the view that contingency fees generally led to overcharging of clients, and states that the evidence suggested that contingency fees were generally a better deal for clients than paying on a hourly basis. He goes on to question the justification for setting the cap at 35% on the basis of the evidence in his research, which found fees tended to fall into bands of 5-10%, 25-30% and 40-50% according to the complexity of the case. The 33% figure quoted was simply the average and he fears the consequence of a setting a cap at 35% will be that complex but meritorious cases will not be able to find a representative willing to take them on.

Conclusion

8.  The 3rd version of these Regulations were laid just before the Committee met. We decided to consider them immediately as the change responded to concerns about regulation 6(5), and because we understood the MOJ wished to press ahead with a debate already scheduled for 18 March. The Committee regrets that it was unable to complete more thorough scrutiny and suggests that the House may wish to consider whether these latest revisions have adequately responded to the concerns expressed in the correspondence.

9.  The proposals to clarify the contract terms are generally welcomed, particularly as they seek to bring to conformity when representatives come from a range of disciplines such as the legal professions, insurance companies and unions. However there are clear concerns that a cap set at 35% may operate to raise the general level of fees rather than limit them, and may restrict the access to justice of those with worthy but complex claims.

10.  The House may think that a number of issues require further clarification to provide reassurance that the policy will not result in unintended consequences. The Committee also considers that stronger evidence is required to demonstrate that a cap is needed and that 35% is the appropriate level. Although the Ministry is acting with the objective of protecting the consumer and balancing the rights of the consumer and the representative to fair payment, it is not yet clear that the current provisions will achieve that aim. The legislation is therefore drawn to the special attention of the House on the grounds that it may imperfectly achieve its objective.

B.  Draft Conditional Fee Agreements (Amendment) Order 2010

Summary: In defamation Conditional Fee Agreements (CFA) the lawyer has, until now, been awarded double his costs if the case is won (ie a 100% success fee, paid by the losing side) to offset the lost cases, for which the lawyer receives no payment from the client. There is some consensus that the costs are bearing unfairly on the losing party, so as an interim measure, the Department is proposing to reduce the success fee supplement to 10%. A number of representations have been sent to the Committee questioning the basis for and timing of this change. Some queried the reason for rushing this proposal through, ahead of a proper assessment of the proposals made in Lord Justice Jackson's recently published review of Civil Litigation Costs. Correspondents also questioned the evidence MOJ used, and would have liked to make their own assessment, but were constrained by the compressed 4 week consultation period. The policy objective is to reduce legal costs, and to reduce the risk of disproportionate costs unjustifiably restricting freedom of expression for the media and other publishers. The Order aims to do this by reducing the 100% uplift that is widely considered a disproportionate sanction on the unsuccessful defendant. However the House may wish to consider whether a 10% uplift swings the pendulum too far the other way reducing poorer clients' ability to challenge misleading published information. We regret that insufficient time has been allowed to produce a solution based on more robust evidence or on which there is broad agreement, and that might seem more likely to achieve the policy objective without the potential side effects discussed in the correspondence.

The Order is drawn to the special attention of the House on the grounds that it may imperfectly achieve its objective.

11.  The Ministry of Justice (MoJ) has laid this instrument under section 58 of the Courts and Legal Services Act 1990 along with an Explanatory Memorandum (EM) an Impact Assessment (IA). It is noted that, as with the Damages-Based Agreement Regulations 2010 reported on above, this Order has twice been withdrawn and relaid, in order to correct drafting defects.

12.  This Order amends arrangements for "no win, no fee" agreements that relate to defamation cases including malicious falsehood and breach of confidence cases that involve material that has been published. This type of Conditional Fee Agreement (CFA) has been available for some years as an alternative to paying a legal representative by hourly fee according to the work done. In defamation CFAs the lawyer has, until now, been awarded double his costs if the case is won (i.e. a 100% success fee) but received no payment from the client if the case is lost. The underlying principle is that the successes offset the failures with the objective of improving access to justice for the client, particularly the poorer ones who might otherwise not be able to defend their reputation as legal aid is not normally available for defamation proceedings.

13.  The Ministry of Justice say that there is evidence that the costs are bearing unfairly on the losing party and that more than half the defamation cases that are pursued are won, i.e. the lawyers are benefiting disproportionately from the current arrangements. So as an interim measure, pending the consideration of Lord Justice Jackson's wider review into Civil Litigation Costs, the Department is proposing to reduce the success fee to 10%. The Order was preceded by a short consultation exercise (from 19 January to 16 February 2010).

14.  The Committee asked the Ministry why the Impact Assessment they provided only considered the one option and did not compare the costs and benefits of intermediate levels of success fee at say 25% or 50%. They responded (see Appendix 2) that general consultations had been going on since 2007, previous attempts had been made to construct a phased scheme but consensus could not be achieved. They argued that the majority of the respondents to the consultation exercise, even those who were against the reduction to 10%, conceded that the status quo was not sustainable and that change was necessary. A number of representations have been sent to the Committee questioning the basis for and timing of this change (see Appendix 2). Several respondents make reference to the "Theobalds Park Plus agreement" an example of which is attached to the Carter Ruck submission, which illustrates that other arrangements, staggering the fee uplift according to the amount of work done, are already in voluntary operation.

15.  Some respondents queried the Department's use of figures on cases provided by the Media Lawyers' Association to Lord Justice Jackson's review; but said that the truncated consultation period had prevented further analysis of data. While accepting a need for change, most challenge the 10% figure as disproportionate. The conclusions of both Lord Justice Jackson and the Commons' Culture Media and Sport Committee on this issue are mixed[2], and we were not convinced that there was a strong basis for choosing a 10% uplift over any other figure. In their response MOJ acknowledged that they do not have comprehensive statistics and were seeking additional data through the consultation exercise - it therefore seems difficult to justify the curtailment of the consultation period to 4 weeks.

16.  Some responses query the reason for taking this interim proposal through when it is not consistent with the proposals made in Lord Justice Jackson's report, which suggests that the costs as well as the benefits of a "no win, no fee" CFAs should be borne by the client rather than by the unsuccessful defendant. MOJ state that Lord Justice Jackson's proposal will need extensive consultation with the industry and primary legislation. In their view the proposed cut to 10% provides a way forward in the interim.

17.  The policy objective is to reduce legal costs, and to reduce the risk of disproportionate costs having the effect of unjustifiably restricting freedom of expression for the media and other publishers. The Order aims to do this by reducing the 100% uplift that is widely considered a disproportionate sanction on the unsuccessful defendant. Paragraphs 3.9-16 of the Impact Assessment set out the pros and cons of reducing the sanction, in the light of which the House may wish to consider whether a 10% uplift swings the pendulum too far the other way, reducing poorer clients' ability to challenge misleading published information. We regret that insufficient time has been allowed to produce a solution based on more robust evidence or on which there is broad agreement, and that might seem more likely to achieve the policy objective without the potential side effects discussed in the correspondence. We therefore draw the matter to the special attention of the House on the grounds that it may imperfectly achieve its objective.

C.  Education (Student Support) (European University Institute) Regulations 2010 (SI 2010/447)

Summary: These Regulations provide support for a number of students taking designated postgraduate courses at the European University Institute (EUI) in Florence, Italy. They set out the eligibility criteria, living costs and other support available for eligible students for the academic year 2010/11. The Regulations also revoke an earlier set of regulations which also provided support for a number of students taking designated postgraduate courses at two other European institutions: the Bologna Center in Bologna; and the College of Europe (CoE) in either Bruges or Natolin (Poland). However, following representations, the Government now intend to reinstate half the number of scholarships at the CoE for this year, by a separate set of Regulations. The Department for Business, Innovation and Skills (BIS) explain that the budget for the CoE places is ring fenced, but due to an increase in fees and a poor exchange rate, the budget is not sufficient to fund the same number of students as in 2009/10. BIS explain that the policy objective for funding places at the three European institutions was to strengthen the representation of UK nationals in EU institutions. However, the SI has been developed without any consultation with key stakeholders and BIS have not presented any solid evidence to support the policy objectives of their funding decisions. The House may therefore wish to give some consideration as to whether the policy development processes for this SI have been sufficiently robust.

This instrument is drawn to the special attention of the House on the grounds that it gives rise to issues of public policy likely to be of interest to the House and may imperfectly achieve its policy objectives.

18.  These Regulations provide support for a number of students taking designated postgraduate courses at the European University Institute (EUI) in Florence, Italy. They set out the eligibility criteria, amounts of living costs and other support available for new and returning eligible students for the academic year 2010/11. The Regulations also revoke an earlier set of regulations which also provided support for a number of students taking designated postgraduate courses at two other European institutions: the Bologna Center in Bologna; and the College of Europe (CoE) in either Bruges or Natolin (Poland).

19.  The Explanatory Memorandum (EM) says that from academic year 2010/11 support fees, living and other costs are to be withdrawn for postgraduate students attending the Bologna Center and the CoE (page 7.1). In response to questioning from the Committee, the Department for Business, Innovation and Skills (BIS) have provided further information on the background to these Regulations (see Appendix 3). They explain that a limited number of scholarships will be reinstated for the CoE for this year and will shortly introduce a separate set of Regulations to that effect.

20.  The numbers of places that have been funded by the Government at the three colleges are relatively small. BIS say that that in the 2009/10 academic year, there were 2 places at the Bologna Center, 22 places at the CoE, and 20 places at the EUI. Currently the maximum to be funded in 2010/11 (subject to parliamentary approval) will be 11 at CoE, 20 at EUI and no places at the Bologna Center. BIS explain that the budget[3] for the CoE places is ring fenced, and due to an increase in fees and a poor exchange rate, the budget is not sufficient to fund 22 students (see Appendix 3).

21.  The EM says (paragraph 8) that no consultation was carried out on the SI. The Committee asked BIS why they considered this approach to be consistent with the Government's policy on consultation[4]. The response from BIS was that they had made the decision to withdraw funding known to the interested parties in the CoE and Bologna Center. But following representations, the decision was taken to reinstate funding for the CoE for one year (see Appendix 3).

22.  The Committee questioned BIS over the policy objective behind the funding for the postgraduate places at the three European colleges. BIS said the original policy objective, following a 1990 Government review, was to strengthen the representation of UK nationals in the EU institutions. They said the policy objective for the reduction of the number of places at the CoE and the Bologna Center was that the Department does not generally fund postgraduate students or fund students studying outside the UK, and the existing funding was contrary to the policy objective of targeting support at those accessing higher education for the first time. The continued funding at CoE will be for one year whilst other arrangements are being considered for funding to meet the Government's policy aim (see Appendix 3).

23.  The effect of this SI is a reduction in the number of funded places at the three European institutions. The SI has been developed without any consultation with key stakeholders and BIS have not presented any solid evidence to support the policy objectives of their funding decisions. Although the Committee is appreciative of current budgetary constraints, the House may wish to give some consideration as to whether the policy aim of this SI is consistent with the Government's stated broader policy for the funding of postgraduate places at the three colleges, and whether recent policy development processes have been sufficiently robust to ensure that this SI will achieve its objectives.



1   The evidence received and printed in the report relates to the earlier versions of the Regulations, not the 3rd version currently before the House. Back

2   See their Report "Press Standards, Privacy and Libel" published 24 February 2010 paras 286-309 http://www.publications.parliament.uk/pa/cm200910/cmselect/cmcumeds/362/362i.pdf Back

3   The total budget for CoE and Bologna Center was £279,000 for 2009/10: the budget for EUI was £174,000 for 2009/10 (Source: email from BIS to MSIC Secretariat 16 March 2010) Back

4   HM Government, Code of Practice on Consultation (July 2008) Back


 
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