Damages-Based Agreements Regulations 2010

Perhaps I can answer the noble and learned Lord a little later. The regulations require that a representative, usually a solicitor or a claims manager, must, first, inform the client about alternative means of resolving the case or financing the proceedings, such as legal expenses insurance or though trade union membership. Importantly, the representative must inform the client about the services offered by ACAS before the agreement is signed. Secondly, the representative must give an estimate of all costs and expenses for which the claimant may be liable. Thirdly, the representative must also explain to the claimant why he or she thinks that the percentage fee they are charging is reasonable. The regulations also prescribe that the payment to the representative cannot be more than 35 per cent of the claimant’s damages, including VAT. This will protect claimants from unscrupulous representatives who may seek to take an unjustified proportion of their damages in fees. The legislation requires us to prescribe a cap. We originally consulted on a 25 per cent cap, excluding VAT. However, we listened to concerns expressed by those responding to the consultation and increased the cap to 35 per cent. This is inclusive of VAT, but excludes expenses such as counsels’ fees. Although the cap is the prescribed maximum, there is a risk that the cap could become the norm, a risk that we have seen realised in CFAs where, in some cases, 100 per cent has become the norm; I will turn to that later. The higher the cap, therefore, the greater the risk of detriment to individuals who use damages-based agreements. We therefore believe that 35 per cent sets a fair level in respect of damages-based agreements in employment tribunals. Finally, the regulations set out some conditions to be complied with if the agreement is terminated. I should first make it clear that the provisions relating to termination are without prejudice to any right of either party under the general law of contract to terminate the agreement. I am aware that there have been some concerns about the conditions relating to termination; for example, the Law Society considers that the provision does not go far enough in protecting representatives. The Bar Council, on the other hand, considers that there should be no restrictions on the client’s right to terminate at all. What we have attempted to do in these regulations is to take the middle ground between the two opposing views. DBAs are different from ordinary retention agreements between lawyers and clients. The client is agreeing to pay a percentage of their damages if the claim is successful. Therefore, it is only right that the representative should be entitled to that percentage if the claim is successful. DBAs are founded on the premise that if the representative upholds their end of the bargain and the claim is successful, he or she is entitled to receive the agreed percentage of the damages. I reiterate the point I made earlier: these provisions are without prejudice to any right of either party under the general law of contract to terminate the agreement. We are grateful for the consideration given to these regulations by the Merits Committee. We have carefully considered the points raised in the committee’s report, published on 18 March. My right honourable friend the Lord Chancellor and I discussed the committee’s concerns at a meeting with the chairman, the noble Lord, Lord Rosser, and the noble and learned Lord, Lord Scott of Foscote, who is a distinguished member of the committee. We have taken on board their concerns in revising Regulation 6(5). I strongly believe that these regulations are necessary and proportionate in achieving their objective, which is to put in place specific statutory protection for claimants using these agreements in employment tribunals. As I have said, we have tried to balance carefully the views raised in consultation and believe that the regulations represent the best way forward. The House will know very well that on 14 January Sir Rupert Jackson delivered his wide-ranging report, Review of Civil Litigation Costs. Among 109 formal recommendations, he recommends that contingency fees are permitted in civil litigation with appropriate regulation. However, I emphasise that fresh primary legislation would be required, should the Government decide to implement that recommendation. The Government are actively considering Sir Rupert’s recommendations, and will set out the way forward in due course. I assure the House that any proposals on extending the use of contingency fees to litigation would be subject to full public consultation and legislative scrutiny by Parliament. Before leaving this regulation, I will respond to the noble and learned Lord as best I can. DBAs, as I understand it and am advised, cannot be used on appeal in either employment appeal tribunals or the Court of Appeal. I understand that legal aid is available for representation on appeal. I turn now, briefly, to the Conditional Fee Agreements Order 2010, which is made under Section 58(4) of the Courts and Legal Services Act 1990. The order amends the Conditional Fee Agreements Order 2000 to set a new maximum success fee percentage of 10 per cent for CFAs relating to some publication proceedings. Publication proceedings for the purposes of this order are within the meaning of Rule 44.12B of the Civil Procedure Rules 1998. The definition covers defamation, malicious falsehood or breach of confidence involving publication to the public at large. For ease, I shall refer to them as defamation proceedings. As noble Lords know, conditional fee agreements, or CFAs, allow lawyers to take on a case on a no-win no-fee basis. If the case is lost the lawyer does not get paid. However, if the case is successful the lawyer can charge his normal base costs as well as an additional uplift or success fee. The success fee is currently recoverable in full from the losing side. The Conditional Fee Agreements Order 2000 prescribes the maximum success fee that lawyers can charge at 100 per cent in all categories of case. That 100 per cent maximum was intended to allow lawyers to cover the costs of those cases which were lost with a success fee from those which were won. However, the Government have been concerned about high legal costs in defamation cases. These high legal costs are exacerbated by 100 per cent success fees, which may have a harmful effect on freedom of expression. This affects the media, in particular those with limited budgets, such as the local media and publishers, but also scientific and academic debate. Specific concerns have been expressed to the Government by members of the scientific community and others that the current law on libel, including the high costs involved, is having a harmful effect on freedom of expression in the context of scientific and academic debate. Noble Lords will be aware of the announcement of the reform of the law of libel by my right honourable friend the Lord Chancellor on Tuesday this week. This change should be seen in that broader context. Previous attempts to control success fees in defamation cases have proved unsuccessful, even though there is widespread and urgent concern about their impact. In January this year the Government therefore consulted on a specific proposal to reduce the success fees to 10 per cent in defamation cases. Some of the respondents to the consultation who disagreed with our specific proposal accepted that 100 per cent recoverable success fees should not continue.