Damages-Based Agreements Regulations 2010

I will say no more about the meeting I had with the Minister. I think I have given the gist of it. Both these instruments raise different, discrete points, but they have one important factor in common: they both raise questions about access to justice. Access to justice in the civil justice system is critical. Of what use is a justice system if it is not available to the citizens whose rights are to be protected or who are to be defended against allegations that they have broken other people’s rights? That is all that the instruments have in common, but it justifies dealing with them together. For my part, though, having made those remarks about access to justice, I shall take them separately. The damages-based agreement, as your Lordships have been told, is the first statutory recognition given to contingency fee agreements where the fees of the lawyers appearing for the claimants come out of the damages that are recovered in the action as a percentage. The successful claimant therefore bears the cost of his successful litigation; the costs are not thrown on to the other side. If the case fails, it is a no-win, no-fee arrangement, but the reward for the lawyers of the successful claimant comes out of the damages that the claimant succeeds, with their assistance, in having recovered. That is a quite different approach from that of conditional fee agreements, where the burden of the fees that are recovered by the lawyers for the successful party falls on to the shoulders of, and have to be found by, the unsuccessful defendants. The damages-based agreement, as the noble and learned Lord, Lord Woolf, has already said, introduces a means of funding the very narrow type of action—namely, damages actions in front of an employment tribunal—in a way that standing authority holds to be contrary to public policy. Public policy can change, but it is a strong step to take to introduce this by means of a statutory instrument. I am not suggesting that it is ultra vires; authority for it was given in the amendment introduced late in the day in the Coroners and Justice Act 2009. I am not in a position to say how much debate there was about that introduction but the amendment was made very late, and this is the first attempt to use it. It deserves to have considerable attention paid to it. I would call this an interesting experiment to see whether an alternative means of funding civil claims can be found by the contingency fee route. The discussions that I had with the Minister about the termination provisions were the only points that I raised about the instruments, and I apologise to him for now raising others that had not occurred to me at the time when I met him. I hope that he will forgive me, but there are difficulties that arise in connection with appeals. As I understand from what the Minister said earlier, if there are to be appeals, and there may well be, the funding of the appeal, as far as the successful claimant before the tribunal is concerned, will have to be found by some means other than the agreement itself. It has been suggested that a conditional fee agreement could be obtained for the purpose of the appeals. That makes two different systems of funding the litigation at different stages: the contingency fee, with the fee coming out of the damages and calculated with reference to the amount of the damages for the initial hearing, and the conditional fee agreement route for the appeals. The calculation of the fee to be paid to the successful lawyers for the trial before the tribunal is expressed in terms of the amount that is actually recovered by the claimant. The amount that the claimant recovers may have to take into account any cost to him of the appeals that he may find himself responding to. If he has lost, of course, he will not have recovered any damages. However, if he appeals and succeeds in getting damages from an appeal court, how does the damages-based agreement then operate? He will have obtained damages not from the tribunal but on appeal. If he succeeds in front of the tribunal and the damages are reduced by the appeal court and he is ordered to pay some costs, what then? Does that also reduce the 100 per cent on which the percentage recovery for the lawyer is to be calculated? These questions need to be examined with some care. The regulations themselves say nothing about them. It would be left to those who have to construe the instrument as it stands, unless some amendment is made, to determine the correct answers. There is also the possibility, if damages were reduced and costs were awarded against the respondent, of the court ordering a set-off of the costs against the damages, and the question of the solicitor’s lien against damages recovered in an action. All of these matters bear upon how the machinery for calculation and payment of the contingent fee, based upon a percentage of the amount recovered by the client, will work. Two final points of technical detail have not been covered. Is there any reason why, just as the success fee of conditional fee agreements can be subjected to the scrutiny of a taxing master and taxed down if the amount is thought to be excessive, the percentage agreed in a damages-based agreement cannot similarly be subjected to that scrutiny? It seems logical that there should be the same process of checking the justification for the percentage being charged, whether in a conditional fee agreement success fee or a damages-based agreement percentage of damages. Finally, has any thought been given to how VAT is charged in a case where the fee comes out of the damages? I had not given it any thought until today. Is VAT to be charged and added to the amount accounted for by the lawyer, or is it to be assessed in some other manner? These are technical questions which I leave with the Minister. I turn to the much more difficult question of the Conditional Fee Agreements Order. Your Lordships have heard of inadequate consultation; so there was. Your Lordships have heard questions raised about where the 10 per cent as the maximum success fee—it is important to note that it is the maximum—comes from. It appears, from the papers that we have seen, to be arbitrary. The Government’s consultation paper, issued on 19 January this year, accepted that, ""to enable claimant lawyers to balance risk: to cover the costs of cases that failed with an uplift or success fee on those that won"," there was to be a balance. The justification for the 100 per cent uplift was that cases that arrived at trial could be taken to be 50/50—as likely to win as lose. Otherwise why was the other side fighting it? Consequently, the lawyer who litigated under conditional fee agreements would lose as many as he won, and should therefore get twice his normal fee to compensate him for getting nothing on those that he lost. That is the justification for the 100 per cent uplift. If that mathematics is carried through, the 10 per cent uplift—the maximum uplift that is proposed under the order—would require the lawyers who worked on that basis to succeed in nine out every 10 cases that they took. That record of success would be remarkable for any practising barrister. There are some in the House today. I wonder whether they have ever got near to achieving such a thing as nine successful cases out of 10. Anything less and their books will not balance at the end of the practising year. I spent a little time doing the maths. Assuming the lawyers concerned take 10 cases a year that fall within the requisite publication category, they would need somewhere between a 40 and 50 per cent uplift to make a profit if their success rate was between 60 and 70 per cent. That is a pretty high success rate and it would require a 40 or 50 per cent uplift. Ten per cent is, with respect, a ridiculous rate. It would deny access to justice to a whole range of people who will not be able to afford to litigate. It would be a denial of the whole purpose of the civil justice system, which is to discourage self-help. It would also be apt to promote a deserved disrespect for the law. The noble Lord, Lord Martin, has tabled a Motion of Regret, which I would support. I say also—echoing others—that this is an instrument which ought to be withdrawn and rethought with proper evidence and full consultation.