Legal Aid, Sentencing and Punishment of Offenders Bill

My Lords, I have to apologise for the length of my opening remarks, but as your Lordships will have seen, this is a very large group of amendments and it covers some three discrete topics. Clause 43 deals with the conditional fee agreement—a CFA or no-win no-fee agreement—under which the successful claimant wins from the defendant both damages and costs to pay his lawyer’s fees. The fees under a CFA include a success fee, an uplift of the basic fees by an agreed percentage. The rationale behind the success fee is that it is not the lawyer’s prize for winning his case but his insurance; an uplift on his fees when this client wins covers the value of his time and effort when another client loses and he receives no fees at all. If the claimant loses, he does not have to pay his own lawyer’s fees, because it is no-win no-fee, but he is liable for the money paid out on his behalf for court fees, expert and medical reports, and witnesses’ expenses. The Government’s purpose in Clause 43 is to amend the current position under the Courts and Legal Services Act 1990 to provide that the success fee payable to the successful claimant should no longer be payable by the unsuccessful defendant but should be paid instead by the successful claimant out of the damages he receives. All the losing defendant will pay by way of costs is the claimant’s lawyer’s base fees and his own costs. When the 1990 Act, led on in this House by the noble and learned Lord, Lord Mackay, was originally enacted by the Conservative Government to provide relief for the MINELAs—middle income not eligible for legal aid—it was expressly provided by Section 58 that the costs payable by a losing defendant to a successful claimant should not include the success fee payable under a CFA. At the beginning, no success fee was paid by defendants, but in 1999 the Act was amended by Labour so that the success fee was recoverable from the losing defendant, along with the claimant’s base costs. Labour’s policy at that time was to abolish the grant of legal aid to all—the impoverished as well as the MINELAs—in all personal injury cases save clinical negligence. The carrot was that defendant insurance companies would pay the success fee instead of the claimant. The proposals in this Bill seek to return to the original concept of the noble and learned Lord, Lord Mackay, in 1990. The 1990 Act did not change the general rule that the losing party pays the winning party’s costs; costs follow the event. Therefore, if a claimant lost his case, he did not have to pay his own lawyer’s fees—no-win no-fee—but under the principle of costs following the event, he was liable to pay the successful defendant’s costs, which could be a very considerable sum. To cover this possible liability, an insurance market quickly grew up whereby the claimant would insure himself against the risk of losing; that is, ““after the event”” insurance, or ATE. The original 1990 Act said nothing about the cost of the insurance premium for such cover and accordingly a claimant was responsible for the premium. Section 29 of the Access to Justice Act 1999 expressly provided that the premium paid by a successful claimant who had insured himself against the risks of losing was recoverable as well as the success fee. The policy was that an injured claimant would recover his damages in full without any deduction, so the losing defendant—usually an insurance company or a company so large that it was self-insured—paid four times over: the damages to the claimant, the base costs of the claimant’s solicitors, the success fee, and the ATE insurance. As it happens, I raised the issue of the extension of CFAs and its impact on insurance in a dinner-time debate some 14 years ago, on 9 March 1998, before the 1999 Bill was introduced. I was very much against the abolition of legal aid in personal injury cases and at that time was promoting the CLAF scheme that is so successful to this day in Hong Kong and fully supported by the Bar Council. Two particular matters stand out from that debate. My noble friend Lord Kingsland—and I do mean friend—then the leader of the Conservative Benches in this area, said he applauded the long, hard look the noble and learned Lord, Lord Irvine, was taking at legal aid. He said: "““In his overall review of legal aid, the Opposition applaud particularly his desire to extend legal aid into areas such as the provision of social welfare, immigration and other areas where preventive legal advice will save so much money by avoiding ensuing litigation. All that is to be greatly applauded””.—[Official Report, 9/3/98; col. 93.]" In that debate, the noble and learned Lord, Lord Irvine, said: "““Premiums for personal injury proceedings, in which conditional fee agreements have been allowed since 1995, are typically £100 to £150. For many of those who will gain access to justice, which they are denied now, that is not an excessive sum””.—[Official Report, 9/3/98; col. 96.]" The legislation was passed in the context that the noble and learned Lord, Lord Irvine, believed that insurance premiums for ATE insurance were £100 to £150. The past 11 years have witnessed the unintended consequences of the 1999 Act and the urgent need for reform. It was emphasised in the Jackson report that the maxim ““once size fits all”” is certainly not the way to go. In personal injury cases, the defendant who caused the injury will have acted negligently, not deliberately. In defamation or breach of privacy cases, the harm is quite deliberate, usually with the motive of selling newspapers. Personally, I am intensely relaxed about the newspaper that libels an individual or breaches their privacy having to pay the lot—the injured party’s success fee and ATE premium—although I am afraid that neither the Mirror nor the European Court of Human Rights would agree with me. The defendant does not, in a libel case, have to pay for future care or future loss of earnings, and the damages award is usually small. Therefore, different concerns apply in different categories of cases. The 1999 changes in the recoverability of the success fee have been highly lucrative for solicitors. The Jackson report points out that if 30 per cent of a solicitor’s fees represent profit and 70 per cent are administration costs, then a 100 per cent success fee, which is not untypical, doubles his fees and gives him a profit of 130 per cent. Since the claimant never has to pay any part of the success fee under the present provisions, he is totally indifferent as to whether the success fee is 10 per cent or 100 per cent. In Road Traffic Act cases, where the success rate is over 90 per cent, the ramping up of success fees became so blindingly obvious that the success fee was limited by regulation to 12.5 per cent. Other cases may be riskier, where the success fee remains at large. Solicitors say, ““We have a merits test to ensure that only meritorious claims go forward””. Such a test can easily degenerate into cherry picking, so that risky cases may be dumped and only sure-fire winners taken on. If a lawyer picks only the obvious winners and discards risky cases, why should he have a success fee to insure himself against cases which, by definition, he will never lose? In today’s climate, I support the Government’s decision to transfer the burden of the success fee to the successful claimant. That will immediately introduce competition for clients. Some lawyers, in easy, run-of-the-mill litigation, may even advertise that they will charge no success fee at all. Others, who take on the riskier cases, will have to calculate how low they can push their success fee percentages to attract clients, in order to cover their losses on those cases they might lose. The proposal that the claimant pays the success fee introduces competition in this area, which will push down the percentages that solicitors ask for. That brings me to Amendments 118 to 120 and 162. The Government propose to limit the success fee in personal injury cases to 25 per cent of the damages for pain, suffering and loss of amenity in special damages to the date of the award, but to exclude from that calculation any damages attributable to future loss, whether loss of earnings, medical fees, care costs or the like. I should point out that the maximum limit or cap that was envisaged in the original 1990 Act was a percentage of the whole of the award of damages, not a part, as is now proposed. A maximum limit, specified as a percentage of damages, is inappropriate where the action is one merely for injunctive relief or in an area where damages are, by convention, low, such as actions in defamation or privacy cases. Consequently, Amendment 118 provides for the success fee to be calculated not just as a percentage of damages, but also, as an alternative, as a percentage of the fees which would normally be charged. Amendments 119 and 120 are consequential amendments. Amendment 162 deals with Clause 53, which provides for an additional sum to be paid by a defendant to a claimant if judgment in the claimant’s favour is more advantageous than an offer he made earlier to the defendant which the defendant rejected. The sanctions against a defendant for failing to accept a claimant’s offer to settle generally amount to considerably less than the sanctions against a claimant for failing to beat the defendant’s offer to settle. Consequently, there is less incentive for a defendant to accept a reasonable offer from the claimant than for a claimant to accept a reasonable offer by the defendant. Amendment 162 clarifies that the court must evaluate the non-monetary benefit of injunctive or declaratory relief or the vindication of a claimant’s character in defamation proceedings. Amendment 137D allows the House to consider one-way costs shifting. This is the second topic with which this group of amendments is concerned. It would mean that a defendant, even if successful, pays his own costs and does not seek them against the losing claimant; namely, one-way costs shifting. It follows that if such a regime were in force, a claimant could bring his action without fear of having to pay the defence costs if he loses. To an ordinary individual, having to pay defence costs takes all his savings and perhaps his home, which would be a significant deterrent to most people from bringing even a gold-plated claim let alone a risky one if he is facing that financial liability. One-way costs shifting is not a new concept. It has been the rule in legal aid cases since I started practice. An unsuccessful legal aid plaintiff may have an order for costs made against him not to be proceeded with without the leave of the court. I have never known any attempt made by an insurer following such an order to obtain costs or to seek to obtain costs against an unsuccessful claimant. Jackson, in his report, calls it the ““legal aid shield””. One-way costs shifting exists in legal aid. In formulating his proposals, Lord Justice Jackson was assisted by calculations made by the Medical Protection Society, which over an 18-month period calculated that it had paid out £2.8 million in ATE insurance premiums which had been recovered by successful claimants as part of their costs. The Medical Protection Society had itself paid more than £9 million of defence costs of which it had recovered only £380,000 in costs orders against unsuccessful defendants. It had recovered only £380,000 but had had to pay £2.8 million in ATE insurance premiums to successful claimants. It follows that it would be far better financially for it not to seek costs at all when it wins if it could avoid paying the claimant’s ATE premium when it loses. Lord Justice Jackson concluded: "““On the basis of the material provided during the Costs Review, it seems to me inevitable that, provided the costs rules are drafted so as (a) to deter frivolous or fraudulent claims22 and (b) to encourage acceptance of reasonable offers, the introduction of one way costs shifting will materially reduce the costs of personal injuries litigation. One layer of activity, namely ATE insurance against adverse costs liability, will have been removed from the personal injuries process””." Jackson recommended the introduction of qualified one-way costs shifting. The Government intend to introduce, through the civil procedure rules, such a regime. In my view, it is essential that the principles to be applied in formulating these civil procedure rules for one-way costs shifting should be on the face of this Bill. If the Bill provides on its face that the premiums for ATE insurance should fall upon the claimant, as it does in Clause 45, so should the provisions of one-way costs shifting, the other side of the coin, also appear in the Bill and be properly debated. At the moment, I understand from discussions with the Government that no precise formulation of the alterations proposed to the CP rules has yet taken place. These rules are made by the Civil Procedure Rule Committee, which is an advisory non-departmental public body sponsored by the Ministry of Justice, headed by the Master of the Rolls and comprising five High Court judge members, one circuit judge member, two district judge members, three barristers, three solicitors and two consumer affairs lay members. I think that Parliament should give the rule committee its parameters and that it should not be left to the Executive, or for the committee simply to follow the recommendations of the Jackson report as it sees fit. The qualifications in this Bill follow the precedent of Section 11 of the Access to Justice Act 1999 in respect of legal aid; namely, that in making a costs order against a legally aided person, the judge may take into account his financial circumstances and the reasonableness of his conduct. In the course of discussions with representatives of the insurance industry, I have found that they are not concerned about the financial circumstances of the losing claimant. It is so rare that such a claimant can meet the defendant’s costs personally that it is simply not worth the while of the industry to formulate the mechanisms that would be required to assess every claimant’s means. In other words, we do not want means testing, and neither does the insurance industry. Further, Jackson was concerned to say that the claimant must be at risk of some adverse costs in order to deter frivolous claims and applications in the course of otherwise reasonable litigation. He suggested a formula for the proposed alteration to the Civil Procedure Rules at page 190 of his final report: "““the formula suggested above will enable the court to make a costs order in three specific situations where such an order would be appropriate: (a) where the claimant has behaved unreasonably (e.g. bringing a frivolous or fraudulent claim); (b) where the defendant is neither insured nor a large organisation which is selfinsured; or (c) where the claimant is conspicuously wealthy””." Amendment 137D refers, first, to the one-way cost shifting applying to a claimant ““regardless of”” his means. The insurance companies do not want it and neither should the Government. It refers to actions which are brought against defendants who are insured or self-insured. We are not dealing with one-way costing where the action is brought against an individual. The amendment also proposes the extent of one-way cost shifting and seeks to add clarity in defining unreasonable conduct. Provision is also made for Part 36 offers. The amendment seems to deal with the objections that might be made to Lord Justice Jackson’s original formulation, which the Government have accepted, and puts forward significant amendments. As I previously outlined, the expectation of the noble and learned Lord, Lord Irvine, in 1998 was that the premiums for ATE insurance would be in the region of £100 to £150 when he took the decision in 1999 to switch the responsibility for those premiums from the claimant to the losing defendant. But there were unintended consequences. Market forces took over. The claimant was happy to agree to any size of premium which he himself was never going to have to pay, win or lose. If he lost the case, the insurance company customarily waived the premium, in effect it self-insured itself against loss in such circumstances. In the case of Rogers v Merthyr Tydfil County Borough Council, Lady Justice Smith pointed out that cases were being advanced by claimants protected by ATE insurance when no private litigant would dare to take the risk. This judge, who is very experienced in personal injury claims—as I know to my cost—said: "““At present, the insured claimant can notionally pay the high premium which reflects his poor chances of success, secure in the knowledge that, if he wins, the premium will be recovered and, if he loses, he can walk away unscathed. I find it hard to believe that Parliament intended that claimants should be in so much better a position than the private litigant””." This change has meant that the claimant does not have to worry because he is not going to pay the premium, whatever happens. Costs judges who were asked to assess a successful claimant’s costs found it impossible to challenge the size of the premium. In that same Rogers case, Lord Justice Brooke said: "““District judges and costs judges do not … have the expertise to judge the reasonableness of a premium except in very broad brush terms, and the viability of the ATE market will be imperilled if they regard themselves (without the assistance of expert evidence) as better qualified than the underwriter to rate the financial risk the insurer faces.””" So the judges who are supposed to tax costs found that they could not enter into any discussion or sensible judgment as to what a premium should be. The claimant does not care about how much the premium is because he will never have to pay, and the taxing masters—the judges who deal with costs—will not enter that area at all, so that insurance companies can charge whatever premiums they like. Lord Justice Jackson cited one of the illustrative cases provided to him by the Commercial Litigation Association, where the claimant’s profit costs in a particular case were £425,000, disbursements were £561,000, but the ATE insurance premium was £976,000. In other words, the ATE insurance premium in that case was more than all the other aspects, costs and disbursements put together. I am familiar with premiums in the region of £80,000. Evidence produced to Jackson showed that when these premiums are charged by ATE insurers, 65 per cent of premium is attributable to risk, 15-20 per cent is attributable to brokerage fees and 15-20 per cent to administration and profit. ATE insurers under this system have been charging whatever premium they can get away with, because it is not challenged by anybody, and only 65 per cent of those premiums are attributable to the risk that they are undertaking. Jackson advanced two solutions. His first, and preferred, solution is that the premium should be paid by the winning claimant out of his damages to reverse the present situation. His second solution, alternatively, is that the cost of the premium be shared between the claimant and the losing defendant. Under either alternative, the claimant then has an interest in the size of the premium. If he is going to pay it himself, he is worried about how big it is; if he is going to pay a share of it, he is concerned about the size of the premium. Absent some cartel, competition ought in practice to keep the premium at a level which is a true reflection of risk. The Government have opted in this Bill for the first solution, subject to an exception in clinical negligence cases whereby part of the ATE premium which covers disbursements in the way of expert and medical reports will be recoverable from the losing defendant. That part of the premium, which covers the risk of paying the defendant’s costs, will be paid by the winning claimant out of his damages even in these extreme cases. If one-way cost shifting applies, as I have previously argued, the defendant pays his own costs whatever the result, the losing claimant does not pay his own lawyers—no win, no fee—nor under such a regime the defendant’s lawyers, so it is obvious how crucial it is to introduce such a regime as a vital part of the reform of the system. A claimant, even if successful, will remain liable for court fees and expenses paid out on his behalf for experts’ reports and so on. In a typical case, those expenses would amount to between £2,000 and £5,000, which is enough to deter a genuine claimant from advancing his claim. ATE insurers, faced with the destruction of a very large market by reason of one-way cost shifting, say that they are not interested in covering merely the costs of disbursements of such small sums. But obviously if the amount of money at risk is £2,000 to £5,000, the premiums will be back in the realms envisaged by the noble and learned Lord, Lord Irvine, in 1998. So although I have conceded ground on the claimant paying the success fee out of his damages, I retain enough of my purity of principle from 1998 to prefer the second option advanced by Jackson, with some changes, and hence the amendments under discussion. Amendment 144A would extend Clause 45 to all personal injury litigation and not just to that for criminal negligence. Amendment 144B makes the important point that the provisions apply only in favour of those who take out ATE insurance at the beginning of the claim. Jackson found instances of ATE insurance being taken out after liability had been admitted, when there was no possibility of an adverse costs order against the claimant, and the full premium being then claimed against the defendant as part of the costs order. If claimants take out ATE insurance at a later stage of the proceedings, when the wind appears to be rather less fair than they thought, the market might be too small for the risk to be properly spread. Amendments 144C to 144E are for clarification. Amendment 147A makes the important point that the amount required to pay in respect of the premium must not exceed a prescribed maximum amount, which is, "““proportionate to the damages or other relief claimed””." Amendment 148A introduces the concept of sharing the cost of the premium but also incentivises the defendant to settle the case at an appropriate time. It provides that if the case is settled within the pre-action protocol period, or its equivalent, the premium remains payable by the claimant, but at each stage of the proceedings the premium is shared. If the claimant is successful and obtains judgment, he will still have to pay 20 per cent of the premium. I would argue that sharing the premium for ATE insurance, reduced as it would be, because it would refer only to disbursements and not to defendants’ costs, would be a far more satisfactory way in which to vary the cost, much reduced by one-way cost shifting from the huge premiums currently demanded. Amendment 149A is consequential. Amendment 156AB makes the obvious point that one-way cost shifting and this reform go together, and the regulations on each aspect should come into force in the same day. I started by apologising to the House for the length of time that I would take in presenting these amendments. I repeat the apology and I beg to move.