Legal Aid, Sentencing and Punishment of Offenders Bill

My Lords, conditional fee agreements—no-win no-fee arrangements—were first permitted by the legislation introduced by the noble and learned Lord, Lord Mackay, in 1990. In the beginning they were limited to personal injury cases, insolvency cases and cases before the European Court of Human Rights. They were a radical breach with the principle that a lawyer ought not to have a financial interest in the outcome of a case, and drew at the time much opposition from Law Lords and the Law Commission. Your Lordships are familiar with the way this system now works. If the case is lost, the lawyer receives no fees and therefore he needs to win or to settle to earn a living. To recompense him for the risk of losing, he is paid a success fee when he wins, a percentage uplift of his standard fees, which in theory recompenses him for those completely unrelated cases he has taken on and lost. He recovers the standard fees, which are payable by the losing defendants, but the initial concept was that the winning claimant should pay the success fee—the uplift—out of his damages. When the scheme was initially introduced, the uplift was limited to 20 per cent of standard fees. That was increased in 1995 to 100 per cent uplift to cover the most unlikely case—that was how it was introduced—where the risk of losing was 50:50. Under the normal costs-shifting rules, the losing claimant was open to pay the tax costs of the defendants. He was not protected, as he would have been under a legal aid certificate, from the costs that the defendants had incurred in defending the case. Under legal aid an order was very often made that a losing plaintiff—as he then was—should pay the costs of the defendant. However, it was almost never enforced, so effectively he was not at risk of paying the defendant's costs; but if he was, he could not pay. In answer to a query from Lord Hailsham, who was concerned that defendant insurers were left out of pocket even when they won, the noble and learned Lord, Lord Mackay, said: "““I understand that the Law Society is in the final stages of organising a form of insurance policy to protect clients against a costs order under a conditional fee agreement … If that is implemented it will be a complete answer to the anxiety to which my noble and learned friend has just referred””.—[Official Report, 18/7/94; col. 5.]" So ““after the event”” insurance was born to protect the losing claimant against the defendant's costs. There are further matters to which I may refer later such as caps on damages, but in 1999 the noble and learned Lord, Lord Irvine of Lairg, as Lord Chancellor, extended conditional fee agreements to all civil proceedings except family law. However, the most radical change he introduced was that the success fee and the ““after the event”” insurance premium should then be paid by the losing defendant. In a debate on 23 July 1998 he resisted Lord Ackner's amendment that success fees should be capped. I said on that day: "““There has been no research as to whether solicitors overestimate the risk in order to justify an excessive uplift of the fees. There may be a doubling of fees now that 100 per cent. uplift is permitted. But the solicitor who is charging the fees, who determines that uplift, has to justify that uplift, assessing the risk himself. Is he doing it properly?””.—[Official Report, 23/7/98; col. 1112.]" Even then, in 1998 when I was speaking, the evidence suggested that the cherry picking of risk-free cases was occurring. I was a teller for Lord Ackner on that amendment, which was, unfortunately, lost. I hope that your Lordships will forgive me for quoting my own speech but it indicates that I was involved at an early stage in the discussions that were taking place in 1999. We now know what has happened. Whipped up by dubious marketing forces and claims farmers, litigation in smaller claims has increased. Success fees are charged at 100 per cent in every case that goes to trial, not the most unlikely cases—which was the original reason for the introduction of such fees. That occurs even under a system of fixed uplifts that have been agreed with the insurance industry. The claimant does not care. If he loses, he does not pay even his lawyer's standard fees, only his disbursements for expert reports and court fees. If he wins, the defendants have been paying the standard fees and the uplift, the success fee—and this is the point relating to the amendment of the noble Lord, Lord Beecham: after-the-event insurance premiums have sky-rocketed because the claimant never pays them and cost judges have failed to tax them down. There needs to be reform of this system, which has led to a completely unnecessary—I do not speak as a lawyer when I use that word—escalation in legal fees. They are out of proportion. Ministers and Members of this House have been buffeted from all sides over the past few weeks by the lobbying of interested parties—claimant solicitors, defendant solicitors, ““after the event”” insurers, the Bar, the Law Society, concerned organisations of lawyers and so on. What is the best way forward? I have tabled some amendments that I shall deal with at a later stage. However, perhaps I may say in response to the amendment that it is essential, as the noble Lord, Lord Beecham, said, that the introduction of one-way costs-shifting in CFA cases should go hand in hand with any alterations that there may be to conditional fee agreements. I latched on to the word that was used—I think it was by my noble friend Lord McNally—in Committee: that it should be ““synchronised”” with the CFAs. The only issue I have with the noble Lord, Lord Beecham, is whether that provision needs to be in the Bill or whether we on these Benches can accept assurances from our Government that these issues will be dealt with by way of regulations. It is government policy that has been announced from the Front Bench that there will be one-way costs-shifting. It has been announced that that will happen in synchronisation with any alteration to the CFAs and that there will be a 10 per cent uplift in general damages to cover the changes that are being made to conditional fee agreements. All I have to say to the noble Lord, Lord Beecham, is that the amendment seems to be unnecessary in the light of government assurances that we on these Benches are bound to accept.