Legal Aid, Sentencing and Punishment of Offenders Bill

My Lords, I confirm that we have been in regular discussions about these amendments, and I regret that I am not able to accept them today. There have been a number of comments about costs and indeed about the Trafigura case. What strikes me most about that case is that the £30 million that was won in damages worked out at about £1,000 per victim—against, as has already been accepted, legal costs that at one time, until they were beaten down, were running at £100 million. To me, that is an obscene system. With regard to the reforms that we brought forward, we have said that we believe CFAs will continue. We are also introducing damages-based agreements. Far from welcoming them, though, the CBI and others worry that those may well provide funding in this area. So, it is not that the Government are opposed to bringing companies to account for their behaviour. I just do not believe in the rather broad claims by the noble Lords, Lord Brennan and Lord Judd, that this issue will dramatically affect the lives of people in developing countries. There are other areas of policy that are going to do much more than that. I make clear that the Government strongly support claims arising from allegations of corporate harm in developing countries being brought, and we support the protection of damages for personal injury. Where we disagree with the supporters of the amendment is that we do not believe that our plans would prevent such cases being brought or ultimately damage the ability of NGOs and others to hold big business to account. An exception along the lines proposed is in our view neither necessary nor justified. It is not necessary because reformed ““no win no fee”” arrangements will still allow cases to be brought. It is not justified because it would undermine the wider rationale for the Jackson reforms in Part 2 of the Bill, which should apply across civil litigation without any exceptions. In doing so, it would introduce unfairness between different types of claimant. We recognise, however, that, following the Rome II regulations, damages in these cases can be relatively low, and they will not be subject to the 10 per cent increase available for other claims. The costs awarded can nevertheless be extremely high, as was demonstrated by the Trafigura case. The question is whether any exception should be made for these cases either on a wider basis, as proposed in Amendments 21, 22, 23 and 26, or on a narrower basis, as proposed in Amendment 27. I concede that in putting forward Amendment 27, the movers tried to put forward a narrow-based solution. The Government have listened to this debate and those that went before, and we have reflected carefully on the points raised. We have held many meetings with interested stakeholders and NGOs over the past months, and the Government are fully aware of the strength of feeling on this issue. I have looked again at the evidence that has been presented, including reports by Professor Rachael Mulheron of the University of London and Mr Smith of First Assist. Both reports make the general case for recoverable success fees and insurance premiums to continue in these cases, but they do not present any figures showing why these cases could not be brought in future. During our discussions with the NGOs we have asked for such evidence but it has not been forthcoming, even though we have asked them for more detailed figures. The truth is that the available evidence shows that these cases, though few in number—about 10 in a decade—have historically been highly profitable for the legal firms involved. Although under our plans the margins available would be reduced, they are still likely to remain attractive. I remind noble Lords of the sums involved. Since the previous Government introduced the recoverability of success fees and insurance premiums in 2000, we know that there have been only around 10 of these cases, mainly undertaken by a single firm of solicitors. Most of these cases have succeeded or settled, but some claims have been pursued in which costs were ultimately not recovered. The figures suggest that in those cases that were not pursued to trial, there were disbursements of some £131,000 and legal costs in the region of £1.4 million. I appreciate that those figures will not cover all costs in all cases but they should be a fair ball-park indication. £1.4 million sounds like a lot of money for a firm to bear in what are effectively losses on a case not pursued and won until the substantial sums that have been received in success fees are considered. We know that in the case of Trafigura alone, success fees—intended to cover the costs in lost cases—of around £29 million were allowed by the Court of Appeal. Those figures amount to a net gain for claimant lawyers from these cases over the past decade of more than £27 million from the success fees for Trafigura alone. That does not include all the success fees in the other successful cases. These figures speak for themselves. They cast all emotion aside and demonstrate the substantial gains in legal costs from these cases and the proportionately much lower costs expended. When the ratio of earnings to losses is more than 10:1, the current system can, to put it mildly, bear some reform. Therefore, while I recognise that claims against multinationals can be complex, the changes that we are making to the CFA regime will not prevent these cases being brought in the future. They can still be brought but the costs will be more proportionate. As Lord Justice Jackson recognised, a greater incentive for claimants' lawyers to work more smartly is needed, so that they incur only costs that are justified when bringing a claim, rather than allowing costs to escalate. It is worth pointing out, as I have previously in the House, the criticism by the Court of Appeal of the costs claimed by the claimants in the Trafigura case. In that case, the court itself questioned whether some of the work undertaken by the claimants' lawyers was necessary. It criticised them for seeking costs of £100 million in a case that resulted in payment of £30 million in damages. It is not for me to question the conduct of those involved, but it needs to be borne in mind when looking at the extraordinary costs claimed in that case alone. I should add—again, as I have pointed out to the House previously—that in that case, the defendant's costs were approximately £14 million, which is around one-seventh of the costs claimed by the claimants. I turn now to Amendment 27, which seeks to allow for the recoverability of ““after the event”” insurance premiums to pay adverse legal costs, including expert fees and other disbursements. In doing so, the amendment goes much wider than just the cost of funding the expert reports for which we have provided in the special situation of clinical negligence cases. The amendment would potentially cover paying the other side's costs, too, but this is not necessary because we are introducing a system of qualified one-way cost shifting in personal injury cases, which will protect losing claimants from having to pay the other side's costs. We have discussed making exceptions in relation to expert reports in other contexts, but we do not believe that an exception is more needed here than in other cases. As I have said, the costs recovered in successful multinational cases have been substantial and could provide funds towards paying up front for reports where needed. As I indicated on Report, on several occasions my officials and I have met representatives of the NGOs that support these cases. However, we have not been persuaded that such cases cannot continue to be brought when our changes are implemented. Nor are we persuaded that they justify an exception in the Bill that would be unfair to other, no less deserving claimants. The House will be aware of all the arguments that I have rehearsed today, in Committee and on Report. We have treated subsequent discussions with the seriousness they deserve, and we have listened carefully. However, the Government continue to believe that reform is unavoidable, necessary and overdue. In this case in particular, we should not mix up a challenge to overgenerous costs with a denial of access to justice. Access to justice is precisely what the reformed CFA regime will protect, but as part of a more proportionate and balanced system. Therefore, I urge the noble Baroness to withdraw her amendment.