Conditional Fees

HL Deb 01 November 1994 vol 558 cc784-812

4.2 p.m.

Lord Ackner rose to ask Her Majesty's Government:

What safeguards they will add to the draft Conditional Fee Order and Regulations in the light of the concerns raised by the Lord Justice Steyn, the Chairman of the Lord Chancellor's Advisory Committee on Legal Education and Conduct, in his letter to the Lord Chancellor of 26th May 1994 and further identified in the press notice of 9th June 1994.

The noble and learned Lord said: My Lords, it shows great powers of discernment by the Government Whips that when altering the date for this debate they chose 1st November—All Saints Day! For once (although I hope it is not the first occasion) I am clearly on the side of the angels. As I shall explain in a little detail in a moment, the stimulus for this debate arises out of the acute concern expressed on more than one occasion publicly by the Lord Chancellor's own Advisory Committee on Legal Education and Conduct.

Those concerns were also voiced by the Bar on the occasion of its annual conference at the end of September in the opening words of a detailed and well reasoned paper given by a senior QC. He said this: Conditional fees are bad news for individual litigants. They are good news for lawyers. They are therefore a bad idea".

Referring to the scheme as now proposed by my noble and learned friend the Lord Chancellor, he said: Superficially this appears to have some charm. So that is why it could seem popular. But when you see how it works out in practice only the lawyer benefits—and the litigant —the poor innocent man who has fallen off the Clapham omnibus—cannot win".

Further, in an article shortly to be published by Professor Zander, Professor of Law at the London School of Economics and a solicitor, the opening paragraph reads as follows, The idea that a winning litigant would have to pay most or even all the damages to his lawyer seems preposterous. But that would be the effect of conditional fees which the Government is about to introduce as a grand new way of financing litigation. For most clients conditional fees will just be a con".

The concerns which I am about to outline I know are shared by my noble and learned friend the Lord Chief Justice. An unrelated but happy feature of this debate is that we will hear the maiden speech of my noble and learned and great friend Lord Nicholls. He had an outstanding academic career. It was then followed by a very impressive practice at the Chancery Bar. Then he demonstrated—in a forensic sense of course—what a fast worker he was. He became a judge of the Chancery Division in 1943—

Noble Lords:

Oh!

Lord Ackner

My Lords, I should say 1983. I beg noble Lords' pardon. That shows what a slow worker I am. Inside those 11 years he graduated up from a judge of the High Court of the Chancery Division to the Court of Appeal, to Vice-Chancellor, and now to a Lord of Appeal in Ordinary. Just to emphasise his celerity, I think it is only a few days ago that he was introduced and here he is about to make a maiden speech and to demonstrate that he will add lustre to your Lordships' debates.

Section 58 of the Courts and Legal Services Act 1990 made, for the first time, an agreement to enter into speculative litigation enforceable. A conditional fee agreement is a species of contingency fee which permits lawyers to take cases on a no-win, no-pay basis. In the event of the litigation being successful, a term which is not easy to define—that is, "successful"—the lawyer is entitled to his normal fees plus a mark up or "up-lift"—to use that odd term which sounds more relevant to a foundation garment.

Prior to the passing of the 1990 Act, conditional fees were unenforceable because they were considered to be contrary to public policy. The rule was imposed by the law with two principal aims: first, to prevent exploitation of litigants; and, secondly, to promote the interests of justice. By allowing the lawyer to have a personal financial interest or stake in the outcome of the case, it was thought that this might lead to improper practices by the lawyer and undermine the integrity of the administration of justice. Section 58 was enacted in the teeth of opposition from seven Law Lords, the Master of the Rolls, the former Lord Chancellor, the noble and learned Lord, Lord Hailsham, and the former Attorney-General, the noble and learned Lord, Lord Rawlinson of Ewell. Although I believe that the Government in thus altering the law rendered a considerable disservice to the administration of justice, that is water under the bridge. However, the proposal in 1990 was to limit the up-lift to but a small percentage of the solicitors' proper costs. The Government's White Paper reporting the reactions to this proposal as originating in the Government's Green Paper, recorded that whereas there was some support for legalising speculative actions, it was again stressed that their use would be minimal.

Section 58, to which I have referred, requires the conditional fee agreement, inter alia, to comply, with such requirements (if any) as may be prescribed by the Lord Chancellor". Section 58(5) provides that, Any such order shall prescribe the maximum permitted percentage for each description of specified proceedings". Section 119 defines "prescribed" as meaning "prescribed by regulations" and Section 120 (3) provides, Any such regulations … may contain such incidental, supplemental … provisions or savings as the person making the regulations … considers expedient". Those are very wide powers indeed. In 1991, the year following the enactment, my noble and learned friend the Lord Chancellor issued a consultative paper in which it was proposed to set the maximum up-lift permitted under a conditional fee agreement at 10 per cent. The Lord Chancellor's advisory committee agreed that this maximum up-lift appeared to be about the right figure. However, in May 1993 the Lord Chancellor raised the maximum permitted up-lift to 20 per cent. That apparently did not satisfy those solicitors who might be interested in this new species of speculative litigation because in August 1993 the Lord Chancellor announced—I stress this—without further consultation with his advisory committee that he intended to set the maximum permitted up-lift at 100 per cent.

The Lord Chancellor's advisory committee was so concerned that the practical implications of the decision of the noble and learned Lord the Lord Chancellor should be understood that it issued a press notice, dated 3rd November 1993, stating in terms that the committee was not persuaded that: the startling implications of the 100 per cent. permitted uplift had been fully appreciated". This was, indeed, an entirely different ball game. The committee considered that either the permitted level should be reconsidered or additional safeguards should be introduced.

The committee pointed out that the permitted 100 per cent. up-lift would apply to personal injury litigation, in which the plaintiffs are often vulnerable people of limited means. I would add that, unlike commercial clients, who would, I suspect, be the majority of the clients of the noble Lord, Lord Hacking, the typical personal injury victim is relatively unsophisticated in both his knowledge of legal matters and the capacity to bargain over fees. I agree with the observations of Professor Zander in his article that most personal injury litigation is straightforward. A recent article entitled Re-thinking Contingency Fees by Professors Brickman, O'Connell and Michael Horowitz, published by the Manhattan Institute in Washington, quoted Judge Grady as saying that: the vast majority of personal injury cases involve no uncertainty and the lawyer is going to be paid something". If your Lordships needed further confirmation of that fact, it is to be found in the premium payable by a plaintiff for a policy of insurance, recently negotiated by the Law Society, against his liability for paying the defendant's costs in the event of the action failing. This is to be less than £100. From inquiries which I have caused to be made, it would be surprising to find that the plaintiff's costs of an action fought for some two days in the county court involving two or three witnesses on each side, including expert evidence but with agreed medical reports, would amount to less than £10,000. It follows that if the insurers are to break even, ignoring the administrative costs of such a policy, 100 actions would have to be won for every action lost. That indicates their contemplation of the size of the risk in this type of litigation.

In the press notice the advisory committee points out that it is common for a plaintiff's costs to reach an amount equal to half or even more of the damages recovered. Accordingly, it points out that if the 100 per cent. permitted up-lift comes into force, the plaintiff may have to pay the solicitors an additional sum equal to the whole of the damages awarded to him. If there is a finding of contributory negligence, the damages are reduced accordingly and the risk of losing everything to his advising lawyer is that much greater.

The committee pointed out that: one way of eliminating some of the most glaring injustices would be to restrict the up-lift to a limited part of the damages in other words, to cap the proportion of damages which the successful plaintiff has to sacrifice to his lawyer, for instance 20 per cent.

In April this year the noble and learned Lord the Lord Chancellor sent to his advisory committee the draft conditional fee order and regulations, which provided, inter alia, for the 100 per cent. up-lift. On 26th May the chairman of the committee, Lord Justice Steyn, a highly respected judge of the Court of Appeal, wrote a lengthy letter to the noble and learned Lord the Lord Chancellor saying that it was the committee's formal advice that the scheme should not be implemented until satisfactory provision had been made to deal with the following key issues of concern.

In respect of up-lift, the committee was concerned that the regulations leave lawyers completely free to choose the up-lift they require of the client within the maximum permitted up-lift of 100 per cent. This will result in many clients finding the lawyer's fee taking a disproportionate amount of the sums recovered. The regulations should provide that the amount of the up-lift should not exceed a set proportion of the sums recovered. To require the litigant to pay any significant sum out of his damages detracts from the fundamental principle of English law that the courts strive to put a wronged person back into the position that he would have been in had he not been wronged.

The second area of concern was controlling excessive up-lift. The committee indicated that the use of the taxation system to control excessive uplifts was likely to prove unwieldy and perhaps impractical.

In relation to information to clients, the committee considered that the draft regulations alone are not adequate to ensure that clients have sufficient knowledge of the issues when considering the conditional fee agreements. Lawyers should be required to explain at least some of the matters covered by the draft in specified terms and to take all reasonable care to ensure that clients understand them.

In relation to the Bar, the committee felt that conditional fee schemes would create new circumstances in the relationship between the lay client, the litigator and the advocate. Provision is needed for regulating these relationships before the scheme is introduced.

In relation to unmeritorious actions, although the courts have powers to strike out frivolous or vexatious claims and there are professional rules against abuses of the court's process, the committee considered that nevertheless problems developing in this area could involve defendants in considerable unjustified expense. There should be a rule prohibiting lawyers from undertaking, on a conditional fee basis, a case which they believe has no reasonable prospect of success. My noble and learned friend is, of course, aware that such a rule exists in Scotland.

The committee also considered that the existence of a conditional fee agreement should be disclosed to the opposing party and to the court, in the same way as a party in receipt of legal aid must make a disclosure. That will enable the position to be properly monitored, which is vital to ensure that the scheme does not give rise to abuses. Without such provision it is difficult to see how any effective monitoring can be carried out.

Once more, the committee was so concerned that it issued a press notice publicising the letter.

My Unstarred Question was erroneously treated by the Lord Chancellor's Department as a Parliamentary Question requiring a Written Answer. That was conveniently provided as long ago as 25th July in the following terms: The Lord Chancellor: There has been extensive consultation on the draft order and regulations and I have considered all the responses which have been put to me. I believe that the safeguards which are provided in the order and regulations are satisfactory. However, I am considering a provision requiring all conditional fee agreements to state whether or not there is to be a limit on the amount of any up-lift by reference to the damages awarded". By letter of the same date the noble and learned Lord the Lord Chancellor replied to Lord Justice Steyn's letter of 26th May, in substance to the same effect although at somewhat greater length. However, in regard to the proposition that the amount of the up-lift should not exceed a set proportion of the sums recovered, he made the point that he did not have power to make such provisions in the regulations. That is a brand new point which I and a number of my colleagues with whom I have informally discussed the matter have the greatest difficulty in following in view of the wide terms of Section 58(1) (c) and Section 120, which I have already quoted. However, if the Lord Chancellor does not have the requisite power then I respectfully suggest that he obtains it. After all, four years have gone by since the Act was passed and a little extra delay in ensuring that the very real concerns expressed by his own advisory committee will be time well spent.

I do not wish my contribution to this debate to be wholly negative. I join with the Bar Council in suggesting that further consideration be given to the introduction of a contingency legal aid fund, which would overcome all the dangers of the conditional fee system as currently proposed. If a case is lost the lawyer is still paid. If the case is won, the plaintiff pays 10 per cent. or 15 per cent. into the fund. That system has been advocated by Justice on two occasions and has been successfully implemented in Hong Kong over the past 10 years. Clearly it needs an injection of capital to prime the pump, as has been done in Hong Kong, such capital being treated as a loan to be paid back with interest—in the case of Hong Kong in a three-year period.

In a recent address to the London Commercial and Common Law Bar Association, my noble and learned friend the Lord Chancellor referred to the idea as having been canvassed three years ago when he perceived that there was general antipathy towards the idea of making winners pay. That, however, is exactly what happens under the conditional fee system, but in circumstances in which, as pointed out by Professor Zander, the lawyer with a financial stake in the outcome of the litigation has a concern to win the case which may distort the advice he gives and may even tempt him into unethical conduct.

In previous debates we have all joined in criticism of the American system where the lawyer gets a percentage of the sum recovered. Since the American courts, generally speaking, do not allow the lawyer to take more than 40 per cent. of the fruits of the litigation, the American litigant will on occasions be better protected than his English counterpart, since there will be cases where the double fee system results in the whole or virtually the whole of the proceeds going not to the injured party but to his lawyer. I urge my noble and learned friend the Lord Chancellor to think again.

4.20 p.m.

Lord Renton

My Lords, the noble and learned Lord, Lord Ackner, claimed that he was on the side of the angels. I must say that I think this afternoon he is on the side of the angels, although that does not stop him from having stolen a great deal of my thunder, such as it is. But that will enable me to shorten my speech so that we shall not have to wait very long for the maiden speech of the noble and learned Lord, Lord Marshall of Birkenhead, to which we greatly look forward.

Noble Lords

Nicholls!

Lord Renton

My Lords, Lord Nicholls of Birkenhead, I hope that he will forgive me. I personally am strongly against the conditional fee scheme in principle. My noble and learned friend the Lord Chancellor already knows my views on it. I understand that he considers that the scheme will help to overcome the enormous cost of legal aid. But I seriously doubt whether it will do so.

It is a fact that there are various causes of the high cost of legal aid, and other steps than the conditional fee scheme should be taken in any event. Perhaps I may mention an example that we had recently when my noble and learned friend was questioned in your Lordships' House about the notorious case of a Dr. Hashim from Iraq, which cost the taxpayer £4.1 million, for one case. I think that the time has come; for us to declare that foreigners and anyone living abroad, who have large resources abroad but have taken the precaution of extracting any of their wealth from this country, should not be eligible for legal aid. That is one positive step which could be taken quickly and easily.

I doubt whether this conditional fee scheme would in any event save much money on legal aid, unless a practice were to arise whereby those who apply for legal aid—whether to launch proceedings or to defend them, shall we say, with a counterclaim—are told that they should enter into a conditional fee agreement instead of being granted legal aid. If such a practice were to arise, it would be disgraceful. It would not only deprive people of the fundamental rights to obtain justice in the way that they have always done in England and Wales in our courts; it would force them into speculative litigation, of which there is already too much. That is well known.

Lord Hacking

My Lords, I am sorry to interrupt my noble friend. Perhaps he ought to address himself to paragraph 17 of Schedule 19 to the Courts and Legal Services Act 1990 where there are express provisions against the folly of which my noble and learned friend rightly urges us.

Lord Renton

My Lords, I am relieved to hear that that is so. I had forgotten it, but nevertheless one would need to be careful about the practice that would arise behind the scenes. That is the point I was getting at.

I am not the originator of this concept, but it seems to me that conditional fees are contingency fees under another name, whatever safeguards are introduced.

Another problem about the conditional fee scheme is that it works well only when there has been a substantial award of damages. I must confess that I was rather shocked and did not know about the correspondence to which the noble and learned Lord, Lord Ackner, referred and in which my noble and learned friend the Lord Chancellor has given an up-lift to the up-lift from 10 per cent. to 30 per cent. and then 100 per cent., whereas in the United States the maximum up-lift allowed is 40 per cent. in any circumstances.

Various practical problems would be certain to arise and I doubt whether they can easily be overcome. Perhaps I may give one example. It often happens that in running down cases of personal injuries after motor accidents, both parties are held to blame in different degrees. The court then apportions damages on a percentage basis and the order for costs tends to follow the apportionment. What is to be the outcome of the conditional fee agreement in those circumstances?

It is not only in cases where there are such damages that the problem will arise, because we know from the draft order which my noble and learned friend the Lord Chancellor has put forward that there will be many other types of agreement, including cases arising under European law. What will happen when the court decides that there should be no damages awarded but that there should be, shall we say, an injunction or a declaration, or both? How will the solicitor for the successful party be rewarded for his efforts?

However, my main objection to the conditional fee scheme is that it would cause an increase in speculative litigation. It would do so in a way which, until Section 58 of the Courts and Legal Services Act 1990 made it possible, was contrary to the principles, the ethos, the etiquette and the tradition of the Bar in England and Wales. Although in Scotland conditional fee agreements have been permissible for quite a long time, I understand that there the scheme has fallen into disuse. It has been tried from time to time, even in recent years, but broadly—and I am open to correction by my noble and learned friend, who knows more about it—I understand that in recent years it has been found to be generally unacceptable.

Here in England and Wales the Bar Council is against it, even though it would cause a great increase in work for the Bar, as the noble and learned Lord, Lord Ackner, said. The Lord Chancellor's Advisory Committee is obviously worried about it. I need not repeat the correspondence to which the noble and learned Lord, Lord Ackner, referred. The committee's anxiety, both in the chairman's letter of 26th May and the statement of 9th June, is reflected in the suggestions that it made, particularly with regard to up-lift.

There are so many questions so far unanswered. In my opinion a tremendous amount of work in depth would have to be done before this scheme could be acceptable to either House of Parliament. Thank goodness that my noble and learned friend has yet to ask Parliament to approve his draft order and the regulations which would follow. I hope that, after considering what has been said in this debate, he will decide to drop the scheme. If he were to do so, in my opinion his reputation would soar and he would earn the gratitude of the Bench and Bar of England and Wales.

4.30 p.m.

Lord Nicholls of Birkenhead

My Lords, I am greatly fortified by the very kind remarks made by the noble and learned Lord, Lord Ackner. It is still with considerable trepidation that I rise. I do so with two pieces of advice that I received for this occasion ringing in my ears. The first was that I should keep my speech short—advice that cannot be repeated too frequently for all lawyers. The second piece of advice that I received was that I should speak on a subject about which I care.

I care about the state of the law. I care that the legal system should in practice as well as in jurisprudential theory give a remedy to all who are legally wronged. I am concerned that financial might should not oust legal right. For some few years until recently I was the head of one of the three divisions of the High Court. That division—the Chancery Division—comprises 17 High Court judges. They are all exceptionally able people and they are all highly motivated. But, as vice-chancellor, I became ever more concerned about the sheer cost, the prohibitive expense, of bringing and conducting proceedings in front of those excellent people. I could not afford to be involved in proceedings in the High Court; nor could most individuals who are not legally aided.

How does this situation come about? What has gone wrong? I suggest that there can be only one answer to those questions. Although the law itself has developed as society has changed, the legal system still lags behind. The system contains many checks and balances—some excellent and some essential, but some now operate as a brake on progress. Procedures and provisions that were necessary and valuable as safeguards in a less sophisticated and non-technological society I believe now in some instances, overall, do more harm than good.

In those circumstances where do we go? I apprehend that everything that I have said is now widely recognised. It is also widely recognised that there is no simple solution. There is no single solution. Before your Lordships' House this afternoon is a Question concerning one particular proposed item of reform of legal procedure. On this occasion I am subject to the constraint that I must not be provocative—as if I ever would be. So I confine myself to just one observation of a very generalised nature.

Proposals for the reform of the legal system arouse strong feelings on both sides. That leads to misunderstandings, which hamper rather than help. I venture to suggest to those who support proposals for law reform that they should recognise that the strength of the feelings of those who oppose particular reforms is no more than a measure of the depth of their concern that the legal system should function properly. They are concerned that well intentioned proposals for reform should not damage but, rather, improve. Conversely, I venture to suggest to those who oppose particular reforms that they should recognise that to every proposal for a reform of the legal system some objection can be raised. I apprehend that there is no proposed reform that could be made without some risk. If we wait for a proposal which will be universally welcomed, to which there are no appendant risks and which has no possible ground for objection, we shall wait for reform truly for ever.

In those circumstances of course reforms must be thought through; of course there must be consultation; of course we must all have the humility to learn from the experience of other countries. But there must come a time in the process when a proposal—I do not allude indirectly to the matter that your Lordships are considering this afternoon—that on its face would improve access to justice should be favourably received unless there are truly compelling reasons why that should not be so. Only if some such approach is adopted will we sooner rather than later bring about the necessary changes for the advantage of those for whom the legal system exists at all.

4.38 p.m.

Lord Rippon of Hexham

My Lords, it is a particular pleasure for me, on behalf of the whole House, to congratulate the noble and learned Lord, Lord Nicholls of Birkenhead, on his maiden speech. It was not provocative. It was well understood and appreciated. It is no surprise to me that it was so clear and concise. As a fellow Bencher of the Middle Temple, I, like many others, have long admired his great contribution to the administration of justice. We are, above all, a legislative assembly. We always value the contributions of noble and learned Lords. I hope that our latest noble and learned Lord will make many contributions. I know that they will all be most welcome.

I have re-read the debate which took place on 5th February 1990 on the Courts and Legal Services Bill. I had no doubt then and I have no doubt now that, whether you call contingency fees "conditional fees" or vice versa, the Government's step may well turn out to be a step in the wrong direction. But that is quite apart from the effect on legal aid, whether it is an alternative to legal aid or a means of curbing the cost. I do not intend to repeat earlier arguments. But in my view no one has successfully challenged the view which was so clearly expressed by the noble and learned Lord, Lord Donaldson of Lymington, when he said, I have regretfully come to the conclusion that this measure is not in the interests of the client as a consumer. Furthermore, it is wholly contrary to the interests of the proper and efficient administration of justice".—[Official Report, 5/2/90; col. 546.] My specific concern in that debate was that so much depended on orders made by the Lord Chancellor of the day. I questioned his powers to act by orders or regulations on such important issues. If your Lordships' Delegated Powers Scrutiny Committee had been in existence at that time, I have little doubt that it would have drawn attention to the wide and unclear powers in the primary legislation and the implication of delegated powers that would have significant impact on something as fundamental as the administration of justice.

The draft Conditional Fee Order and Regulations do nothing to allay my anxieties, which mirror those expressed by the noble and learned Lord, Lord Ackner. I do not believe that a satisfactory response has yet been given to all the issues raised by Lord Justice Steyn in his letter of 26th May. I therefore warmly support all that the noble and learned Lord, Lord Ackner, said and I invite my noble and learned friend the Lord Chancellor to do what was suggested and think again.

4.41 p.m.

Lord Benson

My Lords, I have great difficulty in speaking on this subject at all. It is highly complex and I am certain that before very long there will be a great many forms and types of conditional agreements. As a layman, it is impossible to form any judgment on these proposals until one has seen a series of specimen agreements together with the safeguards that will apply to protect the client. None of those is available and until they are it is impossible to form a balanced judgment or, indeed, to know whether the scheme is even workable.

One thing that emerges is that it appears to be the purpose of the scheme that a lawyer can double his fees on the basis that he takes the risk that his costs will be borne by himself. From that time forward the whole conditions change. The lawyer is no longer fighting the case for his client; he is fighting the case for his client and for his own pocket. His independence has gone. He becomes a quite different animal from the normal lawyer with whom one is in contact. His advocacy, his opinions and his advice are open to doubt. The lawyer abandons one of the basic principles upon which the legal profession was founded.

My purpose this evening is to speak to only one item; that is, the need, if conditional agreements ever come into force, for the contents of those agreements to be disclosed to the court, to the opposing parties and to the public. The advisory committee of the noble and learned Lord the Lord Chancellor raised queries in relation to disclosure. On 25th July the noble and learned Lord the Lord Chancellor wrote in reply to Lord Justice Steyn: I did not consider it necessary or appropriate to require solicitors to register the existence of conditional fee agreements with the courts or to require them to notify the opposing party. I took the view that the existence of such an agreement was a private matter between the solicitor and his client". I sincerely hope that the noble and learned Lord the Lord Chancellor will be able to revise that view if the regulations ever come into force.

Between 1976 and 1979 the Royal Commission paid a great deal of attention to what it believed were the principles and behaviour which should govern a lawyer in good practice. In an early chapter it made this comment: we attach importance to the need for independence in the legal profession and the attitude of mind and outlook it involves. It has been emphasised, in one form or another, in the submissions of a very large number of witnesses". There are ample supporting views for those principles, In the Cardozo lecture given in 1958 in New York by Lord Shawcross the following comment appears: The importance of detachment, of not being identified with the client's case is really of very great significance. It is, indeed, an essential aspect of the advocate's independence. Lord Eldon well expressed the position when he said of Counsel, 'he lends his exertions to all, himself to none'". There is yet another compelling authority. In a much quoted passage from Lord Erskine's address in the Paine case it was said: I will for ever, at all hazards, assert the dignity, independence and integrity of the English Bar, without which impartial justice, the most valuable part of the English Constitution, can have no existence". Both Lord Eldon and Lord Erskine in time took the office of Lord Chancellor and in that capacity both sat upon the Woolsack.

My view therefore is this. If a lawyer is allowed to discard one of the basic principles of his profession, then the fact that he has done so must be disclosed to the courts, to the opposing parties and to the public at large. It is quite inappropriate that it should be concealed in some squalid agreement between the lawyer and his client. If the Government are willing to allow professional standards to be lowered without disclosure, it will bring the profession of the law into disrepute. Worse than that, it will cause the public to look askance at a government who allow professional standards to be lowered without disclosure in this cavalier way. The quotation from Lord Erskine shows that the doctrine of independence was set well over 200 years ago. Ever since that time it has been precious to the legal profession and to the public at large.

So far I have spent time only on the principle. But there are certain practical issues which will make exposure of the agreements essential. First, the noble and learned Lord the Lord Chancellor proposed that in due course there should be a monitoring exercise, perhaps two years from now, to see whether the system is working. It is quite impossible for a proper monitoring exercise to be carried out unless there is unrestricted access to the conditional agreements which have been entered into so that a fair conclusion can be drawn.

The second point is probably the most convincing of all that I have mentioned today. It is that these agreements place all the cards in the hands of the lawyer. He has the strongest possible negotiating position against his own client and, sometimes intentionally and sometimes not, it is quite certain that an agreement will be entered into between the lawyer and his client which will be extremely harsh upon the client. I feel therefore that the greatest deterrent that can be applied is to make it quite certain that these agreements are exposed so that the content can be examined and they can be subject to public criticism.

My final point is a minor one and it has already been made. Legal aid has to be disclosed. I cannot see any possible reason why these conditional agreements should not be exposed in the same way.

4.50 p.m.

Lord Coleraine

My Lords, the House always listens with the greatest respect to the noble and learned Lord, Lord Ackner, both because of his devotion to the cause of justice, and because of the doggedness with which he pursues what he considers to be the eternal verities.

It is perhaps appropriate today that he should have started his speech by announcing himself on the side of the angels. The noble and learned Lord asks my noble and learned friend the Lord Chancellor to think again and to add safeguards to the draft Conditional Fee Order and Regulations. For myself, I hope that my noble and learned friend will now be able to tell the House that at long last, four years after the passage of the Courts and Legal Services Act, he expects to be able to lay the necessary order and regulations before Parliament in the new Session, in substantially the form of the present draft. We should then have in place what I consider to be one of the most important and desirable provisions of the Courts and Legal Services Act.

The great merit of legalising conditional fees in personal injury cases is that it will enable many more injured claimants than before to have access to the justice system, including many who at no time in the past would have been entitled to legal aid, including, it would appear from his balanced and deeply philosophical maiden speech, the noble and learned Lord, Lord Nicholls.

Litigation can be an utterly destructive process for those who indulge in it. That is particularly because of the fear of unknown payments which may have to be made at an unknown future date. It must not be forgotten that neither the cost nor the outcome of litigation, in however clear-cut a case, can really be forecast with anything approaching certainty. It is for this reason that I would forecast that conditional fees will be warmly welcomed by many who need the help of the law, including many who at no time in the past would have been entitled to legal aid.

I would also offer the House my personal opinion that in some cases conditional fee arrangements will be found to be the preferred options of litigants who might have sought and obtained legal aid. I make no apology for seeing conditional fees, to this extent, as a desirable substitute for legal aid.

Lord Justice Steyn's letter to my noble and learned friend makes the point that it is not possible or desirable to attempt to anticipate every problem that might arise when the conditional fee scheme is introduced. I agree, and I focus on the word "desirable", because I believe that the advisory committee would have my noble and learned friend go beyond what is desirable, and even, in the case of the compulsory cap, beyond what would be proper and in the interests of justice.

The advisory committee proposes that conditional fee agreements should go into much greater detail than the draft regulations would require and that a more user-friendly arrangement than the taxation of costs should be available to litigants who believe that they were persuaded by their lawyers to enter into unfair conditional fee agreements. The same might be said of all special arrangements as regards costs which can at this time legitimately be entered into between solicitors and their clients. I believe that the draft regulations, combined with existing and much strengthened powers of the courts and the professional bodies, are sufficient to deal with any problems which may arise. I would suggest, in any event, that if there is any change to be made, it should not be made now, in isolation, in relation to conditional fee agreements.

To those who do not believe in conditional fee agreements at all, I would make the point, which has been made before, that lawyers are not to be treated as so unethical and immoral that they will use conditional fee agreements as a means of manipulating their clients to their own advantage. We require of lawyers that they be people of integrity. They should need no reminding that they have no other personal interest in litigation than the furtherance of their clients' interests for fair reward, consistent always with the interests of justice.

Other noble Lords will have received a briefing paper from the Law Society. I find myself in a very large measure of agreement with it. The paper warmly welcomes the introduction of conditional fees and in general finds that the proposals of Lord Justice Steyn's committee are either unnecessary or unlikely to make conditional fee arrangements more effective. I quote from the briefing paper: The Law Society's view is that the safeguards proposed by the Lord Chancellor in the draft order and regulations together with existing professional rules of barristers and solicitors are sufficient to meet the concerns raised by the Advisory Committee". The briefing paper continues: The Law Society's approach is that conditional fees should be widely available to clients as an alternative"— and I stress the word "alternative"— to the existing methods of funding". It states: The introduction of conditional fees, subject to a maximum success fee of 100 per cent., should enable the great majority of those with meritorious cases to pursue them without being deterred by fear of legal costs. At the same time, the fact that they will be unpaid for their work if the case is lost will ensure that there is no incentive for lawyers to take unmeritorious cases". The Law Society agrees with my noble and learned friend that success fees should be limited to a maximum 100 per cent. up-lift, and not to some considerably lower percentage. This will generally result in lawyers not taking on cases under conditional fee arrangements where there is judged to be a less than fifty-fifty likelihood of success. That seems to me to be about right.

My noble friend Lord Renton contrasted this 100 per cent. with what he considered the equivalent 40 per cent. which would be the up-lift under the American system. I would point out to my noble friend that he was not comparing like with like. The 100 per cent. is a 100 per cent. up-lift of the fees which the lawyers will receive. The 40 per cent. is the cut of the cake which lawyers take in America.

I come to the point where the advisory committee's recommendation appears to me to be unfortunate.

Lord Ackner

My Lords, perhaps the noble Lord will allow me to intervene. It was I who made the point that, when one considers the proportion of the fruits of litigation that can be achieved by the lawyer in America, where the conditional fee or the contingent fee operates as a proportion of the proceeds of success, it is limited, generally speaking, to 40 per cent. Under the conditional fee arrangement here, the percentage of the proceeds of the litigation is without limit, with the result that the successful litigant under the conditional fee can end up achieving nothing and the lawyer the whole of the proceeds of the successful action; whereas in America, with all its defects, the plaintiff will not end up with nothing—he will receive at least 60 per cent.

Lord Coleraine

My Lords, the noble and learned Lord is of course correct in how he puts it. I was merely seeking to correct a wrong impression which I believe had been made by my noble friend Lord Renton. I shall shortly come to the point which the noble and learned Lord has now repeated.

The advisory committee recommends that regulations should provide that the amount of the up-lift should not exceed a set proportion of the sums recovered. The intention is to reduce the danger of the up-lift giving to lawyers a disproportionate share of sums recovered in litigation. I believe that Section 58 of the Courts and Legal Services Act would not permit any such regulation. In any event, we have again and again in this Chamber deplored the system whereby the fruits of litigation are directly shared between the lawyer and the client on a percentage basis. If one follows the road of a cap on the amount which a lawyer may receive in terms of up-lifted fee, one reaches the point where the plaintiff's lawyer in effect acquires a personal interest not just in the success of his client's litigation but in the actual amount of damages recovered. It is this cap proposed by the advisory committee which in my opinion would introduce a speculative element akin to the sharing of damages allowed by so many American jurisdictions.

The Law Society goes a long way down the road proposed by Lord Justice Steyn's advisory committee in that they favour the idea that regulations should include a provision as a statement in writing in the conditional fees agreement whether or not a cap is to be applied. Although it may in theory be desirable for lawyers to assist in the recovery of relatively small awards of damages, we should also bear in mind that to encourage the capping of the up-lift is to risk creating situations where the sum at issue in litigation is dwarfed by the lawyer's fees incurred in the litigation. I do not believe that that is something which is required in the interests of justice.

My concluding point is that it would be wrong for regulations to impose any limit on up-lift, as proposed by Lord Justice Steyn's committee. On the other hand, I do not believe that it would be necessarily right to encourage the voluntary capping of up-lift in all circumstances. My suggestion would be that capping might be tolerated, but should not be actively encouraged by the implication which would be drawn from specific reference in the regulations.

The noble and learned Lord, Lord Ackner, set great store by an unpublished article shortly to appear under the name of Professor Zander, in which Professor Zander said that it was preposterous that the client should pay all damages to the lawyer. At first sight that may seem a seductive thought, but already today there are cases where damages are swallowed up by lawyer's costs and the successful litigant gains nothing from them. I have in mind a case where the plaintiff is suing an impecunious defendant. To pursue the point of the cap, however one does it, is to encourage lawyers to encourage their clients to continue with litigation in circumstances where forbearance or an early settlement would have been the better way ahead.

5.5 p.m.

Lord Hacking

My Lords, having recently undergone major surgery for the first time in my life, I am not sure that I have the consent of my doctors to make this intervention in this debate. I hope therefore that I shall not appear abrupt, but for once it is in my interests, as well as those of your Lordships, that I speak briefly.

I wanted to participate in this debate because I believe that I have a practical contribution to make. I have now been in the practice of law for over 30 years, the first 13 of which were at the English Bar and the past 17 was and is as a solicitor of the Supreme Court. I hold currently a practising certificate from the Law Society. Perhaps also of interest in this debate is that since 1975 I have been a member of the Bar of the State of New York and, from my two-and-a-half years of practice in New York, have some experience of the United States contingency fee system.

Although we have already enacted the contingency fee system in the Courts and Legal Services Act, I believe that we should examine this system as proposed by my noble and learned friend, and as criticised by the noble and learned Lord, Lord Ackner, and others, in the frame of access to justice. Indeed, in this regard the concerns that have been so forcefully expressed in your Lordships' House, and apparently at the recent Bar Council Annual Meeting, have not so much been over the safeguards of the conditional fee system, but over the scheme as a whole.

My noble friend Lord Coleraine drew attention to some of the facts. Perhaps I may also do so with a few statistics. In the early 1980s about 70 per cent. of the families in England were eligible for legal aid. By the end of the 1980s that figure went down to about 50 per cent. Also the level of legal aid contribution is often now such that many more families cannot afford legal aid. Therefore we have this ever widening gap between those who are too poor to fund their cases privately but who are too rich for the legal aid system.

There is also the "costs order" factor, to which my noble friend, Lord Coleraine, drew attention. This presents a quite serious deterrent for the private litigant, who faces the prospect, if he loses the litigation, of paying not only the high cost of his own legal fees but also the high cost of the legal fees of his opponent. This is exacerbated by the almost blind poker system of the payment into court. Perhaps the noble and learned Lord, Lord Nicholls, had that in mind when he referred in his notable maiden speech to the dangers of the legal system lagging behind.

On these issues I speak with real practical experience. I am currently conducting two cases, not for commercial clients—a clientele with which the noble and learned Lord, Lord Ackner, brands me—but two cases of personal injury. In one case, my client was injured in the Clapham rail disaster and, in the other, my client was seriously injured in the Purley train disaster. In both those cases, access to justice, certainly through my firm, would not have been possible but for my firm's decision not to issue any invoices until the final adjudication. If your Lordships are concerned about the slowness of my conduct of litigation, I am happy to say that in the case concerning the Clapham train disaster we are now in the area of the taxation of costs, the case having completed its journey through the courts.

Therefore, it is against this background that we should be looking at the Lord Chancellor's proposals for introducing the conditional fee system as pursuant to the powers that are vested in him under Section 58 of the Courts and Legal Services Act. In doing so, I suggest first that congratulations should be extended to the noble and learned Lord. Although my noble friend Lord Coleraine was clearly in favour of the proposals, I am sorry that I am the first noble Lord to extend congratulations in this debate to the noble and learned Lord the Lord Chancellor on offering this significant increase in access to justice.

Secondly, we should ask: what would be the effect of implementing the additional conditions proposed by the advisory committee? There are two answers. First, there will be delay. Second, there would be a less attractive (and hence less usable) conditional fee system. Those of your Lordships who have read the correspondence will have noted in the third paragraph of Lord Justice Steyn's letter of 26th May that there is an interesting attack on the level of the percentage of up-lift. I also find it quite extraordinary that the argument should be advanced that the scheme should not be brought into place until the Bar has got its regulations in place. The Bar has had four years to get its regulations in place.

Like many others outside the Chamber, I believe that the noble and learned Lord has got it right. There is to be an agreement in writing with a full explanation and consent of the client on the operation of the system. This is in relation to legal aid and costs. Perhaps I may draw the attention of the noble Lord, Lord Benson, to the fact that the Law Society has drawn up a draft agreement for those who may enter into a conditional fee arrangement with their lawyers. It is not a "squalid agreement"— those were the words of the noble Lord—but an agreement that has been led by the Law Society.

I am aware of the "incentive" argument and that it is not thought to be a good thing for that to be applied to lawyers although it is applied everywhere else in our society. I find that somewhat baffling. Financial or performance incentives are increasingly being applied on my side of the profession and have always existed at the Bar. It is a good thing for a barrister to win cases— not just in the interests of his clients but for the further development of his practice.

In conclusion, perhaps I may refer to the United States experience. The contingency fee system has provided access to justice for millions of Americans who would otherwise not have it. It is carried out on an open basis with the full knowledge and consent of the client. It is not used as an extortionate process nor one of blackmail. Let nobody say from this side of the Atlantic that professional integrity is any less important for the American legal profession than it is for our own. It is on that basis that I give wholehearted support to the noble and learned Lord. After four years, let's get on with it!

5.13 p.m.

Lord Hooson

My Lords, from these Benches, I should like to add my congratulations to those proffered to the noble and learned Lord, Lord Nicholls of Birkenhead, on his maiden speech, which I found fascinating. I thought that all the professional lawyers among us benefited from his reminder to us of the incipient conservatism in the profession's approach to legal reform. The noble and learned Lord was right to make that point. Because litigation is now so expensive, it is right that we should tackle this as an immediate problem. Perhaps one of the answers to the problem lies in the committee of his noble and learned friend Lord Woolf which is considering simplifying litigation.

The basic problem which faced the noble and learned Lord the Lord Chancellor, and which faces the House now, was graphically put to me by a solicitor colleague who does not necessarily agree with everything that I shall say hereafter. She said: This is more a consumers' than a lawyers' issue. At present lawyers often cannot be afforded—one needs to be pretty wealthy, or to be eligible for legal aid. I believe that if people like me can't afford people like me, then the system needs changing". The real questions at issue are whether the system should be changed in this way and, if it is to be changed in this way, what essential safeguards we require.

I am sure that my experience is common to all who have practised as a solicitor or a barrister. The great fear of the potential litigant who has a 50:50 chance of success in his case—the lawyer has to explain that chance very carefully to his client—is of having to pay the opponent's costs if he loses. I am sure that we have all had that experience. It is a problem that has been exercising me recently because I know of a community that has been advised by no fewer than two distinguished Silks that it has a 50:50 chance of success in a judicial review case in which it is opposed by a very large and well-provided-for authority. That community is fearful of taking the case forward although it has a considerable chance of success.

It was therefore with astonishment that I read in the briefing on conditional fees by the Law Society—the noble and learned Lord, Lord Ackner, has already referred to this —that: Conditional fees should overcome clients' fears of having to pay their own solicitor's costs in the event of losing a case, but they do nothing in themselves to overcome the fear of having to pay the opponent's fees". The briefing then states that a policy will be taken out, as soon as the lawyer takes on the case. The premium is expected to be less than £100". That is absolutely astonishing. It is totally different from my experience of advising clients for over 40 years. That immediately raised in my mind the fear that is expressed by Lord Justice Steyn in his letter to the Lord Chancellor. I am not referring to one of the four main points but to the paragraph which states: The Committee wishes me to draw a further issue to your attention. The opportunity to litigate under a conditional fee agreement may tempt some people to bring wholly unmeritorious actions in the hope that defendants will settle them simply to avoid the trouble and further expense of going to court". The letter continued on that theme.

I entirely agree with the noble Lord, Lord Coleraine, that lawyers should be regarded primarily as ethical people. Although most are ethical people, we should not blind ourselves to the fact that there are exceptions and that those exceptions will certainly embark upon totally speculative litigation, as has been the case in the United States. I have many friends in the United States—some are distinguished lawyers over there—and I can say that without exception they are all great admirers of our legal system. Most of them have warned me off any suggestion that we should follow the American example.

I think that the Lord Chancellor's approach to this is wrong, but I can appreciate his problem. Far fewer people now qualify for legal aid than was the case 10 or 20 years ago. The Law Society has exercised great pressure on the question of the conditional fee system.

However, I should like to refer to the matter that was raised by the noble Lord, Lord Peyton, in his own inimitable way on the sixth day of Committee consideration of the Courts and Legal Services Bill when he asked: How many of us are really convinced that it would be right to make three distinct moves in the direction of the American system, and what gains would result from our doing so?", He then came to the third question, with which we are concerned here: we are for the first time giving the advocate a pecuniary interest in the outcome of the case".—[Official Report, 5/2/90; col. 538.] The noble and learned Lord the Lord Chancellor tried to answer this point but was interrupted so many times by other noble Lords that he did not deal with it in his final speech. This is the point that exercises the minds of most people who are concerned with the issue.

One knows very well that in the United States the system has so developed that there is a body of totally speculative litigators. Not only do ambulances hover in the neighbourhood of accidents but litigation clerks are also on the spot very soon thereafter. If the Law Society is able to get an insurance policy for less than £100 a case, it suggests that most of these cases will settle. Why? They will settle because of the fear of the cost to the defendant. I believe that we are opening; a very dangerous door.

However, as the noble and learned Lord, Lord Ackner, said, that is water under the bridge. But it does not remove the requirement for adequate safeguards if we are to go down that road. The problem that has been raised by the noble and learned Lord, Lord Ackner, today is whether the safeguards are sufficient. I do not repeat his arguments, with which I entirely agree, save to say that the noble and learned Lord the Lord Chancellor is apparently of the view that he does not have power to introduce the second safeguard to which he adverts in his letter. I am bound to say that he has obtained many powers from this House and from Parliament. If he does not have the power in the Act — and I believe that he has—within the terms of Section 58, for heaven's sake, he should seek it. I do not believe that there would be any impediment either in this House or the other place in obtaining the power.

I express a general concern. I hope that I have pointed out my basic viewpoint. I can see the pressures, but I do not believe that the safeguards are sufficient.

5.23 p.m.

Baroness Mallalieu

My Lords, from these Benches perhaps I may add my voice to the congratulations that have already been expressed to the noble and learned Lord, Lord Nicholls, on his maiden speech. Although in the tradition of this House it was commendably brief, it gave some insight into his experience, wisdom and, in the light of what he had to say, his tact. That makes clear that his contributions in this Chamber in the years to come will be looked forward to with relish.

The noble and learned Lord, Lord Ackner, has raised in this debate a number of matters which are of concern to all of us in this House and beyond who want to see the growing proportion of our population who cannot afford to pay for litigation for themselves, but who do not now qualify for legal aid, provided with a real alternative means of access to justice. Some of us—and I confess I am one—dislike the idea of conditional fees. When the Government first raised the question of the introduction of a no win, no fee system in its Green Paper of 1989 some of us feared that such a scheme, without adequate safeguards and monitoring, could be a means by which ambulance-chasing, mushrooming awards of damages and sharp practice in the conduct of litigation—which rightly or wrongly are seen as features of such a system in other jurisdictions—might find their way into our legal practice here.

A number of noble Lords tonight have voiced those fears again. I shall try not to do so. Parliament has considered those fears. They were expressed graphically on all sides of the House, and indeed by noble and learned Lords, but the principle has been accepted. The Government will have their way. Whatever our reservations, we on these Benches are anxious to see that the scheme, which will undoubtedly be introduced, contains the necessary safeguards both to prevent the abuses which some of us fear and to ensure that the scheme is of real and not illusory value to the general public. A system of no win, no fee sounds mightily attractive to somebody with a genuine grievance but no money and no legal aid. If the reality is a scheme in which a win results in little or no damages because the lawyer takes the lot, it will be seen as a sham, and dissatisfaction with the lawyers and the legal system will rightly increase.

We have anxiously waited to see what safeguards the noble and learned Lord the Lord Chancellor has felt it right to incorporate. Since 1990 he has spent a great deal of time and care in consultation about the form which the conditional fee order and regulation should take. Clearly, his task has been a difficult one. He has not rushed the scheme into operation and has tried to meet a number of the concerns that have been expressed to him. For all of those things, we for our part are grateful to him. But, as he now knows, there remain a number of important areas of concern that are not fully met. Some of them have been expressed to him most powerfully by his own advisory committee. It is worth pausing to note that that committee was set up by the 1990 Act which established the conditional fee scheme. It is independent of Parliament and the legal profession, with a majority of non-lawyers sitting on it. The setting up of that committee under the Act was a powerful factor in reassuring those who were concerned about a number of aspects of that Act. It reassured them that the Lord Chancellor would receive, and hopefully act upon, the very best independent advice in implementing the provisions of that Act.

Where that Committee expresses serious reservations, as it has done, about aspects of the proposed scheme, I hope that even at this stage, on reflection, the Lord Chancellor will feel it right to take further steps to meet those concerns. Without I hope repeating what has already been said, we on these Benches share those concerns and ask the noble and learned Lord to look again at them. We remain deeply concerned about the 100 per cent. up-lift—double fees, as I believe the noble and learned Lord, Lord Ackner, rightly called them— which lawyers will be permitted to charge. That figure has been accepted by the Lord Chancellor as a maximum. Our worry is that there is nothing to prevent it becoming the norm, and indeed we fear that that is likely to be the case. To say, as the noble and learned Lord the Lord Chancellor did, in his letter to the chairman of the advisory committee of 25th July this year, that the client is free to refuse to enter into the agreement if he or she dislikes the terms, gives no effective protection to a lay client who is usually wholly unfamiliar with litigation and is relying on the lawyer's skill and experience. It is wholly unsatisfactory in terms of affording protection to the public from unfairness or exploitation.

We suggest to the noble and learned Lord that safeguards could be introduced with relatively little difficulty. The regulations and the profession's guidance to its members taken together should, we feel, oblige a solicitor to make clear to the client in writing, and in ordinary everyday language, exactly what the client is letting himself in for. He should understand from that agreement what a conditional fee agreement means and what he will have to pay under the agreement if he wins, if he loses, or if he draws; in other words, if the case is settled. He should also understand what he stands to receive after he has paid the lawyer, and also what happens if either party wishes to withdraw from the agreement. Those are simple, straightforward matters that should be clearly explained as part of the regulations and professional guidance given to everybody who embarks on such a scheme. Those matters are set out clearly in Annex A to the letter of the chairman of the advisory committee to the Lord Chancellor of 26th May. I would have thought that they could easily be incorporated, and should be.

In his letter of 25th July to the chairman, the noble and learned Lord the Lord Chancellor recognised the need for a requirement to be added to the existing draft regulations that the agreement should state whether or not a limit would apply to the amount of up-lift by reference to the amount of damages received. That is a step in the right direction, but it does not go far enough.

If there is no such limit, in some cases, particularly small claims, the scheme will, I fear, bring the legal profession into disrepute. The case will be won; the damages paid; and the lawyer, not the client, will pocket them. We welcome the proposed amendment to the draft regulations if it really is as far as the noble and learned Lord the Lord Chancellor feels able to go. But if he can go no further in amending the regulations, I would ask him to reconsider, in the light of his proposed amendment—as far as it goes—whether that does not merely underline the need for a separate review mechanism to control and correct both excessive up-lifts and failures to limit uplifts by reference to the amount of damages in certain cases.

The proposed use of taxation for that purpose will, it is true, permit individual cases to be examined where there is a dispute, but it will not provide an overall picture. A simple, speedy, practical review procedure, regulated by the professional bodies, would, I suspect, be cheaper, quicker, more effective, and, additionally, be able to issue general guidelines to practitioners when the need becomes apparent. Surely that suggestion by the advisory committee is one which the noble and learned Lord could reconsider.

There are other aspects of the proposed scheme at which I would ask the noble and learned Lord to look again and to try to give some reassurance. The most important is the question of monitoring the scheme when it begins to operate. If only a small proportion of conditional fee agreements are ever notified, as I believe the noble and learned Lord currently proposes, it will be impossible accurately to establish the level of uplift which becomes the norm; the extent to which the scheme produces difficulties which fall short of having to go to taxation; and the extent of dissatisfaction with the scheme.

The registration and monitoring of all conditional fee agreements through the professional bodies, at any rate during the initial stages of the scheme, would not, I should have thought, be difficult, and would ensure proper monitoring of its operations. It is surely only then that the range of cases to which a conditional fee scheme is to apply can be judged satisfactorily. If the scheme, on the limited basis which is proposed, is successful, it may be right to extend it. If difficulties arise, as I anticipate they may—for example, in the area of insolvency—changes to the existing regulations may be needed. In respect of each area of practice to which the scheme is currently intended to apply, separate codes of practice are likely to be needed, and indeed may need to be revised in the light of experience. If only a sample of solicitors and agreements is to be monitored, how does the noble and learned Lord feel that that monitoring can be done satisfactorily?

We on these Benches remain concerned too about the safeguards for the protection of those on the receiving end of conditional fee litigation—the defendants. A great deal of further information will be needed about the operation of the insurance scheme which has been negotiated, apparently by the Law Society, to protect successful defendants when costs orders are made. The noble and learned Lord may be able to help us. Is that insurance to be compulsory, or is it to be an optional extra for the client? If the latter, how are the numbers who choose to take out such insurance to be monitored under his present proposals?

It is said that the Law Society has negotiated a premium which is likely to be less than £100, but for how long I wonder. If there are claims, as seems to be inevitable, that premium is likely to rise. If the scheme is not compulsory, fewer clients may chose to take out such insurance and therefore more meritorious defendants are likely to be left whistling for their costs.

Perhaps I may echo what was said by the noble Lord, Lord Benson. Just as a defendant is entitled to know that the plaintiff who brings an action against him is legally aided, so a defendant is surely entitled to know that a plaintiff is bringing his action under a conditional fee agreement with a solicitor. The implication for costs may be considerable. The plaintiff himself perhaps needs also to know that his opponent is covered by the insurance of the Law Society's proposed scheme. I ask the noble and learned Lord to reconsider his present view on that matter—that it is a private matter between solicitor and client—because it seems to us that public: interest clearly requires that that is not so, that the matter is in the public domain.

I hope that the noble and learned Lord will, despite what has been said by the noble Lord, Lord Hacking, be reluctant also to bring the scheme into operation until the Bar has finalised its advice to its practitioners. If only half the profession has received the guidance of its professional body, and half has not, the practical difficulties of knowing what is and what is not permitted under the Bar's rules of conduct, and the very much more difficult question of whether or not a contractual relationship arises between a barrister and a lay client, remain fraught with difficulties and are likely to create unsatisfactory results.

Those matters go to the independence of the legal profession, as the noble Lord, Lord Benson, said. The scheme requires major changes to existing rules of conduct, and until they are in place the scheme, I hope the noble and learned Lord will feel, should not begin to operate.

The regulations and guidance, as presently drafted, clearly need further improvement. The scheme, I accept, was designed and intended to help people who, for the most part, are members of the public in trouble, with limited means who are anxious to seek advice and help from the legal profession. To offer them no effective protection from uplifts which are too high in the circumstances of their case, or which will effectively absorb the whole, or virtually the whole, of any damages which they may win, by saying, in effect, caveat emptor—take it or leave it—is to leave the layman at the mercy of professionals, with effectively no redress if the professional proves greedy or unscrupulous, as, sadly, has occasionally been the case.

A proper review body for the scheme and a careful monitoring are the essentials which are lacking and very worrying in the present proposal. I know that the noble and learned Lord is anxious to make the scheme as good as it can be before letting the lawyers loose on the public. He has heard criticisms and suggestions from all sides of the House, including those from noble and learned Lords. I hope that he feels, having heard what has been said tonight, that it would be right for him to look again at the advice of his own committee and incorporate its suggestions for the safeguards which are required before he eventually brings the scheme into operation.

5.39 p.m.

The Lord Chancellor (Lord Mackay of Clashfern)

My Lords, I should like to begin not in a formal way, but by sincerely congratulating my noble and learned friend Lord Nicholls of Birkenhead on his excellent maiden speech. I shall take to heart all that he said and should like to proceed in the spirit which he enjoined on us. He comes to the House, as your Lordships have already heard, after a distinguished career. I am sure that he is very welcome here. We look forward to hearing his speeches, not just in relation to cases of which the House disposes in its appellate capacity, but on matters of the kind we are discussing this evening.

I am grateful to my noble and learned friend Lord Ackner for raising this Unstarred Question and giving me an opportunity to hear the basis on which some of the expressed views rest. That is always helpful in considering what should be done. I have the utmost respect for the views of the advisory committee. I am glad to hear tonight the clear acknowledgment that these views are independent and worthy of respect.

One of the fundamental characteristics of the conditional fee agreement, as distinct from any kind of contingency fee, is that it is available either to plaintiffs or to defendants. The contingency fee taking a portion of damages works only if there is a claim of some kind for damages or for a monetary award. This scheme is intended to operate on both sides of the litigation. That is a fundamental aspect of it and the provisions of Section 58 were put forward on that basis.

I am well aware of the risk that in some cases costs may swallow up a disproportionate part of damages. Under our present legal aid scheme that may well be true because a successful litigant with legal aid, in so far as he does not recover the costs which he has expended under legal aid, cannot recover the costs from the other side. They are recovered by the Legal Aid Board from the damages awarded or the money is retained as a result of success in the case.

I know of cases in which, under the present system, the costs can be a high proportion if not the whole of the damages in question. Therefore, this is not a new phenomenon suddenly to arise as a result of conditional fees; this is a possibility under our present arrangements. Of course, the legal profession as a whole and individual practitioners are anxious to ensure that that does not happen.

Like the noble Lord, Lord Benson, I believe that the standards of integrity, dignity and independence of the legal profession are very high and the scheme ought to be predicated upon that basis. I do not for a moment accept the view that by entering into a conditional fee agreement a member of the profession reduces his professional standards. With great respect to the noble Lord, Lord Benson, that is a serious misapprehension. I hope that all those who enter into such agreements will be of the highest professional calibre.

I have not seen it demonstrated that under the existing statutory provision I have power to do more than fix a maximum uplift. The history of this matter has been narrated and I shall not repeat it. I did not reach 100 per cent. at one bound; I was persuaded that the correct logic leads to 100 per cent. as the maximum uplift that may be allowed in any case. I do not believe it right that that should be anything like the norm.

The insurance policy that the Law Society has negotiated contains stringent conditions. It does not apply to all actions that are covered by the present regulations and it does not follow that the average probability of success can be judged by that premium, as my noble and learned friend Lord Ackner seemed to suggest. It applies only to part of the subject matter that I am proposing in the regulations.

As I have already signalled, I believe that it is right that the client and the lawyer should have an opportunity to consider whether a cap of some kind is appropriate in the individual's case. I propose that the draft regulations should require that in express terms. The lawyer and the client should discuss that issue and decide whether, in the circumstances of the particular case, a certain cap should be applied and what that cap should be.

It is not easy to suggest a particular cap as being justified by way of general regulation, even if I had the power to do so. After all, in the case of a quadriplegic, for example, a cap might allow a huge uplift but in smaller cases it might not. I regard as very important the principle which underlies Section 58: that it is related to the work done. The work that the lawyer does should be the basis on which he or she is paid and not the amount of damages.

The second point that I wish to make is that in the particular case the issue will be open and I shall require that the lawyer and the client discuss the question of whether or not in the circumstances there should be a cap. Thirdly, I am content to seek the best possible monitoring system for the scheme when it comes into operation. My officials are in discussions with the Law Society about the nature of the monitoring arrangements.

As regards recording the case for the court and the opposition, it has been suggested that because in the legal aid case there is a requirement of disclosure that must follow here. One of the principal reasons why disclosure is required in the legal aid case is the fact that a client who is legally aided can affect the award of costs against that client which the other side can obtain. The Legal Aid Act contains a statutory protection for the legally-assisted client against a finding of costs on the other side, at least against the implementation of such a finding. It is extremely relevant to the circumstances of the defendant to know that the other side is legally aided. There is a statutory effect on the costs regime. Many of your Lordships will know that, while the further extension of legal aid has great attractions, those who are unassisted and face legally-aided clients have a slightly different view of the matter. I am sure that many noble Lords who are interested in these issues have received correspondence from unassisted persons who regard such a protection as extremely unjust.

As regards conditional fees, that does not apply because it is expressly provided that the conditional fee arrangement makes no difference to the award of costs from the other side. In other words, any uplift is not to affect the costs award. Therefore, I do not see that the opponent has the same interest in the conditional fee agreement on the plaintiff's side as he has in the legally-aided case.

Perhaps I may cite the example given by my noble friend Lord Hacking. I know nothing about the financial status of his client but at present the kind of arrangement that he had went forward without disclosure to the other side. Obviously, the costs which the defendant could have had awarded if the case had been unsuccessful for my noble friend's client would be affected by the financial position of the client. That happens in every case. Of course, there are circumstances in which the court may be invited to inquire into the financial circumstances of the plaintiff with a view in some cases to making an order for security for costs. Therefore, at the moment I see no basis on which this information can properly be required by the other side in the litigation.

This is a difficult area and, as the noble Baroness, Lady Mallalieu, said, I have not rushed at this by any means. I have tried to consider carefully the submissions made to me. I have been asked to think again. Well, that is the business that I am in all the time. I certainly propose to take account of all that has been said this evening. I must say that some of what has been said is against the principle now enshrined in the statute. I am sure that your Lordships would think it right for me to proceed on the basis that that is the law enacted by both Houses of Parliament. But, subject to that, I shall certainly consider carefully all that has been said.

The consultation process has been going on for some time. I have had some very recent reflections on some aspects of the technical provisions in the rules, which in any event I should wish to consider, and it may be that I shall wish to amend the rules to give effect to that.

Therefore, I shall review all my thoughts in the light of the circumstances disclosed in the debate this evening and all your Lordships' views. I have expressed the views that I presently hold on these matters and, in particular, that I do not regard the idea of a cap as appropriate. However, I believe that it is right to direct the attention of clients to that question and make it clear that that is required as a condition before an agreement could be valid.

Finally, something has been said about the United States, ambulance-chasers and so on. There are a great number of lawyers in the United States and I believe that the professional standards there are high. But we have a different system and I wish to provide a structure which is based on and suitable for our system.

It is worth noting also that there is not just one lawyer available to a client. The legal profession has shown, particularly in relation to conveyancing, that when competition is opened up and there is freedom with regard to fees, the costs can be reduced remarkably. These agreements will be open to solicitors who wish to take them up and I should expect a good deal of competition among solicitors in that regard.

The noble Baroness referred to the work of the Bar Council in that connection. I believe that that is coming reasonably near to fruition. My impression is that the relationship between counsel and client will not be affected by the arrangements and that the arrangement will be between the member of the Bar and solicitor/client. But I certainly expect that those matters will be taken further, along with others, before the final form of the regulations are put before your Lordships for approval.

I certainly do not intend to delay much longer. The issues have been made very clear as a result of the discussions that have taken place over the past few years. Therefore, I hope to fulfil the requirement which my noble friend Lord Hacking made of me and I shall endeavour to come forward with my final thoughts in the reasonably near future.

Lord Simon of Glaisdale

My Lords, before my noble and learned friend sits down, perhaps I may say that he gave reasons, although they might be disputed, as to why the agreement should not be vouchsafed to the other party. However, he did not deal with the argument that the agreements should be vouchsafed to the court. As I understand it, it was argued that that would be an aid both to the monitoring system and to obviate objectionable practices. My noble and learned friend merely reiterated, which begs the question, mat the agreement shall be private.

The Lord Chancellor

My Lords, my noble and learned friend Lord Simon of Glaisdale said that, the agreement being private, that begs the question. The effect of the agreement is only as between solicitor and client in a case where it is a solicitor in question. It is certainly possible that the best form of monitoring may include giving the document to the court. Personally, I have not found it easy to generalise a situation in which the court receives from parties documents which are not available to the other side. On the whole—there are exceptions which have been enlarged recently in quite difficult circumstances—our legal system proceeds on the basis that what the judge has, all the parties before him will have also.

I agree that a monitoring system is required and, as I said, I am in discussion as to precisely what that should be and whether it should be effected through the profession or otherwise. It may be that some registration with the court is a proper aspect of that.

Lord Renton

My Lords, before my noble and learned friend sits down again, I wonder whether he would be so good as to deal with the matter which I raised and to which my noble friend Lord Hacking referred; namely, the effect, if any, of the conditional fee scheme upon the overall cost of legal aid, bearing in mind the provision in paragraph 19 of Schedule 17 to the 1990 Act which provides that nobody shall be deprived of legal aid or deterred from it by means of a reference to the conditional fee scheme.

The Lord Chancellor

My Lords, I have never suggested that conditional fee arrangements are with a view to restricting legal aid. I made that: plain in the debate to which my noble friend Lord Rippon of Hexham referred earlier. In my view, the conditional fee arrangement is for dealing with those people who are, for whatever reason, outside the legal aid limits. It is precisely for those people that I believe that that is a useful system.

Obviously I am in the situation where the availability of legal aid is a matter which depends on the taxpayer and what the taxpayer is able to afford for that particular purpose. As my noble friend will know, the amount spent on legal aid has never been higher. No cuts have yet occurred in the amounts actually expended. But: notwithstanding that, there are still a great many people who have legitimate claims, as my noble and learned friend Lord Nicholls of Birkenhead said, who would not find it possible to proceed under present circumstances but for whom that might be an option which could be considered. That option is more geared to the individual case than any contingency legal aid fund could be.

Lord Ackner

My Lords, before my noble and learned friend sits down, I wonder whether he will be kind enough to help me in relation to two matters. The first is the suggestion that he lacks power to cap the proportion of damages payable under the conditional fee agreement out of the sums which are recovered. I should like his assistance as to wherein lies that lack of power, because Section 58 says in terms that a conditional fee agreement means an agreement which, complies with such requirements (if any) as may be prescribed by the Lord Chancellor". If one then proceeds to Section 119, the definition section, "prescribed" is defined as meaning: prescribed by regulations under this Act". If one then finally turns to Section 120, which deals with regulations, it states: Any such regulations or order may contain such incidental, supplemental or transitional provisions or savings as the person making the regulations … considers expedient". I and others do not see where my noble and learned friend lacks the power to impose the capping, assuming that he wished to do so.

I turn now to my second question which I put to my noble and learned friend now so that I will not disturb him yet again when he desires to sit down. I should like to know why my noble and learned friend is reluctant to comply with the suggestion of his own committee in regard to unmeritorious claims by providing that there should be a rule that it is necessary for the lawyer to be satisfied that there is a reasonable cause of action before entering into a conditional fee. I say that because that is exactly where the burden lies in Scotland. According to Lord Fleming, it imposes a special or higher duty in a conditional fee case upon solicitors and counsel than in the ordinary case. If it is good enough for Scotland, as we were told conditional fees were, that seems a very sensible pattern to follow. Perhaps my noble and learned friend could answer my two questions.

6 p.m.

The Lord Chancellor

My Lords, in narrating the statutory provisions in his formulation of the question to me just now, I believe that my noble and learned friend did not make reference to the specific right to regulate the fee uplift. I regard that as the leading provision. I do not believe that to modify it would be appropriate under the incidental powers to which my noble and learned friend later referred. I have in mind the fact that, when the section was put together, it was on the basis that it would be available both to plaintiffs and defendants, because one of the objections put to the contingency fee arrangement was that it was only available to plaintiffs who claim an award of damages.

So far as concerns the second point of my noble and learned friend, I must say that I regard it as quite obvious that a lawyer has the responsibility not to take proceedings when he believes that there is no proper basis for them. Indeed, I would regard that as a general obligation on the lawyer. I find it quite difficult—and I have had a little experience of the Scottish system—to formulate a basis upon which the state of mind of the lawyer can be satisfactorily examined. That is really what it amounts to. I believe that the risk of costs, and the like, is sufficient for the purpose.

Under the statutory provisions, the courts here have a very wide discretion as to costs. I believe that that is perfectly adequate to deal with the matter. I personally believe that to add such a requirement would suggest an imputation on the general standards of the legal profession which, up until now, I have not felt would be justified. However, I am certainly willing to consider that, along with all the other matters which have been raised this evening, when considering finally what draft I shall put before your Lordships and the other place for approval.