Access to Justice Bill [H.L.] (Hansard, 21 January 1999)

HL Deb 21 January 1999 vol 596 cc771-92 771

§ 8.38 p.m.

§ House again in Committee on Clause 10.

§ Lord Goodhart moved Amendment No. 133:

§ Page 7, line 1, at end insert— ("( ) The regulations shall not require any payment from a person whose capital resources are such that they would be eligible for income support.").

§ The noble Lord said: This is a much more important amendment than, on the face of it, it would appear. I should say at the outset that the drafting leaves something to be desired. It should have said that regulations shall not require any capital payment from a person whose capital resources are such that he would be eligible for income support. It was not the intention of this amendment to exclude payments out of income from those whose income permitted them.

§ Without this amendment, in its corrected form, the Government's plans will suffer from a very serious, potentially devastating, defect. Under the present law, applicants for legal aid have to pay contributions from capital if their capital exceeds £3,000, and they are not eligible for legal aid if their free capital exceeds £6,000. In the case of income support, if their capital exceeds £3,000 they are not eligible. For income support, the value of the home, the dwelling house of the claimant for income support, is disregarded completely. That used to be the case for legal aid but now the equity value of the house is taken into account so far as it exceeds £100,000. The equity value of course means, in non-lawyer speak, the value of the house less the amount outstanding on the mortgage. If the equity value is more than £100,000, the owner can be and is expected to borrow against it to fund his litigation.

§ That is fair enough. We would not object to an amendment to this amendment to modify it to retain that provision. However, the Government now propose to change the rules. The new rules are set out in Annex A to the explanatory notes. The effect of the change is that the equity value of the house will still be disregarded for the purposes of eligibility for funding—which means that you will still get funding if the equity value of your house is worth less than £100,000, provided your other assets are worth less than £6,000. But if the equity value of your house is between £3,000 and £100,000, there will be a liability to repay any costs not recoverable from another party as a capital payment. That repayment can be deferred until the house is sold, but meanwhile the liability will be charged on that house and a market rate of interest will be charged, not as at present a relatively beneficial rate of interest.

§ The effect of that is obvious and disastrous. Anyone currently paying a mortgage will, in practice, be unable to claim public funding out of the community legal service fund. They will run the risk of an open-ended liability and increased payments to fund interest to the CLS fund, as well as having to pay their current mortgage instalments. If a young couple are planning a family they risk losing the equity they need to trade up to a larger house. If the owners are pensioners who have 772 paid off their mortgage they risk serious hardship if they have to pay interest to the CLS out of their pension. For owner-occupiers, therefore, funding will be by way of loan charged on the equity of the house, carrying what the notes describe as a "realistic rate of interest".

§ The consequences of the grant of funding out of the community legal service fund to an owner-occupier are therefore so potentially damaging that in a case involving a cost potential of any significance it is almost impossible to imagine that any such owner would wish to take it on. Therefore, in practice, funding will be available only to those who are living in rented accommodation. That would be grossly unfair. I hope the Government will accept the need in this respect for an amendment. I accept that some assistance is provided by the Government's new amendment, which says that nothing will be paid beyond what is reasonable, but I think that this remains an extremely dangerous provision. I beg to move.

§ Lord Archer of Sandwell
I rise briefly to echo the anxiety expressed by the noble Lord, Lord Goodhart. The equity in one's house is not really capital available for expenditure. If one loses the equity in one's house, one does not have a home. I hope that my noble and learned friend Lord Falconer has grasped that point, even though I think his attention was not always entirely on the argument. I support the amendment.

§ 8.45 p.m.

§ Lord Falconer of Thoroton
The amendment tabled by the noble Lords, Lord Goodhart and Lord Phillips of Sudbury, is similar to the amendment of the noble and learned Lord, Lord Archer, Amendment No. 130, in its intention but is much more limited and specific in its effect. It provides that people whose capital resources are such that they would be eligible for income support should not be required to make any payment towards services provided by the community legal service fund.
In its naked form, the amendment, as I think the noble Lord accepted, would again prevent the Lord Chancellor from making regulations which provided for the same financial conditions that exist now for legal aid. However, as the noble Lord, Lord Goodhart, explained with total clarity, he has a much more limited aim in mind. As I understand his argument, he is seeking to remove one of the proposals for changing the current regime set out in the Explanatory Notes; namely, the extent to which the first £100,000 of the equity in your house is taken into account in determining the amount you have to pay to the legal services commission. I understand that, but just for the sake of the record, perhaps I may outline the relationship between income support and legal aid without repeating what I have said in relation to the amendment of the noble and learned Lord, Lord Archer.
Under the legal aid arrangements today, if you are on income support you automatically qualify for free legal aid. If, though not claiming income support, you would qualify on income grounds, you would also qualify for legal aid without any contribution from your income. People who have some capital assets may still qualify for income support. Capital of £3,000 or less is 773 disregarded altogether: so is the value of any equity that the applicant owns in his or her own home. If someone has capital worth between £3,000 and £8,000, income support is reduced by a set formula to reflect an assumed weekly income from the "free capital" between those limits. If they have more than £8,000 capital they do not qualify for income support, regardless of how low their income is.
The legal aid provisions for contributions from capital are somewhat different: below £3,000 disposable capital, a person is eligible without a contribution from capital; between £3,000 and £6,750 (or £8,560 in personal injury cases), the assisted person is required to pay the full amount above £3,000 as a contribution from capital; with disposable capital above those upper limits, people are ineligible for legal aid, unless the Legal Aid Board exercises its discretion to waive the upper capital eligibility limit in a potentially very expensive case. Under the existing provisions, the first £100,000 of equity owned in a home is disregarded in these calculations.
The point focused on by the amendment of the noble Lord, Lord Goodhart, is Annex A, paragraph 8 of the Explanatory Notes to the Bill which proposes that the first £100,000 of equity in a home should continue to be disregarded for calculating eligibility, but that it should be counted in assessing contributions. However, under the new proposal, no contribution from capital tied up in a home would be payable until the end of the case, when costs liabilities are determined. Furthermore, the Explanatory Notes explain that the legal services commission would have discretion to postpone the payment of a contribution from this source, typically until the house is next sold. This is the position that already applies when the legal aid statutory charge attaches to a home that was recovered or preserved in proceedings.
The noble Lord has explained that this is the proposal that his amendment is intended to prevent. As I have indicated, the language of the amendment would go further than that. The amendment provides that, regulations shall not require any payment from a person whose capital resources are such that they would be eligible for income support". That would mean that someone whose capital did not exceed £8,000, but who had an income above the free limit, would qualify for free legal aid under the amendment. In other words, other than those exceptional cases where the upper capital limit is waived, no one who qualified for legal aid would ever be asked to pay a contribution. The noble Lord has accepted that that is not what he has in mind. He has the more limited aim in relation to the proposal with which I have just dealt.
There is a difference in kind between income support and legal aid contributions so far as the value of the house is concerned. Income support is provided as help with living expenses. Disregarding the value of the house for income support obviates the need to sell your house to live. Legal action is a one-off event. It is reasonable to ask people with assets, in whatever form, to pay what they can afford for it, especially if one considers the potential effects on other people of taking 774 legal action. Capital is generally taken into account for legal aid contribution purposes and it would not be fair to owners of different forms of capital to disregard this first £100,000 absolutely. Justice is done by disregarding it for eligibility purposes and in practice making it available for contribution purposes only when the house is sold.
It is true that, under the regulations contemplated in the Explanatory Notes, delaying enforcement will be at the discretion of the commission. But the Lord Chancellor is willing to consider requiring the commission to call on the £100,000 only on sale and removing its discretion to do so earlier. I would also envisage that the commission would have a discretion not to enforce the contribution even then, where to do so would cause hardship. On that basis, which goes some way to meeting the noble Lord's argument, I invite him to withdraw the amendment.

§ Lord Goodhart
I do not find that answer entirely satisfactory. I was well aware that there is a power to postpone enforcement of the charge. In the example I gave of the young couple thinking of having a family, I was concerned about the threat not to the house in which they were currently living but about the fact that when they needed to sell in order to move to a larger house because of their growing family they would be unable to do so because at that point the charge would bite. While the charge is postponed there is of course a continuing liability to pay interest at what will from now on be a market rate. That is potentially a cause of hardship sufficiently great to justify returning to the matter. However, I shall wish to see what the noble and learned Lord the Lord Chancellor has to say.
I should not be favourably impressed by an amendment that went no further than stating that the enforcement of the charge must compulsorily be delayed until the house was sold. The hardship could well arise when there was a need to sell the house, which could be not merely because of a growing family but, for example, the need to move to a different part of the country for work and so on. Therefore I should wish to see, as a minimum, a commitment to giving a discretion not to enforce a charge even on sale where that would result in hardship. However, on this occasion I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ [Amendments Nos. 134 to 137 not moved.]

§ Lord Clinton-Davis moved Amendment No. 138:

§ Page 7, line 40, at end insert— ("( ) The regulations shall provide that in any proceedings where a costs order is made in favour of any individual who has agreed to make a payment under subsection (2)(c), the costs payable to him shall include costs in respect of any payment he has agreed to make.").

§ The noble Lord said: Under Clause 10(2)(c) the Government effectively take reserve powers to set up a contingency legal aid fund. I understand that to be the case from paragraph 86 of the Explanatory Notes.

§ It is my understanding that the Government do not intend to use these powers immediately. They offer a fall-back if the CFAs fail to operate satisfactorily and 775 open the possibility of a form of mixed public/private funding through hybrid legal aid CFA cases. I certainly welcome the fact that the Government are taking these reserve powers. It is a forward-looking step.

§ However, in the Bill the Government propose that in the case of CFAs the success fees should in future be paid by the losing party rather than by the client.

§ I submit that the same principle should apply to a contingency legal aid fund so that legally aided clients would be on the same footing as those under a CFA. The situation would be that if costs were recovered from a non-legally aided party, those costs should include the success fee to be paid back into the contingency legal aid fund in the same way as under a private CFA. So this amendment would put clients whose cases are brought under a contingency legal aid fund on the same basis as those who bring cases under a CFA. I beg to move.

§ Lord Falconer of Thoroton
This amendment, which my noble friend explained very clearly, would create a duty on the Lord Chancellor when making regulations under Clause 10 to include in the regulations a requirement that costs awarded in favour of a person receiving funded services would include any payment that person had agreed to make under Clause 10(2)(c) which exceed the costs of the funded services. I believe that by itself this amendment might act oppressively and is in any event unnecessary.
At present the successful unassisted defendant cannot recover his costs from the assisted plaintiff, nor from the Legal Aid fund in practice, unless there is substantial hardship. Clause 11 broadly replicates that position for cases funded under the new community legal services fund scheme; that is, the status quo is to be maintained.
Under Clause 10(2)(c), provision is made for services to be on terms that, in the event of success, he is liable to pay the equivalent of a success fee into the fund. This would enable the legal services fund to establish a contingency legal aid fund if so directed. We have no present intentions to do that. This is a reserve power only.
The amendment would provide that if a contingency legal aid fund were set up in this way then the successful assisted person would be able to recover the success fee payable to the contingency legal aid fund in costs from the unsuccessful defendant. That, however, would operate unfairly for defendants who could not reciprocally recover their costs from the unassisted plaintiff or the fund when they succeeded.
If a contingency legal aid fund were ever to be established in this way, and what I say offers no expectation that it ever will, then Clause 11 provides very wide powers for the Lord Chancellor to make regulations which make provision about the costs in cases. In particular, Clause 11(2)(e) allows him to specify the principles to be applied in determining the amount of any costs which may be awarded to a party who is receiving funded services. I believe that these powers are sufficient, and indeed are intended, to allow the Lord Chancellor to make regulations that can specify what should be taken into account in determining the 776 costs to be paid to a successful party supported by the commission. Under this power he could, for example, make the fund liable in these circumstances.
My noble friend's amendment would, however, oblige the court to make this payment recoverable whenever an agreement has been made under subsection (2)(c). That is too inflexible. Those of us with court experience know that courts, when exercising their discretion as to costs, can feel that because of, for example, contributory negligence, or perhaps the behaviour of the parties in the litigation they are not prepared to award the successful party all or any of their costs. There needs to be some flexibility in applying any scheme for recovering costs and in allowing the courts to exercise some discretion in arriving at the final amount to be paid.
If it will help my noble friend, I can tell him that I am fully seized of what he is trying to achieve and that I believe the Lord Chancellor could achieve this under the powers already contained in the Bill if he wished to do so. I shall carefully consider how to give effect to the aim of this amendment when we come to look at the regulations that may need to be made once the Bill passes into law. On that optimistic note I ask him not to press his amendment.

§ Lord Clinton-Davis
I am grateful to my noble and learned friend for that semi-encouraging note. I need to examine his reply carefully and to take advice on the matter. However, having regard to that situation, I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ Clause 10 agreed to.

§ Clause 11 [Costs in funded cases]:

§ Lord Falconer of Thoroton moved Amendment No. 139:

§ Page 7, line 41, at beginning insert ("Where services relating to a dispute have been funded by the Commission for an individual as part of the Community Legal Service, his liability under an order for costs made against him in proceedings relating to the dispute shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including—

(a) the financial resources of all the parties to the proceedings, and
(b) their conduct in connection with the dispute;

and, in assessing the financial resources of an individual for whom such services have been so funded, his clothes and household furniture and the tools and implements of his trade shall not be taken into account, except so far as may be prescribed.

§ (1A) Subject to that,").

§ The noble and learned Lord said: I move this amendment because, on reflection, I think it is preferable that the qualification on the right of unassisted parties to recover costs against a person receiving funded services should appear on the face of the Bill. Before I come to my amendment, it might be helpful if I explain what Clause 11 is intended to do.

§ The clause creates a general power for the Lord Chancellor to make regulations in relation to the legal costs of cases where one of the parties is receiving services funded by the community legal service. The 777 clause goes onto define certain provisions which may in particular be included in regulations made under the power conferred in subsection (1).

§ The first three circumstances set out in subsection (2) relate to what are often referred to in the current Act as the cost protection provisions. These are presently contained in Sections 12, 13, 17 and 18 of the 1988 Act. They are designed to ensure, first, that those receiving publicly funded support are not deterred from proceeding with a legitimate claim by fear of the possibility of having to pay the costs of their opponent if they are unsuccessful in proving their claim (Sections 12 and 17). Secondly, the provisions protect the taxpayer by establishing the circumstances in which the commission might be required to pay the costs in place of the person receiving services (Sections 13 and 18).

§ The other particular circumstances in which the Lord Chancellor may make regulations are largely drawn from existing provisions contained in Section 34 of the 1988 Act. Essentially they deal with the way in which and by whom the amount of a costs order may be determined and that any costs recovered shall be payable to the commission or the body or person who provided the services. As we have set out in the explanatory notes, that is Annexe A, paragraphs 12 and 16 on pages 62 and 63. We intend to make two changes to the existing position in relation to cost protection. First, while we intend broadly to preserve the protection to those receiving assistance from the commission against having to meet a liability for costs we intend to allow the value of a person's home to be taken into account in assessing his means.

§ Secondly, we intend to relax the test before a court can order the commission to pay on behalf of the person and to support it. The present test requires the unassisted party to prove severe financial hardship. We intend to require the unassisted person to have to prove the lesser test of financial hardship in order to obtain payment of costs from the board. Moreover, as I said, we are taking a reserve power to establish a contingency legal aid fund. As I also said, I do not believe that I will need to use this power because the Lord Chancellor is confident that conditional fees will provide a substantial alternative to publicly funded assistance, particularly in the area of personal injury cases.

§ An assisted person would, however, if the reserve power were exercised, be required to make an additional payment to the contingency legal aid fund in the event of success. We believe that this payment ought to be recoverable in just the way that Clause 27 will make a success fee in conditional fee agreements recoverable from a losing opponent. In such a circumstance we believe it would be only equitable that unassisted parties should be able to recover their costs against the contingency legal aid fund in the normal way. We would therefore wish to use the regulation-making powers in Clause 11(2)(c) to ensure that this could be done.

§ The amendment which stands in the name of the Lord Chancellor will put the protection given to the person who is assisted by the community legal service on the face of the legislation. Given the importance of the protection in reducing the deterrent effects of 778 potentially incurring a liability for costs that could not be met, the Government believe on reflection that it is better that this is set out plainly in the primary legislation. We continue to believe, however, that the protection afforded to the commission should be made by regulations, subject to the affirmative resolution procedure, so that we may respond to changing circumstances as necessary.

§ Consequently, Clause 11 is amended so that a new subsection (1) is inserted, which substantially carries into the Bill the protection provided by Section 17(1) of the 1988 Act. It is of course rare for costs orders to be made against assisted persons. The court, however, has a discretion to make an order by taking into account the comparative resources of both parties. If that discretion were to be exercised, then Clause 11(1) also specifies that personal goods and effects are to be disregarded in any assessment of the means of the assisted person to meet a liability for costs.

§ The existing subsection (1) is renumbered (1A) and made subject to the new subsection (1). The remainder of the clause is unchanged, save for an amendment to subsection (2)(a). It no longer needs to provide regulations which deal with affording the protection now provided by the new subsection (1). Rather, regulations under subsection (2)(a) will specify principles that will apply in any determination of the amount of any costs a person receiving funded services may be required to pay. In those circumstances, I move the amendment standing in the name of the Lord Chancellor. I am grateful to be reminded that in speaking to Amendment No. 139, I have also been speaking, with the leave of the Committee, to Amendments Nos. 140 and 205. I should have mentioned that earlier. I apologise for not having done so.

§ Lord Goodhart
I have to say that while on the face of it this looks like something I should welcome, and indeed in certain respects I do, I think it is in fact an extremely dangerous provision. Or shall we say that what lurks behind it in the Bill itself is an extremely dangerous provision. What is now proposed is stated in the Explanatory Notes, which say: In future, assisted parties will retain most of their protection against paying inter partes' costs. But where courts are considering costs orders against assisted parties, the value of their homes will be counted towards their assets and the statutory bar on enforcing against homes will be lifted. This raises exactly the same point that occurred in my Amendment No. 133. That amendment related to the recovery of money by the community legal service fund from the party whom it had funded. This concerns to the different, though related, issue of payment by the assisted party to the other party to the case. As soon as the value of the home is counted towards the assets of the assisted party, that means there are going to be far more assets against which the court will be able to make an order. It is likely therefore that there will be far more cost orders made against an unsuccessful assisted party. It is even worse than in the case of the recovery of payments by the community legal service fund because in this case it appears that the whole value of the home shall be counted towards the assets—it does not say 779 anything about the first £8,000—and, perhaps worse still, the statutory bar on enforcing against the home will be lifted.
This will be an enormous disincentive to anyone thinking of applying for assistance. Coupled with the problem which I attempted to deal with by means of Amendment No. 133, it means that it will be virtually impossible for anyone who is an owner-occupier to apply to receive legal assistance in any case where the costs are at all serious without incurring great danger to himself and to his home. This is a seriously misguided view. The Government should revert to the previous position. It is certainly something I shall wish to examine again at Report stage.

§ Lord Kingsland
I may not have heard the noble and learned Lord clearly, and I apologise if I have misunderstood. Is he saying that the liability of the commission to contribute to costs awarded in favour of an unassisted person who succeeds against the assisted party is something that will be determined by regulation, or is it now to appear on the face of the Bill?

§ Lord Falconer of Thoroton
The purpose of this clause is to bring on to the face of the Bill protection for those receiving funded services from having to meet a liability for costs should they lose. What it deals with—on the face of the Bill, not in regulations—is a right in certain circumstances not to be pursued for the costs if one loses.

§ Lord Kingsland
I am most grateful to the noble and learned Lord. I was thinking of the opposite situation and the rights of an unassisted party. I know that that is not dealt with in the noble and learned Lord's amendment.

§ Lord Falconer of Thoroton
This is a very Byzantine way of looking at it but, as far as an unassisted party is concerned, he has no relationship with the legal services commission or the Legal Aid Board. The individual can pursue him, often on behalf of the legal services commission or the Legal Aid Board, pursuant to the ordinary rules of costs. We would not be expected to deal with that on the face of the Bill or in regulations.

§ Lord Kingsland
I am most grateful to the noble and learned Lord for clarifying that matter. Clearly I misheard what he said.

§ Lord Thomas of Gresford
Am I right in thinking that, whereas a person who is the beneficiary of a conditional fee agreement can cover his liability for costs with insurance, a person who receives assistance under the CLS scheme may find, as a result of this clause and the amendment, that his house is taken away from him and that he is not insured against that dramatic and dreadful loss that he may suffer if he should lose the case?

§ Lord Falconer of Thoroton
The noble Lord, Lord Thomas of Gresford, in effect raises the same point as the noble Lord, Lord Goodhart. What is the right 780 answer where the assisted person loses and on the other side there is someone of modest means who has fought and won, having spent a great deal of money fighting the battle? Where should the financial pain lie? Must it always lie with the person who has won, even though the person who has lost has a house with a valuable amount of equity in it? Is not the right course in relation to those cases for the court to be in a position to consider, having regard to the resources of both the defeated assisted party and the victorious unassisted party, what the right result should be?
Let me give an example. Suppose you have spent £100,000 in costs in fighting off an unmeritorious claim put together on the basis of perhaps unreliable evidence by the assisted party. You have to sell your house in order to pay your lawyer, even though the other party, which was assisted, had equity in a house which was even greater than the equity in your house and, because of the point made by the noble Lord, there is nothing that can be done about it. That does not feel fair to me.

§ Lord Thomas of Gresford
I do not think that the noble and learned Lord is addressing my point. As I understand it, conditional fee agreements with an insurance cover are there to protect a person who loses a case. It is not always unmeritorious cases that lose; there is a balance of merit. There are some cases which are hopeless and some which are marginal and on the cusp where that party loses. A person who has a CFA is protected, but it seems to me that a person who can qualify for financial assistance under this scheme has his house on the line. It is that unfairness that I should like the noble and learned Lord to address.

§ Lord Falconer of Thoroton
With the greatest respect to the noble Lord, that seems to me to be dealing with a completely different point. You are there comparing the unfairness, as you would have it, between a conditional fee case, on the one hand, and a legally aided case, on the other. The balance of hardship in these cases is not between the case in front of the court and some notional other case; the unfairness is between the plaintiff and the defendant. Where should the burden fall? With the greatest respect to the noble Lord, Lord Thomas of Gresford, I do not think that the comparison he makes is the right one.
The right comparison—that raised by the noble Lord, Lord Goodhart—is the point I have to deal with. Should the failed assisted party in the case be able to treat his house as protected whereas the successful party who has to pay his own costs should have his house taken into account? If he is unassisted, his lawyers will seek to get their fees from wherever they can. The point made by the noble Lord, Lord Goodhart, merits consideration, and the noble and learned Lord the Lord Chancellor has indicated that, without giving rise to any expectation that change will occur, I should say that consideration will be given to it. However, the arguments about resources are quite powerful and would have to be answered by the noble Lord, Lord Goodhart, before there was any reasonable expectation of give in relation to that issue. I hope that that is a satisfactory response to the noble Lord's point.

§ On Question, amendment agreed to.

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§ Lord Falconer of Thoroton moved Amendment No. 140:

§ Page 7, line 45, leave out ("limiting the amount of'') and insert ("specifying the principles to be applied in determining the amount of any").

§ On Question, amendment agreed to.

§ 9.15 p.m.

§ Lord Renton moved Amendment No. 141:

§ Page 8, line 15, at end insert (", and (h) providing for the payment of the costs of any other party.").

§ The noble Lord said: On behalf of the noble and learned Lord, Lord Simon of Glaisdale, I beg to move Amendment No. 141. I have always thought it best that the courts should be given a broad discretion as to costs without tying them down to too much detail. In my time that was always the practice. I do not know whether it is still so. But here the arrangement is that regulations shall be made governing the award of costs. Those regulations may in particular make provision for the various matters that are listed. The noble and learned Lord, Lord Simon of Glaisdale, has in my humble opinion correctly suggested that we should add something to enable the payment of the costs of any third party, for example, or to enable a co-defendant who may not be legally assisted to be paid. I believe that to be an omission that the noble and learned Lord is wise to suggest should be put right.

§ Lord Falconer of Thoroton
I dread to think what would have happened to me had I included in the Bill a provision such as this if the noble and learned Lord, Lord Simon of Glaisdale, had been here. He would have said that such a provision was quite unnecessary. He would have drawn my attention to Clause 11(1), which gives a general power to make regulations that make provision about costs in cases in which services have been funded by the Commission for any of the parties as part of the Community Legal Service". He would also have drawn my attention to Clause 11(2)(a), which explicitly provides powers to make regulations concerning the payment of costs awarded against an assisted party whether they are to be paid either by the assisted party or by the commission. These powers are not limited to apply in relation to the costs of the successful unassisted opponent but to any costs awarded against the assisted person or commission.
The noble and learned Lord, Lord Simon of Glaisdale, would have asked in tetchy tones what was the point of adding this additional clause when it was obvious to anyone of reasonable common sense that the matter was already covered and that we should not insert provisions simply for the fatuous imagination of some crazed lawyer. In those circumstances, adopting the submissions of the noble and learned Lord, Lord Simon of Glaisdale, on previous occasions, I invite the noble Lord to withdraw the amendment.

Lord Renton
In spite of the wisdom of the noble and learned Lord I must inform the Committee that I 782 do not know the motive of the noble and learned Lord, Lord Simon of Glaisdale, in tabling this amendment. Presumably he did so because he thought that it was necessary. However, he will read the Official Report. I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ Clause 11, as amended, agreed to.

§ Lord Goodhart had given notice of his intention to move Amendment No. 142:

§ After Clause 11, insert the following new clause—

§ ("The Public Interest Litigation Fund

§ PUBLIC INTEREST LITIGATION FUND

§ .—(1) The Commission shall establish and maintain a fund known as the Public Interest Litigation Fund.

§ (2) The Lord Chancellor—

(a) shall pay to the Commission the sums which he determines as appropriate for the funding of services by the Commission out of the Public Interest Litigation Fund, and
(b) may determine the manner in which and times at which the sums are to be paid to the Commission and may impose conditions on the payment of the sums.

§ (3) The purpose of the Public Interest Litigation Fund shall be to finance the provision of services of any of the kinds specified in section 5(1) to a person who is or may become a party to legal proceedings if the conditions in subsection (4) are satisfied and the Commission thinks it appropriate to finance the provision of those services.

§ (4) The conditions referred to in subsection (3) are—

(a) that the proceedings give rise to an issue of substantial public importance,
(b) that the person seeking the services is not entitled to have those services funded out of the Community Legal Service Fund or as part of the Criminal Defence Service, and
(c) that neither the person seeking the services nor any other person having a similar interest in the proceedings can reasonably be expected to pay for such services out of his own financial resources or resources which may be made available for that purpose from another source.

§ (5) Regulations may be made for the implementation of this section.

§ (6) In this section "proceedings" include prospective proceedings and any step in proceedings.").

§ The noble Lord said: In the absence of my noble friend Lord Lester of Herne Hill, I do not propose to move this amendment on this occasion.

§ [Amendment No. 142 not moved.]

§ Lord Goodhart moved Amendment No. 143:

§ After Clause 11, insert the following new clause—

§ ("Conditional Legal Aid Fund

§ CONDITIONAL LEGAL AID FUND

§ .—(1) The Commission shall establish and maintain a fund known as the Conditional Legal Aid Fund.

§ (2) The purpose of the Fund shall be to provide help in the conduct of legal proceedings by entering into conditional legal aid agreements.

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§ (3) For the purposes of this section a conditional legal aid agreement is an agreement between the Commission and a person providing advocacy or litigation services and his client which provides—

(a) for the costs of the client of the proceedings and any costs ordered to be paid by him to any other party to the proceedings to be paid out of the Fund;
(b) for any costs of the proceedings recoverable by the client from any other party to the proceedings or from any other source to be paid to the Fund; and
(c) for a further sum to be payable by the client to the Fund in specified circumstances.

§ (4) A conditional legal aid agreement shall be enforceable.

§ (5) For the purposes of the making of any order for payment of costs in the proceedings, the fact that any costs are being paid out of the Fund shall be disregarded.

§ (6) Regulations may provide for—

(a) the categories of person with whom (as client) the Commission is authorised to enter into a conditional legal aid agreement;
(b) the categories of proceedings in relation to which the Commission is authorised to enter into a conditional legal aid agreement;
(c) the computation of any money payable under subsection (3)(c);
(d) the administration of the Fund; and
(e) such other matters as may be appropriate to ensure the effective functioning of the Fund.

§ (7) The Lord Chancellor shall pay to the Commission such sums by way of loan or grant as he determines to be appropriate for establishing the Fund and may guarantee payment of any liabilities of the Fund.

§ (8) Regulations under subsection (6) may provide that, with a view to ascertaining the demand for conditional legal aid agreements, they shall be entered into for a trial period only with persons resident in a specified part of England and Wales.

§ (9) The Lord Chancellor may by order repeal this section and provide for the winding up of the Fund if, having regard to experience in the conduct of the Fund, he is satisfied that—

(a) there is insufficient demand for conditional legal aid agreements to justify the continuation of the Fund; or
(b) the Fund is not, and is unlikely to become, financially self-supporting.

§ (10) Any power under this section to make an order or regulation is exercisable by statutory instrument, and no order shall be made under subsection (9) unless a draft order has been laid before, and approved by resolution of, each House of Parliament.").

§ The noble Lord said: Amendment No. 143 is a very important matter because it raises—unfortunately relatively late in the proceedings—the question of setting up a conditional legal aid fund. This fairly lengthy amendment would require the legal services commission to set up as a separate fund a conditional legal aid fund. I do not move this amendment in any great expectation that the noble and learned Lord the Lord Chancellor will accept it, but it is an important subject that requires ventilation and discussion. I believe that there are enormous and unrecognised virtues in a conditional legal aid fund.

§ What is a conditional legal aid fund or CLAF? From the point of view of the clients it is very like a conditional fee agreement (CFA). The clients will not pay their own legal costs if they lose. They will have to pay the mark-up on their own legal costs if they win, subject to any power of the court to order recovery of the mark up from the losing party. The vital difference 784 between a CLAF and a CFA is that in the case of a CLAF the risk is borne not by the lawyers but by the fund. Lawyers will receive their normal costs, win or lose, without a mark-up. The fund will pay the client's legal costs if the client loses. The fund will receive the mark-up if the client wins.

§ The CLAF idea was floated by Justice in 1966 from a report on road accident cases, and was developed further in the report of a working party which I chaired in 1978. If one has CFAs, why have a CLAF? There are two reasons. First, CFAs present an element of danger to the public interest. If lawyers are at personal risk of losing fees, they will be reluctant to disclose the unexpected document damaging to their case which turns up late in the proceedings.

§ The noble and learned Lord the Lord Chancellor may say—indeed, he has said frequently—that lawyers should put their money where their mouth is. If that is carried too far, it turns the legal profession into speculators. Doctors have never expected payment by results. If lawyers do so, they will become a different and a worse profession. The noble and learned Lord the Lord Chancellor said earlier today that the legal profession should take risks like other businesses. Of course we take risks. For example, any solicitors' firm has to hire office space, buy computers and other equipment necessary to a modern office, and employ staff. If they do not obtain the work to meet the costs, they will go bust; and from time to time they do. But lawyers, like doctors and accountants, expect to be paid for the work they do. The only professions which operate on a no success, no payment basis are those paid on commission. Those include, for example, estate agents and insurance brokers. With all respect to the many honourable, honest members of those professions, are they the professions with which lawyers should seek to compare themselves? I believe very firmly that they are not.

§ The second reason for having a CLAF is that many lawyers will not wish to accept CFAs. Some firms will specialise in CFAs—for example, those with a large personal injuries business. They will have a large throughput which will enable them to carry the risk involved in any one case even if that risk, as sometimes it may be, is quite substantial. But, frankly, many firms of solicitors will not be willing to fund their client's litigation and they will prefer the certainty of payment of a CLAF to the risk involved in a CFA even if that were potentially profitable. Firms unwilling to enter into CFAs should have no objection to acting under a CLAF agreement. Therefore a CLAF will widen the choice of lawyers available to the clients. The CLAF has been tried in Hong Kong and worked effectively. It does not mean that CLAFs will necessarily work in England. But I believe that the case for CLAFs is sufficiently strong to justify an extended trial.

§ Perhaps I may outline briefly the new clause. It speaks largely for itself. Subsection (1) requires the commission to establish the conditional legal aid fund. Subsection (2) states that the purpose of the fund is to help in the conduct of legal proceedings by entering into conditional legal aid agreements. Subsection (3) defines a conditional legal aid agreement. Subsection (4) states 785 that it is to be enforceable, because there would be doubt in existing law as to whether it is enforceable. Subsection (5) states that the fact that any costs are being paid out of the fund is disregarded when making an order for costs.

§ Then there is a provision for regulations. Subsection (7) requires the Lord Chancellor to grant or lend the start up costs, the intention being that the fund should be self-financing. Subsection (8) provides for a trial period. Subsections (9) and (10) allow the Lord Chancellor to wind up the fund on specified grounds; either if it turns out that there is no demand following the pilot scheme or that it is not financially worth doing.

§ I have already pointed out the advantages of CLAF over CFAs as a matter of public interest and the reason why many lawyers prefer it. From the client's point of view, CLAF financing is equally as attractive as the CFAs. CLAF will involve an extra level of administration because the fund will need to be administered, but the greater capacity and its management on a non-profit basis should allow it to offset administrative costs by offering a narrower risk margin than any single firm. It has been suggested that some firms may cherry-pick by keeping the best risks for themselves while passing on poor risks to CLAF. If that is thought to be a risk, and it may be, it can be suggested that firms which offer CFAs for any category of case should not be eligible for CLAF funding in the same category. One would have to choose whether to provide CFAs or CLAF.

§ I believe that many solicitor's firms which would be unwilling or reluctant to enter into CFAs would prefer CLAF funding. I believe that the Bar would much prefer CLAF. Few barristers, particularly young ones, can afford to expose themselves to the risk involved when a large part of their practice is conducted under CFAs; nor can they afford the delay in payment if payment is never available until the case is finally decided. I believe that the Government should commit themselves to a significant CLAF trial funded by them. CLAF agreement is not currently legitimated by Clause 27 so that under the present law it seems very unlikely that even a privately funded CLAF scheme could be tried. If the Government are not prepared to go as far as I would wish, it will be necessary to come back with a further amendment to Clause 27 which would enable a privately funded CLAF scheme to be tried out.

§ Lord Ackner
I strongly support the amendment. I am concerned that the CFA will ultimately affect the very existence of the Bar. The Bar, as independent practitioners, is not geared to carrying on the business of bookies, which is what the CFAs require them to do. It is the old problem of speculative litigation.
CLAF is not in that situation. One must bear in mind that the Bar is not as yet organised to run the risk of significant parts of its litigation being subject to the risk of no win no pay. One must also bear in mind that whereas the solicitors will get the litigation which is to be speculative at the earliest possible stage and can settle those which are settleable, which is a large part of the personal injury field, those which go to the Bar are 786 the difficult cases in which the risk of losing is high. As has been pointed out, the young members of the Bar cannot afford to take that on.
I think one should look, as the Bar Council has, into what are the dangers of CFAs for the ultimate development of the Bar. The only way to cope with the risks is to try and separate them by some form of partnership between members of chambers. When I was Chairman of the Bar we had a committee to consider partnerships at the Bar. It was presided over by the noble and learned Lord, Lord Templeman, as he then was not. It concluded without any difficulty that the result of a partnership at the Bar would be greatly to restrict the availability to solicitors and ultimately to the lay clients of practitioners available to take on cases. All you had to do in a specialist field was to take the top silk out of one set of chambers, the top junior out of the next set of chambers, and a couple of noting briefs out of the third and fourth set of specialist chambers, and you had thereby denied to the rest of the litigating public the rest of the specialist Bar. That was the danger of partnerships.
This need not arise in respect of CLAFS and that is why this needs to be seriously developed. We have the usual clich's in this sort of legislation. The Government recognise that a strong and independent Bar is a vital foundation of liberty and all the rest. Of course it is, but you cannot have a strong and independent Bar unless you have some regard to its development. I do not see, speaking for myself, where a young man gets started at the Bar in 10 years' time. I believe that it will be a species of fusion forced upon the Bar. The judges, when they say, as they often do, at the end of a case, that they are very grateful for the assistance they have received, are really making that observation with great sincerity. Without a strong, diligent and competent Bar, the judiciary would be incapable of making the quality decisions which they now make. The judiciary are dependent upon the quality of the Bar and once we begin to undermine that quality, it will run throughout the entire system.

§ 9.30 p.m.

§ Lord Falconer of Thoroton
I immediately spotted that the noble and learned Lord, Lord Ackner, was overstating his case when he stated that whenever a judge says that he is grateful for the assistance that the Bar has given in a particular case, he means it with sincerity on every occasion. I know from my own experience as a member of the Bar that that is not and could not be right, though I appreciate that there are very many occasions when it is said with sincerity.

§ Lord Ackner
The noble and learned Lord says that he knows from his own experience. I think he must be relying on hearsay evidence.

§ Lord Falconer of Thoroton
No; on the basis of my own dismal performance in front of various judges who have then congratulated me with apparent sincerity upon the performance I gave, which was out of pure politeness.
787 The serious issue that divides the government side from the amendment proposed by the noble Lord, Lord Goodhart, is that the amendment of the noble Lord, Lord Goodhart, proposes that a conditional legal aid fund should be compulsory in the sense that the commission should be obliged to set it up and should be obliged to pilot it when it has been set up. On the other hand, the effect of the Bill as it is presently drafted is that there is a reserve power in the legal services commission to set up such a fund and it has been said separately from the Bill that it is thought at the moment unlikely that such a fund would be set up. We on this side do not accept that it could be right for the commission to establish such a scheme. Neither can we accept that a scheme should be piloted, as the proposed clause would allow the commission to do, in order to establish whether a CLAF would be viable.
The Government's priority for using public money is to direct it towards areas where there are no suitable alternatives. Conditional fee agreements provide a suitable alternative in certain areas of the law—in particular, personal injury cases. Conditional fees are already working in this area and increasingly are becoming a common way to fund those cases.
The noble Lord, Lord Goodhart, does not suggest that conditional fee agreements should not be available in personal injury cases or, indeed, in any other sort of case. Therefore, the effect of his proposal is that the CLAF and the conditional fee agreement should subsist side by side. It is our belief that if they exist side by side, the result will be that the strong cases are dealt with by the conditional fee agreements—they would lead to a better return for the clients because the successful client would not need to make any payment into the CLAF—whereas the weaker cases would end up in the CLAF.
The result would be that the CLAF would become the dumping ground for the weak cases and all the strong cases would be dealt with under the CFA. The significance of that would be that the CLAF would not be able to fund itself. That is the present expectation of those on this side of the Committee. If that expectation is correct, it would be wrong to set up a CLAF. If, as we believe to be unlikely, that expectation turns out to be wrong, there is the reserve power in the Bill to set up the CLAF.
With respect to the noble Lord, Lord Goodhart, that is the most sensible way of approaching the problem rather than, as he suggests, by compelling the legal services commission to expend what would be a substantial amount of money to set up the fund. He does not deal in his submissions with where the start-up money—which would run into millions of pounds—would come from or what cases should be deprived of funding to set up the CLAF. We believe it would be wrong to set up a CLAF if our expectations on the conditional fee arrangements are right.
As I said, conditional fees are already working in the area of personal injury. Products exist to provide protection insurance, as I have already explained to the Committee. Many lawyers who already work in this field are experienced in taking cases where they carry 788 disbursements or have arrangements to defer payment of expert fees and the like to the end of the case. I see no reason why other lawyers cannot make similar arrangements once public funding ceases to be available for certain categories of case. Given my firm intent that public money should be used where there is no suitable alternative, chancing public money—for that is what it amounts to—to seek to establish the viability of a CLAF is not an appropriate use of public money. It will not help those on whom I wish to focus our intentions and resources.
The noble and learned Lord, Lord Ackner, made an obviously sincere defence of the Bar's decision. It is not a clich' for this Government to say, as we have said repeatedly, that we value and see the importance of an independent, strong Bar. I believe, as the Lord Chancellor and the Attorney General believe, that a strong Bar is a bastion of liberty. But in considering what is the best way to finance litigation, the Bar is not the only consideration. Other considerations apply as well, including what is best for the people who become involved in litigation. In the circumstances, I ask the noble Lord to withdraw his amendment.

§ Lord Ackner
Before my noble and learned friend sits down, he has said that the CFAs are working. Can he tell the Committee what monitoring exercises have been carried out to ensure that CFAs are working fairly in the sense that litigants are not being taken advantage of in cases which are open and shut—or virtually open and shut—as has been conceded to be the situation in at least 90 per cent. of personal injury cases?

§ Lord Thomas of Gresford
The issue that the noble and learned Lord has not addressed is this. Risk is at the heart of the problem. If a firm of solicitors has a large volume of cases and enters into a large volume of conditional fee agreements, the risk will be spread within that firm across that large number of cases. Consequently, it can carry the lost causes. It may be that the 5 per cent. or 10 per cent. of the cases that such a firm takes on under conditional fee agreements will fail and, if so, the firm will not get paid for those cases. However, the uplift received on the successful cases will pay for the ones that fail. That is all right within a solicitors' firm that has a large volume of cases. The risk will be spread fairly.
The problem to which the noble and learned Lord, Lord Ackner, referred is that when you are dealing with the Bar, or with a small firm of solicitors, there is no opportunity to spread the risk across the small practice of the individual barrister or solicitor. That is particularly so for the individual barrister who is just starting at the Bar and seeking to make his way. If he loses 50 per cent. of the cases and does not get paid that 50 per cent., his income will be taken up with all his other expenses and he will suffer a loss.
I do not believe that that is a healthy state of affairs; nor do I believe that the legal profession should be treated as a business that should carry the risks of litigation because of the conflicts of interest and all the other arguments that we have heard about on this topic.
789 If conditional fee agreements had been in existence for a significant period of time—instead of the two to three years during which they have been effected—the situation might be different. But so many of the cases that have come to fruition—I do not believe that it is a high percentage—have settled. As the noble and learned Lord, Lord Ackner, pointed out, it is not the easy, settleable cases that cause the problem, but the difficult cases. The Bar's difficulty is that barristers get only the difficult cases. The risk is different.
The risk for the Bar differs in two ways. First, each individual barrister cannot spread the risk as widely. Secondly, he is not dealing with readily settleable cases. If we had had five or 10 years' experience of conditional fee agreements, we could forget about legal aid and move to that, but we have not. The CLAF ensures a fair system of remuneration that avoids a conflict of interest between the lawyer and his client, does not make it in the interest of the lawyer to come to a settlement of the case below its true value, and ensures every lawyer is properly paid, win or lose. We are thus back in a satisfactory situation where professional standards and professional ethics are maintained.
I believe that the introduction of this gambling element in relation to barristers and small firms of solicitors is highly undesirable. I note that the noble and learned Lord the Lord Chancellor shakes his head. He has no doubt never been in the position of having a range of cases, half of which he has lost and half won. Others are not quite so fortunate. If we are to maintain a strong and independent Bar, we must avoid conditional fee agreements being the sole method of funding the whole system.

§ 9.45 p.m.

§ Lord Clinton-Davis
I am not totally persuaded by the noble Lord's argument. I believe that my noble and learned friend Lord Falconer clearly indicated that the Government would carefully monitor the situation. The nature of the monitoring is all important and I believe that it needs to be undertaken with a degree of independence. It is not only the Bar that faces a problem; indeed, the client also does so. With conditional fees the solicitors involved have a financial stake in the outcome of the litigation. Therefore, there is a possibility—and I put it no higher—that some solicitors will feel compelled, especially when they are carrying very heavy overheads, to ensure that there is a settlement. They will preserve that financial interest on their part, which may not necessarily be conducive to the interests of the client.
I urge my noble and learned friend to give Members of the Committee some indication, if not now, then at a later stage of the Bill's proceedings, of how the situation—which, to a large extent, is still a novel one in that it is very new—is developing. Perhaps he can also confirm that there will be no real prejudice caused to clients, which, after all, is the overriding consideration of my noble and learned friends. That being the case, while I am not necessarily asking my noble and learned friend to give an answer here and now 790 on that point, I should like to hear that the Government will give it consideration and make an announcement at a later stage.

§ Lord Archer of Sandwell
I do not take a dogmatic position in this debate. I rise only to underline what was said a moment ago by my noble friend Lord Clinton-Davis: that the risk we are talking about is not principally to the Bar but to the clients who may, in certain circumstances, find difficulty in securing representation and, certainly in the solicitors' profession, in securing advice.
I venture simply to draw one lesson from history. The noble Lord, Lord Goodhart, said that no doctor would contemplate a conditional fee agreement. I seem to remember reading somewhere that it was the habit in parts of the Ottoman Empire to pay your doctor so long as you remained in good health. However, if you fell ill, you ceased to pay him until you recovered. There is some evidence that those who were invalids found it very difficult to find doctors.

§ Lord Goodhart
I am grateful for the support that my amendment has received from the noble and learned Lord, Lord Ackner, and for the considerable degree of support that it received from the noble and learned Lord, Lord Archer, and the noble Lord, Lord Clinton-Davis. The reaction of the Government is hardly unexpected; but, nonetheless, it is disappointing. I shall not go into it further, except to make two very brief comments in response to what the noble and learned Lord, Lord Falconer, said.
First, as far as concerns cherry-picking, I do not see that as being a danger. It is obvious that a conditional legal aid fund would be able to spot the bad cases that were being thrown at it and that it would look with a great deal of suspicion at any case that comes to it from a firm that is known to have a wide CFA practice. Indeed, what is far more likely to happen is that firms which are not prepared to undertake the risk of CFAs will go for CLAF. As I said earlier, this means that there will be a considerable widening of choice to potential clients. As the noble and learned Lord, Lord Archer, rightly said, it is the client's interest that we are considering in this case.
Secondly, as regards funding, I do not believe that this proposal need divert funds from anywhere. The way that I would in fact envisage this assistance being funded would be through money raised from the private sector but guaranteed by the Government. If, as I strongly believe, CLAF turns out to be viable, one would not be diverting funds from anywhere else. On this occasion I shall withdraw the amendment, but we may wish to discuss this matter further. I beg leave to withdraw the amendment.

§ Amendment, by leave, withdrawn.

§ The Deputy Chairman of Committees (Lord Ampthill)
I call Amendments Nos. 144 and 145. These were debated on Tuesday.

§ Lord Windlesham
With the leave of the Committee, I point out that there is a point of inaccuracy as regards 791 the groupings list, in that Amendment No. 144, which has been debated, is grouped with Amendment No. 145, which has not been debated, as the amendment to which it was attached was not moved. Together with my noble friend Lord Kingsland I wish to make a number of points on Amendment No. 145. However, this constitutes a major new part of the Bill. Perhaps the Committee wishes to adjourn until another day. I am probably speaking out of order but I wished to make that point.

The Deputy Chairman of Committees
May I just deal with Amendment No. 144, which has not been moved, and Amendment No. 145 to which the noble Lord wishes to speak?

§ Lord Windlesham
I wish to speak to it, but not necessarily now. If the Committee wishes to adjourn at approximately 10 o'clock I think my remarks would receive a better welcome on another day rather than making a substantial speech now. As I said, we have 792 just reached a landmark point in relation to Amendments Nos. 144 and 145. I refer to the introduction of a novelty to our system of criminal justice—the criminal defence service. It may be better to discuss that another day, if that is the wish of the Committee.

§ Lord Ackner
I support that proposal. We have two days next week set aside.

The Deputy Chairman of Committees
There is no proposal currently before us because the noble Lord does not intend to move that amendment at this stage.

§ Baroness Farrington of Ribbleton
I beg to move that the House do now resume.

§ Moved accordingly, and, on Question, Motion agreed to.

§ House resumed.

§ House adjourned at eight minutes before ten o'clock.