COMMONS AMENDMENT (Hansard, 14 July 1999)

§ The Lord Chancellor
My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 53. I wish to speak also to Amendments Nos. 54 to 63 and 66.
This is a large group of amendments that seek to change Clause 29 of the Bill, which amends the existing provisions of the Courts and Legal Services Act 1990 relating to conditional fees.
Amendments Nos. 54, 55, 57, 61 and 63 are simple drafting amendments to replace the expression "enhanced fees" with the more familiar term "success fee".
Amendment No. 58 seeks to ensure that the decision in the case of Bevan Ashford v. Yeandle is accurately brought into statute. That held that where a person uses an alternative dispute resolution forum in a type of proceedings in which conditional fees are lawful, and provided the form and content of the agreement between the lawyer and the client follow the prescribed requirements for cases brought in the courts, that agreement is lawful notwithstanding that it is not technically a conditional fee agreement. The Bill seeks to reflect that within the new statutory scheme for conditional fees.
Amendment No. 58 responds to concerns raised by the Bar Council and the Law Society. They have pointed out that, as presently drafted, the new Section 58A(4) of the Courts and Legal Services Act, inserted by Clause 29, does not accurately and fully bring the Bevan Ashford decision into statute law. The problem arises from the complex structure of Section 58 and Section 58A of the Courts and Legal Services Act 1990 as introduced by Clause 29 of the Bill.
Section 58(1) to (3) applies to conditional fee agreements whether of the Thai Trading type without an uplift, or with an uplift—that is, a success fee.
Section 58(4) applies only to agreements with a success fee and permits those to be regulated by the Lord Chancellor. The problem with Section 58A(4) as it stands is that it refers only to Section 58(4) and therefore only to agreements providing for a success fee. It does not, therefore, permit Thai Trading type agreements to apply in "any sort of proceedings for resolving disputes" other than court proceedings. If that extension away from court proceedings to any sort of proceedings for resolving disputes is right for no win no fee cases with an uplift, it should obviously also apply to cases where an uplift is not agreed; that is to say, a Thai Trading type agreement. Amendment No. 58 remedies that and brings Thai Trading agreements within the benefit of Section 58A(4).
432 Amendment No. 59 responds to an amendment moved by the noble Lord, Lord Kingsland, who sought to ensure that a client could not raise a question of whether an agreement was lawful if proceedings had not commenced. The amendment puts beyond doubt that the agreement is lawful and enforceable whether proceedings have commenced or are only contemplated.
Amendments Nos. 60 and 66 make clear that success fees and insurance premiums are recoverable where the forum in which the dispute is resolved is not subject to rules of court: for example, arbitrations under the Arbitration Act.
Amendments Nos. 53 and 56 concern non-contentious business agreements sanctioned under the Solicitors Act 1974. As drafted, Clause 29 might have the unintended effect of making these agreements unlawful. I know that some of your Lordships have expressed an interest in this area. My primary purpose, in amending the Bill to protect the position of solicitors working under a non-contentious business agreement, was not to maintain the situation where solicitors offer their services in employment tribunals on a contingency basis, but to protect areas of genuine non-contentious business where they work under such an agreement. I am thinking in particular of property sales and business acquisitions where working on a contingency basis can provide a satisfactory basis for remuneration agreements between two informed parties.
I accept, of course, that one effect will be to appear to give continuing legitimacy to these agreements in the employment tribunals. In seeking your agreement to these amendments, I recognise that there is great disquiet that non-contentious business agreements may be used to allow solicitors to offer to undertake cases before the employment tribunals on the basis of a contingency fee. I suspect that this is the concern that underlies the amendment standing in the name of the noble and learned Lord, Lord Ackner.
Contingency fees are payable only if the client is successful and are calculated solely by reference to the amount of the award made by the tribunal. They allow the lawyer to share in the proceeds of the action. That kind of fee would be unlawful and unenforceable if it were used to fund a case before the courts. I regard it as a quirk of the law that the work of these tribunals falls within the definition of non-contentious business. I believe that we must all be at one on that. The business of employment tribunals is plainly contentious. The Government will be considering further whether such fees should be lawful in the employment tribunal, as part of our review of the practices, rules and procedures of all tribunals to ensure that they meet the requirements of EU law and comply with the European Convention.
The problem, however, is deeper than that. I acknowledge that it would be possible for me to use a non-contentious business order as a route to preventing the use of these agreements in the employment tribunals. I want to explain to your Lordships why I am unwilling to go down that route until I have better information about the effect of outlawing these agreements in those tribunals. The fact that costs do not generally follow the 433 event in employment tribunal proceedings may make conditional fee agreements relatively unattractive to the litigant.
I confess that my own instinct is that conditional fee agreements will typically be less costly for applicants than contingency fee agreements, because the diminution in compensation to pay for basic fees and uplifts where claims succeed will be less, I would have thought, than the percentage of compensation claimants would lose under contingency fee agreements. However, the Law Society, whose views on this I have sought after your Lordships last discussed this issue, disagrees. It tells me that in employment tribunal cases it is possible to calculate the likely award more accurately than in other areas of work. That makes it easier for the client to calculate the likely cost of the contingency fee arrangements and to compare it with information about the cost if charged on a time basis. The Law Society believes, in its present state of information, that in cases of low to medium value a contingency fee may be cheaper than a conditional fees agreement.
With that state of information, my priority must be to ensure that those who are taking cases to employment tribunals do not suffer a reduction in the help available to them. I am willing to look carefully at the system of remuneration in employment tribunals, certainly with a view to banning the use of contingency fees, if I am satisfied that conditional fees or other remuneration methods can provide a suitable alternative. But a major problem, as I have said, is that costs do not follow the event in employment tribunals. The argument for maintaining this position which was supported in our previous discussions by the noble and learned Lord, Lord Donaldson of Lymington, and which presently prevails in Government too, is that applicants would be deterred from bringing claims if they were liable for the employers' costs if they lost.
Conditional fee agreements in employment tribunals could not be facilitated, as elsewhere, by an entitlement to recover the success fee and insurance premium from the loser. Therefore, before outlawing contingency fees in employment tribunals I need in prudence to satisfy myself whether conditional fee agreements could work effectively in the "costs lie where they fall" regime of employment tribunals, and to gain information (which I do not have) about how contingency fee agreements actually work in these tribunals. I must satisfy myself that any change that I would be minded to make on principled grounds does not have the effect in practice of reducing access to justice. I hope, therefore, that your Lordships understand why I have decided that it would be premature to move on this subject.
Amendment No. 60 is simply a drafting amendment. Amendment No. 62 is a technical amendment to bring the language of these two clauses into line with the changes in terminology brought about by the introduction of the Civil Procedural Rules on 26th April 1999.
I hope the noble Lord, Lord Goodhart, agrees that it is convenient if I state the position that I am minded to adopt in relation to Amendment No. 56B. This is a matter which is not free of complexity. The noble Lord's 434 amendment would broaden the effect of Amendment No. 56 so that it would exclude from the scope of this legislation not only non-contentious business agreements but any form of fee agreement enforceable at common law; that is to say, so as to put their legal enforceability beyond question.
I know that the noble Lord has in mind no win, no fee agreements without an uplift; that is to say, Thai Trading agreements (after the name of the relevant case). In particular, I suspect that he has in his sights Thai Trading agreements in cases brought under Section 82 of the Environmental Protection Act. Perhaps I may explain to the noble Lord why I cannot accept his amendment as it stands and the course that I suggest should be followed. It is the specific intention of Clause 29 to bring Thai Trading agreements into the scope of the conditional fee legislation both to secure the greater certainty that statute law provides and so that they can be properly regulated, for example by requiring solicitors to give relevant information to potential clients. It is obviously right that consumers who enter Thai Trading agreements should have the protection that the Lord Chancellor may confer for uplift cases under Section 58(3) of the 1990 Act. If by contrast non-contentious business agreements are excluded by Amendment No. 56, they can be regulated instead under the Solicitors Act 1974.
The problem with Amendment No. 56A is that it would have the effect that the regulatory controls provided by Section 58(3) of the 1990 Act could not apply to Thai Trading agreements but only to agreements with uplifts. That is undesirable, and I have no doubt that that is not something which the noble Lord seeks to achieve.
I believe—I see that the noble Lord indicates his confirmation—that his specific concern is with Section 82 of the Environmental Protection Act. Here, if the noble Lord will allow me to say so, I think that he has a very good point. Section 82 allows people aggrieved by a statutory nuisance, for example inadequate housing, to seek an order for that nuisance to be put right. These cases are heard in a magistrates' court and are technically criminal cases. Conditional fee agreements are not permitted in criminal cases under the existing legislation, and that position is maintained by the Bill. But as a result, the effect of bringing Thai Trading agreements into the scope of the legislation so as to be able to regulate them in the consumer interest is to outlaw them in these Section 82 proceedings which, I think the noble Lord would say, although in point of form these are criminal proceedings, can or should in substance be regarded as civil since they are the means of enforcing a civil law right.
The Government have considered the options for resolving this problem with great care. In particular, we have been reluctant to make an isolated exception to the principle that conditional fees are inappropriate in criminal cases. However, on balance, I can tell the noble Lord that I am now persuaded that no win, no fee agreements, where there is no uplift—that is, Thai Trading type cases—should remain available to individuals seeking to enforce their rights in this type of case.
435 However. I cannot agree to achieve this in the manner proposed by the noble Lord in Amendment No. 56B. But, as we lawyers sometimes say, I am now driven to propose a most unusual course. The only way now open to the Government to achieve the result they are now persuaded is the right result, is to allow Amendment No. 568 to pass tonight with all its imperfections, and then to seek to perfect it in the Commons. Let me explain that. The view of parliamentary counsel is that this issue can be effectively dealt with only by amendment to Section 58A(1)(a). That provision was not amended in the Commons and therefore there is no relevant Commons amendment for your Lordships to seek to amend tonight. If, however, your Lordships pass Amendment No. 56B tonight, with all the government health warnings that I have issued, the matter can be corrected in the Commons by amendment when the Bill returns there. That is the end of a rather long story. That is what I propose to do.
When the Commons come to consider this amendment the Government will propose an alternative which deals squarely with the problem that the noble Lord has identified: that is, the position in Environmental Protection Act cases. That amendment will itself have to be considered by your Lordships upon the return of the Bill to this House, and I trust that it will meet with your Lordships' speedy approval. On that basis. I am prepared to accept Amendment No. 56B for the time being.

§ Baroness Goudie
My Lords, I welcome the Government's agreement to protect those tenants who would like to be able to take legal action under that section of the Act.

§ Lord Mishcon
My Lords, has the noble and learned Lord set a precedent in this House so far as he knows for recommending the acceptance of an amendment which in fact he does not accept?

§ The Lord Chancellor
My Lords, I rather think that it is a record, yes.

§ Lord Ackner
My Lords, reference has been made to Amendment No. 56. I think that it is al: that stage that I come in with Amendment No. 56A. I am most grateful to my noble and learned friend the Lord Chancellor for the careful and detailed way in which he dealt with the problem he has identified; namely, that employment tribunal litigation is clearly non-contentious business in the ordinary, everyday sense of the word, and for it to he treated otherwise is clearly absurd.
I raised my amendment in order to discover why it was necessary to include subsection (5) while one thought about the problem. Why not leave it out and get on with analysing and identifying that which should be dealt with? Surely the matter is made worse by including something which the noble and learned Lord does not accept is appropriate while he looks at the wider field. For that reason I have raised my amendment.

§ Lord Goodhart
My Lords, as regards my Amendment No. 56B, I am grateful to the noble and learned Lord the Lord Chancellor for accepting the idea behind it; that is, the problem created by Section 82 of the Environmental Protection Act. Secondly, I thank him for the ingenious way in which he proposes to deal with it. I am almost entirely happy with that. I say "almost" because I should have preferred to deal with the problem by the method proposed in my Amendment No. 142C; that legal aid should be available. However, it would be churlish to press the point and I shall not move Amendment No. 142C. I shall accept the proposal of the noble and learned Lord the Lord Chancellor and support the amendment when it is brought back in a new and perfected form.
As regards the problem presented by Amendment No. 56, it is, as the noble and learned Lord. Lord Ackner, pointed out, very odd that appearances in the employment tribunal are treated as being non-contentious litigation on the part of solicitors. I have two strong objections to the situation winch w ill exist when Amendment No. 56B is accepted. One might be regarded as a trade union point, but it is none the worse for that. It is that there will not then be a level playing field between the Bar and the solicitors. Solicitors will be entitled to charge contingent or conditional fees for work in employment tribunals, whereas members of the Bar will be permitted to charge only conditional fees. If it turns out that contingent fees are more popular than conditional fees, that might put the Bar at a serious disadvantage. This is a matter of considerable importance owing to the substantially increased jurisdiction of the employment tribunals to award compensation. It is far greater than it was a year ago.
The second point is that we strongly object to the principle of contingent fees. I hope that the noble and learned Lord the Lord Chancellor will find it appropriate to prohibit solicitors from using contingent fees, as opposed to conditional fees, in employment tribunal cases. Having said that, the noble and learned Lord, Lord Ackner, presented Motion No. 56A in a way which indicated that he was not seriously intending to press it to a Division. If he did so, we would he unable to support it because I believe that it throws the baby out with the bath water.
When it comes to non-contentious fees, such as fees for advising during the course of a take-over bid, I certainly would see no objection to contingent fees being charged. They are charged by merchant banks, for example, in that sort of situation. It does not seem to add any serious problem if solicitors are entitled to do the same. It does not present anything like the conflicts of interest that are presented if contingent fees are allowed in contentious business. Therefore, I would be unable to support the amendment moved by the noble and learned Lord, Lord Ackner, even though I agree with the spirit behind it.

§ Lord Kingsland
My Lords, we support both the noble and learned Lord, Lord Ackner, and the noble Lord, Lord Goodhart. We are therefore extremely 437 grateful to the noble and learned Lord the Lord Chancellor for the sympathetic way in which he has reacted to both. I would only add that when the noble and learned Lord has completed his analysis of the relative merits of contingency fees and conditional fees in the context of employment tribunals, I hope that whatever solution he decides upon will have consequential effects for fairness of competition between the two professions.