LITIGATION FUNDING AGREEMENTS

HL Deb 14 July 1999 vol 604 cc438-40

(". In the Courts and Legal Services Act 1990, after section 58A (inserted by section 29 above) insert—

"Litigation funding agreements.

58B.—(1) A litigation funding agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a litigation funding agreement.

(2) For the purposes of this section a litigation funding agreement is an agreement under which—

1. (a) a person ("the funder") agrees to fund (in whole or in part) the provision of advocacy or litigation services (by someone other than the funder) to another person ("the litigant"); and
2. (b) the litigant agrees to pay a sum to the funder in specified circumstances.

(3) The following conditions are applicable to a litigation funding agreement—

1. (a) the funder must be a person, or person of a description. prescribed by the Lord Chancellor;
2. (b) the agreement must he in writing;
3. (c) the agreement must not relate to proceedings which by virtue of section 58A(1) and (2) cannot be the subject of an enforceable conditional fee agreement or to proceedings of any such description as may be prescribed by the Lord Chancellor;
4. (d) the agreement must comply with such requirements (if any) as may be so prescribed;
5. (e) the sum to be paid by the litigant must consist of any costs payable to him in respect of the proceedings to which the agreement relates together with an amount calculated by reference to the funder's anticipated expenditure in funding the provision of the services; and
6. (f) that amount must not exceed such percentage of that anticipated expenditure as may be prescribed by the Lord Chancellor in relation to proceedings of the description to which the agreement relates.

(4) Regulations under subsection (3)(a) may require a person to be approved by the Lord Chancellor or by a prescribed person.

(5) The requirements which the Lord Chancellor may prescribe under subsection (3)(d)—

1. (a) include requirements for the funder to have provided prescribed information to the litigant before the agreement is made; and
2. (b) may be different for different descriptions of litigation funding agreements.

(6) In this section (and in the definitions of "advocacy services" and "litigation services" as they apply for its purposes) "proceedings" includes any sort of proceedings for resolving disputes (and not just proceedings in a court), whether commenced or contemplated.

(7) Before making regulations under this section, the Lord Chancellor shall consult—

1. (a) the designated judges;
2. (b) the General Council of the Bar;
3. (c) the Law Society; and
4. (d) such other bodies as he considers appropriate.

(8) A costs order made in any proceedings may, subject in the case of court proceedings to rules of court, include provision requiring the payment of any amount payable under a litigation funding agreement.

(9) Rules of court may make provision with respect to the assessment of any costs which include fees payable under a litigation funding agreement."").

Lord Falconer of Thoroton

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 65. With the leave of the House I shall speak also to Amendments Nos. 68 to 69A. These amendments seek to facilitate different ways of funding legal services. Amendment No. 65 gives effect to an undertaking given by the noble and learned Lord the Lord Chancellor to the noble Lord, Lord Goodhart, during the passage of the Bill through this House to provide a statutory basis for a third person to fund litigation from a fund financed by additional fees payable in successful cases supported by the fund. The new clause is needed to ensure that such arrangements are properly regulated and that they do not fall foul of the common law doctrine of champerty, which was intended to prevent third parties encouraging legal actions for a share of the proceeds.

Amendment No. 68 seeks to allow organisations that provide legal services to their members to recover what is effectively a self-insurance premium. There are many membership organisations, trade unions and motoring organisations, for example, which provide legal services to their members as a benefit of membership. Members who have a sufficiently strong case may use lawyers retained by the membership organisation at no cost. The organisation also undertakes to indemnify the member against any liability they may incur to meet his or her opponents' costs should the claim be unsuccessful. Membership organisations are nearly always sufficiently large that rather than incurring the cost of commercial insurance premiums (which includes the administrative costs of the insurer and an element of profit) they meet the costs directly in the cases that their members lose. While a membership organisation could take advantage of Clause 29 by taking out an insurance policy for each member assisted—and, if successful, recover the premium in costs from the other side—in practice, this is not a sensible arrangement. As I have already said, most membership organisations can meet the liabilities from their own funds without incurring additional unnecessary costs securing commercial insurance.

Therefore, the new clause inserted by Amendment No. 68 puts in place a scheme by which prescribed bodies who meet prescribed requirements can recover, as part of the costs awarded to a member with a successful case, a sum towards the provision made to protect members against the risk of having to meet opponents' costs. The clause also allows for regulations prescribing the maximum amount that cart be recovered in this way. We intend not to put membership organisations in a preferential position but to allow them to continue to offer their services as effectively as possible. Amendment No. 69 inserts a new clause to allow rules of court regulating costs between the parties to limit the operation of the indemnity principle.

The new clause reflects proposals made by the noble Lords, Lord Kingsland and Lord Phillips of Sudbury. In response, my noble and learned friend the Lord Chancellor said that the indemnity was so central to the existing system of costs that detailed consideration would be necessary. He undertook to carry out a consultation exercise before deciding whether rules of court would be required to retain the beneficial aspects of the indemnity principle.

My noble and learned friend the Lord Chancellor published a consultation paper on this subject in May. It proposes that successful litigants should be able to recover from their opponents all costs actually and reasonably incurred, without imposing the further test of whether they would be legally liable to their lawyers for those costs if they were not recovered from the other side.

Finally, Amendment No. 69A provides a better structure for the Bill. I commend the amendments to the House.

Moved, That the House do agree with the Commons in their Amendment No. 65.—(Lord Falconer of Thoroton.)

Lord Goodhart

My Lords, I am very grateful to the Government for having fulfilled their undertaking to produce a paving amendment for a conditional legal aid fund in the event that it proves practicable to establish one. That issue was discussed fully during earlier consideration of the Bill and I need say no more about it. I am happy to accept the other amendments in the group as they now stand.

On Question, Motion agreed to.