Standing Committee E
Thursday 13 May 1999
(Morning)
[Mr. Bill O'Brien in the Chair]
New clause 38
Litigation funding agreements
`. In the Courts and Legal Services Act 1990, after section 58A (inserted by section 29 above) insert—
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—
(a) the funder must be a person, or person of a description, prescribed by the Lord Chancellor,
(b) the agreement must be in writing,
(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,
(d) the agreement must comply with such requirements (if any) as may be so prescribed,
(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
(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)—
(a) include requirements for the funder to have provided prescribed information to the litigant before the agreement is made; and
(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—
(a) the designated judges;
(b) the General Council of the Bar;
(c) the Law Society; and
(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 taxing of any costs which include fees payable under a litigation funding agreement.''.'. [Mr. Hoon.]
Brought up, and read the First time.
10.30 am
The Minister of State, Lord Chancellor's Department (Mr. Geoffrey Hoon): I beg to move, That the clause be read a Second time.
The new clause gives effect to an undertaking by my right hon. and learned Friend the Lord Chancellor to Lord Goodhart during the passage of the Bill in the other place.
We have discussed in Committee the notion of a contingency legal aid fund—a CLAF—that would offer financial help to individuals on a no-win, no-fee basis. In a successful case the fund would recover, in addition to the costs expended, a success fee to meet the costs of losing cases. At the moment, the Government take the view that, in direct competition with conditional fee arrangements, a CLAF could not be financially viable because of what is known as adverse selection. The best cases would find lawyers willing to offer conditional fee arrangements on better terms than a CLAF would offer to support the case.
I should add that, with a CLAF, lawyers will be paid whether they win, lose or draw. Perhaps not surprisingly, the profession, especially the Bar, has urged us down this route, claiming that a CLAF could be made viable. To demonstrate that we have listened to its views, we are minded to take a reserve power in clause 11(2)(c), to establish a fund along the lines of a CLAF in the event that it could prove to be necessary and workable. We have also said to the profession that if it firmly believes that such a fund could be made to work financially, it should have no difficulty convincing financial institutions to provide the necessary funds to establish and operate it.
On Report in the other place, Lord Goodhart sought an amendment to provide a statutory basis for a third party, such as an insurance company, to agree to fund litigation along the lines of a CLAF. In responding to the amendment, the Lord Chancellor accepted that there would need to be absolute clarity about whether agreements made with such a fund established in the private sector would be lawful. The ancient common law doctrines of champerty and maintenance are intended to prevent third parties who encourage actions by agreeing to finance people from commencing litigation, and sharing in its proceeds, to which they are not party.
It is important that clients funded in that way can still recover their costs from opponents if they are not successful. Except where statute law or the common law as developed by the courts otherwise provides, any agreement for such funding might be liable to challenge and might be struck down by the courts as unlawful and contrary to public policy. The Lord Chancellor therefore undertook that we would consider the terms of the amendment sought by Lord Goodhart and table one of our own. That is what we are doing today.
Proposed new section 58B of the Courts and Legal Services Act 1990 provides a comprehensive scheme by which the Lord Chancellor may authorise a person or body to offer what are described as litigation funding agreements. Subsection (1) provides that any litigation funding agreement that complies with the terms of the section is lawful. Subsection (2) defines a litigation funding agreement and subsection (3) establishes the conditions that apply to such an agreement. Subsection (4) provides powers by regulation to require those offering litigation funding agreements to be approved by the Lord Chancellor or someone prescribed by him.
Subsection (5) sets out certain requirements that the Lord Chancellor may apply to such an agreement by regulations under subsection (3)(d). Subsection (6) provides specific definitions of the terms ``advocacy services'' and ``litigation services'' that are to be used for the purposes of the proposed new section. Those terms are defined differently for other purposes elsewhere in the 1990 Act.
Subsection (7) provides that any regulations under the section shall not be made until the Lord Chancellor has consulted the people or organisations set out in the subsection. We believe that that will be useful to assist the Lord Chancellor before he makes any regulations authorising a person or an organisation to offer litigation funding agreements or to set terms in which such an organisation would operate. It is important that such a fund is established only after proper consultation with those who will be affected by its operation.
Subsection (8) includes provisions similar to those for conditional fee agreements under clause 29, and insurance premiums under clause 30. It will allow the fee charged by the funder to be recoverable from the other side together with other costs in successful cases.
Subsection (9) will allow provision to be made in the rules of court for the scrutiny by the courts of fees under a litigation funding agreement.
Those provisions taken together will provide a proper framework in which appropriate organisations or individuals can establish and operate a mutual fund to assist people to take proceedings. I believe that the new clause meets the aims that Lord Goodhart had in moving an amendment in the other place, and I commend it to the Committee.
Mr. Dominic Grieve (Beaconsfield): I have listened to the Minister with a certain wryness, because the new clause is a golden nugget at the end of this massive Bill. We have discussed parting from the established practices of legal aid and going down a new road, and many of us have serious reservations about the fairness of the new systems that will be introduced. The new clause represents a concession to an argument that has gone on for a long time.
The proposal could constitute the foundation of an alternative system that would have operated far better than the conditional fee agreements that the Minister has spent so much time extolling in Committee. As a principle and as a little golden nugget in the middle of what frankly resembles a large dunghill, I welcome it. However, it is difficult to understand how the proposal will have a constructive impact given that it will be married to a mish-mash of other agreements.
Such matters have been argued over many years. As I said, I have written a pamphlet on the subject, much of which was on this topic. There is clear evidence in other common-law jurisdictions that a contingency legal aid fund can provide legal services for all, but it is accepted that a problem exists with the principle of taking a proportion of someone's winnings to fund subsequent litigation. That important problem has exercised not only the Minister but the previous Lord Chancellor. Having argued that and been told that that problem exists, it is strangely ironic that that principle is now being conceded in the middle of a Bill that will take legal aid funding in a completely different direction.
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