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Reforming Civil Justice

Volume 526: debated on Tuesday 29 March 2011

With permission, Mr Speaker, I wish to make a statement. I have today laid before Parliament two documents—the Government’s response to our recent consultation on Lord Justice Jackson’s recommendations for reforming no win, no fee arrangements, and a fresh consultation document on proposals further to overhaul the civil justice system. Copies of both documents will be available in the Vote Office and on the Ministry of Justice website. I hope to bring forward legislation on the Jackson reforms as soon as parliamentary time allows.

To many people in this country, the prospect of legal action is an expensive, daunting nightmare. One of the worst features of our compensation culture is that our justice system has increasingly become closed to vast rafts of the ordinary public by legal costs out of all proportion to the dispute or the claim. The proposals that I am announcing today will, I hope, begin to restore proportion and confidence in our system of justice, for both claimants and defendants.

First, following careful consideration of the consultation responses, I have decided to reform no win, no fee arrangements to stop the perverse situation in which fear of excess costs sometimes forces defendants to settle, even when they know they are in the right.

I can therefore announce that the Government will seek legislation to return the no win, no fee system to the first principles on which it was set up. We plan to end the recoverability of success fees and insurance premiums that drive legal costs; to award claimants a 10% uplift in general damages where they have suffered loss; and to ensure that they take an interest in controlling the bills being run up on their behalf by expecting them to pay their own lawyers’ success fee. We will also bring forward our plans to encourage parties to make and accept reasonable offers, to protect the majority of personal injury claimants from paying a winning defendant’s costs, and to allow claimants to recover the cost of expert reports in clinical negligence cases.

I am also publishing a consultation paper that I believe paves the way for the more efficient and effective delivery of civil justice after 15 years of stagnation. The current system is slow, stressful and expensive, and change is long overdue. My aim is to help people to avoid court wherever possible, while reducing costs where that is unavoidable. We are proposing that small-value cases should automatically be referred to mediation so that many people are able to avoid the experience of court entirely; and that the maximum value for small claims be raised from £5,000 to £15,000 to enable more cases to be heard through the simple small claims process rather than a more costly, complicated trial.

We are also proposing: to increase the value below which claims cannot be brought in the High Court to £100,000 so that the county court jurisdiction is extended and the High Court is reserved for only genuinely complex or high-value cases; new measures that will improve the ability of courts to tackle those who evade payment of their debts even though they have the means to do so, while ensuring that those who cannot pay continue to be protected, for example by setting a minimum level of consumer debt at which property could be put at risk for non-payment; and the extension of a successful online system to cut waiting times and legal expenses in personal injury cases, as recommended by my noble Friend Lord Young of Graffham.

We have a duty to deliver a civil justice system that is more equitable, accessible and just. Resorting to the law need not be the long, drawn-out and expensive nightmare that so many people experience today, but could become a sensible and affordable way of resolving disputes in a proportionate manner. I believe these reforms, on which we are now consulting, will help to restore those fundamental values of proportion and fairness in our civil justice system, and I commend this statement to the House.

I thank the Secretary of State for his usual courtesies and advance sight of his statement, which, on face value, is difficult to disagree with. We accept that the issue of costs in civil proceedings is worth investigating, and did so in government. I note that my right hon. Friend the Member for Blackburn (Mr Straw) is in his place. Those suffering injury through the negligence of public and private bodies who cannot afford to fund actions privately must have recourse to the civil justice system. There is a fear, however, that these plans go so far in trying to keep down costs that some claimants with meritorious cases will find it difficult, if not impossible, to find a lawyer to take on their case.

I am afraid that the devil will be in the detail of today’s announcement. I have a number of questions for the Justice Secretary that I hope will tease out some of the detail. He referred to the Lord Justice Jackson report to justify his announcement. However, has he taken into account Lord Justice Jackson’s view that his proposals are a package and should not be subject to cherry-picking, and will he take into account Lord Justice Jackson’s desire to retain civil legal aid for criminal negligence and housing cases currently under threat from the Government?

The Justice Secretary proposes that claimants’ solicitors will be able to recover up to 25% of their costs from the damages that a claimant recovers. He will be aware that the increase in compensation from defendants to claimants will be only 10%, not 25%, and will apply only to general damages, not to total damages. Why should someone who has suffered the trauma of an injury at work be told that the money they have justly received as compensation will go to their lawyer?

Has the Justice Secretary had a chance to assess the road traffic accident portal scheme, which was introduced by the last Government to reduce costs? The scheme uses fixed fees and efficient processing to limit costs, and came into force in March last year. Does he accept that it has reduced costs by half in 75% of personal injury cases? Does he agree that expanding the scheme to personal injury claims would save costs?

The Government have said that one aim of the reform is to reduce the costs that defendants have to pay. Many defendants are insurance companies. In light of that, can the Justice Secretary say what reductions he expects in insurance premiums? Can he confirm whether an impact assessment has been conducted on how the changes affect access to justice, cost to defendants and reductions to insurance premiums? Is he concerned that, although there will be limitations on a claimant’s ability to bring a case and the costs incurred by their solicitors, there will be no such controls on a defendant in defending a case, raising concerns about the inequality between the two sides?

Finally, a fundamental principle of our justice system is proper access to justice. I agree with the previous Government, who agreed with senior judges such as the Lord Chief Justice, Lord Judge, as well as Lord Justice Jackson and others, that the costs of civil litigation were sometimes excessive. We would all like the costs of litigation to be reduced and alternatives to it found wherever possible, but the effect of the proposals could be to restrict access to justice, particularly for those who do not have their own means of funding. It will be on this key issue that we will hold the Government’s actions to account.

I welcome the right hon. Gentleman’s agreement with me on the importance of tackling cost. He has focused principally on the conclusions that I have announced today of the Government’s consideration of the consultation on Rupert Jackson’s proposals, which I accept were initiated by my predecessor, the right hon. Member for Blackburn (Mr Straw), under the previous Government. We are trying to get the cost of litigation down.

The right hon. Gentleman talks about access to claims. We are going back to no win, no fee arrangements of the kind that existed when they were first set up by my noble Friend Lord Mackay in the mid-1990s. It was the changes made at the turn of the century that led to the cost escalating to such an extraordinary extent. Among other things, in many cases the legal fees paid by a losing defendant now far exceed the damages paid to the claimant. Indeed, it can be an extremely profitable area of practice if people have some successes. We will keep no win, no fee on the basis of the kind of arrangements we used to have—the kind that are familiar in most jurisdictions. The arrangements that we are proposing to sweep away are unparalleled in any other country and are making litigation too expensive for those faced with it.

The right hon. Gentleman then asked about the cost that can be borne by the plaintiff out of his damages. As he quite rightly said, the 10% enhancement to the level of damages that can be awarded is designed to help plaintiffs and claimants, but it will be confined to general damages, otherwise the figure could be astronomical in some cases. However, the costs that can be recovered—the success fee or bonus paid to a solicitor who has won a case—will be limited to 25%, so they will be kept in proportion.

The right hon. Gentleman mentioned the road traffic accident portal scheme, which has certainly speeded up and helped many personal injury cases. We are indeed proposing to extend the scheme to other personal injury cases, as he suggested.

The right hon. Gentleman asked me what would happen to insurance premiums. The answer, of course, is in the hands of the insurance industry and the competitive market in which it works. We all think, “Oh well, it doesn’t matter: it’s only the insurance company that is paying colossal legal fees”—on top of damages—“in no win, no fee cases,” but that could be one explanation for why car insurance costs have leapt to such an extraordinary extent in this country. I hope to see insurance premiums come down.

Impact assessments were produced at an earlier stage, after Sir Rupert had received wide representations from all sides. We have taken quite a long time getting to this point, and we are pretty clear on what the impact will be. On balance, I think it will be highly desirable. [Interruption.] I cannot read my notes on the last question that the right hon. Gentleman asked.

Yes, the right hon. Gentleman raised an important point about clinical negligence cases, which can be very expensive to start. We are therefore making an exception in regard to the non-recoverability of insurance premiums. We will allow the recoverability of such premiums when they are used to cover the cost of expert evidence in clinical negligence cases. We are, however, working with the NHS Litigation Authority with a view to getting the NHS and other defendants to co-operate with claimants to produce joint medical reports. That should narrow the dispute and cut the costs for all parties, making justice more easily attained.

Order. I emphasised yesterday and I repeat today that, in accordance with long-established convention, Members who came into the Chamber after the Secretary of State started his statement should not expect to be called.

Given the Lord Chancellor’s characteristic willingness to take what in “Yes, Minister” would have been called “courageous decisions” about success fees, insurance fees, after-the-event insurance and the scope of the small claims courts, will he tell us what he thinks about referral fees and claims farming, which are probably major contributors to the compensation and litigation culture?

The Legal Services Board is looking into that whole area. My right hon. Friend Lord Young of Graffham has referred to this as well, and it is an important area that we should look at. We are all in favour of no win, no fee; it has been introduced and no one is ever going to get rid of it, but a rather extraordinary form of practice has now developed at the margins. Claims advisers advertise for people who have had an accident to bring a claim; we see their advertisements on the backs of buses. They pay people to give them their claim if it looks good, and they then sell the claim to a solicitor. Solicitors may then trade the claims between themselves, before bringing a no win, no fee action. If they are successful, they get very high costs and a kind of bonus, called a success fee, on top. That is what makes these actions so expensive. I understand why, in response to consultation, some people defended that system vigorously, but I believe that the whole thing needs examining from beginning to end. As Sir Rupert Jackson’s report made clear, this explains why the whole process has become so frighteningly expensive for so many litigants.

May I add to the broad welcome from my Front Bench for the decisions that the Secretary of State has announced today? I also add my thanks, as I am sure he does, for the extraordinary work of Sir Rupert Jackson, which underpins them. I should like to pick up on the point raised by the right hon. Member for Berwick-upon-Tweed (Sir Alan Beith). Is the Secretary of State aware that, in my constituency and in many others across the north-west, car insurance premiums for decent, honest drivers with impeccable records have rocketed, despite the fact that the number of accidents and thefts from vehicles has gone down? That is because of the work of those parasitic claims management companies and because the insurance companies, who are complaining about the costs, are themselves guilty of selling on personal data, including the facts relating to a claim, to those companies, often without the agreement of the insured person. Does the Secretary of State agree that we need to close down those claims companies altogether? They are parasites milking the system. I apologise for coming late to this decision; I should have taken it when I was in his seat. Does he also agree that we should use data protection legislation to ban insurance companies from selling on personal data?

When I took over the right hon. Gentleman’s desk and chair about 11 months ago, one of the first things I picked up was the Jackson report, which he had commissioned. As he says, it was on his desk, but he had not had time to implement it. I was immediately attracted by its approach to cutting costs, so I am glad that he and I continue to agree on that. I am astonished to hear his description of insurance companies selling claims, although I have come across it. They do not all do it, but this just adds gloss to the strange way in which this has all developed. I am also struck by the huge cost of these practices for institutions such as the national health service, which, in a bad year, can spend about £400 million—little short of half a billion—on legal fees. In many areas of practice, the legal fees are the biggest bill for the defendant. They often exceed the amount of compensation paid to the claimant. The right hon. Gentleman was obviously anxious to reform the system, and I am anxious to do so as well. I am glad to have taken up the baton.

Is my right hon. and learned Friend aware that the Culture, Media and Sport Select Committee received considerable evidence that the massive increase in the cost of libel actions that can result from the use of conditional fee arrangements is having a seriously chilling effect on investigative journalism? Does he accept that the measures he has announced this afternoon are in some ways even more important for sustaining investigative journalism and scientific debate than the measures contained in his draft Defamation Bill?

I think that is right. This will have a big impact on defamation cases where people threaten the publisher of something they do not like with enormous costs if they want to defend the action. This is having, to use the jargon phrase, “a chilling effect” not only on scientific and academic work, but on proper investigative journalism. When we put the draft Defamation Bill together with what we are proposing to do in the light of Rupert Jackson’s proposals, the way in which we are setting up no win, no fee generally and the announcements I have made about the jurisdiction of the courts, I think we will make a significant impact on lowering the costs of all this litigation to the advantage of plaintiffs who have a legitimate grievance and of defendants. We are going to stop the whole thing being a high roller’s gamble, which is what it is at the moment, as to whether the other side dare face the risks of the huge costs being piled up the moment a claim is brought.

Whilst welcoming anything that will reduce the unnecessary costs to lawyers and others, will the Justice Secretary give a reasonable guarantee to constituents like my own, who are generally among the poorest people in Britain, that they will still be able to find legal assistance? The obvious problem with the 25% rule is that it might drive people below the threshold at which lawyers would be prepared to take the cases on. Will anything in the proposals deter people from obtaining proper expert evidence when that is necessary for them to fight their claim?

I think that people will think twice, as it were. At the moment, they are lured into making a claim by an advertisement on the back of a bus or in some local office. There are many people with perfectly legitimate personal injuries claims and the method I would wish them to pursue is to go to a solicitor who will consider the reasonable prospects of success and take it on on a no win, no fee basis—on the sort of terms that were always envisaged when we introduced the system into this country in the 1990s. People will have to think more carefully; there will be fewer purely speculative actions; and there will be fewer actions brought in the hope that the size of the legal costs is so great that the other side might be bullied into making an offer of settlement, regardless of their chance of success. I hope, however, that legitimate claims will prosper under a no win, no fee system, which is much closer to the lower-cost systems that other jurisdictions operate.

Thanks to the blame culture that developed under the last Government, one school in my constituency deemed it necessary to concrete over a very shallow paddling pool, in case a child had an accident and the school were sued. Another school considered cutting down all its trees in case children were to fall out of them, injuring themselves so that the school might be sued. I hope today’s statement will be the start of a fresh approach to this compensation culture.

I feel strongly, as does my hon. Friend, that we have an unacceptable compensation culture in this country. Like him, I notice it in my daily life. I think that doctors, teachers, policemen and most professional people are constantly concerned about the possible risk of litigation when they do perfectly ordinary things in the course of their daily lives. I dare say that the kind of submissions coming to Ministers are, in comparison with when I first received them, now so full of concerns about judicial review, the Human Rights Act and other legal constraints on what can be done that we are getting further and further away from common sense whereby people can exercise their judgment and, of course, be accountable to the law when they are at risk of breaking it—but only when they are at risk of breaking sensible law and might face litigation at reasonable cost.

I think that what the Lord Chancellor has said today has cross-party support. May I take him back to his comments about mediation? Is he suggesting that there should be mandatory mediation for very small claims? If he is, we have a problem with the number of qualified mediators. Will he look at this issue because it is all very well referring these cases, but we need the mediators to be able to deal with them?

We will make mediation an automatic part of the process if the result of the consultation supports such a move. Of course there will be cases that mediation will not resolve, and in those cases people will undoubtedly have the right to go to court. In the small claims courts we are already seeing a rapid extension of very successful mediation, often by means of telephone conference, which is resolving the smaller disputes.

As for the county court, following our extension of its jurisdiction, we will expect people to go along and be introduced to the prospect of mediation. We are consulting on the kind of people who will be required to conduct mediation sensibly, because, as the right hon. Gentleman says, a certain amount of skill and experience will be required for the process to produce the right results.

Has the Secretary of State had time to consider the possible implications for the overall number of county courts of the proposal to rationalise the county court by, for instance, allowing back-office functions to be combined?

We have just completed a consultation on our estate, and we have announced the closure of a number of courts. We aim to reduce back-office costs and the unnecessary expense that flows from different jurisdictions. Obviously we keep the proper usage of our estate under continuous review, but I do not expect the proposal to have any significant effect on the future of the courts that survived the consultation that we carried out a few months ago.

I accept the need for rationalisation of the jurisdictions of the county courts and High Courts. I also accept that, ultimately, mediation will be a good thing. However, evidence from the Access To Justice Action Group provides numerous instances in which poor people will be excluded altogether following the change in the no win, no fee arrangements, and I am desperately worried about that. The evidence contains no special pleading. It is excellent evidence, and I ask the Ministry to re-examine it in due course. If something is not done, this will prove to be a benefit match for the insurance companies only.

We considered very carefully the large number of responses to the consultation document, many of which opposed changes based on Sir Rupert’s proposals. Most of them came from plaintiff solicitors, but I do not dismiss them on that ground, because I share with those solicitors an interest in proper access to justice. We considered whether modified no win, no fee arrangements could be justified in that context.

There are two questions to be asked: have we affected people’s access to justice, and have we affected the profitability of practices that engage in no win, no fee with a reasonable level of success? Most of the responses that we received dealt with much more complicated questions, but I believe that we have retained proper access to justice while lowering the costs—and therefore, unfortunately in some cases, the profit margins—to more reasonable levels.

Some of us spend a large part of our professional lives trying to persuade litigants to accept reasonable offers. It is often difficult to explain to them what is a realistic quantum of damages in personal injury cases. Surely, with all the technology of the 21st century, it must be possible to devise a public website that could be updated with whatever decisions the Court of Appeal, the Supreme Court, the High Court and other courts have made in personal injury cases. That would provide a much more accessible and transparent explanation of the quantum in such cases at any given time, enabling litigants to assess the probability of a successful claim and the level of damages that they were likely to receive.

If my hon. Friend looks at our proposals, he will see that we intend to provide greater incentives for the settlement of cases. We also intend to impose cost penalties—beyond those that already exist—on those who either refuse good offers or do not meet the reasonable first demands of their opponents, but settlement is always preferable when it is possible.

I think I shall have to discuss with the judiciary the question of whether wider circulation could be given to recent awards of damages. However, I agree that in this day and age it ought to be possible to move on a little from the old days when gossip among members of the Bar about what they considered to be the current tariff for a particular injury was the best way of spreading knowledge about the direction in which the figures were moving. I will discuss my hon. Friend’s proposal with the Lord Chief Justice and others.

The Secretary of State will know the situation facing families with household savings of less than £15,000, and that families with savings of over £16,000 are ineligible for benefits. Does he not think that raising the bar for access to justice through the small courts from £5,000 to £15,000 may be seen as rough justice for the many poorer families who might want a proper hearing for their case? It will have a massive impact on their household budget, and a much greater one than a larger amount for a richer family.

This has sometimes been looked at, hence it has been possible to raise these levels by quite large amounts as they have not kept in line with inflation for the last 15 years. What we are doing in respect of the small claims courts should be of assistance to people of low means, because the small claims courts have been quite successful as a reasonably informal, very low-cost way of resolving simple disputes or collecting straightforward debts which people cannot recover from those who owe them. It is right to extend that jurisdiction so that people are not faced with the daunting prospect of appearing before a judge in a formal court setting, and possibly having a lawyer on the other side and so forth, which comes at the next stage up, at county court.

On the small claims courts, it is interesting that we are increasing the limit from £5,000 to £15,000. Will personal injury cases now be included, and will the recovery of legal fees be precluded in all cases up to £15,000?

We are only consulting, so we are open to arguments about whether or not £15,000 is the right figure; we might put it up further, or we might be persuaded to take it down. I personally think that extending the small claims court jurisdiction is a very desirable thing to do, but it will not be extended to personal injury cases, because the small claims court is intended for quick and easy disposal of fairly straightforward cases. Too many personal injury cases would clog up the system which is meant to be quick and relatively informal and for straightforward disputes.

Can the Justice Secretary assure the House that all the proposed changes will safeguard the innocent, protect the vulnerable and ensure that access to justice remains the cornerstone of our society?

Well, I hope I can answer yes to all those questions. We are talking about civil jurisdiction here; there is no criminal jurisdiction. I think civil justice should be quick, efficient and accessible to most members of society. As the hon. Gentleman will know, most ordinary people regard any question of being muddled up with litigation, or having to go to court, with mortal dread. Middle England—or middle Ireland—feels itself completely excluded from a civil justice system that exists for the very poor, the very rich or the big corporations. We are, I hope, moving in the direction of enabling the ordinary citizen to make some use of the civil justice system again, and without quite as much fear as most people have of it at the moment.

Although I think there will be a general welcome for the 10% uplift in general damages, which should help to cover the payment out of success fees by claimants, does my right hon. and learned Friend agree that in a small number of cases where special damages form the lion’s share of an award, there is still a live issue as to the potential erosion of the value of the damages awarded by the payment out of success fees to lawyers?

The cap of the success fee—which is a kind of bonus to a winning lawyer who has taken a no win, no fee case—will not be applied to special damages. As my hon. Friend rightly says, special damages can be enormous, such as in cases where the plaintiff has been disabled for life, and if the so-called success fee—the bonus—is taken as a percentage of that, it could be colossal, even though the size of the award might not reflect the complexity and difficulty of the case, but just the fact that the plaintiff was very severely injured. We are increasing damages by 10% of general damages, and we are capping the success fee that the plaintiff will have to meet at 25% of the general damages. Special damages will not be affected.

Can the Secretary of State confirm that the online road traffic accident scheme will be expanded to cover employers’ liability, public liability and personal injury claims up to the value of £50,000?

Yes, I would like to see that, we are consulting on that and I would be interested to hear my hon. Friend’s views. It has worked very well in the road traffic accident cases and we are therefore seeking to extend it, in line with his question.

The tentacles of the compensation culture have wrapped themselves around British life for far too long, and I congratulate the Secretary of State on his proposals. Local authorities and public bodies face paying out more and more, so does he see his proposals as the first step towards a semblance of normality in this area?

I hope so. Let me make it clear that I am in favour of people who have suffered injury because of the fault or negligence of somebody else receiving proper compensation. In all those cases, people should have access to the courts and the right to have their case argued in the normal way, but what has happened is that this has become a widely publicised, rather commercial activity, which is having a considerable effect on the way in which many people lead their ordinary day-to-day lives. Let us go back to a sensible system of civil justice which does proper justice to both the claimants and the defendants, and get away from this rather extraordinary way we live at the moment, whereby huge sums can be made, mainly in legal costs rather than in damages, by bringing speculative claims against defendants who cannot afford to defend them.

As those of us still practising can tell my right hon. and learned Friend, the costs associated with civil litigation are of just as much concern in higher value claims as they are in lower value claims, particularly to British businesses which need their rights adjudicated upon. In many jurisdictions, including some in the United States, mediation is compulsory in all civil cases. Will he consider ensuring that that is the position in England and Wales as well?

I will certainly consider that, and I am interested to hear about my hon. and learned Friend’s knowledge of the American experience. We are certainly seeking to extend mediation considerably, and we are consulting to see how far we can go in getting people to contemplate mediation before deciding which cases cannot be resolved that way and so have to go to ordinary litigation. I am glad that he welcomes that; we certainly wish to see a considerable extension of mediation and we will go as far as is sensible.

I declare my interest as a family lawyer.

Constituents involved in these proceedings are often frustrated about the length of the court process. They can be involved for a long time only for the case to be settled at the door of the court. Will my right hon. and learned Friend set out the steps being taken to case-manage matters at the earliest opportunity?

The new portal process should significantly speed up a very high proportion of cases. We will certainly continue to address the real point that my hon. Friend makes as we go on to consult. Quite apart from the dread of the cost, the main experience members of the public have of the courts, be they criminal or civil, is the astonishing amount of time they are likely to waste in abortive visits during a slow-moving process. They will often have to attend the court building needlessly on occasions when the court is adjourned before they can get to be a party, a witness, a juror and so on. I therefore appreciate the spirit of my hon. Friend’s question and we are certainly seeking to address it in this consultation process.