House of Lords debate: government rejects Labour call for six-month Jackson delay

McNally: will keep regulation of funders under close review

The government yesterday rejected Labour calls to delay implementation of the civil justice reforms by six months.

It also refused to move on demands that the 25% cap on the success fee that can be taken from a personal injury claimant’s damages is calculated on the basis of all heads of loss, rather than just past loss.

It came during a relatively short, and scarcely attended, grand committee debate in the House of Lords on the motion to approve the draft Conditional Fee Agreements Order 2013 and Damages-based Agreements Regulations 2013. Having been approved, they will also have to go through the House of Commons.

Labour spokesman and solicitor Lord Beecham – who complained about how little time practitioners would have to prepare for the changes in the draft legislation – said that with all that is happening with civil justice reform, including the uncertainty over portal extension, “one might have thought that it would be sensible to bring all the changes together and to do it at a time which allows the parties and the professions to prepare adequately”.

He added: “I hope that the minister will look again at the timetabling with a view to deferring implementation of whatever regulations finally emerge for six months until October of this year.”

However, justice minister Lord McNally replied: “We are not persuaded that the timescales we have set are unreasonable, and we will not be deferred from the course that we have set… These orders will go through to take account of the fact that LASPO comes into effect on 1 April 2013.”

Both Lord Beecham and Liberal Democrat solicitor peer Lord Phillips of Sudbury cited Lord Justice Jackson’s change of heart over including future loss in the success fee/contingency fee calculation, when he said last year that he could “see the sense” of allowing it “in appropriate cases”.

But Lord McNally said the case for the cap did not rest on it being the judge’s original recommendation. “A sharp-eyed lawyer would say that the noble Lord’s quote about Lord Justice Jackson did not endorse the counterview but simply said that it had merit, which is not the same as advocating that the government change their policy.

“Even if it were, this is the government’s policy. It is the right policy because it protects the future earnings and the future cover for victims in these cases. It remains our policy on that merit, and we are willing to defend it on that basis.”

Lord Beecham raised a range of other questions and criticisms of what he described as “a pretty defective-looking set of regulations”.

Among them was a bid to exclude VAT on the success fee from the cap. But Lord McNally said including VAT “will provide further protection for the claimant’s damages and add certainty for the claimant as to the likely deduction from their damages”.

The Labour peer also focused on third-party litigation funding, and expressed concern about “a kind of hedge fund for legal claims” having control of cases. He said: “I understand that 25 funders are already established in the UK for damages-based agreements, of which only nine have signed up to their own self-regulated Association of Litigation Funders. They are not even joining their own association, let alone being responsible to any independent and impartial organisation to oversee their work.

“Again, I invite the minister to reconsider whether there should be such a system of regulation. There is apparently around £1bn already held by organisations in the UK to fund these arrangements. Some of them, interestingly, are apparently based offshore – a sort of Starbucks of the damages-based agreement world. One can only imagine where any profits will ultimately go.”

During the passage of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, the government rejected moves to introduce statutory regulation of litigation funders in favour of giving self-regulation a chance. Both Lord Beecham and Lord McNally yesterday mentioned that they had had meetings with the US Chamber of Commerce, which has lobbied hard in the UK for statutory regulation.

Lord McNally said: “What we have decided so far is to keep the matter under review. That phrase can often hide weasel words and weasel intent, but we want to see just how much this is going to become a factor in our legal system, while making sure that some of the warning signs that the noble Lord has quite legitimately raised are on the radar of ministers as well. We will keep this matter closely under review.”

The only other speaker was Liberal Democrat barrister Lord Marks of Henley-on-Thames, who asked whether DBAs would be available to defendants. While under the regulations they will not, Lord McNally saidhe would give the matter “further thought”.