Memorandum submitted by the Law Commission
SUMMARY OF
THE LAW
COMMISSION'S
RESPONSE TO
THE INQUIRY:
THEMES AND
TRENDS IN
REGULATORY REFORM
1.1 The Law Commission was established by
the Law Commissions Act 1965. The Law Commission has a statutory
duty to keep the law as a whole, both statute and common law,
under review.
1.2 Taking into account the link between
the principles of regulation under the Legislative and Regulatory
Reform Act 2006 and the Law Commission's statutory objectives,
the Law Commission feels able to contribute to the discussion
on two of the points being considered by the Inquiry, namely:
(1) How could the Government improve its capability
to regulate in a proportionate and effective manner? (Consideration
1, Question 4)
(2) Is there sufficient consideration of how
regulations will be implemented, including an appropriate focus
on compliance and enforcement issues? (Consideration 2, Question
2)
1.3 The Law Commission includes in its response
to these questions examples drawn from recently completed or ongoing
projects. What it draws from these examples is that the regulation
of particular areas of human activity needs to consider the detailed
circumstances of the specific situation, and develop a solution
that is fair, proportionate and effective in those circumstances.
1.4 In expanding on this general conclusion,
the Law Commission highlights the following features of its working
methodology that help it to achieve its goals:
(1) key to the Law Commission's development of
law reform proposals is its commitment to wide-ranging and informative
consultation;
(2) the Law Commission's development of policy
in relation to its law reform projects must be, and is, informed
by Government policy;
(3) law reform should be proportionate and sensitive
to the particularities of the specific area of human activity,
always seeking the least intrusive means of achieving a project's
objectives; and
(4) even where recourse to legislation is deemed
necessary, this should impose the lowest possible regulatory burden
upon those affected by it.
RESPONSE TO
THE REGULATORY
REFORM COMMITTEE
INQUIRY: THEMES
AND TRENDS
IN REGULATORY
REFORM
INTRODUCTION
1.1 The Law Commission was established by
the Law Commissions Act 1965. The Law Commission has a statutory
duty to keep the law as a whole, both statute and common law,
under review. This is with a view to law reform under the general
principles set out in the first part of section 3(1) of the Law
Commissions Act 1965. This states that:
It shall be the duty of each of the Commissions
to take and keep under review all the law with which they are
respectively concerned with a view to its systematic development
and reform, including in particular the codification of such law,
the elimination of anomalies, the repeal of obsolete and unnecessary
enactments, the reduction of the number of separate enactments
and generally the simplification and modernisation of the law…
1.2 Since the establishment of the Law Commission
in 1965, about 90 Acts of Parliament have contained Law Commission
recommendations. These have encompassed a wide range of civil
and criminal law. The Law Commission's reports on statute law
repeals have led to the repeal of more than 2000 Acts in
their entirety and the partial repeal of several thousand other
Acts. In addition, 220 consolidation statutes have been passed,
many, though not all, prepared by the Law Commission. Of these,
a significant number have included amendments of the law to give
effect to Law Commission recommendations.
1.3 Following the entry into force of the
Legislative and Regulatory Reform Act 2006, intervention into
areas of economic activity is now subject to sections 1 to
3 of that Act. These sections set out general principles
for the regulation of economic activity.
1.4 In accordance with sections 1 to
3 of the Legislative and Regulatory Reform Act 2006, where
regulation is necessary, it should be:
1.5 It can be seen that the principles of
the Legislative and Regulatory Reform Act 2006 resonate strongly
with the objectives that the Law Commission must seek to achieve
under the Law Commissions Act 1965.
1.6 The Regulatory Reform Committee Inquiry
requested that the Law Commission contribute to its Inquiry by
a letter of 9 February 2009. As explained below, the Law
Commission conducts extensive consultation as part of the discharge
of its statutory duty. As a general rule, the Law Commission does
not participate, as a consultee, in investigations or inquiries
conducted by other bodies, whether in the public or private sector,
for such participation would lie outside its statutory remit.
1.7 However, in relation to the Regulatory
Reform Committee Inquiry, the Law Commission, taking into account
the link between the principles of regulation and the Law Commission's
statutory objectives, is able to contribute to the discussion
on two of the points being considered by the Inquiry, namely:
(1) How could the Government improve its capability
to regulate in a proportionate and effective manner? (Consideration
1, Question 4)
(2) Is there sufficient consideration of how
regulations will be implemented, including an appropriate focus
on compliance and enforcement issues? (Consideration 2, Question
2)
1.8 At this point, it is helpful to explain
the Law Commission's working methods, before turning to answer
the two specific questions by reference to evidence drawn from
recent and current reform projects.
THE LAW
COMMISSION'S
WORKING METHODS
1.9 The Law Commission comprises a Chairman
and four other Commissioners appointed by the Lord Chancellor.
Under section 1A of the Law Commissions Act 1965, the Chairman
must be a judge of either the High Court or the Court of Appeal
in England and Wales. The current Chairman is a judge in the Court
of Appeal. The Law Commission is staffed by civil servants, drawn
mainly from the Government Legal Service.
1.10 The Law Commission undertakes projects
as set out in its three-year programmes of law reform. These programmes
are approved by the Lord Chancellor and laid before Parliament.
Currently the Law Commission is engaged on the tenth programme
of law reform. The Law Commission consults widely when drawing
up a proposed programme of law reform. The Law Commission can
also take on individual projects referred to it by central government
departments outside of these programmes.
1.11 The Law Commission is independent as
to the conclusions it draws and the recommendations it makes in
relation to individual projects.
1.12 The Law Commission is split into four
subject-based teams. Law Commission projects are allocated to
the most relevant team. The teams are: Commercial and Common Law;
Criminal Law; Property, Family and Trusts Law; and, Public Law.
1.13 There is also a team dedicated to Statute
Law Repeals, which works across all areas of statute law and proposes
the repeal of obsolete statutes. Finally, the Parliamentary Counsel
seconded to the Law Commission undertake not only the drafting
of the Bills annexed to Law Commission reports, but also—with
others engaged for the purpose—the Law Commission's work
on consolidation of statutes. Consolidations which the Law Commission
considers desirable are undertaken when resources and the necessary
support of the relevant Department permit.
1.14 The Law Commission is a non-departmental
public body sponsored by the Ministry of Justice. Nowadays, in
practice, the Law Commission undertakes a project only with the
support of the relevant central government department.
1.15 Where the Law Commission takes on a
law reform project, the normal timeline for such a project is
in the region of three years, although some projects may take
less time. This is usually broken up into four key stages:
(1) investigation and analysis of legal framework;
(2) Consultation Paper with provisional proposals—including
initial Impact Assessment;
(3) analysis of Consultation Paper responses
and determination of policy; and
(4) Final Report—including final Impact
Assessment—and, where appropriate, a draft Bill.
1.16 These stages are sometimes preceded
by Scoping Papers, which frame a project and seek to inform debate
on the topics contained within an ongoing project and Issues Papers
which draw stakeholders' attention to particular areas of concern.
1.17 In undertaking these stages, the Law
Commission engages in a wide range of consultative techniques.
Prior to general consultation with the public, this includes the
convening of expert groups to assist in the development of a project.
Public consultation is not confined to the seeking of written
responses, it also includes the organisation of expert seminars
and the giving of both public and private lectures. Furthermore,
where the Law Commission has had occasion to reformulate its proposals
significantly on the basis of consultation responses, it will
undertake a further round of consultation.
1.18 The Law Commission sees consultation
as a core part of a project's development and vital to the achievement
of a project's goals. The Law Commission takes pride in the fact
that its reports are informed by contributions from those with
the widest expertise and experience in the relevant area under
scrutiny. The Law Commission is a signatory to the Government's
Code of Practice on Consultation, though it believes that its
actual practice goes further than the requirements of the Code.
1.19 The Law Commission uses socio-legal
and other research techniques where these are thought necessary.
The Law Commission also, where appropriate, takes account of the
solutions adopted in other countries having similar traditions
and values to the UK.
1.20 The Law Commission now uses the Impact
Assessment process throughout the development of its law reform
proposals. To facilitate the best use of this process, the Law
Commission employs dedicated in-house economists.
THE LAW
COMMISSION AND
REGULATORY REFORM
1.21 The general principles of law reform
contained in section 3(1) of the Law Commissions Act 1965 above
match, in many significant ways, the general principles for regulatory
reform set out above.
1.22 In particular, the role of simplified
law, which may include consolidation, can both streamline regulatory
burdens and ensure that those on whom the law places obligations
find it easier to follow those obligations. Simplified law also
increases transparency and accountability, which is consistent
with the goals of regulation set out above.
1.23 Modernisation should include updating
the law to take into account changing regulatory priorities. Modernisation
also includes the promotion of what may be termed "soft law"
approaches—that is, using guidance or codes of practice
rather than legislation—where that is thought most appropriate.
1.24 Now that Impact Assessments are required
in all policy fields, the core principles of regulatory reform
have a much wider reach and are important to all areas of law
reform.
1.25 In an effort to aid the Committee in
its inquiry, the Law Commission presents the following examples.
Some broad conclusions are then drawn from these examples. Specifically
the following recently completed or ongoing projects are referred
to:
(2) housing: Encouraging Responsible Letting;
(4) Trustee Exemption Clauses; and
(5) termination of tenancies.
1.26 At present there are no formal Government
responses to the completed projects, namely: (1); (2); (4); and,
(5). It is worth noting though that (4) needed no Government intervention
as those affected adopted the recommendations through self-regulation.
1.27 These are only a small part of the
wide range of projects that we have undertaken recently. However,
they demonstrate how the Law Commission seeks to reform the law
in a way that makes it clearer and simpler, but which at the same
time seeks to strike a fair and proportionate balance between
individual interests and the cost burden that such reform is expected
to impose.
EXAMPLES
Renting Homes
1.28 This project was referred to the Law
Commission by the Minister for Housing in 2001. In the Consultation
Papers published in 2002,[21]
the Law Commission identified that the law was complicated, unclear
and did not properly address the interests of those involved in
the sector. This was caused by the way in which the legal regime
had developed, the multiplicity of tenancy types and the interests
that the regime sought to protect.
1.29 In the project's first Report, the
Law Commission recommended a simple system of secure and standard
contracts, in place of the existing multiplicity of tenancy and
licence types.[22]
1.30 The Report suggested that landlords
and occupiers would benefit from:
(1) Government approved model contracts to make
private renting easier, cheaper and more flexible;
(2) a consumer protection approach to the provision
of rented housing; and
(3) a clear and practical legal framework for
supported housing, which provides accommodation for people with
drink, drug or mental health problems, women's refuges, etc.
1.31 Such an approach has been widely welcomed
by private landlords. In 2006, the Law Commission published a
Final Report in two volumes that contained a draft Bill.[23]
Housing: Encouraging Responsible Letting
1.32 This project was specifically concerned
with the regulation of the private rented sector.
1.33 Our analysis of the current law found
that the law in this area was overly complicated, not used effectively
and did not accord to modern regulatory preferences.
1.34 In our Consultation Paper of 2007,[24]
which was informed by a "smart" regulatory perspective,
the Law Commission proposed that that all private landlords should
either join a local authority accreditation scheme, become a member
of one of the associations of private landlords, or let their
premises through an accredited letting agent. The Consultation
Paper also proposed that the Government set up a central regulator
with powers to approve industry schemes and to ensure that they
worked effectively. Included in this regulator's powers would
be a power of last resort to prevent an unaccredited landlord
or agent from letting residential property.
1.35 In the light of consultation and after
further consideration, the Final Report took a more nuanced and
proportionate approach, recommending a system of progressive and
varied regulation that took into account the difficulties in regulating
such a complex market.[25]
1.36 The Final Report concluded that meeting
the regulatory demands of the residential lettings market required
a change in approach to existing legal obligations, rather than
the creation of new ones. It stated that any costs of regulatory
compliance should be both reasonable and proportionate.
1.37 Consequently, the Final Report recommended
that there should be a staged programme of reform, starting with
a system of voluntary self-regulation. However, in order achieve
a change of culture in the residential lettings market, the Report
stated that it may ultimately be necessary to impose a compulsory
system of self-regulation.
1.38 This is a good example of how a multifaceted
and soft law approach may be the most appropriate way of regulating
a complicated area of human activity which contains a wide range
of different actors.
Consumer Remedies
1.39 This ongoing project, which is joint
with the Scottish Law Commission, aims to report "on the
reform and simplification of remedies available to consumers relating
to the sale and supply of goods". The project was recommended
in 2005 by the Davidson Review, set up by the then Chancellor
of the Exchequer.
1.40 Although consumer protection is vital
to consumer confidence, it can impose a significant administrative
burden on business. In all, the cost of government regulation
has been estimated to be between £1.4 billion and £4.2 billion
per year.[26]
Administrative burdens created by consumer law alone have been
estimated at around £1.25 billion a year, of which £770 million
is taken up by external costs and overheads.[27]
With such large figures, even comparably minor improvements can
lead to significantly lower overheads for the business world.
1.41 Five factors were identified by the
Better Regulation Executive as important in relation to regulatory
burdens:[28]
(1) the volume and complexity of regulations;
(3) poor quality of government guidance;
(4) uncertainty, risk and lack of confidence;
and
(5) low awareness of government guidance.
1.42 Thus, the type and content of guidance
needs careful consideration. The rewards, however, are high. Better
guidance which enables businesses to ensure self-compliance saves
the economy significant amounts of money.
1.43 In November 2008 the Law Commissions
published their Joint Consultation Paper.[29]
On its analysis of the existing law, the Law Commission found
that it was unduly confusing. This confusion made it difficult
for consumers to understand their rights and for sellers to understand
their obligations.
1.44 The Law Commission has proposed simplifying
the law and clarifying a consumer's right to reject faulty goods.
This included ensuring a better "fit" between EC law
and domestic regulation.
1.45 The project built on previous work
of the Law Commissions in this area, which was implemented by
the Sale and Supply of Goods Act 1994.[30]
Simplified law here has benefits for all sides and by lowering
compliance costs is of benefit to the efficient operation of the
economy.
1.46 In consultation, the support of business
for such an approach has come across clearly.
Trustee Exemption Clauses
1.47 This project considered the extent
to which trustees should be protected by clauses in trust instruments
exempting them from liability for negligence. The Law Commission
provisionally proposed in a Consultation Paper in January 2003 that
there should be legislative restrictions on reliance on such clauses.[31]
1.48 The Law Commission adjusted its position
in the light of consultation responses demonstrating a range of
negative impacts for both the trust industry and trust beneficiaries.
1.49 Our Final Report issued on 19 July
2006 recommended a rule of practice governing the full disclosure
and proper explanation of trustee exemption clauses.[32]
That rule has been adopted by the relevant professional bodies
and, we understand, now influences trust practice worldwide.
1.50 Here one can see how law reform was
influenced by consultation to take into account the potential
regulatory impact of its proposals. The Final Report in this project
sought to achieve its aims through the least intrusive—but
still effective—means possible.
Termination of Tenancies
1.51 This project examined the circumstances
in which landlords can end a tenancy by forfeiture on the grounds
that the tenant has breached the terms of the lease. It considered
the law as it affects both long residential tenancies and commercial
leases.
1.52 Following extensive consultation,[33]
the Law Commission concluded that the current law contains serious
defects which adversely affect both landlords or tenants, and
recommended a new statutory scheme.[34]
1.53 The proposed scheme requires the early
exchange of information by both parties and provides a neutral
framework for negotiation and resolution without the intervention
of the court.
1.54 First, it suggests the removal of a
legal principle that prompts many landlords to end tenancies for
fear of being treated as accepting the tenant's breach.
1.55 Secondly, the proposed scheme removes
the landlord's unilateral right to enter commercial premises and
exclude the tenant, severely—sometimes critically—disrupting
the tenant's business operations. This has a particularly disproportionate
effect on Small and Medium Enterprises (SMEs).
1.56 Thirdly, it suggests making available
to the court a range of orders, such as an order for sale and
the distribution of proceeds, where litigation cannot be avoided.
These were designed to decrease the incentive for landlords to
push for termination in the hope of a windfall far exceeding the
value of the tenant's breach.
1.57 Finally, in seeking to put forward
a balanced solution, the Final Report suggests a summary termination
procedure for landlords in clear-cut cases.
1.58 The recommendations offer a more efficient
means of resolving instances of tenant breach for all parties.
In particular, they provide protection for SMEs who are currently
vulnerable to disproportionate action that can severely damage
their continuing ability to trade.
CONCLUSIONS
1.59 What can be drawn from these examples
is that the approach to the regulation of specific areas of human
activity needs to consider the detailed circumstances of the specific
situation, and develop a solution that is fair, proportionate
and effective in those circumstances. The Law Commission's law
reform methodology is designed to achieve this.
1.60 First and key to the Law Commission's
development of law reform proposals, is its commitment to wide-ranging
and informative consultation. This also entails the willingness
to be genuinely responsive to such consultation and to re-formulate
any suggested proposals in the light of new facts and matters
revealed by the consultation, or of valid arguments put forward
by consultees.
1.61 Secondly, the Law Commission's development
of policy in relation to its law reform projects must be, and
is, informed by Government policy, and law reform proposals need
to take into account the evolution of Government policy in areas
relevant to the particular project.
1.62 Thirdly, law reform should be proportionate
and sensitive to the particularities of the specific area of human
activity, always seeking the least intrusive means of achieving
a project's objectives. There are areas of law where self-regulation
and the removal of regulatory burdens form the most appropriate
solution—as seen in our Trustee Exemption Clauses project.
1.63 Finally, in other cases we have concluded
that the only way in which a fair and proportionate settlement
could be achieved is through recourse to legislation. However,
even where it recommends legislation, the Law Commission seeks
to ensure that it achieves the appropriate policy objective in
a manner that imposes the lowest regulatory burden upon those
who would be affected by the proposed reform.
Lord Justice Etherton
(Chairman)
Kenneth Parker QC
Professor Elizabeth Cooke
David Hertzell
Professor Jeremy Horder
March 2009
21 Law Commission Consultation Paper, Status and
Security (CP 162, 2002); Law Commission Consultation Paper,
Co-operation, Transfer and Succession (CP 168, 2002). Back
22
Law Commission Report, Renting Homes (Law Com No 284, 2003). Back
23
Law Commission, Renting Homes: The Final Report (Law Com
No 297, 2006), Volume 1: The Report, Volume 2: Draft Bill. Back
24
Law Commission Consultation Paper, Housing: Encouraging Responsible
Letting (CP 181, 2007). Back
25
Law Commission Final Report, Housing: Encouraging Responsible
Letting (Law Com No 312, 2008). Back
26
Better Regulation Executive, Regulation and Business Advice
(2007) p 8. The higher figure was calculated on the basis
of the Government's administrative burdens exercise, while the
lower figure comes from a private sector consultancy. Back
27
BERR, Consumer Law Review: Call for Evidence (May 2008)
pp 8 and 9. These are based on the Better Regulation Executive's
database of administrative burdens. Back
28
Better Regulation Executive, Regulation and Business Advice
(2007) p 9. The burdens referred to here are those across
the whole of economic activity, rather than just in relation to
consumer remedies. Back
29
Law Commission and Scottish Law Commission Joint Consultation
Paper, Consumer Remedies for Faulty Goods (CP 188, Discussion
Paper 139, 2008). Back
30
Law Commission and Scottish Law Commission Joint Final report,
Sale and Supply of Goods (Law Com 160, Scot Law Com 104,
1987). Back
31
Law Commission Consultation Paper, Trustee Exemption Clauses
(CP 171, 2003). Back
32
Law Commission Final Report, Trustee Exemption Clauses (Law
Com No 301, 2006). Back
33
Law Commission Consultation Paper, Termination of Tenancies
for Default (CP 174, 2004). Back
34
Law Commission Final Report, Termination of Tenancies for Default
(Law Com No 303, 2006). Back
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