MEMORANDUM FROM LAW COMMISSIONRESPONSE TO The REGULATORY REFORM COMMITTEE INQUIRY: THEMES AND TRENDS IN REGULATORY REFORMIntroduction1.1 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) transparent; (2) accountable; (3) proportionate; (4) consistent; and (5) targeted. 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 1.7 However, in relation to
the (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 methods1.9 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 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 this is thought necessary. The
Law Commission also, where appropriate, takes account of the solutions adopted
in other countries having similar traditions and values to the 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 reform1.21 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 can also 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: (1) Renting Homes; (2) Housing: Encouraging Responsible Letting; (3) Consumer Remedies; (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 recently undertaken. 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. ExamplesRenting Homes1.28 This project was referred to the Law Commission by the Minister for Housing in 2001. In the Consultation Papers published in 2002,[1] 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.[2] 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.[3] Housing: Encouraging Responsible Letting1.32 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,[4] 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.[5] 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 Remedies1.39 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.[6] 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.[7] 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:[8] (1) The volume and complexity of regulations; (2) Regulatory change; (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.[9] 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
1.46 In consultation, the support of business for such an approach has come across clearly. Trustee Exemption Clauses1.47 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.[11] 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.[12] 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 Tenancies1.51 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,[13] the Law Commission concluded that the current law contains serious defects which adversely affect both landlords or tenants, and recommended a new statutory scheme.[14] 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. conclusions1.59 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 [1] Law Commission Consultation Paper, Status and Security (CP 162, 2002); Law Commission Consultation Paper, Co-operation, Transfer and Succession (CP 168, 2002). [2] Law Commission Report, Renting Homes (Law Com No 284, 2003). [3] Law Commission, Renting Homes: The Final Report (Law Com No 297, 2006), Volume 1: The Report, Volume 2: Draft Bill. [4] Law Commission Consultation Paper, Housing: Encouraging Responsible Letting (CP 181, 2007). [5] Law Commission Final Report, Housing: Encouraging Responsible Letting (Law Com No 312, 2008). [6] 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. [7] 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. [8] 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. [9] Law Commission and Scottish Law Commission Joint Consultation Paper, Consumer Remedies for Faulty Goods (CP 188, Discussion Paper 139, 2008). [10] Law Commission and Scottish Law Commission Joint Final report, Sale and Supply of Goods (Law Com 160, Scot Law Com 104, 1987). [11] Law Commission Consultation Paper, Trustee Exemption Clauses (CP 171, 2003). [12] Law Commission Final Report, Trustee Exemption Clauses (Law Com No 301, 2006). [13] Law Commission Consultation Paper, Termination of Tenancies for Default (CP 174, 2004). [14] Law Commission Final Report, Termination of Tenancies for Default (Law Com No 303, 2006). |