Rob
Marris: It was I who used the Titanic metaphor. To carry
on with that, part of clause 18, without the amendments, is in a sense
an attempt to stop or try to dissuade the ship from leaving port in the
first place. If a financial institution knows that there could be a
collective action, it may be dissuaded from engaging on a course of
action that is somewhat
risky.
Mr.
Hoban: I am sorry for wrongly attributing the metaphors;
we have been awash with metaphors this morning, so we should perhaps
move away from talking metaphorically about the issue.
The hon.
Gentleman makes an important point. If this were an unregulated sector,
his argument would be powerful, because there would clearly be a
deterrent. However, there are already a number of measures in place
that should provide protection for consumers—there is an FSA
rulebook and rules on the conduct of business—and we should not
need the clause to act as a deterrent. I am seeing it very much as a
clause that facilitates an outcome when something has gone wrong, but
the expectation should be that the FSA is dealing with situations as
they arise. Some might argue the problem is that the FSA rules are
predominantly about the conduct of business rather than the products.
From what we have here, it seems that products have given rise to a
problem, given that the FSA is looking at product regulation in
particular. It has looked at it most recently in the context of
mortgages.
12.45
pm The
regulator should be aware that there is a problem. Such problems do not
suddenly emerge out of nowhere. Payment protection insurance was a
problem that built up over time, so there should have been a regulatory
response as it was building up rather than a resort to law. Concerns
have been expressed about the matter and the analogy drawn by several
commentators is that it is equivalent to US class actions. The British
Bankers Association responded by
saying: “We
are very concerned that proposals on class actions risk introducing a
US-style litigation culture to the UK. The US system is
“opt-out” and has led to incentives for baseless claims,
increased costs (ultimately born by consumers) and a situation where
the only real winners are lawyers. The BBA urges that any proposals
based on an “opt out” approach should be dropped and
instead that the focus of the bill is on creating a more effective
system of consumer redress via the FSA and subject to court
approval.” We
shall talk about that structure later, but its remarks echo the
concerns of the Civil Justice Council, which said that
“The
Court is the most appropriate body to ensure that any new collective
procedure is fairly balanced as between claimants and defendants, the
latter of which should be properly protected from unmeritorious,
vexatious or spurious claims as well as from so called blackmail
claims”. It
is not only partially an industry point; it is reflected by the
considerations that underpinned the report of the Civil Justice
Council. As
I said, there has been a significant debate about the measures.
Consumer groups, such as Which?, Citizens Advice, Consumer Focus and
Help the Aged have written a joint opinion on the provisions. They
stated: “We
believe that the provisions in the Bill are an entirely proportionate
response to tackle the types of mis-selling issues that have arisen in
the financial services industry. By giving the court the power to
decide whether a collective action would be
opt-in or opt-out as required by the circumstances of the case, they
strike the balance between ensuring an opt-out process where necessary
but providing judicial supervision to prevent vexatious and
unmeritorious
cases. Consumer
groups recognise the merits of collective action, but also some of the
risks of that, which is why I want to move on to the need for
safeguards. A great deal of the work of the Civil Justice Council was
about some of the safeguards that are
needed. I
want to conclude on the second theme. We also need to deal with the
problem with the regulatory system. The regulatory system should deal
with such issues and, given that the financial services sector is so
heavily regulated, we should not have to depend on individuals
enforcing their rights to achieve the right outcome for
consumers. Are
there necessary safeguards? The safeguards are the measures set out in
the Bill, in secondary legislation and under the rules of the court.
The explanatory notes to the clause
state: “Regulations
or rules of the court may require the court, when considering whether
to authorise the bringing of collective proceedings, to consider
matters set out in the regulations or
rules.” Our
job in Committee is to debate such issues thoroughly. We should all be
able to agree that we do not want a situation in which the only real
winners are lawyers. We are not aiming for that. We must therefore make
sure that there are adequate safeguards in respect of the judicial
option on opt-out
proceedings. The
point that we have reached in our thinking is that we must make sure
that adequate safeguards are in place in the Bill if we are to go
ahead. In its submission to the Committee, the Prudential
wrote:
“We
agree with the Government that collective proceedings should be used
rarely and only for the most significant cases. However, we do not
believe that the Bill, as drafted, provides sufficient checks and
balances to ensure the system is not
abused.” On
a similar point, much of the detail will be filled in by secondary
legislation, which has yet to be published in draft, and court rulings.
We expected to have more of the detail by now, as the European Justice
Forum, which does not speak for the financial sector, intimated in its
response. It says:
“EJF
is particularly concerned that the Bill would introduce opt-out class
actions in the financial sector and that—contrary to government
policy stated in July 2009, no framework of rules and safeguards has
been produced prior to proposing such a
remedy.” The
plan to produce a framework document was set out in the Ministry of
Justice response to the original paper by the Civil Justice Council.
What stage has that document
reached? My
comments on amendments to later clauses will be about ensuring that
sufficient safeguards are in place. The amendments that I have tabled
are an attempt to ensure that the safeguards in the Civil Justice
Council paper are reflected in the Bill not only so that we have a
framework for collective proceedings but so that rights and safeguards
are in place before the process comes into force.
Subsection
(5)
states: “A
person may be authorised under subsection (1) to bring proceedings even
if the person would not otherwise be regarded as having any interest,
or any sufficient interest, in the
proceedings.” That
is quite a broad provision. In effect, anyone bringing a claim does not
need to have bought a payment protection insurance policy or to have
been mis-sold an endowment
policy. Such a person could act as a representative of claimants. In a
recent case in which a group litigation order was used, the Consumers
Association—now Which?—acted as a representative. It was
not a financial services case; it involved a price-fixing cartel for
football shirts. In that case, it was not an individual customer who
bought a football shirt, but Which? that acted as a
representative. One can see
why Which?, as a consumer group, would have an interest in acting on
behalf of consumers, but other groups could equally act as a
representative, given the breadth of subsection (5). We are well aware
of the activities of claims management companies. Some clearly act in
the interests of potential claimants, but one gets the sense from time
to time that others are looking for a cause to fight and see a clear
commercial benefit to doing so in terms of the fees that they might
generate.
So there
needs to be some control over who can bring such cases.
Subsection (5) is broadly drafted, and amendment 58 would introduce an
additional check so that the representative
“is authorised
to act as a representative on an ad hoc basis under the civil Procedure
rules, or...is authorised to act as a representative and on such
terms as specified by order of the Lord Chancellor, in accordance with
criteria to be published by the Lord Chancellor for the purposes of
this
section.” That
would introduce some coherence and structure and make clear who can
bring such claims and act as a representative. It would require the
Lord Chancellor to consult the Lord Chief Justice or a judicial office
holder nominated by the Lord Chief Justice when authorising an
individual to act on an ad hoc basis or issuing criteria or guidelines
for who might act as a representative.
The safeguard
is set out in the Civil Justice Council’s report and is, from
recollection, an extract from the draft Bill that the council prepared.
The amendment is the first in a series that would introduce the
safeguards set out in the report and ensure that a proper framework was
in place for such actions to be
brought.
The
Chairman: The Committee will notice that at the top of the
selection list are the words
“Chairmen’s
provisional selection and grouping of
amendments”. The
Chairman does not always get it right. I think I may say without
wishing to be patronising that the hon. Gentleman has taken a pragmatic
and sound approach to his coverage of this debate. In so doing, he has
covered collective proceeding rules, which are in clause 18, and, to a
considerable extent, opt-in and opt-out, which is in clause 19. The
substance of clause 20 is fairly light, so I will now group the stand
part debates for clauses 18, 19 and 20 with the amendment.
If that
leaves the hon. Gentleman in a difficult position, Mr.
Benton or I will take cognisance of that. Mr. Benton might
wish to make further remarks. We are now debating amendment 58, with
which it will be convenient to debate clauses 18, 19 and 20 stand
part.
Rob
Marris: I am surprised by the amendment, as it appears to
take power away from the courts, which are independent, and give it to
a politician—the Lord Chancellor—who may or may not be
elected, although the current Lord Chancellor is. That would be a
retrograde step. Pursuant to the other provisions in this
grouping—not only clauses 19 and 20 but clauses 21, 22 and
onwards—I think that the amendment is misconceived in focusing
power in the hands of a politician rather than leaving it with the
courts, as clause 18 would
do.
The
Chairman: Before we proceed any further, the hon. Member
for Wolverhampton, South-West mentioned clauses beyond clause 20. For
clarity, may I explain that I drew the line at clause 20 because
separate amendments have been tabled to clause 21? It would be unwise
to go any further down a tricky
road.
Ian
Pearson: I am considering where to
begin—
The
Chairman: Try clause
18.
Ian
Pearson —and, more importantly, where to end. I
think that I will begin with clause 18, as you suggest, Mr.
Gale, and amendment 58. Clause 18 is a new development in the law of
the country, and it is entirely right that the hon. Member for Fareham
should raise probing questions about the Government’s
intentions. I am happy to put a number of matters on the record in the
time available this morning and, I suspect, this afternoon.
We believe
that there is a clear need for collective proceedings for financial
services claims. The hon. Member for Fareham referred to the Civil
Justice Council report on improving consumers’ access to
justice. It recommended that generic collective proceedings be
introduced in the UK. In our response, we said that they should be
considered and, where appropriate, introduced in specific sectors where
there is a case for doing so. As I have said, we believe that there is
a strong case for doing so in relation to financial services.
We do not
believe that there is an effective means at the moment for representing
consumers as a group in mass financial services cases. There is some
provision for collective litigation, but it is so limited that it is
rarely
used.
The
Chairman: Order. I am advised that the Programming
Sub-Committee will not now meet and that this Committee will sit
between 8 pm and 10 pm this evening. I can take the Chair, so
Mr. Benton will be with you this afternoon and I will be
with you this evening. I give an undertaking to see when I leave the
room whether there is any way to generate a little heat in this
igloo. 1
pm The
Chairman adjourned the Committee without Question put (Standing Order
No.
88). Adjourned
till this day at Four
o’clock.
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