Mr.
Hoban: I start with the general argument that the Minister
made about why collective proceedings orders are necessary. The
starting point was the Ministry of Justice response to the Civil
Justice Council report about collective actions. The Ministry’s
response was that such actions should be used only in particular
sectors. I can see a clear argument why the financial services sector,
given the number of mis-selling claims in recent years, is appropriate,
with a group of cases with similar threads running through
them.
The Minister
said that, in reality, such actions should be used only when the law
was unclear. I thought that an interesting argument, because the law
may be unclear in many areas of consumer activity. To pick on that
sector spoiled his argument, which supported a more generic right
rather than one tailored to the sector, particularly given the degree
of regulation involved. I am not sure that he made the most robust case
for why the sector should be the one highlighted as the
guinea
pig. The
same theme came out in the Ministry report. The legislation exists, but
we are some way off the detailed rules that will provide the safeguards
for which industry is looking. The Minister said that work on them
would
conclude towards the end of the year, when they will be consulted upon.
Later clauses, such as clause 22, give the Treasury regulation-making
powers, but we have not seen the draft regulations. The Government have
used the Bill—as the Treasury so often does—as enabling
legislation, leaving everyone to trust in secondary legislation that
will be brought forward. That position is not satisfactory. The
Minister has not given the warmest of reassurances to those who pay
attention to our
proceedings. The
Minister said that where the law is clear, the consumer redress
provisions should be used. I shall talk about the subject when we come
to clause 26, but that is not the impression that the general counsel
for the Financial Services Authority gave in his evidence to us before
Christmas. He indicated that the power could be used in cases in which
the law was unclear. There needs to be a safeguard to reflect that, but
I shall deal with that point at another
time. The
Minister is setting out in the clause, and in other clauses in the
group dealing with collective proceedings orders, a framework that will
be filled in at a later stage, through either secondary legislation or
court rules. I suspect we shall hear that refrain a lot as I
talk through the amendments I have tabled. I hope he will go further
than saying simply, “It has been consulted upon”, because
there is a lot of concern about the measures, arising from the lack of
detailed information about the
rules. The
hon. Member for Wolverhampton, South-West suggested that he was
surprised I was giving some responsibility to a politician—in
this case, the Lord Chancellor. My amendment 58 follows the proposals
set out by the Civil Justice Council, which produced a draft Bill, and
this is one of its clauses. That point was reached by a group of
lawyers—some judges and some practising barristers and
solicitors—who had thought through the matter clearly. I assumed
that the Government would be rather keener than the Minister has
suggested to adopt something of the nature that the group had put
forward. Before
I make more substantive comments on clause 19, I take note
of the Minister’s comments about the implications of clause 20.
One of the challenges in such cases is to create certainty of
treatment. That issue was in the minds of many people when the bank
charges case was going through court. How do we ensure certainty for
both claimants and defendants? It is right that measures are in place
to fix that, so people know exactly what their position
is. As
the Minister said, clause 19 gives some flexibility in choosing between
opt-in and opt-out. Arguments have been made in favour of both a pure
opt-in and a pure opt-out system; there is no universal consensus.
Under an opt-in scheme, consumers would have to identify themselves to
a representative bringing a claim; under opt-out, they would be
considered automatically unless they said otherwise. The court has
responsibility for directing whether proceedings will be brought on an
opt-in or opt-out basis.
Such
flexibility is reflected in the Civil Justice Council’s
conclusions where the Government choose to follow its thoughts. Lord
Woolf wrote in
1996: “The
court should have power to
progress” a
multi-party situation
“on an
‘opt-out’ or ‘opt-in’ basis, whichever
contributes best to the effective and efficient disposition of the
case.”
That is an important
point. The
Civil Justice Council wrote in its report
that “a
large number of small claims arising out of a common contractual
dispute, holiday claims etc., may be better suited to resolution via an
opt-out collective action. If however a consumer claim appears to be
inherently suited to individualised litigation that is case managed as
a collective action of unitary actions (because, say, the size of the
class is very small, and each class member has indicated a wish to sue
individually and would probably opt-out to do so, were the proceedings
to be brought under an opt-out model), then the certification court
could appropriately order that the action be certified as a
GLO”, or
group litigation order.
In essence,
the Civil Justice Council is arguing that if the loss is likely to be
the same for all claimants, opt-out is the most appropriate mechanism
to deliver justice for those claimants, but if the loss, although
subject to common factors, is likely to be highly differentiated among
claimants, an opt-in arrangement is more appropriate.
We have heard
a number of examples of cases in which that argument might be applied.
Equitable Life policyholders have been subject to the same regulatory
administrative failures, but the circumstances and nature of each
individual’s losses are different. Anyone who reads Sir John
Chadwick’s interim report can see how the different groups might
be affected. An opt-out case brought for Equitable Life might not
result in an efficient and effective disposition of the case, given the
varied interests involved. However, I suspect that the mis-selling of
payment protection insurance products would lend itself well to an
opt-out system due to the nature of the products and the scale of the
loss.
Mr.
Breed: I am listening carefully, because that is an
interesting aspect that I had not considered. Does the hon. Gentleman
consider that there might be multiple collective actions representing
different complaints or series of complaints against the same company?
In other words, different class actions could go on at the same time in
the context of the same complaint, because different complainants would
be treated
differently. 4.30
pm
Mr.
Hoban: Yes, I think that that is right. It is always
dangerous to use examples, as they never quite fit the precise
circumstances, but in the case of Equitable Life, there are different
groups of policyholders. Some people were late joiners. Their complaint
against Equitable Life or the regulator would be different from that of
the trapped annuitants, who could not leave Equitable Life
voluntarily.
In that case,
a collective action covering all Equitable Life policyholders would not
seem to be the right process, even though they were all subject to
problems with Equitable Life and regulatory failure. We can see that an
event might trigger not one case but a multitude of cases, whether that
is because the policyholders’ circumstances are different,
because they are affected in particular ways, or because the problem
has a differential impact on different groups. Therefore, a series of
smaller collective actions might be a better way to proceed, rather
than a single action that covered all policyholders. That is one of the
issues on which we need flexibility on whether to opt in or out.
Recognising that need for flexibility, the Civil Justice Council
concluded that
“This
approach is one that does not therefore recommend the introduction of
any form of presumption as to whether a collective action should
operate on an opt-in or opt-out basis. It is an approach which places
the responsibility for designation with the court at the certification
stage.” That
is, we should leave it to the court to decide whether that is
appropriate. However,
the prospect of opt-out triggered concerns among lawyers and others,
who felt that it could lead to US-style litigation. Slaughter and May
said: “This
development heralds the arrival on UK shores of a procedure for
consumer litigation, which is in some respects similar, at least in its
‘opt-out’ form, to the US ‘class action’
procedure. The result would likely be that large numbers of relatively
small claims which individual consumers might currently be unlikely to
pursue on an individual basis could be aggregated and brought through
collective
proceedings.” That
is the concern that some have about the opt-out process. However, it is
not a universal concern, because the four consumer groups said in their
submission: “We
do not believe industry concerns that an opt-out process will lead to
the development of a US-style class action culture are justified.
Opt-out is also a feature of collective redress systems in Portugal and
Scandinavia but these countries have not experienced the same problems
as the
US.” They
went on to echo a point that the Minister has
made: “It
is the particular features of the American legal system, rather than
the nature of the opt-out system per se, that have led to the class
action culture. In contrast to the US, our legal system is
characterised by close judicial supervision and the Bill rightly builds
on this tradition by ensuring judicial checks and
balances.” Industry’s
concern is that if the checks and balances are meant to ensure that the
opt-out system does not become a US class action process, it would like
to see what those checks and balances are more clearly.
On the one
hand, consumer groups say that opt-out is necessary and not something
to be feared, while on the other hand, industry claims the opposite. So
what is the case for a purely opt-out situation? Those who argue in
favour of the opt-out must make the case for moving away from the
flexibility. One
criticism of restricting the measures to opt-in is that it does not
move us very far from the existing set-up. There is already provision
to bring a group litigation order; to the minds of some, that is
already an opt-in procedure. The Courts Service says:
“A
group litigation order can be made in any claim where there are
multiple parties or claimants to the same cause of action. The order
will provide for the case management of claims which give rise to
common or related issues of fact or
law.” Indeed,
it was a group litigation order that Which? used to initiate
proceedings against JJB for the price-fixing of football shirts. That
gives rise to a further possible argument: in such cases, the amount
lost per customer is so minimal as to discourage any complainant from
actively becoming involved, and that allows the company to escape
justice. The loss per person might be relatively small, although a
large number of people are involved. In situations where it is not
worth pursuing the case, organisations such as JJB would escape
justice. Provided that the authorised person is properly approved, is
there any reason why they could not draft more complainants in on an
opt-out basis?
Similarly,
there are reasons other than the monetary amount that discourage people
from involving themselves on an opt-in basis, such as fear of the legal
system or simple human inertia. The Association of British Insurers
said: “if
these reasons act as a disincentive for a consumer to opt-in to joining
a CCR action, why should the same consumer with the same social and
psychological issues be forced by default to participate in litigation
on an opt-out
basis?” For
the ABI, clearly one of the arguments on opting in is that it makes
sure that everyone possible is involved in the measure. One of the
criticisms of opting in is that it requires people to overcome their
inertia and reluctance to engage. If people are automatically assumed
to be part of a class action, will they really volunteer to opt out? It
is almost the reverse of the nudge
argument. We
want the default position to be right for the person, so that it gets
them to do what is instinctively right. I sense that one of the reasons
for an opt-out process is that it automatically assumes that the
individual would like to be part of litigation and to pursue their
case, and that they should therefore be in a position to pursue that
litigation, even if they are not actively engaged. That assumes that
the right safeguards are in place in cases where opt-out is
appropriate. It is a strong argument for universal application of an
opt-out. In the evidence sessions, Jane Vass from Age Concern and Help
the Aged said:
“We
particularly welcome the proposal for collective proceedings with an
opt-out procedure, which will redress a great imbalance for older
people, who often are not in a position to make a complaint themselves
if they are socially isolated, if they do not have support, if they are
immobile, or if they just do not have access to the available forms of
information.”——[Official Report,
Financial Services Public Bill Committee, 8 December 2009; c. 50,
Q140.] The
ABI suggested that an opt-out system would be a dramatic shift in the
process of law in the United Kingdom that raised serious constitutional
and human rights issues. In the first instance, it felt that the impact
of opt-out systems on the due process rules, as enshrined in the
European convention on human rights, was unclear. It felt that
individuals should not be made to be claimants without their knowledge
or explicit consent. It also said that defendants have a fundamental
right to know who is accusing them of unlawful conduct, so the creation
of an opt-out consumer collective redress is likely to give rise to
fundamental reconsiderations of the philosophical basis for European
legal traditions. I suspect that that fundamental reconsideration is
outside the scope of the Committee, but the ABI’s response
demonstrates our concern about making significant moves to change the
legal framework for bringing such actions in a narrow sector, when
there are wider considerations to be thought about. It is also a
reminder of why we are worried about the lack of evidence on what
safeguards will be in
place. If
there is to be such a fundamental change, we need to move with caution
and ensure that there are adequate safeguards. If the fears about
US-style litigious culture are well founded, we must make sure that
proper safeguards are in place. The European Justice Forum, which I
spoke about this morning, said in its representation on the
subject: “Class
actions are an exceptionally powerful and potentially dangerous
instrument, as evidenced by the experience of other countries. If they
are to be used at all they must be contained within carefully designed
provisions that will avoid abusive claims and ill founded
litigation.”
My conclusion
is that while there are some strong arguments for a pure opt-out, there
are valid concerns about why it would be inappropriate to allow only
opt-outs, given our legal system and the safeguards. The Civil Justice
Council has got it about right: it says that there should some
flexibility, and that that flexibility should be determined by the
court, based on the circumstances of each individual
case. By
rehearsing the arguments on whether there should be an opt-in or an
opt-out system, we have demonstrated some of the tensions underlying
the introduction of such actions, and reinforced the need for further
safeguards. That was the point of amendment
58. The
Minister says that the issue will be part of the consultation on the
court rules, and I welcome that. However, there is a lack of
transparency about the process at the moment, although the Minister has
shed some light on it. It would be helpful if more information were
shared with the Committee on how the legislation will go forward and
how the details will be filled in. That would be helpful, and might
provide reassurance to those who take an interest in such
matters.
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