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Ian Pearson: The amendment provides that any undistributed surplus from a damages award should be applied in a way that benefits class members. I understand and appreciate the sentiment, but the hon. Gentleman’s amendment would create practical difficulties if approved. Suggesting that a surplus can be applied only in the interests of class members could cause problems, depending on who those class members might be.
Let us say, for instance, that the class members are policyholders of an insurance company, customers of a bank or a group of bondholders. The demographics of such a group are likely to be extremely varied, so it could be hard to pin down a suitable purpose that benefits them and not non-class members.
“A manner...expected to benefit class members”
might therefore be too vague and could create a huge amount of uncertainty as to which body should benefit. That could create an unnecessary amount of lobbying and time-consuming decision making, and could lead to the drawing of fine distinctions between deserving claimants. An independent court might also find it difficult to make those decisions.
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No decision has been taken on how an undistributed surplus should be spent, but it is possible that there should be a defined destination or body with suitable purposes, which is why the Treasury needs to retain the discretion to provide for that. For example, a surplus, or part of it, could be handed back to the defendants, but it could also go to a charity, to an organisation such as the proposed consumer financial education body, or to the social fund to improve access to affordable credit for those on low incomes. It seems premature to the Government to close off options at this stage, and the best course is to consult widely on how an undistributed surplus should be dealt with. The Government certainly intend to do that, and I hope that my clarification will reassure those who are following our proceedings.
Given the practical difficulties with the hon. Gentleman’s amendment, I hope that he will withdraw it, while recognising the policy intention behind our proposals.
Mr. Hoban: There clearly needs to be consultation. People need to be comfortable that the mechanism for identifying the cause or purpose will be sensible and that the right checks and balances are in place. On that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 23 ordered to stand part of the Bill.

Clause 24

Rules of court about collective proceedings
Mr. Hoban: I beg to move amendment 68, in clause 24, page 27, line 19, after ‘about’, insert ‘disclosure and’.
The Chairman: With this it will be convenient to discuss amendment 69, in clause 24, page 28, line 12, at end add—
‘(8) Rules under subsection (2)(a) must require the court only to make a collective proceedings order if it is satisfied that—
(a) collective proceedings are the most appropriate means for the fair and efficient resolution of the common issues of fact or law;
(b) there is a person, certified or authorised body suitable to be authorised to bring collective proceedings as representative claimant; and
(c) the collective proceedings have a real prospect of success.
Mr. Hoban: Amendment 68 leads into the proposed new subsections that would be added by amendment 69, which is a lengthy amendment.
Clause 24 concerns the rules of court. In previous debates, we have discussed what those rules should be, their importance, and the way in which they will have primacy over the regulations that are referred to in clause 22. It would be welcome if there were a number of safeguards in the Bill to help to give further structure to those court rules.
The rules give the court the power to make provision on, among other things, collective proceedings orders, the determination of whether a person is treated as having opted in or out, and arrangements for authorised persons. Again, it appears that the cautious approach of the Civil Justice Council has been ignored, as the Bill departs from that significantly. Let me be clear, however, that the council endorses the approach of using rules of court. Its report says:
“The majority of the proposed procedural reforms could be introduced by Rules of Court...developing existing procedure and principles laid down in case law.”
When doing that, however, it is important that there are adequate safeguards, but they are conspicuous in their absence from the Bill’s provisions on rules of court. Amendments 68 and 69 would insert additional safeguards into the Bill.
Amendment 68 would ensure that the rules of court would make provision about not only evidence, but the proper disclosure of that evidence. Additionally, proposed new subsection (8), which is in amendment 69, would add safeguards on the approval of a collective proceedings orders, while proposed new subsection (8)(a) would ensure that that was used as a last resort. The Minister made the point earlier that it should be a last resort, and that the other regulatory routes—either the FSA or the Financial Ombudsman Service—should be exhausted first. Solutions driven by regulators or firms will always be preferable to using the courts. That is the intent behind proposed subsection (8)(a).
Proposed subsection (8)(b) is to ensure that there is a suitable representative waiting to take up the case. Proposed subsection (8)(c) is to ensure that there is a real point behind the collective proceeding and that there is a prospect of success. They reflect the recommendations of the Civil Justice Council. It wrote in its report:
“It is apparent from a comparative analysis that a certification stage is an essential element of any mature collective action mechanism. Certification ensures that the court, consistently with the requirement to manage actively cases consistently with the overriding objective, is able to assess and decide on the most appropriate mechanism through which a claim should progress i.e., as an opt-in, opt-out, traditional unitary action, or through a group litigation order. It enables the court to ensure that any claim progresses in a fashion which best facilitates effective use of court resources and best facilitates effective access to justice for both claimants and defendants alike.”
Proposed new subsection (9) adds safeguards to the representative person provisions, stipulating in particular that they have a proper plan, no conflicts of interest and that they are adequately resourced to carry the process through. It reflects one of the concerns mentioned in the council’s report, to ensure that the process was not used for non-meritorious, vexatious or spurious claims. By ensuring that it is built into the court rules, it gives added protection about the use to which the new process will be put.
Proposed new subsection (10) introduces some rules around costs. It adds safeguards that the representative is responsible for the claimants’ costs and enshrines the “loser pays” principle. The Civil Justice Council had this to say about “loser pays” or so-called “cost shifting”:
“Cost-shifting is a deterrent against speculative or so-called blackmail litigation, unless the claimants are impecunious, in which case the court’s existing powers to award security for cost should provide protection for defendants against such blackmail claims. Where the court determines that there should be full or substantial part cost-shifting, parties will need to demonstrate to the court that they are good for the money, or are adequately insured.”
Again, it is a further safeguard to ensure that sensible claims are brought. It also ensures there is a balance so that claimants who do not have sufficient financial resources are covered in some way.
Proposed new subsection (11) ensures that there is proper disclosure of documents to include those held by individual claimants, not just the representative. Proposed new subsection (12) allows the court to conduct a hearing into a settlement of collective proceedings to ensure that it is fair. On this the Civil Justice Council said:
“Where a settlement is proposed and achieved, and experience in other jurisdictions strongly supports the conclusion, it is recommended that such a settlement should not be valid and binding unless it is approved by the court following a ‘fairness hearing’. The court’s approval is necessary in order to protect the interests of the absent claimants, who will be bound by the settlement. The fairness hearing should not simply review the terms of the settlement for fairness but also determine how absent claimants should opt in to the settlement, what reasonable steps should be taken to advertise for absent claimants to notify them of the settlement,, what evidence is required to claim a share of the settlement, what the limitation period should be set to claim a share and to determine who should administer the judgment.”
That reflects the situation where there is an opt-out proceeding where the court might award the damages on an aggregate damages basis, but we then need to ensure that the right mechanism is in place to facilitate the claims being made by people whose circumstances are covered by the case. Clearly, on an opt-in basis, we will know who the individuals are, and the allocation of damages can therefore be much more straightforward.
Proposed new subsection (13) is about who can act as a representative. It states:
“The rules may not permit a person to substitute as a representative in proceedings brought on an ‘opt-out’ basis unless such person is a body exercising public functions and is authorised to act as representative by the Lord Chancellor under section 18(7)(b).”
That is to say that some bodies will have a legitimate public interest in bringing such cases. Again, to return to the JJB Sports group litigation order, Which? was seen as a body that had a legitimate public interest. What we are trying to tackle is how claims management companies may hijack that process for their commercial interest, and not have a public interest in acting as a representative. In a discussion on an earlier set of amendments, the Minister referred to the way in which the rules would be developed to deal with who can be a representative.
Amendments 68 and 69 are to provide some safeguards around what will be in the court rules to tackle some of the concerns that have been raised by bodies interested in such proposals. They are also to ensure that one of the concerns of the Civil Justice Council—that the measure should not be used to encourage vexatious, spurious or indeed blackmail claims—is reflected in the detail of the rules.
The Chairman: Just to clarify for the Committee, I should say that we are taking amendments 68 and 69 together. Amendment 68 becomes the lead amendment, which has been duly proposed.
Rob Marris: On amendment 69, let me say briefly to the hon. Member for Fareham that I am not sure who his scriptwriter is—but I suggest that he gets a new one, in spite of his reference to the Civil Justice Council. Almost all amendment 69 is covered either by existing rules of the court, whether in a county court or in the High Court, or by equity.
For example, in proposed new subsection (8)(a) in amendment 69, it is pretty obvious whether a judge would allow representative proceedings if they were not satisfied with the most appropriate means—of course the judge would not. The amendment goes on like that, and I urge the hon. Gentleman to withdraw it because someone has led him up the garden path.
Ian Pearson: We are making excellent progress this afternoon, and I am happy to give the Government’s response to amendments 68 and 69 together. The hon. Member for Fareham spoke mostly about the latter, but let me first cover the former, which adds to the list of points that may be covered in civil procedure rules.
The rules about disclosure and inspection of documents are in the civil procedure rules. Disclosure is an ordinary part of any trial process. The parties will disclose the documents that they have or have had in their possession in accordance with court directions. Disclosure is intended to ensure that all relevant evidence can be put before the court. The question is whether the power to make court rules will be used to modify the rules on disclosure for the purposes of collective proceedings. For example, there might be a need to ensure that class members are deemed to be parties to the action for the purposes of disclosure.
However, there are already sufficient rules in the existing civil procedure rules. Disclosure orders can be made against third parties, and if more rules are needed, there is already a power in primary legislation to make them in this context. The amendment is therefore unnecessary.
Amendment 69, as the hon. Gentleman explained, sets out some detail, practice and procedure for court rules. It contains a sensible set of options, including many provisions of the kind that the rule committee of England and Wales will consider. Indeed, some of them are already common, as my hon. Friend the Member for Wolverhampton, South-West pointed out. No doubt the rule-making bodies in Scotland and Northern Ireland will also work through such safeguards. They will need to consider carefully how they should be expressed and whether there are any unintended consequences.
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I do not take issue with the need for many of the procedures in amendment 69. However, I do not agree with hardening requirements for court rules in primary legislation in a way that could cut across the careful work of the rule-making bodies. That is why we have illustrated in clause 24 what the rules can cover without putting that into the Bill. We have done so for three reasons.
First, Parliament has already set out the procedure for making court rules in the Civil Procedure Acts and appointed a committee of experts, the civil procedure rule committee of England and Wales, to make the court rules and lay the legislation before Parliament. A sub-group of the committee contains eminent specialists in that area of law, including members of the judiciary, senior practitioners and academics, and they are well placed to draft appropriate rules. The court rules will have to work in Scotland and Northern Ireland as well. They must therefore be drafted in the normal way by the Court of Session in Scotland and the Rules Committee of the Supreme Court in Northern Ireland.
Secondly, the bodies are considering generic rules for collective proceedings. The Financial Services Bill should not be used to predetermine the content of generic rules. That would inevitably lead to two sets of rules, one applying to financial services and another to all other proceedings, creating inefficiency and inconsistency, which I do not think we should support. Although I appreciate the hon. Gentleman’s hard work and his desire to do the work of the civil procedure rule committee, they are the best people to decide and determine those rules.
 
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