Examination of Witnesses (Question Numbers
420-426)
Ms Maggie Craig, Mr Harold Gay and Ms Linda Jackson
21 MAY 2009
Q420 Baroness Perry of Southwark: I think
I should add to what Lady Gale said, that you are the only witnesses
we have had who are generally happy with the entire Directive.
This question is mainly directed to Ms Craig, because the CBI
response did not refer to the unfair contract terms in your submission
to us. Ms Craig, you mentioned two areas where you think there
are unfair contract terms. You mentioned the transfer of obligations
and the change of terms of contracts as two that are missing in
the Directive. Could you explain how you would like to see the
provisions on unfair contract terms amended in the Directive?
If the Directive was to be left as it stands, what do you think
would be the consequences?
Ms Craig: I am not, by any manner of means,
qualified in contract law, so I do not want to go into too much
detail. We did put it in our written submission, but my understanding
there is that we want to narrow the scope of it. We are particularly
concerned here that it should not be deemed unfair to vary a contract
where there is a valid reason for doing so. There are certain
things here. First of all, if the Directive was to stand as is,
there would be some inconsistency between its provisions and the
unfair contract terms in UK regulation. This is all very technical
enough, so to have something that is inconsistent would be an
issue. From a UK insurer's perspective, we believe it is very
important that the insurers retain the right to vary contract
terms where there is a valid reason. Just to expand on that a
little bit, I absolutely accept that only the courts can decide
what is a valid reason but we have had guidance from the FSA on
what constitutes a valid reason, so we are not trying to be arbitrary
about this. If I can give an example to you, if we take, for example,
annuity contracts that our members sell, our annuity contracts
are sold, the consumer buys the annuity, and that annuity is bought
for life. The annuity contracts are current priced at the moment
taking account of certain tax issues that relate to life insurance
companies. If, for example, the Government were to change that
tax treatment, that would inevitably follow through to change
the pricing of the contract, so it is in that sort of space. If
we were unable to have the right to vary that contract, then inevitably
the insurers would be taking on a greater risk, so ultimately
they would then have to re-price the whole contract and that would
feed through. It sounds very, very narrow and very technical but
it is really about the fact that we are in the risk business.
If there are outside influences or changes that affect the risk
we are facing, then we would want the right in those circumstances.
It is something we are doing further work with on the FSA, because
we recognise this is very important and that we have to tread
carefully. I hope that helps.
Q421 Baroness Perry of Southwark: Do
you have any thoughts on that, Mr Gay?
Mr Gay: Without going into any great detail,
one of the things that did concern us is the process for mainly
the amending of the Annex II and the Annex III lists, the Comitology
process. Given that changing those lists would have quite a large
impact on businesses generally, it needs to be a very open and
transparent process with stakeholder involvement and that does
not seem to exist in the way that it is drafted. There is a change
of burden of proof with the way that particularly the Annex III
list is constructed, in that it says "presumed to be unfair"
rather than "may be regarded as unfair" which is a slight
upping of the ante from where we have been. But, again, I think
there is a benefit to harmonisation. If you take the package as
a whole, there is lots of detail about this and lots of debate
about whether the case law that exists will continue to exist
and what the challenges are at dealing with it, but if you look
at it from the broader perspective, if you can draft a contract
that will stand up across Europe that has to be of benefit from
a business point of view, and it is about getting the balance
and the package absolutely right. There is some detail, however,
and it is far more difficult to tease out the issues in this particular
part than anywhere else, so I do not want to give the impression
that I am entirely happy with it but, again, we have accepted
it on the basis that it is a balanced package.
Q422 Baroness Perry of Southwark: As
a consumer, if you have a contract with one supplier and that
supplier without any reference to you sells it on or passes it
on or gets taken over by another supplier, and you discover that
the terms of the new supplier are to your disadvantage and that
you do not have the rights that you had with the original contract,
surely that is a very unhappy thing for the consumer. As I understand
it, the Directive has no provision for that at all, whereas in
British law we do.
Mr Gay: I am sorry, I do not want to get into
the technical, but does it not fit into the default provision
inside one of the articles of the Directive? You cannot have a
default clause. I would suggest that you then have to tell the
consumer and give them the opportunity to walk away from the contract,
to give them the choice. I am sorry, this is not my area, but
it is an interesting point.
Baroness Perry of Southwark: It is certainly
something we need to look at.
Q423 Lord Inglewood: I would like to
ask one point about Comitology which arises out of the remarks
that you made in your statement. Do you feel that your concerns
about openness in respect of the Comitology proceedings could
properly be dealt with if the Government gave certain undertakings
about consultation with stakeholders? Obviously much of it is
done relatively below the parapet, and it is open to the UK Government,
because it is going to be negotiating, to consult with stakeholders.
Would some copper-bottom guarantees from them deal with many of
your concerns?
Mr Gay: I think so, if it was open and transparent
enough. It is about openness and transparency. The problem about
these sorts of processes is that you often find out that they
have amended something too late. We need the time and the opportunity
to comment on that and to be engaged in it.
Q424 Chairman: One of the things that
Ms Craig and Mr Gay have both talked about is the complexity of
some of the issues. Perhaps I might return to harmonisation, the
right to reject, how we reach the end of this story. The Commission's
suggestion is that full harmonisation could apply alongside contract
law and the work being done on the Common Framework. Do you think
that would cover the right to reject? Or how much more complicated
would it be across Europe if you found you had two sets of law:
contract law and full harmonisation?
Mr Gay: I do not think that is an approach.
I was a little bit surprised at the Commission coming out with
that solution this late in the process. They have known that we
were looking at harmonisation. They knew that we had two sets
of provisions in the UK that overlapped and that this was a way
of making sure that they no longer overlapped. That is something
that I am very surprised on. It would add complexity immensely.
I do not really see how their argument stacks up. I can see it
in some areas, but not all of the areas that they talk about.
Again, it feels like a fudge in order to get the Directive to
the endpoint.
Q425 Chairman: I think you have just
said what I cannot say. The real issue is: if that is so and there
are the issues that you have raised on financial services, would
it not be better that there was more time and thought? It is not
that anyone thinks there is not an appropriate way towards some
sort of full harmonisation, but if these things were, if you like,
as my mother would have said, "bottomed out", copper-bottomed,
so that people know and there is clarity, would you not feel that
is a better way forward, rather than rushing into the full Directive,
unification and harmonisation approach?
Mr Gay: The package, as it was put together,
we could have proceeded with as it stands, with willingness on
all sides to continue to deliver consumers a good standard of
consumer protection. Where we are now is that there is so much
tinkering around the edges and people playing with it, that maybe
it is time to step back and look again. It is certainly not going
to complete the parliamentary process as it stands at the moment,
so it probably is the case of taking time. But I think they have
been looking at it now for four years, so, from a business point
of view, I just do not see what the problem is. We would have
completed two takeovers by now. It does not quite add up.
Q426 Chairman: Get on with it and clarify
it.
Mr Gay: Yes.
Chairman: I would like to thank you very
much. We have found that an extraordinarily helpful session. You
may think we have been pursuing you on a number of issues. We
have no line; it is simply that we have to know what we have heard
before and then get clarity and get on the record your answers
to some of the questions where we want further clarity. I am sure
the Committee would join me in saying we have found that very
helpful. Thank you very much indeed.
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