Financial Conduct Authority Redress Scheme

Debate between Lord Garnier and Guy Opperman

Thursday 4th December 2014 Commons Chamber

[Sir Edward Garnier (Harborough) (Con)]

I begin, as have others, in congratulating my hon. Friend the Member for Aberconwy (Guto Bebb) on initiating this debate. It is sad, as he said, that this is the second or third time he has had to bring this matter to our attention either on the Floor of the House or in Westminster Hall. He has plugged on, and my constituents and I are very grateful to him.

I have no doubt that all who contribute to the debate will mention constituency cases. It is right for us to do so. I had originally intended not to mention my constituents’ names or the name of the bank with which they had to grapple because I thought it unfair, but since the hon. Member for Newcastle-under-Lyme (Paul Farrelly) and other hon. Members have already mentioned the bank and because I think the bank is big enough to look after itself, I shall not shrink from doing so.

My constituents, Bob and Stephanie Hamblin, are directors of a small property company called Hybeck Estates, which they founded in the early 1990s. Their companies had banked with RBS for many years since the 1980s, and they entered into first one and then a second lending arrangement. Sixty years ago, it might have been seen as somewhat unorthodox, but in the conditions that operated in the 1990s and the early part of this century, such arrangements have become increasingly usual, if not wholly orthodox.

All went well until about 2006, when the bank decided that the Hamblins and their company needed to restructure its existing hedging arrangements, and the bank recommended replacing the second loan arrangement with a swap, a collar or a knock-in collar on the basis that this would reduce the company’s quarterly premium payments. On 16 February 2006, the bank sold the Hamblins a £3.5 million, 10-year amortising base rate collar.

In August 2012, the company submitted a complaint regarding the sale of the replacement collar in the context of the interest rate hedging product mis-selling review, and submitted further written evidence on 28 January this year. The complaint was essentially that the replacement collar was unsuitable for the company because of the risks involved—risks that were never adequately explained by the bank. The bank should have allowed the company to continue with the protection of its earlier arrangements, which would have protected it against the possibility that interest rates would rise, without exposing it to the risks inherent in the new replacement collar.

On 1 July this year, the bank wrote a letter to the company, containing the bank’s provisional offer of redress. It acknowledged that in the course of the sale of the replacement collar, the explanations it had provided to the company, initially in a crowded pub,

“in respect of the features, benefits or risks of alternative products did not comply with the standards agreed with the FCA.”

The bank’s failure to explain the

“features, benefits or risks of alternative products”

also extended to the appropriate alternative strategies, which were not explained at all. The company’s desire for premium reduction could have been satisfied in a number of simple and risk-free ways—but they were not. The risks were simply not explained. The second cap—the earlier lending arrangement—exposed the company to no risks at all, but the new one exposed it to potential losses of more than £950,000 in the event of interest rates falling. That risk was not disclosed to the company; neither was the fact that, as a consequence of the liability incurred via this collar, the company’s flexibility to refinance with another bank would be seriously impaired.

It seems reasonable to draw the inference—I am sure others would concur on the basis of their own constituency experiences—that the bank’s poor sales practices were driven by the additional profit it could make by putting the company into this new vehicle. Derivatives pricing experts calculate that the expected net gain to the bank on the day of the transaction was over £43,000, and it incidentally cost the Hamblins and the company £0.33 million to extract themselves from it this year. The replacement collar, furthermore, is in serious breach of the 7.5% rule announced by the FCA at the outset of the review. This collar exposed the company to potential losses of very nearly £1 million—equivalent to 27% of the amount notionally hedged, which is almost four times higher than the stated 7.5% maximum.

Given these circumstances in which the bank has acknowledged that it neither explained the risks of the new collar, nor offered any of the simple premium-reducing strategies outlined above, the bank’s conclusion that the company

“would have chosen a vanilla collar in any event”

is clearly absurd.

Here we have a company that has been in the property business for some little while, and a director of that company who knows something about—indeed, quite a lot about—the financial services industry, but is not an expert on hedging. To suggest that he would expose himself, his wife and his company to a product that would place them in such dire jeopardy is absurd. Nevertheless, the bank has concluded—through its internal review process, which has been validated by the FCA’s independent review system—that they are not entitled to redress. The bank has made an admitted mistake and has caused admitted consequential loss, but it has said “You would have bought one of these anyway, so we will not pay you any compensation.”

[Guy Opperman]

I am following the case of my hon. and learned Friend’s constituent with interest, because it is very similar to cases that I have encountered in my constituency. If, like me, my hon. and learned Friend has met senior managers at RBS—the bank that is involved in both our constituents’ cases—he will know that while they are very keen to resolve these cases, the middle managers who are dealing with the individual claims that are being assessed seem incapable of accepting the principle that they were at fault and are to blame. The Government ought to make it clear to senior management at RBS that they must ensure that there is true accountability in their own organisation.

Crime and Courts Bill [Lords]

Debate between Lord Garnier and Guy Opperman

Monday 18th March 2013 Commons Chamber

[Sir Edward Garnier]

I thank the Secretary of State for Culture, Media and Sport, my right hon. Friend the Member for Basingstoke (Maria Miller), and the right hon. and learned Member for Camberwell and Peckham (Ms Harman) for introducing this section of the debate. It is clear that Members on both sides of the Chamber have worked extremely hard to bring the matter to a head. As I said in the debate opened earlier by the Prime Minister, everyone must be congratulated, but we must not oversell it or exaggerate the claims for the solution that may have been found.

I was interested in looking at some of the new clauses and new schedules to see that the statutory framework that seems to have been set down for the Crime and Courts Bill makes some changes to the law, but only up to a point. If one looks at new clause 21A, provision is made for the award of exemplary damages unless the defendant was a relevant publisher. But that is cancelled because the court can disregard subsection (2), and that is cancelled because under subsection (4) the court is not prevented from making an award of exemplary damages for other reasons. It rather disappears up its own grammar—I was about to use a rather unparliamentary term. We might need at some stage to reconsider the English used in the new clause if it is to be understood by the people we wish it to attract.

The other point we ought to think about—something my hon. Friend the Member for Hexham (Guy Opperman) and I were discussing only a moment ago—is that we must be careful not to set up two regimes for exemplary damages. There already exists a common law regime for exemplary or punitive damages. Broadly, it is available where a state actor has behaved in an unconstitutional or high-handed fashion, for example when the police or the Prison Service grossly misbehaves in relation to someone in custody. That example is perfectly easy to describe: the court will award punitive and exemplary damages to mark society’s disapproval of the behaviour of that arm of the state.

[Guy Opperman]

Does my hon. and learned Friend agree that there appears to be, in effect, almost a mirror image of the common law system of exemplary damages? Under the present system, which he rightly describes, for an unlawful arrest involving a police officer verballing an innocent defendant, for example, a judge would give exemplary damages. Surely that would be mirrored in exactly the same way in the provisions proposed in the new clause. All that might be good, but surely those provisions would apply on an ongoing basis in any event. Does he agree that the concern is that the provision on exemplary damages does not necessarily change the common law?

[Sir Edward Garnier]

I think that I largely agree with my hon. Friend. The first limb relates to unconstitutional state behaviour, which he described and I mentioned, but the second limb relates to situations in which, under the common law, the defendant has calculated that the gain he could make from the civil wrong he commits will lead to greater profit for him than any potential damages he might have to pay as compensation to the wronged person. The court can recognise that by punishing the defendant, and deterring others from doing the same thing, through the separate and additional award of exemplary damages. Those two limbs of the exemplary damages regime are well described in the 1964 case of Rookes v. Barnard, but I will bore the House no further on that.

What we are creating is a regime that will be similar to the common law regime but not exactly the same and that will be limited to “relevant publishers”. We need to think carefully about whether we are setting up two systems that are close, but not quite parallel, for securing exemplary damages. While we are legislating to adjust exemplary damages for the perfectly sensible and understandable motive of encouraging newspaper publishers, or those who will become “relevant publishers”, to enter a scheme under a regulator, I wonder whether we ought to bring together everything relating to exemplary damages under one statutory umbrella. I say that not simply because I think that it would be neater, but also because of what is said in subsection (4) of new clause 30, which defines a relevant claim. It states:

‘“Relevant claim” means a civil claim made in respect of any of the following—

(a) libel;

(b) slander;

(c) breach of confidence;

(d) misuse of private information;

(e) malicious falsehood;

(f) harassment.’

Under the common law, libel, slander and malicious falsehood are already susceptible to punitive and exemplary damages, but as we know from Max Mosley’s case against Mirror Group Newspapers—I will not rehearse the facts of the case—the judge, when asked to award exemplary damages to the claimant in respect of the behaviour of the defendant newspaper, said, “Under the common law I do not think that I can extend the ambit of exemplary damages beyond the categories of libel and slander and so forth to a claim involving a breach of confidence or the misuse of private information.”

In the Bill we are extending by statute what that judge could not do, but we are extending it only to cases involving “relevant publishers”; we are not extending it to what I will crudely call “irrelevant publishers” or individual defendants who might misbehave in such a way that brings them within the regime of either of the two limbs of exemplary damages. I do not want there to be two separate types of exemplary damages. One statutory system should govern the consideration and awarding of exemplary damages, not one and a half or two systems. I urge the Government to consider this when they are thinking about how to take these matters forward. Perhaps having done so they will think that my concerns are of no importance or account, but I raise them nevertheless, admittedly in the light of having seen the document only during the course of this afternoon.

New clause 27A on the award of costs mirrors the arguments about exemplary damages. I entirely understand that the policy behind exemplary damages and the statutory costs regime as described in this set of manuscript amendments is intended to incentivise relevant publishers to come within the regulatory scheme. That is understood and perfectly sensible. However, we are in danger of misleading ourselves if we think that that is going to lead to easy and early resolution of media disputes. A moment ago I had a brief discussion with the right hon. and learned Member for Camberwell and Peckham (Ms Harman) on arbitration and so forth. New clause 27A(2) —I will read it, if I may, because it might be helpful—says:

“If the defendant was a member of an approved regulator at the time when the claim was commenced (or was unable to be a member at that time for reasons beyond the defendant’s control or it would have been unreasonable in the circumstances for the defendant to have been a member at that time), the court must not award costs against the defendant unless satisfied that…the issues raised by the claim could have been resolved by using an arbitration scheme of the approved regulator, or…it is just and equitable in all the circumstances of the case to award costs against the defendant.”

That involves a bit of saying, “On the one hand but then on the other.” It is not quite clear which is the desired policy because there is a bifurcation.

On the question of whether

“the issues raised by the claim could have been resolved by using an arbitration scheme of the approved regulator”,

we would of course first have to see what that arbitration scheme looked like. Going back to the days of the now-no-longer-regretted Press Complaints Commission, that organisation, because of how it was set up and staffed and how the panels of adjudicators were composed, was wholly incapable of dealing with hugely complicated factual issues or with matters that required quite a nice calculation, or a nice discussion, of matters of law.

One might think that it would be very sensible that if a series of grossly defamatory allegations were made in a front-page article in a tabloid newspaper, or any other newspaper, that would lead to a dispute resolution process of the sort envisaged under this regime. Of course, it has a spurious attraction: “Let’s mediate, let’s settle, and let’s get it all dealt with quickly and cheaply and with the least possible intervention by lawyers.” As a matter of theory, that is a jolly good idea, but disputes come in different shapes and sizes. One can have the simplest possible dispute that does not require evidence or looking at complicated documents. I give the example of the meaning of words. If an article is defamatory on the face of it, a professor of English does not need to come and give a lecture about what this word means or that word means. The judge, if he is the arbiter, or the arbitration panel, can say, “This, in its natural and ordinary meaning, bears the following defamatory meaning”—end of story. Then the defendant, or the respondent to the arbitration, can say, “Okay, I accept what you say and I apologise—I didn’t mean that.” If meaning is the only question that has to be considered, some form of early, non-court dispute resolution, assuming that the panel is competent, would be a perfectly sensible way to do it.

Let us assume, however, that four contended meanings can be derived from the words under discussion. The defendant newspaper, be it a relevant publisher or otherwise, may say, “We don’t think that the words have those two highest meanings, but we do think that they have the two lower, less serious and less defamatory meanings. In so far as those meanings are to be derived from the words, we say they are true and we intend to justify them. We will also go further by saying that those meanings are not only true as a matter of fact, but that, in so far as they comprise or include comment, they are honest comment.” That will require the proposed system’s mediation procedure to go into all sorts of complicated questions with regard to the disclosure of relevant evidence, documents and so on.

Assisted Suicide

Debate between Lord Garnier and Guy Opperman

Tuesday 27th March 2012 Commons Chamber

[The Solicitor-General]

I do not think that I will answer that question, because, to be honest, I am not entirely sure I understand it. I apologise if my failure to understand is entirely my own fault.

The DPP’s guidance relates to the framework within which prosecutors apply the law as it currently stands, and I suggest that that is a framework that should remain in place as it currently stands. As Law Officers, it is for the Attorney-General and for me to superintend the Crown Prosecution Service and to account to this House for its activities and performance, but prosecutors have always had discretion to consider what the public interest might be when they bring criminal proceedings, and it is for prosecutors to decide how to exercise that discretion.

That is set out in the code for Crown prosecutors, the document issued by the DPP that provides guidance on the principles that prosecutors should apply when making decisions on whether to prosecute in any particular case. The test requires—I paraphrase—the prosecutor to be satisfied that there is sufficient evidence to convict and that it would be in the public interest to prosecute. Sometimes a statute requires that either the DPP or the Attorney-General—for these purposes that means the Solicitor-General as well—must consent to the prosecution, and in the case of a prosecution under the Suicide Act 1961, as amended by the Coroners and Justice Act 2009, it is the DPP who has to consent to the bringing of criminal proceedings.

However, it has been clear for many years that it is not in every case where the evidential test is passed that a prosecution must be advanced. In 1951 in the House, the then Attorney-General, Sir Hartley Shawcross, said:

“It has never been the rule in this country—I hope it never will be—that suspected criminal offences must automatically be the subject of prosecution.”—[Official Report, 29 January 1951; Vol. 483, c. 681.]

Those words underscore the essential independence of our prosecutors from Government, from Parliament, from newspapers and their readers, from religious leaders, from the expert and ignorant, and from all who would seek to interfere in their discretion and independence. As Law Officers, the Attorney-General and I support and protect the independence of prosecutors in their decision making. With that in mind, I will turn to the DPP’s policy document.

[Guy Opperman (Hexham) (Con)]

I make a declaration as a former criminal prosecutor. It was frequently said that we were often consulted but often ignored. In these particular circumstances, given that there may be a presiding view of the Government, what is to be lost by having a consultation and finding out what is the view of the people?

[The Solicitor-General]

I suppose that it is a matter of attitude. I happen to think that the Government were elected to take decisions. I have expressed my view on the matter. No damage will be done to the constitution, and the world will not come to an end, if we consult on this issue. I happen to be of the view that we do not need to put this policy into statutory form. It will create a form of sclerosis and lead to all sorts of problems that may not be intended. Therefore the better position is to leave the thing as it is. If my hon. Friend, either as a Member of Parliament or as a private citizen, be he a former prosecutor or a former defender, wishes to advocate the consultation process, he should go ahead. I will not stop him. I will just simply not support him.