Listed Investment Companies (Classification etc) Bill [HL]

Lord Hodgson of Astley Abbotts Excerpts

2nd reading
Friday 15th November 2024 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, the hour is late and the sun is setting. The umpire wishes to remove the bails and draw the stumps and then we can all go home, so I will be very brief indeed. I do not want the House to think that such brevity is in any way lessening my support for the powerful case that the noble Baroness just made, and indeed the case made last year by my noble friend Lady Altmann.

The United Kingdom has a very proud record of pioneering innovations in the financial services industry. The investment trust movement, which has been around for over 100 years, is one such. However, only Britain could find itself in a situation where regulations being introduced as part of its membership of a political economic bloc—the PRIIPs regulations—were going to hamstring one of the most important sectors of its financial markets. Even more importantly, having decided to leave that bloc, and having done so on 31 January 2020, nearly five years later we have still not managed to find a way to answer the questions that the noble Baroness has just pointed out in her very powerful speech.

I do not put this down to a lack of political will: I am sure that the Minister would like to sort it out and that her predecessor, my noble friend Lady Penn, equally would have wished to. I put it down to a sort of extraordinary level of institutional inertia, linked to a huge risk aversion, combined at the same time with a very slow process of policy formation—what one might describe as analogue thinking in a digital age.

I am sure that we will hear from the Minister about the forbearance regulation that the FCA brought in. The House needs to understand that that does not go anywhere towards solving the major problem, which is the launch of new trusts. Nobody will take the time and trouble, or go through the expense, of launching a new investment trust if the forbearance regulations might be brought to an end at any time. It is just not getting to the heart of the problem, as the noble Baroness, Lady Bowles, has pointed out.

What is the answer? What can I offer to the Minister as a way forward? Well, she should get hold of today’s copy of the Financial Times, in which the main headline reads as follows:

“Reeves demands City watchdogs allow greater risk in push to promote growth”.


I suggest to my friend the Minister that, when this debate comes to an end, she goes back to her office, picks up the phone, talks to the Chancellor’s office and says to the Chancellor, “Have I got news for you—I have something you can do straight away that will promote growth in a very important part of the UK financial markets”.

Digital Markets, Competition and Consumers Bill

Lord Hodgson of Astley Abbotts Excerpts

Report stage
Monday 11th March 2024 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, the Minister gave a disappointing response in Committee to my amendment on exemplary damages in collective proceedings. In explaining the Government’s decision, he said:

“The bar on the availability of exemplary damages in collective actions was one of the many safeguards put in place when the Consumer Rights Act 2015 was enacted, to ensure a balanced system of collective actions before the CAT which will not lead to a culture of undue litigation and US-style class actions”.—[Official Report, 31/1/24; col. GC 371.]


That is not a particularly helpful way of describing a legitimate assertion of consumer rights in a collective fashion, given the imbalance of power that is there so often in these proceedings. We have heard about asymmetry, and this is precisely that kind of area. Why should they be denied exemplary damages when in an individual case they would have been awarded, for instance where the illegal action has been deliberate?

I thank the Minister for his letter of 27 February. In it, he says:

“These safeguards were put in place when the Consumer Rights Act 2015 was taken through the House to ensure a balanced system of collective actions before the CAT. These safeguards ensure that defendants are protected by avoiding vexatious and unmeritorious claims—or fishing expeditions—while allowing legitimate claims for redress to proceed”—


this is the point where I took a deep breath—

“without defendants feeling pressured to settle despite the likelihood of a strong defence”.

Let us consider who we are thinking of as defendants: quite often in these circumstances, they will be extremely large companies. Is it not time that we reviewed the Consumer Rights Act 2015 in that respect? Surely, in these circumstances, we are talking about big tech, which has all the market power and the ability to finance litigation till kingdom come. Have the Government engaged in any recent consultation on that? As far as I can see, the last consultation they conducted was 10 years ago. I hope that the Minister has some slightly better answers this time around than both those in his letter and in Committee.

I look forward to hearing from the noble Lord, Lord Tyrie, and I encourage him to retable his Amendment 65 on whistleblowing. The government response in Committee and in their letter of 27 February—in contrast to what I have just said—demonstrated a real interest in expanding the regime set out in the Public Interest Disclosure Act 1998. The Government now say that they are currently reviewing the effectiveness of the whistleblowing framework in meeting its original objectives. I very much hope that the Minister can give us a foretaste of the conclusions of that review. I also look forward to hearing from my noble friend Lady Kramer, who has been a champion of whistleblowing rights.

Without anticipating what the noble and learned Lord, Lord Thomas, may say, I welcome government Amendment 62, but the timescale is crucial. We on these Benches will help to facilitate a Bill putting those rights on the statute book in any way that we can. We have received a letter from the Association of Litigation Funders. Without putting too fine a point on it, it says: “This vital role of litigation funding has been highlighted recently following the increased and long-overdue coverage of the Horizon scandal. Alan Bates, the lead claimant against the Post Office, has said that the backing of litigation funders helped him and his colleagues secure justice, expose the truth and clear their names and reputations”. I cannot think of a better reason to make sure that we get the Bill on the statute book as soon as possible. I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have Amendment 63 in this group, which is an updated and slightly amended version of Amendment 89A that I tabled in Committee. As the title of the proposed new clause says, the amendment calls for the Government to undertake a review of the third-party litigation funding industry. We discussed my earlier amendment on 31 January, and a lot has happened since. I have been blowing the trumpet since March 2017, and suddenly it appears that the walls of Jericho have fallen down.

I thank the noble and learned Lord, Lord Thomas of Cwmgiedd, who has been kind enough to send me a copy of the draft report by the European Law Institute on the principles that should govern third-party funding. The draft report contained a great deal of intellectual heavy lifting, from which I have benefited greatly.

Most importantly and significantly, I thank my noble friend the Minister and, through him, the Lord Chancellor and the Ministry of Justice for the announcement on 4 March that a review of third-party litigation funding would be undertaken. I am also grateful to my noble friend and his officials for giving me the chance to see some early draft terms of reference and for the opportunity to discuss them with him. I have a handful of points about them that I would like to put on record tonight, and I hope he will be good enough to pass them on to the MoJ, so that they may be taken into consideration as the terms of reference are firmed up.

First, in Committee I explained that I was a very strong supporter of the concept of access to justice, but that we needed to know what sort of justice was being accessed. The noble Lord, Lord Fox—I am sad that he is not in his place, but I did say I was going to mention him this evening—got after me, not entirely unfairly, saying that all my remarks were, as he put it, of second-rate importance and that, without third-party litigation funding, there was no justice at all, to which I reply: up to a point, Lord Copper.

We—and I hope the review—must not forget that the funders are profit-making entities. This in itself is entirely understandable, but a profit-making entity marches to the beat of a different drum. All I am saying is that the plaintiffs—whose interests, after all, the funders are supposed to represent—are entitled to know about the beat of that drum, the waterfall of the distribution of the proceeds, who pays costs, and all those sorts of issues. If obfuscation takes place, there should be a body—the courts, perhaps—that can step in. Equality of arms demands no less.

My second point is that I hope the review will be prepared to get down into the real practical detail of what is happening in the industry today. High-flown legal principles are really important to provide the right structure but, to be effective and worth while, the review will need people with experience of the third-party litigation funding industry and those with a preparedness to get into the detail and turn over all the stones.

Thirdly, I hope the review will examine the consequences of grouping claims together, in the way that they are put together for funding via a single investment pot. In particular, the review will need to consider the position where firms of solicitors are undertaking the grouping. As I explained in Committee, where several cases are included in a single pot, there is a danger of too early a close-out, from a plaintiff’s point of view, of the remaining case or so, when the funder would like to round up the pot and return the money to its investors. By contrast, when matters are not going so well, it may be in the funder’s interest to prolong the proceedings—not in the interests of the plaintiffs—in the hope that a greater result will come from the last few cases, and the result will be a much more satisfactory outcome. The key differentiation is that the plaintiffs have an interest in the outcome of a single case, whereas the funders have an interest in the outcome of a group of cases.

Fourth is any unwitting exposure to costs. Under the opt-in regime, individuals took their chances when they signed in—not so under the opt-out regime. I think I am right in saying that there is nothing to stop my noble friend the Minister, me, or Members of your Lordships’ House suddenly getting communications saying, “Please send us £100 for your share of unfunded costs of bringing this case”. That seems to be not a likely but a possible situation, and not a very satisfactory one.

Fifthly, for those Members of your Lordships’ House who sat through Committee and other stages of the National Security and Investment Act, when we were seeking to achieve a reasonable balance among interested parties, there is a read-across to this review. It is surely not in our national interest to have unknown funders—perhaps backed by foreign Governments—able to press for litigation claims against high-tech UK companies. Such actions can disrupt the management and development of the company or damage its reputation, and could in some cases give access to its technology. An ability for the Government and/or the courts to require disclosure of beneficial ownership could be of great advantage in the future.

Finally, we are promised a preliminary report this summer and a final report in summer 2025. This will presumably mean that the earliest we can accept draft legislation, if there is any, will be in the 2026-27 legislative programme, leading to stuff on the statute book in 2028. That is quite a long way away, and I hope we are not going to see any slippage in that timetable. I hope that I have been over-pessimistic about what might be achieved, and that my noble friend can reassure us on that.

I end as I began, by thanking my noble friend and the Government for this important development. I hope they will feel able to pass these remarks on to the MoJ and I ask whether those of us who have taken a long-standing interest in TPLF can be kept informed as matters develop, and that we shall have the opportunity to give evidence to the review in due course.

Digital Markets, Competition and Consumers Bill

Lord Hodgson of Astley Abbotts Excerpts

Committee stage
Wednesday 31st January 2024 Grand Committee

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have Amendment 89A in this group. It is self-explanatory, in that it would require the Government to undertake a review of the operations of the third-party litigation funding industry along the lines that the noble and learned Lord, Lord Thomas, has just mentioned. I am afraid that at present it is a rather confused, not to say murky, area of activity in many aspects.

I shall come to that amendment in a moment, but before doing so I shall say a few tentative words about my noble friend Lord Sandhurst’s Amendments 88 and 89. I emphasise “tentative” because I am not a lawyer and this is clearly a highly technical legal area. I stand second to nobody in wishing to see access to justice for people, but I therefore want to proceed with caution, in particular having seen the legal and parliamentary talent who have put their names to these two amendments.

I mentioned my concerns to my noble friend Lord Sandhurst, and I mentioned them to the noble and learned Lord, Lord Thomas, en route to the Division Lobby the other night. I do not oppose the amendments outright because I support increased access to justice, but I am not yet sure that we would be wise to bring amendments in quickly without further consultation. Much more importantly, we should think carefully about widening class actions in an industry that is already pretty uncontrolled, totally unregulated and unaccountable. My concerns about Amendments 88 and 89 are about not so much access to justice but the sort of justice we may be accessing. We would need to consider those issues further.

I will leave those amendments there and turn to my Amendment 89A, which concerns an area that I have been following for some time, notably in a debate in your Lordships’ House on 2 March 2017, when I was grateful to have the support of my noble friend Lord Faulks and, indeed, of the noble Lord, Lord Stevenson of Balmacara, who spoke for Her Majesty’s loyal Opposition, as they then were. To make the record clear, I had to declare an interest in that debate that I was chairman of a company that provided data to companies engaged in third-party litigation funding. It provided data but did not undertake the actions. My term of office has now come to an end so I no longer have an interest to declare. That is shown on the register but I want to get it on the record.

What were we concerned about those seven years ago? The first question was: how are the funders rewarded? What is the waterfall, as it is known in the trade? For example, can the funders be reimbursed for all their expenses before the claimants receive a penny, or are 100% of expenses deducted from the sum awarded before arriving at the way that sum is split? For example, if there was a 75:25 split, with the claimants receiving 75% and the funders 25%, you might say that is okay, but if the costs of the case are 40%—they are often high—then they actually get 75% of 60%, so 45% not 75%. Those sorts of things are not made clear. We have referred to the Post Office computer system and the scandal about it. It is alleged that, of the first £58 million awarded, £46 million of that went to the funders—80%. I am not saying that is wrong—it is access to justice and people got £30 million that they would not have got—but I am not sure that would have received great public approval outside in the wider world.

Secondly, who controls the case? A lot of these cases are put into a pool and a lump of money is raised from them—£200 million to £500 million, and more. The people who run the funds like to be able to present the whole thing finished as quickly as possible. Let us suppose I am running a fund with 10 cases in it. Nine have finished and I have a pretty good record. I will press to get the 10th finished quickly because I can then turn to my investors and say, “I’ve got the whole thing wrapped up and you’ve got this return. Let’s do it again for a bigger sum of money”. Who is watching to ensure that the plaintiffs in that case are being looked after and are not being rushed to settle because the funder says, “I’m going to settle, whatever the rights and wrongs of the likely payout may be”?

Thirdly, there is the question of exposure to costs. If a case is unsuccessful, can there ever be a situation where plaintiffs could be exposed to costs in the event of the funders walking away? I think my noble friend Lord Sandhurst said that could not happen. He is a lawyer and I am not, but there is a concern that the plaintiffs could be left holding a baby without knowing they are holding a baby—without knowing how much.

Things have grown at scale. We now have a situation in which the number of cases has grown from about 46 million in 2016 to 340 million today. That means that every Member of your Lordships’ House will, knowingly or unknowingly, be part of an average five different class actions today.