Baroness Noakes
Main Page: Baroness Noakes (Conservative - Life peer)Consumer Rights Bill
Baroness Noakes Excerpts
Baroness Noakes
Baroness Noakes (Con)
My Lords, at the request of my noble friend Lord Hodgson of Astley Abbotts and with the leave of the Committee, I shall move Amendment 64 and speak to the other amendments in this group. My noble friend Lord Hodgson had been hoping that the Committee would reach his amendments to Schedule 8 last week as unfortunately he is out of the country this week. I have to say, having agreed to be his understudy, that I shared his hopes. But it was not to be.
This is the first time that I have spoken on this Bill and I declare my interests as recorded in the register of interests. In particular, I am a non-executive director of the Royal Bank of Scotland, although I have absolutely no idea what the Royal Bank of Scotland’s view is on the Bill, and it has absolutely no idea that I am about to speak on it.
There are two distinct subgroups in this group of amendments. The first subgroup, led by Amendment 64 and including Amendments 67 and 68, deletes opt-out collective proceedings from Schedule 8. The second subgroup, comprising Amendments 65, 66, 69, 72 and 74, is more modest and seeks to ensure that some of the excesses of opt-out collective proceedings are avoided if the Government indeed wish to retain them in the Bill.
First, I will address why collective opt-out proceedings are an undesirable feature of the Bill and why I hope to persuade my noble friend the Minister to support Amendments 64, 67 and 68. The CBI does not support opt-out collective proceedings and gave evidence to that effect in Committee in another place. It believes that it is not the best way to deliver redress to consumers and that the overseas evidence is that most of the financial settlement gets absorbed in legal costs. BIS has itself recognised that these proposals create incentives for intermediaries and that a proliferation of cases could impose significant burdens on businesses. My noble friend the Minister has already referred to this in the previous group of amendments.
In practice, if there were a large number of collective opt-out proceedings, that could end up distracting businesses from what we need businesses to do—to focus on growth, jobs, profits and wealth creation. If we do not get businesses focused on those things, we lose our most secure route to escape from the deficit and debt that still overhang our economy and are still holding us back.
I expect that if we get collective opt-out proceedings, the first wave will be targeted at major corporates as they will have the deepest pockets. They may be reasonably well placed to deal with such actions without putting their businesses at risk. But I have genuine concerns that collective opt-out actions will then move on to mid-corporates and indeed smaller companies, which could well be flattened by the possibility of a collective opt-out action. This is where not only the defence costs but the sheer effort of defence will weigh most heavily and are most likely to distract those businesses from what they do best—wealth creation.
Either way, if collective opt-out actions are threatened, the implications for cost and effort for the business, large or small, may well weigh the scales in favour of settlement rather than defence. Whether collective opt-out actions are settled or defended, the costs that businesses bear will end up in prices. Therefore, consumers will pay for any additional redress—there is no net gain for consumers. If there are additional costs for businesses in dealing with the impact of collective actions, that will flow through into businesses’ costs and therefore prices.
So on one side of the equation we have burdens on businesses, which will undoubtedly come from a significant number of collective actions, with the costs, if there are any, passed on to consumers; but on the other side of the equation there is no evidence that consumers— as opposed to representative groups that claim to speak for consumers—think that this is a price worth paying.
The evidence from the US, which has, as we know, a highly litigious society and extensive use of class actions, is that opt-out class actions do not satisfy consumers. Only a minority report receiving meaningful value from such actions and consumers report that they want to retain control over whether or not they are included in such actions. But more importantly, as the Minister has already said, there is evidence that the real beneficiaries are not the consumers; they are the lawyers and the litigation funders who sometimes take hundreds of times more than the amount that was actually distributed to the consumers in the form of redress. So there are very real costs and somewhat illusory benefits at play here.
The European Commission is much more cautious about opt-out proceedings than our own Government. Commissioner Reding, who is not normally one of my favourite people, has described the Commission’s own proposals as a,
“balanced approach to improve access to justice for citizens while avoiding a US-style system of class actions and the risk of frivolous claims and abusive litigation”.
The Commission’s proposals include a general principle of opt-in rather than opt-out actions, and indeed stress the desirability of alternative dispute resolution mechanisms in preference to legal actions. This Bill could not be categorised as falling within Commissioner Reding’s balanced approach.
I am aware that the Government believe that sufficient safeguards have been set out in the Bill. The ban on exemplary damages and damages-based agreements, while welcome, will not remove the huge incentive for lawyers and litigation funders to make a handsome living out of exploiting these provisions. I expect that the Minister will also rely on the Competition Appeal Tribunal’s control over those who can act as representatives by virtue of subsection (8) of proposed new Section 47B, which will be inserted by paragraph 5 of Schedule 8. I have great admiration for the competence of the tribunal in competition matters, but I do have concerns that so much will depend on how the tribunal exercises its discretion in this area—territory with which it is unfamiliar. Whether we end up with a US-style litigation environment will not be determined by Parliament but by the tribunal. I hope that I am not alone in being uncomfortable about this. That is why my noble friend Lord Hodgson has tabled his amendments to remove the collective opt-out provisions from the Bill. They impose burdens on business and would seem to yield few benefits for consumers. They certainly seem to benefit litigation funders and lawyers, but not anyone else.
As I have already mentioned, my second set of amendments in this group is predicated on the Government remaining wedded to the opt-out principle. The amendments, including Amendment 65, are designed to mitigate dependence on the tribunal. Under subsection (8) of proposed new Section 47B, the tribunal must conclude that it is “just and reasonable” for a person to act as a representative in collective proceedings. The effect of Amendments 65, 66 and 69 would be to place quite specific restrictions on this so that lawyers, claims management organisations and others who gain from the litigation itself cannot themselves satisfy the just and reasonable test. In addition to the usual suspects of specialist legal firms, claims management companies and lookalikes, these amendments would rule out funds and other bodies which are established to promote collective proceedings and to gain from their pursuit.
Amendments 72 and 74 are variations on the same theme. Proposed new Section 47C of the Competition Act inserted by paragraph 6 of Schedule 8 makes damages-based agreements unenforceable in relation to opt-out proceedings. These amendments add third-party litigation funding agreements. Damages-based agreements are too narrow a concept. As I indicated earlier, the incentive may well not be damages and gaining access to those, but simply the ability to be able to siphon off legal and other fees related to the litigation.
My noble friend the Minister is aware that the Law Society has taken a keen interest in these proposals and I hope that, as a minimum, she will agree to meet it and interested members of your Lordships’ House, between Committee and Report, to discuss how best to deal with these very real concerns. I beg to move.
Baroness Neville-Rolfe
I thank my noble friend for his clarification. He is right to say that the draft rules were constructed by a specialist working group. They will be subject to full public consultation in order to ensure that they strike the right balance, and that will obviously be undertaken well before these provisions come into effect on 1 October next year. Perhaps I may also say at this point that I have talked to the CBI and corresponded with the Law Society, with which I am extremely happy to have a meeting, as I think my noble friend suggested, so that we can go through some of the points that I am making in more detail.
A key safeguard in the Bill is that the CAT must certify that a representative is suitable to bring a collective action. This means, as has been said, a law firm, a claims management firm or a special purpose vehicle. These will not automatically be able to bring a claim, and the draft CAT rules provide for even more scrutiny of a proposed representative. It is appropriate for these requirements to be in the CAT rules so that they can be modified more easily or be made even more stringent if that is necessary. This will ensure an effective regime which promotes the interests of consumers. The Government also believe that the CAT, a specialist competition court which I know from my own experience, has a strong track record in dealing with consumer detriment in competition law, and is well placed to scrutinise each and every body that seeks to act as a representative. I do not share my noble friend’s concern, given my knowledge of the court and its specialist nature.
Baroness Noakes
Perhaps I may intervene on my noble friend on that one point. As I understand it, the CAT does not normally carry out this function, so as I have said, while I have the greatest respect for the work of the CAT and what it does in relation to competition law, I do not think that it has experience of establishing whether or not particular claimants for the action are representative. We are going into uncharted territory here, and that is why it is so important to get this absolutely right.
Baroness Neville-Rolfe
I thank my noble friend. She is absolutely right to say that we need to get this right. We will reflect further on the point, and of course we do have a fair amount of time to ensure that the right mix of expertise is in place. However, the Government have decided, I think for the right reasons, that the CAT is the place to house this function. The rules and regulations surrounding that are clearly important and will be, as I have just said, subject to public consultation.
The point has been made that it would be better to put all the eligibility requirements into the primary legislation, but of course no two cases will be the same. We are concerned that companies might seek out loopholes to avoid the restrictions, and therefore it feels appropriate for the CAT to have the discretion to consider each representative on a case-by-case basis. But, again, we can discuss this further.
These amendments would also prohibit the use of third-party litigation in collective action cases. It is appropriate for the CAT to scrutinise any funding arrangements that exist in a case to ensure that the claimant has sufficient funds to meet the defendant’s costs.
My noble friend Lady Noakes talked about the approach of the European Union to this subject. I believe that it has issued a recommendation for opt-in in collective redress. The recommendation suggested the adoption of an opt-in regime, but it accepted that for reasons of sound administration of justice, member states might want to introduce a different regime. Following our consultation and the evidence that we gathered, the Government believe that the present opt-in regime is—as I have said a number of times—not delivering effective redress. We therefore propose in the Bill to introduce an opt-out regime with safeguards.
My noble friend raised many understandable concerns. We have thought carefully about this. The Bill already contains restrictions on the financing of claims as it prohibits damages-based agreements and does not provide for a claimant to be able to recover any uplift in a conditional fee agreement. Therefore there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers.
Blocking access to such funding would result in a collective actions regime that is less effective. This would bar many organisations, including reputable consumer organisations such as Which?, from bringing cases as Parliament hoped in 2002. Restricting finance could also create a regime which was only accessible to large businesses. This would weaken private enforcement in competition law, which is of course not the Government’s wish or intention.
To return to the point made by my noble friend Lady Noakes on the CAT, its staff obviously includes High Court judges, who are used to dealing with a range of representatives and complex case management. However, I take the points she made and look forward perhaps to discussing those with the Law Society or with any others who wish to be involved in a meeting between now and Report.
I hope that my noble friend is reassured that we are aware of the concerns around introducing an opt-out regime. I look forward to further discussions, but I also ask that my noble friend withdraw the amendment.
Baroness Noakes
My Lords, I thank all noble Lords who have taken part in this brief debate on these very important provisions in the Bill. I am thankful in particular for the support that I received from my noble friends Lord Eccles and Lord Hunt on the amendments that I moved.
I say in passing that I find it curious that having an opt-in provision which resulted in only one action should be grounds for more legislation. It seems to me that there is very little consumer demand for that, although there may well be demand from representative bodies. I worry about whether we get the right balance in the law when we make law for representative bodies rather than ultimate consumers.
The issue comes down to what should be in the Bill. I understand what the Minister is saying about needing to have flexibility in due course and to leave discretion. My noble friend Lord Hodgson’s amendments did not change that; they merely proscribed certain categories of people from being authorised as representatives. It would still leave discretion with the tribunal, but would say, “In these circumstances you cannot do it”—so if you are a law firm involved in it, you cannot do it—rather than leave it to the discretion of the tribunal to work its way through whatever rules exist at the time. The draft rules, as my noble friend Lord Eccles said, are not very clear on that. They have rules about conflict of interest, but they are not absolutely clear what they are directing themselves at. They may well end up with precisely the right answers, but, equally, they could build their own precedence system which will end up with the wrong answer. That is the concern: that unless we are quite clear about prohibiting what we have observed elsewhere and do not wish to come here, we may end up with what we do not want.
However, I will not take up more of the Committee’s time today. Obviously, I need to revert to my noble friend Lord Hodgson of Astley Abbotts, who will certainly be looking forward to reading Hansard when he returns from abroad. I thank the Minister in particular for agreeing to a meeting with the Law Society and others who might be interested. There are genuine concerns about the nature of the provisions that are being introduced under Schedule 8, and we owe it to all to get those right. With that, I beg leave to withdraw the amendment.