Commercial Financial Dispute Resolution Platform

Debate between John Howell and Richard Arkless

Thursday 15th December 2016 Commons Chamber

[John Howell (Henley) (Con)]

It is a great pleasure to follow the hon. Member for East Lothian (George Kerevan). I congratulate him and I congratulate the Backbench Business Committee on granting the debate. I rise to speak as chairman of the all-party group on alternative dispute resolution. We are about to embark, in tandem with the hon. Gentleman’s all-party group, on an inquiry into precisely what he has proposed in the debate. We will be looking at the sort of dispute resolution that could be put into place for these sort of disputes.

I want to concentrate on the part of the motion that refers to the creation of

“not ad hoc compensation schemes, but a long-term, effective and timely dispute resolution mechanism”

that can be used to help solve these sort of issues. The hon. Member for East Lothian has set out admirably the reason for doing that, but I would say that the dispute mechanism already exists in the form of the alternative dispute resolution regime. I shall say more about that.

Businesses, including small and medium-sized enterprises, are left with no option except prohibitively expensive appearances in court. One of the great advantages that the alternative dispute resolution system brings is the potential to reduce the costs involved. This is not something that is strange to the financial services sector. A large number of commercial sectors automatically include alternative dispute resolution clauses within their commercial contracts.

The all-party group held a meeting on this recently, where we went through subject by subject, looking at how ADR could be incorporated within the system and used more often. We looked at the commercial area in quite substantial detail. One of the great things we were able to do was to bring together quite a disparate body of people who operate in the ADR field to see whether there were some common threads between them in approaching disputes such as those the hon. Gentleman mentioned and taking them forward.

The good news is that there was quite a lot of agreement about what we were aiming for, even though some of the methods of getting there were slightly different. For us, ADR includes arbitration, mediation, adjudication, expert determination, dispute boards and online dispute resolution. We also looked at examples to see how those elements could be—some already are—incorporated by financial services sectors in their contracts. The good news is that these were already being incorporated into contracts, so what we needed to do was to put pressure on the sectors to include them as a matter of course in their contracts, because that would help to solve these disputes.

[Richard Arkless (Dumfries and Galloway) (SNP)]

Will the hon. Gentleman clarify which sectors of the financial services he is referring to? Is it the retail sector or the business-to-business sector that is incorporating ADR? I have not seen many commercial contracts with ADR clauses in them from the banks.

[John Howell]

From memory, I think it was the business-to-business sector primarily, but there is absolutely no reason why it cannot include the business-to-retail sector as well. There is a great deal of ability for individuals to bring quite complex cases in a way that does not involve going to the courts, as I shall explain.

We are running out of time, so I shall deal with the issue right now. We all know that trying to bring a case to court is a very expensive business. It requires extremely expensive lawyers. What the arbitration or mediation process holds out is the ability for an individual to sit in arbitration and mediation between people in order to bring the dispute to a much earlier resolution. It could be said that this does not take away the need for a court to be involved, which is absolutely true, because the awards of the arbitration panel or the mediator have to be enforced by the courts. However, that is a long-stop for the ADR process, and I think we will see it being brought into play more infrequently.

Of course, Lord Justice Briggs has commented that he would prefer to see “alternative dispute resolutions” not called that—he wants the “alternative” taken out so that they are called “dispute resolutions”. I think that fits well with our own view of things. The other side is the issue of time and stress involved in taking forward cases within this sort of framework. It is absolutely true that the arbitration and mediation process takes away a lot of the stress of appearing in court and allows these sort of issues to be settled in a much more friendly way.

I look forward to the work that our two all-party groups will do on this issue. I think that the framework is already there, and I think we need to encourage banks to include clauses within their commercial contracts so that we can get back to ADR becoming the standard mechanism for resolving disputes, rather than using the internal complaints procedures of the companies as the starting point and the ending point of much of the discussion that takes place on these issues. On that note, I am happy to allow another Member to continue the debate.

--- Later in debate ---

[Richard Arkless]

I entirely agree. My hon. Friend puts his point passionately and very well. It is time for mourning to stop and for solutions to be found.

My hon. Friend the Member for East Lothian made an incredibly important point about the link between low productivity levels in the UK and the threat and the pressure that small and medium-sized enterprises have been under, particularly since 2007-08. There is no smoke without fire. I am convinced, having listened to him, of the causal link between the problems that we are discussing and low productivity of SMEs.

I was particularly struck by my hon. Friend’s comments about arrangements between solicitors’ practices and large banks. I declare an interest of sorts, in that I was a practising solicitor who was seconded to a large financial services organisation. How it works is very peculiar. I was given to the bank for free by my firm, and the bank created a so-called value account. My salary was set into this value account, which triggered work for my firm. We can see the problem that SMEs have in trying to find highly reputable, highly skilled corporate lawyers; they are all working for firms that have these links with the banks. These firms do not bite the hand that feeds them; they need this work. That is another manifestation of the complete inequality of arms between SMEs and large financial services organisations. My hon. Friend was right to say that banks’ terms and conditions—the secret terms of the contract—have evolved over the years, further exacerbating the inequality of arms.

My colleague on the Justice Committee, the hon. Member for Henley (John Howell), made a very interesting point—I was grateful to him for taking my intervention—about alternative dispute resolution clauses in contracts. While I would clearly welcome ADR clauses in all these types of commercial contracts, I am slightly confused, because I have never seen them in the case of these hedging products. As to asking banks to incorporate these clauses voluntarily, it stands to reason that the commercial risk will drive whether they are included. We are talking about risky derivatives. Have we ever seen ADR clauses in hedging product contracts? If not, I have no idea how we could persuade the banks to incorporate them voluntarily, given the risk.

[John Howell]

The point that I was trying to make was that it is not just the commercial circumstances that will force the inclusion of ADR clauses, but the way in which we make ADR known as a group of activities that can help.

[Richard Arkless]

In that sense I completely agree. The hon. Gentleman is right to point out that ADR, as a concept, exists; we are asking not for a new beast to be created, but for an ADR forum to be specifically linked to the contracts and disputes under discussion. However, I am cynical about banks’ motivation in putting the clauses in particularly risky contracts.

The right hon. Member for Delyn (Mr Hanson), who is also a colleague of mine on the Justice Committee, made a typically powerful speech in which he drilled home the perverse fact that the banks under discussion are in public ownership. Essentially, public funds are being used to push businesses against the wall and asset-strip them, which has consequences. It is very hard to accept that that is being funded by our taxpayers’ money. The right hon. Gentleman made that point extremely well.

The hon. Member for Wycombe (Mr Baker) touched on a stark irony when he referred to the old banking system in Scotland and the rest of the UK. I wholeheartedly agree with him that strict joint and several liability incentivised a good culture and good practice, but the pendulum has swung entirely in the other direction. I will come on to discuss the crux of the issue, which is banking culture, but he made that point well.