Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments (Amendment)) Regulations 2017

Lord Hodgson of Astley Abbotts Excerpts

Thursday 2nd March 2017 Lords Chamber

Moved by

[Lord Hodgson of Astley Abbotts]

At end insert “but that this House regrets that the draft Regulations were laid without Her Majesty’s Government taking the opportunity to bring forward proposals for a regulatory structure which will maintain public trust and confidence in the provision of funding for third party litigants.”

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I thank my noble friend for his explanation of this legislation. I know that he has been landed with it at the last minute and he has taken on this pretty technical subject with his usual verve and aplomb. Despite being technical, the subject is nevertheless important in that it has at its core the important issue of the protection of consumers.

Turning to the legislation, my noble friend drew attention to the fact that this is a twin-track approach. We have taken the whole EU directive but maintained a good deal of existing UK law and practice alongside it. He referred to it as gold-plating but, as he equally fairly pointed out, the approach was approved of and supported by the practitioners. In those circumstances, who is to complain about that? My concern about these regulations is that the Government have not taken the opportunity to bring forward, or at least signal their intention to bring forward, proposals to make sure that sufficient transparency and accountability exist for a regime by which funding is provided by third parties otherwise completely unconnected with the action to enable competition and other cases to be brought before the court. This process is known as third-party litigation funding.

Before going any further, I must remind the House that in my registered interests I am a non-executive chairman of a company that provides analytical services to companies involved in third-party litigation funding. The company is not party to the actions, it merely provides services and has no direct involvement. That having been said, I shall get back to the background.

The growth of third-party litigation funding has been prompted by two important developments. First, there is the general increase in contingent fee litigation, where any damages awarded do not go exclusively to the injured party but can be shared with others, including those who provided the means to bring the case to court. This increase has arisen in large measure following the passage of the Legal Aid, Sentencing and Punishment of Offenders Act, which in turn implemented the measures recommended by Lord Justice Jackson in his 2010 report on the costs of civil litigation. That is the first big driver of growth.

Secondly, there has been the change brought about by the Consumer Rights Act 2015, referred to by my noble friend in his opening remarks. This made the important change of abandoning the traditional approach of opting in to a case—you had to indicate your wish to be involved in order to participate—in favour of an opt-out approach where unless you say, “I do not want to be part of the case”, you are assumed to be in. As a result, huge and potentially hugely profitable cases have become easier to lodge. The numbers are huge. The Mastercard case now before the courts, again referred to by my noble friend, has been brought on behalf of 46 million individual consumers and alleges damages of £14 billion. Importantly, an external funder put up £40 million on terms that are not entirely clear to bring the case to court.

It is important that my remarks today should not be seen as an attack on the concept of third-party litigation funding. It has a useful role to play in intercompany disputes and in helping to bring consumer cases. Many third-party litigation funders are entirely respectable and open their activities to public scrutiny. At least one company is listed on the Stock Exchange. However, we have an iceberg problem. What is going on with that part of the industry operating below the water line? As an industry in the United Kingdom, third-party litigation funding is virtually unregulated. The Association of Litigation Funders, the ALF, is a voluntary, self-governing organisation. I understand that there are currently seven members but anecdotal evidence suggests that there are more than 20 firms operating in this field in the UK, so less than half belong to the association. It has a code of conduct but lacks any real enforcement capability. The maximum fine it can impose is £500—trivial given the nature of the sums we are discussing—and the maximum penalty is expulsion from the association. That would not prevent the particular firm continuing to provide funding for third-party litigation.

Moreover, funders have benefited from a loophole in the law. When the Jackson proposals on contingency litigation were brought in with the LASPO Act, they included various restrictions on insurance companies and legal practices involving themselves in funding third parties. I imagine that Lord Justice Jackson’s purpose was to inhibit the growth of a litigation culture. However, no such inhibitions have been placed on the work of third-party litigation funders, who have thrived commensurately.

--- Later in debate ---

[The Earl of Courtown]

My Lords, I thank all noble Lords who have taken part in the debate: my noble friends Lord Faulks and Lord Hodgson, and the noble Lord, Lord Stevenson. I will deal with the points he raised first—in particular, the procedural issue. I will write to him on that; likewise on the SME 5% share point.

The noble Lord is well known to me regarding commencement dates and such like, as he said, but as far as the directive being implemented later is concerned, in our consultation we proposed to follow standard practice and copy out the directive. Respondents to the consultation highlighted the risks this presented to the UK’s established case law. We listened to these concerns and changed our approach. The regulations do what they need to do to supplement the court rules and case law in order to implement the directive in full. Drafting these regulations has been complex. We wanted to get them right rather than rush them through.

I understand the concerns of my noble friends Lord Faulks and Lord Hodgson. I welcome their questions on whether the Government could have used the implementation of the directive to bring forward proposals for a regulatory framework. The damages directive does not include measures relating to third-party litigation funding. Taking any action through these regulations would be going beyond the powers we have to regulate. The Government are not persuaded that any changes to the regulation of third-party litigation funding are warranted at this time. However, the Government will keep this matter under review as the market for third-party funding develops, and are ready to investigate further should the need arise.

My noble friend Lord Hodgson mentioned that the introduction of opt-out in private actions has led to the increase in third-party litigation funding. Opt-out collective actions were introduced to encourage more consumers to seek redress. During the introduction of these actions, the Government put in place measures to deter claims at the Competition Appeal Tribunal whose aim was to make money for litigation funders.

My noble friend also mentioned that there are no safeguards in relation to third-party litigation under the CRA. The Competition Appeal Tribunal has powers to ensure that, first and foremost, consumers have access to damages awarded following opt-out competition claims. For example, under CAT controls, the assumption is that residual money that is not claimed by the consumers will be given to charity.

I thank my noble friends Lord Faulks and Lord Hodgson for raising their concerns about the impact of third-party litigation funding. The last Government accepted the recommendation of Lord Justice Jackson that a voluntary code of practice be agreed. This work was undertaken by the Civil Justice Council, and the code came into force in 2011. Although the Government have not done a formal review of the effectiveness of third-party litigation funding, they have said that they will keep this under review, as I mentioned earlier. If noble Lords have particular concerns, I urge them to set these out in writing and I will ensure that they are passed on to the Justice Minister.

The Government are committed to reviewing the operation of the regime covering private actions for competition damages by the end of March 2019. I have heard noble Lords’ concerns, but the government position is clear, and it would not have been possible to use the damages directive as a vehicle for this issue. I ask my noble friend to withdraw his amendment to the Motion.

In closing, I stress that, as I mentioned in my opening speech, the statutory instrument contributes further to the recent major reforms to consumer and competition law introduced through the Consumer Rights Act 2015. It will make it easier for consumers and businesses to bring private actions for damages where they have suffered loss as a result of breaches of the competition prohibitions set out in Chapters 1 and 2 of the Competition Act 1998 and in Articles 101 and 102 of the Treaty on the Functioning of the European Union. I commend the draft statutory instrument to the House.

[Lord Hodgson of Astley Abbotts]

My Lords, I thank my noble friend Lord Faulks for his expert legal advice and insights into this problem, which align with my experience, and the noble Lord, Lord Stevenson, for his general support regarding the dangers we face. I also thank my noble friend for replying. It is good to know that a review is ongoing and that in March 2019 we may be slamming shut the door of the stable—assuming the horse is still inside. He is perfectly right, of course, that as far as competition cases are concerned, the Competition Appeal Tribunal controls the gate, which may provide some ability to slow things down.

All I had hoped to do today was to warn the House, and through the House the Government, of what I see as some substantial difficulties and dangers that may lie ahead. If nothing is done and difficulties do ensue, I promise my noble friend that I will try to avoid saying, “I told you so”. But in the meantime, I beg leave to withdraw the amendment.

Amendment to the Motion withdrawn.