Consumer Rights Bill
Debate between Lord Hunt of Wirral and Baroness Neville-Rolfe
Lord Hunt of Wirral (Con)
My Lords, I declare my interest as a partner for the last 45 years in the global commercial law firm, DAC Beachcroft. I wish to speak particularly to Amendments 41H, 41J and 41K. In doing so, I support my noble friend in urging caution when examining Schedule 8 to the Bill.
This is a complex area of law and procedure and I would be the first to say that I do not understand it all, but I think that the overview is this. We are now dealing in this group of amendments with situations where, first, one or more businesses have been found to be in breach of competition law; secondly, numerous consumers have been affected as a result; thirdly, the individual amounts by which each consumer is affected are small; fourthly, a collective mechanism is therefore needed; but, fifthly, getting all affected consumers to opt in to join a legal case has not worked to date. Against that background, I can well understand why the Minister has promoted the concept of opt-out, whereby a representative person can take action on behalf of all those affected unless they positively object to being included and so choose to opt out.
My caution is this: that is a wholly new concept in the United Kingdom, so I argue that we must be cautious. We must balance the rights of the consumer with the rights of each individual business, particularly small and medium-sized enterprises, accepting of course that we are dealing with situations where business has been in breach of its market obligations. My noble friend has outlined proposals that examine carefully some areas of the detailed mechanics in this schedule and I support their overall approach, which seems to me to be one of proportionality. I recall, when I was speaking from the Benches opposite on the Compensation Bill, that I urged similar caution when we were looking at the regulation of claims management companies in 2005. I venture to say that if we had been a little more cautious, perhaps we would not have been quite so inundated with nuisance calls and texts about payment protection insurance, where a similar balance has had to be struck.
So how do we promote the interests of the consumer in a proportionate way? I agree that we need to achieve greater control over the identity of the representative person who decides to launch down this compensation trail on behalf of others. To me, the proposal that we limit this to trade bodies has considerable force but, if that is felt to be too limiting, we should lay a clear marker that the guiding principle to be applied in appointing a representative person is that it is in the interest of the consumers, the so-called class members, to do so. I support Amendments 41H and 41K in particular but also applaud the thinking behind the amendments generally.
Baroness Neville-Rolfe
My Lords, I thank my noble friend Lord Eccles for his perceptive analysis, and for the discussions that we have had where we have found much common ground. I am also most grateful to my noble friend Lord Hunt of Wirral for intervening to urge caution from an admirably common-sense point of view.
I shall address each of the amendments in turn, particularly their possibly perverse effects. Amendment 41D would require us to place in the Bill scrutiny of the strength of a claim and the consideration of alternative dispute resolution. I agree that weak claims should not be brought and that parties should attempt to reach a settlement. Rule 7 of the draft Competition Appeal Tribunal rules provides for this, requiring the CAT to consider the strength of the claims and the availability of alternative dispute resolution.
It is appropriate for these requirements to be in the CAT rules so that they can be more easily modified and strengthened if need be. This ensures an effective regime that promotes the interests of consumers. Although the CAT rules have been made available in the House Library, they will be the subject of formal consultation in the new year, well ahead of commencement. I undertake that the points on both the scrutiny of the strength of the claim and the availability of alternative dispute resolution will be included in the consultation document. To clarify, the CAT rules are made via secondary legislation. They are the responsibility of BIS Ministers and produced by the Government. This means they are binding on the CAT, cannot be ignored and cannot be changed by the CAT. They are the right place for most of the concerns that we have outlined today.
The micro-amendments, Amendments 41E and 41G, would limit a collective action to one representative. I understand why my noble friend would like to prevent multiple representatives bringing claims, as that could lead to businesses facing uncertainty and larger claims for damages. However, these mini-amendments would also have unintended consequences, as he hinted, because they would prevent hybrid claims. These are claims where more than one group of claimants—for example, consumers and small businesses—join together to bring a case. For instance, in a claim for damages following a cartel in rail fares, both consumers and SMEs may wish to make a claim. During the private actions consultation in 2012, however, business groups said that the one thing they wanted was finality and closure. They want to be able to pay out one set of damages and know that it is binding on those within that action.
To prevent a business having to respond to multiple representatives, there is discretion for one representative to be the lead representative. I am happy to discuss this further with my noble friend Lord Eccles in the context of the consultation if that would be helpful. Ruling out hybrid cases, as these mini-amendments would, means that businesses might face an opt-out collective action as well as multiple follow-on actions. There would be an incentive for claimants to race each other to court to commence a claim before anyone else, even if that claim was then dropped. This type of behaviour could lead to just the kind of litigation and cost that we all want to avoid.
Amendment 41F would provide the CAT with discretion to take into account any other matters that it considered relevant when authorising the representative. The Bill already provides the CAT with a great deal of discretion, and the CAT rules will include other factors that the CAT must take into account. This is likely to include any other factors that the CAT considers relevant.
Amendment 41H would exclude SMEs from bringing forward collective actions that would reduce their access to redress. We have deliberately avoided a prescriptive list of eligible bodies and instead afforded the CAT discretion, in accordance with the CAT rules, to determine whether a body is suitable. The CAT is a specialist competition court with a strong track record in dealing with consumer detriment. The Government believe that the CAT is best placed to scrutinise every body that seeks to act as a representative.
The CAT includes High Court judges—and may include some more if we make progress on the other amendment—who are experienced in making decisions based on broad criteria. It is appropriate that they use their experience to scrutinise each case on its merits. However, we would welcome contributions to our consultation on the collective action provisions of the CAT rules to help to ensure that only suitable bodies may bring collective actions.
Amendment 41J would require that the CAT may authorise a person to act as a representative only if they had appropriate experience and standing. The Government believe that this could be problematic. Given the lack of collective action cases brought forward in the past 10 years, it would be extremely difficult for the CAT to find a representative who would satisfy these claims. It is the Government’s intention to ensure that only appropriate representatives can bring forward cases, with discretion given to the CAT to achieve just that. Again, I will undertake to ensure that this concern is covered in the consultation.
Amendment 41K would require that the CAT believes the representative will act in the best interests of the class members. I agree with the sentiment of the amendment. Indeed, the rationale behind wanting only consumer organisations and trade bodies to bring collective actions is that they will represent the claimants’ best interests. To this end, we have introduced a similar test in the CAT rules. I am reluctant to place such a requirement in the Bill as it may deter those cases that have a mixture of consumers and SMEs. This is because the CAT might be forced to decide that a consumer organisation cannot represent a business or that a trade body cannot represent consumers. In turn, this would lead to business having to respond to multiple representatives, and possibly claims, which, as we have already, said we are keen to avoid.
I have discussed these amendments with noble Lords and set out some further considerations this evening. I hope that I have provided some useful reassurances about the consultation process. I hope that my noble friend will withdraw his amendment.
Lord Hunt of Wirral
My Lords, I strongly support my noble friend for all the reasons I outlined a little earlier. His Amendments 41L to 41N seek to promote the interests of the consumers above those of others and should therefore be warmly welcomed. If the representative person and the lawyers and funders working with them are incentivised to find enough of the consumers to make the compensation process worth while, that must be the right way forward. Surely the worst thing we could do is create a system that is intended to provide greater benefit to consumers and succeeds in taking money from the guilty parties, but then fails to pass it on to the consumers themselves. The case is so strongly made, and I support it wholeheartedly.
Baroness Neville-Rolfe
My Lords, Amendments 41L, 41M and 41N place certain restrictions on the amount of legal costs that can be awarded to a representative. The Government agree with my noble friend Lord Hodgson: they do not want lawyers gaining excessive financial benefit from this regime. Any damages should be awarded to the claimants. We agree with the overall objective of getting the cash to consumers. For that reason, the Government have placed in the Bill measures to restrict the costs lawyers can claim.
The first key safeguard is that the CAT must certify that a representative is suitable to bring a collective action. The draft secondary legislation requires the CAT to consider whether the representative has a material interest that conflicts with the interest of class members. That means a law firm will not automatically be able to bring a claim. Secondly, the Bill prohibits the CAT from awarding treble damages, which limits the scope of unclaimed damages. Thirdly, the Bill contains restrictions on the financing of claims because it prohibits damage-based agreements, which means that lawyers cannot take away some of the damages from claimants. The Bill also does not provide for a claimant to be able to recover any uplift in legal costs from a conditional fee agreement—so-called no-win no-fee agreements.
A conditional fee agreement provides for a success fee for lawyers who win a case. Unlike standard legal fees, which can be recovered from the losing party, a conditional fee agreement has to be paid by the party being represented. In a collective action case, that may be the consumer organisation or the trade body. Therefore, it is in their interest to avoid conditional fee agreements or, where they enter into them, to negotiate the success fee so that it is as low as possible.
It is imperative that damages are paid to claimants. Therefore, if a representative wishes to use any unclaimed damages to cover their legal costs, two stages are set out in the Bill. This comes to the heart of the points that my noble friend Lord Hodgson raised. First, legal costs may be recovered from unclaimed damages only after claimants have had an opportunity to come forward and claim their damages. That means that if all claimants come forward and claim their redress, there will be no unclaimed damages to apply for to pay legal costs.
Secondly, any award of unclaimed damages has to be approved by the CAT. Additionally, the draft CAT rules, which noble Lords will recall is secondary legislation on which we will consult, require the CAT to consider the ability of the representative to cover legal costs if ordered to do so and will require an estimation of the legal costs. Any further restrictions may discourage representatives from taking on these cases completely, as they will have very limited means of recovering their costs, which may mean that the consumer receives little or no redress.
I hope that my noble friend is reassured by the discussion we have had on these three amendments that we are aware of the concerns around introducing an opt-out regime; that we have addressed the concerns that have been expressed through safeguards; and that we stand ready to undertake a strong consultation on some of the details we have debated. I hope that he feels able to withdraw his amendment.