Clause 22

Financial Services Bill – in a Public Bill Committee at 4:45 pm on 12th January 2010.

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Regulations about collective proceedings

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 61, in clause 22, page 25, line 19, leave out from ‘Authority’ to ‘are’ in line 20 and insert

‘and the Office of Fair Trading’.

The purpose of the amendment is to tease out the rationale behind the inclusion of the financial ombudsman in the list of parties in subsection (2)(a) that are entitled to be heard on an application for a collective proceedings order. Given that the Bill applies to transactions regulated by either the FSA or the Office for Fair Trading, it is clear why they have the right to be heard on an application, but the ombudsman is not a regulator; the ombudsman is an alternative dispute resolution body.

The purpose of including the ombudsman is not clear. Is it now deemed to be a quasi-regulator? I know that some people in the industry see it as such. Is it because the ombudsman is in a position to collect data through the number of claims that it receives? The Minister gave us figures earlier about how many complaints it receives. Is it because the ombudsman can identify when large numbers of claims are being made about a particular firm, product or service? Is it there to provide insight into the development or generation of a claim made to the courts? It would be helpful if the Minister explained the purpose of including the ombudsman.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman might be reading the clause slightly differently from me. It does not give the ombudsman the right to be heard in the claim itself; it gives the ombudsman the right to be heard on an application for a collective proceedings order, which is rather different.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Yes, but my point remains. Why is the ombudsman there, given that the two other bodies are regulators and the ombudsman is a way of resolving disputes? What standing has the ombudsman been given in the process?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury 5:00 pm, 12th January 2010

Let me clarify the Government’s intentions. I will say at the outset that it is always preferable to find a regulatory solution, and the changes that we are making to the FSA’s redress powers in clause 26 are designed to make it more likely that a regulatory solution will happen. However, that will not always be possible. It will be for the court to determine in the light of evidence from the OFT, the FSA and the Financial Ombudsman Service, as appropriate, whether collective proceedings are the most suitable means of dealing with the case.

The amendment invites debate about why the financial ombudsman should be included, given its different status. Clearly, the FSA and OFT have variable information. I note that the hon. Gentleman does not dispute that they should be heard when the court is deciding whether such proceedings should take place.

Admittedly, the Financial Ombudsman Service is in a somewhat different position. The ombudsman cannot offer a collective alternative to collective proceedings and can only hear cases on an individual basis, and its determinations are not automatically binding on the consumer. However, the Financial Ombudsman Service will be able to make representations to the court about such things as the suitability of the ombudsman to deal with the cases. It may also tell the court about the volume of complaints that it has received and what it plans to do with them. It will also be important for the court to know whether the ombudsman has resolved any cases.

Such information should assist the court in making its decision. For example, the court will need to decide whether the ombudsman and the county courts would offer a better solution. The court would also need to decide whether collective proceedings and complaints to the ombudsman can continue in tandem. Finally, the court will need to know whether the ombudsman is planning to dismiss the cases and whether that is dependent on a collective proceedings order being made. It is to be expected that in many cases the ombudsman may well be preferred over collective proceedings, because it may be able to offer a cheap and informal solution for all or for a significant number of the claims. For such reasons, we believe that it is important that the voice of the ombudsman is heard and that the information it is able to provide can be made available to the courts. I hope that provides helpful clarification to the hon. Member for Fareham.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I certainly agree with the Minister. If the court is to be assisted, potentially, why is the court not to be given the power to require such bodies to attend? The provision simply says words to the effect, in lay terms, that they can come along if they want to. If they are to be of so much assistance to the court, which I agree they would be, why does the Bill not say that the court can require them to come along?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I cannot answer my hon. Friend immediately about the legal drafting of the clause, but I can tell him about the policy effect. We want the FSA, the Office of Fair Trading and the Financial Ombudsman Service to be able to provide information to the courts that enables them to make decisions. I do not think that there will be any reluctance to do so. That is clearly the policy intention, which I believe the legislation before us is effective in achieving, but if there are any drafting points, I shall go back to my officials and make sure that the legislation does what we want it to do in policy terms.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful to the Minister for his response. He clarifies ably the purpose of having the Financial Ombudsman Service here—it is not because it is a regulator, but because it will have access to information that will help the court decide whether such a case may proceed. I am sure that the ombudsman’s work will help inform some of the conclusions that a court may wish to reach about the best process for resolving such matters.

In recent years the ombudsman has become more involved in the resolution of multiple claims with a single cause, moving away from its position of simply looking at individual, isolated cases. For the court to be able to use that knowledge in determining how a case should be managed is right. I suspect that there would be no need to compel the ombudsman or the others to take part in such proceedings, because regulators should be jealous of their role in trying to resolve the issues—they would see a court solution as a welcome one. They would all want a resolution, even through the ombudsman’s alternative dispute resolution vehicle, while the OFT or FSA would want to demonstrate to the court what they can do to resolve the matter. Otherwise, increasingly, questions would be asked about the effectiveness of the regulators, so they would want to be in the court to say  what they have done and how they can resolve it. Compelling those bodies to attend the court would probably not add much to the process. Having heard the Minister’s explanation, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 62, clause 22, page 25, leave out lines 22 to 29.

Clause 22 sets out the Treasury’s regulation-making power in the Bill, in connection with collective proceedings. There is an issue about who should determine the ground rules for such cases. I expect the hon. Member for Wolverhampton, South-West fully to support the amendment, on the basis of his comments on amendment 58, where he accused me of giving power to politicians. In this case, I want to take power away from politicians by restricting the Treasury’s right to make regulations in three areas. Those areas are: what matters the court should have regard to; the circumstances under which the court may make an order; and in paragraph (d), I do not believe that the regulations should provide for what collective proceedings may or may not include. I argue that that should be done by court rules rather than by regulation-making powers. The risk is that the Treasury will get too involved in the detail of what happens in court and the way that the cases are handled, and I am not sure that that would be entirely appropriate.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I do not anticipate supporting the amendments, and I say to the hon. Member for Fareham that they are different from amendment 58. Amendment 58 set up a politician, the Lord Chancellor, as a gatekeeper regarding who would have access to exercise their legal rights. The subsections that the hon. Gentleman seeks to delete do not set up a politician as a gatekeeper in individual cases.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

It might be helpful to the Committee if I explained what we seek to do in the lines that the hon. Member for Fareham proposes to delete with his amendment. The idea is to have a reserve power to make regulations that set out extra criteria for the court to take into account. I will explain why we feel that reserve power to be necessary. First, I agree with the hon. Gentleman in that I expect the main criteria to be in the court rules. Those will be generic in nature, and are intended to apply to class actions generally. It may be necessary to tailor the effect of the court rules—once they have been finished—to the characteristics of financial services. That might mean adding supplementary requirements to those set out in the court rules, which is why a reserve power may be necessary.

I am confident that the court rules will be comprehensive and contain the necessary safeguards to prevent nuisance claims. The rules will also seek to eliminate any possibility of the new process being open to abuse. However, if any additional safeguards are needed for financial services, the clause allows the Treasury to supply them. For example, we expect that the court rules will have tests to ensure that litigation is a last resort, that costs are addressed, that the representative is appropriate and that a class action is the most appropriate way to  resolve the issues that claimants have in common. Looking beyond that, it may be necessary or desirable to put into Treasury regulations a requirement for the court to examine the merits of a case before authorising it; or for the court to have regard to any particular action being taken by the regulator.

Another area that may be addressed by the Treasury via the power is the criteria for eligibility to bring an action. For example, the Treasury might wish to use the power to restrict the category of persons who can act as representatives, something that we touched on earlier when we said that we would want to consult. We will want to consider carefully whether representatives should be restricted to public interest bodies or those who would not earn a fee for their services, a point that we have also mentioned before.

I appreciate the point made by the hon. Member for Fareham when he said that the court rules are not yet in existence and that we are talking about a framework. The rules committee is expected to consult on the draft rules in due course, so it is not possible to say exactly what the Treasury might want to specify in our regulations as we first want to look at the court rules to see whether they provide sufficient safeguards and then consider whether further or different provision is needed for class actions relating specifically to financial services. It is prudent that we have a reserve power, and accepting the amendment would reduce the flexibility of the Treasury to tailor collective proceedings to the particular features of financial services. Both consumer groups and the industry would want to make sure that our approach is properly tailored.

As is the normal procedure, we would, of course, consult on the regulations if we decide that it is necessary for them to be introduced to ensure that they work well in conjunction with the court rules. Because the amendment will remove potentially needed flexibility, I hope that the hon. Member for Fareham will withdraw it.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I have to say that, as the debate continues, I have become more wary and perhaps uneasy about the measures. That is not necessarily because I disagree with their principle, but because no one is actually sure where they will end up. The Minister referred to the powers as reserve powers to tighten up the rules made by the court, but I am interested to know whether reserve powers will be needed because the rules committee has not come up with the draft rules yet and, because we do not have them, we cannot have draft regulations. It sounds as though we are in a territory where the Government want as much power as possible just in case the court does not do what they expect it to do.

The hon. Gentleman talked about tightening up the eligibility criteria or changing the rules governing who can be a representative, but if the Treasury believes that it needs to override the rules committee, are there adequate safeguards to ensure that there is proper parliamentary scrutiny of the Treasury’s ability to take such action? Under subsection (6) of clause 22, the regulatory-making powers are subject to the negative resolution procedure. If the power is a reserve power to tackle what the Government regard as being inappropriately loose rules drawn up by a court, why should they be able to interfere with those rules simply by issuing an order that goes through the negative resolution procedure?

There should be much greater safeguards governing the exercise of the use of what are apparently reserve powers under the Bill than is currently set out in the clause. There is nothing in the provisions that tells me that the powers are secondary to the court rules. There could be circumstances in which the Government say that the powers take precedence over court rules. What provisions in the Bill will ensure that the powers are reserve powers, to which the Minister referred? Nothing tells me that that is the case. There is a weakness in the drafting of the clause as it seems to give the main power to the Treasury, not the court. We should receive greater clarification of the matter in the Bill. However, as that proposal does not relate to my amendment, which would delete paragraphs (b), (c) and (d), I cannot press it further. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 5:15 pm, 12th January 2010

I beg to move amendment 63, in clause 22, page 25, line 30, leave out paragraph (e) and insert—

‘(e) suspend any limitation provision applicable to members of a class represented within the collective proceedings,’.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss amendment 64, in clause 22, page 25, line 35, leave out subsection (3) and insert—

‘(3) Regulations made by virtue of subsection (2)(e)—

(a) shall provide that any applicable limitation period will be suspended in favour of a class member on a specified date and will resume running against the class member on the occurrence of specified events, and

(b) may make similar provision with respect to the period within which any appeal in collective proceedings is being finally determined.

No provision may be made about periods before the commencement of collective proceedings.’.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The amendments continue the theme in clause 22 on the apparently reserved powers that the Government have sought. It relates to limitation, and in clause 22(2)(e) the Treasury has the power to

“modify the effect of any limitation provision”.

Amendment 63 takes out paragraph (e) and inserts

“suspend any limitation provision applicable to members of a class represented within the collective proceedings.”

Amendment 64 gives more detail about what the regulations might be able to cover. The origin of the two amendments goes back to the recommendations of the Civil Justice Council. They probe why the Government seem to have strayed from the CJC’s recommendations on collective proceedings. We have here the power to change the effect of limitation provision. The explanatory note tells us that the powers could be used

“to stop time running in respect of claims made in respect of collective proceedings”.

Paragraph (e) currently allows the Treasury to

“modify the effect of any limitation provision”.

Subsection (3) gives some detail on what the modifications might entail. They can prescribe cases where no account is taken of any limitation provision and, among other things, enable the court to take no account of any specified period.

The Civil Justice Council outlined the principle on limitation provisions in its report. It says:

“It is recommended that limitation should be suspended when a putative representative party issues a claim which seeks certification as an opt-out collective action. At that point all the members of the represented class are potentially before the court by way of representation and have therefore potentially issued a claim by representation. The suspension of limitation should be lifted and time should start running for the class members where certification is refused or they opt-out of the action.”

In a sense, it says that, while the action is taking place, while cases are being heard within the collective action, the limitation should stop. The time should not tick on the clock. However, if a party decides for some reason to opt out during the case, or the certification is refused, the limitation should continue to run. The recommendations continue:

“Equally, the suspension should be lifted if the claim once certified is then at a future stage decertified or if on certification the court draws the boundaries of the class on a narrower basis than the representative party had originally drawn them in the claim as issued or the class member for some other reason ceases to be part of the class.”

It is therefore looking for more detailed guidance about the circumstances in which the limitation can be suspended. When that suspension stops, it looks at examples from overseas and gives an example from the Australian federal collective action scheme, which reads:

“Suspension of limitation periods

(1) Upon the commencement of a representative proceeding, the running of any limitation period that applies to the claim of a group member to which the proceeding relates is suspended.

(2) The limitation period does not begin to run again unless either the member opts out of the proceeding under section 33J or the proceeding, and any appeals arising from the proceeding, are determined without finally disposing of the group member’s claim.”

The breadth of the drafting in the Bill gives the Treasury the discretion to depart from the principles. My amendments take the Bill closer to the safeguards set out by the Civil Justice Council. It would appear that the council’s recommended safeguards reflect best practice elsewhere, so I am keen to understand why the Government have sought to move away from them.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

First, on amendment 63, I am not sure that it is necessary to clarify that the provision applies to members of a class action, as that is self-evident. I think that the main bone of contention is amendment 64. I am glad that the hon. Gentleman recognises that it might be necessary to preserve an individual’s right of action if their claim would be timed out before a group action concludes. That is one reason why subsection (2)(e) is needed. It will deal with claimants who began their individual claim before a class action began. They should not be exposed to hitting a time bar while a class action proceeds, and they might need a grace period before resuming action on their claims.

There might be other circumstances not reflected in the proposed amendments in which it is appropriate to suspend limitation: for example, when a class action ends before a final judgment. Separate claims represented may then be brought in their own right. Limitation could be suspended for a period to allow represented claims to begin separately in their own right. Again, they might need a grace period before resuming action.

The amendments do not cover all the possible circumstances in which limitation might need to be varied for strictly technical purposes. Instead of specifying a list of circumstances in which limitation may be varied, it seems more effective and flexible to have a general provision. That is what we propose. It is clear on the face of the Bill. If we were to specify in the Bill the circumstances in which limitation can be modified, we might find in future circumstances in which it is appropriate to suspend limitation that we cannot do so. That is why I am reluctant to put more detail into the Bill, although I recognise the hon. Gentleman’s points.

However, I reassure the Committee that the power can be used only in connection with collective proceedings. It cannot be used to disregard periods of limitation for any other purpose than securing an effective and fair consideration of a collective proceeding. For those reasons, I believe that the amendments are not necessary, and I urge the hon. Gentleman not to press them.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Part of the problem is that the Government, in trying to maximise their flexibility and avoid too much constraint, are deploying that flexibility at the expense of greater clarity and certainty. It is a dull point to return to, but if the process had been further along the track before the Bill came along, it might have clarified a number of doubts about the operation of the provisions. The timing is not great, frankly. We are introducing legislative proposals that create huge uncertainty while the safeguards are not yet in such a state that people can refer to and gain comfort and reassurance from them. That is part of the challenge with which we are dealing. Some are demanding greater certainty and clarity about the use of the powers than is available in the Bill. That is what the amendments aim to tease out from the Minister.

I will not press amendments 63 and 64, but there is a challenge here that must be addressed. The clauses are creating debate and concern because the process is taking place in a vacuum and we do not have sight of draft rules or regulations. That is the problem that we are going to have. The Minister’s remarks might be sufficient to satisfy people outside the House, but we will have to consider the provisions again on Report or during proceedings in the other place. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 22 ordered to stand part of the Bill.