(a) to make a single award of damages in respect of all or some of those claims if the aggregate of the defendants liability to some or all class members can be determined by a reasonably accurate assessment and without proof by individual class members,.
(3A) The regulations must require the court, before making an order under subsection (3), to provide the defendant with an opportunity to make submissions to the court in respect of any matter relating to a proposed aggregate damages award..
The amendments are to clause 23, which gives the Treasury the power to make regulations concerning damages. I am not clear about the interaction between the regulation-making power and the court rules, whether the powers are reserve powers, or whether we will see regulations that will drive the court rule process. Perhaps the Minister can provide some clarification on that. In clause 22(2)(f), the Treasury is enabled to make regulations about the award of damages, and clause 23 sets out the scope of the regulations in more detail. The key part is subsection (2), which says:
The regulations may enable the court to make an award of damages without undertaking an assessment of the amount of damages recoverable in respect of each claim comprised in the proceedings.
With collective proceedings, what happens when we get to the end of the case? What sort of ruling does the court make on the damages that are to be awarded against the defendant, and how does that reflect the experiences of each claimant? That method will be useful in dealing with a lot of claims all at once, and it would be particularly helpful in dealing with opt-out proceedings.
There are two approaches in clause 23. Subsection (3)(a) says that the court can make a total estimate of damages, based on the damages likely to be awarded to individual complainants. It can think about the loss that each individual claimant might have made, and use that as the basis for calculating the total estimate of damages. If the court knows that everybody lost £5 as a consequence of a policy being mis-sold, it would be relatively straightforward to determine the total estimate of losses. Alternatively, in subsection (3)(b) a formula specified by the court is used to calculate the level of damages.
Another issue is the departure from the principles laid down by the CJC. In its recommendations, the CJC called for the Lord Chancellor to conduct a wider policy debate on the issues, given the interaction of this law with substantive law. Will the Minister tell the Committee whether that wider policy debate has taken place and what its outcome was? Has that recommendation been ignored, and if so, why?
On the proposals, the CJC endorses something along the lines of what is written in subsection (3)(a), which is a principle known as damage aggregation. Damage aggregation is characterised by
a computation of damages that does not depend upon the summation of the class members actual loss and damage. It is a means of quantifying and proving loss not by reference to an individual claimant but by treating the entire class as a unitary entity and assessing the global damage suffered by the entire class. In that respect, an aggregate assessment can practically occur by either a global or lump sum awarded against the defendant, or it may be achieved by a formula applied on a class-wide basis that determines individual class members entitlements. Once the aggregate award is made then it is either for the court to assess individual class members entitlement to a share of the global sum or it is for the individual class members to prove their entitlement to a share.
We can see an attempt at the damage aggregation principle in subsection (3), but the wording is different from that used by the CJC, which says that the principle
does not depend on the summation of the class members actual loss, and is a means of calculating the loss
not by reference to an individual claimant.
There is divergence here: subsection (3)(a) seems to be a summation rather than an aggregation, whereas the principle set out in the Civil Justice Council paper was an aggregation. I am interested to know why the Government have decided to go down the summation route rather than the aggregation route.
The issue about aggregation is not just about a claimants perspective but about the defendants perspective. The Civil Justice Council made the point about providing greater certainty for defendants:
Damage aggregation...ensures that the defendant has certainty and finality in terms of their liability to all claimants who have suffered detriment, especially where class members who have not yet joined the beneficiaries have an opportunity to opt-in to the award or court approved settlement; the award ensures that each claimant will get fair compensation predicated on the totality of harm caused both by the defendant per se and to each claimant on an individual basis; it thus serves to ensure that claimants are properly compensated and that defendants are not left in possession of any financial benefit derived from their unjust conduct; it thus through its primarily compensatory basis serves to assist and complement public regulatory action.
In such a case, the defendants will know the total amount that they have to pay, and the money is then allocated to each claimant on the basis determined by the court. Subsection (3)(a) suggests simply totalling up the losses that each individual has suffered. We have tabled amendments 65 and 66 to move away from summation to the aggregation approach proposed by the Civil Justice Council.
The amendments relate to a Treasury power to make regulations about damages. I think that the hon. Gentleman accepts the necessity of enabling the court to award damages without undertaking an assessment of each individual claim. Instead, the court may make an estimate of the damages for the whole group of claimants, or set out a formula for assessing the damages for each claimant. That will enable the courts to deal quickly and efficiently with cases involving detriment to large numbers of consumers. It is an essential component of the ability to manage a class action.
The clause sets out some illustrative examples of what the regulations may cover. The list is not exhaustive. The proposed amendments clarify that a court may make an award to all or some claimants, provided that liability can be assessed reasonably accurately and without proof from individual members. The language in the example in the clause does not exclude a power for the Treasury to permit aggregated damages for a subgroup of persons. The clause refers to an award in respect of different kinds of claims in a class action. As I say, the list is illustrative. It would be consistent if an award could be made to a subgroup of cases. Clause 24, which we shall come on to, envisages subgroups being formed.
The amendments would also give defendants the right to make submissions to the court about an aggregate damages award. Providing a specific right for the defendant to make submissions is not necessary, because defendants have a right to be heard throughout the proceedings. However, I agree with the hon. Member for Fareham that a court should be able to make an award to some and not all claimants, if that is the right thing to do, but there is a danger of the amendments straying on to territory covered by generic court rules.
I fear that the hon. Gentleman will not be satisfied with the response that the issue will be covered in the rules, but my general point, which I have made in previous debates on such matters, is that the measures will not come into force until the court rules and the Treasury regulations have been consulted on and put in place. There will be ample opportunity for the industry, consumer groups and others to make representations on them. The court rules are highly likely to provide for the management of subclasses of claimants and may provide for a specific right to make submissions about damages to the court.
I assure the hon. Gentleman that his concerns, as set out in the amendments, will be taken on board when developing the rules. As he is aware, we have set out our sectoral approach to collective proceedings, and we will consult on the regulations. Our response to the CJC recommendations has been to say that further work will be done on damages by the Lord Chancellor. We have worked closely with the Ministry of Justice and will continue to do so to co-ordinate policy on aggregated damages. We have sought to ensure broad consistency with Civil Justice Council thinking on such issues, and there will be opportunity for individuals, the industry and consumer groups to comment on the detail of the regulations. It is for those reasons that I do not believe that the amendments are necessary, and I urge the hon. Gentleman to withdraw them.
I am grateful to the Minister for his response, in which he gently reminded me that I had not spoken much at all about amendment 66, which is about the right for the defendant to be heard before an award is made for aggregated damages. I am pleased by his reassurance that the defendant will have a right to be heard throughout the case, including on the important issue that we are discussing.
In a way, the debate is taking place in a vacuum. We have had the opportunity in this and previous debates to identify some of the issues to do with safeguards in the Bill that are causing people concern. Knowing that the rules committee will examine the matter is helpful. It will be a challenge to ensure that the Bill makes clear the relationship between the court rules and the regulations, and makes it clear that the powers are reserve powers, a matter to which I shall return on Report. However, I beg to ask leave to withdraw the amendment.
in a manner that may reasonably be expected to benefit class members..
The amendment deals with a further aspect of the clause and relates to matters arising from an opt-out basis. What happens when the court produces the award of damages and not everyone comes forward to claim their share of the damages? We have an opt-out court process, but how do we know that the final award will be distributed to all the potential claimants? Some balance might be left at the end. Under subsection (5)(b), there is
provision about the purposes for which any money not paid to represented persons is to be applied.
My amendment would modify the wording that follows in brackets. It would remove
(which may include charitable or other purposes) and make the provision more specific, inserting
in a manner that may reasonably be expected to benefit class members, because there is concern about what purpose the residual money will be used for. Should we try to find a way to use any unclaimed money to benefit the people who have been part of the collective proceedings order?
The vagueness of other purposes causes concern. There is also a legal principle at issue involving the pursuit of something called a cy-prĂ¨s distribution, where aggregate damages result in unpaid moneys remaining when all payment has been satisfied. What will happen to the excess?
The Civil Justice Council says:
Where collective actions are pursued on an opt-out basis experience shows that there is the likelihood that there will remain an unclaimed residue of the judgment damages award, especially where damage aggregation occurs, or the settlement award.
The question then is: what is a fair and just use for such money? Which? says:
A cy-prĂ¨s distribution of damages is needed: This ensures any money left over from damages paid out to eligible consumers can be used in a way specifically related to the claim, for example to fund financial education or some other specific consumer-based project, rather than returned to the defendant.
That means that the court can determine what damages the defendant should pay to reflect the gravity of the case, and that the defendant should not benefit if money is left over at the end of the day, but should pay the full price to the subject of the claim.
The Civil Justice Council recommended that
a trustee be appointed to administer any judgment or settlement award or alternatively that the representative party hold such a sum as trustee for the class, and that where after a proper period of time with proper and proportionate notice given to the class an unclaimed residue remains that residue be applied by the trustee according to general trust law principles. In appropriate cases, this unclaimed residue could on this basis be distributed to a Foundation or Trust.
My amendment draws the uses to which the unclaimed residue could be put rather more tightly than the Bill does; the Bill says:
(which may include charitable or other purposes).
Amendment 67 would tweak the rules back, so that the process was closer to that which the Civil Justice Council thought ought to take place when it published its report in 2008.
The amendment provides that any undistributed surplus from a damages award should be applied in a way that benefits class members. I understand and appreciate the sentiment, but the hon. Gentlemans amendment would create practical difficulties if approved. Suggesting that a surplus can be applied only in the interests of class members could cause problems, depending on who those class members might be.
Let us say, for instance, that the class members are policyholders of an insurance company, customers of a bank or a group of bondholders. The demographics of such a group are likely to be extremely varied, so it could be hard to pin down a suitable purpose that benefits them and not non-class members.
A manner...expected to benefit class members might therefore be too vague and could create a huge amount of uncertainty as to which body should benefit. That could create an unnecessary amount of lobbying and time-consuming decision making, and could lead to the drawing of fine distinctions between deserving claimants. An independent court might also find it difficult to make those decisions.
No decision has been taken on how an undistributed surplus should be spent, but it is possible that there should be a defined destination or body with suitable purposes, which is why the Treasury needs to retain the discretion to provide for that. For example, a surplus, or part of it, could be handed back to the defendants, but it could also go to a charity, to an organisation such as the proposed consumer financial education body, or to the social fund to improve access to affordable credit for those on low incomes. It seems premature to the Government to close off options at this stage, and the best course is to consult widely on how an undistributed surplus should be dealt with. The Government certainly intend to do that, and I hope that my clarification will reassure those who are following our proceedings.
Given the practical difficulties with the hon. Gentlemans amendment, I hope that he will withdraw it, while recognising the policy intention behind our proposals.
There clearly needs to be consultation. People need to be comfortable that the mechanism for identifying the cause or purpose will be sensible and that the right checks and balances are in place. On that basis, I beg to ask leave to withdraw the amendment.