Clause 24

Financial Services Bill – in a Public Bill Committee at 5:45 pm on 12 January 2010.

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Rules of court about collective proceedings

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 68, in clause 24, page 27, line 19, after ‘about’, insert ‘disclosure and’.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss amendment 69, in clause 24, page 28, line 12, at end add—

‘(8) Rules under subsection (2)(a) must require the court only to make a collective proceedings order if it is satisfied that—

(a) collective proceedings are the most appropriate means for the fair and efficient resolution of the common issues of fact or law;

(b) there is a person, certified or authorised body suitable to be authorised to bring collective proceedings as representative claimant; and

(c) the collective proceedings have a real prospect of success.

(9) Rules under subsection (2)(d) and (e) must require the court, when considering the suitability of any proposed representative, to be satisfied that such person—

(a) would fairly and adequately represent the interests of the class;

(b) does not have an interest that is in conflict with the interests of class members;

(c) has prepared a plan for the collective proceedings that sets out a method to the satisfaction of the court for bringing the proceedings on behalf of the class and for notifying class members of the fact and progress of the proceedings;

(d) has in place adequate resources for the conduct of the collective proceedings, which shall include adequate resources for the conduct of the collective proceedings (including any adverse costs awards).

(10) Rules under subsection (2)(j) shall provide—

(a) that the representative shall be liable for the claimants’ costs, except—

(i) where the court authorises a sub-class representative, who shall be liable for the costs associated with the determination of the issues common to the sub-class;

(ii) the costs of the determination of class members’ own individual claims, for which individual class members shall be liable;

(b) that the general rule shall be that the unsuccessful party shall pay the costs of the successful party, although the court may make a different order;

(c) that security for costs shall be available against a claimant who is acting as a representative if there is reason to believe that he will be unable to pay the defendant’s costs if so ordered to do.

(11) Rules under subsection (2)(h) must provide that a party to collective proceedings may obtain disclosure of documents in the possession of class members other than the representative with the permission of the court.

(12) Rules under subsection (2)(i) must provide that—

(a) a settlement of collective proceedings shall not take effect unless the court conducts a hearing as to the fairness of the proposed settlement, upon notice to the parties prescribed under the rules, and approves the contents of the settlement agreement on terms which it considers to be appropriate; and

(b) when approved, a settlement—

(i) binds every class member who has not opted out of or been excluded from collective proceedings;

(ii) binds every class member who has opted into collective proceedings; and

(iii) does not bind a party to the collective proceedings in any subsequent proceeding between the party and a person who opted out of, had been excluded from or who has failed to opt into collective proceedings.

(13) The rules may not permit a person to substitute as a representative in proceedings brought on an “opt-out” basis unless such person is a body exercising public functions and is authorised to act as representative by the Lord Chancellor under section 18(7)(b).’.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Amendment 68 leads into the proposed new subsections that would be added by amendment 69, which is a lengthy amendment.

Clause 24 concerns the rules of court. In previous debates, we have discussed what those rules should be, their importance, and the way in which they will have primacy over the regulations that are referred to in  clause 22. It would be welcome if there were a number of safeguards in the Bill to help to give further structure to those court rules.

The rules give the court the power to make provision on, among other things, collective proceedings orders, the determination of whether a person is treated as having opted in or out, and arrangements for authorised persons. Again, it appears that the cautious approach of the Civil Justice Council has been ignored, as the Bill departs from that significantly. Let me be clear, however, that the council endorses the approach of using rules of court. Its report says:

“The majority of the proposed procedural reforms could be introduced by Rules of Court...developing existing procedure and principles laid down in case law.”

When doing that, however, it is important that there are adequate safeguards, but they are conspicuous in their absence from the Bill’s provisions on rules of court. Amendments 68 and 69 would insert additional safeguards into the Bill.

Amendment 68 would ensure that the rules of court would make provision about not only evidence, but the proper disclosure of that evidence. Additionally, proposed new subsection (8), which is in amendment 69, would add safeguards on the approval of a collective proceedings orders, while proposed new subsection (8)(a) would ensure that that was used as a last resort. The Minister made the point earlier that it should be a last resort, and that the other regulatory routes—either the FSA or the Financial Ombudsman Service—should be exhausted first. Solutions driven by regulators or firms will always be preferable to using the courts. That is the intent behind proposed subsection (8)(a).

Proposed subsection (8)(b) is to ensure that there is a suitable representative waiting to take up the case. Proposed subsection (8)(c) is to ensure that there is a real point behind the collective proceeding and that there is a prospect of success. They reflect the recommendations of the Civil Justice Council. It wrote in its report:

“It is apparent from a comparative analysis that a certification stage is an essential element of any mature collective action mechanism. Certification ensures that the court, consistently with the requirement to manage actively cases consistently with the overriding objective, is able to assess and decide on the most appropriate mechanism through which a claim should progress i.e., as an opt-in, opt-out, traditional unitary action, or through a group litigation order. It enables the court to ensure that any claim progresses in a fashion which best facilitates effective use of court resources and best facilitates effective access to justice for both claimants and defendants alike.”

Proposed new subsection (9) adds safeguards to the representative person provisions, stipulating in particular that they have a proper plan, no conflicts of interest and that they are adequately resourced to carry the process through. It reflects one of the concerns mentioned in the council’s report, to ensure that the process was not used for non-meritorious, vexatious or spurious claims. By ensuring that it is built into the court rules, it gives added protection about the use to which the new process will be put.

Proposed new subsection (10) introduces some rules around costs. It adds safeguards that the representative is responsible for the claimants’ costs and enshrines the “loser pays” principle. The Civil Justice Council had this to say about “loser pays” or so-called “cost shifting”:

“Cost-shifting is a deterrent against speculative or so-called blackmail litigation, unless the claimants are impecunious, in which case the court’s existing powers to award security for cost should provide protection for defendants against such blackmail claims. Where the court determines that there should be full or substantial part cost-shifting, parties will need to demonstrate to the court that they are good for the money, or are adequately insured.”

Again, it is a further safeguard to ensure that sensible claims are brought. It also ensures there is a balance so that claimants who do not have sufficient financial resources are covered in some way.

Proposed new subsection (11) ensures that there is proper disclosure of documents to include those held by individual claimants, not just the representative. Proposed new subsection (12) allows the court to conduct a hearing into a settlement of collective proceedings to ensure that it is fair. On this the Civil Justice Council said:

“Where a settlement is proposed and achieved, and experience in other jurisdictions strongly supports the conclusion, it is recommended that such a settlement should not be valid and binding unless it is approved by the court following a ‘fairness hearing’. The court’s approval is necessary in order to protect the interests of the absent claimants, who will be bound by the settlement. The fairness hearing should not simply review the terms of the settlement for fairness but also determine how absent claimants should opt in to the settlement, what reasonable steps should be taken to advertise for absent claimants to notify them of the settlement,, what evidence is required to claim a share of the settlement, what the limitation period should be set to claim a share and to determine who should administer the judgment.”

That reflects the situation where there is an opt-out proceeding where the court might award the damages on an aggregate damages basis, but we then need to ensure that the right mechanism is in place to facilitate the claims being made by people whose circumstances are covered by the case. Clearly, on an opt-in basis, we will know who the individuals are, and the allocation of damages can therefore be much more straightforward.

Proposed new subsection (13) is about who can act as a representative. It states:

“The rules may not permit a person to substitute as a representative in proceedings brought on an ‘opt-out’ basis unless such person is a body exercising public functions and is authorised to act as representative by the Lord Chancellor under section 18(7)(b).”

That is to say that some bodies will have a legitimate public interest in bringing such cases. Again, to return to the JJB Sports group litigation order, Which? was seen as a body that had a legitimate public interest. What we are trying to tackle is how claims management companies may hijack that process for their commercial interest, and not have a public interest in acting as a representative. In a discussion on an earlier set of amendments, the Minister referred to the way in which the rules would be developed to deal with who can be a representative.

Amendments 68 and 69 are to provide some safeguards around what will be in the court rules to tackle some of the concerns that have been raised by bodies interested in such proposals. They are also to ensure that one of the concerns of the Civil Justice Council—that the measure should not be used to encourage vexatious, spurious or indeed blackmail claims—is reflected in the detail of the rules.

Photo of Joe Benton Joe Benton Labour, Bootle

Just to clarify for the Committee, I should say that we are taking amendments 68 and 69 together. Amendment 68 becomes the lead amendment, which has been duly proposed.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

On amendment 69, let me say briefly to the hon. Member for Fareham that I am not sure who his scriptwriter is—but I suggest that he gets a new one, in spite of his reference to the Civil Justice Council. Almost all amendment 69 is covered either by existing rules of the court, whether in a county court or in the High Court, or by equity.

For example, in proposed new subsection (8)(a) in amendment 69, it is pretty obvious whether a judge would allow representative proceedings if they were not satisfied with the most appropriate means—of course the judge would not. The amendment goes on like that, and I urge the hon. Gentleman to withdraw it because someone has led him up the garden path.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

We are making excellent progress this afternoon, and I am happy to give the Government’s response to amendments 68 and 69 together. The hon. Member for Fareham spoke mostly about the latter, but let me first cover the former, which adds to the list of points that may be covered in civil procedure rules.

The rules about disclosure and inspection of documents are in the civil procedure rules. Disclosure is an ordinary part of any trial process. The parties will disclose the documents that they have or have had in their possession in accordance with court directions. Disclosure is intended to ensure that all relevant evidence can be put before the court. The question is whether the power to make court rules will be used to modify the rules on disclosure for the purposes of collective proceedings. For example, there might be a need to ensure that class members are deemed to be parties to the action for the purposes of disclosure.

However, there are already sufficient rules in the existing civil procedure rules. Disclosure orders can be made against third parties, and if more rules are needed, there is already a power in primary legislation to make them in this context. The amendment is therefore unnecessary.

Amendment 69, as the hon. Gentleman explained, sets out some detail, practice and procedure for court rules. It contains a sensible set of options, including many provisions of the kind that the rule committee of England and Wales will consider. Indeed, some of them are already common, as my hon. Friend the Member for Wolverhampton, South-West pointed out. No doubt the rule-making bodies in Scotland and Northern Ireland will also work through such safeguards. They will need to consider carefully how they should be expressed and whether there are any unintended consequences.

I do not take issue with the need for many of the procedures in amendment 69. However, I do not agree with hardening requirements for court rules in primary legislation in a way that could cut across the careful work of the rule-making bodies. That is why we have illustrated in clause 24 what the rules can cover without putting that into the Bill. We have done so for three reasons.

First, Parliament has already set out the procedure for making court rules in the Civil Procedure Acts and appointed a committee of experts, the civil procedure rule committee of England and Wales, to make the court rules and lay the legislation before Parliament. A sub-group of the committee contains eminent specialists in that area of law, including members of the judiciary, senior practitioners and academics, and they are well placed to draft appropriate rules. The court rules will have to work in Scotland and Northern Ireland as well. They must therefore be drafted in the normal way by the Court of Session in Scotland and the Rules Committee of the Supreme Court in Northern Ireland.

Secondly, the bodies are considering generic rules for collective proceedings. The Financial Services Bill should not be used to predetermine the content of generic rules. That would inevitably lead to two sets of rules, one applying to financial services and another to all other proceedings, creating inefficiency and inconsistency, which I do not think we should support. Although I appreciate the hon. Gentleman’s hard work and his desire to do the work of the civil procedure rule committee, they are the best people to decide and determine those rules.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 6:00, 12 January 2010

That is exactly the problem. The Government have introduced a process on a sectoral basis; the Ministry of Justice said that it would not introduce a generic process. The Minister justified the process that we are legislating for with a sectoral response, but the sector does not know the rules by which it will operate. The sector requires clarity.

Given that the Ministry of Justice has rejected a generic application and that this is the first sector where the rules will be applied, it is reasonable for people to expect that there will be rules reflecting the concerns of the sector being used as a guinea pig for the new process.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

Again, let me explain what we are trying to achieve. I take issue with what the hon. Gentleman said. Previously, he argued in favour of removing some of the Treasury’s powers of discretion to make regulations. I have been at pains to stress that the rules that the various bodies are working on, including the civil procedure rule committee, are generic, but that we are taking a sector approach to implementation. That is why we needed powers to tailor rules and ensure that they have regard to specific circumstances: when we discussed previous clauses, I made it plain that the Treasury needed those powers.

In many cases, when we are talking about legislation in this House, we are talking about the balance between what is contained in primary legislation and what appears in secondary legislation. A lot of legislation is about providing an overall legislative framework as a structure into which contents are put. A lot of the detail that sometimes needs to be changed and updated in the light of circumstances is rightly there in secondary legislation, because it is a lot easier and more appropriate to alter.

That is essentially the situation. We have a high-powered committee that is looking at and drafting appropriate rules in this area. The civil procedure rules committee is required by Parliament to consult on the draft rules, which is the third point that I want to make. Having rules in the Bill would mean that the consultation that is  already envisaged and is contained in the Civil Procedure Act 1997 cannot take place. Having said that, I fully recognise that this is a new procedure, and that there is a need to consult on the rules and to get them right. There is a particular requirement to ensure that the rules are not only right generically, but that they are appropriately tailored to the circumstances of the financial services sector. Inevitably, the rules will need to be updated in the light of experience under the procedure set out in the Civil Procedure Act and in accordance with the various procedures in Scotland and Northern Ireland. That is why it is right that the rules should not be in the Bill.

The Bill includes a backstop power to enable the Treasury to set out supplementary criteria that can be tailored to the financial services. At the risk of labouring the point, it is important that the Committee recognises that. The Government intend to consult fully on the regulations, including discussions with experts on civil procedure, so that such issues receive the fullest possible debate. I realise that there is a natural desire to want to know the detail of everything immediately, but that is not how most legislation works. We have the right balance between what is in the Bill and what is coming down the track in terms of further work at a more detailed level, explaining how things will operate on a more technical basis.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

We can debate on the proper process for consultation, but in most situations one would expect there to have been wider consultation about a radical measure such as this with the sector directly concerned, than has been the case to date. Returning to the generic rules, when the Minister spoke earlier, he did not refer to the fact that the rules were generic for collective proceedings matters. The challenge is that the Ministry of Justice has rejected a generic collective proceedings law, and it will be applied on a sector basis. From what the Minister said, my assumption was that the rules to be developed would be specific to the financial services sector, which would then be tweaked by the reserve powers. That was the impression that the Minister gave me earlier because he did not use the phrase “generic rules” but rather talked about rules relating to the proceedings. He spoke about generic rules during the discussion on the amendments. Is he saying that the Treasury’s reserve powers will take the generic rules and tailor them specifically for the financial services sector? Will those rules under the auspices of the Ministry of Justice be generic rules that can be applied in any circumstances where the Government choose to use collective proceedings?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

That is exactly what I am saying. I am sorry that the hon. Gentleman did not appreciate what I said earlier and I apologise to the Committee if I was not sufficiently clear. The work that is being done by the civil procedure rules committee centres on rules that will be generic, and it will consult on them. I kept making the point that the Treasury has a backstop power to set out supplementary criteria. That is explicitly because these are generic rules that will apply to other sectors where collective proceedings orders might be introduced. We want to make sure that the rules that relate to the financial services sector are tailored and specific, which is why we need the powers.

That is why amendments 68 and 69 should be resisted. They would distort the development of more comprehensive rules, and the rules need to be developed in more detail by those appointed and best placed to do so. I emphasise that the rules will be subject to the fullest possible consultation and debate before they are finalised. There will be ample opportunity for the industry and others to make their views known. It would also be inappropriate for them to be set in primary legislation, because that would mean that they could not be updated quickly in the light of changing experience and circumstances. I therefore fundamentally believe that the hon. Gentleman’s amendment is misplaced. However, if this debate has helped clarify matters for the Committee and for those who follow these proceedings, it has been helpful.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I may be having trouble understanding, but I believe there is a wider problem regarding the lack of transparency in relation to the process and how we are going to progress from the Bill to a workable set of rules. I assume that, where the Bill contains rules that stem from a requirement to introduce collective proceedings orders for the financial services sector, they will be specific to the sector and not generic. The Minister has referred to backstop powers, which are clearly more important than I previously understood them to be, given that the rules will be generic rather than specific to the financial services sector. We should also bear in mind that the Government actually rejected the process of generic collective proceedings rules. That adds to our confusion that the committee that the Minister referred to is developing generic rules when only one sector is actually implementing the process. It would be useful to know how widespread the Government expect the use of those powers to be.

On the consultation process that the Minister outlined and the time scale, we have not discussed the timetable for the implementation of the provisions. Will the consultation process on the court rules include representatives from the financial services sector as well as the people that the Ministry of Justice generally consults on such things? Does the Minister expect the consultation on the Treasury regulations to happen in parallel with that on the court rules or will it happen subsequent to the introduction of court rules? When does he think the industry will be in a position to see both the draft rules and draft regulation?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury 6:15, 12 January 2010

Let me have another go and respond to the specific points made by the hon. Gentleman. I hope that he now realises why the Government want to resist his amendments and accepts that they are not appropriate in such circumstances.

There is no intellectual difficulty with saying that, as a Government, we have decided not to move forward with collective proceedings generically, across all sectors, but saying that in sectors where we think there is a case for proceeding there should be some generic rules, to ensure consistency. That seems sensible, as does saying at the same time that there might be some sector-specific circumstances to which courts will need to have regard, so there is a requirement to build on to the generic rules established. That is what we are proposing.

I want to assure the hon. Gentleman and others that there will be full consultation on the matter. We want to consult as widely as possible, including financial stakeholders. Clearly the Treasury consultation will be informed by the consultation on court rules, so although there can be some parallel processing it is right to consult on the court rules first. We would seek to gain the views of the financial services industry on those rules and take them into account when designing the Treasury rules as well. I expect the Treasury rules to follow on from the consultation on the court rules.

The intention is to consult on the court rules later this year, with a view to seeing implementation in 2011—that is my understanding of the time scale at the moment—but I stress that there will be ample opportunity for interested parties to contribute to the consultation exercise. We want to make sure that we get this right and recognise that it is a new departure and, therefore, it is right that we spend a significant amount of time talking to stakeholders and other interested parties to make sure that their views are properly taken into account when it comes to developing the new provisions.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful to the Minister for that explanation, and of the process in particular, which will reassure people that the proper time will be given to consider the proposals. Given that the court rules are generic to the process, rather than specific to the financial services sector, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I want a quick run around the block with the Minister on counter-claims—the concept is slightly strange, but I can understand how it might happen—and, more specifically, on the costs of counter-claims. I am referring here to paragraphs (i), (j) and (f) of subsection (2).

The issue involves the opt-out procedure. If someone fails to opt out, they are party to the action and are a claimant. If the defendant successfully counter-claims, there will be a costs order in the usual manner against the claimants. We now have someone who never went near the action but who did not read the blurb and did not opt out, so they are part of the claim; there is a successful counter-claim against them and, lo and behold, someone comes knocking on their door asking for costs. Could the Minister elucidate that a little because, were that to be the case, it would not go down well with our constituents? In spite of the considerable detail in clause 24, that is not covered as far as I can tell.

The obverse of that is that under 24(2)(f) there can be a representative counter-claim on an opt-out basis. There is a representative counter-claim on an opt-out basis against a bunch of claimants. The counter-claim fails, so the claimants who have successfully resisted that counter-claim in the normal course of events, seek their costs against those who made the counter-claim. Those who made the counter-claim included those people who failed to opt-out because it is not now a counter-claim, and therefore are part of that unsuccessful counter-claim. Because of counter-claims, they could end up with a costs bill for a case they never went near. Will the Minister at some point address the issues raised by  those examples? Perhaps not today, because these are complex issues and that is the difficulty with putting complex issues in the Bill. I am concerned about people who did not opt-out potentially ending up with a cost bill against them, especially in a counter-claim situation.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

If I understand my hon. Friend correctly, I would be likely to have similar concerns. My understanding is that the normal rules on costs will apply, as they do in proceedings. He cited clause 24(2)(i). As he will be aware, that is one of an illustrative list of issues that will be considered when determining the rules—the point that I was making to the hon. Member for Fareham. Again, as I said earlier, there will be a full consultation on the rules, so there will be ample opportunity to take account of the views of my hon. Friend and of others concerned about these particular issues. In passing clause 24 today, we are not committing to anything other than providing an illustrative list, which will be considered as part of regulations that will be drawn up, debated and discussed in the normal way. I hope that provides him with assurances that his views can be taken into consideration.

Photo of Tom Watson Tom Watson Member, Labour Party National Executive Committee

Does my hon. Friend agree that my hon. Friend the Member for Wolverhampton, South-West is an utter genius and may have spotted a flaw in the Bill? In that unlikely scenario, would the Minister commit to get his officials to look at it and perhaps come back on Report to make sure that his fears can be allayed?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I am happy to acknowledge the contribution that my hon. Friend the Member for Wolverhampton, South-West makes to the Committee and to the House in general. He is widely recognised as an expert on many matters. His views are always of great interest. Ministers and officials always take what he says with the utmost seriousness. On this particular point, the comments I have made that these matters will be considered in the future as part of the process of determining the rules, should provide him with assurances that his expert views will be taken into consideration by some very eminent people, whom we have put in charge of drawing up the rules. I hope that provides sufficient assurances.

Question put and agreed to.

Clause 24accordingly ordered to stand part of the Bill.