http://www.bba.org.uk/content/1/c6/0...hapter%204.pdf
Concerns over collective proceedings and consumer redress (unsuprisingly)
Easier to read on the PDF linked above.
Concerns over collective proceedings and consumer redress (unsuprisingly)
Collective proceedings
The Bill includes proposals for collective proceedings and other measures concerning customer redress. While the banking industry agrees that there is a clear need to improve the means by which customer complaints can be redressed, we have highly significant concerns with the proposals as drafted and believe these concerns are widely shared as the consequences would extend beyond banking and financial services if the provisions for collective proceedings were viewed as setting out a blueprint for other proceedings, such as anti-trust actions.
Clause 18 provides that the court can authorise collective proceedings to be brought on behalf of a group of financial services claims that share the same, similar or related issues of fact of law. The requirement in clause 18(4) of "similar or related issues of law or fact" contrasts with the representative action mechanism under the current Civil Procedure Rules, which requires parties to have the "same interest in a claim". In our view, there is a real risk that representative actions may be brought for disparate groups of consumers, whose interests may diverge, who may not fully understand the implications of the proceedings (particularly if on an "opt out" basis), and without any defined mechanism for determining how conflicts of interest within the claimant group are to be managed. We therefore oppose the introduction of this loose test of identity of interests.
Collective proceedings may be brought by a representative body with no direct interest in the proceedings, such as a consumer group, or by a person who would be able to bring their own claim directly. There is a risk that parties with no direct interest in a case (such as claims management companies) may seek to act as representatives, encouraging unmeritous litigation simply to enhance the representative's profile or to create publicity. We would therefore advocate restricting the parties that may be able to bring representative claims to identified bodies (such as the OFT or FSA).
We are very concerned that proposals on class actions risk introducing a US-style litigation culture to the UK, together with other the negative aspects of the US regime. The US system is 'opt-out' and has led to incentives for baseless claims and increased costs, ultimately born by consumers. Consumer inertia is likely to mean that opt-out actions are of much greater aggregate value, creating a pressure to settle even unmeritorious actions. Moreover opt-out claims are not a proportionate remedy as they can create a significant compensation surplus as many consumers will never claim the compensation which they become entitled to as a result of an opt-out action. It is also questionable whether people will fully understand an ‘opt-out’ claim, as this represents a substantial cultural shift from current UK practice. The BBA therefore urges that any proposals based on an ‘opt-out’ approach be dropped, or made subject to an exacting legal test.
Representative court actions are supposedly to be underpinned by the 'loser pays' principle (an essential defence against spurious or malicious claims) but given that representatives (e.g. consumer groups) will not have a large amount of funds, the BBA believes that this principle will be undermined. We do not believe that this would result in any detriment to consumers, particularly in light of the current trends towards increased litigation funding, conditional fee arrangements and insurance against adverse costs orders – all of which will facilitate collective actions.
This is only one example of how a hastily drafted piece of legislation that has not been subject to a process of consultation can potentially cause great damage by providing incentives for spurious claims where the firms involved may decide to settle rather than subject themselves to a long drawn-out litigation process.
The fact that that the provisions could be retrospective and the Bill permits much of the detail to be enacted through HMT Regulations and rules of court means that there is much less substance for parliamentary scrutiny than we would usually expect. Some of the details, deemed “too technical” for Parliament, are in themselves very significant: regulations could, for example, disapply limitation periods and allow potentially arbitrary damages whilst court rules could, for example, restrict rights of appeal. In particular, paragraph 18(1) of the Bill provides that "The courst may, on the application of a person ... authorise the representative to bring collective proceedings". The factors to be taken into account by a court in deciding whether or not to authorise representative proceedings, and the rights of the defendant(s) (and other interested parties) to be heard as part of this decision making process remain to be determined by court rules (paragraph 24(2)(b)). We do not believe that it is appropriate that such a crucial issue is left to be determined by court rules, and would instead urge a clear and detailed articiulation of these procedural and substantive points in the Bill itself.
We would further question whether the provisions on collective proceedings in Clause 22(2)(f) should relate to ‘compensation’ rather than ‘damages’ and would ask for clarification on the consequences of the legislative provision being based on the latter.
We are also concerned about the way in which the award of ‘damages’ may interact with Clause 23(5)(b) that provides that any surplus in the amounts raised under the award for ‘damages’ may be directed by the court to be applied to charitable or other purposes.
It is our understanding that the provision for the suspension of the statute of limitation is not intended to be as open ended as provided for in Clause 22 (3) and that it is intended only to ensure that the limitation period is not exceeded as a result of the time taken for the court action. The legislation therefore needs technical amendment to clarify its intention.
The Bill includes proposals for collective proceedings and other measures concerning customer redress. While the banking industry agrees that there is a clear need to improve the means by which customer complaints can be redressed, we have highly significant concerns with the proposals as drafted and believe these concerns are widely shared as the consequences would extend beyond banking and financial services if the provisions for collective proceedings were viewed as setting out a blueprint for other proceedings, such as anti-trust actions.
Clause 18 provides that the court can authorise collective proceedings to be brought on behalf of a group of financial services claims that share the same, similar or related issues of fact of law. The requirement in clause 18(4) of "similar or related issues of law or fact" contrasts with the representative action mechanism under the current Civil Procedure Rules, which requires parties to have the "same interest in a claim". In our view, there is a real risk that representative actions may be brought for disparate groups of consumers, whose interests may diverge, who may not fully understand the implications of the proceedings (particularly if on an "opt out" basis), and without any defined mechanism for determining how conflicts of interest within the claimant group are to be managed. We therefore oppose the introduction of this loose test of identity of interests.
Collective proceedings may be brought by a representative body with no direct interest in the proceedings, such as a consumer group, or by a person who would be able to bring their own claim directly. There is a risk that parties with no direct interest in a case (such as claims management companies) may seek to act as representatives, encouraging unmeritous litigation simply to enhance the representative's profile or to create publicity. We would therefore advocate restricting the parties that may be able to bring representative claims to identified bodies (such as the OFT or FSA).
We are very concerned that proposals on class actions risk introducing a US-style litigation culture to the UK, together with other the negative aspects of the US regime. The US system is 'opt-out' and has led to incentives for baseless claims and increased costs, ultimately born by consumers. Consumer inertia is likely to mean that opt-out actions are of much greater aggregate value, creating a pressure to settle even unmeritorious actions. Moreover opt-out claims are not a proportionate remedy as they can create a significant compensation surplus as many consumers will never claim the compensation which they become entitled to as a result of an opt-out action. It is also questionable whether people will fully understand an ‘opt-out’ claim, as this represents a substantial cultural shift from current UK practice. The BBA therefore urges that any proposals based on an ‘opt-out’ approach be dropped, or made subject to an exacting legal test.
Representative court actions are supposedly to be underpinned by the 'loser pays' principle (an essential defence against spurious or malicious claims) but given that representatives (e.g. consumer groups) will not have a large amount of funds, the BBA believes that this principle will be undermined. We do not believe that this would result in any detriment to consumers, particularly in light of the current trends towards increased litigation funding, conditional fee arrangements and insurance against adverse costs orders – all of which will facilitate collective actions.
This is only one example of how a hastily drafted piece of legislation that has not been subject to a process of consultation can potentially cause great damage by providing incentives for spurious claims where the firms involved may decide to settle rather than subject themselves to a long drawn-out litigation process.
The fact that that the provisions could be retrospective and the Bill permits much of the detail to be enacted through HMT Regulations and rules of court means that there is much less substance for parliamentary scrutiny than we would usually expect. Some of the details, deemed “too technical” for Parliament, are in themselves very significant: regulations could, for example, disapply limitation periods and allow potentially arbitrary damages whilst court rules could, for example, restrict rights of appeal. In particular, paragraph 18(1) of the Bill provides that "The courst may, on the application of a person ... authorise the representative to bring collective proceedings". The factors to be taken into account by a court in deciding whether or not to authorise representative proceedings, and the rights of the defendant(s) (and other interested parties) to be heard as part of this decision making process remain to be determined by court rules (paragraph 24(2)(b)). We do not believe that it is appropriate that such a crucial issue is left to be determined by court rules, and would instead urge a clear and detailed articiulation of these procedural and substantive points in the Bill itself.
We would further question whether the provisions on collective proceedings in Clause 22(2)(f) should relate to ‘compensation’ rather than ‘damages’ and would ask for clarification on the consequences of the legislative provision being based on the latter.
We are also concerned about the way in which the award of ‘damages’ may interact with Clause 23(5)(b) that provides that any surplus in the amounts raised under the award for ‘damages’ may be directed by the court to be applied to charitable or other purposes.
It is our understanding that the provision for the suspension of the statute of limitation is not intended to be as open ended as provided for in Clause 22 (3) and that it is intended only to ensure that the limitation period is not exceeded as a result of the time taken for the court action. The legislation therefore needs technical amendment to clarify its intention.
Comment