Enterprise Bill

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Dr. Cable: The hon. Gentleman provides a common-sense explanation. The abuse that I am describing may not qualify for action under the powers, but I am pointing out that a small sample can provide the consumer associations with the evidence that they need to establish that abuse is taking place.

Mr. Purchase: One of the big scandals is what the City likes to call insurance mis-selling; I thought that it was fraud. The surgery case that the hon. Gentleman described—I, and probably all hon. Members, have had to deal with similar cases in my surgery—is not mis-selling, but fraud. The law can and should deal with fraud, including insurance scams.

Dr. Cable: Indeed, I think the same way, but there have been massive mis-selling scandals—

Mr. Purchase: Fraud, it is called.

Dr. Cable: Whether fraudulent or not, there have been many cases of sales of pensions and endowments where people were operating on such a scale that the Government could intervene on behalf of the consumer. Many of the cases with which we are dealing are small-scale, involving a local or regional company, and can be taken up by a specialised advocacy consumer group. The legislation should provide sufficient flexibility to allow that.

Miss Johnson: First, it is important for hon. Members to recognise and bear in mind that all these provisions relate to named individuals. Those are the terms in which they are put. Consumer group claims about named individuals are an important part of the strategy to encourage harmed parties to claim redress when damaged by anti-competitive activity. Group claims make it more affordable for the average consumer to gain redress in those cases where a breach of competition laws has already been established. That is another point to bear in mind.

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Raising the number required to participate in a group claim merely puts barriers in the way of consumers who are legitimately trying to gain recompense for damage incurred as a result of activities that have already been found to breach the competition law. Some hon. Members have illustrated aspects of that point. Indeed, I am getting a little concerned that I may get a load of additional casework from members of the Committee as we share information around this afternoon.

In addition to the useful points that hon. Members have made about some of the scams and problems that they have identified, there is the point that for various reasons some individuals who will have been affected by something may not want to be part of a named action of this kind. There might be sensitive issues where people felt embarrassed to be named in this way. The numbers will not necessarily relate to the numbers of individuals affected. I guess that the draftsman picked two because it was the minimum needed to establish that it was group rather than an individual. To set a number would be artificially to pick a figure and could hinder actions.

Mr. Field: I appreciate that any number will be arbitrary, but in various areas of life, be it nomination papers for parliamentary or council elections or petitions to go to local councils, a certain number is often needed. To have simply two for such an important class action seems rather low. I accept that even if one had a dozen or 50 names there would be the risk—although surely a lesser risk—of a vexatious claim by a small group of people who just wished to cause difficulties and managed to get a specified consumer body on side to promote their claim. Two seems far too low a number.

Miss Johnson: Again, I remind hon. Members that the issue of damages arises only in cases that have already gone through the process and have come to a conclusion or have gone through an appeal and survived. Groups cannot bring things forward. The CAT will have the power to throw out claims with no reasonable grounds or that appear vexatious, but such claims would be as unlikely as vexatious super complaints. There will be a similar process of designation by criteria, on which we will consult, to designate groups to make damages claims under the clause. Again, organisations will be considered carefully before they are given that status. When they have that status there will be a huge obligation on them to act sensibly. At the end of the day, the tribunal itself has powers to throw out claims. It is superfluous to put a lower limit on the number that is needed for a claim because we could unwittingly rule out a particularly valuable claim that was being brought on behalf of, for example, 45 named individuals. That would seem very unfortunate.

Dr. Cable: Is it not the case that not only is there protection against vexatious claims by consumer organisations, but they have no incentive to make them? If the citizens advice bureaux were to use their scarce legal and manpower resources to pursue frivolous cases, they would inflict considerable costs on themselves. As CABs are cost-constrained bodies constantly seeking money from local councils, why

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would they fritter away their resources on vexatious cases?

Miss Johnson: I entirely agree with the hon. Gentleman. It goes to the heart of the matter that such a case will already have been proven on behalf of consumers when there has been a problem with the market; it will have gone through the process. Under the conditions I have stated, an additional claim for damages would be highly unlikely to be other than a serious claim, with a strong chance of succeeding, for the reasons that the hon. Gentleman gave. I therefore urge the Committee to resist the amendment.

Mr. Waterson: I will not resist the Minister's urging. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Miss Johnson: I do not have a great deal to add, but I appreciate that hon. Members want a further debate. I shall therefore outline our view of the clause.

The clause was drafted to give consumer groups the opportunity to bring forward the sort of complaints that they might want to make.

The group representative claims can only be made before the CAT and, as in the case of other damages, claims brought before the CAT will be possible only when a breach of competition law has already been established. When the full appeals process relating to the relevant decision has been exhausted, organisations will be able to bring the claim, provided that the consumers concerned have given their consent.

Organisations will have to apply specifically for designation; there will be criteria, and a list of specified bodies will be contained in a statutory instrument made by the Secretary of State and subject to the negative resolution procedures of the House. Consumer group claims will make it more affordable for the average consumer to gain redress. Those harmed by anti-competitive activity will be often harmed to an extent that, although significant for the individual, would be difficult for people to take on themselves and would not necessarily justify the cost of a damages claim. In future, such consumers will be able to group together to claim the compensation that is rightfully theirs.

Mr. Waterson: The clause cries out for a stand part debate, for reasons that I have already mentioned. It is a massive departure for the English legal system.

I said on Second Reading that the Bill had the Chancellor's fingerprints all over it and the clause is a good example. He seems to have acquired from his young days a superficial love of many things American, without fully understanding that what makes the American economy work is that people like him do not interfere in it too much. If we are not careful, we will be in ''Erin Brockovich'' territory. It is a very good film.

Mr. Purchase: Excellent.

Mr. Waterson: Yes. However, the systems are quite different. There is a superficial similarity in the

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common law system and the legal language but that is where the similarities end. Things are very different in America if one is seeking redress. There is no concept of legal aid as we know it, although the situation is rapidly being harmonised by our Government. In the most unlikely cases, juries take decisions not just on liability, but on the quantum of damages and come up with some astronomical figures. In the United States, there is the highly developed system of the contingency fee, which, I regret, we have begun to import. Lawyers often take a high percentage of the damages ultimately recovered. People have access, whether in consumer or other sectors, to different mechanisms for justice.

3.45 pm

The Library brief on the clause is particularly helpful. It recalls the Competition White Paper in which the Government were in favour of representative claims

    ''in cases where although there might be a large number of affected consumers each would have only a fairly small individual loss.''

The original thinking was that consumers had a right to some sort of claim, but because their individual loss was relatively small, they had no real incentive to pursue it. Hence the idea in the White Paper of banding together and allowing representative organisations such as the NCC or the sectoral consumer panels in the utilities to bring cases on behalf of consumers.

A potential problem in the application of damages was, however, recognised. As the Library brief says:

    ''The White Paper suggested either holding an award in trust and allowing claimants to make an application to the trust for their share, or using the award to benefit the affected class of claimant indirectly by using it for purposes which benefit consumers in that market (such as consumer information or community facilities).''

It is a benign version of the contingency system whereby the matter is pursued on behalf of consumers and the moneys obtained by way of damages are used on behalf of consumers, but not just the group involved in the particular case. To use a wonderful civil service term in the briefing, ''mixed responses'' were made to these suggestions, and

    ''the Government decided that representative claims can only be brought on behalf of named (as distinct to identifiable) consumers''.

Hence we have the clause, the references to ''two or more individuals'' and so forth. The idea is that designated bodies bring claims on individuals' behalf, but not through the ordinary court system—that possibility is excluded, though the Under-Secretary will correct me if I am wrong—and only on behalf of consumers against businesses.

Understandably—it is a relatively novel area—the provision has provoked some worries among the business community, particularly the CBI. I quote from its parliamentary brief:

    ''In our view, allowing consumer groups the right to bring actions for damages is one of the most ill-conceived and potentially damaging proposals in the entire Bill. Overall, the precedent of class actions in the USA is a very disturbing one and should be avoided here at all costs. The task of consumer organisations should be to bring suspected anti-competitive practices to the attention of the OFT, not to bring proceedings themselves, which would effectively turn such bodies into prosecuting authorities.''

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That strong language from the prime business organisation in the country deserves the attention of the Committee, even if hon. Members believe that the CBI is overstating the potential problem. I referred to class actions in the USA and I recall a good film called ''Class Action'' in which Gene Hackman starred as the lawyer and an action was brought by many people affected by a dangerously malfunctioning vehicle. Class actions occur in this country, but nothing like on the scale in the USA.

The legal professions should focus more on the massive implications of that change in English law. For all I know, there may be a similar procedure in Scots law. If such a procedure exists in the civil system, we need to know how, and if, it works.

The CBI continues:

    ''allowing such actions would give consumer bodies huge powers without any countervailing obligations, and could provide a huge incentive on them to pursue disruptive litigation regardless of the merits of their particular case.''

I take the view that has been expressed by other hon. Members including, most recently, the hon. Member for Twickenham (Dr. Cable), that the bodies that the Secretary of State is most likely to designate would not pursue unmeritorious claims, or pursue claims irresponsibly. However, that concern is exercising business and industry.

The CBI also expresses concern about identifying which organisations will be able to perform such an important role, although it is possible that it will become one of the rarely used powers on the statute book. I sometimes think that much of what we discuss in Committee ends up in that limbo. Equally, a whole range of consumer organisations may grasp it with enthusiasm.

The CBI is also concerned about damages, which I will briefly discuss without getting into too complex a legal discussion. Clauses 16 and 17 relate to damages, but it is easier to deal with the matter in one fell swoop. Clause 16 makes it clear that:

    ''the same principles would be applied by a court in awarding damages in tort'',

or delict in Scotland, which I assume is similar.

How does the Under-Secretary envisage the damages being calculated? Perhaps she can write to me if she does not have all the facts at her fingertips. Damages are a discrete claim, and one can draw analogies from the tort of interfering with business relations, which tends to be based on loss of business profits. There are often difficulties in English law in arriving at what is recoverable and what is not, as the loss is generally consequential. That may be a useful analogy.

As I said, that sort of loss is often inferred in the tort of inducement of mutual contract, according to MacGregor on damages, which is the lawyers' bible on the subject. Cases such as Exchange Telegraph Co. v. Gregory and Co. in 1896, Goldsoll v. Goldman in 1914, and Brents Brewery Co. v. Luke Hogan in 1945 established the broad basis on which damages are arrived at, and which damages are recoverable. My

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days as a law student remind me that there are all sorts of issues in tort about foreseeability and remoteness; concepts about which lawyers are apt to argue when they are students or in the House of Lords.

It would be useful to me and, I hope, to the Committee if the Under-Secretary gave us some idea of how the calculation of damages would be approached in such cases. That might also reassure the CBI and those whom they represent, not least because it will be difficult to make the direct link between a large group of consumers, on whose behalf an action is being taken, and the losses to be claimed from and paid by the relevant company or organisation. I do not want to rain on the Under-Secretary's parade, because this is a big step forward from the consumers' point of view. I will quote the Consumers Association briefing for our Second Reading debate, which said:

    ''We welcome the decision to allow specified bodies to act on behalf of consumers who have suffered harm as a result of anti-competitive behaviour . . . Our only disappointment is that the Government did not take the opportunity to introduce legislation to allow representative actions on behalf of consumers who have been harmed by rogue traders. It appears anomalous that consumers can be assisted with redress against price fixers but not against a trader who has misled them.''

The second part of that quotation is perhaps more a debate for another day, but it points out the pressure that the procedure will bring. Once it is established in this context, how long will it take before there is intense pressure on the Government of the day to extend the measure more widely? We would then be firmly into the world of regular class actions. Some Members might wonder what is wrong with that. The answer in principle is nothing much, as long as we go into it with open eyes and know the effect that it will have on our existing legal remedies and system. We must understand how that will work in practice, and how claims will be approached and damages calculated and allocated. It is useful to have a stand part debate on such an important clause. I hope that other hon. Members agree.

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