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Lord Sharman: I was about to say that, having listened very carefully to the contributions of noble Lords in this short debate, for which I am grateful, nevertheless I want to consider the matter. We shall look carefully at the situation before perhaps we return to it on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 248 to 250 not moved.]

Schedule 16 agreed to.

Clauses 220 and 221 agreed to.

Clause 222 [Determination under the compulsory jurisdiction]:

Lord Saatchi moved Amendment No. 250ZA:



("(2) The Ombudsman shall only make a determination in favour of a complainant where he is satisfied that the respondent has breached either or both of--
(a) the Authority's general rules;
(b) any relevant provision of the law.").

The noble Lord said: In moving Amendment No. 250ZA, I wish to speak also to the other amendments in our names in this group. It is also my pleasure to be able to tell the Committee that I believe that the super-ombudsman himself, Walter Merricks, is in the Chamber to hear our debate about his role.

I start by examining certain aspects of the workings of the ombudsman scheme. I believe that it might be of help to begin by trying to define in simple terms what the role of the ombudsman is supposed to be. I believe that, in principle, it is to provide a quick and cost-effective forum for settling disputes between firms and investors in order that investors may avoid incurring the time and expense of going to court to settle their disputes. That is surely well and good and we all applaud that. However, we believe that, in order to act fairly to both parties, the ombudsman should be bound by the same rules as a court. But the Bill does not describe the processes that the ombudsman will follow in that regard.

Clause 222(2) states that the ombudsman is to determine a complaint,


    "by reference to what is, in [his] opinion, fair and reasonable in all the circumstances".

That does, indeed, sound reasonable. However, the problem with this formulation is that it would enable the ombudsman to uphold a complaint, even though a

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firm had observed all the FSA's rules and all the relevant legal provisions. That is potentially unfair to firms. In addition, it removes the level of certainty which firms should have when they devise their own procedures. Therefore, this first amendment in the group proposes that the ombudsman will uphold a complaint only where the respondent has breached either the FSA's rules or the relevant provisions of the law.

I now address our second amendment, Amendment No. 250A, and I shall speak also to Amendments Nos. 250B and 250D. I start with Amendment No. 250A, which relates also to Clause 222 and the method of determination of complaints by the ombudsman. I believe that it addresses a most important point and, I hope that the noble Lord will agree, a point of principle; that is, the imbalance that now exists in the Bill between the complainant and the authorised person who is the subject of the complaint.

I shall try to describe the imbalance. First, the complainant can choose whether or not to have a complaint dealt with under the ombudsman scheme. We find that in Clause 220(2)(a). On the other hand, the authorised person has no such choice. The scheme is compulsory and the firm must submit itself to it.

Secondly, once the ombudsman has determined the complaint, if the complainant does not like the determination, he can reject it and take the matter to court. Only the complainant can appeal to the courts. The company that is complained of has no such right. It is true that this non-binding nature of the determination of the ombudsman on the complainant is a feature also of some other existing ombudsman schemes. However, in those cases the schemes are voluntary. But under this proposed Act the ombudsman scheme will not be voluntary; it will be compulsory on authorised persons. Under those circumstances, we believe that it would be fairer to both parties if both were bound by the ombudsman's determination or if both could decide to reject the determination. That is the purpose of Amendments Nos. 250A and 250B.

I turn now to Amendment No. 250D. We find in Clause 224(3) that the ombudsman's rules,


    "may not provide for the making of an award against the complainant in respect of the respondent's costs".

I imagine that the logic behind that provision is that access to the ombudsman should be without charge to the investor. However, participation in the ombudsman scheme is expensive for firms; for example, the PIA currently charges firms a fee of £500 whenever it receives a complaint from an investor relating to that particular firm. In addition, the firm's costs of investigating that complaint could also be substantial. There is no reason that we can see why the scheme rules should not provide that an award of costs may be made against a complainant where that complainant's claim is frivolous, vexatious or dishonest.

That may sound far-fetched but I can give the Committee an illustration. That was a case where a group of 10 investors made what turned out to be

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fraudulent complaints against a well-known firm which was put to substantial expense in gathering evidence to refute the claims. In such a case, we believe--and this amendment seeks to provide--that it would be appropriate for the ombudsman to have required the investors in that case to pay the firm's costs. I beg to move.

Lord Taverne: I wish to speak to Amendment No. 251 which stands in my name and that of my noble friends Lord Newby and Lord Sharman. Clause 224(4) seems to sit rather oddly with subsection (3) which states:


    "Costs rules may not provide for the making of an award against the complainant in respect of the respondent's costs",

while subsection (4) states:


    "But they may provide for the making of an award against the complainant in favour of the scheme operator, for the purpose of providing a contribution to resources deployed in dealing with the complaint".

I should like the Minister to answer that point because it seems to be a somewhat strange provision. I do not know what are the precedents for it. There are occasions on which professional bodies--for example, the Institute of Chartered Accountants--provide, in the case of disciplinary proceedings, that an order for costs may be made in favour of the costs incurred by the proceedings themselves. But that seems to be a very different case because the ombudsman is not a disciplinary body. He is taking up complaints.

If it is decided that he should not be able to make an order against the respondent, why should he then make an order in favour of himself? It is almost as though, when the funds run low, the ombudsman might be tempted to take a rather more severe view than he would do otherwise. It seems to me a surprising provision. Therefore, our amendment proposes that subsection (4) should be omitted. However, we await with interest the Minster's explanation.

4.45 p.m.

Lord Lipsey: I wish to speak in particular to Amendment No. 251 but, first, I want to make a few comments on the amendments proposed by the noble Lord, Lord Saatchi.

The purpose of an ombudsman scheme is to provide reassurance and redress for consumers and to have a process which is reasonably quick for the resolution of disputes. That is why, as the noble Lord, Lord Jenkin, said earlier, the scheme has won the support of the industry.

What I fear about the noble Lord's amendments is that if you take away from complainants the right to go to the court if they do not like the ombudsman's decision, they will be encouraged by legal advisers to go straight to the courts, ducking the ombudsman on the way. That will lead to a more expensive and less satisfactory procedure than would otherwise be the case.

I turn now to what seems to me to be the more substantive amendment before us; that is, Amendment No. 251, which removes the ombudsman's right to levy

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costs against complainants who are vexatious. I use that word for the purposes of simplicity. There are two questions to be asked about that. First, is it likely to lead to fewer vexatious complaints? I make the following points. First, there are not many. I have checked with the ombudsman's office. They really are a rarity.

Secondly, on the whole, people who are thinking about being vexatious are not put off by this kind of provision. They are out to cause bother or, as the noble Lord, Lord Saatchi, said, to commit fraud. If that is their purpose, this provision is not likely to put them off.

The third point is that a provision of this kind will add to costs and not reduce them, because in each case the ombudsman will have to decide whether it is a vexatious complaint. That will be another process in addition to the process of resolving the complaint. So it will add to the costs.

Finally, I do not believe that the ombudsman has put forward any proposal to make rules under this scheme. So he perhaps regards the power--to use the word for the fourth time this afternoon--as "otiose."

But it is not merely that it is otiose. It would have an ill effect. I believe that it would cause legitimate complainants to be reluctant to go to the ombudsman. We can imagine the scene. Someone has had a trusted IFA for some years and then he finds that he has been flogged something which was not appropriate for the purpose. That person then says, "Right, I am going off to the ombudsman to complain". The IFA says, "You do that. Did you know that the ombudsman has the right to award costs against you and you may lose not only the money you lost on my product but you may lose your costs? And I can tell you when I get to the ombudsman, with my knowledge of the industry against your rather feeble knowledge, I am going to make a case that you have been a vexatious complainant and it may cost you your home, your car and your estate".

I know that that is an empty threat if you have the degree of expertise that we have, perhaps, in this Chamber. But it is not an empty threat if you are Joe Soap. You are rather out of your depth in these waters anyway and you are looking to someone to sort out your complaint. Therefore, the effect of the proposal will not be to discourage vexatious complainants but to discourage genuine complaints, which will seriously weaken the scheme.

I beg the Minister to think very hard about this between now and Report stage. I hope that on reflection, looking again at the debate that has taken place in the industry and on consultation, he will agree that the Bill will be stronger with the amendment proposed.


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