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If Amendment No. 161YA were accepted the ombudsman would be confined to dealing with cases where there had been a breach of a rule or a failure to satisfy a legal obligation. I am sure that that would be very restrictive. As has been pointed out, there have been cases of maladministration or just plain rudeness which do merit consideration by the ombudsman and in some circumstances would undoubtedly merit an award against the respondent. I know that it looks odd that one should have a unilateral ombudsman scheme--a one-way street--in which the complainant can take the matter up to, but not as far as, the award and then say, "I have not done very well here. I shall now go off to a court. Perhaps I shall do better there". But that is not what happens.
The proof of the pudding is that over many years this has been the pattern for all the ombudsman schemes. The dialogue that takes place between a complainant and the ombudsman, including very often a draft award telling the complainant what the award would contain if he persisted, has settled the matter completely. It may be illogical but it works. If ever there was a case for leaving it to work, this is it. We are not trying to invent a new ombudsman scheme. We are merely trying to rationalise a large number of ombudsman schemes, almost all of which have in common the feature that the respondent can be caught by an award but not the complainant.
I shall move briefly on to Amendment No. 161B. I respectfully suggest to the noble Lord, Lord Kingsland, although he is not in his place, that he does not mean "negligence". He means "tort". There are many things such as defamation and the like which come under that broader heading. I just thought that I might put in my two penn'orth on that one.
Amendments Nos. 161C and 162 deal with costs. I have never litigated, except on one occasion, for fear of the costs. Perhaps I may describe the occasion when I did it. I had gone round advocating that people should put a legal expenses addition to their household comprehensive policy. The time came when I thought that I should perhaps put my money where my mouth was, provided that it was not too much money. I discovered that it was only £10 and so I did it. I then found myself in dispute with a marine surveyor and handed over the matter to the legal expenses insurers, who took it from there. It was very satisfactory. I was insured against any liability to the other side in respect of costs. This scheme will fail if people are frightened of costs.
That brings me to the amendment to which I subscribe. I agree with all the reasons which have been given. I had to ring the chief ombudsman and ask what are the rules for damages in contract. He told me about it--he reminded me of it is a better way of putting it. They are very limiting--much more limiting than they ought to be, even in regard to court cases. They certainly have no place here. I very much hope that the Minister will be able to accept our much broader suggestion.
Lord Boardman: My Lords, I have been concerned with the creation of certain ombudsman schemes during my time in business. To the best of my knowledge, they have all worked satisfactorily from the point of view of the organisations that established them and the number of complainants whose core complaints have been met. I agree with the remarks of my noble friends Lord Saatchi and Lord Hunt of Wirral regarding the essential requirements, the fact that they can be dealt with speedily and the way in which awards were made--somewhat generously, but not generously in terms of the cost if people had suffered through their problems not being met or going to the courts.
I support the amendments. Two queries have been raised regarding the proposals of the noble Lord, Lord Saatchi. The matter of negligence was raised by the noble Lord, Lord Borrie. I interpret that as a measure of assessing the damages which could properly be awarded by an ombudsman, taking into account the various circumstances. To that extent negligence widens the field rather more than was otherwise appropriate.
The second relates to costs. I am not sure that I understood the noble Lord, Lord Newby, but as I understand it his amendment strikes out all reference to costs. Yet the noble Lord explained that costs seemed essential to stop someone going from court to court and running them up. Whatever the noble Lord's reasoning, I believe that the provision of a deterrent in the form of costs to stop the aggressive litigant abusing the system is quite a good thing. Such a provision should be used with considerable discretion. The costs certainly should not follow the event. But if someone abuses the system by making unreasonable complaints, it should be up to the ombudsman to provide a deterrent for the future by awarding costs against that person. Subject to those qualifications, I support the amendments that have been proposed.
When we considered a similar clutch of amendments in Committee, I prefaced my remarks by explaining that the purpose of the ombudsman scheme was to provide a quick, cheap and informal mechanism for resolving disputes between authorised firms and consumers. It was also mentioned that over 80 per cent of complaints under the schemes we are replacing were resolved between the parties without the ombudsman having to take a decision one way or another. That is important, because it sets in context questions about who should be bound by the determination and on what basis such determinations should be reached. These issues do not even arise in the vast majority of cases.
I turn first to Amendment No. 161YA, proposing that decisions should not bind respondents. The amendment deals with the question of whether the ombudsman's decision should be binding on the complainant. This question has been raised before and has been given careful consideration. We believe that the approach taken in the Bill is the correct one. It is fundamental to the character of an ombudsman scheme that decisions should not be binding on complainants. Existing schemes are based on that premise. They provide consumers with an alternative to court action but do not deprive them of their legal rights at any stage before they decide to accept the determination. We do not believe that it would be appropriate in any way to design a new scheme in such a way as to put consumers in a less favourable position than under current schemes.
Apparently, over the past number of years, in general, complaints have been upheld only in a minority of cases: roughly 30 per cent in insurance, and roughly 40 per cent in investment matters. In the majority of cases complainants are disappointed.
However, experience is that over the past 20 years a handful of dissatisfied complainants have gone on to take advantage of their right to pursue matters by way of court proceedings. If complainants were required to choose between the ombudsman route and abandonment of their legal rights--that might well be the effect of the amendment if passed--or to preserve their rights by issuing proceedings, it is possible that many more would choose the court route. We believe it is unlikely that that outcome will be welcomed by the financial services industry, and we invite the noble Lord, Lord Saatchi, to withdraw his amendment.
Amendment No. 161ZA relates to Clause 224. It is perhaps helpful if I explain briefly the basis on which we believe that the ombudsman should determine cases for which the Bill makes provision. We believe it is right to require the ombudsman to determine cases on the basis of what is fair and reasonable in all circumstances. Existing schemes determine cases on that basis. We believe that this arrangement has worked well, as a number of noble Lords have said this evening, and it should continue. The scheme must be quick and informal. It would be wrong to constrain the ombudsman by requiring a purely legalistic focus, or a focus on rules to the exclusion of everything else. To do so might mean that he was unable to examine all the matters, such as delay or maladministration, which were relevant to a complaint. We would certainly expect the ombudsman to take into account, where relevant, the matters mentioned in the amendment--breaches of rules or legal duties and obligations--but it would be too prescriptive to limit his role to those matters.
I turn to the first set of incompatible amendments: Amendments Nos. 161A and 161B. Amendment No. 161A in particular, with no disrespect to Amendment No. 161B, gives us some food for thought. These amendments deal with the provisions under which the ombudsman will be able to make awards of compensation for loss or damage suffered by complainants. I briefly outline the intended purpose of Clause 225(3) which has been subject to some gentle but severe criticism during the course of this evening's debate. Ombudsmen have traditionally made awards which reflect not only financial loss and other losses compensable in general commercial matters but other matters such as distress and inconvenience. Clause 225(3) is intended to allow that to continue while ensuring that the ombudsman's power to make awards for loss or damage not generally compensable in commercial litigation is limited to matters specified in rules made by the FSA.
Subsection (3)(a) is intended to cover losses for which damages would be recoverable in a breach of contract action. Subsection (3)(b) is intended to allow the FSA to specify other types of loss in respect of which the ombudsman can award compensation. We believe that that approach strikes the right balance and allows the ombudsman sufficient discretion to award compensation while ensuring clarity for the industry in respect of awards for loss or damage not generally compensable in commercial litigation.
We have some concerns about Amendment No. 161A. We believe that that amendment, spoken to notably by the noble Lord, Lord Hunt, which removes the requirement that awards under paragraph (b) should be specified in rules, rather detracts from what we seek to achieve. We do not believe that Amendment No. 161B is appropriate. I do not want to go into details at this stage. The noble and learned Lord, Lord Donaldson, suggests that "tort" is better than "negligence" but that neither is appropriate. The Government also take that view.
We have listened with care to, and will read with even greater attention, the points made this evening and consider whether we can do anything to clarify Clause 225. If it is appropriate to do so we shall table an amendment at Third Reading. It may be that the days in between could be taken up by some discussion on possible ways round this. I do not want to hold out too much hope of movement, but we have been impressed by the arguments that have been put forward, particularly in relation to Amendment No. 161A. In view of that, I hope that the noble Lord, Lord Hunt, will not press his amendment at this particular stage.
Now I move to Amendments Nos. 161C and 162. They deal with the provisions under which the scheme operator can make rules allowing the ombudsman to award costs. We discussed similar amendments in Committee and I can assure noble Lords that we have given full and careful consideration to these provisions since that discussion.
Clause 226 as it stands allows no scope for the ombudsman to make an award of a firm's costs against a consumer. We believe that is right. The scheme is intended to provide consumers, many of whom simply will not have the resources to pursue a case through the courts, with a free means of redress. To allow a firm's costs to be awarded against a consumer could discourage consumers from using the scheme. Indeed, if such an amendment is passed, it is arguable that responsible financial companies might arm themselves with lawyers as soon as a complaint was lodged, and the ombudsman scheme would then have to make the complainant aware that he was at risk of payment of costs if he pursued his complaint.
That might be a really serious inhibition on consumers pursuing complaints. Of course we recognise that the amendment of the noble Lord, Lord Saatchi, (Amendment No. 161C) would allow such awards to be made only where the consumer had behaved improperly or unreasonably, but we still do not think that the changes proposed are desirable. We want to make sure that any action that could be taken in response to improper or unreasonable behaviour is, and is seen by consumers considering whether to use the scheme to be, controlled and proportionate. A respondent's costs could be very high, and they are beyond the control of the scheme operator.
In addition--and this we consider important--the ombudsman cannot award costs against any consumer at all, even if they have behaved badly, improperly or unreasonably, unless rules have been made to allow it. The authority and the scheme operator have made it clear that there are no plans at present to allow the ombudsman to make such awards. Such rules would be made only if, in the light of experience, it proves necessary to do so.
Therefore I would describe the authority's attitude about this as being a "reserve" reserve power. The rules are not there: there is no intention to make them. They would be made only if it was thought appropriate to do so, and thus no award could be made until the rules were made.
The scope of the power to award costs to consumers who behave unreasonably or improperly is clearly defined. We would expect it to be used only in the worst cases--my next three words are important--if at all. However, we do think that it is important to have it in the Bill against potential abuse of the scheme. The scheme will give consumers access to a coherent and effective mechanism for seeking redress, and it is only fair to ask that those consumers use the scheme responsibly. It is in that context that I invite the noble Lord, Lord Newby, not to move his amendment.
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