Compensation Bill [HL]

My Lords, I look around with some care to make sure that the gap is over! This is undoubtedly a well meaning Bill, but being well meaning is not enough. Part 1—which is Clause 1—is at best unnecessary and may well lead to confusion and still more litigation. Part 2 unquestionably has a useful and desirable objective—the regulation of claims management companies. But the Government have not yet decided how they want to achieve that, and until they make up their mind on those issues, I believe that the Bill is premature. The lack of detail in the Bill has led to strong criticism from the Delegated Powers Committee, but the Bill is also to some extent premature because we have not yet had the report on the compensation culture from the Select Committee on Constitutional Affairs in the other place. It is important to see that report and the evidence that it contains, which I hope will be published during the course of the passage of this Bill through your Lordships’ House. I start with Clause 1, which says:"““A court considering a claim in negligence may, in determining whether the defendant should have taken particular steps to meet the standard of care (whether by taking precautions against a risk or otherwise), have regard to whether a requirement to take those steps might—""(a) prevent a desirable activity from being undertaken at all, to a particular extent or in a particular way, or""(b) discourage persons from undertaking functions in connection with a desirable activity””." My reaction to that is—what on earth does it mean? The Explanatory Notes say that Clause 1 merely reflects the existing law. But does it? Explanatory Notes can now be taken into account in deciding and helping to decide what a statute means, but they cannot override the wording of the statute. As the Minister said, in negligence cases the claimant has to prove, first, that the defendant owed him or her a duty of care and, secondly, that the defendant failed to meet that standard. The courts undoubtedly take that into account; they recognise that some sports carry an inherent risk of injury. For example, football carries an inherent risk of a broken leg or torn knee ligaments. Normally, however, unless there is some exceptional situation, such as something that goes far beyond a normal foul and is actually unacceptably violent behaviour, the sufferer, quite rightly, will have no course of action. Yet that does not exclude the duty of care. Let us look, for example, at another sport, if you could call it that: abseiling. That clearly carries an element of inherent risk, which in some cases cannot be foreseen. On the other hand, if the person in charge fails to inspect and check an obviously defective rope, or allows children to abseil without proper supervision and as a result someone suffers serious injury or is killed, the victim or the victim’s family can get damages, and rightly so. Faced with Clause 1, there is a possibility that the court may say, ““This section must be intended to have some effect. It must lower the duty of care if, for example, the expense of meeting the present standard may reduce access to a desirable activity””. That could lead to all sorts of legal issues. What, for example, is a ““desirable activity””? School trips are frequently talked about, but does a desirable activity include a visit by parents and their children to a leisure park? Does it include something like farming, or the production of new medicines? These are clearly desirable activities, but is the standard of care to be lowered? To what extent should the duty of care be relaxed below the normal standard? I hope that in Committee the Government will give a full explanation of why they think this clause is needed. In practice, the problem here lies with the question of insurance. For example, the cost of premiums for insuring school trips may be prohibitive. Could the Department for Education and Science arrange some mutual insurance scheme for schools, which would have lower costs than commercial insurance? There is also a serious problem with the costs of litigation, particularly with the conditional fee agreements—the CFAs—where the losing defendant has to pay not only the normal costs of the claimant, but a markup on top of that. It is now almost invariable that in small cases, unless the small claims process is used, the costs outweigh the damages, particularly where a successful CFA is used. We should probably look at issues such as some restrictions on the level of extra costs payable on CFA cases. This is not really aiming at the right target. That target is not so much the nature of the duty of care as why it is that litigation has become so expensive. I certainly would not think it right to see that anyone who has a genuine claim to damages should be denied that claim by lowering the existing duty of care. I recognise of course that the Government do not intend to do that, but I have fears that Clause 1 may achieve that. I turn to Part 2 of the Bill. I have no doubt about the need to regulate claims management companies, but we need to look carefully at the report of the Delegated Powers and Regulatory Reform Committee. I agree with them that too much here is left to regulations. Let us look at Clause 3, which is the power to set up a regulator. This is a very important provision, and too much here is left uncertain. Will the Secretary of State himself carry out the regulatory functions—which, under the Bill, he has the power to do? Will some existing body—no doubt a body involved in claims management—be appointed as regulator? This is what I think the Government mean by ““a front-line body””. Or will a new public body be set up? It surely ought to be possible to decide which course will be followed. As I said earlier, until the Government make up their mind on that issue, I believe this Bill is premature. In particular, Clause 7 and the Schedule to which it applies leave too much to regulations. It is essential that the Bill should not leave your Lordships’ House until we get more detail. There are a number of points of detail in Part 2, which I will go into in Committee. I shall just mention the more important ones. In Clause 2, why is there a need for a waiver of accountability to the regulator as well as authorisation and exemption? ““Waiver”” and ““exemption”” seem to me to be very much the same thing. In Clause 3, why should the regulator be required to encourage competition as one of its duties? There would be an obvious conflict of interest, particularly if a body is concerned whose members include other companies involved in claims management. In any event, I should have thought the regulator’s job is to ensure that there are adequate ethical standards and rules to punish infringements, and that it is the job of the OFT to ensure that there is competition. Is it envisaged that the regulator might be a body with links to the claims management business? As I said, that presents a conflict of interests. Why is Clause 5(2) included? This allows ignorance of the law as a defence. This is an unusual defence. Anyone providing claims management services for reward surely ought to know—and indeed almost certainly will know—that they are providing a regulated service. It does not seem at all necessary in that case to allow ignorance to be a defence. There is a power under Clause 6 for the regulator to bring criminal proceedings, but plainly that should only apply if the regulator is a public body. It would be wholly inappropriate for some non-governmental body to have that kind of power. The Delegated Powers and Regulatory Reform Committee says that the powers under Clause 7 and the Schedule are too wide even if the affirmative procedure is used, so we need more detail in the Schedule and the use of the affirmative resolution procedure, at least for the initial regulations. In paragraph 5 of the Schedule, I would like to know what is meant by ““subjective criteria””. Does this mean the regulator can refuse authorisation on grounds not supported by evidence? How can the regulator conduct hearings? It is now a principle in general that the body making the rules should not also be the body that enforces them. The DCA said in a letter to me that the powers in paragraph 11 apply only to investigation, not to sanctions. I have to say that I do not see anything in the Bill that makes that clear. Having one body to investigate claims and decide upon them and then refer them to another to impose a sanction would be a strange complexity. Is it appropriate for compensation to be provided? Why is Clause 12(1) not sufficient? Is it envisaged that authorised persons will handle clients’ money? Will regulations cover that? There are a lot of problems regarding claims management—not with the principle, which we entirely endorse, but with the detail. I believe there is a lot of room here for improvement.