Financial Services Bill

My Lords, I intend to interrupt just for a few moments this enormously important debate on the philosophy of financial regulation and stability to pick up on one part of the Bill which has not attracted a great deal of attention so far, although both opening speakers referred to it—Clauses 18 to 25 on "Collective proceedings". I do that without apology, not because what has been discussed so far is not hugely important, because it is, but because, as my noble friend the Minister rightly said, these proposed provisions are groundbreaking. It is therefore right to spend a few minutes looking at them. They are groundbreaking because they would provide for the first time in English law something which is akin to, although in important respects different from, a class action with which we are familiar in US proceedings. For the first time it will be possible in the most radical form of collective proceedings—opt-out proceedings—to have them brought on behalf of people who do not know that they are being represented and to bind them in the result or enable them to benefit from damages from proceedings about which they knew perhaps nothing and certainly took no part. The Bill would make provision to disapply limitation periods and make particular provisions about damages—for example, for the first time, by not requiring a careful assessment of loss before damages are awarded. The provisions are groundbreaking in that sense and apply in this Bill only to claims in relation to financial services, but it follows a recommendation by the Civil Justice Council in relation to proceedings more generally. As we approach this part of the Bill, we need to recognise that it has an importance in relation to financial services, but it also has an importance as a potential precedent in the future for other civil proceedings. I wish to make two points in this short intervention. First, I must declare my interest as a practising lawyer. There is another specific interest that I shall declare in a few moments which is relevant to the final point I want to make. The first question is: should we be welcoming this innovation? As a matter of principle, is this form of collective proceedings a good thing? This has been a matter of debate for a number of years—whether we should move more towards a class-action system. For myself, subject to the safeguards to which I want to return, I regard this as a good thing for us to attempt to do. That is because, frankly, it is very difficult for many people who suffer—and the financial services sector is one in which that has happened—effectively to bring proceedings whereby they can vindicate their rights and receive compensation. That is enormously difficult to do and, therefore, something which helps to provide that access to justice is very well worth considering. On the other hand, we have to recognise that there are excesses and abuses which many would see in the class-action system. I have to be careful about what I say, as I am now partner of a firm which is headquartered in New York and whose heritage is New York and US law. But there remain—and will remain—differences between our system and the US system which are important in protecting against abuse. First, we still, at least for the moment, apply a principle that the loser pays the costs. That means that there is a disincentive to bring bad proceedings. Secondly, we do not have a principle of triple damages, which can often increase enormously the damages which result. We do not in civil cases, with very few exceptions, allow juries to assess damages—that is another cause of high damages awards in United States cases. However—this leads me to my second point—a lot of the questions about whether the safeguards will be there and abuses prevented depend upon the detail of these proposals. Here there is a difficulty: it is intended, for reasons which I understand and with which I am familiar, that a lot of the detail will be contained either in regulations or rules of court. At least in one case it is not entirely clear whether the same matter could be prescribed in both, because it appears that the identification of cases for collective actions could be both prescribed and the criteria for them set in rules of court. There seems to be an overlap. If my noble friend the Minister will forgive me, I also have some concern that it is intended that the regulations will in due course be made by the Treasury, which, as a former spending Minister, I enormously admire, but it is not the place where the greatest repository of knowledge about legal proceedings lies. I hope therefore that he will say something about how in practice those ministries which have that expertise will be involved in the regulations—for example, the Ministry of Justice. Many details will need to be prescribed or set out in rules of court. Just what are the criteria for deciding which cases are fit to be collective proceedings? Which are fit to be opt-in and which are fit to be opt-out proceedings? When are limitation periods to be excluded? How are damages to be dealt with? These are important questions to which great attention needs to be paid. Our difficulty in this case is that not only are the criteria not in the Bill, which I entirely understand, but we face the difficulty of an accelerated period in which this legislation has to reach the statute book. I personally hope that this part will reach the statute book. In those circumstances, can the Minister reassure us that a way will be found for some of the important detail of this matter to be debated without the normal process of having to draw it out of him through probing amendments in Committee, so that by the time that the legislation is finished—probably in wash-up—we will have a much better idea of what the draft regulations will be? That is a concern. I want finally to pick up on an issue referred to in Clause 23(5)(b)—the possibility that in opt-out proceedings there will be a sum of money left which is not, at the end of the day, distributed. The Civil Justice Council recognised that if there are to be proceedings in which people are represented but not actually taking part, you may well end up with a sum of damages awarded for which there is no recipient. The proposal is that provision should be made in regulation as to the purposes for which that money is applied, including "charitable or other purposes". In his masterful and detailed report on costs, Lord Justice Jackson touched on this point, making what he described as a modest proposal that a potential recipient of this money is the Access to Justice Foundation. Here I make my second declaration; I am the chairman of the board of trustees of that foundation, which was established for the purpose of receiving money, awarded by the court, under Section 194 of the Legal Services Act 2007. The foundation was established by the professions and by the pro bono and legal advice industries. I therefore simply note that declaration of interest, but we as a House, when we are asked for the first time to approve a situation in which a defendant may be ordered to pay money that will not actually go to the people who have suffered the loss, will want to know the intended destination of the surplus money.