My Lords, I am delighted to welcome my noble friend Lady Noakes to the Committee and commend the clarity with which she took us through the amendments of the noble Lord, Lord Hodgson. I am sorry that he is not here because he sat patiently through many hours of our proceedings last week. I especially enjoyed my noble friend’s refreshing emphasis on growth and wealth creation. It was also good to hear from the noble Viscount, Lord Eccles, who rightly emphasised the importance of this part of the Bill, and from my noble friend Lord Hunt of Wirral, who urged caution and warned us, honestly and graphically, about the role of the lawyers in some climes in this sort of area, which we are seeking to avoid.
An effective competition regime is built on public enforcement and the ability for consumers and businesses to take private actions and claim redress. The current collective actions regime is opt-in, which requires consumers to opt in to a court action. A key feature of the revised regime is the introduction of an opt-out regime, where consumers are automatically part of a court action unless they opt out. This change is being made as there has been only one collective action case in more than 10 years, so we feel that the current law is not working.
My noble friend’s amendments would remove opt-out collective actions. Of course, a collective action is not a new concept; a regime has existed since 2002. Under this regime, consumers have to sign up to an action before it commences in the Competition Appeal Tribunal. As I said, since the regime was created in 2002, there has been only one collective action case, and that had only 130 claimants—less than 0.1% of those eligible. Furthermore, SMEs are not permitted to use the existing regime to bring claims; for example, if a dominant manufacturer were to withhold supplies to drive up prices.
The Government have always been clear that an opt-out collective actions regime would require stringent safeguards to prevent vexatious claims and the US-style class actions that have been described this afternoon. I would also highlight the different legal culture and practice in the US, where significant financial incentives to bring claims, such as treble damages and damages-based agreements, are the order of the day and have led to a large number of claims. We have learnt from that experience and introduced three key safeguards, as the noble Viscount, Lord Eccles, explained.
I will summarise the safeguards very briefly. The first is a requirement for the CAT to certify that the representative is suitable to bring the claim. Secondly,
the Bill prohibits businesses paying too much redress by prohibiting exemplary damages. As the noble Baroness, Lady Hayter, explained, they would have to pay back only the overcharge to the consumer, not multiple damages. Thirdly, law firms are prohibited from taking a percentage of the damages as a success fee—so-called damages-based agreements. Further requirements that have to be met before a representative can be approved will be set out in the CAT rules. These will include a representative’s ability to pay costs, whether there is a conflict of interest with the underlying claimants, and whether a representative would adequately act in the interests of the underlying claimants.
To assist in understanding, the Government published draft CAT rules on collective actions in March, and they are available in the House Library. I have a copy if anyone would like one. In the draft rules, the CAT would have to scrutinise the nature and function of the representative body. This would include whether or not the body is suitable to be a representative body, including whether the body had a pecuniary interest; for example, whether an underlying claimant wishing to act as a representative had a conflict of interest because they had a financial interest in the outcome of the case.