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Interpretation Of Part I

Volume 931: debated on Friday 6 May 1977

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I beg to move Amendment No. 18, in page 7, line 1, leave out 'but'.

With this we may consider Amendment No. 19, in line 2, leave out 'not'.

This amendment seeks to change the special immunity on arbitration clauses in the Bill. I suggest that we should not give them this special immunity.

Arbitration clauses are a mixed blessing to consumers. Sometimes they can be a benefit and sometimes not. The Bill assumes generally that they are always good. That is what I question.

I cite the case of a certain holiday brochure, that issued by Ingham. The booking conditions which the firm uses contain these words:
"Clause 8. Arbitration Scheme. In the unlikely event that you have cause for complaint and we are unable to agree on suitable settlement, the dispute will be referred to an independent Arbitrator who will be appointed by the Institute of Arbitrators. The Arbitration scheme devised by the Institute of Arbitrators after consultation with the Travel Industry, includes a simple and inexpensive method of arbitration. The arbitration will be conducted in accordance with English law. There is a deposit payable of £10 for the first claimant and £5 for each additional claimant and if you choose this inexpensive method your liability for costs whatever the outcome of your case will not exceed the deposit paid."
That sounds all very nice. Quite a few other tour operators use similar clauses. But it may not be quite such an attractive proposition as it seems.

The arbitration scheme which ABTA—the travel industry's trade association—has set up with the Institute of Arbitrators can cost the consumer with a genuine complaint quite a lot of money. Under the recently announced amendments to the scheme, it could cost the sum of £12 for a family of three to institute an arbitration under the scheme. This would set in train an arbitration procedure on documents; that is to say, there would not be a personal hearing where the pros and cons of the complaint could be examined.

I have had some recent experience on behalf of a pensioner in my constituency in getting a complaint resolved by letters, and I can tell the House that it is a long and tedious job. The argument in the case was whether there was central heating in the hotel and, if so, whether it was switched on, and there was also some altercation about whether a "sea view" meant the same to both the tour operator and my constituent.

Before the hon. Gentleman continues, will he make it clear that this present system of arbitration was part of an agreement made by the tour operators with the Director of Fair Trading, Mr. John Methven, and was specifically to meet the needs which he felt at that time were lacking, and that it is part of a voluntary code of practice with the travel industry?

I am grateful for that intervention, and I take it into account. As I have said, there are good and bad arbitration schemes. The assumption in the Bill which I question is that which implies that, on the whole, they are always good.

The House will appreciate that to the average holidaymaker an arbitration scheme established by agreement between the trade organisation—in this case, ABTA—and the Institute of Arbitrators is not likely to generate a great deal of confidence in its ability to see the problem from the consumers' point of view. I do not question the impartiality and competence of arbitrators but, on the other hand, I can well understand that a family who have just had a precious summer holiday ruined, in their view, and their complaint turned down by the arbitrator might well feel a sense of grievance and suspect that the arbitrator was more "one of them" than one of us".

If arbitration were the cheapest and most effective way of getting a dispute heard and disposed of, for all its shortcomings as I have described, I would be in favour of it. But that is not the case. There is a much better alternative open to consumers who seek redress which does not suffer from the disadvantages I have described, and it provides a better service for less expenditure in many cases.

I refer to the small claims procedure in the county court. This is at least as well qualified to deal with consumer complaints about holidays, or anything else for that matter, and charges only 10 per cent. of the amount being claimed as the court fee to set the procedure in motion. Perhaps the greatest advantage the county court has over the private arbitration is the fact that it is local. There are about 300 county courts in England and Wales, so there is not far to go for most people when they wish to make a claim. The ABTA arbitration scheme, on the other hand, is likely to involve most people in a considerable journey to have their claim dealt with, unless of course it is all dealt with by correspondence.

Again, will not the hon. Gentleman agree that it is open to the holidaymaker who believes that he has a grievance to choose the alternative? He is not confined to the travel industry's agreed form of arbitration if he does not choose to be.

I accept that. But it is my claim that arbitration is being treated differently. Special immunity is being given in the Bill to arbitration clauses, and it is that which I seek to challenge.

I am not attacking the ABTA arbitration scheme or a similar scheme run by the Motor Agents Association. I am not attacking the arbitration clauses as such. If they are reasonable and fair—and there are tests of this in the Bill—they may well be a good means of resolving problems that people have. This amendment provides that in those cases where an arbitration clause is reasonable, it will be upheld. Provided it passes the test of reasonableness, the arbitration clause will, under this amendment, be upheld and bind the parties to dispose of their dispute by the arbitration machinery. If, on the other hand, the arbitration clause were found by the court not to be fair and reasonable, then it would be held not to operate under the terms of Clause 3.

I do not seek to enable consumers with disputes to go to the county court in any event when they are faced with an arbitration clause. What I do say is that any arbitration clause should only be forced on to a consumer if it is a reasonable one. That is what I believe this amendment seeks to achieve.


The Minister of State, Department of Prices and Consumer Protection
(Mr.John Fraser)

The effect of the amendment would be to impose a test of reasonableness on all arbitration clauses. I think that that would be a disservice to many contracting parties. Business men find it useful to go to arbitration because they sometimes find that it is speedier and cheaper and that they can preserve their privacy and call upon expertise. It would be a very great pity if doubt were thrown on the certainty of arbitration clauses, particularly in business contracts.

If the House accepts the amendment it could create difficulties for consumers. The amendment says that the arbitration clause should be subject to a reasonableness test. If a consumer wanted to challenge the arbitration clause, he would have to go to the county court to do so. If the court came to the conclusion that the clause was reasonable, the consumer would then have to go to arbitration at another venue and that would not do any service to him at all.

I shall go one better than the Godfather—I shall make my hon. Friend two offers that he cannot refuse. There is a difficulty at the moment in that if the consumer considers that the arbitrator has made a mistake or is biased, he has to apply to the High Court for remedy. That is unsatisfactory because of the increasing numbers of consumer disputes going to arbitration, not all of which involve large sums of money.

I am pleased to announce that the Lord Chancellor has undertaken to consider amending the law of arbitration in England and Wales so as to confer on the county court, within the normal financial limits, the jurisdiction now exercised by the High Court. If this proposal is feasible it will, I think, improve the position of consumers considerably.

Secondly, if my hon. Friend will agree to withdraw his amendment, I undertake to consider the possibility of introducing in another place a Government amendment to deal with arbitration clauses in consumer contracts, but not in others.

My inclination at the moment is to-wards making unenforceable an agreement that requires a person dealing as a consumer to submit future differences to arbitration. I ask those trade and professional bodies which are concerned with arbitration involving consumers to let me have their views on this proposition and indeed on consumer arbitration generally as soon as possible. I think that this may be more acceptable to the consumer and more useful. I hope that the announcement I have made and the undertaking that I have given will persuade my hon. Friend to withdraw his amendment.

In relation to my two earlier interventions and the speech I am about to make, I declare an interest in that I was a tour operator for many years. I retain a link with the tour industry as an independent travel consultant.

As the hon. Member for Hemel Hempstead (Mr. Corbett) has cited the ABTA scheme, I want to reinforce the points I made earlier that that scheme was agreed with the Director General of Fair Trading as part of an agreed voluntary code of practice for the tour industry. The scheme gives the aggrieved client the chance to go either to arbitration or to the county court in the normal way, whichever he chooses.

I have no hesitation in supporting the Minister in the spirit of what he is advocating—the need to make matters easier for consumers. That was the prime purpose of the ABTA scheme from its inception. It was intended to make it easier for people who thought that they had a complaint to get around the table with the arbitrator and argue the issues in a relaxed and informal atmosphere, rather than through the county court.

These matters are often relatively minor and are not normally associated with the great process of English law. It was thought that a holidaymaker should have easy access to arbitration if he chose. Although the scheme has been of considerable expense to the travel industry it has not been used a great deal. That is not a criticism of the scheme but a reinforcement of the point that the number of complaints by holidaymakers is infinitesimal compared with those who are satisfied with the service provided. I have no objection to the proposals that the Minister has outlined.

Having heard the wise and sensible words of the Minister of State, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.