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Construction Of Sections 6 And 7

Volume 131: debated on Friday 15 April 1988

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Amendment made: No. 3, in page 4, line 29 at the end insert'and "domestic arbitration agreement" has the same meaning as in section 1 of the Arbitration Act 1975'. —[Mr. Pawsey.]

Order for Third Reading read.

1.44 pm

I beg to move, That the Bill be now read the Third time.

I had not realised that success in a ballot for private Members' Bills would be so demanding. Steering a private Member's Bill is time-consuming and labour-intensive, but it has given me a valuable insight into the workings of the House which I would not otherwise have possessed. Having steered the Bill, with much help from a number of different sources, through Second reading, Committee and Report, I hope that the House will give the Bill its Third reading.

I should like to record my disappointment on one issue, and I shall speak gently, with tongue in cheek. On Second Reading we had the benefit of an extremely knowledgeable speech by my hon. Friend the Member for Dulwich (Mr. Bowden). He referred to the fact that he is the author of an extremely helpful book entitled "Bowden on Contracts". I was disappointed to find that, when I went to the Library of the House of Commons to obtain a copy of that admirable book, unfortunately it was not there. I hope that the appropriate authorities will contact my hon. Friend to repair that obvious deficiency.

Perhaps I may be of some help. The book is at present going into a second edition and I shall ensure that a copy is available in the Library when it is published.

My hon. Friend's offer is in keeping with his nature, but I heard the aside of my hon. Friend the Minister who suggested that such a copy be made at full cover price—a Scottish observation, if ever I heard one.

The aim of the Consumer Arbitration Agreements Bill is to enhance consumer protection. At present, it is possible for a consumer to enter an agreement with, for example, a builder or remover and for the contract to include a clause, usually on the back of the agreement and in small print, which specifies that, in the event of dispute, the dispute will be referred to compulsory arbitation. That is unfair to the consumer, because it takes from him the right to obtain redress from the courts. The Bill will have the effect of drawing the teeth of that clause, and it therefore gives the consumer added rights. The Bill concerns only arbitration between consumers and traders. It does not affect commercial arbitration agreements. It does not relate to arbitration agreements that emanate from abroad.

The Bill as originally drafted gave the consumer the absolute right to pursue his case through the courts. My right hon. and hon. Friends' attitude to that simple proposal was, at best, somewhat reserved. Following discussions with my hon. Friend the Under-Secretary of State for Corporate Affairs, the Bill has been amended and it now operates on three tiers. It provides that where a claim is under £500 the case may be referred by the consumer for consideration by the small claims procedure in the county court. The current limit for such claims is £500. For those claims between £500 and £5,000, the consumer will have the right to take the case to the county court, with a discretion for the court to enforce the arbitration clause. That will enable courts to enforce arbitration in those cases where it is in the consumer's interests to do so. It is worth underlining the phrase, "where it is in the consumers' interests to do so". For sums over £5,000 any arbitration clause written into an agreement and signed by the consumer would stand and be legally binding and enforceable exactly as at present.

I have to be honest and tell the House that I cannot take credit for the three-tier idea. It came as a result of the Bill being referred to the departmental advisory committee on arbitration. That committee, under Lord Justice Mustill, conducted a swift investigation into the merits of the Bill and made its report to the Department of Trade and Industry in a matter of weeks. Together with a number of other interested parties, I submitted evidence to the full committee and I now understand better how Ministers must feel when they are subjected to grilling by a Select Committee. The hon. Member for Ashfield (Mr. Haynes) and I serve on the Committee that deals with the Parliamentary Commissioner and it has fallen to us on many occasions to investigate witnesses at some length. I now understand how it feels to be on the receiving end of such an interrogation.

Lord Chief Justice Mustill and his committee listened with courtesy to the various points put to them during the hearing and I freely acknowledge that the Bill is better for their advice, consideration, expertise and recommendations.

On Second Reading, I was accused of introducing a Bill that was the product of the nanny state. I think that that is unfair. I am one of those who voted, in a free vote, for the introduction of seat belts. The introduction of seat belts could perhaps also be described as a product of the nanny state, yet it has saved a great many lives. This Bill, while not saving lives, will undoubtedly save consumers a substantial amount of time, inconvenience, trouble and, not least, money.

It will perhaps help the House if I quote from a letter from the Director General of Fair Trading, Sir Gordon Borrie QC to Lord Justice Mustill. It is a long letter so I shall not weary the House with its full contents. I shall simply refer to a couple of passages. The letter says:
"I see an advantage in the consumer being able to choose between binding arbitration or the court and would not wish to see any inadvertent restriction of this choice."
The letter continues:
"I am aware that some contracts (rather than codes) may contain a compulsory arbitration clause. This practice 1 oppose because I do not think it desirable for consumers to be deprived of their right of access to the court . . . the Bill, if enacted, would go some considerable way towards assisting my policy goal."
I believe that to be an extremely important and powerful letter from a well-respected organisation, and no doubt the House will give it proper weight.

The reason why I am anxious to reinforce consumer rights is that, in the majority of disputed cases, the consumer is inevitably the weaker party. It seems to me that in all fairness and in all equity the choice of which path to pursue—arbitration or the courts—should lie firmly with the consumer. My reason for that belief is simple. The consumer is usually engaged in legal activity as a once in a lifetime experience and is thus the classic one-shotter, often pitched against a repeat player who is more powerful and more experienced in litigation.

The House will be aware that the trader has behind him not just the possibility of previous experience in the courts but, in many cases, a trade association which is available to provide guidance, advice and expertise. It seems to me, therefore, that the dice are unfairly loaded against the consumer. Additionally, as was pointed out several times on Second Reading, compulsory arbitration can be an expensive process, especially as compared with the small claims procedure, and no legal aid is available.

It has been suggested that the Bill is a sledgehammer to crack a relatively small nut and may be addressing one particular trade. If that impression exists, I am happy to correct it. I have selected three letters from the considerable number received from constituents and others objecting to the manner in which compulsory arbitration clauses work. I have selected these three as being of particular interest to the House. They relate to three different trades and one comes from a trader rather than a consumer.

The first letter, which is addressed to my hon. Friend the Member for Broxbourne (Mrs. Roe) the Under-Secretary of State for the Environment, reads as follows:
"We are in dispute with a local manufacturer over numerous faults in two settees delivered to us in April 1987."
The letter describes at length the arbitration clause which appears on the back of the agreement and in the usual small print. The letter continues:
"Not only does this clause take away our rights to go to court, it replaces it with an alternative which is a complete unknown as regards expenses arid rules, i.e. who pays the cost of Counsel, Solicitors and expert witnesses and the Arbitrator himself? With such experts this could run-up a tidy bill. (A frightening thought!)"
I agree that it is, indeed, a frightening thought.

The letter goes on:
"We now find ourselves in a ridiculous situation whereby we cannot go to court, cannot get our money back and the manufacturers are ignoring us. We have two two-seater settees which we are afraid to use for fear of them being marked or damaged."
The second letter comes from a company of aerial engineers. It reads:
"Dear Mr. Pawsey,

Your Consumer Arbitration Agreements Bill is in the very best interests of the small contractor who does not have and cannot afford the time nor the staff to defend himself with the aid of his own trade association's arbitration machinery. If I was a big firm, I'd relish arbitration!"

By coincidence, I received the third letter only today. It was addressed to me and it reads as follows:
"My local Member of Parliament Mr. John Hannam has supplied me with copies of your Private Member's Consumer Arbitration Bill."
I shall not mention the name of the company involved because it does not have an opportunity to reply. I shall simply describe it as X. The letter goes on:
"Their advertised claims were false and my goods were delivered as a part load in a loosely packed lorry. There was extensive damage and deterioration caused by damp storage conditions. This was witnessed by an independent assessor and a representative from X. Their subsequent offer of recompense only serves to add insult to injury. I have to accept the arbitration clause does exist even though X delivered my goods without any actual signing of the contract by me. The BAR"—
That is, the British Association of Removers—
"have advised that I cannot take X to court and must use arbitration. Not to be deterred, I pursued the issue of their misleading advertising with the Advertising Standards Authority who discovered that they had judged X's advertising as being unfair back in 1985. I had personally collected copies of this advertising since 1987 and have subsequently submitted it to the ASA. In spite of X's blatant indifference to the ASA ruling I am still advised by BAR that I can only refer the matter to arbitration. Their arbitration clause would appear to allow them to do what they want, including the perpetration of unfair advertising."
Those three cases dealing with different trades underline the necessity for the Bill. When I introduced the Bill I intended it to be a modest and simple measure. Since then, and for the best of reasons, it has become a little more complex than I first anticipated. However, it is still uncomplicated, easy to understand and easy to operate.

I should like to acknowledge the assistance provided by officials at the Department of Trade and Industry who were prepared to draft the amendments to the original Bill. These changes proved to be rather more extensive than originally envisaged because of the necessity to ensure that the Bill referred to Scotland. The majority of the amendments moved in Committee were designed to ensure that the Bill should apply fully and effectively to Scotland.After all, why should the Scottish consumer be less well off than his counterpart south of the border?

It was not possible, as had been envisaged when I introduced the Bill, for it to apply to England and Scotland with precisely the same wording. It is evident that, because of the differences between the legal systems in those two parts of the United Kingdom, a different approach to Scotland was necessary. That was to ensure that the Bill applied there just as it does in England. For that reason only, separate clauses referring to Scotland now appear in the Bill. For that I have to thank those who advise the Government on Scottish affairs for their work in drafting the appropriate clauses about Scotland.

As I have said, the Bill may be a little more complicated than originally intended. If it is to provide a reasonable balance between consumer and trader and to provide legislation covering the whole of the United Kingdom, the amendments moved and agreed in Committee and subsequently on Report are necessary.

The Bill now enjoys the support and, I think, the blessing of the Department of Trade and Industry. I am delighted to see my hon. Friend and neighbour the Parliamentary Under-Secretary of State for Corporate Affairs in his customary place on the Front Bench. I pay tribute to him for his help and guidance and, not least, for his forbearance. The Bill is indeed the better for his advice. I cannot help thinking that, to some extent, my hon. Friend has acted as a midwife in the general development of the Bill. He may seem to be an unlikely character for such work, but I assure the House that he has a sensitive and helpful touch.

I shall not pursue the matter further.

Although the Bill has been regarded as my baby, my hon. Friend the Parliamentary Under-Secretary has certainly been the midwife. In the future, I am sure that he will become known as Mr. Secretary Maude, but I shall always think of him as Mr. Midwife Maude!

May I also thank the Chairman of Ways and Means for his help in conducting the Bill through the Committee stage that was taken on the Floor of the House, something that I believe is unique. Without his kindly and expert assistance I would not be moving the Third Reading today.

If the House approves the Third Reading the Bill will proceed to the other place, and I am optimistic that it will receive a reasonable degreee of support and enthusiam, if only because the Bill had its origins there in 1977 during the passage of the Unfair Contract Terms Act 1977.

The Bill enjoys the support of the Consumers Association and I acknowledge the help that has been so freely made available to me by its legal adviser, Mr. David Tench. The Bill also enjoys the support of the Institute of Trading Standards Administration, the Office of Fair Trading, as well as the Department of Trade and Industry. With such support the Bill has a respectable pedigree.

The Bill enhances consumer protection in an area where there has been some abuse. It extends the principle of fairness, increases choice and helps to redress the imbalance between the consumer and the supplier. It does not take away anyone's rights, because the right of arbitration remains, albeit in a permissive rather than an obligatory form. I commend the Bill to the House.

2.7 pm

I should like to commend the Bill to the House and congratulate my hon. Friend the Member for Rugby and Kenilworth (Mr. Pawsey) on the aplomb with which he has piloted this legislation towards the statute book. I also congratulate him on the clarity of his advocacy in presenting the purpose and merits of the Bill.

The Bill is a further step in an honourable course of law towards the protection of the weak against the strong, the protection of the small consumer against the big battalions of industry and commerce. The Bill follows a tradition that draws from every aspect of law-making. It follows from judge-made law, notably the contribution of Lord Denning, towards the protection of the consumer in contracts and statutes made in this House. That progress has now produced this private Member's Bill, which is one further step in the right direction.

The purpose of law is not merely to regulate society, but to make sure that justice is done. There is a definite feeling that injustice occurs when a small consumer deals with a big operator and when a one-off transaction for one person is a multi-purpose transaction for another. The Bill seeks to redress that inequity.

I am conscious that the promoters of the Bill have been accused of denying the right of choice and of ousting arbitration as opposed to litigation as a means of redress. That is not the case. Arbitration has a place and a part to play in any form of resolution of disagreement. It is appropriate that, in cases in which proponents are of equal contracting status—for example, if they have some trade secret that they do not wish to publicise or some dispute that they wish to keep to themselves, most notably building contracts and insurance contracts—disagree-ments can most efficaciously be solved by arbitration. But the system has been misused. Cheapness, efficiency, speed and privacy have been misused by many operators to try to exploit their rather superior contracting powers against consumers.

For that reason, the Bill has a notable part to play. I hope that it makes swift progress to the statute book. I say that with a certain point in mind. My hon. Friend the Member for Rugby and Kenilworth was kind enough to refer to a text in which I have some interest. That text now approaches its second edition. I should hate this legislation, which makes such a contribution to consumer affairs, to be omitted from that second edition. For that, if for no other reason, I commend it to the House for swift enactment.

2.10 pm

One would not recognise it from our sober, sombre expressions, but this is 50 minutes of pure pleasure for many hon. Members, not only because the Scots are now out of the way—that is always pure pleasure—but because I can now slip into my role as Leader of the Opposition (Fridays). That role is now from 1.40 pm to approximately 2.30 pm. That is pure pleasure for me.

Today's proceedings are an example to the House of Commons. Indeed, if my speech is brief, at this pace we shall probably have time to consider another three Bills. That is a much better pace than that at which the Scotch whisky measure was dealt with. It is certainly an example to the Government. If the Government were to propose less controversial, silly legislation and adopted more sensible measures such as this, which we can get through at great speed, we would be much happier and would serve the purposes of the people much more effectively than we do on Mondays, Tuesdays, Wednesdays and Thursdays.

I warmly congratulate the hon. Member for Rugby and Kenilworth (Mr. Pawsey) on bringing forward the Bill. It is a great achievement to get a private Member's Bill through the House. We assume that there will not be many obstacles in the House of Lords and that the Bill will go through today. It is a satisfying achievement, and it applies to far too few hon. Members. The hon. Gentleman was successful because he made a wise choice of measure. He had the good sense to work with the Consumers Association and, particularly, its legal officer, David Tench. Over the years, he has probably been responsible for better legislation than that produced by the Department of Trade and Industry. Because of their enormous circulation and wide range of contacts in the community, David Tench and the Consumers Association have the gift of spotting gaps in the legislative framework and developing small measures that are necessary to improve the lot of ordinary people, particularly the consumer—the Government have neither the time nor the insight to do that—and introducing them through private Members' legislation. Having worked with them is one of the hallmarks of the hon. Gentleman's success.

The measure is important. It protects the weak from the strong and the small against the big battalions. That is a major part of the function of the House. We are certainly furthering that function today. The hon. Member's measure completes the achievements of the Labour Government from 1974–79. Had it not been for the particularly tough political climate and the obstructive operations of the Conservative party at the time, the measure would have come into effect in 1977. It was frustrated then only by the tactics of the then Opposition. It is not the final chapter of the history of that Labour Government—I have not yet completed my book on it—but it rounds off their achievements. It is an important measure, simply because, although effective, the arbitration procedure is expensive. It is really designed for weightier causes than those of the small consumer. The British Association of Removers estimated the cost at £200 a day, and if the individual loses he carries the cost of arbitration. Therefore, it is right to take the smaller cases out of the arbitration procedure. If it has the added advantage of dealing a severe blow to the legal profession, so much the better.

The hon. Member for Rugby and Kenilworth said that the Minister was the midwife. I am not sure that I like the image, but we must not forget that the main part of the achievement was his. I hope that that is not considered to be male chauvinism. On Second Reading the Minister embraced the Bill and threw caution to the winds. An agreed modification was made in Committee that narrowed the Bill's scope somewhat, and I should have preferred that that had not happened. However, I understand the pressures to get the Bill through its passage.

I am glad that the proposals put forward by the British Association of Removers were not accepted. It made a deeply moving—I make that pun for the second time, and it has gone down as badly as it did the first time—plea for low-cost, but still compulsory arbitration. The small claims procedure is good and effective and we are delighted that it is being extended to Scotland. We urge that the limits be raised to £1,000, as was proposed in the Lord Chancellor's consultative paper. We do not understand why that is being delayed. The sooner that it happens, the better. In the meantime, this measure will provide an important and useful procedure. The House has spent on it the best-employed 50 minutes of its time.

2.17 pm

It is a pleasure, as well as a tradition, warmly to congratulate my hon. Friend the member for Rugby and Kenilworth (Mr. Pawsey) on his skilful piloting of this measure through its Commons stages. I am sure that it will be equally skilfully handled and dispatched in another place. It is a somewhat different measure from what it was at its birth. My hon. Friend said that I was the midwife. It has undergone some transmutation since then, and it is now a more acceptable measure.

My hon. Friend has been both temperate and sensible and has consulted fully my Department and outside interests. That has undoubtedly lent the measure a helpful degree of consent. My hon. Friend may not have achieved the fame or notoriety of the hon. Member for Liverpool, Mossley Hill (Mr. Alton), but he has made real progress towards putting his Bill on the statute book.

As has been said, the Government are not unsympathetic towards the Bill—indeed, they have assisted in its passage. Since its birth two months ago, it has grown at the hands of the parliamentary draftsman and his Scottish colleague, with the result that the Bill sensibly reconciles the competing principles at stake. On the one hand, as now amended, the Bill will prevent arbitration clauses being used as an unfair means of dissuading consumers with genuine claims from pursuing their disputes. On the other hand, however, it should avoid unnecessary interference with arbitration, which the Government have no wish to discourage as a mechanism for resolving disputes.

It will not surprise my hon. Friend the Member for Rugby and Kenilworth if I say that I retain, in a small part of my mind, an anxiety about the principle pursued in the Bill. I do not believe that it is being unduly legalistic to support the principle that parties to a contract should be bound by the explicit terms of that contract. That is an honourable and important principle, which is important for the cause of justice about which the hon. Member for Great Grimsby spoke. It is also an important principle in the pursuit of fairness. In the ordinary course of events it is perfectly fair that parties to a contract should accept that they are bound by the terms of that contract. The principle that one should allow the courts and the legislature to overset the explicit terms of a contract, even in highly restricted circumstances, needs to be treated with great caution. For those reasons, it is right that the Bill should be restricted in its ambit to exactly the mischief that has been identified, but that it should go no further than that.

I retain an anxiety that the more that the courts and the legislature interfere, overset and override explicit terms of contracts, the less the onus appears to be upon consumers to read the terms of the contract to which they are committing themselves. We all make jokes about fine print on contracts and about how unfair it is, but most of us will accept that we are bound by the terms of contracts, which may be set out in fine print. We accept that we should read what the contract says before accepting it. It is no good the consuming public becoming accustomed to the fact that if they sign up for something which afterwards they do not like, the courts will intervene to help them.

In a sense, the Minister is praising with faint damns because that is an unduly legalistic interpretation. We must take into account the relative weight of the parties. If a consumer is in a weak position and the person putting forward the contract is in a strong position, the odds are not equal. That is the main consideration by which we should be motivated.

With respect, it is not a narrow legalistic approach, it is a broad philosophical approach, which I am happy to say, is entrenched deep in the fabric and history of English law.

Well, it may be a conservative approach, but I make no apology for that. Certainty in the law is highly desirable, and the principle that one should be bound by the terms of a contract that one signs should be overset only in very restricted circumstances.

It may help the House if I comment briefly on the Bill as now drafted. Clause 1 provides that an arbitration clause cannot be enforced against a consumer without the consumer's consent if the proceedings would fall within the jurisdiction of a county court. In other words, it covers disputes up to the present county court limit of £5,000. If that figure rises in the future, the new limit will automatically apply to the Bill.

The next two clauses apply certain exclusions and definitions to ensure consistency with the Unfair Contract Terms Act 1977 and other statutes.

The effect of clause 4 is to give the court the discretion to enforce an arbitration clause in county court disputes if they are above the small claims limit—in other words, disputes between £500 and £5,000 at present. The court may exercise that discretion only if it is satisfied that arbitration would not be detrimental to the interests of the consumer, having regard to all the relevant factors, including the availability of legal aid. Clause 4 does not give the court discretion to enforce an arbitration clause if the dispute falls within the small claims limit, which is at present £500.

The hon. Member for Great Grimsby asked whether the limits would be increased. The consultation paper issued by the Lord Chancellor's civil and justice review canvassed the possibility of raising the limit of the small claims jurisdiction and of removing the general county court limit altogether. Although an increase in the level of the small claims limit could be made by statutory instrument, the removal of the county court limit altogether would require primary legislation and could not be implemented for at least two or three years. We accept that if the small claims limit is raised it would be reasonable for the new limit to continue to apply to this Bill. If the county court limit were to be removed entirely, the Bill would be one of a number which would require consideration whether it should be amended. I doubt whether we need to anticipate that possibility now.

Some specific illustrations may help to elucidate the Bill's effect and rationale. Let us suppose that I wish to sue a trader for £200 in the small claims court, but he wishes to enforce an arbitration clause. The maximum cost of proceedings in the small claims court is £43, but the cost of arbitration would depend on the scheme specified in the contract. It could be as high as £200 or £300 if I lost. The Bill would allow me to insist on suing the trader in the small claims court and would give the court no discretion to enforce the arbitration clause. Clearly, if the trader could insist on arbitration and the arbitration scheme was an expensive one, I might well be discouraged from pursuing the dispute because the potential costs would be too large in relation to the sums at issue.

Perhaps I wish to sue the trader in court for £2,000. That sum exceeds the small claims limit and the case would therefore fall within the normal procedures of the county court. The Bill allows the court discretion to enforce the arbitration clause in cases of this financial magnitude. But if I was eligible for legal aid for the court proceedings, it is unlikely that the court would enforce the arbitration clause against me because at arbitration I would not receive legal aid and a reference to arbitration, relatively speaking, would be detrimental to my interests. I am assuming that there are no compelling technical or other reasons for preferring arbitration.

If, on the other hand, I was not eligible for legal aid at the court proceedings, it is possible that, on application from the trader, the court would enforce the arbitration clause. Indeed, it is possible that if I tried to resist the reference to arbitration in the county court and was unsuccessful, I might run up costs in addition to those associated with the arbitration. I would obviously be well advised to consider carefully whether it was likely to be worth my while seeking to take advantage of the Bill's provisions before I risked incurring extra expenses in court.

The Government do not wish the Bill to interfere with arbitration to the extent that it allows the consumer to insist on court proceedings in cases where the operation of the arbitration clause would not cause him unfairness.

Finally, let us suppose that I wish to sue a trader for £20,000. The Bill would not affect such a dispute because the sum is above the county court limit. My Department's advisory committee on arbitration law took the view that there was no case for allowing arbitration clauses to be overturned in cases involving sums of this amount, and I share that view. The terms of a contract for this amount should have been carefully considered by the parties before signature and I do not see the case for allowing a consumer to overturn his contractual agreement in these circumstances. Moreover, my Department's advisory committee received no evidence that arbitration clauses in contracts for large sums in practice operated unfairly.

Clauses 6 to 8 contain provisions for Scotland similar to those for England and Wales and for Northern Ireland in the earlier part of the Bill. The main difference arises because there is no direct equivalent in Scotland to the £5,000 jurisdictional limit of the county court. The Bill is restricted instead to cases falling within the summary cause process of the sheriff court. At present, that extends the proceedings for debt or damages not exceeding £1,000.

The provisions for Scotland are slightly different from those for the rest of the United Kingdom. If experience shows that this is an anomaly which gives rise to unfairness or indeed that any of the limits defined in the Bill are unsatisfactory, it will be possible for the Secretary of State with the concurrence of the Lord Chancellor or Lord Advocate, as appropriate, to specify higher limits by order.

The Bill strives to ensure that the consumer is not deprived of access to justice by means of arbitration clauses. At the same time, it seeks not to interfere unnecessarily with arbitration, which is an efficient dispute resolution procedure of great value in helping to reduce the work load of the courts. As amended, it achieves a good balance, and the Government do not wish to oppose it.

Question put and agreed to.
Bill accordingly read the Third time, and passed.