HC Deb 22 July 1977 vol 935 cc2192-202

Lords amendment: No. 10, after Clause 9, in page 5, line 28, at end insert— A.—(1) As against a person dealing as consumer, an agreement to refer future differences to arbitration cannot be enforced except—

  1. (a)with his written consent signified after differences have arisen; or
  2. (b)where he has himself had recourse to arbitration in pursuance of the agreement.
(2) Subsection (1) does not affect—
  1. (a)the enforcement of arbitration agreements to which section 1 of the Arbitration Act 1975 applies (that is, arbitration agreements other than "domestic" within the meaning of that section);
  2. (b)the resolution of differences arising under any contract so far as it is, by virtue of section 1(2) and Schedule I, excluded from the operation of section 2, 3, 4 or 7."

5.30 p.m.

Mr. Ward

I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker

With this we may take Lords Amendments Nos. 15, 20, 33, 48, and 57.

Mr. Ward

This group of amendments relates to the matter of arbitration. The Lords carefully considered the proposition that any future agreement under Clause 12, which requires the consumer to submit the differences to arbitration, would be unenforceable unless the consumer consented to arbitration. That is what this amendment proposes. The whole group of amendments would enable the consumer, in the case of a dispute to go to court if he so wishes, or to use the arbitration service. We are advised that the Director General of Fair Trading believes that in many cases arbitration is preferable to going to law, but within the code of conduct negotiated by his office the consumer always has the choice. Once the choice has been made to use arbitration, ordinary arbitration law applies.

I hope that the House will agree that consumers should have the right to go to court and that that right should not be taken away by a discreet clause in a contract. If arbitration is cheaper and easier than going to court, the consumer, if he has faith in the impartiality of the arbitration, should be allowed to do that.

Mr. Neubert

This amendment covers an extremely important point which should be seen in the context of the whole Bill. The Bill started life as an innocent and innocuous measure but it has gathered increasing momentum. Its original 15 clauses have been extended to 34 clauses plus four schedules. What was a Private Member's Bill has become Government legislation, with the full weight of the advice and assistance of a Government Department. The title and the terms of reference of the Bill, which referred to the avoidance of liability, have been extended to cover unfair contract terms. The Bill's provisions, which originally related to England and Wales, have been extended to cover Scotland and Northern Ireland so as to embrace the whole United Kingdom.

In consequence, what was a relatively minor improvement in the law of contract in favour of the consumer has turned into a revolution in the law of contract to the point at which it threatens the very concept of contract itself. All that is germane to the amendment. Indeed, at this late stage the Bill is beginning to take on the appearance of a runaway train thundering through the gap left in the Government's legislative programme by the collapse of the Scotland and Wales Bill. My intention is to apply a touch of the brake by offering a word of caution, because there is a real danger inherent in the amendment.

There is a danger to which the sponsor of the Bill has not alluded and over which he has skated extremely rapidly. The amendment goes well beyond the general unerstanding of those of us involved in consumer protection legislation that the concept of caveat emptor is an inadequate safeguard in today's complex society. The amendment goes much further. We should appreciate that there has already been a fundamental change in the law of contract under the Bill, as a result of the arguments put forward by my hon. Friends and me in Committee and which were carried against the vote of the two Ministers in attendance. Our amendments switched the burden of proof of reasonableness from the consumer to the supplier of the service. I am sure that the sponsor of the Bill will acknowledge that that was a fundamental change in the law of contract.

However, there is some argument against making such a radical change as is contained in the amendment at such a late stage. The amendment seems to be the exemplification of the situation in which, having been given an inch, there is inclination to seek a mile. What is more, no less an authority than the Lord Chancellor has given his backing to this revolution. What is its nature? It is proposed that there should not be any requirement to go to arbitration unless the consumer agree to it. The important point emerging there is that the consumer gives that agreement subsequent to the performance of the service. That seems extraordinary.

The Lord Chancellor said: I should have thought that it is reasonable that he"— the consumer▀× should be able to decide not at the time of entering into the contract, when the arbitration provision itself may be part of the small print, but when a dispute or difference has arisen between him and the supplier. At that stage he should be free to elect what he wants to do. That I regard as a fundamental principle."—[Official Report, House of Lords, 20th June 1977; Vol. 385, c. 29.] I find that astonishing. Surely the fundamental principle is that a bargain made should be a bargain kept. Yet the Lord Chancellor advocates that, after the service has been provided on certain terms which were implicit in the original contract, the consumer should nevertheless be able to override those terms.

That goes too far. It opens up the opportunity, in the concept of contract, to the consumer afterwards to break an agreement that he has made when he finds that it suits his particular circumstances to do so. It seems to me to go beyond both common law and commonsense. The hon. Member for Peterborough (Mr. Ward) acknowledged that arbitration can now be both easy and inexpensive, and we are at one with him in welcoming the action of the Director of Fair Trading in negotiating a code of conduct with different trade bodies in order that a choice should be given to the consumer as to whether he goes to arbitration or to the courts. But if arbitration is a reasonable process and can be commended and it is part of a contract, it should be upheld by the consumer.

Mr. John Fraser

The hon. Gentleman will recall the debate on Report. He is contemplating an arbitration clause that is reasonable. I do not think it is asserted that one should have an arbitration clause that is unreasonable. The problem discussed on Report was the difficulty that, if one makes an arbitration clause subject to "reasonableness", there is great difficulty in either the consumer or the supplier being certain as to the form in which he can properly start his action. If he went to court to test the reasonableness of the arbitration provision, and if the court held that it was reasonable, he would have to go to arbitration. It would be no solution to test the reasonableness of the arbitration clause in such circumstances. Therefore, the only way out was to give the consumer the choice between arbitration and the courts.

Mr. Neubert

I recall that debate. It should be made clear that the amendment relates only to consumer agreements and not to contracts of business. Nevertheless, in view of the all-round opinion that arbitration is a reasonable condition, a process to be welcomed, and has been facilitated in recent years by county court procedures, it does not seem necessary, in order to protect the consumer, to make it open to him to go against what was perhaps implicit in the original agreement, even though it may be in small print.

A different way of tackling not only the question of arbitration but the terms and conditions of contract is that of prior validation. This received consideration in the House of Lords but was turned down by the Lord Chancellor, as it had already been turned down by the Law Commission.

In the Committee stage in the other place on 20th June, the Lord Chancellor had this to say on the question of validating terms and conditions in advance: The Law Commission in their Second Report considered prior validation and decided against it, I think rightly. They took the view that it would be cumbersome and costly to administer, and that it could give rise to injustice because it would be confined to generalities, whereas of course the court would look at the facts and the specific circumstances of each case that came before it. My advice to the Committee is: Let us give the Bill a chance first. The disadvantages of a system of validation seem to me to outweight its advantages, and I cannot really think of a situation where one would willingly introduce it."—[0fficial Report, House of Lords, 20th June 1977; Vol. 384, c. 483.] Although he acknowledged a moment later that the idea was interesting, he did not give it his support, although the Law Commission had left the matter open and had not come to a firm conclusion on the point.

Hon. Members in this House and Members in the other place have expressed concern that this issue might give rise not only to increased expense but to an increase in litigation. They were anxious to avoid that. It was thought entirely reasonable that either through the Office of Fair Trading or through the Restrictive Practices Court agreement should be established in advance of what was a reasonable standard term of contract to save a good deal of dispute and legal activitiy and expense afterwards.

I believe that there are intimations that in Europe the people concerned are coming round to this point of view. The hon. Member for Peterborough will remember that he cited as justification for changing the name of the Bill the fact that events were moving towards this concept in Europe. It is interesting to find here that this is one of the points that our European colleagues are considering.

The objectives of the Bill are in accordance with the terms of Resolution 76/47 on unfair terms and consumer contracts. The system of control proposed by the Bill—that is to say, reasonableness judged with regard to the circumstances which were or ought reasonably to have been known to or in the contemplation of the parties when the contract was made; that is, under Clause 10—is wholly contrary to the system of control advocated by that resolution, which proposed among other things prior validation.

There seems to be some understanding that the European Commission has produced a draft of a directive concerning standard terms and consumer contracts which envisages a similar system of prior validation. The Lord Chancellor cited the disadvantages, as he saw them, of going over to a system of prior validation, but there are some very real advantages to which I wish to draw the attention of both the Minister and the sponsor of the Bill.

First, it would provide an element of certainty for consumers and providers of services. For example, on the point of arbitration, it can be a common feature of contracts—and it is now—that it can be established by this procedure that such a provision was reasonable and that there would be no need either to give the consumer a choice or to test it in the courts. Another advantage would be uniform application and the same decisions by differing courts. Finally, scope would be given under exemption clauses as a result of give and take by providers of services and consumer associations or other users' associations. This would certainly be better than the all-or-nothing judgment that the courts themselves would tend to give.

Not having such a system of prior validation would seem to involve these disadvantages. First, we should be out of step with the rest of Europe. We should be delaying harmonisation in a field in which harmonisation is obviously very relevant. The first case that went to litigation for each form of standard term—there are many of them, not just arbitration, and there are many other standard forms of contract—might well be taken by the provider of those services to the House of Lords at great expense to all to determine the reasonableness of a particular term. That could happen to each clause in the standard term contract. There could be greater uncertainty until a decision was taken, because the decisions could be decisions of the county courts, which receive little publicity, and those decisions would probably not be known to consumers or other users.

For all these reasons, I ask the Minister of State to consider whether, in the provisions of such a feature as an arbitration clause in a consumer contract, it would not be preferable to adopt a system of prior validation. The Office of Fair Trading is agreeable to this procedure, if we can judge by its previous activities in this area. The matter should not be dismissed as cursorily as has been the case here and in the other place.

5.45 p.m.

Mr. Moate

My hon. Friend the Member for Romford (Mr. Neubert) was right to express his concern about the way in which the Bill has been developing. I add to that my concern about the way we are dealing with what seems to be a far-reaching change in the law. In years to come we shall, perhaps, rue many of the consequences of this legislation. I can understand its good intentions. This amendment is no doubt part of those good intentions. I can see a case for restricting some of the unreasonable terms and conditions that sometimes appear in the small print. But by this amendment and by other matters which we are considering we are, perhaps, undermining the value of contracts and, to a certain extent, removing some protection from the consumer.

We shall not fully understand the implications of these changes in the law for many years to come. I believe, however, that we may get greater uncertainty in contracts, perhaps over-insurance by suppliers of goods against the possibility of liability, thereby increasing prices. People will be seeking to protect themselves from eventualities and risks which they have not yet foreseen. This amendment is a case in point. I am no lawyer, and it is not always easy to follow the earlier proceedings. I was not convinced, by my reading of the debates in another place, of the merits of this amendment. I thought that strong arguments were put up against it.

The first assumption that puzzles me is that an arbitration clause in a contract is somehow an imposition upon the consumer. No doubt hon. Members will correct me if I am wrong, but it had seemed to me that the general intention of including such a clause was to provide a sensible mechanism which would enable the consumer to settle a dispute. I would have thought that that was a desirable feature in most agreements.

The Minister said that there were some unreasonable arbitration clauses. I would not dispute that. If he says so, I am sure that he has evidence of that. He should find means of dealing with this as a separate issue, perhaps even applying the test of reasonableness in some way. I do not think that it is right to say, in effect, that arbitration conditions can be overridden, which is what the amendment seeks to say. It would mean that there would be no merit in including an arbitration clause in a contract. It would have no validity until after differences had arisen. That would mean that any supplier might as well wipe the clause out of the contract. Surely that is not to the benefit of the consumer. It is to his disadvantage.

There seems to be a strong argument against the amendment. I am concerned generally, too, because there seems to be a strong case for increasing arbitration at the expense of litigation. That appears to be a desirable trend and I understood that it was the trend in all our legislation. Here, however, we have an amendment to a significant piece of legislation which sems to undermine that principle. It is reducing the value of arbitration and nullifying the arbitration clause, which more often than not has been inserted into a contract for the benefit of the consumer.

I very much hope that the hon. Member for Peterborough (Mr. Ward) will not press the amendment. Perhaps we have no choice. In that case, I hope that the House wil reject it and I hope that their Lordships will accept our point of view that this is an undesirable proposition.

Mr. Neubert

Before my hon. Friend sits down, I would point out to him that their Lordships were never given a chance to come to a decision on this point. The view that my hon. Friend and I have expressed was also expressed by Lord Hailsham and Lord Denning, Master of the Rolls. We are not lawyers and we would be unwise to engage a Minister who is across the Dispatch Box. However, there is a considerable weight of opinion in favour of what my hon. Friend has stated.

Mr. Anthony Grant

Having listened to my hon. Friends the Members for Romford (Mr. Neubert) and Faversham (Mr. Moate) I am convinced that this is an undesirable amendment. The hon. Member for Peterborough (Mr. Ward) would be well advised to take it away not only for the reasons given by my hon. Friends but because of the remarks made by Lord Hailsham and, indeed, Lord Denning, to whom we give considerable deferment on all legal matters.

I would make only one point. It is to some extent an illusion to imagine, even in this day and age, that arbitrations are necessarily automatically quicker and cheaper than appeals to the court. Certainly, since the time that I was involved in the law, the procedures of the courts have speeded up considerably.

I know of many cases in which arbitration has been an untold and fantastic expense. Often it produces a result that is thoroughly unsatisfactory to both sides. In opposing the amendment I suggest that it is far better to leave the matter entirely to the parties to the bargain and to let them decide. I very much hope that the hon. Gentleman will not press the amendment.

Mr. Ward

My hon. Friend the Minister may wish to reply to the points made by the hon. Member for Romford (Mr. Neubert) on the question of prior validation. However, reading the debates in the other place, particularly the remarks of Lord Denning, it is fair to say that Lord Denning and even Lord Hailsham might have felt that the Bill as drafted would deprive people of opportunities for arbitration. But, in fact, the proposal is that choice should be extended.

I am surprised that Conservative Members should be prepared to see the choice of consumers limited. Bearing in mind the development of the small claims court, for example, and the fact that very small value claims can conveniently be taken to another form of arbitration that has been created, this proposal might lend itself to the consumer as being more convenient to him. The consumer might live near the courthouse, and so on.

Mr. Moate

Is it not the case that if there is no arbitration clause the supplier of goods has the advantage thereafter, because he does not give the option to the consumer? That is to the advantage of the supplier, who can say to the consumer "Take me to court", and because there is no arbitration provision the consumer has to go to law to get redress. Most consumers would be reluctant to go to that length. This therefore reduces choice rather than extends it.

Mr. Ward

That is a matter of opinion, for the House to judge. I have had no representations on that point from any particular group. Bearing in mind the fact that the Director General of Fair Trading is incorporating provisions of this kind generally in the codes of conduct that are now being negotiated in various industrial groups, I think that it is logical and sensible that the amendment now proposed by their Lordships should be adopted for the purposes of the Bill.

I know that the hon. Member for Romford is interested in the work of the travel industry and ABTA. I am advised that the code of conduct that the Director General of Fair Trading negotiated with ABTA members follows the Bill and that arbitration is offered to the consumer only after the dispute has arisen. I hope that hon. Members will see the amendment as offering maximum choice to the consumer and nothing else.

Mr. John Fraser

I had not given much thought to the prior validation point, which had not been raised before. It raises many problems about freedom of contract if a clause in a contract is to be validated by some authority—I assume a State authority—without the parties who must operate that clause both being present when it is validated.

I know that the hon. Member for Romford (Mr. Neubert) is trying to introduce certainty into arbitration clauses but my initial, off-the-cuff reaction is that the matter would need a great deal of thought, and I am not sure that it is an attractive proposition. When a similar amendment was moved on Report by my hon. Friend the Member for Hemel Hempstead (Mr. Corbett) I do not think that any hon. Member on either side of the House demurred from the proposition that unreasonable arbitration clauses should be examined. I then put it to the House that it would be difficult to subject them to a reasonableness test, because that would lead to confusion about the venue—and possibly a double venue. The House accepted my advice and I think generally expressed the wish that the matter should be looked at again by the other place. The other place has provided a method of dealing with consumer arbitration clauses to which no one had raised any objection until this debate.

The consumer has a choice between using the courts and using the arbitration clause. If the arbitration clause is attractive, cheap and speedy and imposes no unreasonable burden upon him, he may choose it. He may choose to go to court if that provides a more reasonable, cheap and speedy way of settling the dispute.

It would be wrong to allow the imposition upon a consumer of an arbitration clause that could be dressed up as an exemption clause or as an obstacle to achieving a settlement of the dispute. It is to deal with that mischief that the clause was introduced, and I hope that the House will accept it.

Question put, That this House doth agree with the Lords in the said amendment: —

The House proceeded to a Division; but no Member being willing to act as. Teller for the Ayes, Mr. DEPUTY SPEAKER declared that the Noes had it.

Question accordingly negatived.

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