HC Deb 02 April 1979 vol 965 cc1069-74

'(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 1 of the Unfair Contract Terms Act 1977, excluded from the operation of sections 2, 3, 4, or 7 of that Act.

(3) A person dealing as a consumer is as defined by section 12 of the Unfair Contract Terms Act 1977.'—[Mr. Ward.]

Brought up, and read the First time.

9.45 p.m.

Mr. Michael Ward (Peterborough)

I beg to move, That the clause be read a Second time.

I hope that the remarks that have been made by the hon. and learned Member for Southport (Mr. Percival) and by the Government on the imperative need to pass the Bill and the difficulty of accepting amendments will be reconsidered in the light of the qualities of my clause. It has already been considered by this House and by the other place on a previous occasion. I ought perhaps to remind the House that it is broadly the same as the amendment that was moved by the Lord Chancellor to the Unfair Contract Terms Bill, a Bill that I sponsored in this House. The amendment was acceptable to me and to the Government but, owing to the tactical difficulties of sustaining a majority late on a Friday afternoon, it was found politic in order to save the Bill not to press the amendment. It became law in 1977.

The fact that the amendment was not pressed on that Bill is interesting. The report of the Law Commission on exemption clauses was the mainspring of that Bill. In that report the Commission recommended that this issue of arbitration in consumer contracts ought to be dealt with in a Bill on arbitration rather than in one dealing with exemption clauses. So it is particularly appropriate that the clause should now be moved on this Bill, although I appreciate that the main thrust of the Bill is in the direction of the recommendations of the Commercial Court committee on which there are still, according to the hon. Member for Romford (Mr. Neubert), some misgivings among those who have to administer the arbitration function outside.

Perhaps it would have been better if the Bill had been dropped and brought back early in the new Session, as I am sure my right hon. and learned Friend the Solicitor General would have been able to do. Clearly, however, he intends to press ahead with it now.

The clause relates only to contracts which concern consumers. A consumer is defined for this purpose in section 12 of the Unfair Contract Terms Act as someone who neither makes the contract in the course of a business nor holds himself out as doing so and where the other party does make the contract in the course of a business". So that does not touch in any way on commercial contracts as between commercial parties.

The burden of the clause is that a person dealing as a consumer cannot be bound by an arbitration clause in a contract. He cannot be forced to go to arbitration unless he has given his written consent, significed after the differences have arisen, or where he has himself had recourse to arbitration in pursuance of the agreement.

To illustrate that, I quote from the booking conditions of a company operating in the travel business. I know that the subject is of particular interest to the hon. Member for Romford. In the booking conditions in this current attractive guide to holidays worldwide in the sumber of 1979—a subject which offers great attraction to us all as we look forward to five weeks of hard work—Inghams Travel states: In the unlikely event that you have cause for complaint and we are unable to agree on suitable settlement, the dispute will be referred"— note the word "will"— 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 claim and £5 for each additional claimant and your liability for costs whatever the outcome of your case will not exceed the deposit paid". That is an interesting term because in the other brochures published by the same company the word used is not "will." The words are "may be". Many in the consumer world wish that all such contracts carried the term "may be".

Mr. Neubert

The hon. Gentleman makes a valid point. I wonder whether he has checked with the Association of British Travel Agents. My understanding is that it is not compulsory but is an option. What the hon. Gentleman referred to, in the brochure he quoted, may be a simple case of error as evidenced by other brochures which conform more nearly to what he thinks is desirable.

Mr. Ward

I hope that the hon. Gentleman is correct and that it is an error. There are many other examples. I refer to a Vauxhall dealer in the Colchester area. In his terms of business he says that: If any dispute or difference of any kind whatsoever shall arise…it shall be referred to a single arbitrator to be appointed by the President for the time being of the Institute of Arbitrators in accordance with the Arbitration Act 1950. In the case of the travel company I accept the point made by the hon. Gentleman. The company may have made an error, though am advised that similar brochures on the market are as restrictive as the one from which I have quoted appears to be. It is important to note that these clauses about arbitration give no choice to the consumer. It used to be argued that the buyer should beware—caveat emptor—but since the passage of the Unfair Contract Terms Act the question of validity of the exclusion clauses in various business documents has been resolved. The law now provides that such terms may be void, or subject to testing in the courts, under the test of reasonableness.

It is common to both the exemption clause and to arbitration, in certain business terms, that it is a question of take it or leave it for the consumer. The average man or woman going to a travel agent and studying this attractive brochure would never consider whether, in the event of a later dispute, it would be better to have access to the courts or to use the form of arbitration laid down in the booking terms. It is not reasonable to expect anybody to have to make a judgment in that context. When buying a car I am sure that the average purchaser is much more concerned with the quality of the article and with the problems of financing that purchase than he is with an obscure and rather abstruse term about a future dispute.

The difference between arbitration and the small claims procedure, which is now available to consumers in certain areas, is that it may be cheaper to go to court than to submit to arbitration. It seems unreasonable that we should permit terms which bind a person to arbitration instead of allowing him access to the cheaper procedure of the small claims court. The fee normally charged in the small claims court is about 10 per cent. of the sum claimed.

Under arbitration legal aid is not available, whereas it is for an action in the small claims court. There are also logistic difficulties involved in arbitration. Cases may have to be heard in London whereas there are 300 courts up and down the land to which a person can go for a convenient and a speedy resolution of his dispute. He also has the opportunity of appearing in person. Someone who, perhaps, was not good with pen and paper would be heard in a court. Frequently one of the conditions for arbitration is that it shall consider the written documents in the case. My proposal has already been considered by the House of Lords and by this House. I hope that my right hon. and learned Friend will consider introducing it in the last days of this Parliament.

The Lord Chancellor said that a fundamental principle is that the consumer should be free to elect whether to go to arbitration or whether to use the courts. The hon. Member for Romford said that he thought that a bargain made should be a bargain kept. The weight of the parties to the agreement or contract is important. The weight of the parties is unfairly exerted against the consumer when a form of arbitration is imposed.

The hon. Member for Romford mentioned the unsuitability of certain standard term contracts. He said it was difficult for certain people in a business relationship to agree to a suitable contract. It is more difficult for the consumer to achieve the type of contract that he needs. My proposal would enable consumers to have the genuine choice of whether to go to arbitration or to accept the process of law. I hope that my right hon. and learned Friend will accept my proposition, even at this late stage.

Mr. Percival

I hope that the Solicitor-General will forgive me for intervening now but I have to make a telephone call at 10 o'clock.

I was interested in the brochures that the hon. Member for Peterborough (Mr. Ward) used to illustrate his case. From the attractive pictures on the front I am sure that they were advertising holidays in Southport. Of course, as holidays in Southport always come up to expectations, the arbitration clause would be of no interest. There would be no difficulties upon which to arbitrate.

What I said on behalf of the Opposition about clause 4 also applies to this case. I am not saying that the hon. Member for Peterborough may not have a case. I do not wish to go into the merits or demerits of his argument. I know of his anxiety to see such a provision and I understand why he takes this opportunity to give his proposition another run.

We are dealing with commercial arbitration, which is a specialised subject. If we propose other provisions relating to other arbitrations, we must give them the fullest possible consideration.

Mr. John Lee (Birmingham, Handsworth)

Is the hon. and learned Member really saying that the two Front Benches have come to such a meticulous agreement for the disposal of the remaining business of this Parliament that a matter as meritorious as that raised by my hon. Friend the Member for Peterborough (Mr. Ward) cannot be considered on its merits? That does not make sense.

Mr. Percival

If it had the time, the Committee would wish to discuss whether the proposition was meritorious. The hon. Member for Peterborough thinks that it is. It is not a question of the type of agreement to which the hon. Member for Birmingham, Handsworth (Mr. Lee) referred rather sneeringly, as if such an agreement should not take place. It is an agreement that is intended to get through as much business as possible in the limited time available to this Parliament. Without such an agreement, several Bills would have failed.

It is an agreement between the Front Benches, but—

It being Ten o'clock, The CHAIRMAN left the Chair to report Progress and ask leave to sit again.

Committee report Progress.