PARLIAMENTARY DEBATES

HOUSE OF COMMONS

OFFICIAL REPORT

European Standing Committee B

EUROPEAN COMMUNITY DOCUMENT No. 8597/90 and COR 1 ON UNFAIR TERMS IN CONSUMER CONTRACTS

Wednesday 8 May 1991

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1 European Standing Committee B Wednesday 8 May 1991

[MR. NORMAN HOGG in the chair]

UNFAIR TERMS IN CONSUMER CONTRACTS

10.30 am

The Parliamentary Under-Secretary of State for Industry and Consumer Affairs (Mr. Edward Leigh): This is a novel procedure to me. I understand that I am required to make informal opening remarks to set the scene and that hon. Members will then have the chance to question me on the details of the directive. I know that an explanatory memorandum was given to hon. Members in October and a second one in February. Therefore I do not need to go into great detail about the directive because hon. Members are fairly familiar with it. However, it will be useful if I set the scene of United Kingdom law and give a quick, bird's-eye view of the law as it has developed over the centuries, where we are now and how the directive would affect our law. The cornerstone of our law is the Unfair Contract Terms Act 1977. Before that Act we were governed by common law which had developed over many centuries. The basic principle of common law, which has also grown up in other European countries, is the freedom to contract. Two adults who wish to make a contract should be given the opportunity to find out what is in the mind of the person with whom they are making the contract. They should be given full freedom to make that contract and they should be bound by it. Under the old system of common law and before the Unfair Contract Terms Act 1977, there were always limited exceptions, there was the exception of duress; the old lady who is bullied into selling her house by an unscrupulous estate agent. There was the concept of undue influence; the old lady who is tricked into selling her jewellery by an unscrupulous nephew. There was also the concept of the unconscionable contract in circumstances where there is a serious inequality of bargaining power; the old lady who is tricked into having unnecessary repairs done to her house by an unscrupulous builder. Those traditional exceptions which limited the freedom to contract in common law have not been much developed despite their antiquity. In general, it is true that the courts in this country have been reluctant to reopen bargains or to rewrite contracts simply because they appear, on the face of the contract, to bear harshly on one or other of the parties. The 1977 Act did not change that basic procedure. It did render void certain contract terms which limited the liability of the supplier. Except in the case of liability for death or injury, and in certain consumer contracts, this voidness is subject to a test of reasonableness, hon. Members should remember that the concept of reasonableness goes right through English law and is perhaps different from the continental understanding and emphasis on the words "good faith". 2 What we do not have—and it is here that the Unfair Contract Terms directive becomes relevant—is any generalised concept that contract terms must be fair, or any power for the courts to reopen contracts that fail the basic test of fairness. The unfair contract terms directive represents an attempt to tackle that problem. Central to the directive is its definition of a concept that is novel to us— the concept of fairness. There are four limbs to that: significant imbalance in the parties' rights and obligations; performance of a contract that is unduly detrimental to the consumer; performance significantly different from what the consumer could legitimately expect; incompatibility with the requirement of good faith. Those four limbs are central to the directive and constitute the concept of good faith. That stress is new to our legal system. The four limbs stand on their own and the contract may be deemed to be unfair if any one of those four limbs is not met. In considering whether a contract is unfair, the surrounding circumstances when the contract was made may be taken into account. The concepts of significant imbalance, unduly detrimental and significantly different from legitimate expectations are new in United Kingdom law, and especially the concept of good faith, which has been part of insurance contracts, but does not exist in our ordinary contract law. The concept of good faith may not have existed in our law hitherto but that does not mean that it is undesirable or that we should dismiss it. Some people argue that our contract law is moving in that direction already, whatever happens on the European scene. Perhaps we should consider the concept of good faith. It is as good a way as any of giving effect to the requirement of fairness. We are united in wanting to develop a system of contract law what promotes the concept of fairness. As that matter is important, it would be useful to hear the Committee's views on what constitutes good faith and how the concept of fairness may be promoted under our contract law. I shall give a simple outline of our law. The annex to the directive is important and I expect a lot of focus on that as our negotiations proceed. The annex contains a list of types of contracts that are, by definition, unfair in all circumstances. That is a novel concept in our system of contract law. Some problems arise with that and I shall refer to one or two of them. The relationship between what the annex deems to be unfair and the remainder of the directive is unclear. Is the list absolute? If the annex deems a contract to be unfair, although it may not seem to be so under the remainder of the directive, would the annex make it unfair? We must clarify that. Much of the directive, as is to be expected, needs to be clarified. No test of reasonableness exists in the annex. Are the prohibitions absolute, or would the terms of the annex be subject to a test of reasonableness, which is part of our contract law? It is entirely sensible to consider the contract in the round. I hope that I have set the directive in the context of United Kingdom law, but I wish to make a final point about the treaty base. The directive is based on article 100A, which provides for measures which have as their object the establishment and functioning of the internal market. The Government are not convinced that that is a justification for the directive. They see little evidence that people are inhibited from buying goods or services across frontiers by differences in consumer protection laws. Language differences, for example, are more important. 3 I hope that hon. Members will recognise that the directive has wide-ranging implications for our contract law, which has developed over centuries. It contains some unwelcome features. However, we are engaged in constructive negotiations about it. We may have been moving in the direction suggested by the directive even if it were not before us—but not in sucha perscriptive manner. This morning's debate is timely, and I look forward to hearing hon. Members views.

Several hon. Members rose

The Chairman: Order. I shall take questions one at a time, starting with the Opposition Front Bench.

Dr. Godman: On a point of order, Mr. Hogg. I am one of the Members of the Committee who is anxious to see that its work isas effective as possible. Our work is largely concerned with the tough-minded scrutiny of European regulations, directivesand other paraphernalia; and the Government's response to it. I have to advise you, Mr. Hogg, that I received no notice of this sitting by means of the usual postcard; and this is the second time that such a failure has occurred. Moreover, I had to telephone the Public Bill Office last night to request the documents, which had not been provided. Documents intended for other members of the Committee were placed on top of a bookcase near the Vote Office with a label sellotaped on the top stating that documents were to be collected. While I am on my feet, I wish to raise another point of order, Mr. Hogg, and seek assistance from other hon. Members. I amadvised that negotiations are taking place through the usual channels to change the Standing Orders governing the operation of this Committee and European Standing Committee A. If that is so, have you and your colleagues on the Chairmen's Panelbeen informed about them, Mr. Hogg? As I said during business questions last week, permanent members of the European Committees should be involved with any such negotiations concerning the Standing Orders that govern our affairs on Wednesday mornings—that is, when we are informed about our meetings.

Mr. Quentin Davies: Further to that point of order, Mr. Hogg. I should like to endorse the complaint that has just been made. I also received these papers only this morning. Any fair-minded person would regard that as highly unsatisfactory. Arewe supposed to read and digest papers of this length and complexity in an hour and a half?

The Chairman: I accept the point about documents. Members of the Committee are prevented from studying the relevant issues if documents are not available to them, to use the good Scots word, timeously. However, responsibility for documents relevant to Committees lies with the Government, not with myself or other Chairmen. I am sure that the Minister and his advisers have heard the points of order that have been raised this morning. I know that the Government would say that they will attempt to ensure that in future, documents reach members of the Committee in time for them to scrutinise the relevant papers before we begin our deliberations. 4 Also, I can assure the hon. Member for Greenock and Port Glasgow (Dr. Godman) that a postcard was sent to him last Wednesday evening. I cannot answer for what has happened to it subsequently. On the hon. Gentleman's second point, there have been no discussions with me either through the usual or any other channels about changes to the Committee's Standing Orders. The hon. Gentleman asked the Leader of the House questions, and I am aware of the statements that the Leader of the House made about these Committees. However, there have been no discussions with either the Chairmen's Panel or with me.

Mr. Peter Bottomley: Further to that point of order, Mr. Hogg. Several hon. Members may want to discuss the point correctly raised by the hon. Member for Greenock and Port Glasgow (Dr. Godman). Would it not be more suitable if we dealt with those points of order when we have completed questioning the Minister or we may run out of time for that?

The Chairman: I am sympathetic to the hon. Gentleman's suggestion. I hope that members of the Committee will agree to take points of order after questioning the Minister, otherwise we may lose the opportunity to question the Minister about the proposed directive. If that does not please hon. Members, they can of course persist in raising points of order, and I can do nothing to stop them. However, I counsel them against that. I believe that the advice that the hon. Member for Eltham (Mr. Bottomley) gave is correct.

Mr. Nigel Griffiths: Further to that point of order, Mr. Hogg. I take your point. However, so far as I know—I checked with the Library half an hour ago—only two hon. Members in the Room have had a chance to study the submissions of the 20 bodies, which I have before me—the Minister and myself. I should think that that places other members of the Committee in a state of ignorance in which they would not wish to be placed. I suggest that a mechanism should be found to give all members of the Committee an opportunity to study those documents fully.

Mr. Wigley: Further to that point of order, Mr. Hogg. Is it in order to propose an adjournment to another day, which would give us an opportunity to study the documents?

Mr. Bottomley: Further to that point of order, Mr. Hogg. It might be helpful to know—I apologise if my hon. Friend the Minister has already said this, but I arrived slightly late in the Committee—whether the Minister or his officials are to be involved in instant discussions in Brussels. If so, we should not adjourn. If no instant decisions or negotiations are to take place, the Committee should consider adjourning.

Mr. Favell: Further to that point of order, Mr. Hogg. I heartily endorse the comments made by the hon. Member for Edinburgh, South (Mr. Griffiths). As the Minister pointed out, the proposed directive will overturn laws that relate to the sale of goods and the supply of services, which have been in effect in this country for centuries. It would be stupid to do that having, in my case, had the documents for only an hour.

The Chairman: I do not wish to put the Minister in an awkward position. Points of order are matters for the Chair, not for the Minister. However, it would be helpful if 5 the Minister would respond to the point of order that was raised by the hon. Member for Eltham (Mr. Bottomley). I should be sympathetic if hon. Members wanted to adjourn the Committee to a date by which hon. Members will have had an opportunity to study the documents.

Mr. Leigh: I am anxious to oblige the Committee. I confess that these are complex issues. I spent seven hours in preparation because I knew that hon. Members would give me a hard time. It must be very difficult for hon. Members who have not had a chance to read the documents. I have had a quick word with my officials and I am told that the Department of Trade and Industry submitted all its papers in February. The report of the Select Committee on European Legislation is not connected with the Department. I apologise to hon. Members who have not received documents. However, before my hon. Friend the Member for Eltham (Mr. Bottomley) leaps to his feet, I assure hon. Members that I shall institute an inquiry into the matter. I shall ensure that when the DTI is involved with such matters again, hon. Members will receive documents well in advance. I do not know why they did not on this occasion. I am told that negotiations—as one might expect with European directives—are proceeding at a leisurely pace.

Mr. Bottomley: Further to that point of order, Mr. Hogg. Let us assume that there is no urgency to protect United Kingdom interests. I understand fully my hon. Friend's remarks about the latest information from the Department being available for two or three months. After Thursday's announcement by the Leader of the House about the subject for debate, Members should have had an opportunity to consider the papers in the bundle and, as the Opposition spokesman, the hon. Member for Edinburgh, South (Mr. Griffiths) said, to examine the back-up material that was made available to the Select Committee on European Legislation. In the circumstances, do hon. 6 Members agree that, to enable us to debate the issue fully— which would assist in informing the Minister and his officials—it would be useful if we adjourned? We could return another day better informed, so as properly to fulfil our duties as members of this Standing Committee.

Mr. Stevens: Further to that point of order, Mr. Hogg. I agree with my hon. Friend the Member for Eltham (Mr. Bottomley) about adjourning. We have a procedural problem in that we never know until, at best, the Thursday before the Wednesday sitting, what will be debated or, indeed, whether there will be a debate. We know which documents are to be referred to the Committee, as this information is published in the Vote and Proceedings. Therefore, could not some form of programme, or at least two weeks' notice, be given to the Committee so that we know what is coming up for discussion?

The Chairman: I am reluctant to hand down rulings because of the difficulties that this presents for the Chairmen's Panel. This is only the second time that I have chaired a European Committee—the other being last week. I say only, from my experience as a member of the Public Accounts Committee, that I know that reading is a great problem. I know that ithelps to have the programme in advance, as does the Public Accounts Committee. If that Committee can manage that, perhaps the powers that be in this place will take on board the hon. Gentleman's reasonable suggestion. If an hon. Member moves the Adjournment, I shall accept the motion and put the Question.

Motion made, and Question proposed, That the Committee do now adjourn.—[Mr. Peter Bottomley.]

Question put and agreed to.

Adjourned accordingly at nine minutes to Eleven o'clock.

THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:

Hogg, Mr. Norman (Chairman)

Bottomley, Mr. Peter

Burt, Mr.

Davies, Mr. Quentin

Favell, Mr.

Flynn, Mr.

Godman, Dr.

Quin, Ms.

Stevens, Mr.

Wareing, Mr.

Wigley, Mr.

The following also attended, pursuant to Standing Order No. 102(5): Leigh, Mr. Edward (Parliamentary Under Secretary of State for Industry and Consumer Affairs) Griffiths, Mr. Nigel (Edinburgh, South)