Collective redress in england & wales



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COLLECTIVE REDRESS IN ENGLAND & WALES

This paper is in two parts. The first part outlines the various different legal mechanisms by which collective redress may be claimed or paid. In some of the more interesting cases, the historical background and development is also outlined. The various mechanisms considered here (and there are some others, which are of limited practical relevance) are: the Representative Action, the Group Litigation order and general case management powers of the civil courts, the 2016 class action for competition damages cases, regulatory redress, consumer ombudsmen, and criminal redress powers. The second part sets out a number of case studies of each type of mechanism.



REPRESENTATIVE ACTION
An individual may bring an action in England and Wales1 and Northern Ireland2 on behalf of other parties without their consent, where the represented parties share the ‘same interest’3. The judgment will bind such represented non-parties4. The ‘same interest’ requirement has been interpreted narrowly by the courts, requiring the individuals represented to share a ‘common interest and a common grievance’ and ‘the relief sought was in its nature beneficial to all whom the plaintiff proposed to represent’5. Examples of where ‘common interest’ may arise are under a single statutory charter,6 a common contract7, or single audio recordings subject of alleged copyright infringements8. Recent cases have retained the strict approach9, and this mechanism is of little relevance to consumer claims.

GROUP LITIGATION ORDER
During the 1990s, an ad hoc approach was developed in individual cases under the courts’ inherent jurisdiction involving coordination of multiple similar claims through aggregation and unified case management.
There has been a distinct historical pattern in the incidence of multi-party actions.

  • There are occasional transport accidents, mass murder, holiday health or service claims.

  • 1980-90s: medicinal products, tobacco, many of which failed.

  • 1995-2004: abuse in child care homes, following prosecutions.

  • 2008 on: financial services

This pattern can be associated with the availability of funding to overcome claimants’ and their lawyers’ need for funding, and changes in the costs rules:



  • 1957-1995: Legal Aid + one-way cost shift: an increasing number of claims, with decreasing merits

  • 1995-1999: CFAs with success fee recoverable but two way cost shifts: a fall in the general number of claims

  • 1999-2012: CFA + ATE insurance, with both success fee and premium recoverable: massive increase in individual claims, Costs Wars: Claims Management scandals, leading to introduction of regulation of claims managers, but collapse of multiple claims

  • 2005- on: arrival of third party funders (TPF) but selectivity of claims, and no appetite to fund mass claims other than follow-on cartel damages (because liability established)

  • 2013: regulated contingency fees (confusingly called DBAs) and qualified one-way cost-shifting (QOCS) for personal injury claims – anticipation of a growth in personal injury, medical negligence and product liability claims.

The Group Litigation Order (GLO) was introduced under the reformed Civil Procedure Rules of 1998 ((as CPR 19.III).10 It is an opt-in procedure in which all group members are parties to the proceedings.11 An application is made for the court to order that proceedings should be constituted and managed as a GLO, and the court must be satisfied that the claims of all group members share ‘common or related issues of fact or law’ (the ‘GLO issues’).12 The GLO provides for the establishment of a ‘group register’, and identifies a particular court to manage all claims that fall within the Order. Case management may stay cases, or select test cases or generic issues to be resolved. A judgment in the GLO case is binding on all claimants in the GLO register at the time of the judgment and when the GLO was issued; the court may direct that judgment is binding on claims entered onto the register subsequent to the granting of the GLO.13 Arrangements for funding and costs are usually complex. The normal ‘loser pays costs rule’ applies, but the QOCS rule applies in personal injury actions from 2013, under which claimants who lose pay their own costs and any success fee of their lawyers, but do not pay the winner’s costs, and losing defendants pay the winner’s base costs.14 The QOCS rule can be altered where the claimant acts unreasonably.15 The general position is that all parties in the register are responsible for generic costs, and they typically are required to enter into cost-sharing agreements amongst themselves.


The volume of Multi-Party Actions recorded by the LSC has been as shown in Table 1:16
Table 1. Number of multi-party actions recorded by the Legal Services Commission in England and Wales

Year

Number of actions

2000/01

133

2001/02

67

2002/03

45

2003/04

16

2004/05

20

2005/06

8

2006/07

4






The year-on-year reduction is primarily due to the decrease in the number of child abuse actions being brought. There were substantial police investigations in the 1980s and 1990s following the identification of abuse in children’s homes. These police investigations and criminal prosecutions resulted in claims. The peak in these actions has now passed.


The published data reveal a wide range of subject matter for cases brought under the GLO procedure or its previously developing arrangements. Different types of case have ‘spiked’ at different times. During the 1980s and 1990s, the claims involving the largest number of claimants related to medicinal products, which were mostly lost. Of the 293 actions from 2000 to 2007, the main categories of action are shown in Table 2.
Table 2. Main categories of Group Litigation Orders in England and Wales, 2000-2007

Category

Number

Child Abuse

156

Health, Medical and Pharmacological

34

Prisoner Actions

27

Many GLOs collapse or settle. They have been criticised as not delivering access to justice, and involving huge costs.17 In the miners’ litigation, it took two years to put the compensation scheme in place, to deliver an estimated £4bn compensation and £2.3bn costs.18 It took 10 years to resolve, and spawned satellite litigation on lawyers’ representation and some solicitors being struck off.



Case Management
In some situations, the courts have refused an application for a GLO, and have managed complex litigation through the inherent case management powers. A leading example was the series of different types of claims arising from the explosion of the Buncefield oil depot in 2005. The main types of case were damage to commercial property, economic loss, and damage to household property, each involving multiple individual claims. They were managed highly effectively by a series of judges and lawyers. The litigation was settled within around 5 years.19

COMPETITION DAMAGES CLASS ACTION
From 2003 to 2016, damages for losses of consumers caused by breach of competition law could be claimed in an opt-in representative claim in the Competition Appeal Tribunal (CAT) brought by the consumers’ association Which?.20 The mechanism was widely criticised and only one case was brought: JJB Sports, relating to overcharges for football T-shirts.
The Consumer Rights Act 2015 (CRA) introduced a series of new mechanisms, including the right to bring individual and collective actions for damages in the CAT,21 a power for the CAT to approve a collective settlement,22 and a power for the Competition and Markets Authority (CMA) to approve a voluntary redress scheme.23 It came into force on 1 October 2015.
The class action for damages was introduced by Schedule 8 of CRA, which modified section 47B Competition Act 1998, adding an opt-out possibility to the pre-existing opt-in model. It also provided for broader reform of the CAT’s authority by giving it the power to hear standalone claims (where the group must prove violation of competition law) as well as follow-on claims for damages (following an infringement decision by the Competition and Markets Authority, the CAT, or the European Commission).
The CRA was accompanied by the publication of CAT Rules 2105 which expanded on Schedule 8’s provisions, and in detail set out the procedural and substantive aspects of the new collective regime, including the operation of its collective settlement provisions.
In summary, the class action for damages arising out of breaches of competition law may only be brought by certain specified bodies or by a party who is authorised by the CAT on the basis that it ‘will fairly and adequately act in the interests of class members’. It may be either

  1. a stand-alone claim based on an alleged infringement of competition law, or

  2. a follow-on claim based on a finding of infringement by the CMA, or the CAT (on appeal from the CMA), or the European Commission (to the extent that although the CAT and EC can make a finding as to the infringement of a breach of competition law and fine businesses, neither can award damages to affected parties). The EU Damages Directive 2014/104 was implemented by the UK in late 2016, and included rules on recognising a final infringement decision of national competition authority or review court of any EU Member State.24

The CAT decides, at the stage of considering whether to make a collective proceedings order, whether the proceedings are to be opt-in or opt-out. Under the opt-in procedure, class members notify the class representative of inclusion of their claim. Under the opt-out procedure, claimants domiciled in the UK who fall within the class automatically participate unless they expressly opt out, while claimants not domiciled in the UK must opt in. Businesses, individuals or trade associations (whether class members or not) directly affected by the alleged infringement can bring claims as long as the CAT deems their representation of the class 'just and reasonable' (s. 47B.8 of Competition Act 1998). Funding of the representative is a crucial part of the CAT’s determination. Claims can be considered using the collective procedure if they raise the same, similar or related issues of fact or law (s. 47B.6 of Competition Act). The Act does not allow damages-based fee arrangements (s. 47C.8) nor exemplary damages (s. 47C.1).


Further, the CAT is now able to assess damages on an aggregated basis for the group (s47C .2). This is a new approach – the CAT could only previously assess damages individually. If the CAT awards damages in respect of collective proceedings, it will make an award of damages for the entirety of the claim and make an order specifying how the money is to be paid to the class members. It will not assess the amount of damages to be awarded to each class member—it is not clear how this aggregate calculation should be made. In opt-out proceedings, if damages are not claimed by class members by a certain time they will be paid to charity unless the CAT orders them to be paid to cover the representative’s costs. Any damages awarded in opt-out proceedings that are unclaimed within a specified period will either be paid to a prescribed charity (currently Access to Justice Foundation) or towards a representative's costs as incurred in connection with the proceedings (s. 47C.5).
Cases have so far been lodged on a follow-on basis on mobility aids and on Mastercard charges. It seems that the follow-on procedure is attractive to litigation funders and lawyers, since the risk of failing to establish liability ought to be very low, and the argument may be essentially about the assessment of damages and hence about settlement and costs.
The CRA also introduced a power for the CMA to make an order approving a collective settlement agreement made by the parties, copying the successful Dutch WCAM procedure, irrespective of whether collective proceedings are or are not in existence. If collective proceedings are in existence, an order approving such an agreement is only possible in respect of opt-out collective proceedings. A collective settlement order will therefore be binding on all class members except those who have opted out.

CRIMINAL ENFORCEMENT
A series of extensions have occurred in the ability of police, other enforcement officers and the courts, to remove assets from offenders and to order redress for victims. Since 2000, public authorities have power to seek a compensation order from the courts as part of the criminal enforcement process. Such compensation orders may relate to personal injury, loss or damage.25 From 2013, criminal courts have a duty to consider making a compensation order in every case.26
This potentially extensive power runs in parallel with government policy on increasing reparative justice for victims of crime to be paid by offenders, partly so as to reduce calls on public compensation funds.27 The Proceeds of Crime Act 2002 increased previously wide ranging powers available to the courts in relation to the confiscation and asset forfeiture regimes, including a ‘civil recovery’ order, without a triggering conviction.
The ‘victim surcharge’28 is a ‘horizontal’ scheme under which all convicted defendants are ordered to pay a sum which varies between £10 and £170 depending on the offender’s status and category of offence) which goes to fund victim support service through the Victim and Witness General Fund.29

REGULATORY REDRESS
The power for public authorities that enforce market regulatory law or consumer protection law to make orders that traders should make redress to consumers, individually and collectively, has developed strongly since around 2012 and has now become the primary mechanism for delivering collective redress to consumers, clearly eclipsing private enforcement by or on behalf of consumers. It has become typical practice in some sectors for traders and enforcers to agree redress arrangements as one element of a package of measures that settle infringement, behavioural actions and redress elements. It is now rare for such settlements to be fought in court: many are agreed between trader and regulator, even if the arrangement then has to be approved by the court in order to trigger its binding effect and enable independent oversight.

Development of Regulatory Redress
There has been a general trend towards resolving breaches of criminal (and hence regulatory) law by agreement. Deferred Prosecution Agreements (DPAs), used extensively in USA,30 were given a statutory basis in 2013,31 supported by a Code of Practice32 and general principles in the Code for Crown Prosecutors.33 ADPA must be approved by the Crown Court in a declaration that the DPA is in the interests of justice, and the terms of the DPA are fair, reasonable and proportionate.34 The DPA approach to settlement has commended itself to UK Government as a means of secure guilty pleas earlier in the prosecution process, improving efficiency, reducing paperwork and process times, and alleviating the burden on witnesses and victims of crime, resulting in increased use of deferred prosecution agreements.35
The ‘regulatory redress’ technique was first introduced in UK in relation to the major reform of the regulation of financial services in 2000, was significantly upgraded in 2010, and was copied into the legislation governing the regulatory system for energy in 2013. In parallel, a movement occurred towards including redress in the functions and hence powers of enforcers responsible for consumer protection generally, and this led to the codification and extension of powers in the Consumer Rights Act 2015, which firmly included redress as one of the ‘enhanced consumer rights’ powers.
The general development of regulatory policy beyond just ‘enforcing’ the law and towards ensuring that markets are returned to fair balance after breaches, continuously monitored, and that consumer confidence in markets is maintained—hence that redress is made where it is due—can be seen to have had a broad development from the 1960s and especially from 2000.36 A sequence of official Reports gradually shifted the enforcement approaches, policies and duties on almost all of the public regulatory authorities, which has included delivering ‘restorative justice’ as one of their formal objectives. As a result, they are now delivering mass compensation ‘as standard practice’ in an increasing number of situations, and able to do so remarkably quickly, cheaply, and effectively.
An important milestone was the 2006 Review by Professor Richard Macrory of regulatory enforcement penalties,37 which included in its six objectives the aims of eliminating any financial gain or benefit from non-compliance and restoring the harm caused by regulatory non-compliance. Duties on regulators to consider such wide outcomes were included in the Regulatory Enforcement and Sanctions Act 2008 (RESA),38 together with the ability for individual authorities to be awarded restorative powers as civil sanctions. In the event, that awarding regime was overtaken by later developments that widened the same general approach. Regulators were made subject under RESA to a Regulators’ Compliance Code,39 which included an express aim of eliminating any financial gain or benefit from non-compliance. Although this aim disappeared when the Code was revised and shortened in 2013,40 there was no change in policy. Indeed, the Enforcement Policies subsequently published by many regulatory and enforcement authorities, as required by the Code,41 expressly include statements of intention to focus on delivering outcomes and redress.42
Under RESA, certain regulators may apply to their minister to be granted general civil sanctions in addition to existing criminal sanctions.43 The civil sanctions include accepting undertakings to restore the position to what it would have been or to pay money to benefit a person harmed by the offence.44 Approved regulators may make a ‘discretionary requirement’, which can include a ‘compliance requirement’,45 designed to secure that the offence does not continue or recur,46 and a ‘restoration requirement’,47 to take steps specified by the regulator, within a stated period, designed to secure that the position is restored, so far as possible, to what it would have been if no offence had been committed.48 The process for issuing discretionary requirements specifies that the regulator should serve a proposed notice, and give an opportunity for the business to make representations, before exercising discretion by issuing a final notice, after which the business may appeal to a tribunal.
Under an ‘enforcement undertaking’49 a regulator who reasonably suspects that a person has committed an offence may accept an undertaking from that person ‘to take such action as may be specified in the undertaking within such period as may be so specified’.50 The action that a firm can offer to undertake must be:51

  1. action to secure that the offence does not continue or recur;

  2. action to secure that the position is, so far as possible, restored to what it would have been if the offence had not been committed;

  3. action (including the payment of a sum of money) to benefit any person affected by the offence; or

  4. action of a prescribed description.

Thus, an enforcement undertaking could provide for reimbursement, compensation to be paid, or other redress be made. The undertaking mechanism is technically voluntary but can in practice be reached by negotiated agreement, in substitution for the institution of a prosecution, which would trigger the mandatory compensation order mechanism.
In relation to mass or collective redress, the Coalition Government in 2012 rejected a litigation approach to consumer redress (and a collective action procedure) and favoured voluntary redress schemes, ADR, encouraging and backed by new powers for regulators.52 Although collective litigation was a theoretical option, the government was ‘concerned about the scope for such mechanisms to create incentives for intermediaries, the economic cost of such intermediation and the very heavy burden which a proliferation of such cases may impose on businesses.’53
In the event, the civil sanctions regime was overtaken by a wider regime under the Consumer Rights Act 2015, discussed below, and few regulators were granted RESA powers.

The 2015 Consumer Redress Powers
Enforcement powers in relation to consumer protection were codified and updated in the Consumer Rights Act 2015. The basic enforcement powers available to domestic enforcers54 are as follows. Firstly, there is power to require the production of information specified in a notice,55 for the purpose of ascertaining whether there has been a breach of the enforcer’s legislation,56 either where the enforcer is a market surveillance authority, or where the an officer reasonably suspects a breach.57 Secondly, the toolbox of general powers, which may be exercised subject to specific purposes and in specified circumstances, comprises powers to purchase products, to observe carrying on of business, to enter premises without a warrant, to inspect products and take copies of records or evidence, to test equipment, to require the production of documents, to seize and detain goods, to decommission or switch off fixed installations, to break open containers or access electronic devices, to enter premises with warrants, and to require assistance from persons on premises.58 Supplementary provisions include an offence of obstruction or of purporting to act as an officer, a right of persons to access seized goods and documents, a requirement for notice to be given of the testing of goods, a right to appeal against detention of goods and documents, and a requirement on officers to pay compensation to any person with an interest in goods seized for loss or damage caused by the seizure or detention if the goods have not disclosed breach and the power was not exercised as a result of any neglect or default of the person seeking compensation.59
The Consumer Rights Act 2015 amended Part 8 of the Enterprise Act 200260 to allow specified enforcers61 to attach remedies focused on behavioural undertakings (‘enhanced consumer measures’) to Enforcement Orders and undertakings.62 Where an enforcer accepts an undertaking from a business, the remedies to be attached are to be agreed between the parties. Enhanced consumer measures can fall within three categories: the redress category, the compliance category and the choice category.63

  • redress: including (a) measures offering compensation or other redress to consumers who have suffered loss as a result of the conduct which has given rise to the enforcement order or undertaking, (b) offering consumers the option to terminate (but not vary) a contract, and (c) where such consumers cannot be identified, or cannot be identified without disproportionate cost to the subject of the enforcement order or undertaking, measures intended to be in the collective interests of consumers. Such measures are subject to a cost proportionality requirement64 and certain safeguards.65

  • compliance: measures intended to prevent or reduce the risk of the occurrence or repetition of the conduct to which the enforcement order or undertaking relates (including measures with that purpose which may have the effect of improving compliance with consumer law more generally).

  • choice: measures intended to enable consumers to choose more effectively between persons supplying or seeking to supply goods or services.

It will be noted that these definitions of enhanced consumer measures are deliberately wide and purposive, and allow flexibility for businesses and enforcers in deciding, and negotiating, what actions and undertakings are appropriate in the circumstances in responding to the underlying and future behaviour and in providing redress. However, any enforcement order or undertaking may include only enhanced consumer measures as the court or enforcer considers to be just and reasonable.66


In introducing these enhanced consumer remedies, the Government sought to encourage businesses to put in place schemes aimed at providing redress to consumers collectively when a breach of consumer law arises and causes consumers significant losses.67 The Government cited three examples:

  • Where a trader has access to a list of all customers, the trader could write to all customers informing them of their right to a sum of money if they send back tear-off slip within a set time-period. Terms and conditions should not be complex. The trader would reimburse every consumer who responds within 30 days. Enforcers would check that letters had been sent out and all claims answered within 30 days.

  • Where a trader has no list of customers but there is likely to be take-up if advertised, the trader could take out adverts in national, regional or specialist press. Advertising would be proportionate, targeted and effective. The advert would operate in a similar way as product recall where if people showed they were affected by the issue they would receive a sum of money. Additionally, the availability of redress could be flagged to consumers complaining to the Citizens Advice consumer helpline. Enforcers would monitor that adverts had been placed and compensation paid to claimants.

  • Where individual consumers cannot be identified, however, alternative measures may be effective, such as advertising that consumers (who can prove they were affected by the issue) can claim an agreed sum of money from the company or from an appointed ADR provider or offering discounts to all future consumers for a fixed period of time to mitigate against any financial gain arising from the breach.



Redress Powers in Selected Sectors

1. Financial Services68
The enforcement policy of the Financial Conduct Authority (FCA) includes ‘in the area of consumer protection, holding firms to account for misconduct and requiring them to make good on the losses they cause consumers.’69 The FCA will ‘require firms to provide prompt and effective redress’ and ‘ensure that firms are not benefiting from exploitation of market failures’.70 The authority may place requirements on a firm’s permission, and this may affect behaviour and redress. Key messages issued by the FCA’s predecessor (FSA) in 2010 were that the quality of complaints handling would remain a key area of FSA focus, the FSA had identified concerns around firms’ quality of complaints handling, and all firms needed to ensure that they focus on improving standards in this area.71
The 2000 legislation that created the FCA’s predecessor authority as part of a ‘big bang’ in reform of regulation of the financial services included a provision for the Treasury to order the regulator to establish and operate a multi-firm scheme for reviewing past business.72 That mechanism was cumbersome,73 and not formally used in the subsequent decade, although a significant number of cases where it might have been used were resolved through settlements that resulted in agreed payment of redress. The authority was reluctant to get involved in mass redress issues74 and the Labour government did not wish it to get involved. However, pressure to resolve mass cases mounted as the number of complaints to the Financial Ombudsman Service rose over the same of payment protection insurance (PPI) products. In September 2009, the authority set out a proposal for Guidance on the fair assessment and redress of complaints related to sales of PPI, and rules requiring firms to re-assess, against the proposed new guidance, complaints about PPI sales.75 The banks then challenged the Guidance through judicial review, but lost.76
A judicial representative claim was tabled by the Labour government in 2009 to be a last resort77 but was unacceptable to the Conservative opposition78 and was dropped in the swift ‘wash up’ of Parliamentary business when the general election was called in early 2010. However, a proposal to expand the regulator’s power to impose a redress solution (see below) survived.
The FCA currently has a sequence of redress powers that support the imperatives for firms to take voluntary actions. First, by 2011 the Authority was empowered with four linked measures to require firms to take pro-active steps to deliver collective redress:79

  1. an obligation on firms to carry out proactive reviews of their complaints and sales in the complaints handling rules;80

  2. a requirement that when assessing complaints they take account of decisions of the FOS.81

  3. requiring firms to provide the FCA with complaints handling data;

  4. a requirement for a firm to appoint an 'approved person' with official responsibility for oversight of the firm's compliance with complaints handling rules.82

Second, the FCA may apply to the court for a Restitution Order,83 or use its powers to require restitution itself where it is satisfied that an authorised person has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement, and either that profits have accrued to him as a result of the contravention, or that one or more persons have suffered loss or been otherwise adversely affected as a result of the contravention.84


Third, the FCA has two procedures for putting in place procedures for handling mass claims, where the regulator considers a widespread problem exists and a court would award redress to consumers.85 The first of these is under a ‘consumer redress scheme’ (section 404) that can apply to multiple firms,86 and the second is a single firm scheme (section 404F(7)).87 Under either approach, the initial complaint handling and spontaneous repayment is to be undertaken by the relevant firm(s), and dissatisfied consumers may then apply to the Financial Ombudsman Service (FOS). In either case, the FOS’s basis of decision is effectively amended by the regulator to that of applying the terms of the scheme.88 A single firm scheme under section 404F(7) is effected by the FCA altering a firm’s permissions or authorisation to operate,89 and can be done either at the request of the firm or on the FCA’s initiative. The FCA may include the same requirements on the individual firm as under a section 404 scheme, and apply the Ombudsman’s jurisdiction as under section 404B. Public accountability for a redress scheme exists through the regulator, who has to consult on rules before imposing the scheme, and through firms’ right of appeal to the Tribunal.
A consumer redress scheme may be ordered where it appears to the FCA that there has been a widespread failure to comply with applicable requirements and as a result, consumers have suffered loss or damage in respect of which, if they brought legal proceedings, a remedy or relief would be available.90 The regulator can make rules which may include requirements for the firm to:

  • investigate whether, on or after a specific date, it has failed to comply with particular requirements that are applicable to an activity it has been carrying on;

  • determine whether the failure has caused (or may cause) loss or damage to consumers;

  • determine what the redress should be in respect of the failure; and make the redress to the consumers.91

The result is that, both under a ‘consumer redress scheme’ under section 404(1) or a single firm scheme under section 404F(7), a procedure for handling mass claims is put in place. Under this procedure, the initial complaint handling and spontaneous repayment is to be undertaken by the relevant firm(s), and consumers may then apply to the Ombudsman. In either case, the Ombudsman’s basis of decision has been effectively amended by the regulator to that of applying the terms of the scheme. The Ombudsman may, of course, consider cases which fall outside the scope of the scheme or variation of permission, on the normal basis (applying the criterion of fairness).


Public accountability for a redress scheme exists through the regulator, who has to consult before imposing the scheme, and through firms’ right of appeal to the Tribunal. Guidance92 expands on the statute, and states that a consumer redress scheme is a set of rules under which a firm is required to take one or more of the following steps:

  • investigate whether, on or after a specific date, it has failed to comply with particular requirements that are applicable to an activity it has been carrying on;

  • determine whether the failure has caused (or may cause) loss or damage to consumers;

  • determine what the redress should be in respect of the failure; and make the redress to the consumers.

Fourth, it can also be noted that under the FCA’s enforcement action leading to a penalty or public censure, the decision-making process for considering the full circumstances of each case when determining whether or not to take action for a financial penalty or public censure lists, among the factors that will be taken into account, any remedial steps that the person has taken in relation to the breach.93


In this context, the FCA may be involved in discussions on the appropriate ness of voluntary redress schemes created by a regulated firm in relation one of its activities inside or outside the regulatory perimeter. One example of a voluntary redress scheme covered Interest Rate Hedging Products, and another was the 2016 scheme for small business customers of RBS’s Global Restructuring Group.
In a 2016 consultation on its future mission, the FCA confirmed that it sees its role is ‘to bring firms which have breached regulatory requirements to account and to ensure that redress follows, so consumers who have suffered because of this breach are compensated.’94 It summarised its approach thus:95
We believe the financial conduct regulator, alongside the Financial Ombudsman Service and the Financial Services Compensation Scheme, has a role in ensuring consumers can receive redress through cheaper and quicker routes than the courts. We also believe these routes are important for market confidence.

We will use the following criteria to help inform our decisions about whether or not to effect redress:



  • how quickly and urgently the redress is needed

  • the number of consumers affected

  • if the activity that led to the harm occurs inside or outside our regulatory perimeter.

Noting that the courts deliver redress too slowly, and that cost issues can deter those harmed from claiming, the FCA said:96


Consumers, firms and regulators judge how successful these alternative routes are based on their ability to deliver fair outcomes more quickly and cheaply than through the courts. We commonly seek injunctions, prosecute and obtain redress for victims of unregulated businesses through the courts. This has been a major part of our work for many years.

2. Communications
The Office of Communications (Ofcom) has a number of means that clearly incentivize the making of redress by suppliers.97 Consumer complaints are referred to an approved ADR body. A notification of contravention of conditions by a provider of electronic communications networks or services is to include not just the condition contravened but must also specify a period within which the provider may address the contravention and remedy its consequences.98 The 2011 Penalty Guidelines include ‘any steps taken for remedying the consequences of the contravention’ as one of the matters to be taken into account in establishing a penalty.99

3. Gas and Electricity
The Gas and Electricity Markets Authority, acting through the Office of Gas and Electricity Markets (Ofgem),100 operates a licencing regime for suppliers. Ofgem’s priority is always putting things right for those consumers directly harmed, including doing this quickly (incl. without taking formal enforcement action.101 Redress may arguably be taken into account under the requirement on Ofgem to issue a final compliance order where it is satisfied that a licence holder is, or is likely to be, in contravention of a condition or requirement so as to secure compliance.102 Ofgem’s 2014 Enforcement Guidelines on complaints and investigations cover sanctioning for breaches of licences or licence conditions.103 Customer complaints are required to be handled by companies under strict complaints handling standards104 within eight weeks and may then be referred to the Energy Ombudsman.105
In order to improve both payment of redress to consumers, and the regulator’s leverage in bringing about redress, the Energy Act 2013 copied the regime used in the communications sector and included powers to secure direct redress for customers, whether domestic or businesses, pursuant to breaches of regulatory requirements, through a consumer redress order.106 Under these provisions, Ofgem is required to give notice to the company and any other affected party at least 21 days before making the order for redress. When giving notice, Ofgem is required to set out which condition has been breached, how in its view the licensee has breached it, and the remedy it deems appropriate. The licence holder has a minimum of 21 days to make representations to Ofgem regarding the proposed order for redress. Enforcement Guidelines set out more details.107
In the financial year 2015-16, nearly £43 million was secured as a result of Ofgem enforcement investigations. Almost all that money was paid either as compensation to affected consumers, or through voluntary redress payments where companies allocate redress to charities, trusts or organisations in lieu of paying a financial penalty to HM Treasury.108 During this period Ofgem completed thirteen investigations with an average case length of less than one year.
Ofgem’s voluntary redress policy is unique amongst comparable UK economic regulators and has seen over 218,000 domestic consumers and nearly 600 small and medium enterprises benefit through schemes funded by voluntary redress payments in 2014 and 2015 alone.109
The 2014 Enforcement Guidelines provide for resolving cases, either before they are open or during an investigation, through ‘Alternative Action’.110 Direct redress and voluntary redress may be applicable to an ‘Alternative Action’, although Ofgem has no formal powers to impose redress in this instance. This mechanism would result in cessation of a formal investigation without a finding of breach of the regulations.
Ofgem uses similar powers in relation to wholesale transactions. It included a clear incentive for companies to agree restitution in implementation of the EU ‘REMIT’ Regulation,111 which includes requirements on market participants to notify the national Authority without delay if they reasonably suspect that a wholesale energy market transaction might breach the prohibitions on insider trading or market manipulation, and to publicly disclose inside information in an effective and timely manner.112 Ofgem’s 2013 Statement of Policy included the objectives of ensuring that no profits can be drawn from market abuse, and protecting the interests of consumers in wholesale energy markets and of final consumers of energy, including vulnerable consumers.113 Ofgem proposed to ‘take full account of the particular facts and circumstances of each case when determining whether to impose a financial penalty and/or issue a statement of noncompliance.’114 Included in the factors relevant to determining the level of penalty were ‘the amount of any benefit gained or loss avoided as a result of the breach (financial or otherwise, potential or actual)’ and ‘the degree of harm or increased cost incurred or potentially incurred by consumers or other market participants after taking account of any restitution paid to those affected’ (emphasis added).115 One of the resolution options open to the Authority would be its early resolution Settlement Procedure:
The aim of settlement is to reach agreement on the nature and extent of breaches, an appropriate level of penalty and, where appropriate, proposals for restitution. Ofgem may agree other terms with the person as part of settlement. Where agreement is reached on the breaches, Ofgem will seek to agree the amount of the financial penalty and/or restitution to those adversely affected. ..116
Private sector bodies can raise or investigate complaints from consumers if they are of wider public interest. Citizens Advice or the Energy Ombudsman are relevant here, and have a Tripartite Agreement with Ofgem to improve coordination and ensure consumers are receiving timely and appropriate redress via our coordinated efforts. Until it ceased in 2014, Consumer Futures successfully negotiated with energy companies to secure redress for consumers, for example, securing payments of £70 million for Npower customers in 2010 when the company made changes to its tariff structure without giving adequate notification to its customers.117
The influence that Ofgem is able to wield, given its ability to amend or remove licences and to attract publicity to energy issues, means that redress can often be achieved through settlement or an informal agreement. A series of cases has been swiftly and effectively resolved by this route in the past four years. The figures for enforcement action alone, apart from a range of other compliance work to put things right for consumers, were recently summarised as follows:118
3.6. To give an idea of the numbers of consumers who benefitted from the above voluntary redress payments, our analysis, based on post-allocation monitoring and projections just for cases in 2014 and 2015 that resulted in settlement (excluding alternative action cases), estimates that approximately 522,000 consumers received direct compensation worth a total of £20.1 million and a further £73.5 million was given to charitable organisations.119 Those charitable recipients used the money to provide support, including providing energy advice services such as advice on energy efficiency, switching and prepayment meters, and the provision of good and services such as home safety checks, emergency heating, methods of alerting consumers when the temperature in their home drops and the installation of insulation and new boilers.11 The work undertaken by charitable organisations as a result of voluntary redress funding ultimately benefited a further 223,000 consumers.
It can be seen that whilst there has been a strong shift to achieving redress for consumers, this has been accompanied by a reduction in fines:120





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