REDEMPTION OF STANDARD SECURITIES (SCOTLAND) BILL (Hansard, 24 May 1971)

§ BARONESS TWEEDSMUIR OF BELHELVIE
My Lords, I beg to move that this Bill be now read a second time. This four-clause Bill seeks to amend the 850 Conveyancing and Feudal Reform (Scotland) Act which passed through this House only 12 months ago. It was considered in the period immediately before the General Election and because there was general recognition that it was an important and necessary piece of legislation it was hurried through with speed. It is perhaps for this reason that we failed to predict accurately the full impact of the then Bill on industrial and commercial lending in Scotland, and that the Act now stands before us again for amendment. This short amending Bill, which was supported by the Opposition in another place, seeks to overcome urgently difficulties which have arisen in the practical operation of the Act. Apart from the Second Reading, all stages were taken formally in another place.
851 One of the major reforms embodied in the 1970 Act was the creation of a new form of heritable security—the standard security—which, with effect from November 29, 1970, replaced all other methods of securing loans over heritable property in Scotland. The provisions of the Act before you to-day for amendment are those contained in Section 11(3), Section 18(1), and standard condition 11(1) in Schedule 3. The effect of these provisions, taken together, is to confer upon the debtor in every standard security an absolute statutory right to redeem the security on giving the creditor two months' notice of his intention to do so. This right cannot be varied, and it is impossible for either party in the security to contract out of it.
The inflexibility of these provisions has had unhappy results for the flow of capital into Scottish commerce and industry. Many industrial lenders rely heavily for the successful management of their affairs on an ability to negotiate fixed term loans with people who borrow from them: these are loans in which the borrower will not make repayment before a fixed time, the lender thus being assured of income by way of interest on the loan at a fixed rate over a fixed period. Under the provisions of the 1970 Act the lender has now to guarantee that this income will not suddenly cease when borrowers, who may perhaps have found cheaper rates of interest elsewhere, redeem their loans at short notice. In these circumstances, industrial lenders are extremely reluctant to lend at all on the basis of a standard security and a disturbing number of Scottish firms are prevented from obtaining the long-term finance on which they depend. This fact has been brought home to us in pressing representations from all sides of Scottish industry and commerce—lenders and borrowers alike—from the legal profession and from Members of Parliament. They stress that commercial lending has ground almost to a halt, at a time when credit is vital to Scotland's survival as a competitive trading nation. There are two particularly serious aspects of this crisis. First, its harshest impact is on the small firms, including one-man businesses, who cannot afford to wait for their credit or look to other sources. Secondly, it handicaps Scottish firms in competition for credit with their English 852 counterparts, for in England, I regret to say, there is no such rigid restriction on the making of agreement on fixed-term loans. All these considerations have led the Government to act and to act quickly. The Bill now before the House is brief, but I think it is effective.
I should like to turn now to its provisions, which of course have to be read with the Conveyancing and Feudal Reform (Scotland) Act 1970. Clause 1 makes a number of detailed amendments to the provisions of the 1970 Act which relate to redemption of the standard security. The key amendments are those to Section 11(3), Section 18(1) and standard condition 11(1) in Schedule 3. These amendments all hang together; and the core of the change which we are seeking to make lies in Clause 1(c), which provides for a new Section 18(1A): the new Section 18(1A) would have the effect of making the debtor's right to redeem at two months' notice subject to any agreement to the contrary. Such an agreement could be made either when the security was granted in the first place or at any time subsequently. The other provisions of Clause 1 are consequential on the fundamental change effected by the key provisions to which I have referred.
Clause 2 deals with the operation in Scotland of Section 89 of the Companies Act 1948. That section made lawful, among other things, the creation of debentures in a form which made them irredeemable securities. Since such debentures can be heritable securities, the 1970 Act might have been considered to be in conflict with the provisions enacted by Parliament in the 1948 Act. The opportunity is being taken in this clause to resolve any doubts on the matter. The clause provides that the 1970 Act does not affect and has never affected Section 89 in its operation in Scotland. Clause 3 is directed at heritable securities granted and recorded in the period between November 29, 1970 and the passing of the present Bill into law. The provisions of the clause make it possible for the redemption provisions in such securities to be altered in accordance with the provisions of the Bill. Any such alteration can of course be made only if both the debtor and the creditor agree that it should be made. Clause 4 contains provisions of the usual kind as to citation and construction.
853 It only remains for me to ask noble Lords to join those who have welcomed the Bill and to encourage its speedy progress through Parliament. It commands the complete support of the many organisations which the Government have consulted about their proposals for legislation; and it has had all-Party support in another place. I hope that the support of this House to-day will enable the Redemption of Standard Securities (Scotland) Bill to pass on to the Statute Book as soon as possible. I beg to move.

§ LORD HUGHES
My Lords, in her concluding words the noble Baroness, Lady Tweedsmuir of Belhelvie, expressed the hope that this Bill will pass speedily on to the Statute Book. I gather, however, that it is not the wish of all Members of your Lordships' House that we should get -through this stage of the Bill too speedily. Otherwise those engaged on the Industrial Relations Bill will not have an opportunity even of getting through the soup, apart from anything else. I must congratulate the noble Baroness on the fact that she has made an excellent contribution towards that objective in the speech she has just made. Short of reading all the actual wording of the Bill, I doubt whether she could possibly have made her speech any longer. I have become very much aware of the fact that the diligence of the noble Baroness has made my task in trying to keep the debate going even more difficult, I am now more than ever aware of the problems which the Jews must have had in the times of the Ancient Egyptians when they were faced with the task of making bricks without straw.
I started by looking through the proceedings in another place to find how they dealt with this Bill. I had been aware of the fact that it was not the subject of acute controversy there. First I looked up the Third Reading, and I found that the Third Reading was reported on the same page of the OFFICIAL REPORT as the Committee and Report stage's, and (that no one spoke other than the officials. Then I turned up the Second Reading and found that no one spoke other than to agree that the Bill should be transferred for the Committee stage to a sitting of the Scottish 854 Grand Committee. The Scottish Grand Committee managed to talk on the Bill to the extent, I 'believe, of some 34 columns of Hansard. Of course, for another place that is tantamount to saying nothing at all.

§ LORD CHAMPION
Now, now!

§ LORD HUGHES
My noble friend Lord Champion has intervened, and that gives me the opportunity of speaking for perhaps another thirty seconds to say that if anything I said in the last few seconds should he regarded as a reflection on the privilege of another place I unreservedly withdraw that comment.
The surprising thing is that in both Houses, which are almost infested with lawyers, the earlier Bill should have got through without any of them noticing such a dreadful defect. -It may well be that at the present time lenders of money are coming up against a needless difficulty. As the noble Baroness explained, the problem arises from the fact that people may borrow money at high rates of interest and lend presumably at higher rates of interest; if 'the second party has a right to redeem on two months' notice, should interest rates fall, he may find a lower rate elsewhere and the first party is stuck with his high rate of interest. In existing circumstances, this seems to be a needless fear because no action that the present Government are taking will result in a precipitate or steep fall in the rate of interest. Nevertheless, although the fears may be groundless, I am satisfied that what (the noble Baroness said is perfectly true: that the effect of this provision in the 1970 Act is to dry up the opportunities for -borrowing by perfectly reputable borrowers. In these circumstances, I think the Government were right to introduce this Bill in another place and I think my honourable and right honourable friends in 'another place were equally right not to impede its passage.
If it were not for the need, which I have already indicated, to give my noble friends and noble Lords opposite the opportunity of having something to eat, I should not have said anything other than that I found nothing in what the noble Baroness -said which makes me feel it necessary to impede the Second Reading of this Bill.

THE EARL OF SELKIRK
My Lords, I wish to add a word, not with the object of leading on to the entree course, but for the purpose of saying that I think this is a good example of what Parliament can do when it really wants to get down to business. I think my noble friend Lady Tweedsmuir of Belhelvie and the Government deserve full congratulation for bringing forward this Bill at very short notice. It is true that if we had had a little more time last year we might have picked up this matter then, but in these days, when Parliament is so fully occupied, it might have been thought that Parliament would not have time to do this. It has done this and should receive full credit for doing so. I must say that I heartily dislike a Bill drafted in this form, which is completely incomprehensible and not very easy to read without reference to the previous Act. I hope that something may be done speedily to consolidate this legislation which is incomprehensible to all but lawyers.

§ BARONESS TWEEDSMUIR OF BELHELVIE
My Lords, I thank the noble Lord, Lord Hughes, and my noble friend Lord Selkirk for their interventions in this short debate. It may be possible to extend it in order to answer some of the points which they raised. The noble Lord, Lord Hughes, even had to resort to a reference to the ancient Egyptians in order to come back to the Bill as it is, but he raised a very important point. He said that this House, as he put it, is infested with lawyers, yet no one seemed to notice this potential defect. This is perfectly true, because although, as I understand, the 1970 Act took five weeks in Committee in another place there were no representations at all on this matter during the Parliamentary proceedings. The Law Society of Scotland raised a mild query upon it but did not pursue the matter, and therefore the Bill went through and is now the 1970 Act without this point being raised or debated.
I am very glad that the noble Lord, Lord Hughes, welcomed this Bill. He referred to the problem of money lending and rates of interest. Of course the Bill is not designed to give lenders an unfair advantage over borrowers, but is 856 designed to replace what is an inflexible provision in the 1970 Act by a flexible one in which borrowers and lenders can agree on the terms of a loan. The 1970 Act gave the borrower the right to redeem a security which was so absolute that, even had he wished to do so he could not have modified it.
The terms of redemption hinge on a freely negotiated agreement between borrower and lender; in other words, there will be flexibility on both sides. Few borrowers would be grateful to receive an absolute right to redeem the security if, in consequence, they could not raise a loan; and there has been a tendency in this direction as a result of the provisions of the 1970 Act which we are seeking by this Bill to amend. Many institutional lenders themselves borrow capital at a fixed interest over a long term, and they often borrow in the South. They clearly want to be able to re-lend the money under similar arrangements, but they have been discouraged by the right given to the borrowing party in Scotland. I hope, therefore, that this Bill will be of real benefit to Scotland.
I would say to my noble friend Lord Selkirk, who has been good enough to examine the provisions of the Bill and the way in which it amends the 1970 Act that I do not think it is quite so incomprehensible as he suggested, because if one looks at the amendments to the 1970 Act one finds that they relate to only three main parts of the Act. They relate to Section 11, Section 18 and to the standard condition in paragraph 11(1) of Schedule 3. All the other provisions, which appear to him to be somewhat incomprehensible, are consequential upon those three main amendments, apart from Clause 3 which, as 1 said earlier, removes any doubt which may exist that the operation of Section 89 of the Companies Act 1948 does anything other than what it really does. Therefore I hope that my noble friend is satisfied. I thank noble Lords who have been good enough to attend this interesting debate, and I hope that the House will feel it right to give this Bill a Second Reading.