HL Deb 06 May 1982 vol 429 cc1305-14

.—(1) A relevant contract debt shall carry simple interest by virtue of this section and in accordance with sections (Relevant contract debts etc.) to (Assignments etc.) below.

(2) In this Act "statutory interest" means interest carried by virtue of this section.").

The noble Lord said: My Lords, with the permission of the House, I will speak to Amendments Nos. 15 to 23 inclusive. Your Lordships discussed and gave support, except for the Government, to a similar amendment in Committee. I am therefore moving this slightly different amendment today hoping for similar approval, and maybe just some sympathy from my noble and learned friend the Lord Chancellor. I shall not repeat what I said in Committee for I know that those interested will have studied Hansard. But I would like to draw the attention of the House to the following points that have caused me or perhaps the House concern; most of them were kindly pointed out to me in a massive letter from my noble and learned friend the Lord Chancellor and, indeed, in his reply to me in Committee.

The first point that I noted was the concern that my original amendment would still allow the large firm to opt out of paying interest. I hope that this amendment has put that right, and, in particular, subsections (2) and (3) of my Amendment No. 16.

The second point is that there has been concern that this amendment would make the consumer more liable to pressure in two particular ways—and, of course, I look at my noble friend Lady Trumpington as regards this matter: first, by keeping interest on a consumer unable to settle, say, his or her gas bill or electricity bill, and secondly by depriving the right of nonpayment if the product is unsatisfactory to the consumer—a well known, I shall not say "trick", but a justifiable method of getting the product up to standard. The last point about bad products appearing on the counter is taken care of by subsection (2) of Amendment No. 21, and the first point, I suggest, could be covered very easily by delaying the commencement date of this part of the Bill until suitable consumer protection is arranged.

Thirdly, it has been said that statutory interest would put firms that are in financial problems into a worse position. If a firm cannot honour its debts, then in my opinion the sooner it goes to the wall the better because it will, in the end, cause less damage to those with whom it trades.

Fourthly, it has been said that my amendment will cause more paperwork. There is no need for any more paperwork at all because, as I must remind your Lordships, my amendment does not insist on a firm claiming interest.

Fifthly, my noble and learned friend the Lord Chancellor said in Committee that my amendment is controversial and would endanger his Bill. All I can say is that as far as the small trader, or indeed, the farmer is concerned, the Bill in its present form is controversial. It is not only noble and learned Lords who find things controversial: I find things controversial also.

I must repeat that it is the taking of just half of the Law Commission's suggestions that I dislike so much and, despite my noble and learned friend's appeal to the contrary, I really would rather have the whole of Clause 15 out than this, if I can call it, abortion of half of it. Although I appreciate that Clause 15 appears to give the small trader exactly the same advantage as the large one, it does not do so, because the Government I think have failed to understand what the small trader or farmer thinks. As a result of this—although his method of thought may be somewhat cussed, I suppose—Clause 15 will in practice mean that only the large trader will use the powers in this clause. Blackmail will enter into it, sadly maybe, but then I suppose most of life has an element of blackmail in it. But there is no need to encourage any more, which I believe Clause 15 does.

I therefore hope that the Government will accept my amendment or, if they cannot do that, then at some stage they will remove the whole of Clause 15. I beg to move.

Lord Mottistone

My Lords, I am advised in commenting upon this amendment by the CBI. It seems to us, as a basic point, that these amendments seek to reverse the decison of the Government which my noble and learned friend who sits on the Woolsack gave in a Written Answer to a Question by my noble friend Lord Chelwood on 18th December 1980, at column 1278.

In 1980 the CBI considered the question in depth, taking particular care to consult the smaller firms—the ones to which my noble friend Lord Stanley of Alderley referred. It was agreed that the proposal should not be supported. It would be ineffective unless contracting out were prohibited, but it would then be necessary for the Government to set the interest rate at a very high level; otherwise those seeking loans would find their trade creditors the easiest, possibly the cheapest, an entirely involuntary sources. It would in practice prove necessary to standardise payment terms throughout business, cutting across many traditional arrangements. The argument that the interest payment need not be enforced can be countered by the argument that there is nothing to prevent interest terms being included in a contract, or discounts allowed for proper payment. The CBI deprecates the practice of extending credit beyond the period provided for by contract and has made this view clear on several occasions.

It seems strange to me that my noble friend Lord Stanley proposes these amendments because the interests of small farmers, for whom I imagine he mainly speaks, are probably similar to those of small businessmen. Indeed, in his speech he seemed to say that he was talking for small traders, although the CBI would question whether that was so. However, we do consider that the subject requires further study. But we think that it is wrong in principle to introduce at a late stage in a miscellaneous provisions Bill a reform which has been rejected after extensive consultation and careful consideration in the relatively recent past, particularly when the consequences could be far-reaching. Thus I hope that my noble friend will not pursue this amendment. But, equally, I hope that the Government will agree that this is a matter which should not be allowed to drop but should be further studied by those who are most interested.

Baroness Trumpington

My Lords, my noble friend Lord Stanley of Alderley was indeed right when he said that I would wish to speak on behalf of consumers, and I wish to speak against these proposals because I certainly can foresee difficulties, particularly in distinguishing between the genuine and the fraudulent defaulter. A scheme such as that envisaged in this new clause would particularly discriminate against poor consumers, especially those already suffering from debt problems often arising from unexpected sickness or unemployment—and the unemployment aspect is very important. Creditors who seek interest already have the freedom to make this a term of the contract. This should continue to be the case without the need for statutory intervention.

Prices, which often already include an element in respect of anticipated late payment, would be unlikely to fall on the introduction of such a scheme. Even in the longer term there would be no guarantee that prices would be restrained. The statutory interest would simply represent an extra cost to some consumers with no guarantee that the benefit would be passed on to prompt payers. As I have said before, a statutory scheme cannot distinguish between the wilful defaulter and the debtor who is unable to pay. Statutory interest will represent an additional burden on the latter, for whom it will certainly not be an incentive for prompt payment.

Some of the practical problems which would be faced by consumers in calculating and paying interest are formidable. Consumers involved in a genuine dispute about the goods or service in question, may be dissuaded from pursuing complaints by the self-help remedy of withholding payments. Comparable problems may result where there is a dispute about the amount payable. A statutory interest scheme would benefit inefficient traders who do not stipulate for contractual interest and who are slow at pursuing debts; and it would be inequitable that consumers should not receive interest when payment is required in advance and that, for example, state benefits would not bear interest when paid late.

Therefore, on balance, I believe that a statutory scheme would have extremely undesirable implications for consumers. It would not be effective in those cases where there is genuine difficulty in paying. Existing court procedures, particularly with a wider discretion for courts to award interest on debts, should be used to deal with wilful defaulters. Moreover, the most effective method for achieving prompt payment would be to encourage the use of cash discounts for those who pay promptly. I hope that my noble friend Lord Stanley of Alderley and the other movers of this proposed new clause will take it back, have further discussions of the whole matter, and will not press it to a Division today.

Lord Wise

My Lords, in a Bill such as this it is with some considerable trepidation that I put my name to any amendments. But I do so to these amendments because I am certain that a scheme for statutory interest undoubtedly has great attractions for the smaller firms. As I understand them, these amendments would implement a scheme and, therefore, the smaller firms would be placed in a more beneficial position.

Although Clause 15 introduces changes of considerable benefit to creditors, enabling them to obtain judgment for interest in respect of any debt at date of commencement of proceedings, as my noble friend Lord Stanley has said, it is by itself not a very real help to small firms. There are a number of reasons why they could be reluctant to involve themselves in litigation. So obviously the right to obtain interest on overdue debts without undergoing the process of court proceedings must be a great benefit to all small businesses, particularly those engaged in agriculture, of which I have most knowledge.

I understand that there is concern that a scheme for statutory interest could place creditors in a position whereby debts owing to them would be ever increasing with no hope of recovery. But obviously this happens now and cases have to be dealt with as best they can; for the inability to pay arises from any number of reasons, entirely unrelated to the payment or not of statutory interest. I cannot envisage the new clauses creating any new problems in this respect.

My noble and learned friend the Lord Chancellor has said that these amendments could create controversy and they are controversial. I must admit that even as a layman I have one or two small reservations. For example, Amendment No. 22, dealing with the rate of statutory interest, would surely seem to be much simplified by declaring that the rate of interest should be made X per cent. above the bank base rate standing at the relevant date. Perhaps my noble and learned friend would be kind enough to clarify this for me when he replies.

Nevertheless, now that he has further considered them, I hope that these amendments will commend themselves to my noble and learned friend on the Woolsack and I hope that, to use his own words, he will be able to take these amendments on board in this Bill.

Lord Bruce of Donington

My Lords, these amendments will attract varying views among the party opposite, as we have already heard, and indeed my own views. They are, of course, completely non-party questions that are raised by this. This is fundamentally concerned, as the noble Lord explained in introducing his amendment, with putting into effect the draft legislation that was incorporated in the Law Commission Report on the Law of Contract, a report on interest. So far as I can see, the amendments that have been put forward by the noble Lord correspond almost exactly to the recommendations of the Law Commission.

I shall make this comment, which is indeed in no way intended to imply any disrespect to the members of the Law Commission who considered this. I regret to say that they did not include any accountants. Accountants, of course, are marginally concerned with matters of this kind, because fundamentally interest is also a matter of account and in my profession we have an opportunity of observing its effects at all levels, whether they be the effects on the debtor or on the creditor.

I am bound to say, and I speak for myself personally —and there are other views on the Benches behind me which are of equal validity—that I incline to the views of the noble Baroness, Lady Trumpington. At the lower end of the scale, the lower end of the income groups, there will be no doubt as to who suffers by the imposition of this particular piece of legislation which the noble Lord seeks to enshrine in this particular Bill.

However, I pass from that for just a moment to consider the whole impact of interest on our society. Interest now appears to be a dominant consideration. By the mere possession and deposit of funds, inert capital can now earn money at a far greater rate than anybody who is concerned in productive industry. If productive industry could earn a rate of some 15 per cent. of the capital employed in its business, it would indeed at the present time, under the present Administration, consider itself to be extremely fortunate. In this day and age we are becoming so interest obsessed that the mere possession of inanimate funds is a guarantee of income which then makes demands upon diminishing resources. This is a tragic commentary on our times: the fact that the mere possession of funds can now attract to its owners a far greater accretion of money than can be earned by people in the ordinary and honest exercise of their occupations and professions. I put this forward purely as a marginal comment, but it is, indeed, one which we at this time should certainly bear in mind.

Speaking on behalf of the Consultative Committee of Accountancy Bodies—with whose views I broadly concur, and this represents the accountancy profession in the United Kingdom—that committee takes the view, which I would commend to the House, that there should be no legislation of this kind unless there is a general public demand for it. This is a solution that may not commend itself to members of the legal profession because members of the legal profession, by training and by inclination, like to have a tidy solution to all the legal problems that arise. But my profession takes the view that such a change should not be embarked upon unless there is some widespread general public demand for it.

We note that of the 42 respondents listed as having commented on the Law Commission's working paper, 14 appear to be individuals, five firms, and the remainder from trade and other organisations. The CCAB say: We have some reservations as to whether this amounts to the substantial general public demand to which they have already referred". Moreover, there is the firm view held within the accountancy profession, which is not wholly isolated from what happens in industry and commerce, that a scheme of statutory interest could have the effect of institutionalising slow payment of debts rather than accelerating their discharge. They say that, given that under the proposals it is open to the parties concerned to contract out of statutory interest, it seems that the cost of borrowing will not necessarily be placed on those that are enjoying credit.

I would commend to the noble Lord the following further observation that has been made by the consultative committee. They say this: We doubt that small firms would find the scheme of much assistance in practice. A small firm dealing with a large supplier of raw materials, and a large customer for its finished goods, might well find itself at a disadvantage. On the one hand the supplier may insist that his contract with the small firm should include a statutory interest, while on the other the customer may insist that his contract should exclude a statutory interest". For these reasons, I trust that the noble Lord will withdraw his amendment so that it may receive further and possibly wider consideration than that which has been given by the Law Commission which, as I have shown, received representations from only a limited number of people and bodies. In general at this time we should refrain from adding further to the difficulties of the noble Lord, Lord Cockfield, or his successor at the Treasury. It has been demonstrably proved that the extremely high interest rates over the last three years have not subtracted from, but have contributed to inflation. I do not think that this House at this time should take any steps to aggravate the position beyond the appalling situation which exists now.

Lord Mishcon

My Lords, I promise your Lordships looking at the clock as I do, that I wish to speak briefly. Your Lordships will have noticed that I receded in regard at all events to the place where I was sitting only a few moments ago. I did so because, as my noble friend Lord Bruce has said, there is a difference of view here within parties, as this is very much a non-political point. On the previous occasion, speaking from a row in front of the one from which I speak now, I supported the amendment. Personally, I still wish to do so. I did so because, in spite of all that has been said this afternoon, my chief regard was for the small trader who is paying the very interest to which my noble friend Lord Bruce referred, at a very high rate, lacking capital, and shutting down his business. We read week after week of liquidations and bankruptcies assuming a figure which is quite alarming.

I say briefly that I think it is so unfair for the big firm so often to hold that little man to ransom, and merely say to him, looking at the Bill as it now stands, "If you care to sue us you of course would get interest from the court. But if you haven't got the pluck to sue us because you want to keep our custom, you won't be able to serve a notice and get statutory interest." I stay where I was last time in my opinion on this amendment, and I warmly support it.

The Lord Chancellor

My Lords, we have only a few moments, but I must beg the House to believe me when I say that this is a highly controversial amendment, and on that ground alone I cannot accept it at all. I know that there are those in the Law Society who favour it, and so there are in the British chambers of commerce, the National Farmers' Union, the Association of District Councillors, the Union of Independent Companies, the Agricultural Suppliers Trade Association, the Institute of Credit Management, the Consumer Credit Association and the Finance Houses Association; but ranged on the other side are the consumers, as we have heard from my noble friend Lady Trumpington, the Confederation of British Industry, the Consultative Committee of Accountancy Bodies, the National Chamber of Trade, the Federation of Civil Engineering Contractors, the Greater London Council, the Local Authorities Management Services Committee, the Association of Independent Businesses, the National Water Council, the Law Society of Scotland, the Institute of Chartered Accountants of Scotland, and, I have no doubt, the Labour Party as well.

I really hope that my noble friend will take some pity on a poor Lord Chancellor who is trying to get through a piece of uncontroversial legislation. I have been here provided with a long speech in which I was going to point out the various defects in this particular amendment even from the point of view of the small trader. But I will not at this hour. I simply confine myself to two observations. The first is that I simply do not understand why my noble friend should have said that with Clause 15 in it, it is less favourable to the small trader than without it. It is simply not true, from the soundings I have taken, that there is any opposition to Clause 15 as it stands, which gives the court the right in its discretion to award interest. I hope that my noble friend will at last come to see that he has at least got half a loaf, and that what he is asking for is no bread.

Having said that, I make only one other point. The noble Lord has made matters much worse by the change which he has effected in the Law Commission's recommendation. The Law Commission's recommendation was that there should be an opting out clause. This has been effectively emasculated from their recommendation in the series of clauses which my noble friend has introduced. There are an infinitely large number of arguments here which would bear against even the advantages which he claims to exist in the amendment, but I hope he will at least have some pity on me when I tell him that it is controversial and therefore I cannot take it on board.

Lord Stanley of Alderley

My Lords, I hope that my noble and learned friend will have some pity on me, rather than that I should on him. I make one or two points before we leave the matter. One of the remarks that my noble friend Lord Mottistone made was that traditional terms would be upset. It is the traditional terms, many of them, that we dislike so much, because there are, unfortunately, unscrupulous traders—and the noble Lord, Lord Mishcon, brought this out—who keep us out of our money. It is those that we are going for.

Here I come to my noble friend Lady Trumpington. I am not getting at her and her consumers; the whole purpose of the amendment has nothing to do with consumers. We are getting at the, perhaps I may call them, evil people who are keeping me or my small trader away from our money, money at which we are trying to get, and 1 am sure there are ways to avoid us making the consumers' problems any more difficult. Indeed, the fact that there could be interest added on for somebody who cannot pay does not make it any more difficult; there are terms in the courts in relation to how to pay a sum off, and no doubt the terms are, as usual, very generous.

The noble Lord, Lord Bruce, made some interesting points. Like the noble Lord, Lord Mishcon, I took a totally different view from his argument. I take the point that it is better for me to sit on my backside and invest my money than try to work, because I should find it difficult to earn the same as I could get in interest. That is exactly why I want the amendment. I do not want the large firms keeping my money away from me when it could be put into productive work, I hope, albeit I cannot earn the rate of interest which Lord Bruce says I cannot and which, indeed, sometimes I cannot.

My noble and learned friend listed a large number of firms on my side and a large number on the other side. I hope he understands that, so far as I am concerned, all those on the other side are wrong. I take the view of the noble Lord, Lord Mishcon, particularly in relation to Clause 15. He pointed out to my noble and learned friend why we do not like that clause, and I dealt with that in my original speech. I do not want to repeat why I would rather have Clause 15 removed.

It appears that tonight, as opposed to the last occasion, I do not have the same amount of support among noble Lords, and I said on that occasion that I would probably miss the boat, and obviously I have. Nevertheless, I would strongly make the point to my noble and learned friend that everybody is agreed that the matter needs further thought. I accept that it is controversial. I hope the Government will give it further thought so that it may be possible for an acceptable amendment, possibly in the other place, to be tabled. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 16 to 23 not moved.]

Clause 17 [Relaxation of formal requirements for making wills]:

7.3 p.m.

The Lord Chancellor moved Amendment No. 24:

Page 12, leave out lines 31 to 33 and insert—

("(d) each witness either—

  1. (i) attests and signs the will; or
  2. (ii) acknowledges his signature,
in the presence of the testator (but not necessarily in the presence of any other witness),").

The noble and learned Lord said: My Lords, I hope we can get through one or two more amendments before my noble friend Lord Denham moves me out of business, as it were. This amendment replaces the existing paragraph (d) and makes it clear that the two witnesses do not both have to carry out the same action, either signature or acknowledgment, at the same time for the will to be validly attested. This carries out an undertaking I gave to the noble Lord, Lord Mishcon, in Committee and I hope is an improvement in parliamentary draftsmanship, for which I modestly claim credit which I do not deserve.

Lord Mishcon

My Lords, I am most grateful to the noble and learned Lord.

On Question, amendment agreed to.

Clause 18 [Effect of marriage or its termination on wills]:

The Lord Chancellor moved Amendment No. 25: Page 13, line 42, at end insert (" and if it was contingent upon the termination of the life interest, as if it had not been so contingent.").

The noble and learned Lord said: My Lords, this is highly technical, but I can explain it in great detail if called upon to do so, and I think it is the right solution to a highly technical problem. It deals with the situation where a life interest is terminated by divorce. The amendment makes it clear that where the life interest of a divorced spouse lapses by virtue of the earlier provisions of the clause, then any interest in remainder which is contingent on the termination of the life interest is to be treated as if it had not been so contingent at all. The main clause provides that it shall be treated as if the person with the life interest has died, but there is the possibility, which has been pointed out to me by the Law Commission and the Holborn Law Society, that supposing the gift were to my wife for life and then to such of our children as are alive at her death; if she was divorced while she was still alive, that might have a startling and improper effect. The amendment, which has been seen by the Law Commission and the Holborn Law Society, is designed to put that right.

Lord Mishcon

My Lords: I am happy to agree that the Holborn Law Society, as a result of the courtesy of the department of the noble and learned Lord, is completely satisfied with the amendment. My expression of gratitude continues.

On Question, amendment agreed to.

Lord Denham

My Lords, I beg to move that further consideration of the B ill on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.