§ Order for Third Reading read.
§ *(12.40.) MR. WARMINGTON (Monmouth, W.)
In moving the Third Reading of this Bill, I am sorry to find that there is evidently a desire on the part of some hon. Members that the Bill should not pass. It has already been discussed upstairs, and on three consecutive Wednesdays the Report has been considered in this House. The principle 566 of the measure has been affirmed time after time, and its various provisions have been thoroughly discussed. I am therefore afraid that there must be in the minds of those of my hon. Friends who propose to re-commit the Bill some little misunderstanding. The hon. Member for West Belfast (Mr. Sexton) and the hon. Member for North Long-ford (Mr. T. M. Healy) propose that it should be re-committed in respect of Clause 4. It is a mistake to suppose that there is any desire on the part of those who are in favour of the Bill to delay its operation for a single hour. The date of the 1st of October this year was inserted as a convenient date, representing the time at which it was thought probable the Bill would pass. At the same time, there is every wish that the measure should come into operation as soon as it has received the Royal Assent, and with that desire I will undertake that a representation to that effect shall be made in another place, in order to secure the insertion of a provision to that effect. Another Amendment stands on the Paper for the re-committal of the Bill in respect of a new clause, in the name of the hon. Member for East Donegal (Mr. A. O'Connor). If this were the Committee stage of the Bill I should be glad to accept the view expressed in the hon. Member's clause; but if I were to accept any Motion for the re-committal of the Bill to-day, I am afraid the effect would be to destroy the measure altogether. For that reason I feel myself compelled to oppose any Motion for the re-committal of the Bill. There is also a Motion in the name of my hon. and learned Friend the Member for North Camberwell (Mr. J. Kelly); but its acceptance would involve not only a new Bill, but a new Bill which would take an entire Session and the whole force of the Government adequately to discuss and pass into law. The other Motions on the Paper are decidedly hostile to the measure, and I trust that they will not be pressed, or, at any rate, that they will not receive the assent of the House. I have no wish now to discuss the merits of the Bill. Its provisions have been so often explained that it is not necessary to say a word more about them. All I can do, in moving the Third Reading, is to offer my acknowledgments to hon. Members on 567 both, sides of the House, and especially to the President of the Board of Trade, for the assistance they have given me in the discussion of the clauses of the Bill.
§ Motion made, and Question proposed, "That the Bill, be now read a third time."—(Mr. Warmington.)
§ (12.45.) MR. SEXTON (Belfast, W.)
The statement which has just been made by the hon. Member in charge of the Bill leaves me in no doubt as to the course which I ought to pursue. My Amendment to re-commit the Bill in respect of Clause 4 is in no way hostile to the Bill, which I am anxious to see passed, as a means of preventing the most disgraceful and destructive kinds of fraud now known to society. The Bill is, in reality, directed against men whom I regard as the highway robbers of the 19th century—men who are more cunning and more cruel than those who took to the road a century ago. I gather from the hon. Member's remarks that some of the Amendments on the Paper are hostile to the Bill, and that, in regard to the rest, if the Bill were re-committed it would have to be postponed for another year. Now, I think that such a measure is urgently required. In the course of the last five years not less than an average sum of £20,000,000 a year has been applied to the promotion of companies which have brought nothing but ruin to ordinary investors who have embarked their money in them, and nothing but gain to a certain class of schemers. Therefore, I cannot on the present occasion incur the responsibility of assisting the designs of hon. Members who hope to defeat the Bill. I take note of the declaration of the hon. and learned Member in charge of the Bill that he will use his best exertions to get Clause 4 omitted, and I will not, therefore, move my Amendment.
§ *(12.47.) SIR ROPER LETHBRIDGE (Kensington, N.)
The hon. and learned Gentleman in charge of the Bill has classified the notices of Motion on the Paper for the re-committal of the Bill, and I am sorry to observe that he regards the Motion which I have put down as altogether hostile to the Bill. Its only hostility to the Bill is that it endeavours to point out that the measure is incomplete, and would be nugatory in its operation 568 as it now stands. Another notice of Motion exactly similar to mine has been put down by the hon. and learned Member for East Donegal, and in regard to that Motion the hon. and learned Member in charge of the Bill says he does not regard it as hostile to the measure. Now, the only difference between the two Motions is that one is moved from this side of the House and the other from the Benches opposite. Both equally endeavour to enlarge the scope of the Bill; both aim at amending the law on points in which the law is not clear. I challenge the hon. and learned Gentleman to deny that upon the points dealt with by those two Motions the law is not notoriously uncertain, and requires amendment. I am, therefore, compelled to express my sincere regret that the hon. and learned Gentleman should have classified my Motion in a different category from that in which he includes the Motion of the hon. and learned Member for East Donegal. The clause proposed by the hon. and learned Member provides that a waiver, or affected waiver, of the provisions of Section 38 of the Company's Act of 1867 shall be absolutely void. My clauses define that the word "director" shall include promoters, vendors, and all who are to derive pecuniary benefit from the floating of a company; and that where a Director shall have received payment in cash or shares to induce him to allow his name to appear on a prospectus, or where he shall not have bonâ fide paid for the shares which constitute his qualification, the fact shall be regarded as primâ facie evidence of fraud. The House is asked to settle whether a Director shall be allowed to accept remuneration for joining a company, and promoters, vendors, or founders are added to the Directors and made equally liable for any error or misstatement contained in a company's prospectus. I maintain that the tendency of such Amendments is not in itself hostile to the Bill, but is calculated to make the measure more perfect and complete upon points which it is admitted notoriously require amendment. Looking at the form in which my notice of Motion has been placed upon the Paper, I am not quite sure whether, at this stage, I should be in order if I were to venture 569 to recommend to the House the particular clauses in regard to which I wish to move the re-committal of the Bill. If, however, I am wrong in proceeding to speak upon those clauses, I presume that you, Mr. Speaker, will stop me, and, of course, I shall at once submit to your ruling. The first new clause which I propose to add to the Bill, if the House consents to the re-committal of the measure, is in the following terms:—Provided that the word 'director,' wherever it occurs in this Act, shall include the promoter or promoters, vendor or vendors, and all who are to derive pecuniary benefit from the floating of the Company, whether their names appear on the prospectus or not.It is notorious, and a point which cannot be controverted, that where bogus companies are started, where fraudulent misstatements have appeared in the prospectus, and where the object of floating the company is to put money into the pockets of persons who ought not to receive it—that in most of such cases the persons who fraudulently receive the money are not the Directors, who have themselves been misled—sometimes honestly misled, and sometimes, possibly, I am afraid, dishonestly misled. At any rate, Directors are the persons who are put in the forefront of the battle, though they may have been misled by the fraudulent misrepresentations of persons who notoriously are not touched by this Bill in the slightest degree. The Bill will undoubtedly, in some respects, if it be amended as I should like to see it amended, make Directors more careful as to the statements they accept from promoters. In that object, I, for one, and my hon. Friends who act with me, heartily co-operate. It has been, undoubtedly, the case that occasionally Directors of position and reputation have foolishly allowed their names to be associated with enterprises into the details of which they have not exercised sufficient examination and to which they have not devoted sufficient care. I think that the hon. and learned Gentleman is right in directing the attention of such Directors to the responsibility they incur by allowing their names to go forth in the front of the battle, and pledging their reputation to statements which are sometimes not substantiated when due inquiry is made. Bat what I do maintain is that such cases are absolutely 570 unusual and exceptional cases. I maintain that in 9 cases out of 10 of the successful floating of bogus companies by means of the names of responsible and respectable gentlemen attached to the prospectus, the Directors have been misled by the cunning arts and devices of those who gain pecuniarily by the floating of such companies; and those Directors, I contend, are not, and should not, be held to be morally responsible for the harm which has been done. The object of the clause which I propose to add to the Bill is in all cases to attack the persons who are really morally responsible. The object of legislation should be to get at the real delinquents, and I venture to think that that object would be attained, as far as it is possible for legislation to overcome the cunning of fraudulent persons by the clause which I propose, and which I hope the House will consent to add to the Bill. I will now, if I am in order, pass on to the 2nd clause, which I propose to submit, and which is as follows:—Provided that where any Director shall have received any payment, whether in cash, or in shares, or otherwise, to induce him to allow his name to appear on a prospectus, or where he shall not have bonâ fide paid for the shares which constitute his qualification, the fact shall be regarded as primâ facie evidence of fraud.I think I am right in saying that this Bill has been largely called for by the litigation which occurred in the well-known case of "Peek v. Derry." The point in that case, and it is one which was dealt with in various Courts, was whether, through the influence of a promoter, vendor, founder, or anyone else, a Director should accept remuneration in cash or shares, or in any other shape, for lending his name to a company. I believe that in that case there was hardly a doubt as to the bona fides of Mr. Derry and the other Directors. It was not disputed that they had acted in good faith, and one of the points which came up was whether the prospectus did not contain misleading statements. The one point which undoubtedly influenced the Judges who had to decide the case, and the public also—a point which rightly told heavily against the Directors, although they appear to have acted in good faith—was the fact that, in ignorance of the law, or rather because of the uncertainty of the law, they had accepted shares from the promoters in 571 consideration of their names appearing on the prospectus. That clearly pointed to the possibility of these gentlemen having looked with a kindly eye upon statements in the prospectus which were of a doubtful character, and which, if the Directors had been perfectly independent, they might possibly have criticised much more severely. Now, I maintain that the general result of the litigation in that famous case made it evident that it was advisable in the future interests of Limited Liability Companies, carrying on the commercial pursuits of the country, that the law upon such matters should be perfectly clear, and open, and distinctly laid down by the Legislature. I have no wish to press the matter more than it is pressed by the hon. and learned Member for East Donegal, but I do think it is one which it is absolutely necessary the Legislature should decide These clauses cannot be regarded as in any way hostile to the scope of this Bill by those who are anxious that the measure should not really harm and cripple the great cause of limited liability. The importance of this matter to the future commerce of the country has been well pointed out in an article I have read this morning, which contained most powerful arguments—an article in the Financial News. [Laughter.] The hon. Member for Stepney (Mr. Isaacson), and some other hon. Gentlemen, laugh at the mention of the Financial News. It is not for me to go into the merits of the Financial News as a paper; but this I will say: that having for some time past read that paper pretty freely it seems to me that there are few, if any, hon. Members in the House of Commons who can justly lay claim to have done so much in the way of exposing fraudulent and bogus companies as the Financial News has done, and has proved its right to do, by proceedings in the Law Courts. I, therefore, fail to see why the hon. Member for Stepney should laugh derisively at the mention of this article. I would invite the hon. Member, instead of deriding articles that appear in the public Press, to read them with a dispassionate mind. As I read the article in the Financial News this morning, it seemed to me to prove conclusively that if this Bill were allowed to remain in its present state it would do 572 incalculable harm to the future of limited liability. The hon. Member for West Belfast (Mr. Sexton) has talked about the amount of money that has been lost on bogus companies, but this article ought to cause him to look upon the other side of the ledger. It would show him that the actual enrichment of this country by Limited Liability Companies during a few years past has amounted to vast sums of money, in comparison with which any sums that can be mentioned as having been lost are absolutely infinitesimal. It is proved by the article how Limited Liability Companies have given employment to large numbers of the working classes throughout the country, which they could never have hoped for, and never have dreamt of, if limited liability had been crippled in the way in which this Bill will undoubtedly cripple it if Amendments are not made in its provisions. I would ask Gentlemen who support this Bill to consider what would have happened to the commerce of this country if the £3,000,000,000 which is the nominal amount of the capital registered at Somerset House during the past few years had gone to find its outlet in France or Germany, and if French or German capital had been employed, for instance, in the exploitation of India and of the colonies and of South America, and of other parts of the world to which English capital, under the system of limited liability, has gone. The working classes of this country would have felt the pinch to a degree which I am sure hon. Gentlemen opposite would have sympathised with, and which would have been most detrimental to every class in this country. The House ought to think also what limited liability represents in the shape of valuable investments for the small savings of shopkeepers and clerks and others in a comparatively humble sphere of life. I admit that the gains of individual enterprises, such as those of the hon. Member for Stepney, are sometimes cut down by the free competition of Limited Liability Companies; but I maintain that the compensating advantages of limited liability are so great that it would be most deplorable if any check from any source whatever were placed upon its future development. In the hope that the clauses of which I have given notice may contribute to make this Bill a full, complete, and good measure; in the 573 hope that the Bill, when passed, may turn out to be a real advantage in stopping fraudulent operations, and at the same time not to interfere with proper and legitimate commercial enterprise, I beg to move that the Bill be re-committed.
§ Amendment proposed, to leave out the words "now read the third time," in order to add the words "be re-committed in respect of certain New Clauses,"—(Sir Roper Lethbridge,)—instead thereof.
§ Question proposed, "That the words 'now read the third time' stand part of the Question."
§ *(1.6.) MR. G. OSBORNE MORGAN (Denbighshire, E.)
It is very difficult to reconcile the hon. Member's speech with his Motion. In his speech he inveighed against the stringency of the Bill, and yet he proposes to make it more stringent.
§ *MR. G. OSBORNE MORGAN
I think the hon. Member's friends of the Financial News will hardly thank him for that. He says he looks on the Bill with a kindly eye. I can only say that no basilisk could ever have looked at the Bill with a more damaging eye than the hon. Member, because the effect of the Motion which he proposes would be to kill the Bill altogether. It is perfectly clear that if re-committed the Bill could not pass this Session. The new clause which the hon. Member proposes is so loose and vague that it comes to nothing. It would include the solicitor, with his bill of costs, the printer, the printer's boy, the messenger who takes it round, and in fact every person who is paid a farthing for any work connected with the prospectus of a company. I am extremely thankful to the hon. Member for West Belfast for withdrawing his Amendment; and I believe I am right in saying that my hon. Friend the Member for East Donegal (Mr. A. O'Connor), who presided with such distinguished ability over the consideration of this Bill when before the Grand Committee, will not move his Amendment. We have spent several Wednesdays over this Bill, which has been thoroughly threshed out in the 574 Committee upstairs, and the House should therefore proceed at once to the Third Reading.
§ *(1.9.) SIR R. FOWLER (London)
It seems to me that this is a Bill to smash limited liability. I cannot help contrasting the attitude of the House today with its attitude 30 years ago upon the question of limited liability. I remember 30 years ago a distinguished friend of mine, the late Mr. Cubitt, then Lord Mayor, losing his election for the City of London because he was supposed to have voted against the Limited Liability Bill. That shows the very strong feeling there then was on the question of limited liability in the City, and I believe throughout the commercial community. Now, public opinion seems to have taken an entirely different course. What some years ago was a most popular craze appears now to be an equally unpopular craze. Some men who, no doubt, deserve very properly to be punished have taken advantage of the limited liability law, and have cheated the public to a very large extent. The result has been to raise a great cry in the House of Commons, and to cause the hon. Member for Monmouth (Mr. Warmington) to bring forward this Bill. The House by this legislation is going directly contrary to the view that Parliament took 30 years ago. I do not wonder that the Bill is favoured by the legal profession, as it must throw an immense amount of money into the hands of legal gentlemen, both inside and outside the House, and provide them with a lucrative business for years to come. It will raise legal questions, which can only be settled by the highest tribunal in the land. I do not, however, very much care about the Bill, except in so far as it affects the community to which I belong. As I understand the Bill, there are words in it referring to "other persons," and this is supposed to include bankers. I understand the Attorney General said that bankers would not be included; but there are other high legal authorities who are of opinion that bankers will be included. If so, and if the Bill had been in force when the failure of Overend and Gurney took place their bankers, Burday and Co., would have been liable equally with Overend and Gurney. I am afraid that this question 575 of the liability or non-liability of bankers will lead to litigation, which will only be settled after an appeal to the House of Lords. That is why I look with great apprehension upon the Bill. As regards the part of it which refers to Directors, I think the effect will be of a very doubtful character. Every wise man, after this Bill passes, will abstain from being a Director of a company. Men of position will decline to go upon the Boards of companies, and their places will be taken by gentlemen who will not mind leaving the country when they get into trouble. Whereas, hitherto, respectable men, and men of very high position, have gone on companies, hereafter the position of Director will be left to men of an inferior class—men who may, perhaps, have handles to their names—and who may even be Members of the House of Commons, but who, if the worst comes to the worst, will be prepared to go abroad. The House is, evidently, very much in love with the Bill. I can only hope that the result of passing it will be more favourable than I anticipate.
§ (1.17.) MR. A. O'CONNOR (Donegal, E.)
The object of the Bill is to give a right of action to any person who has sustained damage by reason of an inaccurate or misleading statement in a prospectus or notice.
§ *MR. KIMBER (Wandsworth)
I rise to order. I wish to know whether, on a Motion for the re-committal of the Bill to insert now specific clauses, we can discuss its general principles?
§ *MR. SPEAKER
There is a good deal of principle involved in the new clause, and it is very difficult to separate the principle contained in the clause from the principle in the Bill. Undoubtedly, after the question of re-committal is settled, the Third Reading will come up, and that will be the time to go into the general merits of the Bill.
§ (1.19.) MR. A. O'CONNOR
On this question of the Bill being re-committed, I wish to recall to the mind of the House the fact that the object of the Bill is merely t) give a right of action to men who have been wronged, and possibly plundered, by means of a misleading or inaccurate prospectus, against those who are, or ought to be, responsible for that prospectus. The right hon. Gentleman who has just sat down said that 576 this is a Bill to smash limited liability industries. It appears to me, on the other hand, that the Bill is one to which every honest man may be expected to give assent. By Section 38 of the Companies' Act of 1867 it is provided that every prospectus of a company, and every notice inviting persons to subscribe for shares, shall specify the date and the name of the parties to any contract which has been entered into by the company, or promoters, or Directors, or Trustees, before the issue of such prospectus, whether it is subject to adoption by the company or otherwise, and any prospectus or notice not specifying the same shall be deemed fraudulent on the part of such promoters or officers of the company issuing the same, unless any person taking shares shall have had notice of the contract. However, having regard to the extremely wide terms of the Act of 1867, it has been found practically impossible to enforce it in all cases, and that is the reason why what is known as the "waiver" clause came to be adopted. The "waiver" clause, which is reasonable, and inevitable in certain cases, has yet been used by those whose business it is to seek loopholes of escape in the Liability Company Law for the purpose of committing the grossest possible frauds. Suppose an unfortunate shareholder has sent an application for shares, subject to the conditions shown in the prospectus, if there is one provision which waives Section 38 of the Companies Act of 1867, when the shareholder has parted with his money, and it has been divided among a lot of plunderers, he will find he has signed away his right to recover. It is for this reason that in a Bill like this it would have been of practical utility if a clause had been included shutting the door to fraud, and I should have liked the Bill to have gone further in this regard. I feel that to proceed with any Motion to re-commit the Bill would have the very serious and deplorable result of gravely imperilling the Bill. I should be sorry to incur that responsibility, and, therefore, I shall not support the Motion for re-committal.
§ (1.26.) SIR W. HARCOURT (Derby)
I think the course which has been adopted by the hon. Member (Mr. A. O'Connor) is one which will be taken by every Member who desires the success of the Bill. I should be very glad 577 to see the Bill come into operation at once, but we have to consider whether we will carry this Bill or lose it, and I hope nobody who is friendly to the Bill will persist in Motions that will have the effect of delaying it, or imperilling its chances of passing into law. I am not quite sure whether the hon. Member opposite (Sir R. Lothbridge) proposed the Motion he has upon the Paper with a view to securing the success of the Bill—
§ SIR W. HARCOURT
Yes; the completeness of the defeat of the Bill. It is always advisable to use words that will represent the true meaning of a proposal of this kind. People with any Parliamentary experience can read between the lines of Motions of this character, and I should say that the wiser course would be for those who desire the success of the Bill to support its Third Reading pure and simple, and reject all these Amendments. The hon. Member for Long-ford (Mr. T. Healy) and another hon. Friend of mine, who have had Amendments on the Paper on this subject, do not, I believe, intend to press them, for fear of losing the Bill altogether. I hope all the friends of the Bill will pursue a similar course, so that we may have a straight issue on the Third Reading, and give a final stroke to that which, I think, is a very necessary and useful piece of legislation.
§ *(1.30.) MR. J. R. KELLY (Camberwell, N.)
I am sincerely hopeful to see this Bill pass. I take a warm interest in the Bill, but when it was read a second time it commended itself far more to my judgment than as it now stands. Then it gave a certain right to bring actions, with a certainty of winning them in the case of fraud, for it included the "warranty" basis. I am surprised to hear the hon. Member for Denbighshire (Mr. Osborne Morgan) talk of the Bill having been thoroughly threshed out before the Standing Committee. I had not the good fortune to be a member of that Committee, though I tried to be placed on it. I look upon the Bill as one of the most important introduced by any private Member for years. There can be no doubt that the Bill was not properly threshed out by the Standing Committee, for three hours only in all 578 were given to it there, and the original Bill was, in fact, never discussed. I believe if it had been properly discussed it would have been shown that the Bill is far from touching the great majority of frauds at present practised on the public. The hon. Member for the City of London (Sir R. N. Fowler) said the Bill was peculiar, as it has obtained the favour of all the lawyers in the House, and that that was a good reason why the House should look on it with grave suspicion. It is said that the Attorney General rejected the warranty; but the Attorney General in this matter did not act for the lawyers of the House, but as the mouthpiece of the Government. I am sorry the hon. Member in charge of the Bill cannot give us an assurance that he will endeavour to make the Bill operative from the present time. I wish to say one word with regard to the argument used by the hon. Member for North Kensington (Sir R. Lethbridge). He has quoted a paper which no doubt is exceedingly influential, and which, of course, never on any occasion has been directly or indirectly connected with any black-mailing. I would only say that that paper has a statement today which is intended to show that, so far from people having been plundered by companies at all, the result is that they have had their fortunes increased by them by something like 30 per cent. A friend of mine recently made some close calculations on the subject, and they showed, instead of a profit of 30 per cent., a loss of 25 per cent. to the investors. I believe that, inasmuch as he made a most careful investigation, his figures were alone trustworthy. I must say one word by way of warning. If hon. Members suppose that this Bill will put an end to company frauds they will be grievously disappointed. It is not by words in the prospectus that the principal frauds are perpetrated; it is by the system of underwriting and rigging the market. I was told the other day that there is no man in the City who knows his business who would not by far prefer a notice in the paper that letters of allotment and regret had been posted followed by a notice that the shares had gone to a premium of 10 per cent., to the most cleverly drawn prospectus, bearing the best possible names. The fraud is not in the prospectus, but it is perpetrated afterwards, and by means, 579 to no small extent, of the columns of the very pure financial papers. But I cannot be a party to jeopardising the interests of the Bill, and, under these circumstances, whilst acknowledging that it is so weak and poor that it may do little good, I feel bound to take the one course open to me, which, at any rate, will relieve me of any responsibility as to being associated with those men who have the slightest sympathy with the Directors and promoters of fraudulent companies; and it is because I wish most clearly and emphatically to state that I will not be associated with them in any manner that I feel it my duty to withdraw the clauses of which I have given notice.
§ Question put, and agreed to.
§ Main Question again proposed, "That the Bill be now read the third time."
§ *(1.45.) MR. J. M. MACLEAN (Oldham)
We have now reached a stage when the principle of the Bill can be discussed. The hon. and learned Gentleman in charge of the Bill has rebuked us for the way the discussion has been carried on. He says the Bill has been discussed in Committee on three successive Wednesdays. The cause of that is that until now we have had no opportunity of discussing the principle of the Bill. It was read a second time at a late hour, when there were probably only a few Members present, and at once referred to a Grand Committee. I may point out, in regard to that, that the House is in utter ignorance of what was done in that Grand Committee; there is no record kept of the proceedings, of the Amendments moved, or the discussions on those Amendments. Various definitions have been given of the object of the Bill. I am not prepared to say that the time has not come when the whole condition of the law of Limited Liability should be reviewed by this House, but it is a matter that should be taken up by the Government of the day in a comprehensive spirit. We want to see that law consolidated and improved, and the whole subject considered in a fair spirit, so as to put Joint Stock enterprise on a sounder and better footing than it has been on before. I should have been delighted if the President of the Board of Trade had taken it in hand this Session, but he is apparently satisfied with doing nothing 580 more than extend a benignant and patronising sympathy to this Bill. The hon. Member in charge of the Bill wants to prevent frauds being perpetrated by Directors upon shareholders, and he considers that the present law is not strong enough to protect shareholders. I should say that the Bill is one to enable shareholders to speculate without risk to themselves. The hon. Member for West Donegal told us what a scandalous thing it is that people should be asked to subscribe to certain undertakings, and then be asked to waive their right to examine the contracts of the company. But when a shareholder waives that right he knows perfectly well what he is doing. What is the practice in these matters as a rule? When a good thing is started, anybody who has any influence with any of the Directors almost goes down on his knees to get a large number of shares allotted to him, then if things do not turn out quite as they are expected to do, of course, there are some shareholders who are ready to get up and say that they have been thoroughly misled. But, as rule, shareholders are perfectly fair towards Directors; they recognise that there must be some risk, and are prepared to stand their share in the loss. There is a great misunderstanding abroad as to the real relation between Directors and shareholders. The Director is supposed to be a Trustee, who has charge of all the money subscribed by many shareholders, and the promoters of this Bill, and those who wish for more stringent measures, come down and say that as Trustee he must be punished for any error in the management of those funds. The real position of a Director is not so much that of a Trustee as of a managing partner; the shareholders are associated with him in the enterprise, and they must bear their share of responsibility. Under the present state of the law, one of the highest authorities has said that no Director has been held responsible for an innocent mistake, unless it has been accompanied by a fraudulent intention. But the hon. and learned Gentleman proposes to change all that, and to say that for any perfectly innocent mistake, for any slight oversight or slip, in the prospectus, where there is no moral guilt to be brought home to the Director, the whole law shall be changed, 581 and he and his whole fortune shall be held liable for any mistake that he and his co-Directors may have made. If there is to be a change in the law in matters of this kind, why not apply a similar change in the law to other professions? Let us take, for example, the profession of the law. Let us suppose, for instance, that a distinguished counsel—to use the language applied to Directors—a legal guinea pig, through a slight mistake, although he has pocketed his fees, has damaged or lost the case of his client, through, perhaps, being overworked on the part of other clients, what an uproar there would be among the Bar of the United Kingdom if it were sought to make him answerable to the extent of his fortune for the damage sustained by his client. That is a parallel case to what we propose to do in the case of Directors. The Member for West Donegal spoke of the Bill as using the language that any person being responsible for "inaccurate and misleading" statements was liable, but that is not the fact. The Committee, thinking the word too strong, substituted the word "untrue" for "inaccurate," so that the clause now reads—any untrue or misleading statement. If we could have the word "misleading" qualified by the phrase—deliberately or fraudulently made, then we would not object to the clause, but there is no definition of what is meant by misleading. A great philosopher, Coleridge, has said that before beginning a controversy we ought to make sure of our definitions, and having got these right you will go on safely afterwards. But here, in this House of Commons, we pass Bills without giving any clear definition of the terms used in them, and leave it to the House of Lords to interpret the language of our enactments. I could understand a Director being made liable if he makes intentionally an untrue statement, but the House of Commons is in this plight—it holds a Director liable for a statement which is misleading in fact and not in intention, that is to say, for an incorrect or inaccurate statement, although it has already refused to adopt the word "inaccurate," in reference to the statements contained in a prospectus. Then the Bill places the onus of proof on the Director that he acted in good faith. The Director will have to convince the Judge and the Jury of the fact that 582 he believed the statement in a prospectus was accurate at the time that he was a party to its being issued. There was a very important letter in the Times newspaper recently, which describes the result of the changes in the law which the hon. and learned Gentleman desires to make. The letter, signed by Mr. S. J. Wilde, a distinguished Parliamentary draftsman, is to this effect:—On reading the other day the Report of the Committee I have come to the conclusion that, if the Bill be passed, no prudent or responsible person can ever again safely join in issuing any prospectus, and the mischief lies in the word 'reasonable,' for who is to determine beforehand what a Court may deem 'reasonable'? In my own case of 'Peek v. Derry,' Mr. Justice Stirling, after carefully cross-examining all the defendants, was of opinion that we had reasonable cause for our belief that the statement in our prospectus was true. In the case of 'De Smissen v. Derry,' on the same prospectus, Mr. Justice Mathew summed up very strongly in our favour, and the Jury concurred. On a new trial being granted in consequence of the decision of the Court of Appeal, Mr. Justice Hawkins, who also cross-examined all the defendants, not only said that we had reasonable ground for our belief, but, further, that, in his opinion, the statement as to power to use steam was true in fact. Yet the three Judges in the Court of Appeal decided in strong language that we had no reasonable ground for our belief.That just shows what a conflict of opinion may arise in Court if words of this kind are put into an Act, and I am sure, as Mr. Wilde says, that no person who has any large amount of money to lose will run the risk hereafter, if this Bill passes, of allowing his name to appear on a prospectus. That is a great fault I find with the Bill. So far as the object of the hon. and learned Member is concerned the Bill is childish and futile, but, on the other hand, it will do an immense amount of mischief in a direction I am sure its promoters do not wish it should. I have heard it said over and over again by hon. Gentlemen in these discussions that the men they want to get at are the "guinea-pigs," the men who, Members of the House of Lords, or Commons, or others, give their names as Directors, in order to attract money from the public, do nothing, receive their fees, and have nothing to lose whatever may happen. Well, I think these wonderful gentlemen who are Directors of companies and receive fees, doing no work at all, are mere creations of hon. Gentlemen's imaginations. I 583 think any Director who does not do his share of work will soon be turned out of office by his fellow Directors; and I think that any Member of Parliament who associates himself with shady or bogus companies is likely soon to be sent to the right about by his constituents, and to lose, what Members value far more highly than any number of Directorships, a seat in this House. If that is the case, I think hon. Gentlemen may, with easy consciences, mind their own business, and leave the Directors to be dealt with by the constituents who send them here. However, the Bill of the hon. and learned Gentleman will not, so far as I can see, have the slightest effect in preventing reckless persons from hereafter accepting seats on Boards of direction of new companies. What does it matter to a man who has nothing to lose that he is liable to the extent of the whole of his fortune for what may happen? Cantabit vacuus. He will simply turn his pockets inside out, and laugh at a Legislature that passed such an idle, useless Bill. On the other hand, it has been pointed out by several men of business, who, for the first time have been able to take part in the discussion upon this Bill, for hitherto discussion has been confined to lawyers and men of sentiment—it has been pointed out by men of business to-day, who have taken part in the discussion, that nobody who has means and substance of his own will hereafter allow his name to appear on the prospectus of a Joint Stock Company. Well, there may be hon. Members who may say that this is a very good thing. There has been shown an amount of hostility to joint stock enterprise that has perfectly amazed me. We know the motives that induce attacks upon Directors, envy, malice, and disappointed greed, but attacks on the principle and working of limited liability spring from a much more serious source, from utter ignorance of the present conditions of society, and of the very important material and social changes worked by industrial enterprises under the principle of limited liability. I do not propose to quote statistics from the Financial News, to which my hon. Friend the Member for North Kensington (Sir Roper Lethbridge) has referred, but I could not understand the jeers at the fact that that newspaper has given some 584 interesting figures to show the great value of the majority of the properties now quoted on the list of the Stock Exchange. That paper gave a list of 222 different companies, under a variety of heads, brewing, shipping, tramway, telegraph, financial trusts, a great variety of industrial and commercial undertakings, and these 222 companies represented an amount of subscribed capital of £113,000,000, and the market price to-day is £170,000,000 in round figures, showing an appreciation of nearly £57,000,000, or 50 per cent. as nearly as possible. When you get a Return of that sort on the survey of a very wide field and a large number of companies, you may fairly come to the conclusion that the principle of limited liability is working beneficially for the nation at large. But I will quote an authority who cannot be open to any of the suspicions which hon. Members feel in regard to the Financial News. I was looking the other day at an essay by Mr. Robert Giffen, and there will be no question, I think, that he is a high and au impartial authority. It is very difficult to give the figures as to the real amount invested in all the Limited Liability Companies existing, but Mr. Giffen attempts to get at it in this way. He takes the Income Tax Returns on the profits of companies at different periods, and then he estimates the capital by taking so many years' purchase of profits, as shown in the Income Tax Returns. He gets in this way a sum of £350,000,000 sterling invested in Joint Stock Companies in 1875, and he finds in 1885, the last year given in the essay, that the amount had nearly doubled, being £695,000,000—or say £700,000,000 sterling—all paying large profits, all assessed for Income Tax. Well, we all know that an immense stimulus has been given to Joint Stock enterprise in the few years since 1885, and I do not think it would be an unfair estimate to say that there must now be profitably invested in such undertakings money to the amount of £1,000,000,000 sterling. This is an enormous amount of capital to be brought together and invested in industrial and commercial enterprise, and I think it would be generally admitted by the public—for I do not agree with the hon. Baronet the Member for the City 585 of London (Sir R. Fowler) that there is any strong feeling in favour of this Bill outside the House, but, on the contrary, business men are alarmed and indignant at what is contemplated by the House of Commons—I think it will be admitted, and the feeling is shown everywhere by the way in which people rush to take up shares in the companies, that the action of limited liability has worked a great social revolution for the benefit mainly of the working classes. In relation to the working of the law of limited liability, I may mention that the Royal Commission on the Depression of Trade, in 1886, took evidence as to the effect of the system upon trade, and the only recommendations made were—that the bona fides of promoters should be as far as possible ensured, and that the fee for registration should be increased. These are practically the only recommendations, and we want to provide for the bona fides of promoters, but not to make them liable for unfortunate mistakes. As to the increase of the registration fee, the Chancellor of the Exchequer has taken up that suggestion very eagerly indeed, as was only natural, and I may point out that we owe a very large proportion of the increased revenue from stamps to the heavy taxation we have imposed on limited companies. It is a very great harden, in some respects a very unfair burden, to put on Limited Liability Companies; for, bear in mind, companies are formed to compete with great private employers of labour, and it is not fair that they should be taxed more heavily than their rivals. As a matter of fact, a great deal is now done by the authority of the Chancellor of the Exchequer to restrain the free employment of capital in these industrial enterprises. That is a mistaken policy, because in this same Report of the Royal Commission on the Depression of Trade this remarkable statement occurs:—There is no feature in the situation which we have been called upon to examine so satisfactory as the immense improvement which has taken place in the condition of the working classes during the last 20 years. While wages have risen, profits have fallen.I contend that this principle of limited liability has been of the very greatest value, has been one of the principal agents in bringing about this important result—a more general distribution of wealth 586 among all classes engaged in developing the industrial resources of the country. In the old days, before limited liability, private employers concealed from the world the profits they were making. Working men knew nothing about this; employers might be making 100 per cent. profit, wages being kept down to a minimum all the time. Now, under the law of limited liability, requiring the publication of accounts from time to time, and with the periodical declaration of dividends, working men have every opportunity of knowing exactly what profits are made in the particular industry upon which they are employed, and directly they see that Capital is obtaining a larger rate of interest than they think it is entitled to, they at once come forward and demand a rise in wages, in order that they may have their, share in the increased profits. I can speak from experience in my own constituency, where the law of limited liability has been applied with freedom, boldness, and success, making the town of Oldham one of the most prosperous in the country. The working classes have felt the greatest benefit from the system, and would resist any attempt on the part of this House to fetter the working of the law of limited liability. I feel obliged to the House for having listened to me so long. It is a subject in which I have felt the greatest interest for many years. So far as the Bill is concerned, I do not think it very much matters whether it passes or not, so far as Directors are concerned; but it will do, I believe, a very great deal of injury to the very important development that has taken place in our industry and commerce. It will make it almost impossible, I will not say for legitimate trade, but for that legitimate speculation which accompanies and gives fresh impulse to commercial prosperity, to be carried on. It is on that ground I move the rejection of the Bill, in the belief that it will restrain the fair freedom of speculation in the country, and that it will have a tendency to take the control of important joint stock enterprises out of the hands of substantial, honourable men, and throw it into the hands of needy, unscrupulous adventurers. I move, therefore, that the Bill be read a third time this day six months.
§ *(2.15.) MR. SPEAKER
The hon. Gentleman cannot now move that; he can vote against the Motion for Third Reading.
§ (2.31.) MR. W. MORRISON (York, W.R., Skipton)
The Bill is, no doubt, based on good intentions, but these do not form a sound basis for legislation. I have observed that the hon. Members who advocate the passing of the Bill labour under a misapprehension of its scope. They seem to think it will only apply to companies registered after the passing of the Act, but, as a fact, it will also apply to all prospectuses and notices inviting the subscription of new capital issued by existing companies; indeed, there is no provision restricting its operation, and whether a company be prosperous or insolvent, however old established it may be, and however high may be the character of the Boards of Directors, it will come within the provisions of this Bill. Then, again, hon. Members advocate the Bill because they think it will suppress or materially reduce the class of Directors called "guinea pigs." I call a "guinea pig" a man who joins a Board of Directors for the sake of the fees, and has no substantial interest in the company. But the Bill will have little terror for the pure "guinea pig." He may have had his qualification found him by the promoters, or he may have found it himself, but he must be a gainer if the fees he receives amount to more than he invested in the company, while, if an action is brought against him in respect of his action as a Director, it does not matter to him for what sum judgment goes against him, because he cannot pay the amount, and the responsibility will be thrown on the Members of the Board who are not "guinea pigs." For my own part, I define the Bill as one for the encouragement of "guinea pigs." It is not necessary to argue as to the great advantages conferred upon the country by Limited Liability Companies, the capital of which is now larger than the National Debt, and is rapidly being paid off at a rate which, if continued for 61 years, will extinguish it. It must be admitted that it would be a serious matter to check this form of in vesture for the savings of all classes of our countrymen, and it is important that heads of companies, present and future, shall be composed of 588 men of substance and character, and if they have any administrative capacity, so much the better. It would be a serious matter if these men were driven off the Boards, and their places were taken by men who go on Boards for the sake of their fees. I do not so much object to the 3rd clause, which enacts that Directors shall be responsible for statements made by them in prospectuses or notices, and, indeed, I apprehend that is now the law. Still, even this part of the Bill bristles with obscurities and difficulties. The word "notice," for instance, is a very wide word indeed, and it is difficult to say to what it may not extend. This Bill applies to every prospectus and every notice. I apprehend that it would include verbal notices, possibly a conversation in the street, and that it would include a letter written in response to one from a shareholder inquiring about some proposed issue of new capital. It would also, I presume, apply to a speech made by a Director at a meeting of the company. It may be that at the meeting 20 reporters attend, and one of them makes a mistake—a perfectly honest one—on some material point. Yet, in the event of the company proving unsuccessful years afterwards, and the shareholders swearing that the words given in the inaccurate report were, in fact, used, the Director might be called upon to prove that he did not utter them. There is a great risk when the liability is unlimited, and this Bill will make Directors responsible to the last penny of their fortune. Then, the hon. Member for Oldham has very properly called attention to the vagueness of the word "misleading." I should have no objection to the phrase "calculated to mislead" but a statement might, as the Bill stands, be held to be "misleading," not because it was calculated to mislead a man of ordinary intelligence, but because a shareholder swore and persuaded a Jury that he had read it in a certain sense, and had been misled by it. But, my most serious objection to this part of the Bill relates to the provision with respect to the guarantee by Boards of Directors of the statements of experts. It is pretty notorious that experts, especially civil engineers, are often mistaken in their calculations, both as to engineering difficulties and as to the probable cost of 589 public works. Then Directors are to be bound to guarantee that a Report is made by the person whose name it bears. But it is possible that honest Directors may be the victims of some conspiracy on the part of persons in foreign countries, who pass off upon them a Report bearing a false signature. It has, indeed, been suggested that that difficulty could be overcome by requiring the signature of the expert to be attested by a British Consul. But there are many districts in which there is no British Consul, and it is no part of the duty of the British Consul to guarantee the signature of a civil engineer, whom possibly, moreover, he may not know. Besides, the signature of a British Consul might be forged to the attestation, as has been done in the past. Then, although a Board of Directors might take every care to assure themselves of the competence of a civil engineer resident in a foreign country, whom they might employ to report, it is possible that they may be mistaken. This Bill, however, makes Directors guarantee that they have made reasonable inquiry into the competency of a man employed by them. And I am afraid that when there is a discrepancy between the estimate of a civil engineer and the final cost of works, it would constitute a primâ facie proof of the man's incompetency. Then, again, attention has been drawn to the words "inquiry and examination." I am at a loss to understand what is the meaning of "examination." It may be held that the Directors are bound to examine work done by the experts in other places, or it may be anticipated that they must put an engineer through such an examination as he would have to pass if he were a candidate for a place before the Civil Service Commissioners. Very possibly a Board might appoint an expert who afterwards turned out to have an interest in the property being sold at a high price. In that case the Board might be thought not to have shown reasonable diligence in ascertaining such a fact, and might be made answerable accordingly. The Bill actually provides that every person is to be made responsible to the utmost extent of his fortune if his name appears on a prospectus, unless he can prove that the name was put on the prospectus without his consent. Now, it is known not to be an uncommon thing for 590 names to be put on prospectuses without the consent of the persons to whom they belong. Surely it is monstrous that a person should be called on years after to prove negatively that he never gave his consent. An hon. Member opposite has indeed said that on this matter we may trust to the common sense of the Judges. But it would hardly be creditable to us as legislators to rely on the Judges to give an interpretation to phrases we may have carelessly adopted in this House. It will be a serious thing for the country if we are to drive honourable and high-class men off the different Boards of Directors. I am afraid this Bill will have exactly the opposite effect intended by its promoters and supporters. If it should turn out that the better class of Directors refuse to join new Boards the consequences may be serious to us as a commercial nation. The formation of companies for the development of the resources of foreign countries may then pass from us to Berlin and Paris; and trade or the supply of railway plant or machinery for new undertakings will to a large extent follow the domicile of the new companies. I happen to be Chairman of a railway in South America. I am nearly the largest shareholder in it. It is a prosperous undertaking, and I know that we spent an enormous amount of money for railway material and plant in this country. Again, I have in my mind a company connected with the Argentine Republic. That company is domiciled in Paris, and I know that all its orders for rails and plant are placed in Prance. It is only natural, but it affords an argument for making this country the domicile of new companies. I do not apprehend that there will be an immediate exodus from the Boards of existing companies of the Directors who now sit upon them, but there may be such an exodus in consequence of the interpretation given to the Act, and I am afraid that men of character will be shy of joining Boards hereafter. Generally Directors are not guinea pigs, but honest and substantial men. This Bill will not put down fraud in the establishment or in the direction of existing companies or of new companies. Since attention, has been called to the measure, the newspapers have shown how a clever man can run a coach 591 and six through its provisions in half a dozen ways. The Bill will play into the hands of schemers at the expense of honourable and respectable men on the Boards of companies, and I am afraid that if it passes into law without serious alteration many of those who invest their money in companies will rue it.
§ *(3.55.) MR. JENNINGS (Stockport)
I should like briefly to state the reasons which will induce me to vote for the Third Reading of this Bill. In the first place, I support it because I believe it will have a tendency to check the reckless speculation that goes on at the present time. The excessive and inordinate multiplication of Joint Stock Companies is a real injury to trade, and renders very difficult the legitimate enterprise of private firms. The Member for Oldham has said that in his own constituency the principle of limited liability is exceedingly successful. I should not like to contest any statement made by the hon. Member about his constituency, but I have read in journals of good, information and authority that the percentage of profit among the Oldham Mills is exceedingly small—not much exceeding 3 per cent.—and that even this will not often bear close analysis and examination. Therefore, I contend that the excessive multiplication of Limited Liability Companies does harm to genuine trade, and if it is carried on as at present it will eventually sap the foundations of the old commercial industries of this country. Another reason for supporting the Bill is, that it will have a tendency, to some extent at any rate, to put a restraint upon Members of Parliament becoming Directors of public companies. I see no reasonable objection to Members of Parliament becoming Directors of companies if they stand in the position of the hon. Member who has just spoken, who says he is one of the largest shareholders in the company of which he is Chairman; but a Member of Parliament who is a Director of 10, 12, or 14 companies is not in that position, and is not able to devote such a degree of personal attention to the companies as will make him a useful and responsible Director. In these cases their names are used as a lure to induce the ignorant portion of the public to enter into speculations which often turn out disastrously. How can a man pay the requi- 592 site attention to his duties, not only as a Member of Parliament, but as a Director of 10, 12, or 14 companies? It is a sheer impossibility, and it threatens to be a considerable reproach to the House of Commons that some of its Members should thus enter wholesale into the Directorship business. Moreover, at the time of private business Members are frequently called on to decide questions materially affecting railway, mining, and other companies, and how is a man with a dozen fees in his pocket as Director in a position to consider these matters in the interest of the whole community? His opinion will naturally be influenced by considerations affecting the companies to which he belongs. That is a form of bribery which has been growing up in modern years. I suppose unless a man has capital he is not often asked to become a Director. I was never asked to become a Director until I was elected a Member of this House, but since I have been a Member I have often been asked to assume that position, not because of any qualification I possess, but because of my vote here. I do not see why a Member of Parliament should not be a Director of one, two, or three companies; but when it comes to 12 or 16, surely it passes the bounds of reason. Therefore, I confess that I look with gratification upon a Bill which I think must have a tendency to stop people from giving their names as Directors, in order that others may be enticed into speculations which after a time prove to be rotten. I must say I think the practice of modern years has been to assume that it is not wise on the part of a Member of the Ministry to become a Director. It is a good thing that Members of the Government should be free from any claims of that sort upon them. Therefore, it was with regret I noticed, in a list recently published, the name of one Minister who is a Director in seven companies. I look upon that as a great mistake. I venture to hope that the Bill will be passed, and that such defects as may be found in it will be corrected in another place. The Bill will have the effect, not of deterring men of honour from becoming Directors, but of deterring men who have no capital and who have no knowledge of business from lending their names to companies about which 593 they know little, in order to allure people who know less.
§ *(3.25.) MR. G. OSBORNE MORGAN
Sir, the hon. Member (Mr. Maclean) gave us a long list of companies which had improved their position by something like 50 per cent., but he did not mention the hundreds and thousands which have come to utter ruin, and in which the shareholders have lost every farthing. I am not a man of sentiment nor a practising lawyer, such as has been described, but I have seen quite enough of these things to know that it is absolutely necessary that the law on this matter should be more stringent. I can assure my hon. Friend behind me that no honest and competent Director such as he is has anything whatsoever to fear from this Bill. In an able and ingenious speech he endeavoured to show that the Bill would bear hardly on honest men. But I think that I can show that his fear as regards one matter is absolutely unfounded. He supposes the ease of a man having his name published as a Director without his knowledge, and that years afterwards he may be made liable. If he had looked at the Bill he would have seen that the Bill provides that if he can prove he never consented to become a Director, and that he never acted, that would make an end of his whole liability. There are three classes of directors. First of all the fraudulent—men guilty, if not of fraud, of such gross negligence as to be equivalent to fraud. As regards such men, I do not think this Bill is wanted. The law is quite strong enough to reach them, not only civilly, but criminally. Then, again, there are men who take Directorships who go in to undertakings, because they are perfectly competent to act, and who take a large share in them. Such men have nothing to fear from this Bill. If I know anything of the English Bench of Judges I am certain that they would strain every point to relieve men who had taken every reasonable care to ascertain the truth of the representations made to them. But there is a third class of Directors, who I do not say enter upon undertakings with fraudulent intentions, but who, finding it difficult to make both ends meet, and "their poverty not their will consenting," go into the City and sell their names and titles in order that they may make an income. This is what happened to 594 myself after I became a Member. One day I was sitting in my chambers when a gentleman, very much be-jewelled, and wearing a hat which shone as I never saw a hat shine before, was introduced. He asked me to become a Director of a Law Bank. I informed him that I might know something of law, but that I knew very little of banking, which required an apprenticeship. He answered me that did not matter, and that all he wanted was my name, for that there were other Directors who would do the work. It is needless to say that I sent him about his business. But will anyone say that, if I had consented to his proposal, and the undertaking had proved rotten, I should not have deserved all the penalties which this Bill provides. The men whom this Bill is intended to hit are the men who lend their names to companies, simply because they will look well on the prospectus, and who know nothing of the undertakings into which they enter. If the Bill does hit them I think they have no reason whatever to complain. I am anxious to see this Bill read a third time, and any slight defects which are in it can be remedied in another place. I believe the Bill is an honest attempt to deal with a crying evil, and I do hope the House will allow it to pass.
§ (3.12.) MR. ISAACSON (Tower Hamlets, Stepney)
Sir, I have listened to the arguments of hon. Members, and especially to those of the hon. Member for the Skipton Division of Yorks, all addressed to the point that this Bill will destroy the principle of limited liability, which has worked beneficially. Now, to my mind, if limited liability wanted anything to back it up, this Bill would do a great deal towards promoting what I may term the future stability of limited liability. Of late years I have been amazed at the number of rotten companies foisted on the public through people who have been graphically described as having "handles to their names which look well on a prospectus." A financial paper has been sent round to every hon. Member this morning, containing an article giving a list of bonâ fide companies, but carefully abstaining from giving a list of those companies in which people have lost their money. I find that the paper gives the total amount of money in such 595 companies at a much higher figure than is given by Mr. Giffen, who has stated £70,000,000 to be the amount. I believe that the result of this Bill will be to cause men of sterling character and of wealth to go on the Boards of companies in which they have a substantial interest, and in which the public can have confidence. I am certain that will be the result. I am not altogether in favour of the Bill. I do not think it goes far enough, and I think it certainly ought to include others than the Directors who are concerned in the promotion of bogus companies, I gladly hail the introduction of the Bill, however, as being for the benefit of all classes. My hon. Friend the Member for Oldham stated that the Limited Liability Act was Very much approved in his district. I have had a paper sent to me, from which I should like to read an extract, proving exactly the contrary. It goes so far as to say that through the introduction of so many Limited Liability Companies the trade of the locality has been impaired. In this article it says—At the end of 1889 Oldham shares stood on an average about 12½ per cent. discount taking good and bad together, this on £3,600,000 share capital is equal to £437,500. During the five years named the Lancashire Spinning Company has gone into liquidation with a loss to shareholders of over £112,000. The Abbey has done the same with a loss of over £35,000, and the Industry with a loss of over £45,000. These amounts added to the. £437,500 give a total of £529,500. This is without taking into account loss of capital caused by re-construction of concerns. In one case alone this amounted to £40,000. The total loss from this cause cannot be far short of £100,000. The depreciated value of shares only has been taken into account in these cases. Thus we have on the one hand £567,945 gains against £629,500 losses to shareholders, which means that had shares been realised at the share list prices of December last the capital would then have been working five years for nothing, and sustained a loss of itself to the amount of £61,555, and this with the best mills and machinery and also the most efficient workpeople in the world.This is taken from a reliable source, and I do not think that the argument of my hon. Friend the Member for Oldham (Mr. Maclean) is in any way supported. There is another matter on which I would say a word, namely, the section of the Limited Liability Act under which Directors can be formally sued. No doubt actions against Directors have been tried over and over again under this section, and I do not think they 596 have in every instance succeeded, but I know of several instances in which Directors have been proceeded against and have had to pay heavy penalties for their wrongdoing. This Bill, however, is a great deal more drastic than the existing law, and will enable the public to take precautions such as they have never yet been able against those who try to cheat them out of their money. I shall most cordially vote for the Third Beading of this Bill, although I should have been glad if the hon. and learned Member in charge of the measure had introduced other persons besides Directors so as to render them amenable under the provisions of the Bill. In this respect I think the Bill might with advantage undergo a certain amount of re-construction; but as that is not the case, I do not intend to vote against it, believing that, as far as it goes, it will prove a great boon to the public, for which we all owe a debt of gratitude to the hon. and learned Gentleman.
§ *(3.18.) MR. KIMBER (Wandsworth)
This is a Bill which we are told is brought forward in the interests of morality, but I confess I do not see much evidence of morality in the Bill itself. The hon. and learned Gentleman who has brought forward the measure has indeed committed in regard to it the very offence for which, when committed in regard to a company's prospectus, he would render the Directors liable. What, I ask, is the impression given to the House of this Bill by him and his supporters? The hon. Member has himself, although of course quite unintentionally, made misleading statements with regard to it. I am not going to enter into a general argument of what a misleading statement is, but I remind the House that the hon. and learned Gentleman was supported the other day by another hon. and learned Member, the Member for Long-ford (Mr. T. M. Healy), whose whole speech was directed to this point, that the Bill was a Bill to convict Directors of fraud; and he did not attempt to show that the hon. and learned Gentleman was in error, although I feel convinced that if anyone had risen to order, you, Sir, would have ruled that the hon. and learned Gentleman was not in order in making that speech. It was evident that hon. and learned Members supporting this Bill regarded it as a very 597 useful means of bringing grist to the mill of members of the Bar. ["Oh, oh!"] Hon. Members say "Oh," but I assert that it is so, and I speak with some knowledge of the subject. I say it is a measure that will bring much grist to the lawyers' mill. Well, then, what is the idea produced outside of what the Bill does? I have in my hand an extract from one of the most respectable commercial papers of the day, which has published a highly moral article on the delinquencies of Members of Parliament who join Boards of Directors. That article congratulates the hon. and learned Gentleman (Mr. Warmington) on his success in carrying through Committee of the House of Commons the Bill which he has introduced, and it goes on to say—It is a fundamental principle of the Bill that punishment shall only follow where, and in so far as, the shareholders of a company suffer loss arising from either fraud or culpable negligence.Is this true? Nothing of the kind. Fraud and culpable negligence in the representations of a prospectus are already provided for by the Common Law. This has been laid down by the highest legal authority of the land. It has been laid down by all the tribunals of the country, and sanctioned by a decision of the House of Lords, thatIn an action of deceit, fraud is proved when it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly without caring whether it be true or false. A false statement made through carelessness and without reasonable ground for believing it to be true may be evidence of fraud, but does not necessarily amount to fraud. Such a statement, if made in the honest belief that it is true, is not fraudulent, and does not render the person making it liable to an action for deceit.Under these circumstances the Director is exempt under the existing law. But this Bill intends to carry the law of personal liability of Directors a great deal further, and to turn mere inadvertence into crime? But, if Directors, why not others also? I would ask if you are going to make a Director, why not also a barrister, liable for an honest misrepresentation such as he may make in the conduct of his client's case, simply because he has received for work done a few paltry fees? If that is the intention of the House the whole law of deceit 598 should be altered and made applicable to every class. Why should not brokers, bankers, and merchants, who inadvertently make mis-statements, honestly believing them to be true, be rendered liable under this law in the same way as Directors. Why is this drastic provision to be made applicable to one set of persons, while the rest of the mercantile world is left untouched. The hon. Member for Stepney (Mr. Wootton Isaacson) has referred to a list of companies, showing an enormous amount of depreciation. He asserted that £180,000,000 of money has been lost in bogus companies. Why, Sir, the loss of £180,000,000 would have produced such an effect as has never been witnessed in this country from time immemorial. It may be that £180,000,000 is the total figure of the nominal, but not the real, share capital of companies which have not been successful; but if you examine into the matter, I think it will be found that the amount of loss sustained has been considerably exaggerated, and that when these bogus companies are wound up the actual money capital lost is but a few thousands, and in some cases a few hundreds each. We all know that the "galled jade winces," and that the man or woman who is heavily hit screams out much louder than the thousands who are reaping a regular profit. I ask hon. Members: how far is it proposed to carry the principle of this Bill? The Bill is one for the abolition of the principle of caveat emptor, and will enable careless and thoughtless individuals who read prospectuses promising high percentages to put their money into concerns without thought or examination, take their profit if they can "stag" their shares, and if they do not succeed become a perpetual worry to the Directors—they mark out a good man, and say, "If I can't make him liable I will pursue him to the day of his death with litigation." We know that worries of this kind are worse than verdicts in Law Courts. This is a Bill for the manufacture of litigation. Moreover, it sweeps all into one net of condemnation, and draws no distinction between the Director, the banker, the solicitor, the barrister—who is an expert and settles the prospectus invariably—the accountant, and the promoter, although the real responsibility as between those classes of persons and the 599 promoter is vastly different. The Director does not—or he cannot legally or properly—take anything beyond the remuneration prescribed by the printed Articles of Association, or by vote of the shareholders, for his additional trouble and responsibility, including the responsibility of the prospectus. He cannot do so unless it is stated in the printed Articles of Association. That is clear; and all the Director can demand are fees for his attendance after, and not before or during, the issuing of the prospectus. But the promoter or the vendor is the founder of the company; he is the person who makes the large profit; and he is the person who ought to be made responsible for statements made in the prospectus for the purpose of launching the enterprise. I do not say that Directors should be exempted from all liability. They should be made liable for culpable negligence, and are so by the existing law. I do not care to what extent they are made liable for that, as it ought to be regarded as fraud, which in fact it is. But I do think that in a Bill giving a subscriber the right to recover, you ought to discriminate, as regards degree and proportion, the liability between the parties who have contributed to mis-statements according to their culpability. In the case of the admission of an inaccurate statement on the part of an engineer, or a reckless statement on the part of a Director, it cannot be said that that would be a grave charge, or one that ought to involve the same pecuniary liability as an intentional mis-statement on the part of a promoter We ought to draw a distinction between a Director who, though honest, has by carelessness been led into a mistake, and a Director or promoter who deliberately gets the plunder out of a company by fraud. But besides the remedy which the Common Law gives in the case of fraud and culpable negligence, other remedies are given under the Companies Acts of 1862 and 1867. The former Act gives a remedy against any Director who by misfeasance or culpable negligence, loses a company's money, and it summarily calls on him to supply the money so lost; and under the latter Act referred to by the hon. Member for Donegal, Section 38, there is a distinct penalty for fraud imposed on every Director, promoter, or officer of a company 600 issuing a prospectus from which particulars of contracts are omitted, whether the contracts are adopted by the company or not. I consider that the hon. Member in charge of the Bill has somewhat misled the House by neglecting to point out the extent to which the measure will alter the existing law. If he will point that out, I have no hesitation in saying that he will show that we shall be landed in endless confusion if we pass it, as the law will be utterly unconstruable when the Bill is read side by side with the existing law. When the Bill comes to be considered by the judicial minds of the House of Lords—assuming that it passes this House—I shall be exceedingly surprised if they do not, whilst giving the Commons credit for the best motives, declare that the measure is badly-constructed, and is one which, if placed on the Statute Book, would be constantly coming before the Judges to have legal constructions put upon it at the expense of the public.
§ *(3.41.) SIR C. RUSSELL (Hackney, S.)
I take an entirely different view of the Bill to that of the hon. Member who has just sat down, and I do not think he gives himself credit for the amount of intelligence which I know he possesses when he tells us that he does not clearly understand the provisions of the Bill. I do not propose to follow the hon. Member into the somewhat discursive matters referred to in his speech, but I wish to remind the House of what is the principle of the Bill, and then to ask whether there is anything in the application of that principle repugnant to good sense and to honest fair dealing. The principle of the Bill is that a man shall be responsible for the statement which he makes in order to induce others to act upon that statement. Is there anything repugnant to common sense in that principle? Why is not a man to be held responsible for the assurances that he is party to putting before the public in order to induce members of that public to embark their moneys in his speculative or commercial undertakings? But it may be said that a man may have committed himself to a statement which he honestly believed to be true, and which he had taken some reasonable pains to inform himself about, and that it would be very hard, in such a case, that he should be made, civilly 601 or otherwise, responsible for the mis-statement he honestly made, and which he was led into making without any culpability on his part. I agree that that would be very hard. But it is not what the Bill provides. The Bill deals with two classes of statements. It deals entirely with statements which are put forward to the public with the view of inducing members of the public to subscribe for shares, debentures, or Debenture Stock of a company, and it restricts the application of the Act, first, to persons who are Directors, or who are named as parties to be Directors; and, secondly, it includes persons who have authorised, or who are responsible for, the issue of a prospectus or notice.
§ *SIR C. RUSSELL
It is a question of fact which has to be established, like all statements of fact, by evidence. What are the safeguards? A man is challenged for having been party to putting before the public a statement which proves to be untrue. Now, that statement may be either one of two things. It may be a statement which purports to come from an expert. The Bill in that case provides that a person primâ facie putting forward a statement of an expert shall not be responsible for the untruth of that expert's statement, provided he has taken reasonable pains to inform himself as to the grounds on which it has been put forward. Is that too much to expect? Surely not. Then there is a second class of statement—a statement, coming, not from an expert, but from those who are issuing the prospectus, as to the position and working of the particular enterprise, or any other important facts bearing upon its probable success or non-success. What is the protection in that case? It is as clear as it can be; there is no liability attaching to the promoter, Director, or other person putting forward any such statement provided he has made reasonable inquiry and has reasonable ground to believe it. I maintain, therefore, that there is a sufficient mantle of protection thrown over the action of honest men, and there is a very important safeguard to the public injuriously affected by the action of culpably careless and negligent men. I was rather surprised to hear the exaggerated language used in the Debates on the Bill, and to hear it stated that the 602 effect of it would be to injure the operation of Acts which I admit to have been, on the whole, beneficial—I mean the Joint Stock Acts. The Bill, however, will teach men—many of whom are in this House—more, perhaps, than there ought to be—and many who are outside this House—who have carelessly, I will not say from any dishonest design, assumed a position which they ought never to have assumed—a position in which they have allowed themselves to be nominated, and to lend their name and reputation to enterprises of which they know little or nothing, and which turn out to be of a doubtful character.
§ *(3.48.) MR. CREMER (Shoreditch, Haggerston)
I had not the pleasure of listening to the whole of the speech of the hon. Member for Stockport (Mr. Jennings), but that portion of it which I did hear I heartily en-endorse with regard to the temptations that are held out to Members of this House to join the Boards of Directors of companies. There are few poorer men in this House than myself, and though before I had the privilege of a scat in this House I was never invited to become a Director of any company, since I have been here I have been offered a seat on the Board of a Joint Stock Company, the inducement held out to me to join being that the emoluments of a Director were £200 a year, and that the hon. Member for Kirkcaldy had already given his sanction and approval to the scheme. [Laughter.] The House will learn, if it will permit me to continue, that the hon. Member for Kirkcaldy had done nothing of the kind. It was an infamous fabrication on the part of the promoters of that scheme. I was rather too cautious to fall at once into the trap, and I waited until I saw the hon. Member for Kirkcaldy. I asked him, knowing that he was an exceedingly cautious man—and that he came from that part of the United Kingdom where men are said to be more cautious than any others—how it was that he could lend his name to such a company, and he expressed his astonishment, and said he had never heard of the company. I then saw that I had been right in exercising caution, and in not replying to the communication. Is it right that temptations of this kind should be put in the way of poor Members of this House? I have heard 603 it stated that there are Members of this House who are Directors in 16 or 17 companies. For my own part, I think that it would be best to commence by paying the Members of this House, and then to prohibit them from identifying themselves with companies of the character of that to which I have just referred, and thus to protect the British public from being gulled and humbugged into the belief that such companies are honest and bonâ fide ones. I believe that this measure is a healthy step in the right direction; and although I should like to see it made more drastic and its scope enlarged, I shall most heartily vote for the Third Reading.
§ *(3.53.) MR. DIXON-HARTLAND (Middlesex, Uxbridge)
As one of the Members of the Grand Committee to whom this Bill was referred, while I entirely sympathise with its object, I must oppose the measure, because I think it will have the opposite effect to that which is intended, and, instead of bringing honest and respectable men on to the Boards of these companies, it will have the effect of driving them away. One of the greatest safeguards for the companies is that men of good standing and means should join these Boards; but if this Bill passes, no man of character will in the future join them. In the future the greater part of the trade of this country, will come to be conducted by Joint Stock Companies, and therefore Parliament ought to adopt the course of strengthening the Boards of such companies instead of passing measures of this kind, which will tend to drive away from them men of good position and of known honesty. The hon. Member for Stepney says that £180,000,000 has been lost in these Joint Stock Companies, but Professor Leone Levi has put the amount at only £55,000,000.
§ MR. ISAACSON
Professor Leone Levi based his calculations on a much shorter period than that I have taken.
§ *MR. DIXON-HARTLAND
In any case, the hon. Member must have taken it for granted that the whole capital of the companies which have failed has been paid up, and also taken into account companies which, although they may not be paying dividends just now, are gradually improving their position, and will probably eventually become prosperous concerns. Companies which at first have to struggle, but eventually 604 become successful, cannot be called bogus companies. If the Bill is passed it will introduce an entirely new principle into the law, as the burden of proof will be transferred from the plaintiff to the defendant. At present when a case is tried the plaintiff has to prove that he has been injured by some mis-statement on the part of a Director, but under the Bill, if there is a misstatement, the Director has to prove his innocence, which will be a condition of things which will prevent respectable people from becoming Directors. In England, the presumption of the law has always been that a man is innocent until proved to be guilty, and that presumption should hold in the case of Directors of companies. Do hon. Members who support this Bill believe that it is in the power of the House of Commons to protect, by legislation, those people who are grasping at a high interest? The measure will be inoperative as far as rogues and dishonest men are concerned, and it will only deter honest and respectable men from joining these Boards.
§ (4.1.) MR. FLYNN (Cork, N.)
All the arguments against this Bill seem to assume that it is directed against the principle of Limited Liability Companies. I take it, however, that the Bill is directed, not against that principle, but against scoundrels, and abuses which have become notoriously frequent of late. The hon. Member for Haggerston has given the House his experience in this case, and I dare say that the majority of Members of this House have had similar temptations held out to them by companies not formed on an honest or bonâ fide basis. The hon. Member who has just sat down says the Bill will operate to the advantage of people who are on the look out for interest, but surely that is what the House is constantly doing. The Bill will diminish the temptations placed in the way of ignorant and inexperienced people, who are deluded by artfully drawn prospectuses, and for that I maintain that the hon. Member who is in charge of the measure is entitled to the thanks of the entire community. As to the statement of the hon. Member for Oldham, that the House was left in darkness as to the meaning of the Bill owing to the fact that the decision on the Second Reading was taken late at night, I would remind 605 the House that by reason of the way in which Private Bills have now to be dealt with private Members are obliged to get them through in the best way they can—openly if possible, but if not by stratagem. I regret that the measure is not of wider scope. We have all had experience of the large number of companies which are annually floated, principally in London, and those who know anything of them see that they are absolutely nothing but traps for ensnaring the money of the public. In my opinion this measure has been amply discussed, and I shall vote in its favour.
§ (4.7.) SIR G. HUNTER (Hackney, Central)
I intend to oppose the Bill, because I believe it to he a monstrous one, for the reason that after it becomes law no man of standing or of substance will dare to become a Director, while the provisions of the measure will not tend to prevent fraud in any way. Hon. Members of this House are asked to join companies which no honest man would care to associate his name with; but I can inform the hon. Member for Haggerston that it is easier to get a seat in this House than to get a seat on a good Board of Directors of a sound company.
§ *(4.9.) MR. C. GRAHAM (Lanark, N.W.)
I intend to support this Bill, on the ground that it will make the promotion of these Joint Stock Companies more difficult than it is at present, and so prevent the burden of the dividend-paying working man from being increased in the future. I will not go into the personal aspect of the case—as to whether Members of this House join Boards of Directors rashly. I do not know whether that is the case; but if it is, I do not wish to be oppressed here by the grunting of innumerable swine, even although they are of Guinea. In the House of Commons one would rather expect to sit amongst choice company; and as every Joint Stock Company, no matter how honest or dishonest in its inception, is in the nature of gambling, and as in the House of Commons we might at least sit "unelbowed by a gamester, pimp, or player," I shall support the Bill.
§ (4.10.) The House divided:—Ayes 224; Noes 50.—(Div. List, No. 173.)
§ Bill read the third time, and passed.