Clause 13.—(DISCLAIMER OF AGREEMENTS AND LEASES.) (Hansard, 26 July 1949)

§ The Solicitor-General for Scotland (Mr. Douglas Johnston)
I beg to move, "That this House doth disagree with the Lords in the said Amendment."
There is, I think, general agreement that what I shall call improper agreements which have been entered into by companies in anticipation of the passing of the Bill should not continue to bind those companies after the vesting day. The difference between this House and the other place is the test by which the impropriety of the agreements shall be ascertained. I think the difference can be most easily explained by contrasting the Clause as it left this House with the Clause as it is in its amended form.
The Clause as originally drafted provided that agreements which are either 2414 not reasonably necessary for the purposes of the company, or are made with an unreasonable lack of prudence, may be disclaimed by the company on the instructions of the Corporation. On that being done, and if the parties to the agreement disagree with the disclaimer, the matter then goes to arbitration. Before the arbitration tribunal the Corporation are required to prove either that the agreement was not reasonably necessary for the purposes of the company or that it was imprudent. But that does not end the matter, for the proviso provides a ground of defence for the parties to the contract. The ground of the defence provided by the proviso is that the contract shall not be disclaimed if it is proved that the making of the agreement was in the ordinary course of business and that it was not made in anticipation of the coming into operation of this Bill.
The Bill as it has come back to the House has had these tests deleted from it: the amended Bill provides that the test shall be whether or not the agreement was a proper transaction made in the ordinary course of business. The effect is that, instead of the Corporation having to prove either that the agreement was unnecessary or that it was imprudent, the test is whether it was a proper agreement made in the ordinary course of business. That means, in effect, that one test of the propriety of the agreement—that is whether it was made in the ordinary course of business or not—is substituted for two tests, whether it was necessary or imprudent and was made in the ordinary course of business and was in no way connected with the Bill. The effect of the Lords Amendment is that it would allow an agreement to be terminated by the Corporation if the agreement were both necessary and prudent, but was not entered into in the ordinary course of business. In effect, it gives a wider latitude to the Corporation to terminate agreements than was provided originally by the Clause as it left this House. For that reason the Government cannot accept the Lords Amendment.

§ Mr. Osbert Peake (Leeds, North)
At this late hour, and after the late Sitting we had last night, I do not wish to involve the House in a very legalistic argument, but I would repeat that we must all dislike very much the retroactive 2415 provisions of the Bill, and we most particularly dislike penalty Clauses and disclaimer Clauses which operate back to a date more than a year prior to the introduction of the Bill.
What the Clause provides is that agreements or leases which, in the opinion of the Corporation, were not reasonably necessary for the purposes of the activities of the company, or agreements or leases entered into with an unreasonable lack of prudence on the part of the company, can be voided in certain conditions. What the Amendment introduced in another place proposes to do is to leave out the words which refer to the agreement not being reasonably necessary or not being entered into with reasonable prudence, and to insert in place thereof the words, A proper transaction made in the ordinary course of business, regard being had to the circumstances of the time. It seems to me that the words in the Clause as the Bill stood when it went to another place are extremely difficult to construe. It is going to be extremely difficult for any tribunal to say, two or three years after the event, whether a particular contract was entered into with an unreasonable lack of prudence.
Let me give an example of what I have in mind. On 26th May, 1946, the then Minister of Supply gave an undertaking that if and when the steel industry was nationalised, proper allowance would be made in the terms of compensation for all money embarked after that date on capital expenditure. That undertaking was endorsed the following day by the Chancellor of the Exchequer. Thereafter, the boards of directors of steel companies considered their plans for the future and, as they sat round the table, no doubt they said to themselves, "We shall be justified in placing this vast contract for the extension and expansion of our business, although it will not begin to bring any return to us before five years, on the strength of this undertaking."
The question may arise today whether the directors, in entering into this contract, were acting with an unreasonable lack of prudence. Some of the directors may have taken an unduly optimistic view of this Government's capacity to fulfil its pledges, and they may have launched ahead into this vast expenditure; 2416 but other directors may have said, "Oh, no; hold back. This pledge is only given by the Minister of Supply and endorsed by the Chancellor of the Exchequer. No reasonable man would proceed upon undertakings of that character and embark vast sums of the shareholders' money upon an enterprise which can bear no fruit for five years to come." It seems to me that it will be extremely difficult to cast one's mind back two to three years and for any tribunal to decide what was or would have been a reasonable or an unreasonable lack of prudence two and a half or three years ago.
That is the position under the Clause. What another place propose to substitute is the provision that the persons who entered into the contracts should be able to show they were proper transactions made in the ordinary course of business. In the course of making this Amendment, it seems to me that another place did not attach quite sufficient weight to the proviso to subsection (2) of the Clause as it stands in the Bill, because the proviso does, in fact, provide that even after the Corporation have decided that a contract has been entered into unnecessarily or with unreasonable lack of prudence, and even after the tribunal concerned have come to the same conclusion as the Corporation, if the arbitration tribunal are satisfied that the making or variation of the agreement was a proper transaction made in the ordinary course of business and was in no way connected with any provision made by this Act, the tribunal shall revoke the notice and the penalty shall not be enforced.
It would therefore seem to me, reading this Amendment in conjunction with the Clause, that the words which were sought to be introduced in another place are already provided in a different form in the Clause as it now stands, and for these reasons we would not propose to divide the House on this Amendment.

§ Mr. Selwyn Lloyd (Wirral)
This is an extraordinary Clause for two reasons. The first is that it was discussed during the Committee and Report stages. As I spoke for 20 minutes on each occasion, I want to say a word or two of affectionate farewell. The second reason is that it contains these ridiculous phrases. Although perhaps my right hon. 2417 Friend is quite right in regard to their Lordships' Amendment, nevertheless the Clause as it stands is, in my submission, still quite ridiculous because it contains these two phrases about things being "reasonably necessary." When is something that is necessary unreasonable? That is the first proposition. The second phrase it uses is about an "unreasonable lack of prudence." When is a "lack of prudence" reasonable? Recently the Lord Chancellor said, in relation to another Clause in this Bill, that it was an amazing Clause and he hoped no court of law would be burdened with the task of trying to interpret it. Very much the same consideration applies to Clause 13 as it enters the Bill in its final phase.