§ Section 43 (civil liability for mis-statements in prospectus) of the Companies Act 1948, shall not apply to any advertisement which is to qualify for exemption under subsection (3) of section 2 as it applies to a prospectus.—[Mr. Mitchison.]
§ Brought up, and read the First time.
§ 4.0 p.m.
§ Mr. G. R. Mitchison (Kettering)I beg to move, That the Clause be read a Second time.
The object of the Bill is said to be to protect depositors. For that purpose there is a general prohibition on advertising for money on deposit, and there are exceptions to that general prohibition. That is the form of the Bill. The most important of the exceptions, perhaps, is that, in certain circumstances, advertisements approved by the Board of Trade, advertisements which comply with the regulations of the Board of Trade, will be exempt from the general prohibition. Other exemptions relate to classes of advertisement and classes of people. I think that there is no doubt that that particular form of exemption is the most important one in practice. The general prohibition is contained in Clause 2 (1), and in subsection (3) we find the exemption to which I have referred.
The advertisements in these circumstances are important not only as regards their form, but also their accuracy. The Bill contains provisions against fraudulent inducements or semi-fraudulent inducements, if I may so put it, contained in advertisements. Those appear in Clause 1 of the Bill, and there is a consequential adaptation later in the Bill as regards a similar prohibition under the Prevention of Fraud (Investments) Act, 1958. Those are criminal provisions relating to cases where there is fraud or something as near fraud as may be. The new Clause refers to something different, to civil liability for mis-statements in advertisements.
1332 For a long time, certainly since the Companies Act, 1948, the position has been this. When a prospectus is issued to invite subscriptions to shares, those who issue it—that phrase covers a good many people—are taken, if I may so put it, to warrant the truth of what is in the prospectus unless and until they can show that it was issued without their knowledge and consent. That, broadly, is the general effect of Section 43 of the Companies Act, 1948.
Like so many other provisions in the Companies Act, this has been found necessary over the course of years. One Companies Act after another has been used to tighten the precautions taken not only against fraud but, as in this case, against carelessness and against innocent misrepresentation. I think that we may take it by now that, wherever something occurs in the Companies Act, it has been found by long experience that it, or that sort of thing, is necessary for the protection of those who subscribe for shares.
The Bill is designed to give similar protection to those who do not subscribe for shares, but who are invited to put up money, and who do put it up, on loan to companies for the purpose of, on their side, getting interest and, on the other side, it being used by the companies for the purposes of their business. We were told on Second Reading that, in practice, the businesses are almost entirely in either hire purchase or dealings in land.
I suggest to the House, with some conviction—the more I have heard about the Bill the more certain have I felt that we are right about this sort of suggestion—that what is required in the case of invitations to take up shares is, in modern conditions, required also in the case of invitations to deposit money with a company. These invitations are of tolerably recent origin, at least on the present scale. No doubt, there have been some forms of invitation to lend money going on since time immemorial, but what we have now are companies which make a business of borrowing money on deposit from the public and using it for the two purposes I have mentioned which, though not new, have certainly developed enormously in recent years.
It was because of the development of the business of hire purchase and of land dealings and the consequent development 1333 of these companies and the giving of deposits that the Bill was introduced. The immediate occasion—I imagine that this is not disputed—was some notorious frauds some three or four years ago now—I forget exactly when—and, of course, there had in earlier times been similar fraudulent invitations in connection with company shares. What has been done in the one case falls now to be done, I suggest, in the other.
One must not assume that the Section of the Companies Act and the new Clause which we seek to introduce in this context contain very sweeping provisions. They do not. They recognise the difficulty of bringing home misstatements in the prospectus of a company or, in this case, an advertisement for deposits to the people responsible for them. The main effect of Section 43 of the Companies Act and of the new Clause is to shift the burden of proof, that is to say, to make the director or other person responsible prove that a misstatement in the prospectus or advertisement is, if I may put it broadly, not his fault. It is not a matter of bringing it home to him; once the misstatement is found to exist, he has to show that it is not his fault. I think that it will be seen that that is really the effect of Section 43.
This provision applies to a fairly wide circle of people. We are dealing here entirely with companies. The advertisements will be issued by companies. There are other provisions which may affect individuals, partnerships, and so on. At the moment, we are concerned simply with companies. Accordingly, if the new Clause were to be applied and there were a misstatement in an advertisement, every director of the company at the time of the issue of it would be liable unless, as I shall indicate in a moment, he could absolve himself, and so would people who had authorised themselves to be named as directors in the advertisement, the promoters of the company and persons who had authorised the issue of the advertisement. I am simply referring to the broad group of people who become liable in respect of a company prospectus.
Then later comes the possibility of a defence—in other words, the other side of the picture—and no person is to be liable if he proves, among other things, 1334 that he had reasonable ground to believe, and did up to the time of the allotment of the shares believe, that the statement was true. Therefore, although it affects the onus of proof, it does not really put much additional liability, if any, on the group of persons affected.
This Section was put in the Companies Act because of the difficulties that shareholders, or prospective shareholders, found in bringing these misstatements home to directors. The person who is putting up money on deposit to one of these companies is certainly in no better position than the person who puts up money on a subscription for shares. In at least two respects he is considerably worse off. He is likely, on the whole, or, at any rate, in some cases, to be a person who is putting up a quite small sum of money in a definite form and, perhaps, for a short period.
One does not get "stags" on deposits. One does not get gentlemen who put up enormous sums of money to secure control of a company. None of these questions arises. These are cases, on the whole, of people putting up often comparatively small sums for quite a short time simply for the purpose of earning interest on it. Therefore, from that point of view, they are less likely to know what is the position in the company, and in many cases they will receive very scant information about the position of the company.
Attempts were made in Committee—and I need not trouble the House with the details of them—to get the Government to stipulate for the inclusion of a number of things in these advertisements. Those attempts were, by and large, turned down. All that was said was that much would be covered by the regulations. But, when we were told what would be in the regulations, it appeared to me, and I think to other hon. Members, that the amount of information to be provided would be extraordinarily small. The line which the Government have taken is that, although they recognise the importance of the advertisements, they believe that the most important feature in the Bill is the mass of information which is to be furnished to the Board of Trade. The furnishing of information to the Board of Trade does not protect a depositor. It may help the Board of Trade, but it does not help the depositor, and he will have very little on which to rely.
1335 The possibility was distinctly foreshadowed that some of these advertisements might consist of a line or two. If that is so, it is even more necessary that this scanty information should at least be accurate. Is there any reason why it should not be accurate? Do the Government object to inaccurate information when so little of it will be forthcoming for the benefit of the depositor? I take it that the Government's answer is that they certainly object to inaccurate information. Therefore, what is the objection to putting the civil liability for it on the same shoulders as it would be put in the case of a share issue by virtue of Section 43 of the Companies Act?
What conceivable objection can there be to that? The onus of proof will be even more difficult to discharge in a case of this sort than it would be under the Companies Act. All that we ask is that the liability should, prima facie, rest where it should rest—on those who are responsible for the circulation of an inaccurate statement.
I suggest that that which experience has shown to be necessary in the Companies Act relating to a prospectus is obviously even more necessary in this case and that only a Government who foolishly seek to protect those who borrow money at all costs and not the depositors who lend it could possibly refuse to accept an Amendment of this kind. I therefore propose it with confidence.
§ 4.15 p.m.
§ The Minister of State, Board of Trade (Mr. Alan Green)I said in Committee that I would consider very seriously the idea that we should apply Section 43 of the Companies Act, 1948, to the Bill. I have considered the matter very carefully, as I promised the hon. and learned Member for Kettering (Mr. Mitchison) and the Committee I would.
I agree with the hon. and learned Member on certain points. Deposit taking—and I do not suppose my description of it will be any more final, complete and accurate than the one he gave me—although it is not new in itself, can, I think, be called a new development in the financing of certain types of companies. It is done on a regular basis, and in that respect I agree with the hon. and learned Gentleman. I also agree that it is essentially a new develop- 1336 ment, and it does not necessarily follow that what is applicable in terms of civil liability to companies under the Companies Act in respect of shares or other certificates of ownership which are issued is applicable to this new development in deposit taking.
If we were to accept the Amendment, we might be in some difficulty. It is by no means certain that it would be of great assistance to a depositor. A deposit does not alter in value, and the nature of the lass or damage can only be either that it is not repaid when repayment becomes due or that interest is not paid on the deposit. This is the loss or damage which the depositor can suffer. The loss, therefore, will arise only when there is a failure to pay.
This is unlikely to happen unless and until the company has reached a state of insolvency. It will by then probably be difficult, and I should think very difficult, to show that the loss, if there is a loss, sustained by the depositor resulted from the untrue statement made in an advertisement some considerable time before and not from some other intervening circumstance. It would be difficult to establish this if we sought to apply Section 43 as it is worded to the Bill.
A shareholder is in a different position, since it is possible to ascertain the value of his shares when the prospectus was issued on the basis that the statement was true and again on the basis that the statement was untrue—the difference being the loss which he had suffered. It is therefore possible to establish a loss and rather more possible to provide a remedy.
Section 13 of the Prevention of Fraud (Investments) Act, 1958, on which Clause 1 is based, provides no specific civil remedy for a person who suffers damage as a result of an untrue statement in a circular inviting him to acquire securities, although the common law remedy of an action for fraud would be available to such a person as it would be to a depositor in similar circumstances. It is true that the Jenkins Committee recommended that there should be a remedy against those responsible unless they can prove that they had reasonable cause to believe, and did in fact believe, that the statement complained of was true. It further recommended that this course of action should apply to reckless 1337 promises and forecasts and, in so recommending, goes, I believe, beyond Section 43 as it is worded.
It is difficult satisfactorily to apply Section 43 without modification to either advertisements for deposits or circulars inviting the acquisition of securities, although the Amendment attempts to do just this. These safeguards for those who put out advertisements and circulars are essential, as I am sure the hon. and learned Member agrees. Those in Section 43 are designed for the special circumstances in which a prospectus is issued, and here we have no prospectus.
In view of the difficulty of showing that the failure to repay a deposit is due to an untrue statement in an advertisement, and even more the difficulty of showing that it is due to an untrue promise or forecast, I recommend to the House that we should wait until the Jenkins Recommendation is considered and then, if it is adopted, decide whether, with some further modification, this should be applicable to the Bill. I believe that if we seek to apply Section 43 to the Bill we shall make extremely difficult law. We shall be making law which will not add to the protection of the depositor.
I therefore ask the House to reject the new Clause, understanding, as I do, the reasons why it has been moved and not being wholly unsympathetic towards the purposes behind the new Clause but believing, as I do, that it will not make good law in those circumstances. If we could wait for Jenkins we might then perhaps have a modified version of Section 43 which would be much more applicable to the new development of financing companies by deposit taking.
§ Mr. Eric Fletcher (Islington, East)I very much hope that we shall not wait for the Jenkins Report. I hope that the House wilt accept the new Clause, which has been moved so persuasively by my hon. and learned Friend the Member for Kettering (Mr. Mitchison).
It seems to me that the Minister is entirely off the point. He gave three reasons for refusing the new Clause. First, he said that the position of the depositor was not necessarily the same as that of a shareholder and that, therefore, Section 43 of the Companies Act was not applicable. Then—which seems to be a contradictory argument—he said that even if we passed the new Clause it would not give the depositor much protection, 1338 an argument which I will dispute in a moment. Thirdly, he said that there were some technical objections to the new Clause. May we consider each of these three objections to what seems to me to be not only a desirable, but an essential new Clause?
Unlike some of my hon. Friends who are present, I did not have the advantage of serving on Standing Committee A which considered the Bill in detail, but I need hardly say that I am entirely in favour of the objectives and principles of the Bill and am anxious to strengthen it in every possible respect. The new Clause is an attempt to strengthen it in the interests of depositors who may be misled by untrue statements in an advertisement. As my hon. and learned Friend pointed out, the framework of the Bill is that Clause 1 deals with
Fraudulent inducement to invest on depositand Clause 2 says thatno person shall, after the commencement of this Act, issue any advertisement inviting the public to deposit money with him.Apart from an exception, if anybody contravenes the basic provision of Clause 2 (1), he becomes liable in respect of a criminal offence for which he can be punished in accordance with Clause 2 (5). But there is an exception. Clause 2 (3) removes from the ambit of Clause 2 any advertisement which complies with regulations of the Board of Trade. If, as I understand it, an advertisement complies with regulations of the Board of Trade, such advertisement, however untrue, does not carry with it any liability to a criminal offence.We are in the difficulty that we do not know what regulations will be made by the Board of Trade. They may be stringent or they may be less than stringent. But whatever regulations are made hereafter under Clause 2 (3), there will nevertheless remain the likelihood that some untrue statements will be made in an advertisement which complies with the regulations of the Board of Trade.
We are concerned with the persons who make such an untrue statement, whether unknowingly or deliberately, whether carelessly or inadvertently. We are concerned with the position of someone who makes an untrue statement in an advertisement asking for deposits, notwithstanding that the advertisement complies with the regulations of the Board of Trade.
1339 In such circumstances there will be no criminal offence and the only remedy which such a depositor will have is a civil remedy. The objective of the new Clause is to ensure that in those circumstances the depositor so injured will have the same civil remedies as are given to a shareholder who applies for shares and finds, having done so, that he did it in reliance on certain misstatements in a prospectus.
My hon. and learned Friend did not quote the whole of Section 43 of the Companies Act, 1948, which is a very long section. As he indicated, that Section has been evolved over a series of Companies Acts from the time of Derry and Peek and has been strengthened from time to time, as events have proved necessary, in order to give this civil protection to innocent shareholders, or in this case innocent depositors, who suffer by reason of untruthful and inaccurate statements or misstatements in a public document.
I should have thought that it was a matter of elementary justice, regardless of what the Jenkins Committee may or may not hereafter report, that if anybody is induced to part with his money, either as a shareholder or as a depositor, because of some misstatement of fact in a public document, he should have the remedy of getting his money back or perhaps of getting damages, but at any rate should have a civil remedy; because, ex hypothesi, on the basis on which we are discussing the matter, he has parted with his money and has been induced to do so because of a misstatement of fact.
As the House knows, the circumstances in which civil liability at present is imposed upon directors, promoters and others for such misstatements have been very carefully evolved and circumscribed. There are plenty of safeguards in Section 43, for example, for the director who makes an untrue statement relying upon the statement of an expert. In such circumstances he is not civilly liable if he proves that
he had reasonable ground to believe and did up to the time of the issue of the prospectus believe, that the person making the statement was competent to make it …Directors and promoters often have to rely on expert advice.In such circumstances, if they act honestly and reasonably and if they can discharge the onus of proving that they 1340 have done so, they are exonerated from the civil liability which would attach to them if the subscriber showed that he had been misled by some deliberate misstatement or some misstatement of fact recklessly made. That is the basis on which Section 43 operates, and it has proved to have been of very great benefit to a number of shareholders and intending shareholders.
4.30 p.m.
Surely the same principles must apply to a depositor? It does not seem to me that it is a good argument for the Minister to say, "After all, the risk to a depositor may not be as great as that to a shareholder. He may stand less risk of losing his money." The fact remains that he stands some risk of losing his money. He is damnified by a misstatement, made either deliberately or recklessly, and he should therefore have a civil remedy.
I do not accept the Minister's second argument that this remedy is not much use to a depositor. That is a very weak argument, because Section 43 of the Companies Act has had a deterrent effect as well as a real effect in respect of people who have offended against it. The mere existence of the Section has been a real deterrent against people who otherwise might have been tempted to make fraudulent, wilful or careless misstatements of fact.
The mere existence of the Section has been a protection. It has no doubt operated to deter a number of people from making such misstatements who otherwise might have been induced to do so. Therefore, it is no use the Minister saying that this is not much real use. In so far as it will deter statements of this kind being made in future, and prevent them being made, that will save depositors from being induced to part with their money because of misstatements of fact. Therefore, it will have great value.
Thirdly, the Minister seemed to rely upon some purely technical objection, namely, that there are some words in Section 43 which are more applicable to a subscriber to a prospectus than to a depositor. I do not think that this argument holds water. The very skilfully drafted new Clause moved by my hon. and learned Friend says this:
Section 43 … shall apply to any advertisement … as it applies to a prospectusThat obviously means mutatis mutandis. If there are any words in Section 43 1341 which specifically apply to a prospectus, as they do, if the new Clause were written into the Bill they would apply mutatis mutandis to depositors.For these reasons, I hope that the House will reject the Minister's totally inadequate and unsatisfactory reply and accept the new Clause.
§ Mr. Harold Lever (Manchester, Cheetham)I heartily endorse the arguments which have just been advanced by my hon. Friend the Member for Islington, East (Mr. Fletcher), and, in particular, his exposure of the Minister's argument that the new Clause would be of little value. My hon. Friend pointed out that Section 43 of the Companies Act has had as its main value a deterrent effect, in that it has made people have a care about issuing false statements or reckless statements. I heartily endorse that argument.
I am strongly in favour of the Clause in some suitable form being written into the Bill. I am not prepared to accept one point in my hon. Friend's argument, when he said that the Clause as now drafted is perfect. I share the modesty of my hon. and learned Friend the Member for Kettering (Mr. Mitchison), because in Committee he was for ever reminding us of the extreme skill in professional incomprehensibility of the Parliamentary draftsman. It is obvious that to give effect to the desires of my hon. and learned Friend we shall need that gentleman if we are to get our purposes effectively enforced.
I did not hear the argument that my hon. and learned Friend made for his brain child. I only heard the argument against it by the Minister. Since the argument against the Clause made me wholly in favour of the Clause, I shudder to think with what enthusiasm and at what length I might have supported it if I had heard my hon. and learned Friend's argument in favour of it.
The Minister's arguments can be taken apart one by one and proved to have no weight whatever. The Minister said, "There are common law remedies. Let the man who is defrauded use the common law remedies". While I, as a lawyer, am touched by the Minister's affection and devotion for our lady of the common law, I must say that we in the legal profession have not ignored the necessity for statutory improvements upon it. The same sort 1342 of argument might have been addressed to the House on the Companies Act. There is no more reason why we should not have told the unfortunate defrauded shareholder, defrauded by reason of a misstatement in a prospectus, to go to the common law for his remedy and not to the Statute.
The fact that we have in the Companies Act this rule about the prospectus must, in the light of the Minister's reply, be attributed to the fact that there was nothing on the stocks at the time in another field. The Minister said, "Do not bother about it now. It is a splendid thing which you have in mind to do to give this additional protection. I cannot advance a single argument in logic against it, but there was a Jenkins Committee on company law reform."
However, this incompetent Government have not shown the slightest sign of implementing this vital piece of company legislation. They have found time to provide us with betting shops and casinos. They have found time to give a unique distinction to the City of London over all capital cities in the world, that it is amply populated with gambling houses and betting shops, but they do not have time to remedy the Companies Act.
We may say that we may attribute our good fortune in having this Section in the Companies Act to the fact that at the time it was enacted the Minister, for some reason or other, was not able to say, "There is something coming along on the stocks. Do not bother about it for the moment. In a few years' time we might get round to legislating on this point in a rather more skilful way".
As a Member of the House I object to this approach to legislation. Legislation should be considered on its merits. Even if we had a more confident view, first, about the Government's longevity and prospects of having their mandate renewed at the next election than we have, and, secondly, about the usefulness of their intentions, we would still say that in 1963 we are on the Report stage of the Bill and we see no reason why, if the Minister thinks it is a good thing to have this protection, we should not have it because at some future hypothetical time in some future hypothetical words we might get the same remedy applied in a wider variety of cases.
1343 That simply will not do as an argument. In a way, it is offensive to the House and to the way in which we legislate. It is as if the Minister comes patronisingly to the Dispatch Box and says to my hon. and learned Friend, "Well intentioned, but inept. It is a splendid thing you do, but you do not really appreciate the subtleties of timing and the detailed embellishments which are required". If the Minister were candid and gave us a hint as to the general state of mind of the Government on the Bill, it might be enlightening. Is the Minister really saying, "Be glad that we have given you this rushed hotchpotch of a Bill. We have not had time to go into it in any great detail. Do not add a few more botched-up, hastily concocted words to a Bill which is already besmirched by the signs of haste and lack of thought"?
I should be rather inclined to agree with him if he candidly asked the House not to add any words to the Bill, on the ground that it is disgraceful enough that so much has been done in such an ill-considered fashion that there is not time to draft adequately. If that were so, he might be entitled to great sympathy, but he cannot argue that we should not provide the remedy because we might get the remedy later.
There is little to commend the argument that there is some subtle metaphysical difference between a loss suffered as a result of a fraudulent prospectus and a loss suffered on deposit. I see the Minister fidgeting. If he wants to intervene, I shall be glad to give way to him.
§ Mr. GreenMerely on a point of accuracy: I did not say that there was a subtle metaphysical difference, to which the hon. Gentleman referred. I merely said that one was more easily measurable and traceable than the other.
§ Mr. LeverHow the Minister can allege that to be so, except on metaphysical grounds, I do not know.
The hon. Gentleman has said, in effect, that if one buys a share one can see what financial damage has been done to one's pocket merely by looking at the Financial Times the next day. Once can look at the price at which the share stands and deduct that from the amount paid and see just what the loss is. The Minister would not be quite accurate on legal 1344 grounds, although why cannot he say the same thing about the depositor? Such a person can look at exactly the same price difference and see what is the loss. In such a case the amount of default on interest is his loss.
If such a depositor cannot see that that loss is due to a mis-statement—in the prospectus regarding a share or in the advertisement regarding a deposit—he will not succeed. But why, for this reason, should the Minister deprive such a person of the chance to prove his case? The fact that the Minister's argument is based on the possibility that the person in question might not be able to prove his case is beyond me.
I would like to repeat a little story I told first in Committee, and I restate it now to a somewhat wider audience. It is the story of the Irishman who, when falling from a building, got hold of a rope, but who, for no apparent reason, let go of it and fell on his head. When a friend asked him, later, why he let go of the rope he said, "Sure, I was afraid it might break."
The Minister is virtually in the same position. He wants to let go of the rope offered by my hon. and learned Friend to the depositor because, it appears, he fears that it will break. I urge the House to reject the arguments adduced against the proposed new Clause and I hope that my hon. and learned Friend will insist that it be incorporated in the Bill or, otherwise, that he will urge my hon. Friends—and, I hope, some hon. Members opposite—to join us in pressing the Government on this matter.
§ 4.45 p.m.
§ Mr. John Diamond (Gloucester)I thank the Minister for the consideration that he has given to this matter, as he promised to do in Committee, and I regret that I have no other pleasurable remarks to address to him across this ancient Table. I agree with everything that has been said by my hon. Friends and there is really little I can say, except to underline their remarks. They are worthy of underlining, because I wish to make it clear just what is the attitude we take on the proposed new Clause.
The first thing that the Minister said was that it did not necessarily follow that if one had a Section deemed to be necessary in the Companies Act it 1345 should be deemed to be necessary in regard to depositors. I am compelled, therefore, to explain to the Government exactly why—although it seems to the Minister that it does not necessarily follow—when one pursues the argument to its logical conclusion, one sees that if it is necessary to protect a shareholder and a debenture holder it is even more necessary to protect a depositor. I would have thought that we have been over this so many times that by now the Minister would have been convinced of the necessity for the Clause. Since it seems that he is not, I will have to go over the ground once again.
We know that a shareholder is offered the help—which my hon. Friends have wisely described as a deterrent help as well as a positive one—in the form of a Section in the Companies Act which puts a personal responsibility on to individuals who make inaccurate statements. Such a person is offered that help to protect him from losing his money when he applies for shares or debentures. If he applies for debentures he is fully secured, in the normal case, and, therefore, he is in a far better position than a depositor, who makes a loan without security.
If he applies for shares he has two benefits which you above all, Mr. Speaker, would appreciate. He is offered the benefits of a voice and a vote. It is not necessary for me to explain how advantageous it is to a person to have a vote or, especially when he is sure of catching the eye of the chairman at the annual general meeting, of having a voice. He can make his opinions and views known. A depositor, on the other hand, can do none of these things and, for these reasons, he must have more protection than either the shareholder or the debenture holder.
It is for this reason that, while I agree that it does not necessarily follow, I am bound to put it to the Minister most strongly that what follows on pursuing the argument to its conclusion is that the applicant for a deposit must have greater and not less protection than the debenture holder or shareholder. That is the first reason why we cannot accept the Minister's argument that it does not necessarily follow.
1346 The Minister went on to say something about which, with the greatest deference, I submit he was completely mistaken. He said that another reason why one could not offer the same protection was that a deposit did not alter in value. He went on to say, later, that one could not establish a loss in such circumstances. To say that it does not alter in value—unless the Minister was on the very narrow point in that it does not alter in its market value because there is not necessarily a market quotation—is a complete misconception of the position. It does alter in value and that value can be rneasured and established. If the Minister doubts me he can ask his hon. Friends behind him, just as my hon. Friends are able to seek further advice.
To ascertain the value of a share other than its market value one must merely break down the balance sheet into its constituent parts to get the answer. To ascertain the value of a deposit one can break down the balance sheet and find the answer in exactly the same way. One knows the various priorities involved in doing this and one need only refer to the company's articles to find the priorities. Once broken down, the answer is forthcoming. It is a misunderstanding of the situation to say that one cannot determine the value of a deposit; and the same is true of the argument to the effect that its value does not alter. My hon. Friend the Member for Manchester, Cheetham (Mr. H. Lever) pointed this out in a slightly different way.
The next argument of the Minister—that it did not help to have the proposed new Clause—was incorrect. It helps in a most material way. It very largely prevents inaccurate statements ever being made and it helps when the help is most needed; before the error occurs. We are not seeking to have help available only when the error has occurred. That is an important aid, but a much less satisfactory one than preventing such circumstances from arising by a director, who is seeking to borrow money by way of deposits, knowing that he has to be extra careful.
Indeed, which hon. Member does not appreciate that we would have to be extra careful if we had to pay for our mistakes out of our own pockets? How many mistakes would the Government be making if Ministers had to pay out of 1347 their own pockets every time an aircraft, for example, cost more than the original estimate?
I repeat that it is clear that if people had to pay out of their own pockets they would think twice or even thrice about what they are going to say to people considering putting up their money. It is essential, therefore, that a safeguard should exist and that a director or any other person making a statement should have to think many times to ensure that the statement being made will become accurate or that it will form the basis of an action for damage or recovery of money from him personally.
It should be remembered that we are dealing solely with companies. The Minister has, by the Bill—and quite properly—ruled out individuals; the individual cannot borrow in these circumstances, or come within the scope of the Clause. It is only a company that can borrow by issuing advertisements, and only a company with limited liability. It is because only a company with limited liability can do so that one must, to protect the depositor, have some machinery by which one can get back to individual unlimited liability—a person. That is why we are pressing this new Clause as firmly as we possibly can.
The Minister then said that he could not accept the Clause as drafted—bringing in a comparison with Section 43 of the Companies Act—without modification. There are two answers to that, The first is the very obvious one that, if he does not like our way of doing it, he can do it in his way. It is not the first time that he has been able to think about this. As he has said, he has given it very careful thought. If he had given it very careful thought and had decided that something of this nature should have been brought in, he could have produced something satisfactory to the Government. He has not done so, so we have brought it in in a way that we think is strongly arguable and thoroughly acceptable.
The second answer to that point is that he possibly misunderstands the scope of the Amendment. We are not putting on the director such a burden as may be thought. The maximum that we are seeking to do is to shift, as my 1348 hon. and learned Friend the Member for Kettering (Mr. Mitchison) made absolutely clear, the onus of proof—nothing more than that. The onus of proof would have been the other way round but for this new Clause. By the new Clause it would be shifted, and a director who wanted to say that the statement was accurate or that there was some other reason why he should not be personally liable would have the responsibility of proving it. Otherwise, the onus would be the other way round.
It is not a new law—I am sure the Minister accepts this—that we are suggesting by this new Clause, but merely a process in evidence that makes it easier for the man who has lost his money to get it back. No one can say that that is a burdensome thing to put on a director in a Bill that is alleged to be for the protection of depositors. I am no lawyer, as the House well understands, but I rely on what I think every lawyer would agree I am entitled to rely on—Palmer's Company Law, which refers to compensation under Section 43, and starts off by saying:
As a result of the inadequacy of the law disclosed by Derry v. Peek statutory provisions have shifted The onus of proof.It says many other things, too, but nothing to contradict that statement.That being so, all we ask is that this onus of proof should be shifted so as to give depositors the protection that they most need; that is to say, circumstances in which they will never be called upon to put up their money and lose it through an inaccurate statement. The way to achieve that is to make the person who is thinking of making an inaccurate statement think again, and see that it is accurate before it is made. We solve all our problems in that way. We avoid actions and we even avoid, if certain of my hon. Friends will forgive my saying so, the necessity of getting legal advice and going to court. By means of a simple Clause on these lines, we stop it all at the very start.
In those circumstances, the logic of what I have said compels me, the most unaggressive person in the whole Chamber, to say that if the Minister, after this further appeal, is unable to meet our point of view, either by accepting the new Clause as it now stands or by saying that, 1349 if necessary in another place, he will bring in some modification of it that satisfies his requirements, we will be compelled to go to the extreme lengths with which the House is familiar.
§ Question put, That the Clause be read a Second time:—
§ The House divided: Ayes 183, Noes 220.
1351| Division No. 80.] | AYES | [4.54 p.m. |
| Abse, Leo | Gordon Walker, Rt. Hon. P. C. | Owen, Will |
| Ainsley, William | Gourlay, Harry | Padley, W. E. |
| Albu, Austen | Greenwood, Anthony | Paget, R. T. |
| Allaun, Frank (Salford, E.) | Griffiths, David (Rother Valley) | Pannell, Charles (Leeds, W.) |
| Allen, Scholefield (Crewe) | Griffiths, w. (Exchange) | Pargiter, G. A. |
| Awbery, Stan (Bristol Central) | Grimond, Rt. Hon. J. | Parker, John |
| Bacon, Miss Alice | Gunter, Ray | Pavitt, Laurence |
| Barnett, Guy | Hamilton, William (West Fife) | Pearson, Arthur (Pontypridd) |
| Baxter, William (Stirlingshire, W.) | Hart, Mrs. Judith | Pentland, Norman |
| Beaney, Alan | Hayman, F. H. | Price, J. T. (Westhoughton) |
| Bellenger, Rt. Hon. F, J. | Henderson, Rt. Hn. Arthur (Rwly Regis) | Probert, Arthur |
| Bence, Cyril | Herbison, Miss Margaret | Pursey, Cmdr. Harry |
| Bennett, J. (Glasgow, Bridgeton) | Hill, J. (Midlothian) | Rankin, John |
| Benson, Sir George | Hilton, A. V. | Redhead, E. C. |
| Blackburn, F. | Holman, Percy | Reid, William |
| Blyton, William | Holt, Arthur | Reynolds, G. W. |
| Boardman, H. | Houghton, Douglas | Rhodes, H. |
| Bowden, Rt. Hn. H. W. (Leica, S. W.) | Howell, Denis (Small Heath) | Roberts, Albert (Normanton) |
| Bowen, Roderic, (Cardigan) | Hoy, James H. | Roberts, Goronwy (Caernarvon) |
| Bowles, Frank | Hughes, Cledwyn (Anglesey) | Ross, William |
| Bradley, Tom | Hughes, Emrys (S. Ayrshire) | Royle, Charles (Salford, West) |
| Bray, Dr. Jeremy | Hunter, A. E. | Shinwell, Rt. Hon. E. |
| Brockway, A. Fenner | Hynd, H. (Accrington) | Short, Edward |
| Broughton, Dr. A. D. D. | Hynd, John (Attercliffe) | Silverman, Sydney (Nelson) |
| Brown, Rt. Hon. George (Belper) | Irving, Sydney (Dartford) | Slater, Mrs. Harriet (Stoke, N.) |
| Butler, Herbert (Hackney, C.) | Jay, Rt. Hon. Douglas | Slater, Joseph (Sedgefield) |
| Callaghan, James | Jeger, George | Small, William |
| Carmichael, Nell | Jones, Rt. Hn. A. Creech (Wakefield) | Smith, Ellis (Stoke, S.) |
| Chapman, Donald | Jones, Dan (Burnley) | Snow, Julian |
| Cliffe, Michael | Jones, J. Idwal (Wrexham) | Sorensen, R. W. |
| Collick, Percy | Kelley, Richard | Soskice, Rt. Hon. Sir Frank |
| Corbet, Mrs. Freda | Key, Rt. Hon. C. W. | Spriggs, Leslie |
| Craddock, George (Bradford, S.) | Lee, Frederick (Newton) | Stewart, Michael (Fulham) |
| Lee, Miss Jennie (Cannock) | Stones, William | |
| Crosland, Anthony | Lever, Harold (Cheetham) | Stross, Dr. Barnett (Stoke-on-Trent, C.) |
| Crossman, R. H. S. | Lewis, Arthur (West Ham, N.) | Swain, Thomas |
| Cullen, Mrs. Alice | Lipton, Marcus | Swingler, Stephen |
| Dalyell, Tam | Loughlin, Charles | Symonds, J. B. |
| Darling, George | Lubbock, Eric | Taylor, Bernard (Mansfield) |
| Davies, G. Elfed (Rhonnda, E.) | Mabon, Dr. J. Dickson | Thomas, George (Cardiff, W.) |
| Davies, Harold (Leek) | McCann, John | Thompson, Dr. Alan (Dunfermiine) |
| Davies, Ifor (Gower) | MacColl, James | Thornton, Ernest |
| Davies, S. O. (Merthyr) | Mclnnes, James | Thorpe, Jeremy |
| Dempsey, James | McKay, John (Wallsend) | Wade, Donald |
| Diamond, John | Mackie, John (Enfield, East) | Wainwright, Edwin |
| Dodds, Norman | McLeavy, Frank | Warbey, William |
| Donnelly, Desmond | MacPherson, Malcolm (Stirling) | Watkins, Tudor |
| Duffy, A. E. P. | Mallalieu, E. L. (Brigg) | Weitzman, David |
| Ede, Rt. Hon. C. | Mallalieu, J. P. w. (Huddersfleld, E.) | Wells, Percy (Faversham) |
| Edwards, Rt. Hon. Ness (Caerphilly) | Manuel, Archie | White, Mrs. Eirene |
| Edwards, Robert (Bilston) | Mapp, Charles | Whitlock, William |
| Evans, Albert | Marsh, Richard | Wigg, George |
| Finch, Harold | Mason, Roy | Wilkins, W. A. |
| Fitch, Alan | Mayhew, Christopher | Willey, Frederick |
| Fletcher, Eric | Mendelson, J. J. | Williams, D. J. (Neath) |
| Foot, Dingle (Ipswich) | Millan, Bruce | Willis, E. G. (Edinburgh, E.) |
| Forman, J. C. | Mitchison, G. R. | Wilson, Rt. Hon. Harold (Huyton) |
| Fraser, Thomas (Hamilton) | Moody, A. S. | Woodburn, Rt. Hon. A. |
| Galpern, Sir Myer | Moyle, Arthur | Woof, Robert |
| George, Lady MeganLloyd (Crmrthn) | Noel-Baker, Francis (Swindon) | Yates, Victor (Ladywood) |
| Ginsburg, David | Oliver, G. H. | |
| Gooch, E. G. | Oram, A. E. | TELLERS FOR THE AYES: |
| Mr. Rogers and Mr. Lawson. | ||
| NOES | ||
| Agnew, Sir Peter | Batsford, Brian | Black, Sir Cyril |
| Altken, W. T. | Baxter, Sir Beverley (Southgate) | Bossom, Hon. Clive |
| Allason, James | Bell, Ronald | Bourne-Arton, A. |
| Arbuthnot, John | Bennett, F. M. (Torquay) | Box, Donald |
| Ashton, Sir Hubert | Bidgood, John C. | Bromley-Davenport, Lt. -Col. Sir Walter |
| Atkins, Humphrey | Biffen, John | Brooman-White, B. |
| Awdry, Daniel (Chippenham) | Biggs-Davison, John | Brown, Alan (Tottenham) |
| Balniel, Lord | Bingham, R. M. | Bryan, Paul |
| Barber, Anthony | Birch, Rt. Hon. Nigel | Buck, Antony |
| Barlow, Sir John | Bishop, F. P. | Bullard, Denys |
| Burden, F. A. | Hill, J. E. B. (S. Norfolk) | Pickthorn, Sir Kenneth |
| Campbell, Gordon (Moray & Nairn) | Hirst, Geoffrey | Pilkington, Sir Richard |
| Carr, Compton (Barons Court) | Holland, Philip | Pitman, Sir James |
| Cary, Sir Robert | Hollingworth, John | Pott, Percivall |
| Channon, H. P. G. | Hopkins, Alan | Price, David (Eastleigh) |
| Chataway, Christopher | Hughes-Young, Michael | Prior, J. M. L. |
| Chichester-Clark, R. | Hulbert, Sir Norman | Profumo, Rt. Hon. John |
| Clark, Henry (Antrim, N.) | Hurd, Sir Anthony | Proudfoot, Wilfred |
| Clark, William (Nottingham, S.) | Hutchison, Michael Clark | Quennell, Miss J. M. |
| Clarke, Brig. Terence (Portsmth, W.) | Irvine, Bryant Godman (Rye) | Ramsden, James |
| Cleaver, Leonard | Jennings, J. C. | Redmayne, Rt, Hon. Martin |
| Cole, Norman | Johnson, Dr. Donald (Carlisle) | Ridley, Hon. Nicholas |
| Cooke, Robert | Johnson, Eric (Blackley) | Ridsdale, Julian |
| Cordeaux, Lt.-Col. J. K. | Johnson Smith, Geoffrey | Robinson, Rt. Hn. Sir R. (B'pool, S.) |
| Cordle, John | Jones, Arthur (Northants, S.) | Roots, William |
| Costain, A. P. | Kaberry, Sir Donald | Ropner, Col. Sir Leonard |
| Coulson, Michael | Kerans, Cdr. J. S. | Russell, Ronald |
| Craddock, Sir Beresford (Spelthorne) | Kerr, Sir Hamilton | St. Clair, M. |
| Crawley, Aidan | Kershaw, Anthony | Scott-Hopkins, James |
| Critchley, Julian | Kimball, Marcus | Sharples, Richard |
| Cunningham, Knox | Kitson, Timothy | Shaw, M. |
| Dalkeith, Earl of | Lambton, Viscount | Skeet, T. H. H. |
| d'Avigdor-Goldsmid, Sir Henry | Langford-Holt, Sir John | Smith, Dudley (Br'ntt'd & Chiswick) |
| Leavey, J. A. | Smithers, Peter | |
| de Ferranti, Basil | Leburn, Gilmour | Smyth, Rt. Hon. Brig, Sir John |
| Donaldson, Cmdr. C. E. M. | Legge-Bourke, Sir Harry | Spearman, Sir Alexander |
| Doughty, Charles | Lewis, Kenneth (Rutland) | Speir, Rupert |
| du Cann, Edward | Lilley, F. J. P. | Stevens, Geoffrey |
| Duncan, Sir James | Lindsay, Sir Martin | Steward, Harold (Stockport, S.) |
| Duthie, Sir William | Linstead, Sir Hugh | Stodart, J. A. |
| Eden, John | Litchfield, Capt. John | Storey, Sir Samuel |
| Elliot, Capt. Walter (Carshalton) | Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield) | Studholme, Sir Henry |
| Emmet, Hon. Mrs. Evelyn | Longbottom, Charles | Summers, Sir Spencer |
| Errington, Sir Eric | Lucas-Tooth, Sir Hugh | Talbot, John E. |
| Erroll, Rt. Hon. F. J. | McAdden, Sir Stephen | Taylor, Edwin (Bolton, E.) |
| Farey-Jones, F. W. | MacArthur, Ian | Taylor, Frank (M'ch'st'r, Moss Side) |
| Farr, John | Maclay, Rt, Hon. John | Thatcher, Mrs. Margaret |
| Finlay, Graeme | Macleod, Rt. Hon. Iain (Enfield, W.) | Thompson, Sir Kenneth (Walton) |
| Forrest, George | McMaster, Stanley R. | Thornton-Kemsley, sir Colin |
| Fraser, Ian (Plymouth, Sutton) | Macpherson, Rt. Hn. Niall (Dumfries) | Tiley, Arthur (Bradford, W.) |
| Galbraith, Hon. T. G. D. | Maginnis, John E. | Touche, Rt. Hon. Sir Gordon |
| Gardner, Edward | Maitland, Sir John | Turner, Colin |
| Gilmour, Ian (Norfolk, Central) | Marshall, Douglas | Turton, Rt. Hon. R. H. |
| Gilmour, Sir John (East Fife) | Marten, Neil | Tweedsmuir, Lady |
| Glyn, Dr. Alan (Clapham) | Matthews, Gordon (Meriden) | van Straubenzee, W. R. |
| Glyn, Sir Richard (Dorset, N.) | Mawby, Ray | Walder, David |
| Goodhart, Philip | Maxwell-Hyslop, R. J. | Walker, Peter |
| Gower, Raymond | Maydon, Lt.-Cmdr. S. L. C. | Walker-Smith, Rt. Hon. Sir Derek |
| Green, Alan | Mills, Stratton | Wall, Patrick |
| Gresham Cooke, R. | Miscampbell, Norman | Ward, Dame Irene |
| Grosvenor, Lt.-Col. R. G. | Montgomery, Fergus | Webster, David |
| Gurden, Harold | More, Jasper (Ludlow) | Wells, John (Maidstone) |
| Hall, John (Wycombe) | Morgan, William | Whitelaw, William |
| Harris, Frederic (Croydon, N. W.) | Morrison, John | Williams, Dudley (Exeter) |
| Harrison, Brian (Maldon) | Nicholls, Sir Harmar | Williams, Paul (Sunderland, S.) |
| Harrison, Col. Sir Harwood (Eye) | Nicholson, Sir Godfrey | Wills, Sir Gerald (Bridgwater) |
| Harvie Anderson, Miss | Nugent, Rt. Hon. Sir Richard | Wilson, Geoffrey (Truro) |
| Hastings, Stephen | Oakshott, Sir Hendrie | Wolrige-Gordon, Patrick |
| Hay, John | Osborne, Sir Cyril (Louth) | Wood, Rt. Hon. Richard |
| Heald, Rt. Hon. Sir Lionel | Page, Graham (Crosby) | Woodnutt, Mark |
| Henderson, John (Cathcart) | Page, John (Harrow, West) | Worsley, Marcus |
| Hendry, Forbes | Pannell, Norman (Kirkdale) | |
| Hiley, Joseph | Partridge, E. | TELLERS FOR THE NOES: |
| Hill, Dr. Rt. Hon. Charles (Luton) | Pearson, Frank (Clitheroe) | Mr. Michael Hamilton and |
| Hill, Mrs. Eveline (Wythenshawe) | Peyton, John | Mr. McLaren. |