CLIENTS' MONEY (ACCOUNTS) BILL

HC Deb 17 February 1967 vol 741 cc1021-36

Order for Second Reading read.

3.14 p.m.

Mr. Anthony Grant (Harrow, Central)

I beg to move, That the Bill be now read a Second time.

I have the task this afternoon of bringing the House back from the fascinating problems of birth control to the rather more mundane problems of financial control, but I suggest that, although perhaps not to such a great degree, the vices which my Bill seeks to remedy give rise to considerable human misery, as indeed do the problems covered by the previous Bill. This Bill is a modest and, I hope, a non-controversial Measure, but nevertheless is one which is of great importance to a very large section of the community, and particularly to the large number of small, poor, but thrifty, people who seek to use their savings in certain ways.

As hon. Members know, I am a solicitor. The profession to which I belong, although often the subject of superficial music-hall jokes, has commanded and still commands a high degree of confidence and trust by the community because of the certainty which clients can have in depositing their money, be the sums large or small, with their solicitor in the knowledge that it will be looked after, that it will be wholly safe for them, and that it will be governed by strict rules as to the way in which it is handled.

Solicitors have for many years been under a statutory obligation to keep the money of their clients deposited with them in entirely separate accounts. The auditors who audit solicitors' accounts have to give a certificate each year that the Solicitors Accounts Rules have been complied with, and a certificate to this effect has to be furnished before a solicitor can obtain his annual practising certificate. In addition to this safeguard, if a solicitor is so dishonest as to disappear with his client's money, the profession is so responsible that it provides a compensation fund, the effect being that whenever people read in the newspapers of a solicitor who has in some way defalcated with his client's money—such cases always seem to have publicity—they can be assured that the client will never lose a penny piece. The remainder of the solicitor's profession makes good the loss.

As the Long Title of the Bill shows, it is to make special provision for safeguarding clients' money or deposits; and for purposes connected therewith". In this sense, it is designed to bring certain other bodies and professions within the same category as the solicitor's profession itself, with a view to safeguarding and protecting the public and also enhancing the status of those other bodies in their service to the public.

The most notable example, perhaps, of another profession for which the Bill will be useful is that of the estate agent. Estate agents receive quite large sums in deposits—a great many individual sums, some of them very large—and such moneys often come from people for whom they represent their life savings. It is customary for the deposit on house purchase to be 10 per cent. of the purchase price, and this deposit is paid to the agent in the first instance. Thus, with house prices as they are now, many sums of £200, £300, £400 or £500 are put in the hands of estate agents right at the beginning of the bargain.

There are at present, however, no rules requiring that this money should not be muddled up with the agent's own money in his bank account. The result is that in a minority of cases—happily, only a minority but a significant minority none the less—great misery and misfortune can be caused, often to humble people who have applied their life savings to the purchase of a house, putting down a deposit with the agent and arranging to borrow the rest from a building society or mortgagee. In a minority of cases, as I say, through incompetence, irresponsibility or, perhaps, actual dishonesty on the part of the agent, this money is lost, and not only is misery caused to the worthy people engaging in house purchase but the name of the majority of a great and honourable profession is tarnished.

Just before the last election, I was one of the sponsors of the Estates Agents Bill which would have provided for the registration of estate agents. Had that Bill gone through—only the advent of the election stopped it towards the end of its Committee stage—many of the vices with which I am now concerned would have been corrected or prevented. That Bill received the support of 10 or 11 of the professional bodies and as I have said was stopped only by the General Election. The principles in it bore a similarity to my present Bill although they went very much further. It had the basic principle that it was intended to protect the public and enchance the status and responsibility of the profession. It is on similar lines that I bring forward my Bill today.

Clause 1 specifies that it shall apply to the professions and businesses specified in the Schedule to the Bill. In the Schedule as drafted have been included accountants, architects, auctioneers, business transfer agents, estate agents, surveyors and travel agents. The categories, auctioneers, business transfer agents, surveyors and estate agents are usually put in one heading, that of estate agents.

I have had representations from the travel agents, who are concerned about certain effects this might have upon them. Travel agents receive money on behalf of the public to which they do not have an entitlement, but which they are expected to expend upon the public. We know, from reading in the Press, that very great misfortunes have occurred to a number of members of the public because of a few dishonest travel agents, but I would be prepared to listen to their representations, and if necessary consider this point further in Committee.

Likewise I have had representations from the architects, who, while not expressing any opposition to the general principle of the Bill, pointed out that architects very rarely hold money on behalf of clients. Similarly, I would be prepared to consider releasing them from the Schedule.

Subsection (2) empowers the Board of Trade, by order made under statutory instrument to add to or vary the list of those professions or businesses to whom the Bill applies. This leaves the door open to the expansion or narrowing of categories at the instance of the Board of Trade. Clause 2 provides for the Board of Trade to make the appropriate accounts rules for safeguarding the clients' money. The Building Societies Association has been in touch with me, it has specifically stated that it does not quarrel in any way with the principles underlying the Bill, but it says that, on Clause 2, which requires the deposit to be placed in a bank under a client account, banks might be extended to building societies of repute, so that clients' money could be deposited with the building society. The Association has drawn attention to the Solicitors Accounts Rules and the deposit interest rules of 1965, following the Solicitors Act, 1965, when, in certain instances, this arrangement can be made.

Mr. R. J. Maxwell-Hyslop (Tiverton)

My hon. Friend used the phrase "a building society of repute". Is this a legal term or would it, for instance, have included the State Building Society?

Mr. Grant

It is entirely my own phrase, but this is a matter which could be dealt with in Committee. The sort of building society that I have in mind would be that enjoying trustee status.

Clause 3 provides for the production of accounts and other documents to the Board of Trade to enable it to establish whether the rules are being complied with. Clause 4 provides that the interest shall be paid upon clients' money so deposited. This again follows the Solicitors Act, 1965, about which there was some controversy. It was, nevertheless, a general view held then that the clients of solicitors or estate agents ought to be entitled to a reasonable rate of interest upon such deposits, and that this ought not to be a little secret profit enjoyed by the solicitor or estate agent.

Sir David Renton (Huntingdonshire)

I dare say that my hon. Friend will agree that perhaps stockbrokers hold as much on deposit for clients as almost all the rest put together. Would he apply what he has just said to them?

Mr. Grant

I would have no objection, if a suitable formula were found, to bringing stockbrokers within the Schedule but again this is perhaps a Committee point and one on which I would listen to representations.

In Clause 4, I have not been quite as fierce as the Solicitors Act and have provided that … interest shall not be payable … on any amount less than £1,000 nor on any amount held on behalf of or on account of the client for less than three consecutive calendar months … In this respect, I am being rather more lenient than those who impose the rules of law on my own profession. Clause 5 excludes banks because they are in a separate category and in any event are dealt with by separate statutes, while certain clarification of the definition of a bank will arise in the Committee stage of the Companies Bill.

Clause 6 provides for penalties on a person who … contravenes or fails to comply with … these provisions. He … shall be guilty of an offence and liable … to a fine not exceeding £500 … or, if he obstructs the carrying out of the Board of Trade's duties to investigate documents, he will be liable …to a fine not exceeding £100, and in the case of a continuing offence to a fine not exceeding £25 for each day on which the offence continues. In view of the very large sums of money involved and the number of defalcations, these may seem inadequate sums but perhaps we can look at this point again in Committee.

Clause 7 deals with the position of directors, managers, secretaries or similar officers where the business concerned is a limited company.

In my view, the Bill is a necessary Measure which will be of great help in raising the status of the professions by giving people confidence and trust in those they deal with. I emphasise that defalcation and loss, in my experience, come very much more from muddle and incompetence on the part of professional men than from deliberate dishonesty. It is difficult to prevent someone committing a deliberate crime, be it fraud or anything else. This Bill will at least prevent the muddle-minded, the incompetent or the irresponsible professional man from getting into a tangle which may result in substantial loss.

Very often, the one-man business—for example, an estate agent—takes a large sum in deposit, expecting to hold it for a considerable time while the slow solicitors get on with the conveyancing. If the sum is £500, he may expect his remuneration to be about £100 and he may more or less assume that the transaction is definitely going through. He puts the client's money in the bank, muddled up with his own account, from which he writes out cheques for his own expenses. The temptation to use such money is very great and the money can be used inadvertently in this way. Very often this is where the trouble arises.

A young man in such circumstances gets into a muddle and thinks, "I have a lot of money in the bank so I can write a cheque". But he forgets how much actually belongs to his clients. The result is that when a number of transactions fail the blow falls on him when people demand their deposits back. This Bill will largely prevent that sort of thing from happening.

The Bill is designed not to protect rich people—who, in the main, can protect themselves and who are well advised before parting with their money—but to protect the poorer people; the small person who may have saved for years for a deposit on a house. I submit that the Bill should be welcomed not only by the public at large—who will be able to have greater confidence in their money transactions—but by responsible members of the various professions involved, since it will increase their prestige and enhance their status in the eyes of the public. I hope, therefore, that the Bill will be given a Second Reading.

3.30 p.m.

Mr. John Fraser (Norwood)

The hon. Member for Harrow, Central (Mr. Grant) has performed a valuable service in introducing the Bill, in which he has drawn a clear distinction between money that belongs to a person who is in business on his own account—his own money—and money that belongs to clients and customers.

I could not agree more with the hon. Gentleman's remarks about the difficulty that is caused when an estate or travel agent goes off with, or is unable to account for, his clients' money. I also agree that that state of affairs is often reached because of muddle and incompetency on the part of the professional man concerned. Defalcation is often caused through muddle and incompetence.

I have come across cases where an estate agent has eventually found himself liable for losses of up to £20,000 of his clients' money. Week after week and month after month one hears cases of estate agents who disappear with, or cannot account for, their clients' money. Perhaps the reason is because it is easy for one to open a shop, put up a sign, which gives a feeling of affluence, and then collect people's money, after which it is found that one does not have the right business acumen, is not aware of the proper rules of procedure, and so on, and is eventually suffering a tremendous loss. Alternatively, because of muddle or incompetence, one finds that one is suffering enormous losses.

As the hon. Member for Harrow, Central said, the Bill is designed to protect humble people, those who have spent perhaps 10 years saving up to buy a house. They may have entrusted their life savings to an estate agent in the hope of obtaining badly needed accommodation. Perhaps the deposit has been given, the contracts exchanged and previous, equally badly needed, accommodation given up. One comes across cases where an estate agent has gone off with the money, causing sadness and misery to the people who not only are no longer able to buy their new house but are unable to go back to the accommodation which they have given up. It is only right that, even if it is because of muddle or incompetence, we should protect clients who entrust their money in this way.

A caveat must be added. One tends to talk—I certainly have done—about estate and travel agents in this way. However, one must draw a sharp distinction between those who act irresponsibly and those who act responsibly and have strong and severe rules against defalcation —and in my remarks I would not wish it to be thought that I am casting any aspersions on reputable estate and travel agents.

One of the great advantages of passing the Bill will be that the same rules will apply to all people who must look after their clients' money. In a district where a disreputable or incompetent estate agent has made off with his client's money or is not able to account for it, odium is cast over the other perfectly reputable agents who have professional qualifications and who have no intention of causing defalcation. It is for the good of those who practise well and who observe the rules that this Measure should be passed. It is wrong that odium should be cast upon reputable estate agents who are bona fide professional people simply because one member of their profession has not been able to run his accounts in the proper way.

I am delighted that the Bill contains a provision relating to limited companies and provides that some liability should rest on directors and secretaries of such companies when defalcation takes place. It is tempting, when making a loss or when a muddle has arisen, for directors to try to absolve themselves from all responsibility when, in practice and in reality, they are running their businesses and ought, morally and properly, to be responsible for the losses that have taken place.

I am only sorry that the Bill does not contain provisions for ensuring indemnity against loss of clients' money. After all, people like solicitors and stockbrokers, the people of whom, one would normally expect the very highest standards of conduct, are also the people to whom the most stringent rules are applied. I believe that theirs are the only professions which have compulsory indemnity schemes. There was a recent case of a solicitor who died and who was found to have defalcated something like £500,000, but because of the insurance arrangements which existed his clients could be absolutely certain that their money would be returned to them. It is wrong that those professions which on the whole are blameless and uphold the very highest standards of conduct should be subject to extremely stringent rules and the cost of insurance, and yet those persons from whom such a high standard of conduct is not normally required should be subject to far less stringent rules. It is a pity that this Bill does not contain a provision for the Board of Trade to be able to make regulations for ensuring indemnity schemes for those who look after clients' money.

Although the hon. Member for Harrow, Central said it was not possible to prevent the sort of person who is intending to defraud his clients, if one has insurance arrangements for that person looking after clients' money he must keep proper accounts which can be inspected by an underwriter who would look into his credit and previous business conduct, and thus a compulsory insurance arrangement for those who look after clients' money would be a certain protection. The insurance arrangement would not be made for anyone with a criminal record or who had had shady dealings in the past. Therefore, he could perhaps be debarred from holding clients' money at all.

I think that this is an important Bill, and an important Measure of consumer protection which ought to be accorded to those who, by dint of hard work and saving, have accumulated money for, say, buying a house, or paying for a holiday, and so forth, and then put their trust in others. I hope that even though the Measure cannot be dealt with entirely today it will be put into law at the earliest possible moment.

3.37 p.m.

Mr. R. J. Maxwell-Hyslop (Tiverton)

I entirely agree with what the hon. Member for Norwood (Mr. John Fraser) has said about compulsory insurance. As I read the Long Title, I think that it would be in order for provision of that kind to be inserted into the Bill at a later stage. Certainly, the experience that I have had as a Member of Parliament—with solicitors, for instance, before the passage of the last Bill—has not been entirely happy; whether through negligence rather than criminal intent, it has been found that money which was thought to be available to pay people was not, with the result that they have suffered very severely.

I would suggest to my hon. Friend the Member for Harrow, Central (Mr. Grant) that he should consider putting in a provision that the House should have control by negative Resolution over the Board of Trade removing from the Schedule—I am more concerned about removals even than about insertions—those professions covered by the excellent provisions of the Bill. It would be unfortunate if somebody deposited money with a member of a profession covered by this Bill if the Board of Trade then removed that profession from the Schedule, while the money was still deposited there, without the person concerned, or indeed the House, having any redress. It would be an improvement on an excellent Bill if the procedure under Clause 1 were subject to the negative Resolution procedure. which, in the vast majority of cases, would not consume any of the time of the House because there would not be objections to the changes.

When we come to such a stage in what I hope will be the rapid germination of the Bill into statute law, it would be timely to add insurance brokers to the Schedule, because there has been a particularly scandalous run of failures in the insurance world. Many of us have been concerned with constituents and people with no Member of Parliament because they are in the Armed Forces overseas who have suffered as a result of depositing money with insurance brokers who may or may not have passed it on to a bogus insurance company without achieving what is wanted.

I see no reason why there should not be compulsory insurance of clients' accounts, for the reason which the hon. Member for Norwood gave. It is no more burdensome than it is on anyone who wants to drive a car or motor cycle and who has to find an insurance company which is prepared to give him cover before he can legally take his vehicle on the road. That, too, would be an improvement on an excellent Bill. The fact that it is not there already is by no means a criticism of it.

I welcome the Bill enthusiastically. I hope that it gets a Second Reading today, because the queue of Bills to go through the subsequent stages in both Houses before the end of the Session is becoming critical, and the chances of anything which is put off today getting on the Statute Book are greatly reduced.

I wish, also, to add a word of congratulation to my hon. Friend the Member for Harrow. Central for all the work that he has done in preparing and sponsoring the Bill. I give my blessing to it.

3.41 p.m.

Mr. W. O. J. Robinson (Walthamstow, East)

May I join with other hon. Members in congratulating the hon. Member for Harrow, Central (Mr. Grant) for bringing to the House a Bill dealing with an extremely important matter. I am sure that he will accept it when I say that he presented the Bill in an extremely interesting way, although he will know, as a member of my own profession, that this system of control of clients' accounts is not unknown. Incidentally, I apologise for inflicting upon the House a third speech from a member of the solicitors' profession.

It is essential, when so many professions accept money from clients and hold it in the form of deposits, that there should be stringent rules to prevent people defaulting. All of us, in every walk of life, know of cases where in good faith, people have paid a deposit to someone whom they believe to be a responsible person and then found that when the event for which the deposit was paid culminated the deposit was not available.

We ought not to over-emphasise the defalcations which take place. I accept readily that, in the main, they arise from muddle rather than any deliberate desire to defraud. On the other hand, it is clear that there are more people coming into trades or professions which have the opportunity of defaulting. I pay tribute to the responsible professions and the organisations which control them. However, on a number of occasions, I have looked askance at businesses which are described as "business transfer agents" and "travel agents".

Though I welcome the principle underlying the Bill, my criticism of it is that it is only an attempt to remove the muddle which is largely the cause of people losing money. It takes no steps to stop the entry into trades, businesses or professions of people who are likely to take advantage of their positions and cause people to lose money.

Rather than a Bill which deals with this one aspect, albeit a very important one, I should have preferred to see steps being taken to ensure the control of people who pretend to be members of a profession. I should like to see the professional bodies themselves organise and control the entry of persons into the professions and regulate the manner in which their members carry on their businesses.

The hon. Gentleman will know that the Law Society is the master in its own household. I am a little worried about the proposal that the control of professions in this regard shall pass to the Board of Trade. I would rather see the professions put their own houses in order and control them, because if the Board of Trade finds that a person has defaulted, a prosecution is instituted, a fine is imposed—and one would hope imprisonment—but when that fine has been paid, or the sentence of imprison- ment served, the person concerned again has the opportunity of opening up in the same trade and again leading people astray. I want to see a system whereby if people enter a profession and are in a position to accept money from clients the professional body concerned is able to guarantee that they are respectable, responsible, and are to be trusted.

Attention has been drawn to the omission from the Bill of provisions relating to the payment of compensation. The Law Society has its compensation fund, and reference has been made to the fact that no one who suffers at the hands of a solicitor who defaults suffers any loss at all. There is no provision in the Bill—and there cannot be as it is drafted—for compensation for people who suffer loss. This provision could, I agree, be introduced in Committee by the question of insurance, but it could be more effectively dealt with if we were to adopt the practice that people in a profession or trade were controlled by a body which was responsible for the trade or profession as a whole. Once a member of the Law Society defaults in any respect, his career as a solicitor is finished for all time, and rightly so, and we ought to tackle this problem on general grounds to ensure that each and every trade of the character covered by the Bill is regulated and legislated for, and clients are adequately protected by the profession itself being organised on proper lines.

Having said that, I welcome the Bill as one step along the road towards ensuring that people do not suffer at the hands of people who enter into a trade and who, either through muddle or deliberate desire to defraud—and from the client's point of view there is no difference—cause people to lose their money. As I say, the Bill goes some way towards that, but I would rather that the matter was dealt with far more comprehensively, albeit on a later occasion.

3.47 p.m.

The Minister of State, Board of Trade (Mr. J. P. W. Mallalieu)

Perhaps it would be convenient if I intervened at this stage to put the attitude of the Board of Trade and of the Government to the Bill.

I fully agree with the congratulations which have been passed to the hon. Member for Harrow, Central (Mr. Grant) on the amount of work that he has done, and the care which he has taken over the Bill. I agree with the hon. Gentleman that in a sense it is non-controversial in that everyone is in favour of the aim which he has in view, namely, to protect innocent people from the effects either of inefficiency or roguery. I am inclined to think that there is much more inefficiency than roguery in this whole issue, as so many hon. Members have said, but the Bill will not help very much on that. I do not think that it will safeguard us against the effects of inefficiency.

There are some defects from our point of view about the drafting of the Bill I am not at all sure that as it stands it will protect the public from the effects of, let us say, a tour operator who folds. I am not sure that he would be covered. This is a legal point, and I am not an expert on this matter. If a local operator buys a block of tickets for travel in an aircraft, or for a stay at an hotel, and sells them direct to the public, I rather suspect that if he folds there will be no protection under this Bill.

Another detail concerns the fines that were mentioned by the hon. Member for Tiverton (Mr. Maxwell-Hyslop). I can imagine the case of somebody in a certain profession who has conducted large-scale operations and finds that for the immediate future—a period of months—he may be in difficulty over them, and who therefore dips into his clients' money to bridge the gap. Under the Bill he is liable to a £100 fine. Taking into account the magnitude of the operations in which such a man right be indulging I doubt very much whether that fine would be high enough to deter him.

A much more important objection to the Bill lies in the point raised by my hon. Friend the Member for Waltham-stow, East (Mr. W. O. J. Robinson). It would be much better if we could secure the aims which the Bill has in view through the actions of the professions themselves. The losses that occur through deficiency and roguery are very serious to the individuals concerned, but they are not on a very large scale. It is dreadful for the people who suffer the losses, but it is not a national problem. The Bill aims at setting up a very large piece of national machinery.

Some of the duties that would fall on my Department if the Bill went through would be so vast that they would entail a large increase not only in work but in numbers of staff. I am not satisfied that even if the House agreed to increase the Civil Service to that extent to cope with the Bill, a Government Department would be as effective in preventing the things which the hon. Member has in mind as would a proper organisation inside a profession. On those grounds I could not recommend the House to accept the Bill.

But the fact that it has been brought forward is extremely useful, because it serves as a prompt to the professions concerned to get on with the job of putting their own houses in order. We have seen the effect of Private Members' Bills concerning travel agents. Although the Bills did not progress very far they caused travel agents to make tremendous strides in putting their own house in order. Estate agents are doing the same thing now.

I do not recommend that the Bill be given a Second Reading, but I would not say that the hon. Member's work has been valueless. It certainly has not, in that it has given a further stimulus to the professions to put their own houses in order.

3.54 p.m.

Mr. Edward Lyons (Bradford, East)

I appreciate the aims of the Bill, and I would applaud them if I thought that the Bill would do the job for which it is intended, but I could not support a Bill which excluded solicitors while including all other professions. It is wrong to provide for the exclusion of one profession from the rules of accounting because it is suggested that it has its own house in order, while making other professions subject to interference by the Board of Trade.

Mr. Grant

I said that the rules which applied to solicitors were infinitely more stringent—and they stem from Statute—than those in the Bill.

Mr. Lyons

I do not dispute that, but when someone complains of a solicitor he does not go to an independent tribunal like the Board of Trade but to other solicitors. This is a matter of principle. If a complaint against an architect has to go to the Board of Trade, which has nothing to do with architects, why should solicitors be exempt? If the hon. Member is saying that the machinery in the Bill is deficient, it does not matter how stringent the Law Society machinery is. There is no reason why solicitors should not be included.

The Law Society would not be very happy about that suggestion and architects might feel that, if the Law Society and solicitors were exempt, they also should be exempt. The proper way to protect lay people as they need to be protected is to ensure that only reputable people enter these occupations.

The trouble with the Bill is that one will never know what defalcations have taken place until too late. In a firm which is sought to be run honestly, a man who gradually gets into difficulties will use money coming in from Peter to pay Paul. He will always be able to conceal the fact that he has not put the original money into his client's account until the money dries up, and it will then be too late. When a man has been driven into that position, he will not be concerned about paying a fine.

The man who is deliberately dishonest will face the rigours of the criminal law anyway. The Bill will only provide an additional offence not punishable by imprisonment. This matter must be tackled at the roots. It is terrible that lay people should be swindled by estate agents who enter the occupation with no one's approval. This is where the matter ought to be tackled.

Another complaint I have of the Bill relates to Clause 3. If someone complains about any profession which is scheduled, that person may have to pay money to have his complaint investigated. There is an argument for paying a small sum to the Board of Trade if the Board concludes that the complaint was without merit, but it is wrong that a man should have to pay the estate agent's costs simply because he has complained to the Board of Trade.

It should be enough that he pays a fee to the Board of Trade without having to pay the agent's costs as well. It is not——

Mr. Grantrose in his place and claimed to move, That the Question be now put.

Mr. Speaker

I am not prepared to accept that Motion.

Mr. Lyons

A further astonishing provision in this Clause is that, where a prosecution is instigated apparently by the Board of Trade having investigated the position, it shall not have to pay, because the client may still not get moneys back which he has paid to the Board of Trade for conducting the investigation in the first place if costs are awarded against the prosecution——

Mr. Grant

Do not talk it out.

Mr. Lyons

Once the Board of Trade has decided to prosecute, that prosecution means that the Board of Trade has investigated and decided that there is a prima facie case. It is wrong that, at the end of the day, after possibly a lengthy prosecution, costs are awarded against the Board of Trade which may result in forfeiture of money by the person who has complained. This procedure——

It being Four o'clock, the debate stood adjourned.

Debate to be resumed upon Friday next.