HC Deb 20 February 1967 vol 741 cc1360-90

1.45 a.m.

Mr. Ronald Bell (Buckinghamshire, South)

I beg to move, in page 2, line 22, leave out from 'effect' to end of line 25 and insert 'if it is contained in an agreement where the consideration for the agreement is under £20,000 in money or money's worth'. The effect of Clause 3 is to deprive of effect exemption clauses which would protect someone against innocent misrepresentations which he had made. I must say that I regret the fact that we are moving this Amendment at 1.45 a.m. I notice that the Solicitor-General also regrets our moving it. Knowing his invariable courtesy I can interpret that, not as meaning that he regrets that he is sitting listening to me—

The Solicitor-General (Sir Dingle Foot)

No, no.

Mr. Bell

—which I would never suspect, at least not for a while, but as meaning that he, too, realises quite well that indeed the provisions of the Bill, and in particular the provisions of Clause 3, are not minor matters but are matters of very considerable importance which will have a great practical effect, as I hope to show in a moment, for a great many people. This Bill is also one which went to a Second Reading Committee, where we had very profitable discussion, and then, of course, it went to a Standing Committee, and there we discussed at some length the principles which this Amendment raises, but this is the first time that they have been before the House, and I cannot think that it is desirable that the House for the first time, and, of course, the last time, should have to consider these important matters at this hour of the morning. However, that is a matter which we shall revert to perhaps more legitimately from the point of view of order when we come to the Third Reading of the Bill.

For the moment I will deploy the arguments which we put forward in Committee, and which almost persuaded the hon. and learned Gentleman, but not quite; so that we have to put them forward again; and this time we hope to persuade him and his hon. Friends behind him—yes, there are some here now—so that we may make this Amendment to the Bill.

It is really a very striking change in the law which is proposed by Clause 3, because in a contract one can exclude all kinds of things by agreement between the parties, and if this Bill is passed it will still be possible to exclude by agreement a great many things such as certain implied statutory obligations, but one thing which it will not be possible to exclude is the fact of innocent misrepresentation. I emphasise "innocent" because this Bill is about innocent misrepresentation only, not fradulent misrepresentation. It is innocent misrepresentations which may be made by word of mouth and on the spur of the moment without any evidence of them in writing at all; these are picked out by Clause 3 and made matters which cannot be excluded even by the most express agreement between the parties. This is, of course, in accordance with the recommendations in the Report of the Jenkins Committee, and that is why it finds a place in the Bill.

The reason for this somewhat dramatic interference with the freedom of contract is the quite legitimate one that there is a certain degree of pression derived from the use of long and complicated forms of contract when we are dealing with private individuals. In fact this proposal is an attempt to redress the obvious inequality or imbalance between two parties to a contract, the one who is the large organisation, the seller normally, and the other the individual, normally the buyer, who is presented with one of these complicated contracts with a good deal of small print on it, and signs or agrees, and then is bound by a lot of conditions one of which may be a clause excluding all liability on the part of the vendor for misrepresentations. These are familiar. There are many cases about them. Certainly we on this side recognise that this is an abuse about which something ought to be done on the lines of Clause 3.

But the difficulty about Clause 3 as it is drafted is that it applies to all contracts. It did not originally do so because the inappropriateness of its applying to all contracts was recognised by the Government. They recognised that it was inappropriate to large contracts. So when they put the Bill forward in another place Clause 3 was in a different form, a very complicated form.

When we considered this matter in the Standing Committee the Solicitor-General begged to be excused from going into all the complications of that form, and since he has been kind enough to send it to me, I share his attitude and beg equally to be excused from going into all those complications. Suffice it to say that there was a form which attempted to meet this difficulty.

When we try to meet obvious difficulties there is almost always someone who does not appreciate our efforts. Certain noble Lords criticised the drafting of Clause 3, and it was changed and took its present form. That is why we have tabled the Amendment.

Hon. Members will recognise that so drastic a proposal as invalidating all exclusion clauses could not be put in without some qualification. It is absolutely inappropriate where there is equality between the parties to the contract. If two large companies are making a contract, they both have their legal departments and technical advisers; there are very often long and complicated negotiations. They are well skilled to examine claims made on behalf of the product of one side or the other. Indeed, they much prefer to deal at arm's length, to have one side putting forward its claims and then examining them, recognising that they are claims by an interested party, to reach their conclusions, to strike the bargain and the price and know that the contract so arrived at will stand.

But all this is as far removed as possible from the case of the doorstep salesman and the housewife signing on the bottom of a written contract, which, of course, is, above all, though not exclusively, what Clause 3 is aimed at.

So the Confederation of British Industry was very disquieted by the recommendation of the Jenkins Committee and the first proposal to put forward an unqualified invalidation of exclusion clauses, and it made representations to the Government. No doubt that was one of the reasons for the original form of Clause 3. Then, as I said, Clause 3 ran into rough weather in another place and was changed to its present form.

As the Solicitor-General told us in Committee, the Confederation of British Industry has eventually been persuaded to acquiesce in the present form of the Clause, but the fact that the Confederation has been persuaded to acquiesce in it should by no means be taken to indicate that it is happy about it and that it positively rejoices in the present form of the Clause.

The present form of the Clause, which we are trying to change, recognises the difficulty I have been describing and seeks to solve it by conferring on the court a discretion—lines 22–25 in the Clause as it stands—so that the exclusion clause is invalidated only if the court thinks that it should be; or, to put it the other way round, it is invalidated unless the court thinks it should not be.

What in practice is the use of an exclusion clause which at the time it is negotiated is of unknown validity? Large contractors want certainty. They do not want to draw up a contract and agree upon a clause excluding liability for innocent misrepresentation and not know whether that clause has any effect until it is challenged in the courts, because the alternative is stark. It is either of full force and effect or, in the discretion of the court, of no force and effect. They cannot know, except by taking it to court and getting the court to exercise its discretion.

That is plainly undesirable—I do not think that anyone pretends that it is not—if it can be avoided. Our proposal is, instead, to amend the Clause so as to provide that the invalidation of the exclusion clause shall be of no effect if it is contained in an agreement where the consideration for the agreement is under £20,000 in money or money's worth". So the Clause would operate where the contract was under £20,000 and would not operate, and the exclusion clause would be valid, where the contract was over £20,000.

The Amendment moved by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) in Committee was in the same form but specified £100,000. At the end of an interesting debate, the Solicitor-General said that he would give the matter his consideration. So that Amendment was withdrawn. The Solicitor-General, as he promised to do, wrote to my hon. and learned Friend and myself setting out very carefully indeed the considerations which impelled him not to accept our argument and not himself to table an Amendment at this stage of the Bill. I do not think that the hon. and learned Gentleman intended that letter to be in any way confidential.

The Solicitor-General

No.

2.0 a.m.

Mr. Bell

The letter was written in execution of an express undertaking which was given openly. I am very grateful to the Solicitor-General for the trouble that he took. In his letter, after reciting the difficulties which attend either course, because there are some, he says this: …suppose we accepted your £100,000 limit: although, in all probability, those contracts which were let out would all be ones which ought to be let out,"— that is, those of £100,000 and over— we should still catch a great many which we did not want to catch, because many negotiated contracts"— by negotiated contracts the hon. and learned Gentleman meant those negotiated by a process of negotiation between approximately equal persons— are for much less than £100,000."— which, of course, is true— We could, of course, choose a lower limit—say £50,000 or £25,000. But, even then, we should catch too many contracts where there is no need to protect either party…. On the other hand, once you start bringing the limit down much below £10,000, you start letting out the ordinary contract for the sale of a private house,… Therefore, one criticism the hon. and learned Gentleman made was that we had pitched our figure too high and that we should catch many people who did not need protection. That is why we have chosen the figure of £20,000, because while we shall catch by the Clause a few people who do not need protection, because they are too big, it is perhaps right in a Clause of that kind to incline in favour of the Clause's policy and to give too much protection rather than too little.

But the hon. and learned Gentleman's basic objection is that he feels that judicial discretion is better because of the difficulty of definition. It is true that there must be a zone of doubt around the chosen figure, and I recognise that. One cannot define what one means by consideration with such precision that people will always know on which side of the line they come. Therefore, there will be a zone of doubt around the figure of £20,000. But, of course, doubt is the result of abandoning certainty in the attempt to obtain more exact justice, which is exactly the nature of the Bill as well as of Clause 3. There is now complete certainty because the clauses are valid. Once one decides that one will make some invalid, but not all, one cannot avoid an area of doubt. The Clause as it stands creates uncertainty throughout the whole range. Nobody, whatever the magnitude of the contract, will know for certain whether the clause in the contract is valid or wholly invalid. Our Amendment gives certainty everywhere, except near the margin, and the number of cases that will fall so close to the margin will be a very small proportion of the total.

We accept the policy of the Clause as desirable, but think it possible to get the advantage it seeks without paying so high a price in uncertainty for the merchant community as the Clause now exacts. For those reasons, we ask the House to accept the Amendment, which will be a material improvement of this quite valuable Clause in a quite valuable Bill.

Mr. Walter Clegg (North Fylde)

I support the Amendment, which my hon. and learned Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) has moved in terms that have made its purposes very clear. Unless amended, the Clause will have profound practical effects for those who must deal with the everyday problems of commerce, and particularly those who have to advise merchants and others about the conduct of their affairs.

I was very impressed by my hon. and learned Friend's arguments about the necessity for certainty in the law. I believe that we are moving into times when there is growing uncertainty in the law and growing difficulty in advising. As someone who must advise clients from time to time, I very much regret the circumstances which frequently arise—and even more frequently in recent legislation—of not being able to give somebody a direct and clear answer to a question.

Like my hon. and learned Friend, I fully accept the desire of the Government and of the Jenkins Committee to protect certain people from the effects of innocent misrepresentation, and if there has to be a compromise, that certainty has to be diluted so that people can be protected, I think probably this compromise must be made, but I feel that this Clause unamended goes much too far. Unamended, it affects every contract and leaves the decision plainly to the court.

I cannot think that anybody, as the Clause stands, could advise their client whether an exemption clause would be accepted by the courts or not, because the discretion given to the court is so wide.

The court, or arbitrator, as the Clause, unamended, says: may allow reliance on it as being fair and reasonable in the circumstances of the case. Unless we amend, every discretion to which the Clause refers is to be subject to that.

The sort of question which advisers will be asked is, "We would like an exemption Clause in this contract. We are quite satisfied. We made full investigation on both sides. If we put in the lease an exemption Clause, can we rely on the court finding that the circumstances are fair and reasonable?" It would be a very brave man who gave a positive "Yes" or "No" to that. It seems, under the Clause unamended, to rest on the feelings of the judge dealing with the case. It would be very difficult for this to be the subject of an appeal because it is a personal decision of a judge on a particular set of circumstances.

Having accepted the reasons for the Clause, I think it would be proper that there should be some limit to it, if only for purposes of trial, to see how it works in practice. Therefore, I support the Amendment that the figure should be £20,000, and that, above that, parties should be free to negotiate contracts fully and have an exemption which would be binding on the courts.

The sum of £20,000 is a fair figure in house purchase. One imagines that a man who can afford to pay £20,000 for a house would be able to pay for a full structural survey to make sure that the house is structurally sound. It is out of this sort of structural defect that difficulties are likely to arise.

It is a different matter where people are buying a house at £2,000 or £1,800, or less, as happens very frequently outside London. Those people have enough to do to pay a deposit without paying for a structural survey and they should be protected, but we should treat people who can afford to pay £20,000 as adults, as people knowing their own mind and able to afford advice. If we can have certainty in that top bracket, it would be an improvement in the Bill. For those reasons I should like to support the Amendment.

The Solicitor-General

The hon. and learned Member for Buckinghamshire, South (Mr. Ronald Bell) has described correctly what has happened so far. It is true that a similar Amendment was moved, albeit with a different consideration, by the hon. and learned Member for Darwen (Mr. Fletcher-Cooke) in Committee. At that time, I said that I would consider the point and would communicate with the hon. and learned Gentleman and with other hon. and learned Gentlemen who had spoken in the debate. That is what I did, and I hope that I approached the matter with an open mind.

My advisers and I considered the arguments put before us in Committee, because I do not regard this as being a matter of party controversy, and we came to the conclusion that the Amendment or a similar one ought not to be accepted.

We start with the Jenkins Committee. As I said upstairs, we are not bound to accept the recommendations of any Committee, however authoritative it may be. It was a very high-powered Committee, and its recommendations are entitled to be treated with respect. No doubt it considered the sort of point which has been made by the hon. Member for North Fylde (Mr. Clegg), but it came to the conclusion that there should not be any differentiation of the sort proposed in the Amendment.

The Amendment is similar to the one moved in Committee by the hon. and learned Member for Darwen, the only difference being that he proposed a con- sideration of £100,000, whereas now it is proposed to be £20,000. I do not want to repeat myself, but I pointed out certain objections to it which apply no less to the present Amendment.

It is not always easy to say what is the precise amount of the consideration in any contract. There might be a contract for the hire of expensive plant over a period of time. It might be a very long period, and there might be provision for payment year by year. Let us suppose that such a contract provides for the payment of £5,000 for seven years, with provision for termination of the contract in less than seven years. In circumstances of that kind, who can say whether the contract is over £20,000 or under it? As I endeavoured to point out in Committee, in the case of a partnership agreement the amount which is at stake for the parties to the agreement might be unascertainable when the agreement is made. One cannot always say in the case of every contract what is the amount of the consideration.

There is a further objection, however. What is here proposd is that we should make a division between two classes of contract. It is proposed that exclusion clauses should be a matter for the courts to decide if it is under £20,000, but not if it is over £20,000. That test would produce the wrong result in too many cases. If the amount is put too high—and it must be a rather arbitrary figure, whether it is £100,000, £50,000 or £20,000—there will be many contracts where the exclusion clause ought to operate and where it will be invalidated. If it is taken the other way and one gets contracts which are under the figure, there are cases where the exclusion clause ought to operate and where it will be invalidated. If it is taken the other way and one gets contracts which are under the figure, there are cases where the exclusion clause ought to be struck out and they ought to be subject to the kind of procedure envisaged in the Bill. However, the result which we should all wish to see would not be achieved. An entirely arbitrary difference between the two is being introduced.

As we have been reminded by the hon. and learned Member for Buckingham, South, this Clause has a fairly long history. It will be recalled that the Measure was first introduced in the last Parliament and is one of those which came to an end because of the General Election. As the hon. and learned Gentleman says, it is true that originally an attempt was made by the Government to draw between one class of contract and another.

That matter was fully debated in another place, and I should be out of order if I tried to quote from speeches other than those of Members of the Government made in another place, but I think that all hon. Members who have studied this matter are familiar with them. Hon. Members may remember in particular the speech made by Lord Reid who speaks with great authority in this matter. He came down very strongly on the side of giving the courts, as is here proposed, an absolute discretion.

As I did in the letter which I sent to the hon. and learned Member for Darwen, a copy of which I sent to the hon. and learned Member for Buckinghamshire, South, I should like to draw attention—because I think it is material—to the recent uniform commercial code drafted by the National Conference of Commissioners on uniform state laws in the United States. They gave very close consideration to precisely this sort of problem, and recommended that the courts should be given a wide discretion to apply the doctrine of unconscionability which has been adopted in most of the States of the United States of America, whereby, if there is a provision in a contract which the courts hold to be unconscionable, they can refuse to give effect to the clause. We are proposing to follow a similar principle here.

I listened with great interest to the speech of the hon. Member for North Fylde. I know that he speaks from considerable professional experience of this matter. We have all had to advise our clients on matters of this sort as to what the courts are likely to decide. If I may say so with respect, I do not think the difficulty is as great as he made out.

Let us suppose that there is the sort of case which I think he and the hon. and learned Member for Buckinghamshire, South had in mind, the sort of case in which there are two large corporations in precisely the same position. They are both fully advised, and they arrive at a contract which includes an exclusion clause. I would not have thought it was very difficult to advise a client in circumstances of that kind. Almost certainly the court would look at the circumstances in which the contract was framed. It would take account of the standing of the parties, the sort of advice which the companies would have received, and it would give effect, I have no doubt, to the exclusion clause. I would not have thought it was a very difficult matter to advise a client in a case of that sort.

But when we are dealing with these matters, we are always up against a difficulty. There have been various attempts over the last two years to draw a distinction between one class of contract and another. If we try to draw this sort of distinction of amount, we run into the kind of difficulty which I have sought to describe. If we try to draw a distinction of another kind, we run into the sort of difficulties which were debated in the other place, and I submit that there is no danger. We are not really introducing an element of great uncertainty if we give this wide discretion to the courts to decide when an exclusion is reasonable and when it is not.

The courts obviously will take account of the sort of contract which is entered into. They will take account of the status of the parties, and the legal advice which was available to the parties at the time when the contract was made. Therefore, the Government have come to the conclusion that we ought to follow the course proposed in this Clause, and we ought to give the courts the discretion which is here sought.

Mr. Ian Percival (Southport)

We have had a fairly substantial debate on this, both in Committee and here, and therefore it is possible to be quite brief, but I think the Solicitor-General agrees that there is an important point of principle here, and a very difficult one. The point to which a good deal of attention has been given, as the hon. and learned Gentleman rightly said, has been discussed on entirely non-party lines by lawyers in both Houses who seek nothing except to make the Bill as clear and as useful as it can be. Since we are agreed on that much I am sure that the Solicitor-General will agree that it is worth spending a few more minutes on it. I think that the hon. and learned Gentleman agrees that one of the important points of principle involved is that we ought not to interfere in contracts made between parties unless there is very good reason for doing so. One should not interfere in contracts between parties who can look after themselves.

I venture to say a few words at this time in the morning because I regard this as a principle of immense importance. Far too much of what this House does is done on argument which, when one gets down to it, is wet-nursing the poor people of this country because they cannot look after themselves. If we are not jolly careful, by taking responsibility for them, we shall lead them to look to the House for protection all the time instead of relying on their own effort. This is something about which the House should be awfully careful and not say that we must look after people because they cannot look after themselves and they have not got the sense.

Having said all that, of course it is a fact that in some cases one party is at a disadvantage compared with the other and therefore there is an argument for giving some protection to the one against the other.

When one recognises the importance of both these considerations the difficulty one continually faces is where to draw the line. Several attempts have been made in this case already and I am going to suggest another one. If it appeals to the Solicitor-General and I speak long enough perhaps he will submit a manuscript Amendment. Our objection to the present situation is the uncertainty which it introduces. I will not dilate on how much uncertainty. The Solicitor-General says that it would not introduce as much uncertainty as my hon. Friend the Member for North Fylde (Mr. Clegg) thought would be introduced by it. It is a strange argument, because the whole reason that we are giving unfettered discretion to the courts is that we find ourselves unable to define the cases to which this Clause is to apply.

Both Houses have tried hard to define the cases to which Clause 3 is to apply and neither has been successful. Therefore, the solution which is suggested is to leave it to the judges to decide what is reasonable. How then can any lawyer, called upon to advise his client, say to which it will apply and to which it will not apply? I find this difficult to follow.

I agree that, if we have to leave this to someone else to decide, there is no better body to leave it to than Her Majesty's judges. We will soon get a body of case law built up and it will make clear what the House has failed to decide. I do not doubt that they will do it better than we would have done.

The questions that the House has to ask itself are these. Is it right to cast this extra burden on the courts to decide what we find it impossible to decide? Second, is it right to cast the burden on the litigants who will have to bring the cases which will have to be decided before we know to which kind of case Clause 3 will apply? It will be small comfort to them that their names will go down as leading cases in the law reports: they will have had to suffer all the uncertainties and costs of getting that clarification.

We believe that it is wrong to cast those burdens on the courts and the litigants and that it is better to have precise provisions, even if they are not perfect. The Solicitor-General dwelt upon the Amendment's imperfections. We know that it will still leave defects, but his argument that it might be difficult in some cases to decide whether a consideration was £20,000 is not a good one. In the cases of which we are thinking, it is clear that the parties are dealing with a sum that large or far greater.

What should be clear, if nothing else is, is that such contracts should be quite outside these provisions. Any hon. Member would have great difficulty in suggesting any contract for which the consideration was £20,000 or more and in which one of the parties ought to have the protection of Clause 3. To that extent, the argument for the Amendment is both unanswerable and unanswered.

The hon. and learned Gentleman's other main objection was that the Amendment would create an arbitrary difference between those above and those below this level. While I was listening to this part of his argument the possible solution struck me, and I now put it forward. If accepted, would the Amendment not exclude every contract in which the consideration was £20,000 or over? We would all agree that that would be right. All we need to do to overcome the hon. and learned Gentleman's second objection is to widen the existing provisions for contracts not excluded by the Amendment.

For these reasons, I earnestly ask the hon. and learned Gentleman to think again about the purposes of the Amendment and his objections to it.

Amendment negatived.

Question proposed, That the Bill be now read the Third time.

2.25 a.m.

Mr. Percival

One wonders how many people in the House, let alone in the country, appreciate what a substantial change is being made in our law by this little Bill. For centuries, it has been one of the cardinal points of the common law of this country, summed up in the Latin tag caveat emptor; for generations, law students have learned as the first thing they have ever learned that innocent misrepresentation does not carry liability for damage.

Mr. David Mitchell (Basingstoke)

I apologise for intruding upon my hon. and learned Friend's speech, but he has drawn attention to the fact that this is a very important Bill which makes not only an important but a fundamental change in our law. As a layman, not being a member of the Bar, I have found it very difficult to follow the debate. Is it not therefore all the more ridiculous that at 2.30 a.m. we should be asked to consider—

Mr. Deputy Speaker

I am not sure if the hon. Member is addressing the Chair on a point of order. If he is, then I have to tell him that it is not a point of order. If he is making an observation on the speech of his hon. and learned Friend, then I have to tell him that it is not relevant to the Bill under discussion.

Mr. Mitchell

If the House had sat normally and there had been no morning sitting but we had been here for the same number of hours, it would now be half past five in the morning. Having sat that long, I am sure the Government would now wish to adjourn.

Mr. Deputy Speaker

That is not a point of order. It is not a matter for me.

Mr. Percival

I sympathise with what my hon. Friend has just said, I appreciate how dull this must be, but that fact does not mean he can raise a point of order.

I was about to say that I hope that those hon. Members who are still here, and still awake, will take a little interest in this Bill because it does make a complete change in our law. The Bill reverses something which has been well known to be the law of this country for a very long time. I venture to think that that is one point upon which the right hon. and learned Solicitor-General will not quarrel but will agree with me. [Interruption.] If any hon. Member thinks that this is a laughing matter—

The Joint Parliamentary Secretary to the Ministry of Social Security (Mr. Charles Loughlin)

Who is laughing?

Mr. Percival

—or something about which to make cat calls, then it is very regrettable.

Mr. Loughlin

Who is making cat calls?

Mr. Percival

It is a matter of great regret that the Leader of the House should once again so have mismanaged the business of the House, or so under-estimated the importance of this Bill, that he put this Bill on the Order Paper for the same day as other business which, I should have thought, anyone would have known would have precluded us from reaching this Bill except at around the present hour.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

On a point of order, I would like to say—

Mr. Percival

I am very willing to give way if the hon. Gentleman wants to raise a point of order.

Mr. Steel

The hon. and learned Member may not be aware that I have been sitting here waiting for an Adjournment debate on a fairly important subject and have had to listen six times to hon. Members on the Conservative benches complaining about the time. All this mumbling drivel is only postponing the time when we shall get to that subject which, as I have said, is fairly important. There are no members of the public present, and very few hon. Members of the House. Why must we continually be told of the importance of this Bill? Why cannot members of the Conservative Party in this House get on with it?

Mr. Percival

One of the things one learns about that kind of arrogant intervention is that it serves only to lengthen even further the time taken. The kind of interventions I have been listening to—one sitting and the other standing, so at least there has been some variety—have served to illustrate the point that at least two hon. Members have not yet understood the importance of the Bill. I hope that by the time I have finished they will do so.

Mr. Loughlin

We might if the hon. and learned Gentleman says something.

Mr. Percival

Some uncertainties arise as to the meaning of the Bill, and I hope that even at this stage the Solicitor-General will tell us what the Bill means and what he says it does. It will be some comfort to the Joint Parliamentary Secretary to the Ministry of Social Security, who keeps interrupting from a sitting position, to know that it was my intention at one stage—if I have more interruptions I may change my intention again—to deal with one of these points by reference to the Amendment we have just been discussing.

My hon. and learned Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) has drawn attention to some of the uncertainties arising from Clause 3. I shall not go over the ground again, but there is another aspect which I ask the hon. and learned Gentleman to explain before we decide whether the Bill should become law. This is a question of what provisions Clause 3 refers to.

The question of excluding liability only arises if there is some liability. Under Clause 2, for instance, there would only be some liability if the purchaser had relied upon a representation because, as I understand the present law, it does not matter how many representations are made; what matters is to what extent, if at all, the purchaser relied upon them. Supposing, after lengthy negotiations, a vendor says to a purchaser, "No, I shall not sign. I shall not actually conclude the contract. I have just discovered the Misrepresentation Act. I cannot remember everything that has been said in the negotiations, for we have had a great deal of chatter. I will only go on with the contract if you agree that we wipe out everything said so far and make a fresh start."

That is a practical possibility. For the avoidance of doubt in the written contract, supposing it was said that no reliance was being placed by the purchaser on the representations made prior to the date. Would Clause 3 apply to that provision? If it would not be a provision to which Clause 3 would apply, is it not possible to drive a coach and horses through it at once? If it does apply, then does it have a practical effect which is neither foreseen nor intended? I have probably said enough for the Solicitor-General to have the point in mind. [HON. MEMBERS: "Hear, hear."] If any hon. Members below the Gangway on the Government side are not clear on the point and would like a further exposition of it, nothing would give me more pleasure than to give it to them.

The second aspect of contract in which we feel that uncertainty may be introduced is in house purchase and conveyancing. To put the minds of hon. Members below the Gangway opposite at rest, however, I understand that my hon. Friend the Member for Crosby (Mr. Graham Page), who has much greater experience in that matter than I, proposes to ask certain questions about it and I shall, therefore, leave it to him.

The third matter in connection with which I would like the Solicitor-General to help us is what is supposed to be the meaning of the last four lines of Clause 2(1), namely, what a vendor has to prove to avoid liability. Here again, I shall be fairly technical to keep the matter brief, but if any hon. Member below the Gangway on the Government side wishes me to enlarge or expand upon it, I hope that he will indicate that desire to me.

The words on which I am asking for further information are to be found in page 1, line 20: unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true. It can, I am sure, be agreed that they are an important part of the Bill, and it is important that the House should know what they mean before we pass them, because once the House passes them other people will have to make their decisions, which will depend on knowing what those words mean. Therefore, if there be a doubt about them, it is important that it be resolved.

What is clear about those words is that the onus will be on the vendor to establish that there were grounds for believing what he says he believes and that those grounds were present to his mind. Our discussion of the matter in Committee was bedevilled a little by the use of the words "objective test" and "subjective test" and whether the whole thing was an objective test or a subjective test. It was bedevilled by that discussion because one cannot call this either an objective or a subjective test. On the two aspects with which I have already dealt—I take this from a letter which the Solicitor-General was kind enough to write to me—it is clear that the vendor will have to establish that there were grounds for his belief and that they were present to his mind, the first part of that being objective and the second subjective. We then come to the meaning of "reasonable", and it is upon this that I invite the Solicitor-General to give the House the further benefit of his advice.

One could, I suppose, say that if the person making the representation were a skilled or professional man, in judging what was reasonable the courts would have regard to what was reasonable for a skilled or a professional man; one can probably go that far. If that be so, however, is not that a subjective test? Is not that looking at the skill or the professional expertise of the representor? In any event, one still comes up against the question of what is reasonable.

I quite agree with the Solicitor-General in what he wrote to me—that there is no difficulty here where someone has exceptional knowledge or skill; such a person will be caught by the second leg of these provisions because a person has got to say not only that he had reasonable ground to believe but also that he did believe. Therefore if one had someone with exceptional skill, knowledge or expertise on a particular point, he might be in great difficulty in persuading the court that he did believe.

The hon. Member for Cardigan (Mr. Elystan Morgan) indicates dissent, but I am really rather conceding a point against myself—

Mr. Elystan Morgan (Cardigan)

I am indicating dissent for a totally different reason, because I believe that probably the case that the hon. and learned Gentleman mentions is one that is already accommodated by the present law, in that there are two exceptions to the question of redress for innocent misrepresentation in these circumstances; one, where there is a fiduciary relationship, and secondly, what was defined in the Hedley Byrne case in 1963, where there is a special relationship, and that is one which normally covers all cases of occupational advisers.

Mr. Percival

I am grateful to the hon. Member for that intervention because I must make it clear that I was not referring to skilled or professional advice given by skilled or professional men. I am thinking in terms of a representation made by a skilled or professional person who is selling something, I could see that in such a case the person might be caught by the second leg of this, and so the difficulty of interpreting reasonableness might not come into it.

But that is rather a special category, and the difficulty, I think, is this—and this is the one on which we need assistance. Whenever one postulates a test of reasonableness, it follows that there is some reasonable standard, some reasonable knowledge, some reasonable skill, that the average man is supposed to have. It follows that there will be some who will have more than that but some who will have less than that. The man who has got more than the norm, whatever it may be, may well get caught by the second leg of this proposition and may well have difficulty in proving that he did believe. But what of the man with less than the average or reasonable knowledge, whatever that may be? Is he to be judged by some higher standard, by some attributes which through no fault of his own he does not enjoy? This, I think, is the difficulty.

I think I can best put my point in lay terms by relating it to someone who is selling a motor car. Let us supose he had said it was a good runner, or that the engine was in good order, or something like that, and that he had said it despite the fact that there was a noise under the bonnet, a noise which perhaps an expert could have identified had he gone to considerable trouble in looking. Now would that expert, supposing that he did not take the trouble to look, qualify? Would he bring himself within the provisions of this defence or would he not?

Now let us leave out the expert and pass on to the layman. One can visualise the layman: there are laymen who have all sorts of standards of knowledge of what goes on under the bonnet of a motor car; some have a very good idea; others simply have not got a clue. What tests would one apply here? Apart from the question of their knowledge of what goes on under the bonnet of a motor car because of their knowledge of mechanics, of mechanical science, and so on, some people know something because it has happened to them before. Somebody may have heard a frightful knocking under the bonnet and may have known nothing about it at all until the engine fell out, but if he should hear that noise again he will know that the engine is not in good order; but somebody else may have had the car before the engine fell out, and were he to hear the noise he would not know that it ought to put him on inquiry.

Are these people all to be judged by the same standards? If they are to be judged by the same standards, it is a bit odd, is it not? It does not make much sense. Or are they going to be judged by different standards? And if they are to be judged by different standards, is it not right to say that the test is mainly a subjective test? If we are to have an objective test, then what is the reasonable amount of knowledge which we are to attribute to the reasonable owner of a motor car at the time when he is selling that motor car, and by which to judge whether he had "reasonable grounds for believing" or not? One has only to postulate the question to see that it is virtually impossible to answer it. But this is what we are expecting the courts to do. No wonder we cannot be more precise than this ourselves. No wonder we have to foist it off on to someone else.

The final point on this is that, whatever the court may decide is the reasonable amount of knowledge which a reasonable owner of a motor car must he assumed to have, there will be ever so many owners of motor cars who have less than that knowledge. Are they to be judged by the hypothetically reasonable amount of knowledge? Because if so, where is the equity in that? Or are they to be judged on their actual knowledge? In which case one is right back to the subjective test.

I have illustrated this in relation to motor cars and by taking just a few of the difficulties. Any Member of this House could expand on that. Just think of the range of things—not just houses or motor cars, but wireless sets, television sets, refrigerators, washing machines, all of which may entail technical considerations, of which there will be no two people with the same amount of knowledge. Whereas one man will be very knowledgeable, another man will not have the slightest idea of what makes the thing work.

When one looks at these difficulties, does not one get back quite fairly and properly to the two questions which I put in connection with the uncertainties about exclusions? Is this not an undue burden to place on the judges of this country, who will be called upon to decide what this House has been unable to clarify for itself? And is it not placing an undue burden on the litigant, who will have to bring litigation, and pay for it, to get clarification which does not so far exist?

It may be that the Solicitor-General can answer all these questions. Unless there is a clear answer to the difficulties which I have tried to illustrate in these few examples, we shall be passing legislation the meaning of which we are unable to state in many important cases. It is wrong for the House to pass legislation the meaning of which it is itself unable to ascertain. If the Government insist on going ahead with this in spite of those doubts as to the meaning of the Bill's provisions, let us hope that it will be clearly understood by the public, who will be the sufferers, that responsibility for the situation in which they will be placed lies with the Government.

2.55 a.m.

Mr. Elystan Morgan (Cardigan)

I am sure there will be general acceptance for the main provisions of the Bill. I am glad that the Government have found time this Session, as in the last Parliament, to implement the recommendations of the Tenth Report of the Law Reform Committee.

There is no doubt that in general the Measure will enable an appropriate remedy to be gained by a representee who under the law as it stands, through no fault of his own, has no redress. It is certain also that this amendment to the law will affect a wide section of the public.

But it may well be that the proposers of the legislation have allowed their reforming zeal in this case to go a little too far in that they have seen fit to include in the provisions of the Bill the case of a conveyance of land and of a lease for three years and upwards which was not contained in the original Bill.

There are three cogent and, I trust, compulsive reasons why the Bill should not relate to those transactions. First, the Law Reform Committee, which reported in 1962, dealt specifically with this point, and after considering the evidence of various bodies which had submitted memoranda to the Committee, which also comprised 15 distinguished lawyers and has been described by the Solicitor-General as being a high-powered Committee, and rightly so, came to the conclusion that once a conveyance or lease had been executed rescission should not allow for innocent misrepresentation.

Secondly, apart from the memoranda submitted to the Committee, it is obvious that there is a conviction shared by those who have the greatest knowledge of these transactions from day to day that rescission would not be an appropriate remedy in such cases. This point was very clearly made by the Lord Chancellor in another place: Consultation has taken place between the Government and bodies who have great experience of contracts relating to land—the Chartered Auctioneers and Estate Agents Institute, the Royal Institution of Chartered Surveyors and the Law Society—and all three bodies express themselves as being in favour of keeping this subsection…."—[OFFICIAL RFPORT, House of Lords, 17th May, 1966; Vol.274, c.927.] That was the subsection which would have made an exception of the Bill with regard to real property.

Thirdly, it is essential, not so much as a tribute to the traditional conservatism of lawyers as an acknowledgement of deep-lying distinctions, to exempt the operation of the Bill in relation to land. The case in this respect is very fairly argued by the Jenkins Committee. It deals with the case where rescission is sought because of a defect of title and points out that this would be manifestly unfair because the purchaser should, the execution of conveyance, have had every opportunity of examining the correctness of the title.

The Jenkins Committee goes on on pages 4 and 5 of its Report to say this: It is arguable that the same opportunities for examination do not exist in the case of defects not relating to title—for example, structural flaws or disrepair and decay in parts of a building—and it may be that at the present time, when housing accommodation is still scarce, a prospective purchaser is often unable to examine a house as thoroughly as he would like. Nevertheless, we think that in the case of sales of land finality should be the predominant consideration. The vendor will often have spent the proceeds of sale on the purchase of another house and so be unable to repay them. The purchase of a house is commonly linked with the raising of a mortgage and perhaps a sequence of other transactions. Rescission of one sale may thus start a chain reaction. The purchaser who buys a house in reliance on the vendor's representations and without an adequate survey, like one who buys without fully investigating the title, must know that he is taking a risk. I believe that the law relating to the rescission of sales of land, and of chattels for that matter, on grounds of innocent misrepresentation has been in a state of some dubiety for some considerable time. It does not go back through the centuries, as mentioned by my hon. and learned Friend. Indeed, in the case of sales of land it dates to 1848 and in the case of chattels to the Seddon case of 1905. It seems that from 1950 onwards, since the authoritative dicta of Sir Raymond Evershed in the case of Leaf v. International Galleries, a great deal of that doubt has been removed.

I accept also that Parliament is confronted with a very great dilemma in this case. It must opt between the finality of a conveyance, on the one hand, and the possible hardship to a small number of persons—for rescission, after all, can apply only where third party interests have not been created—on the other. To shatter the finality of a conveyance, however, would be to destroy a principle of very long standing. It would mean that it would be possible to disregard the unanimous and considered views of distinguished members of the Law Reform Committee and to create a confusion in the practice of conveyancing, whilst at the same time leaving vendors after the execution of a conveyance in a state of complete uncertainty and indecision.

3.3 a.m.

Mr. Graham Page (Crosby)

I want to follow the hon. Member for Cardigan (Mr. Elystan Morgan) in his questions about the effect of Clause 1 on conveyancing. As the House will know by now, Clause 1 is that Clause which allows a party to a contract who alleges innocent misrepresentation on the part of the other party to the contract to rescind that contract. This will very seriously affect conveyancing, which is undertaken by two main documents. On selling a house one first enters into a contract for sale. One then investigates the title and other matters about the property of the house. The contract is finally completed by a conveyance or, if it is registered land, by a transfer. Before the contract is entered into, the vendor may well have said in conversation to the purchaser, "The drains are all right, old boy. They have never given me any trouble", or, "The roof's very sound. I never get a drop through it." The contract is then entered into and if the drains happen to be fractured, although the vendor knew nothing about it and made his representation innocently, and the roof happened to have dry rot, that would be a ground under Clause 1 for the rescission of the contract.

It would be no defence for the vendor to say, "I believed what I said. I had no reason to think that I was saying anything wrong." That exception comes into Clause 2(1), when he is suffering a claim for damages, and can say, "I believed what I said and had no reason to think that I was wrong". But that defence does not apply to Clause 1, when rescission of the contract is demanded by the party who has suffered from innocent misrepresentation of the other. It might be that damages are justifiable in such a case, that we should say that the vendor is the person who should pay and not the purchaser. But that is a different proposition from saying that the contract, and therefore the conveyance, should be rescinded and that the parties should be put back in the position they were in before the property was sold.

Clause 1 states: Where a person has entered into a contract after a misrepresentation has been made to to him, and (a) the misrepresentation has become a term of the contract;"— I do not think that the sort of example I have given would become a term of the contract— or (b) the contract has been performed;". What I understand from the performance of a contract for the purchase and sale of property is the conveyance or transfer of that property and the completion of the contract, but I am thrown into some doubt by the words of the Lord Chancellor in the Committee stage of the Bill in another place on 18th October, when he said: …there is the reason that it has always been part of our law of misrepresentation, and still will be, that a contract cannot be rescinded if the parties cannot be restored to the position in which they were originally, and that it is also part of our law that there cannot be rescission if the rights of third parties have come in question. Nothing in the Bill alters that situation. I hesitate to question the opinion of the noble Lord Chancellor, but surely the words, "the contract has been performed" wholly alter the present law in that if there has been innocent misrepresentation, no matter that the contract has been performed, that in the sale of land the contract has been completed by a conveyance or transfer, Clause 1—the rescession Clause of the Bill—applies.

The Lord Chancellor added: It is true that there will be many cases relating to interests in land where there is some chain reaction, where it is impossible to put the parties back to the position which they were in before or where the rights of third parties have been interposed. In those cases, there will not be rescission."—[OFFICIAL REPORT. House of Lords, 18th October, 1966; Vol.277, c.51–2] Again, I question that opinion, because let us look at the ordinary transaction, many of which happen every day, of a chain of houses being sold and purchased. The vendor of one house simultaneously buys another, that is, he spends the purchase money in buying another home for himself, or perhaps only in putting down the deposit, and getting the money from a building society or other mortgagor. This does not alter the position of the transaction between himself and the purchaser. This is something outside that contract. So, taking that contract alone, one can say that the parties can be put back in the same position as before, that it is only a matter of the purchaser handing back the house or of the vendor paying the purchaser back the money. It is irrelevant that the vendor has spent the money on something else and is nothing to do with the contract.

What will obviously happen as a result of Clause 1 is that where there has been misrepresentation, however innocent, in the contract for sale of a house, we may be presented afterwards with that purchaser demanding rescission and the vendor finding he has bought himself a new home and spent the money. He has to return it and take back his old home.

This problem comes at a time when inside the solicitors' profession we are trying to streamline conveyancing to reduce costs to the public and outside the profession there are protests about the costs of conveyancing. I wish there were more than two back benchers on the Government side to realise that this legislation will increase the costs of conveyancing and not reduce them.

I protest again about this type of Bill being brought before the House at this time, when the House has not had an opportunity of making any amendment to the Bill. It may be said that these Bills go to a Second Reading Committee because they are based on a Law Reform Commission Report, but this Clause as it stands is dead against this Report and this House as a House has never had an opportunity to consider it. It is completely contrary to the Report, to the advice of the professional bodies, of solicitors, and of everybody concerned with the practice of conveyancing, and I protest at this abuse of Second Reading Committee procedure to bring forward at 3.15 a.m. a Bill which makes such fundamental changes in the branches of law which most closely touch the everyday activities of the people.

3.16 a.m.

Mr. Walter Clegg (North Fylde)

The contributions of my hon. Friend the Member for Crosby (Mr. Graham Page) and of the hon. Member for Cardigan (Mr. Elystan Morgan) have show clearly how insufferably arrogant was the intervention by the hon. Member for Roxburgh, Selkirk and Peebles (Mr. David Steel). This is a matter of great importance to the people of England and Wales. It is true that it does not affect Scotland, except in one Clause, but it has been clearly shown on both sides that there are matters of moment to be debated here tonight, and I can assure the hon. Member for Roxburgh, Selkirk and Peebles that I would not be here at 3.15 a.m. if I did not think it a matter of importance to my constituents and to my profession.

Mr. David Steel

I would not want the hon. Member to misunderstand me. I do not object to debating it, but that bad speech was wandering with no direction at all. I have listened to the last speech with interest.

Mr. Clegg

I understood the hon. Member to say, when he intervened, that this matter had been considered by a Committee and there was therefore no reason for it to be debated. Perhaps we can check it in HANSARD tomorrow. Nevertheless, I would add my plea to the Solicitor-General about the conveyancer. It will mean a great deal to the profession if this Bill goes through: a great deal in worry.

In any legal system, it is a great thing to have certainty. When the very home in which one lives is affected, the certainty that one may stay there when one's furniture has been moved in and that the transaction on which one depended to buy the house will not be rescinded gives a great deal of comfort.

From time to time, great hardship could be caused, but I do not think that rescission is the answer to the problem. I have spoken to many members of my profession, and they are disturbed about this. They are disturbed, too, about the practical implications in the Bill. Clause 1, for example, says: Where a person has entered into a contract after a misrepresentation has been made to him, and—(a) the misrepresentation has become a term of the contract… That sounds simple, and, in theory, it is. But to build up a picture of what really happens when two laymen are talking over a transaction is extremely difficult. It would be hard for a judge to decide what was incorporated into a contract.

That and the discretionary items which we have discussed already, especially that in Clause 2, where a great onus is thrust on the court, will make this bear down hard on practitioners and, more important, on people because of the lack of certainty.

I want to make one last appeal to the learned Solicitor-General on the question of land. It would make a tremendous difference if he would take such transactions out of the Bill.

3.17 a.m.

The Solicitor-General

We are now engaged upon the Third Reading of the Bill, and it is not open to me or to anyone else to amend the Bill now. I have listened carefully to all the arguments which have been advanced by hon. Gentlemen opposite, and the time has now arrived when they must make up their minds whether or not they are in favour of this Measure.

The hon. and learned Member for Southport (Mr. Percival) said that the Bill made a tremendous difference to the law, and that innocent misrepresentation has not been a ground for rescission from time immemorial. That is true. However, it is a part of the law which has led to considerable injustice to purchasers, and that is why we are changing the law. We are changing it in the sense suggested by the Jenkins Committee, and I was under the impression that the provisions of the Measure were accepted in all parts of the House. It has not been suggested up till now that it is a Measure to which the House should refuse consent, and it would be remarkable if hon. Gentleman were to vote against it at this stage.

The hon. and learned Gentleman again raised a matter which he had raised in Committee and about which he and I entered into correspondence. I wrote to him, as I did to one or two other hon. Gentlemen opposite, first, to say that it was not my intention to propose any Amendments on Report, and, second, in an endeavour to clear away the doubts in their minds. It appears that I was not wholly successful in that endeavour.

The hon. and learned Gentleman went to Clause 3 and referred, in particular, to the concluding lines: …that provision shall be of no effect except to the extent (if any) that, in any proceedings arising out of the contract, the court or arbitrator may allow reliance on it as being fair and reasonable in the circumstances of the case. The hon. and learned Gentleman was raising the question whether that was an objective or subjective test. In my submission there cannot be any possible doubt about this. Words of this kind have been included in a great number of statutes, and it is always for the court to determine what is reasonable in the circumstances.

The hon. Gentleman put to me the difference between somebody who was in a sense an expert, for example, the vendor of a motor car who happened to be a garage proprietor, or in some way an expert on motor cars, and an ordinary vendor who had no such expert knowledge. In those circumstances it would be for the vendor to give evidence as to what he knew and what were the facts of which he had knowledge, and no doubt the court in those circumstances would consider what was reasonable in the case of such a vendor. The court might apply a slightly different standard in the case of somebody else who did not have such expert knowledge, but in either case it is quite clear that this would be an objective test. The court would say, "What did you know?", and "What was reasonable in the circumstances?", and I suggest that that would give no particular difficulty to any tribunal.

I come now to the other point which was raised by my hon. Friend the Member for Cardigan (Mr. Elystan Morgan), by the hon. Member for Crosby (Mr. Graham Page), and by the hon. Member for North Fylde (Mr. Clegg). They were particularly concerned with transactions in real property, and the hon. Gentleman put to me the case of the sale of a house. He asked me to suppose that there had been a sale of a house, some defect was discovered afterwards, it might be that a third party had come into the matter, and it might be entirely unjust or inequitable to insist on recission in such a case. I suggest that in such a case, as the Lord Chancellor said, the conveyance is unlikely to be rescinded because of the impossibility of restitution.

My answer is that a case of that sort would be covered by Clause 2(2) which says: Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission…". That is the option which is given to the court, and in the sort of case which has been put to me by my hon. Friend the Member for Cardigan, or by the hon. Member for Crosby, or by the hon. Member for North Fylde, it would follow that the court or arbitrator would almost certainly award damages in lieu of rescission. Therefore that matter is really fully covered.

Mr. Graham Page

I appreciate that subsection, and I have read it, but it says that the contract ought to be rescinded. In an ordinary transaction between a purchaser and a vendor of a house how on earth is the court to judge whether it ought to be rescinded or not?

The Solicitor-General

That depends on the misrepresentation. If the house has been purchased in reliance of a misrepresentation, it would follow that it was a contract which ought to be rescinded, but, for the reasons which the hon. Gentleman has suggested, in this case rescission would not be a suitable remedy, and therefore damages would be awarded instead. I suggest that that sort of case is adequately covered by the provisions of Clause 2(2).

My hon. Friend the Member for Cardigan in right when he says that we have not followed the Law Reform Commit- tee's recommendation in this matter. It was originally included, but after considerable debate in another place it was decided that it should be omitted. These are the points which have been raised on Third Reading.

I again say, in spite of the speeches made by hon. Members opposite, that this is a Measure which is generally approved. It remedies a very long standing anomoly in the law which has led over the years to many injustices. Therefore, I invite the House to give the Bill a Third Reading.

Question put and agreed to.

Bill accordingly read the Third time and passed, without Amendment.