HC Deb 19 July 1967 vol 750 cc2334-43
Mr. Graham Page

I beg to move Amendment No. 53, in page 22, to leave out line 12 and to insert: (1) Any profit realised by any director of a company within one year from the date of purchase by him of any of the rights set out in paragraphs (a), (b) or (c) of this subsection shall inure to and be recoverable by that company by civil process: Provided that in default of action by that company within 60 days after request by any holder of shares or debentures of that company, the said proceedings may be brought in the name and on behalf of that company by any holder of shares or debentures of that company or, whether or not such request has been made, by the Board of Trade in accordance with section 37 of this Act. The rights to which this section applies are: —

Mr. Speaker

It is proposed that we should also discuss Amendment No. 54—page 22, line 12, after 'director' insert: 'employee or person appointed by a company to act as its consultant'. and Amendment No. 56—page 22, line 33, at end insert: Provided that in the case of an employee (other than a director) or person appointed as consultant it shall be a defence to show that he was not at the time of the purchase of any of the rights mentioned in paragraph (a), (b) or (c) of this subsection, in possession of any information likely to affect the value of such shares or debentures which was not also available to the public; and in any proceedings that the fact that such information would not normally be available to such person by virtue of his employment shall be prima facie evidence that he was not in possession of such information at the time of purchase of any of the rights aforesaid.

Mr. Page

I apologise that the Amendment is not quite complete in that we have omitted the removal of lines 28 to 33. The object is to turn the proceedings under this Clause into a civil claim rather than a criminal charge.

Clause 25 seeks to penalise directors of a company if they deal in options. We support the Clause in principle, but it makes dealing in options in the director's own company a criminal offence. Amendment No. 54 and Amendment No. 56 draw into the net as possible culprits employees of the company and those employed as consultants to the company, because they may have just as much opportunity as directors of the company to obtain information which could be used to their own advantage and to the detriment of shareholders. We would couple with the director of a company who deals in options an employee and a consultant employed by a company.

If those two categories are to be included, they would need perhaps a special defence which would not normally be recognised if put forward by a director. We say in Amendment No. 56 that if an employee or consultant can show that he was in possession of any information likely to affect the value of the shares which was also available to the public, then that is a defence. If he has obtained any information which is common knowledge, he would have a defence to the claim against him. Therefore, to this extent, we would widen the Clause to make it bite, not only on directors, but on employees and consultants; but in the other respect we would narrow it to a civil claim rather than a criminal claim.

It is reprehensible for a director, an employee or a consultant to deal in options in the way described in the Clause, but it should not be a criminal offence. There is conduct which is criminal in relation to a company by its directors or employees and which should be prosecuted as such, but this is not a case of that sort. This should be a civil claim. There would be one advantage in making it a civil claim. If it is made a criminal offence, it would be prosecuted very infrequently.

1.45 a.m.

It would be difficult for anyone outside the company to discover what had been happening in dealings in options, and any member of the company, or the company itself, might hesitate to provide information on which to prosecute if the result was a prosecution disturbing to the business of the company. If it is a civil claim by the company and if there is some reward to the company in taking that civil action, then on more occasions would one make certain of the director, employee or consultant being deprived of his ill-gotten gains.

We would make this a civil claim by the company against the offender. This might be said to be illogical, in that the company has made no loss. On many occasions the company does make a loss in that when it is known that there has been some juggling or fiddling in the company's shares, the reputation of the company suffers. One does not need to be logical in this. One wants to find the best way to prevent this sort of thing happening, the best deterrent.

The best deterrent seems to be a certainty of some action being taken. There would be very little certainty of criminal proceedings being taken, whereas, if the Bill provided for a civil claim by the company, the company having some reward for doing so, then the knowledge of that would be a great deterrent to those tempted to deal in options in their own company.

Mr. Jay

The hon. Member for Crosby (Mr. Graham Page) is proposing that there should be provision, in the case of a director dealing in options, for the company, by civil proceedings, to recover from that director any profits he has made out of such dealings. Under the Bill, this would be a criminal offence. It is not entirely clear to me from the Amendment whether the hon. Gentleman is wishing to add this provision for the recovery of profits, to the existing provisions of the offence being a criminal one, or whether he is wishing to substitute civil proceedings for the criminal proceedings, which he seeks to eliminate.

Mr. Graham Page

I said when I started that we had omitted to put an Amendment on the Order Paper to remove the criminal offence. I would put this in instead of criminal proceedings.

Mr. Jay

I understood that some words had been dropped out, but I was not sure of their consequence. If the hon. Gentleman is seeking to substitute the civil procedure for the criminal one, it seems that there is some serious lack of logic in the proposal. It seems that if a director, benefiting by inside knowledge, indulges in some deal in options on the market and makes a profit out of it, he cannot be said to have made a profit out of the company, but out of the public or the community as a whole, or perhaps out of the people who sold the options.

The loss has fallen more generally, and therefore proceedings against him by the Crown were thought to be more appropriate than civil proceedings by the company which may, as the hon. Gentleman admitted, not have made a loss. Our proposal is more logical and appropriate. I agree that we want a deterrent, and the possibility of proceedings in a criminal court would be the most effective deterrent. For those reasons we are not convinced that any change should be made.

Mr. Graham Page

Before the right hon. Gentleman sits down, may I point out that he did not deal with the point of the employee or the consultant.

Mr. Jay

I thought the hon. Gentleman was taking this together with the separate proposals. Here the Opposition wish to extend the area of penalties beyond the spouses and children, with whom we had trouble earlier, to employees and consultants. It does not seem to us that when we are first embarking on legislation in this sphere, which has already caused some difficulties, it would be wise to go further and cast the net as far as, apparently, hon. Gentlemen opposite wish to. As I said last week, one step enough for me amidst the encircling gloom. Perhaps it is an even more proper sentiment at this time of the night.

Mr. Michael Shaw

It is morning.

Mr. Jay

I think I am just in time. On the whole we think we should retain this provision as it stands at present in the Bill.

Sir J. Foster

The President of the Board of Trade is right in saying that the company has not lost any money, but if there is an unjust enrichment on the part of a director, having done a deal in options, it is not unjust that the company out of whose shares the profit is made should get the benefit of it. At the moment there is no inquiry necessary to be made as to the amount that the director dealing in options would have made himself, and in a civil action there would be discovery documents and so on and the whole thing would come out. One might get the position where a judge would be unwilling to impose two years' imprisonment, just because the amount realised by the director was a big amount; and the fine is limited to £200, so if the director makes £200,000 out of an option deal he might get a sentence of imprisonment, or might not. He certainly would not be at risk to the community to the tune of more than £200.

There is an argument for saying that the fine should be equal to the amount of the unjust enrichment, but that is rough justice for it is not the community which has suffered. I suppose it is a little less rough justice that the community should get the unjust enrichment, but it is, I think, less just that the director should keep the whole amount, and only have to pay a fine of £200. He would certainly be up, in most cases, on the money side. This is why I should have thought the Government should accept the Amendment.

Mr. Corfield

I think I ought to apologise, because I drafted this Amendment, and am responsible for the missing bit. The difficulty, as I see it, was that this was about the third drafting, and I wanted to leave the rights as they were drafted in the Bill, but I neglected to make suitable adjustment for the criminal side as opposed to the civil side.

My own view was that we ought to put this as an alternative rather than as a substitute, for the reasons that my hon. and learned Friend and others have pointed out.

There is a case for setting out the principle of accountability and fiduciary relationship, because, referring back to our earlier debates on Clause 30 or the substitute Clause we suggested, one had to get over the problem of making third parties criminally liable for something in which they really had no criminal intent. Clearly, the crux is to get a director or other member of a company who has inside dealings to realise that he is not going to put anything into his own pocket as a result.

Particularly if one could combine this approach with the criminal approach, one would give additional incentive to the company to institute a criminal prosecution or some proceedings which it may well not have available when there is no actual fraud from the point of view of making it obvious that there is a case for the police.

When all is said and done, if the man is a man of straw, people may shrug their shoulders and say, "We shall not bother to prosecute." We know this happens and it is probably wrong, but the question of setting before a director clearly that his duty is a fiduciary one is no bad thing.

I appreciate that the drafting is not as it should be and that, at this stage, we cannot do anything about it. But I hope that the right hon. Gentleman will consider this as a sort of second string to the bow in this much advertised Bill, bearing in mind that I have taken this proposal as near as I could from the American Exchange Control Act. It is not easy to translate American into English but I have done my best. The principle has worked in America, although, of course, the situation there is somewhat different.

On that basis, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Jay

I beg to move Amendment No. 180 in page 22, line 14, to leave out from second `of' to 'or' in line 18 and to insert: 'relevant shares or a specified amount of relevant debentures'. This Amendment is in response to a proposal made in Committee and carries out our undertaking to restrict the prohibition on dealings in options to options on the quoted shares or debentures of the company in question. We accepted that as a reasonable proposal. One or two Amendments put down by the Opposition seek to do the same thing but I believe that the objective is more effectively carried out by this Amendment.

Mr. Michael Shaw

We now seem to be getting thoroughly en accord and on this happy note I will leave the matter.

Amendment agreed to.

Further Amendments made: No. 181, in page 22, line 20, leave out 'any such' and insert 'relevant'.

No. 182, in line 21, leave out any such ' and insert 'relevant'.

No. 183, in line 26, leave out 'any such' and insert 'relevant'.

No. 184, in line 27, leave out 'any such' and insert 'relevant'.

No. 185, in page 22, line 33, at end insert— () In the foregoing subsection—

  1. (a) relevant shares', in relation to a director of a company, means shares in the company or in any other body corporate, being the company's subsidiary or holding company or a subsidiary of the company's holding company, being shares as respects which there has been granted a quotation on a stock exchange (whether within Great Britain or elsewhere); and
  2. (b) 'relevant debentures', in relation to a director of a company, means debentures of the company or of any other body corporate, being the company's subsidiary or holding company or a subsidiary of the company's holding company, being debentures as respects which there has been granted such a quotation as aforesaid'.—[Mr. Jay.)

Mr. Corfield

I beg to move Amendment No. 57, in page 22, line 37, at end to insert— (3) Proceedings in respect of an offence under this section shall not, in England or Wales, be instituted except by or with the consent of the Board of Trade or the Director of Public Prosecutions. The purpose is obvious and the Amendment has the merit that even the Government cannot complain about the drafting, and it is simple. I put it forward only for the reason that it appears that the offence created in Clause 25, particularly as extended by Clause 30—which is a relatively new Clause, introduced in Committee—could be very technical in certain cases, particularly where a husband, wife or infant child is involved. Indeed, it could almost be innocent, and certainly in the case of a child or spouse it would be entirely innocent.

It is surely right that we should not only state our feeling that frivolous prosecutions should not be undertaken but make it clear in the Bill that it is not the purpose that prosecutions should be undertaken except where there is clear ground for doing so.

2.0 a.m.

It has become almost the standard form of words on these occasions to make it necessary to refer the matter, normally to the Director of Public Prosecutions, but in a Companies Bill, where the Board of Trade is, in a sense, a policing authority, it is "and/or the Board of Trade". I hope that the Government will consider accepting the Amendment. It would not in any way weaken the Bill. It would give the confidence that these are not matters which are to be regarded as offences for the sake of offences but that the test will be whether they are moral offences, as opposed to purely technical infringements of the Bill.

Mr. Jay

I agree that the drafting of the Amendment is impeccable. Indeed, the Amendment has the almost unique merit of being intelligible to the non-lawyer. It appears to me to say what it means. However, we are not convinced that it would be right to accept it. I agree that it is normal to restrict prosecutions in this way—that is, to the Board of Trade or the Director—where the offence is a technical one and it seems necessary to protect people against vexatious prosecutions. There might be some cases under this provision where the offence would be technical, but 'there would be many others where, the offence would not be technical.

If we accepted this sweeping provision, it would cover those offences as well as the others. That would go too far. I should not have thought that there was any harm in leaving the Bill as it stands. It will be open to the Board of Trade or the Director to prosecute where it thinks fit, but, as there will be many cases—indeed, I should have thought he majority of cases—where the offence would not be a technical one, I do not think that the hon. Gentleman has made out his case.

Mr. Corfield

The right hon. Gentleman is not trying to meet us over the very real problems we discussed resulting from the extension of the Clause by the provisions of Clause 30. This is the problem. It is no good ignoring the fact that there may be infant children—admittedly they are not infants in the sense we have in mind, but children of between 14 and 21—charged with a purely technical offence. After all, the Bill is drafted—the Board of Trade has drafted it; we have not—in such a way that the child is put into court and then he is given the defence of saying that he does not know. In many cases it may be an entirely technical offence on the part of the infant child or the spouse, particularly where there is a separated family.

Therefore, I should be willing to accept the argument that probably the new subsection might he attached to Clause 30 rather than to this Clause. I do not think it is a matter of great substance here, but on Clause 30 this is important. If the Government would accept an alteration to Clause 30, there would not be any great difficulty. I would even write out the manuscript Amendment myself. We should have some protection, as the Board of Trade has deliberately created a technical offence in Clause, 30, a technical offence where the onus of proving innocence is on the accused, instead of the onus of proof of guilt being on the prosecutor.

Mr. Jay

I should have thought that cases where there was a purely technical offence by the spouse or the child and in which somebody other than the Board of Trade or the Director sought to institute proceedings because of a technical offence would be exceedingly rare, if they ever occurred. Even if they did and the prosecution were proceeded with, in all likelihood the court would acquit or not impose any penalty on the person prosecuted in these circumstances. I doubt whether there is much substance in what the hon. Member says, but we will certainly consider his argument if it seems to us right and it is in any way possible at this late stage to amend the Bill, which I rather doubt.

Mr. Corfield

I am grateful to the right hon. Gentleman for that. I am sure that the House as a whole does not like the idea of putting children in court unless there is an overwhelming case for doing SO.

Amendment negatived.