ADDITIONAL PROTECTION FOR TRANSFEREES UNDER STOCK EXCHANGE TRANSACTIONS (Hansard, 30 April 1971)

§ Mr. McLaren
I beg to move, That this House doth agree with the Lords in the said Amendment.
This is an Amendment of rather more substance and its effect would be to add an additional new Clause after Clause 5. It relates to the protection of the donee of a power and of third persons where the power has been revoked. The Clause provides that a purchaser from a donee shall be conclusively presumed not to have known of the revocation of the power, and that would make his title secure if either the purchase takes place within twelve months of the grant of the power or the purchaser makes a statutory declaration before or within three months of the purchase that he did not know of the revocation.
It is thought that this procedure would not work smoothly in the case of stock 874 exchange transactions. That is because, under the Stock Transfer Act passed by Parliament in 1963, the form of transfer is not signed by the transferee—that is, the purchaser of the shares—who often does not even see it. Further, in the case of a broker's transfer which takes place when the original holding has been split up, the transferee may never know who the transferor was, and if the transferee were required, as under Clause 5(4), to make a statutory declaration to the effect that he did not know of the revocation of the power at the material time, it would not make sense because, at the material time, he would not even know whether the transaction was made under a power of attorney or not.
In these circumstances, it was thought that the best course would be to provide that the statutory declaration should be made, not by the transferee but by the donee of the power, the person to whom the power has been given. This position has been discussed and agreed between the Law Commission and the Stock Exchange, and I am authorised to say that the Amendment has the approval of both these bodies. The new Clause is limited only to stock exchange transactions and is intended to avoid the administrative difficulties which might otherwise occur.

§ Mr. Carlisle
I am grateful to my hon. Friend the Member for Bristol, North-West (Mr. McLaren). As he has rightly said, this new Clause has been settled in agreement with the Law Commission, which itself has been in consultation with the Stock Exchange. It has equally the support of Her Majesty's Government, and perhaps I might take this opportunity to say, since the hon. and learned Gentleman the Member for Dulwich (Mr. S. C. Silkin) and I both mentioned our thanks to my hon. Friend the Member for Bristol, North-West for bringing forward this Bill, that we all always appreciate the very great work and assistance given by the Law Commission in any question of law reform, and this Bill is a good example of a Bill of a technical nature provided as a result of the industry of the Law Commission, first in its draft working paper and then in its later report, to which the Bill was attached.
As my hon. Friend has said, in another place it was realised that Clause 5, which gives protection to the donee and third 875 parties where the power of attorney is revoked, and clearly does that successfully, would raise practical difficulties in the application of the Bill to share transfers. Clause 5 is concerned with the protection of the donee and third persons against the revocation of a power of attorney, and it provides that the purchaser from a donee shall be conclusively presumed not to have known of the revocation of the power, and his title was therefore to be secure, if either the purchase took place within 12 months of the granting of the power, or the purchaser made a statutory declaration, before, or within three months after, the purchase, that he did not know of the revocation.
While it is felt that this device of a statutory declaration is reasonable enough for most types of transaction, and the powers under Clause 5 as a whole should give the necessary protection, the Stock Exchange has suggested that it might raise a problem with share transactions. Under the new procedure authorised by the Stock Transfer Act, 1963, for transferring shares on the Stock Exchange, the transferee does not have to sign the transfer and so may never know, until afterwards, that the sale was made under power of attorney. His broker may know when he obtains the transfer for lodgement with the company, or may never learn if the securities are split and he lodges a broker's transfer. It is felt that it is not only expensive, but would be extremely artificial, for the purchaser to have to make a statutory declaration that he did not know that the power of attorney under which the sale was made had been revoked when at the time of the sale he did not know that it was being made under the power of attorney at all.

§ Mr. S. C. Silkin
I take the point that the transferee may not know and may not come to know after the transfer has taken place. I wonder in what circumstances it is likely to arise that the donee of the power will make the statutory declaration. How will it be brought to the knowledge of the transferee that such a statutory declaration is required under the terms of the Clause so as to bring it into effect? Is there a possible gap 876 still remaining even after this provision has been made?

§ Mr. Carlisle
I should not have thought that that was so. I accept what the hon. and learned Gentleman says about the statutory declaration generally, but the new Clause says specifically that where the donee of the power of attorney executes, as transferor, an instrument transferring registered securities"— this is a Stock Exchange transaction— it shall be conclusively presumed in favour of the transferee that the power had not been revoked at the date of the instrument if a statutory declaration to that effect is made by the donee of the power on or within three months after that date. It has to be on or within three months and it is then conclusively presumed that the transaction in favour of the transferee is valid.

§ Mr. Silkin
I follow that. My point is how it would come about that the donee would make a statutory declaration, on or within three months after, unless somebody for some purpose required him to do so.

§ Mr. Carlisle
That is a valid question.

§ Mr. McLaren
I suggest that the answer to that is that where the donee of the power was executing stock transfers, it would occur to him that he needed also to make this statutory declaration.

§ Mr. Carlisle
I am grateful to my hon. Friend. That is also the advice which I have now received—that it would occur to him to make this declaration and he would do so.
While in theory there is a good argument that no statutory declaration is necessary in these cases anyway and that Clause 5 is therefore sufficient as it stands, those with the most knowledge and experience of these matters are firmly of the opinion that in practice difficulties would arise with company registration from time to time. It was so that that might be avoided, if at all possible, that the Law Commission, after consultation with the Stock Exchange, came to the conclusion that the Bill ought to make adequate provision on this point. It is felt that it now does, and, 877 like my hon. Friend, I commend the new Clause to the House.

§ Mr. S. C. Silkin
I am certain that the Clause is an improvement on the Bill as it stood when it left this House. Like the hon. and learned Member, I am delighted to express my appreciation to the Law Commission, which, together with the Stock Exchange, worked out this new proposal. But after the Under-Secretary's explanation, I still have some doubt as to whether it fully accomplishes its objective.
It means that there must be reliance upon the transferor in order to ensure that the transferee has protection, and that means that there will be reliance on the transferor to inform the transferee that the transfer is executed under power of attorney and to take these steps. There may be occasions when for one reason or another that will not be done within the requisite period, and that is perhaps unfortunate, and it seems that a gap is still left. None the less, undoubtedly this will make the position more secure in many instances.
There is one question which I should like to ask the hon. Member for Bristol, North-West (Mr. McLaren) which arises out of the situation which was disclosed in another place and which gave rise to the Amendment. It was apparently discovered, after the Bill had been drafted and after it had been through this House in virtually record time, that there was this possible difficulty relating to Stock Exchange transactions. As I understand it, that arose because the Stock Exchange spotted it and made contact with the Law Commission or the Government—I know not which—and the Law Commission worked out the Clause.
The fact that a gap of that kind was spotted in that way makes one wonder whether there may be ether possible gaps in other situations which have not been covered. I wonder whether an assurance may be given that the question has been considered as fully as possible and that, so far as is known, there are no other similar situations which ought to be covered by the Bill.

§ Mr. McLaren
With the leave of the House, I should like to give the right hon. and learned Gentleman that assurance. I am not aware of any other 878 misgivings and I hope that the provisions of the Bill will be watertight.