HC Deb 26 October 1979 vol 972 cc770-9

Order for Second Reading read.

11.6 a.m.

The Solicitor-General (Sir Ian Percival)

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

The Bill seeks to reform the law on charging orders. Its general aim is to help both creditor and debtor by providing new ways for the recovery of debts, and it is based on the recommendations of the Law Commission.

Charging orders belong to that part of our jurisprudence which is concerned less with what the citizen is entitled to and more with when, where and how he is to go about getting it. In the present case, what he is entitled to is payment of the money due under a judgment. The charging order provides one method of enforcing payment. Other methods include execution against goods, attachment of earnings and proceedings in bankruptcy. That of itself is sufficient to emphasise the importance of this small Bill. It is no use whatever people having a right to go to court and obtain a judgment if there are no adequate means of enforcing it, and the Bill will improve the means of doing that.

The idea for the Bill came from a joint memorandum submitted to the Lord Chancellor by the Law Reform Committee of the Law Society and the Bar in 1971. The then Lord Chancellor—who is again the Lord Chancellor—referred the matter to the Law Commission, which set up a working party in the following year. The problems involved appeared, on analysis, to go deeper than had been at first thought, and it was not until five years later, in 1976, that a report was published, with a draft Bill appended to it. That was presented to Parliament by the Lord Chancellor at that time, Lord Elwyn-Jones, in March 1976. This Bill is substantially the same as the Bill that was appended to that report. Such changes as have been made have been considered and approved by the Law Commission.

The Law Commission's report is required reading for anyone who wishes to understand what the Bill is intended to achieve. Considering the complexity of the subject, the report is remarkably short. It is only 35 pages long and is clear and helpful. The Law Commission is to be congratulated on an extremely practical set of recommendations. I believe that all hon. Members will join me in expressing that sentiment.

When the court makes a charging order in respect of an asset of the debtors, it gives the creditor the same security for the payment of his judgment debt as if the debtor had voluntarily granted him an equitable charge. If a creditor obtains a charging order over some land or some shares owned by the debtor, his position is thereby secured. He becomes entitled to have his debt paid out of the proceeds of sale of the land or shares, and he also becomes entitled to force this sale by a further order of the court in order to realise his security. The charging order thus benefits the creditor by giving him security that he would not otherwise have had, and it helps the debtor by taking away the pressure for immediate payment and giving him a short interval in which to put his financial affairs in order. That may be not only to his benefit but to the benefit of that particular creditor and other creditors as well.

The existing law on charging orders has four serious defects which the Bill aims to remove. First, it allows charging orders to be made in the High Court in respect of very small debts. For various reasons, which I shall come to later, it would be better to have applications for charging orders made in the county court in such cases.

Secondly, the assets which may be charged are limited under the existing law to land, shares and funds in court. The Law Commission recomended, and the Bill thus provides for, other assets and interests to be chargeable. Thirdly, although the law allows for a charging order to be made when a judgment debt is due, it does not provide for the charging order to be unmade when the debts has been satisfied. The charging order secures the creditor vis-a-vis the debtor, but not vis-a-vis the other creditors. It does not by itself give him the right to retain his security in the event of the debtor's bankruptcy. Those are the four main targets at which the Bill is aimed, and each of the first four clauses is concerned with one of those targets. The other four clauses deal with the power to make rules of court, with interpretation and with consequential matters.

Clause 1 provides that, as a general rule, where the judgment debt is below the county court limit of £2,000 the charging order should be applied for in the county court. This would mean, under the existing rules of court, that the application would have to be made in the court in the district where the debtor lives. As for judgment debts of over £2,000, clause 1 requires the application to be made to the High Court. Under the present law, charging orders may be, and frequently are, applied for in the High Court although the sum involved is well below the county court limit. Indeed, it has been held that, if the judgment is obtained in the High Court, that is where the application for a charging order must be made, however small the sum involved.

This is open to criticism for a number of reasons. First, the debtor seldom makes the journey from the country to the Strand in London to tell the court of his circumstances and why it might be unfair to make the order. Secondly, the debtor may be overawed by the thought of coming to London and attending the High Court, or the expense may be prohibitive. Again, he may simply feel that it is not worth while. Therefore, where the sum involved is fairly small and the application is made to the High Court, the charging order is almost invariably granted without a contest. This may be unfair to the debtor, but it may also be unfair to his other creditors. It is already part of the established case law that the court should not grant a charging order to one creditor if it would give him an unfair advantage over the rest. But, unless the debtor attends the hearing, the court will not discover how many, if any, other creditors he has. He is more likely to attend the court when the sum is small if the application is heard in the local county court.

Therefore, clause 1 is intended to bring charging orders into line with the general principle that debts within the county court limit should be recoverable through the debtor's local county court. Debts above that limit will be recoverable by proceedings in the High Court. Exceptions must be made, and are made, in the Bill for the recovery of maintenance, for the charging of funds in court and for consolidated applications. I do not think that the House would wish me to discuss those in detail at this stage.

Clause 2 extends the range of chargeable assets in two directions. First, it adds to the existing list of chargeable securities by including, for example, unit trusts. Secondly, it extends the court's powers to charge equitable interests. This is of particular importance in the case of the debtor whose house or other land is co-owned by him and another person. Under the present law, a charging order cannot be made against the land itself, because that is trust property in which the other person is interested. This is as it should be. Nor can it be made against the debtor's individual interest in the land, because, although an equitable interest in land can be the subject of a charging order, the beneficial interest of a co-owner is technically an equitable interest, not in the land but only in the proceeds of sale of the land. This is a major loophole in the law, and clause 2 closes it by providing charging orders to be made on any interest held by the debtor beneficially "under any trust". These words ensure that charging orders can be obtained against the beneficial interest of all those who co-own land and against the interests of all trust beneficiaries.

Mr. Graham Page (Crosby)

I notice that the list of assets in clause 2 that can be subject to a charging order can be extended by the Lord Chancellor by statutory instrument under clause 3, where the list, under clause 2(2), can be increased. It seems to be a pretty comprehensive list as it stands. Has the Solicitor-General any idea of how it could be increased, and has he anything in mind for a statutory instrument of that sort? On the other hand, has he anything in mind for removing anything from the list, such as a person's home? I gather that there can be a charging order on homes and a sale of the home under the charging order without the matter ever coming back to the court again.

The Solicitor-General

I shall discuss this with my right hon. Friend in more detail at a later stage. The answer now is specifically "No". The provision to which he refers is there to meet this situation. If the extensions made specifically are not apt to meet the situation, there is that general provision under which the situation may be dealt with without further legislation.

Clause 3 makes good the third notable deficiency in the existing law by empowering any court which has made a charging order to vary it or discharge it if that is what the interests of justice require.

Clause 4 tackles the bankruptcy point which was raised in the overseas aviation case of 1963. This was featured in the original memorandum from the Law Society and the Bar in 1971. In order to gain priority over unsecured creditors, the person who obtains a charging order must, under the present law, also apply for a receiver of the debtor's property to be appointed. This is expensive and, in many cases, inappropriate. Clause 4 rewords the relevant provisions in a way that meets this highly technical point and protects the creditor's security without the appointment of a receiver.

Those are not the only points covered by the Bill, but they are the main ones. The measure is likely to be welcomed by all those who have business before the courts. It modernises and improves an important part of the law. I believe that the House will feel greatly obliged to the Law Commission for its assistance in the preparation of the Bill. I am sure that it will also feel pleased with the Government for bringing the Bill forward so speedily. Therefore, I hope that the House will be happy to give the Bill a Second Reading.

11.19 a.m.

Mr. Peter Archer (Warley, West)

This is the first opportunity that I have had to congratulate the Solicitor-General on his appearance at the Dispatch Box. I wish him well. He and I may not always be as completely in agreement as we are today. But it may impose a discipline on each of us to recall that when we previously discussed legal matters in the House the only difference was that our places were transposed. I am sure that he will forgive me if I remind him that nothing remains static, as one of the pre-Socratic philosophers, Anaxagoras, I think, has reminded us.

Let me set anxieties at rest. We welcome the Bill. It would be inconsistent to do otherwise. It is a measure of law reform in which, as the hon. and learned Gentleman has fairly said, the former Administration played a part. The Lord Chancellor acknowledged that fact generously in another place. Indeed, my noble Friend Lord Elwyn-Jones expressed his welcome for the Bill. So all I need say is that we are grateful to the Solicitor-General for his clear and concise exposition of the matter. However, the fact that that is all I need to say will not inhibit me from saying more.

There are two sorts of law reform: first, where there is a shortcoming in the legal system that is revealed in a dramatic way by events which evoke widespread shock and for which our lay colleagues understandably demand law reform. Secondly, there are those less traumatic instances which emerge in practice that are so technical that lawyers find difficulty in exciting the passions of their lay colleagues. I believe that both sorts are necessary and that they benefit not lawyers but their lay clients.

As the Solicitor-General reminded us, the Bill began with a memorandum from the Law Society and the Bar setting out problems which they had encountered in practice. The noble Lord the present Lord Chancellor, in an earlier chapter of his biography, referred the matter to the Law Commission. The Commission considered it with its usual care and learning. As usual, it was not content merely to analyse the jurisprudential reasoning, but representatives of those who might encounter that branch of the law in practice were consulted in order that logic would not overrule practical convenience. I endorse what the hon. and learned Gentleman said in praise of the Law Commission. So he may not be utterly amazed to learn that I have no criticism of the Bill as it has emerged from another place.

Last Monday I ventured to say in in another context that my most salient characteristic is not an uncritical adulation of the other place. However, on this occasion I cannot fault it. I should like to go one stage further. This is not the first time that this House has paid tribute to the Law Commission—may it not be the last. I believe that measures of law reform are best considered when they are fully researched and consulted on and, where necessary, they are decided upon after proper debate in the House. After all, we are responsible to those who are on the receiving end—the electors. That is a better method of law reform than to leave it to judges to form social judgments with, perhaps, less opportunity for research and in a more emotive atmosphere where a specific case has arisen.

The Solicitor-General will find that the Opposition will wish to encourage him and his noble Friend the Lord Chancellor to introduce measures of law reform and we shall try not to repay them in any niggardly coin when they seek so to do. I do not undertake to welcome every measure irrespective of its merits. We shall take each measure as we find it. But when meritorious if undramatic measures like this one are brought forward we shall not be in any mood to erect unnecessary obstructions. I would not wish Mr. Justice Kerr and his colleagues to feel that after their devoted work their reports will encounter a bottleneck on reaching Westminster. If they do, it will not be of our making. I wish the Solicitor-General and his Bill well.

11.24 a.m.

Mr. J. Enoch Powell (Down, South)

In his brief but competent analysis of the contents of the Bill, the Solicitor-General did not refer—as is common among those who introduce Bills on Second Reading—to the last clause dealing with commencement and extent. However, I wish to do so, with no desire to be tedious to the House. The last words of the Bill are: This Act does not extend to Scotland or Northern Ireland. There are a number of Bills of which the extent is limited where the reasons for that limitation appear on the face of the Bill and it is quite clear that its purport is bound to be restricted to one part of the United Kingdom. That cannot be said of this Bill. From the speech of the Solicitor-General, it would follow that the Bill has the purpose of benefiting both debtors and creditors in obtaining results on a judgment of the court.

Most of us are in the habit, when we see Scotland referred to in these exclusions, of recalling the provisions of the Treaty of Union. We say to ourselves "Well, of course, the law of Scotland is different." However, that does not apply in anything like the same sense to Northern Ireland. In that Province, although the law, in recent decades, has been made by another Parliament, it—rightly—closely and increasingly follows the law of the rest of the United Kingdom, or of England and Wales, as the case may be.

I do not mean this as a personal citicism of the Solicitor-General, but it is incumbent upon a Minister presenting a Bill of this character, which excludes Northern Ireland, to explain that exclusion and whether the provisions are unnecessary in Northern Ireland. Alternatively, he should explain how it is intended that the same benefits shall be conferred upon that part of the United Kingdom and when that will take place.

The right hon. Member for Crosby (Mr. Page) raised a point with the Solicitor-General, and a lawyers' agreement to meet in chambers was made between them. I suggest to the Solicitor-General that if he is unable to give me an answer on the Floor of the House he should invite his Northern Ireland colleagues to address themselves to my two questions. First, are the corresponding provisions requisite for application to Northern Ireland? Secondly, how, if so, will that application be made? Will it be made in such a way and with such timing that it cannot be said that a citizen of the United Kingdom is at any disadvantage thereby compared with any other citizen?

Mr. Graham Page

I should like to take the right hon. Gentleman one step further. I was questioning the alteration in the list of assets on which a charging order can be made. That can be altered by the Lord Chancellor. How will that apply to Northern Ireland?

Mr. Powell

I think that that measure would probably be all right. The Lord Chancellor of Great Britain is now, and long may he remain, also the Lord Chancellor of Northern Ireland. I hope that, in spirit if not in the letter, that is an adequate response.

I expected the right hon. Gentleman to refer to a specific point in clause 2, which may or may not assist my argument. In Clause 2(2)(b)(iii) reference is made to stock of any body incorporated outside England and Wales … being stock registered in a register kept at any place within England and Wales". It is possible for a debtor whose case had been before the courts in England and Wales, and from whose assets it was desired by a court in England and Wales to make a charging order, to have no suitable asset other than the stock of a body incorporated in Northern Ireland and not registered in England and Wales.

The same argument could presumably apply to Scotland. Clearly, if there is to be corresponding and reciprocal legislation for the other parts of the United Kingdom, little or no inconvenience might occur, but perhaps reference to that provision will make my point that if we do have uniform law for different parts of the Kingdom, albeit enacted by different methods, it is essential that, on grounds of equity, it should come into effect simultaneously.

I hope that the Solicitor-General will pick up that point, if not when he replies, at any rate in the consultations that I hope will result in an answer to myself which will be of interest in the part of the kingdom where I represent a constituency.

11.31 a.m.

The Solicitor-General

With the leave of the House, I should like to say a few words in reply. I thank the right hon. and learned Member for Warley, West (Mr. Archer) for his generous observations about myself. I greatly appreciate his good wishes. The right hon. and learned Gentleman was always very courteous and helpful to me when our roles were reversed, and I hope that he will not find me wanting in the same characteristics. As he said, nothing remains static for ever, but some things stay the same longer than others, and we have our hopes in that regard.

I am sure that the right hon. Member for Down, South (Mr. Powell) will appreciate that the fact that I did not refer to clause 8 does not spring from a lack of interest in, or concern for, Northern Ireland. He has raised general and specific questions of interest and importance, and I hope that he will agree that it would not be sensible for me to endeavour to answer those questions off the cuff. They are too important for that. I shall respond to his request and invite my colleagues to address themselves to those questions.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills.)