HL Deb 05 August 1890 vol 347 cc1864-86

House in Committee (on re-commitment) (according to Order).

Clause 3.

* THE LORD CHANCELLOR

Upon this clause with regard to liability for statements in a prospectus, I have to move to omit lines 10 to 15, on page 2. That question arises in this form. The Bill has provided for the liability of Directors in respect of untrue statements made in a prospectus, which, presumably, upon the theory of the Bill, they are responsible for composing and issuing. It throws upon them the necessity of showing affirmatively that they believed, at all events, in the statements put forward by them. But, besides that, the Bill proposes to make a Director liable under circumstances which I will mention in a moment, for any statement which, in fact, is untrue in the report of any expert, whether the expert be an engineer, accountant, valuer, or what not. Now, I think it would be quite fair that a Director should be called upon to show that he had made a fair extract from or had correctly copied the report or valuation of an engineer, valuer, accountant, or other expert. That, of course, is a matter within his own knowledge, and it is a matter with regard to which he may be justly expected to be careful in what he puts before the public; but this Bill goes further, The Bill calls upon him to show affirmatively, and, in the first instance, without any evidence being called, that he did not himself do it; that he believed the statement which was made; that the valuer or expert was competent; because that is the only interpretation that I can give to the phrase "bona fide." Now, if I am to suppose that this is a conspiracy between the engineer, valuer, or accountant, and the Director, the law reaches that at present. That would be a fraud. Therefore, what this Bill does is this: the hypothesis of its necessity assumes that the Director is not in fraudulent conspiracy with the engineer or valuer, because that is reached by the law as it stands at present, but it says that he is, in the first instance, without any foundation being made to call upon him for it, to be called upon to show, in the words of the Bill— That he had reasonable grounds for believing that it was a correct or fair copy of or extract from the Report or valuation, and that he had reasonable ground for believing, and did, up to the time of the allotment, believe that the statement, Report, or valuation was made in good faith by the person by whom it was purported to be made. That is, that he believes that the person who made it did himself believe it. Now, this is the first time in any legislation, as far as I am aware, in which Parliament has called upon a man to answer, not only from his own belief, but to state that he believes that some other person believed something, and not only that, but that he believed the person who believed that something, and made the statement about it, was competent to make it. I do not understand upon what ground it is supposed that a Director should be called upon to prove that rather than that the person who, by the hypothesis, has taken the shares upon the faith of the statements, should exercise his belief in regard to their untruth. It must, by the clause itself, be a fair copy or representation of what the engineer or valuer has said, and why on earth the Director is, more than the person who has taken the shares, to be called upon to exercise that belief, and that he should, in the first instance, satisfy a jury that he did believe the valuer was competent, and that he did make the valuation or Report in good faith I cannot understand. With reference to a statement which was made by the Director himself, and upon his own authority, in a prospectus, if he put his name to it, I quite agree that it is not unreasonable to say that if, as a matter of fact, an untruth is found in it, the issue may be changed, and that he may be called upon to show that it is either true or that he believed it to be true. That I can understand; but I do not understand why, when a Director says, as he impliedly does say by extract from or giving a copy of the valuation or accountant's Report:—"I, myself, have no knowledge of this, but I give you what the expert to whom I have applied says about it, and you must inquire for yourselves what the value of that expert's opinion is, what his reputation is among the set of valuers or accountants among whom he practises, and you must form your own judgment upon it,"he is to be called upon to pledge his belief to the competency of that expert, and to the expert's own belief in the truth of the statements. All the Director says, and all I think he ought to be called upon to say, is—"This is an extract from, "or" This is the valuers' opinion," but this Bill throws upon him not only the onus in respect of statements which he has made himself, but calls upon him to show, if anybody chooses to bring an action against him, that he believed the valuer did believe in good faith, and that the valuer was a competent valuer. It seems to me both unreasonable and improper that you should call upon a Director to do that, and for that reason I move to omit the clause.

Amendment moved, in Clause 3, page 2, lines 10 to 15, to leave out— And that he had reasonable ground for believing, and did up to the time of the allotment of the shares, debentures, or debenture stock, as the case may be, believe, that the statement, report, or valuation was made in good faith by the person by whom it purports to have been made, and that the person making it was competent to make it; and")— (The Lord Chancellor.)

LORD HERSCHELL

This matter was fully discussed in Committee, and the view taken by the Committee was not that of my noble and learned Friend on the Woolsack. I imagine it will be considered here as free from those Party considerations which divide us as it was there. I cannot consent to the proposal of my noble and learned Friend. It seems to me to strike an absolutely fatal blow at this Bill. I believe if this Amendment were agreed to it would increase the mischiefs which exist rather than diminish them, as I hope to show your Lordships in a moment or two. My noble and learned Friend has dwelt upon a good many things concerning this clause, and has asked why you should not call upon a man to prove this, that, and the other; but he has not laid any stress upon this: that you have to prove that the person whom you see has issued an untrue statement in order to get money from the public who subscribed upon the faith of the untrue statement, that they acted upon that untrue statement, that they had been deceived by it, that they had lost their money in consequence of it. That you have to prove, and then my noble and learned Friend says, "Why are you not content with that? Why should you throw any on 11s on the man who has issued an untrue statement to the public, and got money out of them upon the strength of it?" For myself, I think that is a reason for saying that you should throw the onus on the man who has issued that untrue statement to the public. Then my noble and learned Friend says it is enough if the Director gives the name of a valuer or engineer who is of any kind of reputation. The proposition which my noble and learned Friend seems to lay down is this, that a man has a right to issue to the public a false statement, because that false statement is vouched for by someone of reputation in his profession, no matter how incompetent or how absolutely unfit to deal with the matter he may be; that the Director who issues it has a right to issue it without caring or troubling himself in the least as to the competency of the expert he has employed, to put it before the public as a thing they may rely upon, and then to say, "Though I had no reasonable ground to believe the man whom I employed was a competent man, though I put forward a false statement which he made, I shall be under no law." Now, just consider all this clause asks of him. It not only asks that he shall believe the statement which the expert made, but it says, "You who employed him shall show that you had reasonable ground to believe that he was a competant man." If he has employed the man, and put his statement before the public to induce them to part with their money, if he has induced them to act upon that man's statement, is it too much to ask that that man should show that he had reasonable ground to believe the person he employed was competent? What easier than to prove it in nine cases out of ton, if the man is really a competent man? But consider for a moment what would be the result if the proposal of my noble and learned Friend is adopted. I submit that this will be the result: that those who are going to launch companies before the public will be able to show that they employed an export, and there will soon grow up a particular class of experts, who will be easily got to make such Reports. My noble and learned Friend talks of the proof being given by the person who has taken the shares. But it is known perfectly well to him that many things cannot be proved. You may have your suspicion that the man has gone to this, that, or the other person to get a Report, without troubling himself to ascertain whether the person to whom he went was a man on whom he could rely; but proof in these cases is very difficult; and the result of my noble and learned Friend's proposal will be that you will have less examination as to whether Reports have been made by fit persons, because you will positively put a premium upon Directors going to a man who is likely to make loose statements and favourable statements which may be desired; and if a Director goes to such a man he will know that he is no more liable than if he had employed the most competent valuer or engineer in the country; whereas here there is an advantage conferred upon a man if he goes to a person of known competency, because there will be no such likelihood of his making loose or inaccurate statements. This is really putting a premium upon Directors and Promoters—for it is the Promoters especially I am thinking of—going to men of but little competence, repute, and skill, and it would act in the opposite direction to that desired by those who are promoting this Bill, and by a largo body of the public. It seems to me that if this Amendment be adopted it will strike a fatal blow at the Bill, and will make the condition of things worse than it is at present.

* LORD MORRIS

As I proposed this identical Amendment in the Standing Committee on Law, I would ask your Lordships' indulgence while I make a few short observations upon it. It is quite true, as my noble and learned Friend opposite said, that my Amendment was rejected, but it was rejected by only a majority of one, and at a time when there was only a very small attendance, if my recollection is accurate, upon the Committee—seven noble Lords voted for the Amendments, and eight voted against them.

* THE LORD CHANCELLOR

The Committee consisting of 45.

* LORD MORRIS

But there were only 15 present.

LORD HERSCHBLL

I did not put any stress upon the numbers, whether many were present or not. All I said was, I hoped it would be considered as free from Party bias here as it was there.

* LORD MORRIS

I know my noble and learned Friend did not place stress upon the numbers, but still he alluded to the fact that the same Amendment had been proposed in the Standing Committee on Law, and I think it right to explain, because, if unexplained, that might affect noble Lords' views upon the subject. Without the slightest kind of communication with any person, and being wholly disinterested, as I am not a Director of any Company, I was so struck with what appeared to mo the extraordinary imposition upon a Director under this clause, if it were allowed to stand, from the word "valuation," down to the end of it, that I proposed its omission. It does appear to me to be an unprecedented proposal, and I will take the liberty of saying one contrary to good sense, that any man should be called upon, not only to explain his own opinions or belief, or why he had acted upon them, but that he should be obliged to prove that he had reasonable grounds for relying upon the statements of another man, having been made by that man, in the honest belief that they were true. That is shortly, as has been put by the Lord Chancellor, the effect of the clause—that the Director had reasonable ground for believing that another man believed rightly and properly. I think that is an issue which ought to be imposed upon no Director and upon no man. There seems to be some sort of run at Directors at this moment, and I think we should be very likely to be legislating in a kind of panic on the subject by passing such a clause. But if, as it appears to me, that is an imposition upon Directors which should not be allowed to stay in the Bill, the second branch of the clause appears to me to be still more open to objection, and that is that he shall prove to a Jury if anything happens to the Company of which he is Director—and Companies may be affected, your Lordships must remember, by other causes, by perhaps bubble companies breaking up, and not by actual failure of the company in question—that the person whom he employed was competent.

LORD HERSCHELL

That is not the provision, but that he had reasonable ground for believing him to be competent.

* LORD MORRIS

I know that, but we have to consider what a Jury would think, and that is the way a Jury would look at it; they never enter into fine logical distinctions, and practically, if the statements turned out to be untrue, they would probably come to the conclusion that the Director had no reasonable ground for believing them. He would put it in this way: that no Director who was solvent and had any regard for his personal character could ever employ any expert unless one who was eminent in his profession; because if he employed a Sir John Fowler, or a Sir Frederick Bramwell, the name of such an expert would be sufficient. But that would prevent any young man ever being employed, because it would be said at once to him, "I may be put upon my trial afterwards, and although I know you to be very clever and competent, still a Common Jury of the City of London will come to the conclusion that, as your name is unknown to fame, you are not a competent person." I venture to repeat, what I have already said in this House, that we ought to be satisfied with advancing to the extent that we have done, and that if there is any future legislation required of the subject it is quite time enough to adopt it when there are evils found which this present Bill, if passed into a Statute, would meet. Upon those grounds, my Lords, I should certainly support the proposition of the Lord Chancellor.

* LORD BRAMWELL

My Lords, I am not desirous of putting any unnecessary burden upon Directors. I am very much afraid of the Bill as it stands, but I cannot agree with the Amendment of the Lord Chancellor. Really, the proposition is this: that if the Report of an expert is relied upon in a prospectus, the Director shall be able to say not that he was competent, but that he believed him to be a competent man, and that he believed the Report was bonâ fide made. Now, what can be the objection to that? It is said that these cases will come before Juries, and even Common Juries. I know they will come before Common Juries, and if a company has turned out unsuccessful I know very well what may happen. But that is an excellent reason, my Lords, for not passing the Bill at all. If the Bill is to be passed it should be passed on principle, and if the man is able to give a good account of himself, and of his own opinions, why should he not be also called upon to give a good account of his opinion of the expert he has relied upon, and of that expert's Report? Just see what the consequence is if it is not so. A man desirous of "floating" a company, as it is called, goes to a great number of experts, and your Lordships will remember that the definition of an expert is a man whose profession enables him to be looked upon as an authority on a particular subject—he goes to a great many experts who do not agree with him, and after he has gone to the most respectable of them he goes to some man who will agree with him, in whom he has much less faith than he had in the half-dozen who rejected him, perhaps no faith at all, and whose Report he believes is made simply for the fee he would get for it, and not in consequence of its correctly representing his opinion. Now, that would really be the case if the Lord Chancellor's Amendment was adopted, and I think the noble and learned Lord must remember this, that when a man has been called upon to give evidence, and has relied upon the opinion of an expert, that it frequently happens to him to be asked: "Did not you consult Mr. A. B?—Yes.—Are you going to call him?—No."What is the inference from that? And he is, perhaps, asked the same question with regard to Mr. C. D., Mr. E. P., and so on. The conclusion from that is that he has gone to the best experts in the first instance, and their Reports have not suited his purpose; therefore, he has gone on until he has found some expert whose Report did suit his purpose. Now, I beg your Lordships to look at this proposition as the Bill stands. It does not make the Promoter or Director guarantee the good faith or skill of the expert; all it makes him do is to show that he believed in him and in his statements.

LORD HERSCHELL

That he had reasonable ground to believe in them.

* LORD BRAMWELL

I should have said had reasonable ground for believing in them. Why not? If that is true of his own sentiments and his own opinion, is it not true of his faith in those whose statements he has brought forward to the public and advised them are to be relied upon? And your Lordships will always remember there is a primâ facie case made out against the Director or Promoter by showing in the first instance that the Report, or valuation, or what not, contained an untruth, and that calls upon him to show his good faith, and that he believed in the man who made it.

* THE EARL OF SELBORNE

My Lords, it has occurred to me to call attention to one thing which does not apply to this particular point, but rather more widely to the question of the onus probandi. I do not see any provision for the case of a Director having become of unsound mind, and being of unsound mind, at the time when the charge arises. I do not know whether the Bill applies either to a case where the Director is dead.

LORD HERSCHELL

In that case, I think no action would lie.

* THE EARL OF SELBORNE

Yes, I suppose the ordinary rule would apply in that case, that no action of tort would lie after death, and therefore we may dismiss the case of a man who is dead. But I cannot help thinking that the onus probandi, which this Bill introduces for the first time, upon a man who is of unsound mind at the time when the action arises would he to take from him the possibility of clearing himself, however honest his conduct might have been, and however well able he might have been to satisfy the burden of proof if he had been of sound mind. I do not know, therefore, whether my noble and learned Friend would be willing to put in at the end of the clause some such words as these:—"Provided always, that if at the time when any such action arises the Director is of unsound mind, the burden of proof shall be the same as if this Act had not passed." I cannot help thinking that otherwise some injustice will be done, because it would probably be the case that the company would have gone on for a time at all events, and the action might arise some time after the man had commenced acting as Director. It might also be the case that he had become of unsound mind, and totally unable to make even an affidavit as to his ground of belief with regard to any statements in the prospectus.

LORD HERSCHELL

I have never been able to appreciate the importance of this point with regard to the onus of proof. In a case of fraud, the onus of proof is upon the plaintiff, who alleges that a statement is untrue, to show that it was known to be untrue by the man who made it; but if it is once proved to be untrue, and the circumstances are not such as to make it clear that he knew it to be untrue, I have never known any case where steps had not to be taken to prove that the man did not know it. Of course, there may be a case where a man is dead, but that would be an entirely different matter; and if such an action were brought, the circumstances would be carefully scrutinised, and the result would depend upon a consideration of the whole case, whether, upon the whole, the proper conclusion was or not that the man believed the statement to be true. I do not myself think this shifting of the onus of proof would make any differ- ence in the form of the issue for trial in a question of fraud. It has always been sufficient to launch an action of fraud if you prove that the untrue statement has been made; and that calls for an answer. That is all that is done here; and this calls for an answer, not by the persons who have lost their money, but by the persons who made the statement, or put forward statements made by the persons whom they have employed. In the view I take it will make no difference in the issue to be tried, and I do not believe it would make any difference in the working of the Act, or in the mode in which trials would be conducted. I should like to make one observation upon the suggestion that you might have a case of this kind tried before a Common Jury, and that it would be impossible to say what a Common Jury might do. Well, that amounts only to this: that you have not confidence in the tribunal which administers the law; not that the law is wrong. But the cases will not all be taken before Common Juries; some would be tried before Special Juries, or in other ways, and therefore it is no argument at all to say that you should make the law otherwise than what it ought to be, because it may be administered by a Common Jury. That is what the argument really amounts to, and I cannot give it my consent. I would remind the noble and learned Lord (Lord Morris) that in this country, and in Ireland too, I suppose, Juries are not left absolutely without control, and that if a Jury were, without any evidence, to find that a man had no reasonable ground which all the evidence went to show that he had, the verdict would not be allowed to stand. My Lords, I cannot help feeling very strongly about this. I do not wish to throw any undue burden on Directors, but it is undoubtedly a public evil that men do put forward too readily to the public untrue statements, upon the faith of which they get money subscribed, and I venture to say that this proposal of the noble and learned Lord will encourage that practice, because men will not them trouble their heads with the question whether the valuers, accountants, or engineers whom they employ are competent or not, provided they are recognised professional men, and indeed the more reckless they are the more advantageous their services will be to those who desire to float companies. It is suggested that no young man could ever be employed under such a clause as this, because Directors or Promoters would have no means of showing that they had reason to believe such a man to be competent, as they would in the case of men of high repute who had already become distinguished. Surely it is a reasonable ground for believing that a man is competent if you are assured by others in the profession to which he belongs that a young man, although his name may not be widely known, is quite competent in his profession. Therefore, my Lords, I am quite sure that if these words are omitted, the result will be that the measure will become rather mischievous than beneficial.

* THE LORD CHANCELLOR

I cannot help repeating my noble and learned Friend's words: I also feel very strongly on this matter. It appears to me you are introducing a totally new head of liability. My noble and learned Friend has, from time to time, used the phrase, "makes statements which are untrue." That is fallacious, because all the Director makes by the hypothesis is the statement that is undoubtedly true, namely, that such and such a person has reported either as accountant or engineer or valuer, and of whose Report he gives either an exact copy, or a fair representation—that is all the Bill obliges him to do—a fair representation of what the expert has really reported. I must say I am a little surprised at the attitude of my noble and learned Friend Lord Bramwell opposite. It appears to me the argument he puts forward is something like this: you have taken a wrong course in this Bill altogether, and it does not matter if you add something else that is, wrong—you have done something already which is a little unreasonable in this Bill, and, therefore, you cannot do much more harm by adding this clause. I am a little surprised, I confess, at this attitude being taken up by my noble and learned Friend. His observations, however, as to the result of such trials, and the mode in which these actions will be tried, appear to be admitted by my noble and learned Friend opposite. He said, with that expressive eloquence which he knows so well how to employ, "If it comes be- fore a Common Jury I know what will happen." To put that into ordinary plain language that means that a Common Jury, in such a case, would find a verdict which they ought not to find by reason of their inclination to suppose that if a statement is once proved to be untrue it was known to be so. I say that is the very reason why you ought not to do this: you ought not to lay traps for a jury, or to assent to a provision which would enable them to give way to such a practice as this Bill seems likely to encourage. It seems to me it is quite reasonable to call upon a man wherever the onus of proof may have been originally to prove that that which he has himself said, or asserted upon his own authority, is true; or, if not in fact true, it is quite reasonable that you should call upon him to show that he had reasonable ground for believing it to be true; but when he tells you in terms—"I know nothing about this myself; but I have applied to a valuer, and this is the valuer's report." It appears to me to be unreasonable that you should then shift the onus of proof from the person who made the statement, and place it upon him in the first instance to show that the valuer was a competent valuer, and that he had reasonable ground for believing that the valuer's report was true.

* LORD BRAMWELL

I must ask leave to say another word.

THE LORD CHANCELLOR

You are entitled to do so; it is Committee.

* LORD BRAMWELL

I will take my noble and learned Friend's own suggestion. The Director says: "I know nothing about this myself, but I have got a report from so-and-so, a valuer,"—does not he by implication also say—"whom I believe to be a competent and honest person"? And that is all my noble and learned Friend's clause makes him responsible for saying. But, supposing he does not say so in so many words, ought he not to say it? He would know very well that if he said to the public, "I know nothing, mind, about this report or this expert, whether he is an honest man or not," who would care a fig for the expert's report? Therefore, when he says, "I know nothing about the matter myself, but I put forward the report of an expert upon it," he clearly does by implication go on to say—"whom I believe to be a capable and honest man."

* VISCOUNT BURY

My Lords, I think that what has just occurred must have shown your Lordships that the very first thing that will happen in a trial of this kind will be that the matter will turn on a side issue as to whether a Director, or anyone making a statement on the authority of an expert, can prove that the expert whom he consulted in the matter was a reliable person. Now, if that expert happened to be a young man, of course the whole force and efforts of the legal minds on the other side would be devoted to proving that, being a young man, he was inexperienced; that he ought not to have been trusted at all; and that any reasonable man would have gone to Sir John Fowler, or some other great expert, and would not have consulted this young man. Perhaps, as a matter of fact, the expert who had been so called in might possess a very special knowledge of the matter in hand, and he might be really a very reliable person. But everyone knows how in a case of this kind the tendency would be to ride off upon the side issue of whether the man himself was a reliable person, leaving the main issue almost untouched. My Lords, I was one of the Committee; perhaps as a lay Peer I may be pardoned in stating the fact that I was one of the minority of that Committee; and I really must say that, whenever any question arose upon that Bill, I was struck with one special circumstance—that if one noble and learned Lord asserted positively that the effect of an Amendment proposed would be so and so, another noble and learned Lord immediately spoke up and contradicted him, and three or four noble Lords would follow one another, each of them differing in opinion from the first. It seemed obvious that when you have even the highest legal luminaries in the country discussing a matter like this, and they all disagree with and directly contradict one another when they are there for the very purpose of settling the matter, what will be the case when an unfortunate man is put on his trial for his life and his honour, which is more to him than his life, before a Common Jury. I say, then, that the present condition of hesitation as to the meaning of the clause only proves the mistake you have made in passing the Second Reading of this Bill and altering the Common Law of England, which has hitherto been that a man is innocent, or must be considered innocent, until he is proved guilty. By this Bill you have altered the state of things, and you say that any man is to be liable in his honour, his life, and his fortune for any inaccurate statement that is made in his name unless he can prove that he believed that statement was true—in other words, that he is to be presumed to be guilty unless he can prove himself to be innocent. This I believe to be the first time that departure has been made in English law. The Limited Liability Act has, no doubt, done a great deal of good in this country; it has enabled a great many of our most prominent and most responsible citizens, who are not immediately engaged in trade, or immediately connected with commercial pursuits, to join in them; but if it be an advisable thing to continue the advantages which have been enjoyed under this Limited Liability Act you must not make that profession, if you choose so to call it, on the face of it, a dishonourable one. In future anybody who chooses to start a new company—I doubt whether you will find many to do so—will do so at his peril. They will not be the best men in the country who will do so; they will not be the most responsible; they will not be those on whom you ought most to rely, because they must primâ facie and as a first step put themselves under this Act, if it becomes an Act, and be presumed to be guilty, of malfeasance unless they can prove themselves innocent. My Lords, I think that this Bill is a great mistake; that it ought not to have passed a Second Reading; and that, as it is going through Committee, it ought not to be read a third time now. I certainly think you ought to take more time over this matter. The noble Lords who have been engaged in considering this Bill are not by any means of one mind as to the effect of all the Amendments which have been introduced into it. Noble Lords, many of whom have spoken upon it, have expressed, and do very freely express, out of doors, the opinion that this Bill is a very dangerous one, and for that very reason also I think that the further consideration of this important measure ought to be postponed. The real point, namely, preventing frauds upon investors, has not been grappled with in this Bill at all. I will not go into the general question, hut will simply say that the real point is not the one which you have now before you, and I hope my noble and learned Friend the Lord Chancellor will stick to this Amendment, for it seems to me that it is only a reasonable one.

* LORD TEYNHAM

I have listened with very great interest to the discussion upon the Amendments which have been placed on the Paper by various noble and learned Lords, but I should very much like to have the opinion of noble Lords on both sides of the House upon this cardinal question: whether this is a Bill which can be amended at all; whether there is not an original vice in its construction which renders it incapable of amendment. Your Lordships are aware that every law stands upon a certain sanction—no sanction, no law. Surely, hitherto the law has always preceded the sanction. First of all, you enact a certain law, and then you say what the penalty shall be if that law be violated; but now, my Lords, for the first time, I think, in the history of legislation, the sanction in Clause 3 comes first. First of all, you have a penalty of crushing magnitude invoked upon the head of some unfortunate man, not because he has broken any law enacted either by this Bill or any other Bill, but because, forsooth, his mind has not been at a certain time in such a condition as is desired by the Bill respecting some thing which may be of a highly speculative character, or some person about whom there might be very different opinions. It seems to me the very first principles of jurisprudence are attacked by such a measure. I do not see how it is competent for Parliament to place such a measure upon the Statute Book, and I should very much like to have the opinion of noble and learned Lords upon that point.

On Question, "That the words proposed to be left out stand part of the Clause," their Lordships divided:—Contents 17; Not-Contents 34.

Resolved in the negative.

* THE LORD CHANCELLOR

I suppose my noble and learned Friend will not now put me to divide upon the next Amendment, in lines 10 to 15, to leave out from "valuation" to the end.

LORD HERSCHELL

No; of course I should be "not content," but I shall not divide again.

Other Amendments made.

* THE EARL OF SELBORNE

In line 25 I should move to omit the words "he proves," and to substitute "it is proved." The object of this Amendment is to meet the possible case of the individual on whom the burden of proof is thrown being dead.

Amendment moved, in Clause 3, page 2, line 25, to leave out the words ("he proves,") and insert the words ("it is proved.")—(The Lord Selborne.)

LORD HERSCHELL

This is not an Amendment which I should myself have proposed, but it is not one which I will resist, if indeed it were any use resisting. In the view which I take I do not think it makes any substantial difference.

Amendment agreed to.

* THE EARL OF SELBORNE

Then, in lines 26 and 27, I move to omit the words "before the issue of the prospectus or notice." This imposes liability unless it is proved that, having consented to be a Director of the company, he withdrew his consent, and that the prospectus or notice was issued without his authority or consent. He would have to prove two things: first, that he withdrew; and next, that the prospectus or notice was issued without his authority or consent. The objection, as it strikes me, to the words which I propose to amit is this: A man might have been accidentally absent from a particular meeting at which a prospectus was agreed to, and, of course, as I read the whole clause, it would apply not only to a first issue, but to the issue of a prospectus at a later stage of the company. Surely a Director cannot be expected always to be able to be present at every meeting. But there is another and a stronger case. He may have been present when the subject of the prospectus was discussed, and when it was agreed to in a certain form; but afterwards, in his absence, material alterations may have been made without his knowledge, and the prospectus may have been actually issued in that altered form before he knew that any such alterations had been made in it. In that case, if he does all he can to dissociate himself from it, and withdraws his name from the list of Directors as not having authorised the prospectus, it seems to me it could not possibly be right to throw upon him the burden of proof that he had reasonable ground for believing what on the hypothesis he did not believe, because his reason for withdrawing would be the very fact that he could not consent to be made answerable for that prospectus.

Amendment moved, in Clause 3, page 2, lines 26 and 27, to leave out ("before the issue of the prospectus or notice.")— (The Earl of Selborne.)

LORD HERSCHELL

I understand the proposal is that if a man withdraws his consent to be a Director at any time this shall apply. That no doubt is the proposal of my noble and learned Friend. But he might withdraw his consent; and, according to this, if he proved that he withdrew his consent to be a Director of the company at any time after the notice or prospectus was issued, although the shares were allotted on the faith of the prospectus which had been issued with his consent, he would not escape liability. He would still be liable, as I understand it, if my noble and learned Friend's Amendment were carried, because he has to prove two things: first, that the prospectus or notice was issued without his knowledge or consent; and then he has also to prove that he withdrew his consent. But that withdrawal, as I understand, need not be before the shares are taken. I quite understand the case which my noble and learned Friend alludes to. It is this: that although a man has consented to be a Director, and consented to have his name on a prospectus, yet, unless the prospectus was agreed to in the particular form in which it was issued, it is to be considered as having been issued without his knowledge or consent. I should propose, in lieu of my noble and learned Friend's words, that words to this effect should be adopted; that upon becoming aware of the issue of the prospectus he had forthwith given notice to the public that he withdrew his sanction. The effect of it would be to make the final proviso of sub-clause (1) read as follows:— Or unless he proves that, having consented to become a Director of the company, he; withdrew his consent before the issue of the prospectus or notice, or that the prospectus or notice was issued without his authority or consent, and that, on becoming aware of its issue, he forthwith gave reasonable notice that it was so issued. It is only fair and reasonable, I think, when a prospectus is issued, and the Director finds that it is not the prospectus he authorised, that he should give some public notice of the fact, because, if he goes on and says, "Never mind, although I do not believe it is true, let it go," I think he ought to be made liable.

* THE EARL OF SELBORNE

I do not think the precaution is necessary which my noble and learned Friend proposes, but I will adopt his Amendment.

Amendment (by leave of the House) withdrawn.

Amendment moved after the word "consent," in line 38, to add— Or that the prospectus or notice was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave reasonable public notice that it was so issued without his knowledge or consent."—(The Lord Herschell.)

A NOBLE LORD

May I ask whether there should not be some special form of public notice indicated?

LORD HERSCHELL

I have merely put in the words "public notice." There is an ordinary practice with regard to that. The way it is ordinarily done is by giving notice to the public in newspapers. If a man writes to say that a prospectus has been issued without his knowledge, it very soon gets into all the newspapers. I do not think there would be any difficulty on that head.

Amendment agreed to.

* THE LORD CHANCELLOR

Then there is a proviso in the second subsection that "promoter" in this subsection means a party to the formation of the company. I would call attention to the fact that the definition does not include— Any person by reason of his acting in a professional capacity for persons who were engaged in procuring the formation of the company. Those words seem to me to be open to very grave question. According to my experience, I should say that in the large proportion of cases the persons who have been most to blame in these transactions, and who have made cats-paws of the Directors, have been professional persons who have procured them to put their names to the prospectus, and I very much doubt whether it is desirable to shield them from responsibility. I think that is a matter of some importance, and I invite my noble and learned Friend's attention to it now.

LORD HERSCHELL

I do not intend to shield them from responsibility. Those words were put in because some alarm was felt lest being a person who was not a promoter, but who was simply employed as a lawyer, we will say, to register the company and to do what was necessary in his capacity as a lawyer, should be held to come within the earlier words, because he had taken part in the preparation of the prospectus. The words were suggested to me as desirable to meet the fear of the legal profession lest they might be unintentionally included, but as I understand those words, if a lawyer acts as a promoter he would come within this clause, and not within the exception, because it only provides that it should not include anyone by reason of his acting purely in a professional capacity for those who were engaged in promoting the company.

* THE LORD CHANCELLOR

I do not want to refer to the case which my noble and learned Friend has so often referred to, but supposing the person who prepared the prospectus was a lawyer, and that he wrongly advised the Directors that they had, we will say, the power of using steam or anything else, I think that person would be very properly held to be responsible. I cannot help feeling that "by reason of his acting in a professional capacity" might not receive the construction which my noble and learned Friend means it to have, because I think it might be said that if he has, for payment as solicitor, prepared a prospectus on instructions, although he knew perfectly well the inaccuracy of it, he might be excluded from the operation of this Bill, though he might be assailed in another form.

LORD HERSCHELL

Surely it is not reasonable, if a solicitor is acting merely as solicitor, and is not himself a promoter in the sense in which promoter has been construed by the Courts, to hold that he should be liable under such a measure as this for having given erroneous advice. If he has acted fraudulently there would be means of calling him to account. I doubt really whether there would be any difference if you strike the words out, because I doubt whether any person could be held to be a promoter as party to the preparation of a prospectus by reason of his having acted in a professional capacity. No doubt there has been considerable alarm and consternation caused with regard to its application in the case of the legal profession.

A NOBLE LORD

Lawyers would not, of course, be the only persons who would act in a professional capacity; for instance, there would be engineers, and the engineer acting in the matter might be the very man whom you would like to bring within your net.

LORD HERSCHELL

Unless he is a Director or a promoter you cannot make him liable under such a Bill as this. You are then going to an outside category altogether. This Bill deals with floating companies, and placing them before the public. I agree that engineers sometimes, like lawyers, are promoters, and, if so, they are hit.

* THE LORD CHANCELLOR

That is the whole question between us. I am not going to move an Amendment upon it. I only call my noble and learned Friend's attention to it. I doubt whether those words are apt. My impression is that the effect of the words will be to shield a man who is really a promoter under the plea of having given professional advice, that he was only acting as lawyer, engineer, or valuer, in the matter, and not as promoter. I only desire to call attention to it.

* LORD MORRIS

Would it not be sufficient to use the words "by reason merely of his acting in a professional capacity?" The noble and learned Lord, in describing the object which he had in view himself, used the word "merely." That is why I make the suggestion, so as to provide that the exception shall apply only in cases where the man was merely acting as attorney, accountant, or engineer, or so on.

* THE EARL OF SELBORNE

I cannot help thinking the words, as they stand, come to the same thing. The meaning of it is that that is not to be a reason for making him a promoter. You make him a promoter in another way; and if he acts in a professional capacity only, he would not be liable, provided you do not bring fraud home to him; of course, he would be liable for his fraud. But with regard to Sub-section 3, I should like to ask my noble and learned Friend whether there is any sufficient reason for limiting that sub-section to companies which are existing at the passing of the Act. New companies will be in the same situation. They may, at some later period, have occasion to make new issues of shares or debentures, just as much as companies which are existing at the time of the passing of the Act. It seems to me that in that case, where you have similar circumstances existing, the same law should be applied to both present and future companies.

LORD HERSCHELL

The difficulty I have felt about that is that with regard to existing companies you can, of course, do it, because it could not be held to be an invasion of the Act; but with regard to new companies what I fear is, that if you provide with regard to a subsequent prospectus, there would be a danger of something being done to enable it to be said "This is not a first issue," which would get rid of the stringent part of the Bill. That was my fear, and I have not quite seen how one can make certain that the words would not be used for the purpose of bringing about some evasion of the Act of that description. I am not quite sure that it would not do that, any more than a provision with regard to making first allotments of shares, because they might simply allot two or three shares only, for the purpose of making the real allotment not the first allotment of shares. That was my only fear.

* THE EARL OF SELBORNE

I cannot help thinking that ought to be met. The case would otherwise have to be dealt with under the previous sub section. It seems to me that the difficulty is one which my noble and learned Friend's ingenuity is equal to overcome.

Clause 3 agreed to.

Clause 4.

* THE EARL OF SELBORNE

In line 5 of this clause, I think something should be put in to meet the alteration which I has been made by my noble and learned Friend.

LORD HERSCHELL

I have an Amendment in line 6 which I think would meet it, to insert "not to affect any such Director." It would then not cast liability on any of the Directors without whose knowledge or consent the prospectus was issued.

Amendment agreed to.

Report of the Amendments to be received on Thursday next; and Bill to be printed as amended. (No. 257.)