§ Order of the Day for the Third Reading, read.
§ LORD HERSCHELL
In moving the Third Reading of this Bill, I desire to say a few words to your Lordships in order to remove, if possible, some mis- 227 apprehensions which, I think, prevail in regard to some of the alterations which have been made in the Bill while it was before the Standing Committee. It seems to be thought in certain quarters that the Amendments there made have seriously weakened the Bill, have diminished the probability that it will be effective for the purposes for which it was intended, and have been made in the interests rather of directors and promoters than of the public. I therefore propose to call your attention to the leading alterations which were there made, in order to establish, as I think I can without difficulty establish, that this idea and those statements arise from a misapprehension of both the effect and intention os the Amendments. Exception has been taken to two alterations which were the leading alterations made by the Standing Committee—the first, to the omission from the Bill of the word "misleading." I believe there are very few cases to which this Bill would have applied if the word "misleading" had remained which would not be covered by the word "untrue," in the sense in which that word has always been interpreted by law. But even admitting that there may be such cases, I am satisfied that had the former word been allowed to remain it would have included many cases which no reasonable man would have intended to include, and I cannot too strongly insist that in any legislation of this description we are bound to look carefully at the words we use. While unquestionably there is a temptation to use a broad, general word, which will sweep into its net every case it is meant to cover, it is the bounden duty of Parliament to consider whether that general word, wide enough to cover all that is intended, may not, on the other hand, cover a great deal more than is intended to be brought within the scope of the Bill; and, if you are satisfied that it will, you are not justified in using a general word in order to secure that those upon whom you intend to cast liability shall be made liable, regardless of whether it will act justly in making those liable who ought not to be made so. It was with that view that the word "misleading" was omitted, and I believe that the Bill without that word will, so far as this part of it 228 is concerned, be thoroughly effective. A more serious objection has been taken to the omission of certain other words. The Bill provided that as regards both statements made by Directors on their own authority and statements made by them on the authority of experts, it is not only necessary that they should have been made with a reasonable belief in their truth, but that it should be proved, in addition, that they were made after reasonable inquiry and examination into their truth, and into the competence of the experts. It has been said that the omission of those words so weakens the measure, which was intended to secure greater care and diligence on the part of the Directors, as to render it of but little value. It seems to me that this belief proceeds from a grave misapprehension of the manner in which the language used would be interpreted by the Courts of Law, and of the way in which the provision would be worked in practice. There are, no doubt, many cases in which it is the bounden duty of either Directors or promoters to make full investigation and inquiry, and if in such cases they failed to do so, no Court or jury, from my experience of them, would hold that they had reasonable grounds for their belief, because they would say that no man acted reasonably who "believed" without making investigation and inquiry. Where, therefore, it was a case in which investigation and inquiry ought to be made, I am satisfied that the provision, as it stands, will be just as effective as interpreted by the Courts, as if the words omitted had remained. My objection to the words is not the effect that would thus be produced by them, but that the insertion of them rests upon the assumption that in every case some examination and investigation is necessary, and that it is not enough to have reasonable belief, or, rather, that belief cannot be reasonable or proper unless there has been examination and investigation. Let me illustrate what I mean. Let us suppose that the statement made is that banking facilities are required, we will say in Egypt, and I am informed by two of the most eminent financiers in the City of London, who propose to take part in the formation of the new banking concern, that there is a need for a new bank 229 in that part of the world. What further examination or investigation ought I to make or could I make? It seems to me, in such a case as that, I should have reasonable ground for believing the statement that banking facilities were required in that country was true; and to say or require that, in addition to that, I must make reasonable examination and inquiry, leads me to ask, how could I better satisfy myself than I should be satisfied already? Or take again this case, for it would apply equally: a statement is made in a Report by the President of the College of Physicians upon a medical question. Well, surely I may reasonably believe him to be a competent man from his position. What investigation am I to make into his competency as the Bill requires? Whom am I to ask? In such a case as that of course it would be ridiculous to say that a man ought reasonably to be bound to make any further examination or inquiry. Or, again, a statement is made upon an engineering question by the President of the Institute of Civil Engineers. Of whom am I to make further inquiry, or what possible inquiry that I could make would lead me further on the road for the purpose of determining whether the President of the Institute of Civil Engineers was a competent person to make a Report upon a question of civil engineering? The truth is that, while in many cases examination and investigation are absolutely necessary, and without it no Court ought to hold that a man had reasonable ground for his belief, there are, on the other hand, cases in which it would be unreasonable and ridiculous to expect or require of a man, in addition to having reasonable belief, that he should make examination, investigation, and inquiry into the belief he entertained in certain matters. The Courts would hold that it must mean that examination and inquiry shall be made where such examination and inquiry are necessary, and that no inquiry or examination is necessary beyond the mere knowledge of the man in such cases as I have supposed. Therefore, I do not believe that whether those words are in or out they would produce any substantial difference, except in this respect: that in certain cases the Courts would have to hold them meaningless in order 230 to avoid the supposition that Parliament had enacted an absurdity, and I hold that it is the duty of the Legislature to put into intelligible language what it means, and not leave the Courts to say that it cannot have meant that which it has literally said. Therefore, I do not myself believe that the omission of the words to which I have alluded would produce the slightest practical difference in the operation of this Bill from what it would have been if they had been left there; although, no doubt, if they had been left there, they would have given rise to a good deal of litigation and expense in order to determine what Parliament really meant, to the advantage of the profession to which I belong, but certainly not to the advantage of the public. I may be mistaken, and those who have written on the subject may know better than I do how the language in an enactment is likely to be interpreted and how it is likely to work. All I can say is that certainly the omission of the words was not moved by me for the purpose of assisting reckless or negligent Directors and promoters, but because I believed that their removal would make the Bill more workable, and a more satisfactory measure in every way. So far I have stated the omissions which have been made; and now, as it had been said that these changes introduced in the Standing Committee have rendered the measure weaker and less effective, I would call attention to the alterations made in the other direction. As the Bill came up to your Lordships' House it was undoubtedly intended, as it ought to have been intended, that not only should the Directors be within its scope, but that it should affect and include also the promoter, who is behind the Directors. In many cases false statement comes from the promoter, and is more or less foisted on the Directors, whom he misleads, and he is, if I may use the expression, "the more guilty party of the two." Now, as the measure came up to your Lordships' House, I have the greatest doubt whether the promoter was touched at all. If the promoter were included at all, it would only, as far as I can see, have been within or by the words "those who are responsible for the issue of the prospectus;" I do not know exactly what that means, and I do not know how 231 the Courts would interpret those words, but it seems to me this dilemma exists: Either that they must receive so narrow an interpretation that they would not cover the promoter, or so broad an interpretation that they would cover a number of people whom nobody intended to include. Therefore, if the promoter was to be dealt with, he must be dealt with in terms. Accordingly, by the Committee of your Lordships' House the promoter was distinctly named in the Bill, and was defined as "a promoter who was a party to the preparation of the prospectus, or of that part of it which was untrue." You have qualified the naming of him to an unreasonable extent by the definition you have given. Why define "promoter" at all? But even a promoter is a man who has his rights, and if you had named the promoter without defining him or without qualification, what would have been the result? Why, that a promoter who had given a perfectly honest account of an undertaking to the Directors, who had not made a single statement which was untrue, but whose undertaking had been put before the public by the Directors with a flaming account of it which had emanated simply from themselves, or with statements, portions of which were untrue, would have been made liable, although he had been perfectly honest and truthful in the matter, because somebody had afterwards foisted an untruth upon the public. Surely it is obvious that unless the promoter, who is made liable, has been a party to the putting forward, or invention, or use of a false statement, it would be in the highest degree wrong to make him liable. And yet that would be the inevitable result if you merely put him in as the promoter. No doubt the promoter very often slips out of the concern before the prospectus or notice is issued to the public, and not unfrequently statements are made in prospectuses with reference also to the number of shares taken by people or by the Directors themselves with which the promoters have nothing to do, and for which it would be simply outrageous to make him responsible. Therefore, I have defined a promoter to be made liable as being a promoter who was a party to the preparation of the prospectus or to that part of it which is untrue. I think myself 232 the Courts would give a much broader interpretation to those words if a portion of the prospectus was untrue than some people imagine. I should not advise any promoter to comfort himself with the reflection, if he has put forward a body of Directors whom he has selected, and through them has issued a prospectus and an untruth is found in the prospectus, that he is to get off because it may be said he was not a party to the prospectus, or to the part of the prospectus containing the untrue statement. Still, if this clause can be amended so as to make it more clearly applicable to all cases in which an untruth emanates from a promoter, or in which he is a party to an untruth, I shall be perfectly content, and will gladly accept any improvement of my proposed definition. But, at all events, those people who imagine that the promoter is not sufficiently dealt with, will see that so far as we have dealt with him, even if we have not dealt with him to the complete satisfac-of those who desire that he should be made liable, we have dealt with him a great deal more effectively than, he was dealt with as the Bill came into your Lordships' House. Then, again, as the Bill came into your Lordships' House the Directors were made responsible for untrue statements appearing in the shape of Reports or extracts from Reports which are incorporated or referred to in the prospectus. I think it will be seen at once that it left open a very easy means of evading the provision altogether. A man would only have to avoid in the prospectus any actual reference to the Report, or any incorporation of it in the prospectus, and instead of that to issue the Report with the prospectus, and he would not be within the terms of the Act at all. I dare say your Lordships' experience will have shown you that would have been a device frequently resorted to, because it is the case at present that Reports constantly come with a prospectus, though they do not form any part of it. It would be easy enough to avoid any such reference, and if such reference were avoided the parties would be altogether outside the scope of the Bill. It seemed to me that was a blot which ought to be remedied; and, consequently, we have extended the provision relating to these Reports and prospectuses to 233 "the documents issued therewith," so that it will extend to every document which may be issued to the public with a prospectus or notice inviting them to take shares. I am not going to trouble your Lordships with further details, but I maintain that as the measure came from the Standing Committee, when you regard the variations made and the introduction of these new matters to which I have alluded, the result has been a measure which does not depart in the slightest degree from the main principle, object, and intention of the Bill, and which makes it a more effective measure for its purpose than it was when it came from the other House. Now, I have mentioned these things, and dwelt upon them, because a suggestion has been made in some quarters that there are Members of your Lordships' House who are Directors of companies. I do not know how many times I have received copies of a circular pointing to the fact that there are 20 Members in your Lordships' House who are Directors of four or more companies. I have received that circular almost every day, which would induce an impression that it is the influence of those 20 Members of your Lordships' House that has induced me, as it is said, to weaken my measure. At all events, that is the only interpretation I can put upon my constantly receiving that circular. I need hardly assure your Lordships and the public generally, for whose benefit the measure is intended, that I have not been in the slightest degree influenced by consideration for any noble Lord who is a member either of one company or of a thousand companies. I have not been in the slightest degree influenced in what I have done by any desire to shield any person or to make lax conduct in the issuing of these prospectuses more easy or less dangerous. My whole thought and care have been directed entirely in the opposite direction, and I have sought to make the Bill, however mistaken I may be, more effective than it originally was. But I cannot help saying this: that when critics complaining of the omissions made by the Standing Committee say that the measure ought to be termed, instead of a Directors' Liability Bill, a "Directors' Immunity Bill," they seem to me to be really showing that they are talking about what they really 234 do not understand, because how a Bill which, whatever else it may do, adds considerably to the liability of Directors and does not diminish in the slightest degree any liability that at present exists, can be called a Directors' Immunity Bill I am absolutely at a loss to understand. The increment of added liability may be greater or less, but added liability certainly there is, and, therefore, no other title can be appropriate or correct than Directors' Liability Bill. While making these observations, I must admit that I very greatly regret the alteration made in Committee of the whole House at the instance of my noble and learned Friend on the Woolsack with reference to statements made by experts. I do not for a moment suppose his intention was to weaken the Bill. He thought that the provision, the excision of which he procured, was dangerous; but the more I reflect upon the effect of that alteration the more I own I am dissatisfied with it and fear it. The provision was that a Director who issued a false statement contained in the Report of an expert, on the faith of which people had subscribed their money, should have imposed upon him the duty of showing that he had reasonable ground for believing that expert to be a competent man——
§ LORD HERSCHELL
I confess I do not see the importance of that. If my noble and learned Friend had only moved to leave out "That he had made it bonâ fide," I should not have said much about it, because it is not in that way that the evil arises; but the result is this: that a Director could have made such a statement and have allowed the public to rely upon it, and then it would be enough for him to say that it was made by an expert; he might simply say—"It is true I had no reasonable ground to believe that he was a competent man, but then he was an expert; he was an engineer, or a doctor; how long he had been practising in his profession I do not know, and it does not matter; how he was regarded in his profession I do not know, and it does not matter; it is enough that he was a professional man, and I am free from, all responsibility." I cannot think that is right; and I 235 the more fear it on account of the proposition on which my noble and learned Friend founded his objection to the clause as it stood. He said—If you put into the hand of the public the report of an expert, and give his name, it is the duty of the man who is going to subscribe for shares upon the statements contained in it to inquire into his competency.From that I absolutely dissent. I say it is the duty of the man who puts forward the prospectus inviting subscriptions from the public to inquire into his competency. The man who puts before the public an expert's report without knowing the expert to be a competent person or without having taken reason able means to find out that he is a competent person is, to my mind, doing a dishonourable and discreditable act. That is my notion about it. To say that the public may make their own inquiries about the expert is absurd. They may have no means of inquiring who he is, and the truth is that anyone who reads a prospectus assumes that the Director or promoter who puts forward the statements made in it is putting them forward as statements which may be safely relied upon. What can a subscriber for shares in a company find out? There is, we will say, some enterprise in Peru, and there is a report made by Don Guzman Blanco, we will suppose, of Iquique, and the subscriber is to go and find out who he is and all about him before subscribing! I venture to say that the public will assume that the Directors who put forward the statement or report have made inquiry themselves about Don Guzman Blanco, and that they put it forward as a statement on which the public may rely. They never understand a Director to be saying, "Mind, I know nothing about this myself in the least degree, and if you want to know who this man is you must inquire and find out about him yourselves." I will test it in this way: supposing the clause were amended thus, would my noble and learned Friend consent to it? To make this liability, which would otherwise attach, not apply in cases where the prospectus or notice stated in relation to the copy or extract or report—That its insertion in the prospectus must Lot be understood as the expression of any opinion on the part of the Directors as to the competency of the expert by whom it purports to be made.236 If that would satisfy my noble and learned Friend I should have no objection to that limitation upon the clause as it previously stood. I do not believe that Directors would put a statement of that sort into a prospectus; at all events they never do, and why? Because if they simply put forward the statement of the expert, that leave the public to rely upon that statement and to believe that he is a person whose position, standing, and competency has been inquired into by them before they put his statement before the public. These are observations which I have felt bound to make, because I see great danger in the Bill as it stands; it seems to me to be sanctioning erroneous principles; it seems to me to be telling Directors to be careful about the statements which they make themselves, but that with regard to statements of experts which they may wish to put forward, so long as they are the statements of experts they are safe. If it is said that if Directors choose thus to put forward false statements without any inquiry at all fraud might be brought home to them, I must reply that I do not feel so sure about that. I do not say that in certain cases it might not, but I think it would be a very difficult thing to do; and I think it would be much better to let Directors know that they will have to show that they had reasonable ground for believing in the Report of the expert which they put forward, than to lead them to suppose they may safely put such Report into their prospectus without satisfying themselves about him at all, and find themselves ultimately landed in an action of fraud. In the interests of the public, as well as of commercial morality, I think it would be right to take that course, and I must confess that the more I have thought of the matter the greater have been the apprehensions excited in my mind about it. I will not detain your Lordships further now, because I shall have the opportunity, after the Bill has been read a third time, of answering what my noble and learned Friend may have to say.
§ Moved "that the Bill be now read 3a."—(The Lord Herschell.)
§ THE LORD CHANCELLOR
I am not certain, even after the invitation I have received, that I ought to trouble 237 your Lordships again upon this Bill. The question raised by my noble and learned Friend has been argued out in Committee, and I do not propose to go over the ground again. Either the Director is innocent or he is guilty. If the Director is guilty of anything in the nature of conspiracy with the hypothetical expert, he is reached by the existing law, for they are both guilty of fraud. On the other hand, if he be not guilty, it is unreasonable to ask him to prove himself innocent of a charge of which there is no evidence that he is guilty. I think that is all I need say upon the question of the Amendment, but I think after what my noble and learned Friend has said with regard to those of your Lordships who may be Directors it is right that I should allude to that matter. I do not know whether I am one of the 20 Peers included in the paper which has been sent to him, but if I am I will say at once it is true that I am a Director of one small Railway Company.
§ LORD HERSCHELL
If my noble and learned Friend will pardon me, I said that the 20 noble Lords referred to in the circular sent me are Directors of four Companies and upwards.
§ THE LORD CHANCELLOR
I can only say upon that subject what the noble and learned Lord has said of himself, that I am so far disinterested that my services have never been requited by a single farthing; but I am bound to add this: that they receive every reward they deserve. I certainly have no interest in preserving Directors from the liability which should justly fall upon them. I will not really condescend to argue with people who think it gentlemanly and fair to attribute evil motives to whoever moves an Amendment to a Bill which they wished to see passed. I, together with my noble and learned Friend, have endeavoured to make a good Bill of the measure under consideration; and I must say that a more ridiculous, unworkable, and absurd piece of legislation as it came up to your Lordships' House probably was never seen before, and that was not my own opinion merely, but it was the opinion of every noble Lord who had read the Bill and tried to understand it. That we may not, in the opinion of some, have entirely succeeded is not an impossible contingency, and, as a noble Lord very 238 truly pointed out the other night, lawyers do not always agree; but that my noble and learned Friend and myself have endeavoured to make it both reasonable and workable I do not think your Lordships will doubt. For anything beyond that, I have already expressed my views in this House, and, therefore, I do not think it worth while to trouble your Lordships with them again.
§ LORD BRAMWELL
I will only trouble your Lordships a very short time, because I agree entirely with almost everything that has been said by my noble and learned Friend Lord Herschell, and I shall not repeat it. As to calling this a Directors' Immunity Bill, it is absurd. Whatever liability Directors were under before they are under still, with these additional liabilities which are contained in the Bill. As it stands, I firmly believe the Bill carries into effect the intentions of those who prepared it. Your Lordships know that in that case of "Peek v. Derry," which has been so often mentioned, your Lordships' House held that a man was not responsible for an erroneous statement unless it was a fraudulent one as well as erroneous. It was thought, not unreasonably—and, as I understand, this Bills shows it—because your Lordships have now sanctioned it—that that was not a sufficient amount of responsibility for Directors, and that they ought to be made liable for untrue statements, unless they had reasonable ground for believing they were true. There has not been any alteration made in the Bill which affects that principle with the exception, perhaps, of that of my noble and learned Friend the Lord Chancellor. The Bill leaves the Director and promoter liable for any untrue statement which he had not reasonable ground for believing to be true. What more could be desired? If it could be said that the alterations in the Committee and in your Lordships' House had affected that principle, and that still a Director might make an untrue statement without having any reasonable ground for making it, why, then, indeed, there would be an imputation upon the Amendment. But it is not so; that is not true; the principle, as I have said, is unaffected by any Amendment which has taken place. Well, I am not going to argue again today that question which my noble and 239 learned Friend Lord Herschell has mooted. We had it once in Committee, and there we, that is those who objected to the Lord Chancellor's Amendment, succeeded, but he beat us in the House. And I confess I maintain that opinion briefly on this ground, that it cannot be possible, and that it is not consistent with that principle of the Bill to which I have adverted, that a Director may quote the opinion of an expert who he has no reasonable ground to believe is a capable and honest man. Therefore, I did not agree with my noble and learned Friend's Amendment; but I do not apprehend the danger which my noble and learned Friend Lord Herschell apprehends from that Amendment, because see how it stands. There will be the Report of an expert in a prospectus; it turns out to be untrue, and we will suppose that a Director who has been a party to that prospectus has an action brought against him, and is called as a witness. He must be called as a witness, for since the parties to an action can be called it follows that they must be called. If he gets into the witness-box and says not that he had any conspiracy with the other man, because there need have been no conspiracy with him at all, but—"You complain that that Report is untrue: well, I did not know it was untrue;" and then upon cross-examination if he has to admit—"I cannot say that I knew anything of the man, or his capacity or his character, I never made any inquiry at all, I do not know his position, and I did not concern myself in the least to ascertain whether he was a qualified or an honest person," I can pretty well tell what the decision of the tribunal—I will not say a Jury—which had to try the case would be. The tribunal would say, "You have uttered an untruth to the public; because, when you talked about that Report in your prospectus, and put it forward as a reason why people should take shares in the Company, by implication, you professed your belief that that was the Report of a capable, qualified, and honest person; well, now you say that was not your belief, therefore you told an untruth." I do not know whether that sounds at all sophistical, but I am pretty sure of the way in which a tribunal would deal with an argument of that sort. The 240 tribunal would say at once that the man had inserted in his prospectus a statement which he had no reasonable ground to believe to be true. However, I would much rather that the Bill had remained as it was without the Amendment, because there would then have been no foundation for the sort of roundabout argument which, I have no doubt, will be used. It would have been more in accordance with what I have called the general principle of the Bill that the man should warrant his belief in the bonâ fide character and truth of the statement in the prospectus.
§ On Question, agreed to.
§ Bill read 3a accordingly, with the Amendments.
§ Verbal Amendments made.
§ THE LORD CHANCELLOR
With reference to the Amendment of the noble Lord Earl Mayo, I must point out that it is quite beyond the purport and scope of the Bill. The object and intention of the Bill is to amend the law relating to Directors and their liability with regard to untrue statements in any prospectus inviting subscriptions from the public for shares and debentures, but the noble Lord's Amendment relates to a totally different matter. It is to insert after Clause 3 the following Clause:—Where after the passing of this Act a prospectus or notice invites persons to subscribe for shares in, or debentures or debenture stock of, a company, no allotment of any such shares, debentures, or debenture stock shall be made until seventy-five per centum of the working, capital proposed to be so raised shall have been subscribed.That is quite beyond the purport of the Bill, and is, therefore, not in order.
THE EARL OF MAYO
I am sorry the noble and learned Lord on the Woolsack takes that view, but may I be permitted to say a few words with regard to the remarks which have fallen from the noble and learned Lord opposite, Lord Herschell? If I am not absolutely precluded from moving the Amendment, I should desire to submit it. There is not the slightest misapprehension in the City about the nature of the Bill. No doubt it is a Directors' Liability Bill, and it is designed to make Directors liable for the statements they make in prospectuses. Directors often allow statements to be 241 made in prospectuses because promoters gain power over them, and I desire to protect directors from being made liable in those circumstances. I am sorry my Amendment should be thought not to come within the scope of the Bill; but the whole Bill is an infringment of the Limited Liability Act. It has been brought forward from the other House, and no doubt the Members of the other House are very much in love with it. There are many reasons which lead one to suppose that is the case. There are many honest people in the City who will be affected by it. Indeed, if this Bill passes, the immediate effect of it will be that you would not get any honest men to go on Company Boards at all, and it will result in a lot of bogus Companies being brought forward, and Directors who have been induced to go on the Boards of those bogus Companies will have actions brought against them, cases will be carried into the Law Courts where they will be threshed out by lawyers. Means of evasion will be found out, and the Act will be evaded, as legislation of this kind must be. That is all I have to say on the subject, and I move the Amendment of which I have given notice.
§ THE LORD CHANCELLOR
I must say I think the noble Lord's Amendment is distinctly out of order, but I do not desire to prevent his moving it.
Amendment moved, after Clause 3, to insert the following Clause—
Where, after the passing of the Act, a prospectus or notice invites persons to subscribe for shares in, or debentures or debenture stock of a company, no allotment of any such shares or debentures or debenture stock shall be made until 75 per cent. of the working capital proposed to be so raised shall have been subscribed."—(The Earl of Mayo.)
A Noble LORD
As the Lord Chancellor will not himself decide the matter upon the Question of Order, I must express my concurrence in the view he has taken that the Motion is not in order, because the Amendment does not deal with the subject of the Bill.
§ LORD HERSCHELL
The title of the measure is—An Act to amend the law relating to the liability of Directors and others for statements 242 in prospectuses and other documents soliciting applications for shares or debentures.It would not therefore come within the title of the Bill to impose new conditions with regard to the allotment of shares. What the noble Lord proposes, is really an Amendment of the Companies' Act, and is altogether outside the question, how far Directors should be liable for statements in a prospectus, and for what statements.
§ THE SECRETARY OF STATE FOR INDIA (Viscount CROSS)
I would press my noble Friend not to carry this Motion to a Division. I agree entirely with what has fallen from the Lord Chancellor and Lord Herschell.
§ Amendment, by leave of the House, withdrawn.
§ LORD HERSCHELL
I do not suppose that in any case, after what my noble and learned Friend has said, it would be of any avail to move the next Amendment. As he would oppose it, I know what the result would be.
I should be loth to move my Amendment if the noble and learned Lord who has charge of the Bill is distinctly of opinion that it would be useless, or that it would be prejudicial rather than otherwise to the interests of the Bill which I have very much at heart. At the same time I have received intimations from more than one noble Lord in the House that something of this kind is required, and the object of this Amendment is to supply what I think is an important omission in the Bill. It is a very common practice at the present moment for a person who has accepted the office of Director in a public company to withdraw from that position previous to allotment, and in that case it is the duty of the remaining Directors, to notify such withdrawal to the subscribers, and any subscriber so notified has it in his power to repudiate his application and to decline to take the shares or stock for which he has applied. What I am afraid of is, that if the Bill in its present form passes into law, the last chance which a Director now has of retiring from the company will no longer exist. 243 It is the more important also for this reason, that owing to the publicity which is derived from the publication of a prospectus in newspapers, which is the usual practice, it often happens that some important information is elicited either with regard to the bona fides of the concern or its chances of success which the Director was not previously acquainted with. I have myself known cases in which that has occurred. What is an honest man under this Bill to do? Is he bound to go on and make himself liable in very heavy penalties, without a chance of extricating himself from that position at the last moment as he would under the present practice, by withdrawing from his position of Director previous to allotment? That is the single object which I have in proposing this Amendment. I understand the noble and learned Lord who has charge of this Bill says there would be difficulty in the insertion of words at the last moment which would quite meet the case, and I believe he thinks the Amendment of which I have given notice is not quite sufficient in itself, but that some words should be added to it making it obligatory on the remaining Directors to notify the retirement of such Directors as may retire. If the noble and learned Lord can see his way to frame any paragraph which can be put in as a sub-section at the end of Clause 3, I should be very grateful if that could be done; but if no such provision can be inserted, I think cases of great hardship and injustice are bound to occur. I hope, therefore, your Lordships will take this Amendment into your favourable consideration.
§ Amendment moved, in Clause 3, page 2, line 27, after ("notice") insert ("or before the first general allotment of shares"), and after ("issued") insert ("or the allotment made.")—(The Lord Thurlow.)
§ LORD HERSCHELL
With regard to the proposal the noble Lord has made to me, I do not think it would be possible to accept the Amendment he has put on the Paper; but, at the same time, it does, I confess, suggest an Amendment of this Bill which would be entirely in keeping with its main purpose, and would be of some public 244 advantage. I cannot consent to it as it now stands, simply because it has reference to a person who has allowed himself to be made a cat's-paw, so to speak, in order to enable him to free himself by saying he will not be a party to the allotment. People have already applied for shares, and his withdrawing simply from the allotment does not necessarily improve their position. But I quite agree with my noble and learned Friend so far, that there would be an advantage in this, if a Director, on certain facts coming to his knowledge, could withdraw before allotment, and you could provide that when a Director had so withdrawn, there should be no allotment until notice had been given to the applicants for shares that the Director had withdrawn so as to leave it open to them or not to proceed with their application. Of course, if after that they proceeded with their applications, they would do so knowing that that Director was in no way vouching for what is alleged in the prospectus, they would go on with their eyes open; and in such a case it would be reasonable to say that the Director who had so withdrawn should not be under responsibility, because no one would have taken shares on the faith that he was a party to the statement. But that would involve a new sub-section to this clause, and when we are at this stage of the Bill, I am rather nervous of agreeing to accept it, though I do see some public advantage in it, because, as my noble Friend says, facts do sometimes come out after the issue of the prospectus and before allotment, and if a Director did so withdraw, and notice had to be given to the applicants for shares, it might prevent many unsound Companies going on. Therefore, I regret that it was not proposed at an earlier stage. The only suggestion I would make is that we might put in another clause and leave it to be considered in the other House. I do feel that making a provision of that sort might blow up some of these unsound Companies before any allotment of shares was made at all. In the interests of the public, therefore, I am rather inclined to accept it.
§ VISCOUNT BURY
I think the noble and learned Lord Herschell will remember that this point which has been urged by Lord Thurlow was brought forward 245 by myself in the General Committee, and was strongly urged by me.
§ VISCOUNT BURY
Yes, I am in the recollection of noble Lords that I did point out that very often when an intending Director has made statements, and has consented to be a Director during all the earlier stages of the proceedings, facts have come to his knowledge which have modified his previous opinions and made him unwilling to sanction the issue of the prospectus, and not only to sanction the issue of the prospectus, but even after the publication of the prospectus, that would make him unwilling to sanction the allotment of the share. Now, the Amendment proposed by Lord Thurlow, as I understand it, is that a Director may, if such facts do come to his knowledge, prevent the allotment of the shares. In that I entirely agree with him, and I think Lord Herschell will remember that was a point which I urged at an earlier stage. I only mention that, because the noble and learned Lord said he was sorry this matter had not been brought forward at an earlier period, and I do hope the Lord Chancellor and the noble and learned Lord will, in some way, be able to give effect to the Amendment suggested by Lord Thurlow.
§ LORD HERSCHELL
No doubt it was my fault; but I certainly did not understand this to be the point to which my noble Friend opposite called attention in the Committee. It never was brought home to my mind in that form. What I understood my noble Friend to allude to was—and that I have met—where a prospectus had been agreed to in a certain form, but was issued to the public in a form differing from that which he had agreed to.
§ VISCOUNT BURY
The original form of the Bill was, that when a Director had once accepted he could not withdraw. I know my noble and learned Friend considered that if certain facts came to his knowledge he might withdraw before the issue of the prospectus; but now my noble Friend Lord Thurlow wants to make it possible for the Director withdrawing to prevent the issuing of shares, and in that object I fully sympathise with him.
§ LORD HERSCHELL
In order to carry out that object, I should propose the insertion of a clause in some such terms as these, and it can be considered in the other House—Where a person who is a Director, or who has been named, with his authority, as haying agreed to become a Director, has retired from such office before allotment, no allotment shall be made by the other Directors until after notice to the persons who have subscribed for shares of the retirement of such Director, and such subscribers may, on the receipt of such notice, withdraw their applications, and any allotment made without such notice shall be void.The only thing that occurs to me is, that that might give a Director who desired to cause mischief or possibly even to blackmail his brother Directors an opportunity of saying, "If you do not agree to do so-and-so, I shall withdraw from the allotment, then you will have to send round notices to the people who have subscribed, and they will probably withdraw from the Company." I am a little nervous about putting it in, I confess.
§ VISCOUNT BURY
I believe that is exactly what will happen unless the clause is put in the Bill. I think it is a blackmailing Bill altogether.
§ VISCOUNT CROSS
I agree that it would be much safer not to put it in at the last moment, when we shall not have time to consider it again.
At all events, this much good will have been done: it may call the attention of some Member of the other House to the matter, and of course such a clause, if considered necessary, may be inserted there.
§ THE LORD CHANCELLOR
The noble Lord seems to be under a misapprehension with regard to any part of this having been touched.
§ LORD HERSCHELL
We have altered the clause considerably, and with the consequential alterations about withdrawing I think that would do.
§ Amendment (by leave of the House) withdrawn.
§ Bill passed, and returned to the Commons.