Lords Sitting of 5 April 1939

Preamble
The House met at a quarter before four of the clock, The LORD CHANCELLOR on the Woolsack.
WEAR NAVIGATION AND SUNDERLAND DOCK BILL.
Read 2a, and committed.
EXETER EXTENSION BILL.
Read 3a, with the Amendments, and passed, and returned to the Commons.

PERSONAL EXPLANATION BY EARL STANHOPE.
LORD SNELL: My Lords, I beg to ask whether the Leader of the House desires to make any statement with regard to the speech which he is reported in many organs of the Press to have made at Portsmouth last night.
THE FIRST LORD OF THE ADMIRALTY (EARL STANHOPE): My Lords, I am obliged to the noble Lord for giving me the opportunity to make this statement. I should like to explain to the House the circumstances in which I made my remarks in the "Ark Royal" at Portsmouth last night. The occasion was the initiation of a new scheme inaugurating the Royal Naval Film Corporation, a scheme by which, thanks to the great generosity of the cinema industry and others, the best and most modern films are made available to the ships of His Majesty's Fleet at home and abroad. It was an occasion on which our guests, who were there to receive the Navy's thanks, would expect every seat to be occupied. I ventured therefore to explain that the reason why there was not a full attendance was because some of the crews were retained on board their own ships in readiness to man their guns as had been the normal practice in time of tension. No other orders had been given by the Admiralty than that this practice should not be relaxed even on so special an occasion.
I may add that I had not prepared my speech beforehand, and that it is quite
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untrue that I asked the Press to give special prominence to it. I have never been anxious to call for the spotlight on myself. I understand that when my remarks reached London they were treated as sensational matter, and the Prime Minister asked the Press, as I should have done had I known it, not to publish my speech, or, if they did publish it, not to ascribe to it any particular importance. I can only express my keen regret that any remarks of mine, emphasizing the readiness of the Navy to meet all eventualities, even when, as now, Easter leave is being given, should have added to the work of the Prime Minister or caused concern to anyone else.

INDIA AND BURMA (MISCEL- LANEOUS AMENDMENTS) BILL. [H.L.]
THE SECRETARY OF STATE FOR INDIA (THE MARQUESS OF ZETLAND): My Lords, I beg leave to introduce a Bill to amend the Government of India Act, 1935, and the Government of Burma Act, 1935, in certain respects, and for purposes connected with the matters aforesaid; and to move that it be now read a first time.
Moved, That the Bill be now read 1a.—(The Marquess of Zetland.)
On Question, Bill read 1a, and to be printed.

PREVENTION OF FRAUD (INVESTMENTS) BILL.
Debate resumed (according to Order) on an Amendment moved by the Lord Chancellor after Third Reading yesterday.
SCHEDULE.
Matters for which Trust Deeds pursuant to Unit Trust Schemes must provide.
5. For the audit and publication of accounts relating to the trust (including account of the manager in relation to the trust and statement of his remuneration in connection therewith).
Amendment moved—
Page 33, line 24, leave out ("publication") and insert ("the circulation to holders of units").—(The Lord Chancellor.)
LORD RANKEILLOUR, who proposed to amend the Amendment by adding the words "who so desire," said:

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My Lords, the purpose of this Amendment is to save a great deal of unnecessary trouble and some considerable expense. On two previous occasions I have mentioned the number of persons who would have to receive the circulars if the Amendment was passed without this qualification which I now propose. In one instance I was told by the manager that a certain trust had 11,000 unit holders, and in another instance that the number came to no less than 80,000. From further inquiries that I have made, I have very little doubt that this Amendment without the qualification would mean circularising at least 200,000 persons. I suggest that this is really unnecessary. First of all, it goes far beyond what the Board of Trade Committee suggested upon this point. They did not in their Report say that this was in any way necessary. Then, in the second place, there is really no possibility of keeping the working of the management of the companies in the dark. Once it is known that it will be a necessary feature of all these schemes that unit holders can obtain copies of the full report and statements, these will certainly get into the public Press, or at any rate into the financial Press, if required.
Nothing could be easier then than to get copies of the report and statements, and I am quite sure, if my noble friend Lord Mancroft wishes it, numbers of unit holders would send him their copies for, at the most, sixpence and postage. Therefore the idea that some nefarious plan is being concocted because it is suggested these circulars should not be universally sent out is, I submit, quite illusory. In any case, take the debenture holders who are vitally interested in the success of a company. They are not obliged to be circularised, and they have every bit as keen an interest in the affairs of the company as the unit holders, whose position is safeguarded by the trustees. I do, therefore, submit that in the interests of ordinary working economies these additional words are necessary. My noble friends Lord Mancroft and Lord Buckmaster have succeeded in getting their "independent of management Amendment" which nobody begrudges them, and which I think is an improvement to the Bill, but I do venture
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to suggest that they should not object to this Amendment making the concession which I am advocating. I beg to move.
Amendment to the proposed Amendment moved—
At the end insert ("who so desire").—(Lord Rankeillour.)
LORD MANCROFT: My Lords, I so much dislike opposing anything which may be suggested by my noble and very old friend Lord Rankeillour, that I feel I must explain why I do so. I cannot divest my mind of knowledge of the title of this Bill; it made a great impression upon me—the Prevention of Fraud (Investments) Bill. One of the principal clauses in this Bill is Clause 16 which, with the Schedule, deals with these unit trusts. Much disquiet arose in the mind of the general public some four or five years ago and this disquiet was reflected in the House of Commons, as will be known to those of your Lordships who read the newspapers or the Official Report of Debates at the time. You will have seen the Questions that were put about it. The result was that it was found necessary about three years ago to appoint a Board of Trade Departmental Committee to look into the whole matter of unit trusts and this Departmental Committee had among its members a director of the Bank of England, the Treasury Solicitor, the Public Trustee, several members of the other House and, I believe, a learned King's Counsel who is now one of His Majesty's Judges. I have the Report of that Committee in my hand (Command Paper 5259) and the reference to the Committee was
"to inquire into fixed trusts in all their aspects, and to report what action, if any, is desirable in the public interest."
It was felt that fixed or unit trusts must be looked into in the public interest.
Now the keynote of this Report was that it was essential to disclose to the public what was being done, what the managers were making and how they were making it. On page 43 of the Report I notice that the Committee asked for full trust accounts and accounts of the managing companies to be filed and to be available to unit holders. We get that in paragraph 63; and having got that the Report now goes a little further. These are the words which appear on page 20 of the Report:

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"It cannot be too strongly emphasized that even if all our recommendations are adopted, they will not supply a complete safeguard against the possibility that managers of unit trusts may make illegitimate profits at the expense of those investing in them."
The word "illegitimate" is not mine, it is the word of this Report. That is a serious warning.
The noble and learned Lord, the Lord Chancellor, has moved an Amendment which carries out something which I had mentioned on the Report stage of this Bill. I wish to thank him for it and to say that I welcome it and think it satisfactory as far as I view the matter. But in order not to overstate the case, in saying why I do not agree with the noble Lord, Lord Rankeillour, I should like to be allowed to quote from The Times City article of March 24, because it puts what I think more fairly and clearly than I could myself. Under the heading "Unit Trust Management Profits" the article sums up the whole position concisely. It says:
"It has been suggested previously in these columns that Clause 16 of the Prevention of Fraud (Investments) Bill would fail to provide for adequate control over the dealing profits made by the managers of the unit trusts."
Dealing profits were specifically referred to in the Anderson Report.
The article goes on:
"This, indeed, is the only serious loophole which the new legislation would leave. The first item in the Schedule, which provides that trust deeds must lay town to the satisfaction of the Board of Trade the manner in which the price of sub-units must be computed, would doubtless prevent the more flagrant abuses"—
that is an astonishing but probably a justifiable phrase—"abuses," "flagrant" and "more" flagrant—
"but it would still leave the managers considerable scope for making uncovenanted profits through the difference between the cost of the securities and the price at which the units are issued. We have suggested that the most obvious means of controlling any abuse of this kind would be to require publication of the management accounts"—
we have now got that—
"and that the possibility of requiring all trusts to be of the 'cash' type—which, although possibly rather drastic, would be the only watertight method of preventing illegitimate profits"—
illegitimate profits are foreseen—
"should be given serious consideration … but it is now understood that an Amendment will be introduced which will require publica-
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tion of the managers' accounts as well as those of the trust.… It is believed that the amended clause will require the trust deed to provide for the audit and publication of accounts relative to the trust, including accounts of the manager in relation to the trust, and a statement of his remuneration in relation therewith. Such an Amendment should certainly be welcomed in that it would close the most serious loophole still left open."
That puts my case—I have omitted non-essential words. My noble friend Lord Rankeillour, however, comes along and proposes to water down the excellent Amendment of the noble and learned Lord Chancellor. The Lord Chancellor's Amendment will ensure that more light is let into the operations and profits of the managers of the unit trusts. Lord Rankeillour's proposal puts an obstacle to the diffusion of information. His proposal would make it necessary for the unit holders to apply for information, instead of it being necessary for the management companies to circulate information to those entitled to it without application by the unit holders, as is provided by the Lord Chancellor's Amendment. My noble friend Lord Rankeillour talked about 200,000 persons who might thus be entitled to receive circulars. Well, what of it? Be it so. Two hundred thousand circulars would mean 200,000 halfpenny stamps and perhaps 200,000 halfpennies for printing and addressing envelopes. That is to say, the sum of 200,000 pence, say £1,000, distributed over perhaps dozens of unit trusts involving a total investment of £100,000,000. There is nothing in it and I cannot understand why my noble friend made the point. Many trading companies have each more than 50,000 shareholders but they find no difficulty in circularising them.
The sub-units in these trusts are held for the most part by the poorer type of person. Are they likely to sit down and take the initiative by writing for a management circular? I think not. In many cases dividends of unit trusts are sent through the post. Why should not a document be enclosed with them giving the information required by paragraph 5 of the Schedule? I think the point of my noble friend Lord Rankeillour about the expense of 200,000 circulars has not been well thought out. He himself must see that £1,000 is nothing compared with the vast invested sum under review or with the management profits. I do not think my noble friend Lord Rankeillour

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realises what a profitable business it is to run a unit trust—profitable not for the public but for the management, as may be judged by the Anderson Report. The public ought not to be kept in the dark as to what management profits are made and how they are made also by dealing and who gets them. The Anderson Report makes a point of that on page 29 and, again, what the profits may amount to is shown in paragraph 13 of page 9 of the Anderson Report. There is a specific reference on page 29 to the unit (sub-unit) dealings account and the share of commission and brokerage received by the managers. Very interesting and but little understood by the average unit holder. If any clog is put on the circulation of the accounts, there will be less likelihood of the dealings account being known by the general public contemplating a purchase. In my opinion the proposal of my noble friend Lord Rankeillour would restrict public knowledge and hamper or even defeat the object of the Lord Chancellor's Amendment. That Amendment is for the protection of the public and nothing else. I hope that Lord Rankeillour's Amendment will not be accepted, but that the Lord Chancellor's Amendment will be passed unamended.
LORD RANKEILLOUR: My Lords, if I might be permitted to say a few words, I think I may save the time of the House. From certain indications, it would appear that if a Division were taken that Division would be null and void, and the only result would be to delay the passing of what I quite admit is a most valuable Bill. I have no reserves of friends in the Library or in the tea room, and as it is practically certain that a Division to-day could not be effective, I would ask leave to withdraw my Amendment.
LORD ADDISON: My Lords, before the Amendment is withdrawn, I should like it to be on record that my noble friends and myself associate ourselves with the noble Lord, Lord Mancroft, in opposing the proposal of the noble Lord, Lord Rankeillour.
VISCOUNT BUCKMASTER: My Lords, I should also like to oppose the proposal of the noble Lord, Lord Rankeillour, in the strongest possible terms.
Amendment to the proposed Amendment, by leave, withdrawn.
On Question, original Amendment agreed to.
LORD TEMPLEMORE: My Lords, I beg to move that this Bill do now pass.
Moved, That the Bill do now pass.—(Lord Templemore.)
LORD RANKEILLOUR: My Lords, there is one point I should like to mention which will no doubt be referred to in another place. At a previous stage of this Bill there was a question as to whether an appeal should be allowed against refusals of orders of exemption and of revocation of them. The noble and learned Lord on the Woolsack opposed that provision on one ground in particular—namely, that in case the powers of the Board of Trade were abused a remedy could be found for applying for a writ of certiorari. I should be very grateful if he could amplify that, because on the face of it certain doubts appear to arise. I find in Halsbury's Laws of England that it is doubtful whether certiorari lies against a Government Department in the exercise of their powers, unless so provided by Statute, and there a judgment of Lord Moulton is quoted. It certainly would appear that there is some force in that contention, because in two instances a Statute does definitely allow a certiorari to be applied for against the Board of Agriculture and the Ministry of Health. If there were a remedy at Common Law that would appear to be unnecessary.
A further point arises as to whether if certiorari could be applied for it is likely to be effective, and that is because of the great generality—I will not say vagueness—of Clause 16 (2), which is as follows:
"If, with respect to any authorised unit trust scheme the Board of Trade consider that the order declaring the scheme to be an authorised unit trust scheme ought to be revoked on either of the following grounds, that is to say—

(a) that the conditions specified in paragraphs (a) to (c) of the preceding subsection are no longer fulfilled in the case of that scheme, or

(b) that the circumstances relevant to the making of an order have materially changed since the making thereof …"

Supposing the Board of Trade revoked the exemption of any dealer, and that dealer applied for a writ of certiorari against the Board, the Board might simply say: "You have changed your Chairman, you are no longer managed

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in the same way," and that would be a material matter. If the Board said that, I imagine that the Court would only say: "Well, the circumstances have changed, and it is in the discretion of the Board of Trade to say whether that change is of such vital importance as to justify the revocation of the exemption." In that case it certainly would appear that, the facts of th3 change having been admitted, the applicant could not go on to argue the merits of the change. These are some of the doubts which are felt, and if the noble and learned Lord can do anything to resolve them I should be most grateful.
THE LORD CHANCELLOR (LORD MAUGHAM): My Lords, I will certainly do my best to answer my noble friend. When I received a communication from him raising the question of the correctness of the opinion which I had expressed—it was made not only, may I say, on my own authority—that if the Board of Trade purported to act except on the grounds mentioned in Clause 16, subsection (2), there would be a remedy by certiorari, I thought it right to correct my view by referring to the passage in Halsbury's Laws of England which Lord Rankeillour has in his industry discovered. I also tried to find the passage from Lord Moulton, to which the noble Lord referred. I am not sure that I have been successful in regard to the dictum of Lord Moulton, although I think I found the passage which has found its way into Halsbury's Encyclopedia. My present impression is that if the matter comes before a Court of justice and has to be argued, the question will be whether the Board of Trade in acting under Clause 16 (2) are acting in what is substantially a judicial character. Further, in my opinion, they have got to be satisfied, before they can revoke the order under the clause to which I refer, that the conditions mentioned in Clause
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16 (2) (a) are no longer fulfilled in the case of that scheme or that the circumstances have materially changed. If they are not exercising their discretion by coming to a conclusion in one or other of those two grounds then certiorari would lie.
I would add that I am not prepared to say that views which are expressed without argument by any Lord Chancellor, even the present one, are inevitably right, and it may well be that a Court may conceivably take another view, but, as I have said, this view is not my own alone, because it was originally stated by some of those whose opinions are at least equal to my own. On the second point which the noble Lord has raised he is right, in my opinion—namely, that if the Board of Trade duly consider the matter and come to a conclusion that one or other of these grounds justifies them in revoking an order declaring a scheme to be an authorised unit trust, no Court has got power to interfere with that decision. A decision on a question of fact of that kind must stand. He has now had my opinion on the matter, and I apprehend that it cannot be raised now in this House, but perhaps the noble Lord may take the opportunity to get the matter considered in another place, if he entertains any doubt as to my views.
LORD RANKEILLOUR: I beg to thank the noble and learned Lord for his full answer to my question.
On Question, Bill passed, and returned to the Commons.

BUSINESS OF THE HOUSE.
EARL STANHOPE: My Lords, may I remind you that we meet to-morrow at eleven o'clock for purely formal business?
House adjourned at twenty-eight minutes past four o'clock.