HL Deb 28 February 1939 vol 111 cc970-91

Order of the Day for the Second Reading read.


My Lords, the necessity for a Bill to curb the activities of people known as share-pushers and others, is I think, generally admitted and cannot be denied. It would be inconceivable, if it were not known to be true, how successful the frauds of these share-pushers have been and still are. Your Lordships must have read many times in the Press of these frauds and must have been surprised not only at the unscrupulous cleverness of these individuals but also at the ease with which, in nearly every case, their victims are taken in. In spite of advice given publicly by notices in the Press, through the Post Office and through the British Broadcasting Corporation, and by questions and answers in another place, people are continually parting with their money in circumstances which one would have thought would have aroused the youngest child's suspicions.

If these frauds were practised only at the expense of the well-to-do—that is to say, of the foolish young man who has come into a large sum of money or the wealthy man who wishes to make a little more—your Lordships and people generally might say that with their education, their bringing-up and their knowledge of the world and so on they should know better and would have to stand the racket. But, as a rule, the victims of these frauds are people of a very different class—widows, spinsters, pensioners, retired professional men living on their savings, clergymen with perhaps poor livings and large families—all these form so to speak the happy hunting-ground of the fraudulent share-pusher, whose one idea from the very start is to transfer the money of his victims from their pockets to his own. Your Lordships will remember certain notorious frauds which have taken place within recent years. The worst case was that of Jacob Factor, a gentleman of American origin, who through the agency of Broad Street Press, Limited, relieved the public here of some £1,200,000 before he escaped to America, from which, I regret to say, all efforts to obtain his extradition have been in vain. Then there was the case of MacLean and Henderson, an old established firm of dealers in stocks and shares which was acquired by one Spiro. He and his confederates induced the public to buy many thousands of worthless shares. Spiro was sentenced last year to eight years' penal servitude. There were also the cases of Murdoch and Barr, and of Ward, Daw and Company, and in the last few months the case of Tanfield.

In most of these cases, I am glad to say, convictions have been obtained and the guilty parties have been sentenced to long terms of imprisonment. That is all very well, but it does not, of course, return one penny piece to the pockets of the victims. The first attempt to deal with the matter was in the Companies Act, 1929, which contained a section—Section 356—prohibiting persons from going from house to house offering shares for subscription or purchase. Unfortunately, this section has been rendered largely inoperative by the ingenious way in which persons have gone from a house in one street to a house in another street, or sometimes from a house in one town to a house in another town, thereby making it very difficult to prove that there was actual canvassing from house to house. In 1936 my noble friend Viscount Runciman, whose absence to-day we regret, who was then President of the Board of Trade, appointed a Committee under the chairmanship of Sir Archibald Bodkin to investigate this whole problem. That Committee reported in the summer of 1937, and it is on that Report—Command Paper 5539—that the main provisions of this Bill are based.

The Bodkin Committee came to the conclusion that no one should be allowed to deal in stocks and shares unless he was a member of some recognised stock exchange or other association or was registered. The Bill follows this principle, but for registration it has been found better to substitute licensing with all that licensing implies. If your Lordships turn to the Bill you will see that Clause 1 provides that on and after the appointed day, no one shall carry on the business of dealing in securities unless he is the holder of a principal's licence and that no one shall in the capacity of a servant of any such person deal in securities unless he is the holder of a representative's licence. This will bring under review every director of a company carrying on such business and every manager of a company or partnership. Clause 2, subsection (1), excludes from the licensing provisions of the Bill members of recognised stock exchanges or recognised associations of dealers in securities. With regard to outside dealers, the Bodkin Committee envisaged the formation of a strong association which would have a code of conduct sufficiently stringent to enable the Board of Trade to give it recognition. An Association of Dealers in Stocks and Shares has been formed by some of the leading outside dealers and it is hoped that it may form the nucleus of a representative body.

Next there are exemptions from the Bill for the Bank of England, any statutory corporation or municipal corporation, any exempted dealer and any industrial and provident society and building society. The exemption of the Bank of England needs no explanation. The power to exempt banks and finance houses is contained in Clause 15 of the Bill. It is wide and will enable the Board of Trade to exempt the leading banks, accepting and finance houses whose business, though entailing dealings in securities, does not lend itself to share-pushing. Industrial and provident societies and building societies are excluded because they are otherwise regulated in the Bill—namely, in Clause 10. Persons acting in the capacity of approved trustees of unit trusts or in the capacity of the managers of an authorised unit trust scheme are likewise excluded, for the reason that a trustee to be approved and a unit trust scheme to be authorised have to comply with the exacting standards provided for in Clause 16.

Some apprehension was felt as to the position of insurance companies, investment trusts, solicitors and others, and subsection (2) of Clause 2 was inserted for the purpose of clarifying the position. It provides that, for the purpose of determining whether or not a person has contravened any of the restrictions imposed by Clause 1, no account is to be taken of his having done certain things. These things are: (1) effecting transactions with or through the agency of a stockbroker or some other person under discipline; (2) issuing documents which, by virtue of the Companies Act, must conform to the prospectus requirements of that Act or which do in fact so conform; (3) as a principal, acquiring, subscribing for or underwriting securities or effecting transactions with a person whose business involves the acquisition and disposal or the holding of securities, whether as a principal or as an agent, in other words with a professional dealer.

Clause 3 of the Bill deals with the question of applications for and grant of licences and gives the Board of Trade power to prescribe fees for licences. A licence, unless revoked, is to be valid for a period of one year only, the intention being that all licences should come up for review once a year. Clause 4 stipulates that the applicant for a principal's licence must deposit £500 with the Accountant-General of the Supreme Court. The Board of Trade are empowered to accept a security in lieu of a deposit or, in the case of persons who have carried on in Great Britain the business of dealing in securities since the beginning of 1939, to waive the requirement altogether if they are satisfied that insistence upon it would cause hardship.

Clause 5 deals with the power of the Board of Trade to refuse or revoke licences. They may refuse or revoke, first, if the applicant or the holder has not furnished such information relating to him and to any circumstances likely to affect his method of conducting business as the Board may require. The Board may also refuse or revoke a licence if the applicant has been convicted within His Majesty's Dominions of an offence which necessarily involved fraud or dishonesty, or if he has been convicted of an offence under the present Bill, or has broken a rule of conduct made by the Board of Trade under Clause 7. Lastly, the Board are given a wide discretionary power of refusing or revoking a licence if it appears to them that the applicant or holder is no longer a fit and proper person to hold a licence by reason of any other circumstances whatsoever which either are likely to lead to the improper conduct of business by, or reflect discredit upon the method of conducting business of, the applicant or holder … Clause 6 sets up a special tribunal of inquiry. This is to consist of a chairman and one other person appointed by the Lord Chancellor being members of the legal profession, and one other person appointed by the Treasury who must have financial or accountancy experience and must not be a person in His Majesty's Service. The tribunal is thus to be an impartial and quasi-judicial body which will deal with all cases in which an applicant for a licence who is refused a licence, or a licence-holder who is threatened with the revocation of a licence, desires to submit his case to the tribunal, and the Board of Trade are debarred from refusing to grant an application or from revoking a licence if the tribunal recommend that the licence should be granted or remain in force, as the case may be.

Clause 7 gives the Board of Trade power to make rules for regulating the conduct of business by holders of licences, and enables them, in particular, to determine the class of persons in relation to whom, and the manner and circumstances in which, any holder of a licence may deal in securities. Subsection (3) requires the Board of Trade to publish the rules in draft before they are actually made, so that those interested may make objections and representations, which have to be considered by the Board. Clause 8 provides that the holder of a principal's licence must notify in writing to the Board of Trade any change in his business address and, in the case of a corporation, any change in its directorate. Clause 9 empowers the Board of Trade to publish the names and addresses of all holders of principals' licences for the time being in force, this information to be published not less often than once a year.

Clauses 10 and 11 are very important clauses, and are intended to prevent abuses in connection with societies registered under the Industrial and Provident Societies Acts and the Building Societies Acts. The Industrial and Provident Societies Acts have in recent years come to be used by the company promoter as a convenient channel for registering profit-making concerns of an undesirable type for which the Acts are not intended. The object of Clause 10 is to confine the machinery of the Acts in future to genuine co-operative societies and so forth. The clause provides that a society shall not be registered under the Acts unless it is shown to the satisfaction of the registrar (a) that the society is a bona-fide co-operative society, or (b) that the society should be registered under the Industrial Provident Societies Act rather than under the Companies Act because its business is being, or is intended to be, conducted mainly for the purpose of improving the conditions of living or otherwise promoting the social well-being of members of the working classes, or otherwise for the benefit of the community, and that on these grounds there are special reasons why the society should be registered under the Industrial and Provident Societies Act rather than the Companies Act. Existing societies which do not fulfil these conditions will not be interfered with unless, since the date of the original introduction of the Bill, they have issued invitations to subscribe for capital or to lend money to the society. In cases where the Registrar decides to cancel, the society is allowed to convert into a company under the Companies Act or to amalgamate with such a company without having to pay capital duties and fees on its existing paid-up capital. This facility will continue only for a period of one year from the passing of the Bill. Clause 11 contains provisions with regard to building societies in order to guard against the possibility of the Building Societies Acts being abused in the same way as the Industrial and Provident Societies Acts.

Clause 12 contains some rather technical provisions for the prevention of fraud which are of general application. The clause is based on a recommendation of the Bodkin Committee that the definition of false pretences under the Larceny Act should be extended so as to render easier the conviction of offenders in connection with share-pushing. Clause 13 is intended primarily to deal with activities which are analogous to share-pushing but are not directly connected with shares, such as fraudulent commodity and finance pools and undesirable enterprises of the unit trust type, of which certain mushroom farms afford an example. The clause prohibits the distribution or having in possession of circulars containing invitations to do any of the acts specified in Clause 12, or information calculated to lead directly or indirectly to the doing of any of those acts by the recipient of the information. This prohibition does not apply to invitations or information made or given with respect to securities by members of recognised stock exchanges, etc., exempted dealers, or managers of authorised unit trust schemes. It would apply, however, to circulars inviting the purchase of units of unauthorised unit trust schemes, whether sent out by managers of such schemes or by any other person.

Clause 14 empowers the Board of Trade by order to declare any body of persons carrying on in Great Britain the business of dealing in securities to be a recognised stock exchange or recognised association of dealers in securities for the purposes of the Bill. An order can be varied or revoked by a subsequent order and, in the case of revocation, an order is not to take effect until three months after the date on which the order is made. This provision is intended to give the members of an exchange or association which ceases to be a recognised stock exchange or association, time to obtain licences. Clause 15 deals with banks: it empowers the Board of Trade to declare banks and finance houses to be exempted dealers. Clause 16 lays down the conditions under which the Board of Trade are empowered to declare corporations to be approved trustees of unit trusts. They are that the corporation must be incorporated under the law of the United Kingdom, that it must be empowered to act as a trustee, and that it must have a capital for the time being issued of not less than £500,000, of which an amount of not less than £250,000 must have been paid up, and that the assets must be sufficient to meet its liabilities. The standard laid down for the approved trustee is that recommended by the Departmental Committee on Fixed Trusts.

The remaining clauses of the Bill deal with the penal and other necessary provisions. I would point out to your Lordships that under Clause 21 any rules or regulations made under the Bill by the Board of Trade must be laid before Parliament, and that by Clause 25, Section 356 of the Companies Act is repealed for the reason, as I said before, that this section, owing to the ingenious ways of share-pushers, has long been ineffective. Clause 26 includes the definitions, Clause 27 deals with the application of the Bill to Scotland, and Clause 28 is merely the short title and extent. The Bill is to come into force on the appointed day, which is defined in Clause 26 as meaning "such day as the Board of Trade may by order appoint." His Majesty's Government intend to bring the Bill into operation as soon as possible after its enactment, but some time will, I am afraid, have to elapse in order to enable the rules and regulations to be made, and for applications for licences to be made by individual dealers and to be considered and, where necessary, referred to the tribunal. It will also be necessary before the appointed day to deal with the question of exemptions under Clause 15 and the approval of trustees of unit trusts under Clause 16.

These are the main features of the Bill, which I have endeavoured at some length, I am afraid, to explain to your Lordships. My noble and learned friend on the Woolsack, who will be speaking later in the debate, will endeavour to make clear, and I am sure will make clear, any question that your Lordships may ask on the Bill. I should like to say to your Lordships that the Bill in its main principle had the support of all Parties in the House of Commons, and that its Second and Third Readings were carried there without a Division. I hope that it may have as favourable a passage in your Lordships' House. For your Lordships' information I would propose, with your consent, to put the Committee stage down for Tuesday, March 14, which should give sufficient time to any of your Lordships who wish to put down Amendments. In conclusion, I would say that the Bill has been framed with the sole idea of curbing and, if possible, stopping altogether the activities of a particularly cruel and objectionable section of the community, without interfering with the business of the genuine professional dealer. His Majesty's Government hope and believe that when the Bill is law and in full force it will go a very long way in doing two most desirable things—namely, preserving the fool from his folly, and guarding the helpless and ignorant from the wiles of the swindler and the shark.

Moved, That the Bill be now read 2a.—(Lord Templemore.)


My Lords, on behalf of my noble friends on this side of the House I would like to thank the noble Lord, Lord Templemore, for his very condensed but nevertheless complete analysis of this complicated measure, and also personally to offer him my congratulations upon the wealth of invective which fell from him, which I envy and wish I could imitate when dealing with the Government's policy. I understand that the noble and learned Lord on the Woolsack will deal with any matters which may be raised in the debate. I have very few matters to refer to on behalf of my noble friends, although there is one which I must mention. In another place this Bill was subjected to a great deal of deserved attention and alteration. It was treated as a non-Party measure, and I think my right honourable and honourable friends improved the Bill very much. The President of the Board of Trade will, I am sure, be the first to admit the assistance which he had from them. In that connection I would particularly like to mention my right honourable friend Mr. Johnston, who has taken a great deal of interest in the matter, and who was partly responsible for the introduction of the Bill and for forcing the Whips to give the necessary time for its passage.

We would like to have seen the Bill rather more widely drawn, to deal with certain abuses that have arisen from the evasion of the intention of the Companies Acts by a matter which is known as the use of bank nominees. Your Lordships will be aware that the use of the loophole in the original Acts, to cover up the actual holders of the control of companies under the blanket of bank nominees, is open to serious objection. The matter was fully ventilated in another place, and I understand that as a result the banks themselves are taking steps to remove some of the possible evils which in certain cases might arise. We regard the Bill as a good measure, and hope it will be successful. The only point upon which there are still criticisms is that it does not at present apply in Northern Ireland or indeed in Eire, or in the Channel Islands, but I presume that the Board of Trade will be on the lookout for those gentry who may change the scene of their operations, and possibly the Government of Northern Ireland may take steps to follow suit with similar legislation. With these remarks I wish to extend a welcome to the Bill.


My Lords, in rising to support this Bill, and at the same time to make one or two points of criticism, I ask for the indulgence of your Lordships' House. I do so firstly relying on the traditional kindly consideration which your Lordships are accustomed to give to anyone who ventures to address this House for the first time. I also ask your sympathy because this Bill which we are discussing is of a rather complicated and technical character, and does not lend itself easily to any comments which can be made of any general interest. With the objects of the Bill, I think there will be very general sympathy in all quarters of the House. Everyone is anxious to curtail the activities of the gentleman who is commonly known as a share-pusher, and to deprive him of the opportunities of getting away with his ill-gotten gains. There is a similiar anxiety to protect the innocent and unwary who may get into his clutches; and there is, in a lesser degree, anxiety to protect even the gentlemen of the get-rich-quick variety who may be seduced by the specious arguments of the persuasive share-pusher.

If it is not out of place for me to do so I should like to congratulate the Government on the production of this Bill, and further to thank my right honourable friend the President of the Board of Trade for the sweet reasonableness with which he has met the criticisms against some of the undesirable features in the first draft of the Bill, and for the way in which he has moved or accepted Amendments in Committee in another place. The present Bill has been improved out of all recognition, in comparison with its original form. The original Bill was in some places incomprehensible, at least to my limited intelligence, and was calculated to do almost as much harm in hampering perfectly legitimate finance as it was designed to control the operations of the share-pusher. So much was that the case that I was inclined to believe a cynical friend of mine who told me that a Bill of this type is purposely drawn in such a way that it is hard to understand on the principle that if its provisions are made too clear a rogue can easily invent methods of circumventing those provisions, whereas, on the other hand, if the exact meaning is sufficiently obscure he thinks twice before becoming involved in their penalties.

With the general provisions of the Bill I am in complete accord, but there are one or two points which appear to be of some importance to which I should like to draw your Lordships' attention. The first is one of principle which I feel will commend itself to your Lordships. Clause 16 (3) reads as follows: Subject to any exceptions which may be prescribed, every deed or other instrument (executed whether before or after the commencement of this Act) under which property is, in pursuance of any unit trust scheme, vested in an approved trustee of unit trusts, shall be deemed to contain such provisions as may be prescribed, and any provision contained in any such deed or other instrument shall, if and so far as it is inconsistent with any of the provisions so prescribed, be of no effect. I am advised that in exercising the powers conferred on the Board of Trade by this provision it will be possible for responsibilities to be imposed upon the trustees of unit trusts far in excess of those which they accepted at the time when the deeds constituting such trusts were executed. Indeed the powers conferred by this clause on the Board of Trade are so wide that any addition can be made to the trust deeds of existing trusts, notwithstanding that such additions may conflict with the existing clauses of the deeds, and in fact alter the whole basis of contracts.

It would appear from the proceedings in Committee in another place that it was the intention that the clause should be inserted to impose additional responsibilities upon the trustees of unit trusts. I respectfully draw your Lordships' attention to the fact that the question of the modification of the constitution of unit trusts was referred by the President of the Board of Trade to a Committee, was investigated by them, that the Report of such Committee was made some two years ago, and that it did not contain any recommendations to this effect. I would further point out that to confer upon a Government Department such power in relation to existing contracts between private individuals is, as far as I know, without precedent and must be viewed with the greatest concern. No provision is made by the Bill enabling a trustee who is unwilling to continue under the changed conditions that may be imposed upon him by the Board of Trade to retire from the trust. It may be—I do not say that it is—that the documents constituting some existing unit trusts are unsatisfactory, and that they should be amended, but for Parliament to place in the hands of a Government Department an unlimited right, without consulting with those parties who are interested, and without indeed any obligation to consider any representations that such parties may want to make to amend existing contracts on which large sums of money have changed hands, is, I submit, an unusual and unfortunate way of providing a remedy.

There would be grave objection to the insertion by Statute of specified alterations into existing contracts, but there would be precedents for legislation of that kind, and it may be that legislation of that character would be justified. In that event those concerned would know beforehand the nature of the alterations which it was proposed to make, and they would have an opportunity, through their representatives in Parliament, of seeing that their views were represented, and were to be considered. If the Bill passes in its present form those interested will have no statutory right to know beforehand what alterations are proposed and will have no assurance that their views will be heard. That special Committee appointed by the President of the Board of Trade two years ago heard a number of witnesses and gave a great amount of time and trouble in preparing a Report to the President of the Board of Trade, making a number of recommendations, but those recommendations certainly do not include a recommendation that the Board of Trade should be given a free hand to make any alteration they think fit in existing deeds. But in any case am I not justified in pointing out that the Bill before the House is a share-pushing Bill and has nothing whatever to do with unit trusts as such? If legislation is required in connection with unit trusts, ought not this to be dealt with quite separately, or at any rate if anything is embodied in the present Bill, ought not the specific steps contemplated to be clearly set out and scheduled to the Bill, so that an opportunity might be given for debating this? And, further, should not provision be made enabling trustees of unit trusts to retire from the trust if they are not prepared to accept the additional responsibility which may be imposed upon them?

The second point which I wish to make is in regard to Clause 13, originally Clause 11. This is still not quite satisfactory. It deals with the distribution of circulars and other literature relating to investments, property and so on. It is drafted upon the basis that it is a criminal offence to distribute, or to have in one's possession for purposes of distribution, any circulars relating to investments other than those accepted by subsections (2) and (3) of the clause. I feel sure that the list of exceptions will not, in practice, prove to be sufficiently comprehensive and that certain types of literature which might be circulated perfectly legitimately and without objection have been lost sight of. I suggest that the Board of Trade should take power to add to the list of exceptions from time to time, otherwise it will only be possible to add to the list by Act of Parliament.

The only other clause to which I need draw your Lordships' attention is Clause 18. This provides that where any offence under the Act has been committed by a corporation, if it is proved that the commission of the offence is attributable to any negligence on the part of a director or officer of that corporation, that individual as well as the corporation shall be guilty of a criminal offence and be liable to be proceeded against accordingly. It seems to me that it is entirely too drastic that mere negligence, due perhaps to great pressure of time or want of meticulous care on the part of an official—a mere slip—should be made a criminal offence. It may be that the Home Secretary had some pre-vision of this clause when he undertook to provide some amelioration of the conditions of prison life, but this will give an unfortunate and entirely unintentional criminal little consolation. I apologise to your Lordships for taking up so much time, but I hope that the points which I have raised will be considered not unimportant. Just before I entered your Lordships' House a communication was sent to me from the Board of Trade in which, I understand, it was stated that these points will receive the attention of the Government. I hope that the noble Lord who is in charge of the Bill will be able to confirm that, and that these matters will be considered when the Bill comes to the Committee stage.


My Lords, I am sure it is your Lordships' wish that I should congratulate the noble Lord who has just spoken on his important and interesting speech. I feel sure that I am further expressing your Lordships' sentiments when I say I hope that he may again give us the benefit of his wide knowledge of banking and may take an active part in our debates. There is much to be said about this Bill, and I have no desire to detain your Lordships unduly. I propose therefore addressing myself to those aspects of it which are not primarily concerned with the matters to which the noble Lord who introduced the Bill referred. That this Bill is necessary cannot be disputed. The victims of the share-pusher are so numerous, their descriptions so various—they extend, so we are told, from maiden ladies to members of the Church and even of the legal profession—that sometimes one is inclined to believe that members of your Lordships' House are the only section of the community which has been able to escape.

It is the essential feature of this Bill that dealing in stocks and shares, with the exception of members of recognised exchanges, should be limited to those to whom a licence has been granted. There are certain other exceptions, but they call for no comment. This principle of licensing is one to which no exception can be taken, but it does confer a very real status on the licensee. One can only hope that it will not be possible for licensed dealers to use the description, "Licensed by the Board of Trade," to extend further their activities. They will not be bound by the rules which members of recognised exchanges impose upon themselves. They will be free to buy addresses, to extract names from transfers, and by devices of a like nature to solicit whom they please. Any approach of this kind must obviously be more effective if it is purported to be made under the auspices of the Board of Trade. The President of the Board of Trade stated that he had this point in mind, but he gave no definite undertaking, and I would welcome an assurance that it will not be possible for licensed dealers to advertise the fact that they are licensed.

Turning to the conditions on which licences are granted, one can only welcome the Amendment to Clause 4 which provides that a deposit of £500 must be found. One cannot help wondering whether, even so, this clause is stringent enough. Licensed dealers would be free to deal in securities, not as brokers, but as principals, and a business of this kind must be difficult, may indeed be dangerous, and, if successfully conducted, it must involve the handling of large sums of other people's money. Yet not only do we not ask for any sureties, but we are satisfied with a deposit of so small a sum as £500. To my mind a larger deposit should be asked for and satisfactory sureties should be insisted on. This principle is indeed accepted by the London Stock Exchange, which insists in the case of members without any previous experience that there should be three sureties of £500 each. That is in addition to various payments which cost at the present time approximately £2,000. The Bodkin Committee recommended that the provision of satisfactory sureties should be an essential condition of granting licences. They suggested, moreover, that the sureties should testify to the candidate's business and personal repute. I can see little objection to a proposal of this kind, which not only affords the public added security, but cannot surely embarrass anyone who has any serious pretension to be qualified as a dealer in stocks and shares.

This Bill, in order to achieve its purpose, had to enlarge its scope beyond that which most of us anticipated. In particular, it has dealt with building and allied societies, and one naturally welcomes the fact that in the case of companies registered under the Industrial and Provident Societies Act, the Registrar is given additional powers to cancel registration. As your Lordships are aware, companies registered under this Act escape many of the restrictions imposed by the Companies Act, and there is no doubt that a large number of so-called Co-operative Property and Investment Companies appealing particularly to the smaller investor are, if registered, better able to push and advertise their shares. Many of these companies promise high rates of interest together with security and safety. I have here some letters from a company of this nature, signed by a name not unfamiliar to your Lordships, inviting the purchase of shares in which interest of £6 4s. 2d. per cent is offered together with safety of capital and no risk of depreciation. Moreover, it states that property worth a very large amount was recently acquired. But the applicant is left in ignorance of the fact that the property is very heavily mortgaged. So little in fact of what is material is mentioned and to such an extent is the applicant left in ignorance that one may say in regard to it: Must helpless man, in ignorance sedate, Roll darkling down the torrent of his fate? I now turn to the question of unit trusts of which the noble Lord has spoken. I regret that I cannot share his view. The noble and learned Lord on the Woolsack will correct me if I am wrong, but I understood that we were to be given an opportunity of studying the rules which the Board of Trade will propose. If those rules are to be the subject of a debate both in another place and in your Lordships' House, that does meet the objection that they are not specifically incorporated in the present Bill. I must confess that I would have welcomed the embodiment in the Bill of the recommendations of the Anderson Committee. I do not think that there is abuse in the management of the trusts, but I do say there is opportunity for fraud. While it may be true that many of these trusts have voluntarily adopted the suggestions of the Anderson Committee, it does seem desirable that the more important recommendations should be included in the conditions which the Board of Trade will prescribe. I for one would like to feel that the rules to be framed by the Board of Trade will in fact embody the more important recommendations of the Committee. In particular would I like to see it established that the trustees are made responsible for any advertisements issued, for a statement which might be permissible when made by an ordinary individual assumes another complexion when it purports to be issued with the approval of one of our leading banks.

I have here an advertisement issued last year stating that South African gold mining shares are the best investment obtainable at the present time. The advertisement goes on to say that a selected investment in these shares produces a gross yield averaging over 8 per cent. No reference is made to the fact that the life of any mine is limited, and that mining shares are wasting assets. I have here another more recent advertisement urging investors to purchase at the present time when markets are on the upward trend. Underneath both these advertisements appears the name of the Midland Bank as trustee. No doubt your Lordships would like to know whether it is the considered opinion of the Midland Bank that we are on the eve of rising markets. One can only say that such a statement, unsupported by reasoning, bears little relation to the precise and carefully worded reports which the same bank is in the habit of sending out each month. Whatever the true facts may be, there is no doubt that statements of this kind have every appearance to the uninitiated of having been made with the full authority and approval of the Bank.

Another point in this connection to which I wish to refer is the question of management. I would like to see the trustees given power to remove the management where it is in the best interests of the unit holders that this should be done. As your Lordships are aware the management company acquire the securities which are subsequently transferred to the trustees. Now, although it does not happen in every case, there are cases in which very substantial profits can be made without the knowledge of the unit holders. It is not unusual to provide that irrespective of the purchase price securities are valued at the higher or buying price of the two prices quoted in the Stock Exchange Official List. This quotation is prepared some time before the close of Stock Exchange business, and is a wide quotation covering a considerable range of fluctuations. The actual price at which securities can be purchased would in nearly every case be very substantially below the higher price of the official quotation. For this reason the management companies start with an almost assured profit on any purchase. It is true that this may be lost by sub- sequent market fluctuations in the price of the securities, but even this can sometimes be guarded against by intelligently anticipating the public demand.

The last point, a brief one, with which I will trouble your Lordships, is the question of taxation. I would like to see the rules so framed that unit trusts no longer enjoy the very real advantage in taxation which they secure over the accepted type of investment trust company. I am advised that whereas an investment trust company registered under the Companies Act would pay stamp duty of £5,000 on an issue of one million £1 shares, a unit trust could, by transferring securities to the value of, say, £10,000 and reserving the right to transfer further securities, escape with a settlement duty of only £25. I have nothing more to add in connection with this Bill except to say that, wide as it is in its scope, effective as we hope it will be in its purpose, it cannot be said that the task of preventing fraud in connection with share dealings is finished until the Companies Act has been thoroughly and effectively revised. I hope that the Government will address themselves to this task as speedily as they can.


My Lords, I feel it a privilege to be able to join with the noble Viscount in offering congratulations to the noble Lord, Lord Wardington, on a maiden speech of singular clarity and to express the hope that his very important duties in the City will not prevent him from being present in this House on other occasions. I had intended offering a few remarks on Clause 16, subsection (3), but my noble friend has already dealt with the point in so clear and adequate a manner that there is little I need say. The great corporations engaged in business as corporate trustees are all seriously apprehensive as to the possible effect of this subsection, the nature of which is certainly very surprising. It is intended to give power to a Government Department to alter by regulation the contractual status between the management and the trustee and the public. That status is decided at present by the trust deed, a document drawn up with the utmost care, by which the trustee accepts certain defined responsibilities to the public in return for a stipulated fee. We are now asked to give a Government Department the power to add to or alter those responsibilities.

As I read this clause, it gives unlimited powers to add anything that the Department consider desirable to the trust deed. There is no provision enabling the trustee to lay down his trust, or to raise his remuneration in accordance with the new duties which are to be laid upon him. The noble Viscount, Lord Buckmaster, has assured us that we need not be apprehensive on this score, because, he informs us, the regulations would have to be debated in this House, or would at least come before the House and could be debated here. That is perfectly correct, but I would call your Lordships' attention to the actual wording of Clause 21. That clause reads: Any rules or regulations made under this Act by the Board of Trade shall be laid before Parliament as soon as may be after they are made. It is quite clear that they can be debated, but there is no provision for their being negatived. Your Lordships are very well aware—


May I be allowed to interrupt the noble Earl? This point has been very carefully considered by the President of the Board of Trade. I think I may say that the objections to the clause will prevail, and that the whole clause will have to be redrafted.


I am much obliged to the noble and learned Lord, and in view of what he has said I will not take up more of your Lordships' time.


My Lords, I do not intend to deal with the contents of this badly-needed Bill, but I should like to draw attention to Clause 27, which deals with the application of the Bill to Scotland. That clause seems to have been the victim of very careless work in another place, inasmuch as paragraphs (1) and (2) do not refer in any way to the clause to which they purport to refer. Paragraph (2) says that: Subsection (6) of Section eleven shall have effect as if for any reference to a justice of the peace there were substituted a reference to the sheriff, and subsection (9) of the said section shall not apply. In Clause 11 there are only five subsections. I would suggest that possibly what is meant is subsection (8) of Clause 13. I would ask the noble Lord in charge of the Bill to draw the attention of the draftsman to the matter before the Committee stage.


My Lords, may I be allowed to put one point to the noble and learned Lord on the Woolsack? I should like to ask why the appeal that is allowed in the case of refusal or revocation of licence is not allowed in the case of refusal or revocation of exemptions. Apparently, under Clause 6, the tribunal can deal with the former, and I suggest that attention should be given to the matter to see whether the tribunal could deal also with the latter, because the effect on the body or persons concerned might be equally grave in the latter case as in the former.


My Lords, I think there is general agreement on one thing, and that is that this Bill is of the most useful kind, but it must be admitted that it is an exceedingly difficult Bill to draft because nothing is harder in cases of this kind than to catch all ruffians and to let through honest men. I have myself thought that there are provisions in this Bill which might have to be improved in the direction of catching more of the wrongdoers and making it safe for honest men. Your Lordships have suggested a number of matters which ought to receive the attention of the Government before the next stage of the Bill. I can assure your Lordships that everything that has been suggested will be very carefully considered, and on the Committee stage I have no doubt a considerable number of Amendments will have to be put down with the hope of making the Bill approximate a little bit nearer to perfection.

Now I will deal very shortly with some of the points which your Lordships have mentioned. In the first place the noble Lord, Lord Strabolgi, referred to bank nominees, and I agree that that device is one which is sometimes used improperly. The difficulty is to differentiate those cases from the cases where it is quite a natural and useful thing to do. I shall be glad if something can be suggested that will prevent abuse of the process of holding shares in the names of bank nominees. With regard to Northern Ireland, I think we must leave Northern Ireland to legislate for itself in a matter of this kind, because there is always a risk that in legislating for a country where somewhat different practises may obtain one may do something which really is not intended. While I am on the question of countries other than England, may I deal at once with the remarks of the noble Earl, Lord Mansfield, about Clause 27 in this Bill, which applies it to Scotland. By a slip, the clause does not properly deal with the matter and the Government are aware that that will have to be put right on the Committee stage.

The noble Lord, Lord Wardington, in his most useful speech attacked Clause 16 (3). The point had already been brought to the attention of the President of the Board of Trade and he had determined that the matter should be considered on behalf of the Government. Perhaps I may say that I think the clause, for the reason the noble Lord himself pointed out, is a clause which must give pain to any good lawyer. It really is extraordinary to provide that an existing deed, such as a deed under which a unit trust exists, is to be deemed to contain all sorts of provisions which it does not contain and that the provisions which it does contain are to be of no effect in so far as they are inconsistent with the imaginary provisions which it does not contain. I admit that the matter really must be dealt with, and an Amendment must be put down to prevent that clause coming on the Statute Book. That brings me to the analogous point which the noble Viscount, Lord Buckmaster, made. He suggested that, after all, it was not so bad as it looked, because the regulations or provisions which were going to be inserted in the Bill would be laid before Parliament under Clause 21. I do not think that answer would be a sufficient answer to the objections to Clause 16 (3) as it stands, but I may say that the reference to that clause will probably have to be somewhat enlarged so that the clause will beyond all doubt refer, not only to rules or regulations, but also to any other provisions of that character which are made by the Board of Trade.

Then I come to the question of taxation, which was raised by my noble friend Lord Buckmaster. I doubt whether that question will be within the scope of this Bill. After all, the Bill does not purport to deal from the ground floor, so to speak, with unit trusts. It is a Prevention of Fraud (Investments) Bill, and I think it would be beyond its scope altogether to legislate on taxation—though I am sure that the suggestion of the noble Viscount will be received with pleasure by one of the Departments of State, and perhaps before very long some useful result will be founded upon his reminder! Another matter with which I intended to deal is that of the deposit: whether it should be larger than £500, or whether there should be securities. That matter was considerably discussed in another place, and it might be wiser not to introduce an Amendment there which might delay the passing of this measure into law.

My noble friend Lord Rankeillour pointed out that there was an appeal if a licence was refused, but no appeal if a licence was revoked.


May I explain? When an order of exemption was revoked.


I beg the noble Lord's pardon. This is an omission in the drafting of the Bill, and this also shall be put right on the Committee stage. In the net result, nearly every one of the matters to which your Lordships have referred has either already been considered by the Government or will, I can state at once, be carefully considered on the Committee stage, and nearly all the objections will, I think, be removed. I would add that if any other noble Lord has any matters to bring to the attention of the Government, nobody will be better pleased than I. I have been concerned practically all my life with matters of this sort—company matters and improper methods of extracting money from the public—and I should be only too glad if the net provided by this Bill were thrown widely and so constructed that hardly any of the rogues would be able to get through.

On Question, Bill read 2a, and committed to a Committee of the Whole House.