Lords Sitting of 4 July 1940

Preamble
The House met at four of the clock, The LORD CHANCELLOR on the Woolsack.

THE WAR: THE FRENCH FLEET.
LORD ADDISON: My Lords, may I ask the Foreign Secretary whether His Majesty's Government are in a position to make any statement on the war situation with especial reference to the French warships?
THE SECRETARY OF STATE FOR FOREIGN AFFAIRS (VISCOUNT HALIFAX): My Lords, I have no doubt that it is a principal desire of your Lordships, as it is implicit in the question that the noble Lord has just put to me, that I should give information as full as possible with regard to the action which His Majesty's Government have found it necessary to take in regard to certain units of the French Navy, and I would apologise for the necessity under which I am of making a statement perhaps rather longer than your Lordships might naturally demand. As soon as the French Government informed us that they might be unable to continue the war, your Lordships will appreciate that the future of the French Fleet at once became a matter of direct and vital concern to His Majesty's Government. On June 15, your Lordships will remember, the French Government formally asked from His Majesty's Government authorisation to inquire what Armistice terms would be offered to France by the German and Italian Governments, and if such authorisation was obtained the French Government declared among other things that the surrender of the French Fleet to Germany would be considered an unacceptable condition. His Majesty's Government replied to the effect that although the Anglo-French Agreement forbidding separate peace negotiations, whether for armistice or peace, involved the honour of France, His Majesty's Government nevertheless gave their full consent to an inquiry by the French Government to ascertain the terms of an Armistice for France, provided, but only provided, that the French

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Fleet was sailed forthwith for British harbours pending negotiations. His Majesty's Government also stated that they expected to be consulted as soon as the Armistice terms were received.
In returning this reply His Majesty's Government felt that, the military situation being what it was, it was impossible for them to return a blank negative to an appeal put forward by their Ally at a moment of the greatest difficulty and stress. On June 17, however, Marshal Pétain formed a new French Government and immediately asked for terms of Armistice. The French Fleet was not sailed for British ports, but the new French Minister for Foreign Affairs gave a formal assurance that the most dishonouring condition of an Armistice would be the surrender of the Fleet and that that would in no circumstances be accepted. I will not here recapitulate formal and explicit assurances which were received in the ensuing days that on no conditions and in no circumstances would any unit of the French Fleet be handed over to the enemy. These assurances were received not only from the French Government as a whole but also individually from Marshal Pétain, from Admiral Darlan, from the Minister for Foreign Affairs and from other Ministers and leading personalities at Bordeaux.
But, my Lords, the Armistice terms, when conveyed to us and made public, finally contained a provision concerning the French Fleet which was in direct conflict with these assurances. The Armistice provided for the demilitarisation of the Fleet under German and Italian control and, except for a part of the Fleet destined for the protection of Colonial interests, all French ships were to be recalled to France. And, with the important exception of "units necessary for coast surveillance and mine-sweeping"—an exception that in our view was capable of expansion under German interpretation—there was only an assurance from the German Government that they would not during the war use the French Fleet stationed in ports under German control. After the Armistice was signed His Majesty's Government continued to rely upon the solemn promises, both collective and individual, which they had received from the French Government and its members, but it was all too plain that by accepting the Armistice terms the
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French Government had put themselves in an equivocal position and they had become wholly dependent on the good faith of the German Government for their own ability to carry out the promises made to His Majesty's Government. Moreover, the Armistice terms provided that they could be denounced at any moment, with the consequence that the German Government would be absolved from any undertaking given if the French Government, in the view of the German Government, did not fulfil all their obligations under the terms.
As the period for the completion of the Armistice conditions drew near all the dangers implicit in them became immediate. It was clear that the units of the French Fleet were preparing to submit to demilitarisation under German and Italian control, and a formal request was made to His Majesty's Government to allow units of the French Fleet in British ports to put to sea. His Majesty's Government thus found themselves in a hideous dilemma. It was impossible for them to rely on the unsupported word of the German Government that the French Fleet would not be used against us, and thus acquiesce in the handing over of this formidable naval force into German hands. But if on the other hand they were unwilling to accept that situation, they were faced with the grim alternative of preventing the handing over of the French ships, and therefore in the last resort of using force against their former comrades in arms. In the event His Majesty's Government decided that, determined as they were to prosecute the war to a victorious conclusion, they had no option but to do what they could to ensure that the best ships of the French Navy should not be used against this country and Empire by their enemy.
The Vice-Admiral commanding British Forces in the Western Mediterranean was accordingly ordered to approach the French Admiral commanding at Oran and to demand that the French Fleet under his orders should act in accordance with one of the following alternatives:—Firstly, to sail with the British Fleet and to continue to fight for victory against the Germans and Italians; secondly, to sail with reduced crews to a British port, the crews to be repatriated at the earliest moment. If either of these courses were adopted His Majesty's Government under-

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took to restore the ships to France at the conclusion of the war or pay full compensation if they were damaged meanwhile. Alternatively, if the French Admiral felt bound to stipulate that his ships should not be used against the Germans and Italians unless they broke the Armistice, the French ships should be sailed with reduced crews to a French port in the West Indies or, if the United States Government agreed, be entrusted to the United States in order that they might be demilitarised and remain safe until the end of the war; the crews being repatriated. If these offers were refused, the French Admiral was required to sink his ships within six hours. Finally, if the French Admiral refused to agree to any of these conditions he was informed that whatever force might be necessary would be used to prevent his ships from falling into German or Italian hands.
We had hoped that one or other of the alternatives which we presented would have been accepted without the necessity of using the terrible force of a British battle squadron which arrived before Oran in the course of yesterday. This battle squadron was commanded by Vice-Admiral Somerville, who distinguished himself only a short time ago in bringing off 100,000 Frenchmen during the evacuation of Dunkirk, and who was further provided with a cruiser force and strong flotillas. All day the parleys continued and we hoped, until the afternoon, that our terms would be accepted without bloodshed. However, probably under orders dictated by the Germans from Wiesbaden, where the Franco-German Armistice Commission is in session, the French Admiral Gensoul refused 10 comply and announced his intention of fighting. Admiral Somerville was therefore ordered to complete his mission before darkness fell, and at 5.53 p.m. he opened fire upon this powerful French Fleet, which was also protected by its shore batteries. At 6 p.m. he reported that he was heavily engaged. The action lasted some twenty minutes and was followed by heavy attacks from our naval aircraft carried in the "Ark Royal." At 7.20 p.m. Admiral Somerville forwarded a further report, which stated that a battle cruiser of the "Strasbourg" class was damaged and ashore, that a battleship of the "Bretagne" class had been sunk, and that another of the same class
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had been heavily damaged. Two French destroyers and the seaplane carrier "Commandant Teste" were also sunk or burned.
While this melancholy action was being fought, the other battle cruiser of the "Strasbourg" class managed to slip out of harbour in a gallant effort to reach Toulon or a North African port and place herself under German control. She was pursued by the aircraft of the Fleet Air Arm and hit by at least one torpedo. She may, however, have been joined by some other French vessels from Algiers, as she was well placed for the purpose, and may even have reached Toulon before we were able to overtake her. She will, at any rate, be out of action for a considerable time. I fear that the loss of life among the French and in the harbour must have been heavy, as His Majesty's ships were compelled to use a very severe measure of force. None of the British ships taking part in the action was in any way affected in gunpower or mobility by the heavy fire directed upon them. We have not yet received any reports of our casualties, but I am advised that Admiral Somerville's Fleet is, in all military respects, intact and ready for action.
At Alexandria, where a strong British battle fleet is lying, there are four French cruisers, of which two are modern, and a number of smaller vessels. These have been informed that they cannot be permitted to leave harbour and thus fall within the power of the Germans. Protracted negotiations, with the details of which I shall not trouble the House, have been going on for several days and measures have now been taken to ensure that these ships, which are commanded by a very gallant Admiral, shall be sunk or otherwise made to comply with our wishes. We shall, of course, offer the fullest facilities to all French officers and men at Alexandria who wish to continue the war and will provide for them and maintain them during the conflict. We have also promised to repatriate all the rest and every care in our power will be taken, if they allow it, for their safety and comfort.
In home ports, two battleships, two light cruisers, some submarines, including a very large one the "Surcouf," eight destroyers and approximately 200 smaller but extremely useful mine-sweeping and anti-submarine craft, which lay, for the most part, in Portsmouth and

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Plymouth, were boarded by superior forces after brief notice had been given wherever possible to their Captains. This operation, I am glad to say, was successfully carried out without resistance or bloodshed, except in one instance. Through a misunderstanding a scuffle arose in the submarine "Surcouf" in which one British leading seaman was killed and two British officers and one rating wounded; and one French officer was also killed and one wounded.
For the rest, the French sailors accepted the end of a period of uncertainty. A considerable number—800 or 900—expressed a desire to continue the war and some have asked for British nationality. This we are ready to grant without prejudice to other Frenchmen, numbered by thousands, who prefer to fight with us as Frenchmen. All the rest of the crews will be immediately repatriated to French ports, if the French Government are able to make arrangements for their reception. We are also repatriating all the French troops who were in this country, with the exception of those who, of their own free will, have volunteered to follow General de Gaulle and enlist in the French Forces of liberation of which he is chief. Several French submarines have also joined us independently and we have accepted their services. A large proportion of the French Fleet has therefore passed into our hands, been put out of action or otherwise withheld from Germany by yesterday's events. The House will not expect me to say anything about other French ships which are still at large, except that it is the inflexible resolve of His Majesty's Government to do everything that is possible in order to prevent them falling into the German grip.
That is the plain narrative of the action which His Majesty's Government, after full consideration, thought it right to take; but while we have thought it right, as it was in my view also inevitable, there will be no one I think in this House, or indeed in any quarter in this country, who will not share the distress and sorrow of His Majesty's Government for these events. It is melancholy to reflect that the magnificent ships of the French Navy should have been prevented by their Government from continuing the struggle with their comrades in arms against the common foe, but should rather have been ordered to resist their former comrades
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in order that they might place themselves under enemy control. The officers and men of the French Navy were placed in a position which must have seemed to them well-nigh intolerable. As regards the Government of Marshal Pétain, I am bound to observe that they placed the redemption of a promise to the enemy before the fulfilment of a solemn pledge to an Ally and this, your Lordships will appreciate, brought to a point the cruel dilemma in which, as I said just now, His Majesty's Government were placed by the acceptance by the French Government of the Armistice terms.
But, my Lords, it is not on reproaches or on recriminations that His Majesty's Government would rest their case. It is, I suppose, inevitable that what has passed, distorted as it will be by enemy propaganda, must create sharp resentment in France, where already the distress of war and the harsh conditions of the Armistice have strained public feeling almost to breaking point, and it is not difficult to realise what is likely to be the feeling among the officers and men of the French Navy, among the members of the French Government, and among the French people. Nor is it necessary to translate into words the feelings which are uppermost in the minds of all those here who have felt that on a close union of the United Kingdom and France depended the victory of our common cause, and who still feel that the relations of our two countries must, for good or for ill, be powerful upon the future of the world. But it is also true, and it is on this fact that His Majesty's Government have based their action, that it is only through a victory of British arms that the liberation of France herself can be achieved, and therefore we in this country, who are determined to resist to the end and at whatever cost the German attempt to dominate Europe, must rely upon the power of the French nation sooner or later to appreciate the final purpose of the British people and to judge fairly of the cruel choice which the French Government, under German pressure, had so unhappily forced upon us.
4.25 p.m.
LORD ADDISON: My Lords, I am sure it will not be our wish to discuss now that dramatic and terrible statement of the Foreign Secretary. I believe that every-one of us in his heart believes that no other course in the circumstances was

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possible, terrible as it is, and one cannot help feeling that there must be many French sailors who were alongside us in rescuing their comrades from death at Dunkirk who will feel the same. It was unthinkable, not only to us, but, I cannot help feeling, to every Frenchman, that their Navy, having been alongside us in battle and in rescue so recently, should become an instrument of our common enemy. The noble Viscount said that he had in mind other French ships, and I think that in that he included many of the merchant ships which would be capable of conversion into cruisers. I think everyone of us in his heart believes that this courageous action, forced upon His Majesty's Government by the cruel circumstances of the time, was indispensable to the achievement of victory and for the preservation of our liberty.
4.27 p.m.
THE MARQUESS OF CREWE: My Lords, I have very little to add to what has fallen from the noble Lord, Lord Addison. Your Lordships will understand that my own experiences make this grievous event more painful to me even than it will be to all of your Lordships in some degree. I feel that the course which His Majesty's Government have taken was the only possible one in the circumstances. It is almost incredible that any French Government should have thought it possible to accept the German engagement to make no use of the French ships when they had fallen into German hands. No child would accept their statement as being of the faintest value. Therefore, the course which His Majesty's Government had to take was the only course; but it is a bitter disappointment that it had to be carried out in the necessarily extreme form of which the noble Viscount has given us an account. One would have hoped that the Chiefs of the French Navy, almost to a man, would have refused to accept the decision of the present French Government to allow France to become something not very far removed from a German Protectorate. I cannot help believing that in the hearts of the great majority of French sailors that feeling is predominant.
It is, of course, true as the noble Viscount said, that the French seamen were placed in a terrible dilemma. It is the first instinct of every sailor to obey orders, and when those orders came from
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the French Government they were faced with the terrible alternative of disobeying Government orders or of deserting their Allies. As this special commander chose to take the line of senseless obedience rather than of patriotic duty, he and his men have had to pay the penalty. I am sure that, however much the whole tale may be distorted, as it will be, all over the world it will be recognised that His Majesty's Government could take no other course. One is irresistibly reminded of what happened more than a hundred years ago when the Danish Fleet was seized when Napoleon was endeavouring to fix the Continental System on Europe and to starve us out. But this is a harder case than that. England had not then the same sentiment for the Danes which we have so long been feeling for France. We cannot forget that in these recent months the French Navy has played a splendid part in assisting convoys, in working with submarines, and only the other day in helping in the escape from Dunkirk. We bear these matters in mind and certainly we feel no resentment towards the French Navy whatever we may feel towards the present French Government, on which I should prefer not to speak. I therefore merely once more register what I am sure is the feeling of all your Lordships, that His Majesty's Government had no choice in undertaking a most painful duty.
4.34 p.m.
LORD CHATFIELD: My Lords, as one who had a considerable amount to do with bringing about the comradeship between the British and French Navies I should like to augment what the noble Marquess has just said, in that, despite this most unpleasant and unfortunate affair, I do not think that any British sailor will be hasty to criticise or to condemn the unfortunate French Admiral and his officers who were driven—by force possibly beyond their control—to refuse the reasonable and very proper alternatives which were offered him by the British Government. We have not heard of course a great deal from the noble Viscount as to the conditions under which this action was fought—no doubt that will appear in due course in the newspapers—whether the French Fleet was at anchor and whether the loss of even one ship from Oran was due to skilful handling or in some other way. I am sure that Admiral Somerville must

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have greatly regretted that he did not bag every ship that was in Oran harbour. We are also unaware of the proportion of the French Fleet that still remains to be utilised by the Germans, especially her submarines and destroyers, but I understand that we have got a very considerable number of those vessels in our possession. I should like to say how I sympathise with the British Navy in having had to carry out this painful operation, and at the same time most heartily to congratulate the Government on their determined action, which I am sure has the support not only of your Lordships' House but of everyone in this country.

TRUCK BILL.
Brought from the Commons; read 1a and to be printed.
INDIAN AND COLONIAL DIVORCE JURISDICTION BILL, [H.L.]
Returned from the Commons, agreed to.
MIDDLESEX DEEDS BILL, [H.L.]
Returned from the Commons, agreed to, with an Amendment: the said Amendment considered and agreed to.
COURTS (EMERGENCY POWERS) AMENDMENT BILL. [H.L.]
Returned from the Commons, agreed to, with Amendments.

BUSINESS OF THE HOUSE.
THE SECRETARY OF STATE FOR DOMINION AFFAIRS (VISCOUNT CALDECOTE): My Lords, I beg to move the Motion standing on the Paper in my name.
Moved, That Standing Order No. XXXIX be considered in order to its being dispensed with for the purpose of passing the British North America Bill [H.L.] through its remaining stages.—(Viscount Caldecote.)
On Question, Motion agreed to, and ordered accordingly.

SOLICITORS BILL. [H.L.]
4.38 p.m.
Order of the Day for the Second Reading read.
LORD WRIGHT: My Lords, I beg to move that this Bill be read a second time. It involves a great change from the atmosphere of war in which we have been living for the last half hour, and it has been a matter of some consideration whether it was desirable to proceed with this Bill at this crisis of affairs. The Bill is intended to effect two very important and, I imagine everyone will agree, most beneficial changes in the position of solicitors. The object of these proposals is to reduce the chance of defalcations by dishonest solicitors. Solicitors as a body are people of the very highest honour but every now and then—perhaps one in a thousand cases—dishonesty occurs and the result is serious loss, serious suffering to innocent people and a great discredit to a profession which ranks its reputation for honour and honesty very high.
The two most important proposals in this Bill are, first, that there should be established a Compensation Fund obtained by a compulsory levy on solicitors, and, secondly, that every practising solicitor should be required once in every twelve months to produce a certificate from an accountant to say that his books and accounts have been kept in proper order, and have fulfilled the provisions which the Law Society have laid down for the keeping of accounts, and in particular for the keeping apart of clients' moneys and their own personal moneys. I ought to say at once that one of these provisions—the provision for compulsory accounts—was proposed and recommended by a Special Joint Select Committee of both Houses which sat last year. The other provision, for a compulsory levy and a compulsory Compensation Fund, was also discussed by the same Committee; and, though they did not make any definite proposals, they did indicate that in their view it was a desirable course to adopt. I ought to say that at the end of last year, when the matter was considered by a general meeting of the Law Society, it was felt at first that nothing should be done until the end of the war, but it appeared from the number of questions put to the Attorney-General in the House of Commons that there was a strong feeling that the matter should be proceeded with at once. The Council of the Law Society also thought that if the matter were proceeded with and the Bill became law, its operation should be suspended until the

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end of the war. That again was objected to at the general meeting, and the proposals were carried by a practically unanimous vote.
These are the two main provisions of the Bill. I may point out at once that the fund which it is intended to provide is purely a solicitors' fund. They provide the money, and it is therefore proper that, if Parliament approves of the general purpose of the scheme, its working-out should be left to the Law Society; and the Bill so provides. The Bill, in Clause 1, contains on this point quite a number of definite provisions which determine the main features of the scheme, and in a Schedule there are still further definite provisions dealing with the administration of the Fund; but the working out of the whole system is left to the Law Society, who are authorised and empowered to make rules. In connection with the Fund I ought to say that there is in the Bill as it now stands a clause—Clause 2—the object of which was to secure a reduction in the Stamp Duties to ease the situation for the solicitors who will now, if this Bill becomes law, have to provide the fund by annual contributions. It was hoped that the Treasury might see their way to reduce the Stamp Duties which they charge on practising certificates, but the Treasury do not feel themselves able, in this state of things, to grant that concession. The Law Society are therefore prepared to drop Clause 2, and they or someone else will move an Amendment accordingly. Clause 3 deals with the accountant's certificate, which again is to be governed by rules made by the Law Society. Ever since 1931 there has been an agitation for something of this sort. In 1933 an Act was passed enabling the Law Society to make rules for the keeping of accounts by solicitors and for inspection in certain circumstances. Those provisions have worked very well, but they have been found insufficient, and therefore a strong feeling has grown up for many years that nothing will do but a compulsory annual certificate.
In addition to the two main features of the Bill, there is, in Clause 19, a provision for the making of rules for the keeping of accounts by solicitors who act as trustees, in respect of their trust funds. That would not come under the com-
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pulsory accountant's certificate; it is a separate matter. It is not a matter of compulsion, because there are already in the Trustee Acts provisions which require trustees to keep their accounts in a certain way and to render them available for inspection by beneficiaries. These are three provisions which dovetail together and to which I think I must particularly refer. The other provisions of the Bill, which are somewhat voluminous, deal almost entirely with mere matters of administrative detail. As your Lordships know, the solicitor's profession is governed at almost every point by Parliamentary regulation, by Acts of Parliament, by the provisions of the various Solicitors Acts, and the result is that when the profession want to change their administration or amend what they are doing, it is in almost every case necessary to come to Parliament to get some alteration of the existing provisions. It is for that reason that so many of these minor administrative details, very important in the conduct of the affairs and duties of the Law Society, have to be put into Bills and brought before the House. I do not think it necessary to go in detail through these various provisions. The real matter of principle depends on the two provisions for a compulsory levy and a compulsory audit with a view to compensating sufferers from defalcation. They are the vital provisions of the Bill. With the remainder, which is more or less a matter of detail, I shall not think it necessary—at least at this stage—to trouble your Lordships. I beg to move that the Bill be read a second time.
Moved, That the Bill be now read 2a.—(Lord Wright.)
4.50 p.m.
LORD MANCROFT: My Lords, I hope, and indeed I think, that your Lordships will give a sympathetic welcome to this Bill. My noble and learned friend Lord Wright has explained the object of this Bill; it is an effort on the part of a body of honourable and upright men, who have suffered very unjustly a slur upon their good name owing to some deplorable acts by a small number of members of their profession, to remove that slur. At the same time by this Bill the Law Society seek, with public spirit, to protect the public against loss at the hands of dishonest solicitors. I will say at once, as my noble and learned friend has just said,

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that we all recognise that solicitors are devoted to the interests of their clients who entrust their private affairs to them, and we wish to help them to disperse a locus of mischief which has done their good name so much harm.
As far back as 1929, when I was in the other House, I remember a good deal of feeling being shown about the continual defalcations by, and convictions of, solicitors, with the result that public opinion moved members of that House to take action. Consequently a Bill called the Agents' Bill was introduced by Mr. Annesley Somerville, now Sir Annesley Somerville, That Bill was introduced in 1929 to deal with the problem, and the present Bill is the latest of many efforts to deal with it. I do not say that it is the last, because I do not think that it can be the last; I do not think that it will do all that it sets out to do. I support its principles, but not some of its methods. There have been various Bills and there have been various Acts during the past eleven years, but none of them has succeeded in finding the remedy. A Bill, upon which f ventured to address your Lordships, was brought in as recently as fourteen or fifteen months ago. It passed its Second Reading here and then went to a Joint Committee of the two Houses. But the implications drawn by the Law Society from the Report of the Joint Committee were of such a kind that the Law Society withdrew the Bill; and now we have this, the latest, Bill. All the other Bills or Acts have failed.
This Bill is recommended to your Lordships by my noble and learned friend Lord Wright, who is also one of His Majesty's Judges. That, of course, carries great weight with me, and I feel a little diffidence—I feel that I may be wanting in pietas—in venturing to offer critical observations upon the clauses which he has now recommended. As he says, the majority of the clauses, except Clauses 1, 2 and 3, and perhaps 14 and 19, deal with the internal machinery of the profession, and therefore I do not intend to touch upon them at all. In fact, I intend to speak only on Clauses 1, 2 and 3. But in passing I would say this about Clause 4 and Clause 19: I think Clause 4 is an admirable clause, and I congratulate the Law Society on trying to obtain legislative sanction for bringing every solicitor under the Law Society.
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Clause 19 deals with cases where a solicitor may also be a trustee for his client. I think that the aim of that clause is also very much to be supported.
Clause 2 deals with a request that the Treasury should find the money to help solicitors to set up a Compensation Fund. I think that whoever drafted that clause must have done so with his tongue in his cheek. Why should the public be asked to pay, out of the Treasury, money to help to provide solicitors with a fund to compensate clients who have been robbed? Why should the general taxpayer be called upon to find this money out of the Treasury, even in piping times of peace? The great majority of taxpayers never use a solicitor; they are not concerned with the defalcations of solicitors and why should they, out of the taxes, find for solicitors any portion of the compensation money that is required? The inclusion of Clause 2 in this Bill, indeed, brings into question their judgment of public opinion by those who control the Law Society. It is a clause to attract ridicule.
With regard to Clause 1, which deals with what is called the Compensation Fund, I do not like the idea of the fund in the form of a Compensation Fund. I do not like the word "Compensation." It is not a guarantee fund; it is merely a Samaritan Fund. I wish that the Law Society had not included this clause to set up a fund in the form in which it now appears in the Bill. It is a fund to be administered at the discretion of the Law Society. If there is going to be a fund, I think that it should be a guarantee fund, with a cash deposit or a fidelity bond put in by every solicitor. A skeleton idea is to be found in Lloyd's Underwriters' Fund, which is not designed—and I want to make this particularly clear—to meet fraud. The fund which Lloyd's underwriters have to put up is intended not to meet fraud but to meet unforeseen misfortunes, so that every obligation can be fulfilled—as it is—should an unforeseen risk turn out to be larger than the underwriter can bear. If we are going to have a protecting fund, then I think that this clause ought to provide a regular guarantee fund. Whether there will be any discussion in the other House, or whether Amendments will be put down here to deal with that point of view about the Compensation Fund, I do not know. I do not like the

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word "Compensation" at all, for reasons which I will give, and I think that the operation of that clause in its present form ought to be dropped.
The clause does nothing less than warn the public that if they step into a solicitor's office they run the risk of being robbed, because a Compensation Fund is provided to compensate them when they are robbed. It simply tells the public that the Law Society expect that there may be some thieves among their members. You do not go into a stable yard when you see a board put up: "Be careful of the dog, it may bite you." You do not go to a solicitor if you are warned that there is some risk of your being defrauded. It is a foolish thing on the part of the Law Society, I think, to put this down as a Compensation Fund and thereby announce that they expect that there may be some dishonest men among their members. That is inviting the public to take its business elsewhere. The public will say: "Well, we are warned by the Law Society that we may be defrauded; we have seen a good many prosecutions of late years. Let us go to the Public Trustee. The Public Trustee deals with millions of money without losing a penny of our property. There are also the banks, who act as trustees and never let us down, and the insurance companies, who will look after us honestly. The Public Trustee, the banks and the insurance companies have their own solicitors, they can do the whole legal work for us and we run no risk of losing any money. There is no need for us to employ our own solicitor to act with these other institutions."
I think that the question of the Compensation Fund was given considerable thought by the Joint Committee, for they said in 1939 that they felt themselves unable to draft Amendments for the creation of a Compensation Fund. They themselves looked into the matter and found great difficulties—the same difficulties, I suppose, that I found when I considered Clause 1 of this Bill, and saw that this clause, in the form now proposed, warns the public to expect fraud. Again, it has another effect, a psychological effect upon a small solicitor who may not be in a very prosperous way. It may affect the mind of such a solicitor as an invitation to commit fraud. It may in fact be an inducement for
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him to do what he ought not to do, because he may say to himself: "My client is a simple old lady, and if I do muddle her business so as to rob her of two or three hundred pounds she will not suffer, because there is always the Compensation Fund for her to fall back upon." I think this is a bad clause, psychologically, for that reason.
And what is the Fund going to be used for? Is it going to be used—and only at the discretion of the Law Society—merely to compensate for frauds which have been proved, as they stand in the indictment on the conviction of the solicitor? it does not follow, because a solicitor unfortunately lands himself in the dock and has been convicted of robbing one person of so many hundred pounds, that there are not additional cases of alleged fraud by him which have not been disclosed to the Court. Are the Law Society going to look into the whole of his practice, and have it proved, not by a jury, but to their own satisfaction, that there are not other clients' cases which ought to be compensated? Is the Act going to leave it to the discretion, the kind-heartedness, of the Law Society to say what and whose losses shall be compensated in a convicted solicitor's case, or do you only expect the Law Society to compensate in cases where the specific defalcations have been proved in Court?
And is the Compensation Fund which—I want to make that point quite clear—is entirely at the discretion of the Law Society, going to be used in the following way? Suppose a small solicitor finds himself in deep water. He goes to the Law Society and says: "I am in difficulty. I cannot make my accounts square, I am so much behind. I have been using as my trading capital to run my business funds which have come in to me for or from my clients and now I find I cannot repay. My wife is ill and I am so many hundred pounds behind." Short of compounding a felony are the Law Society going to subsidise this man to get him over his defalcations? That is a question which will have to be answered. The Law Society are the sole judges of the use of their discretion.
Then again the Law Society, acting only at their discretion, might say to a business man who had been robbed: "You ought to have known the risks you

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ran. You knew there was our Compensation Fund; consequently you knew there was danger—the red flag was up. Why did you not go to your solicitor at intervals and see that he had all his accounts properly arranged—not only respecting your money, but your deeds of property, bonds to bearer, securities of all kinds? You are a prudent business man; you must have known it was your duty to take your own precautions. And that being so, we shall not give you any benefit out of our Compensation Fund. You went into this risk with your eyes open; you were warned and you took the risk. We act upon our discretion in administering the fund." The answer to that is quite plain. Many of us, myself included, are trustees for dead friends. We do not go and badger the solicitor to know what he has done with securities and title deeds which have been handed over to him to deal with, or to see whether the moneys are properly accounted for in his books and duly certified under Clause 3. That is; an insulting thing to do to a solicitor. You cannot expect people to go to a solicitor and say by implication, "I do not trust you." If you do ask for all these precautions you cannot blame the solicitor if he throws the papers in your face and says, "Take your business elsewhere."
I therefore think that you put a prudent business man into a very difficult place if you expect Mm under this clause, which is operative at the discretion only of the Law Society, to take crude precautions to see that he is not taken advantage of. It is difficult for a busy man to watch that Clause 3 is complied with in relation to his affairs. Very often family trusts, or executorships, run over long periods: I myself have been a trustee for thirty-five years. You leave the thing to run on with the trust's solicitor. You do not bother very much about it. You cannot go to him every year and say "I want to see the trust's books and the Law Society's certification." It cannot be done.
The fact of the matter is that this clause operates in the wrong way. It deals with the difficulty upside down. It deals with cases of defalcations after they have happened. The clause ought to deal with these cases in such a way as to prevent frauds before they occur, not to
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give compensation afterwards. I do not know why the Law Society do not realise that a preventive method is the proper approach to the problem, instead of approaching it after the frauds have occurred. When the last Bill was before your Lordships' House in the summer of 1939 I suggested two methods, which I thought were precautions to prevent or reduce frauds. I saw the difficulty in one method; I will repeat it if I may. I said that single partnership firms, sole partnerships, should not be allowed, for reasons which I gave. I will now say this. If as a matter of justice, as a matter of not inflicting hardships upon professional men, it is decided that single partnership firms should be allowed, then I say there should be in this Bill some clause to insist upon single partnership firms being subjected to extra and more severe audits. Such firms have unfortunately come under suspicion, and the suspicions have unfortunately turned out to be correct. Therefore the precautions against them should be more severe. Of course, I exclude single solicitors who act for banks or municipal authorities or insurance companies—I mean those who take private business.
The other remedy, I think, was that the clause requiring an accountant's certificate should be made more rigorous. I took down some words which my noble and learned friend used—"books and accounts kept in proper order." Well, I would like to deal with those words. Clause 3 does not specify what books should be required. Why not? Various trades need special forms of books. There are dozens of different trades which need dozens of different types of books. There is no difficulty in designing a suitable type of book for solicitors handling the property of clients. And I noticed that my noble and learned friend Lord Wright did not mention securities, instruments of value, deeds, documents, bonds; he seemed to confine himself only to money in relation to the solicitor's accounts. We have in dealing with this problem to realise that solicitors hold not only money on behalf of clients, but also hold for long or short periods documents of value which are negotiable, sometimes negotiable easily or by bearer action, and sometimes made negotiable by fraud. Still, they do hold documents, and these do not seem to be referred to in any

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precaution covered by the words "books and accounts."
I think that certification under Clause 3 is useless; for not only should the money be checked, but these instruments which I have mentioned should be recorded and checked. They should be confirmed and verified. The certificate should not merely fall back on the terms "as shown by the books." There should be a visual proof, a checking, a physical handling and a confirming that what the books show is evidence of proved facts, and existence. Only a few days ago I saw a certificate of an auditor or accountant for one of the great insurance companies, and therein it was stated that the securities held by this insurance company had been checked. In fact, I insist in my own small way where I am a trustee that from time to time my solicitors and the accountants go to our bank and check the securities by sight and handling. My solicitors send me a certificate by their accountants who have checked the securities at the trustee bank to see that they are there. There is no provision in this Bill for checking the existence of securities. Clause 3 therefore has shirked the issue, and manipulations will be possible unless what is "shown by the books," as it is called, has had previous audit, personal visual audit, and has been proved to be in accord with facts. My noble and learned friend, as he showed in the famous case in which he gave judgment, knows better than anyone else in Britain the meaning and usefulness of an auditor's certificate. I therefore draw my noble friend's attention to the efficacy of Clause 3.
A fruitful cause of defalcations is that there are too many solicitors. Especially as some of them—I do not want to be unkind—are incompetent. You go to a small solicitor, or even sometimes to a big solicitor, and ask him a question. He looks wise, rings a bell and asks the managing clerk or office boy to come in and tell you the answer. Or he will say, "I must send the matter to counsel." I am given to understand that there is a beggar-my-neighbour result in the search for business among small solicitors. I am told that the average income of the 17,000 solicitors who are practising with solicitors' certificates is not more than £1 a day, or less than £400 a year. That is less than some artisans' wages. It
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shows there is not work enough for so many solicitors. It does not give the profession a chance to set up good organisation for individual practices. Of the 100 solicitors who have been convicted in the criminal courts during the past ten years, a large number were sole partnership firms, and I understand that these cases involved losses disclosed in the neighbourhood of £1,000,000. I do not think that figure has been confirmed.
If one is in commerce, one sees time after time a trading firm becoming bankrupt because it has not sufficient capital to trade with. A solicitor can no more run his business without capital than a cabinetmaker can carry on his craft without tools. Lack of capital among solicitors is the frequent cause of bankruptcy and of temptation to fraud at the expense of their clients. Such a solicitor wants money because he has not enough of his own to run his business; he runs it on the money of his clients and so falls into crime. If there are so many solicitors and they are so impecunious that they cannot find the few pounds for subscription towards this Fund, whether it comes out of the Treasury or out of their own pocket, they are hardly the men to embark on a profession where capital is needed to serve as their working tools. These men without capital have often to handle wealth without any control by trustee or executor. Solicitors ought not to be men of straw. In trade it is a well-known axiom that if you pay your cashier badly you have no one else to blame but yourself if he is tempted to pocket money that passes through his hands. There should be some effort on the part of the Law Society, before admitting men to practise, to see that they are financially so placed that there is no likelihood of their being unable to carry on for lack of working capital.
In my view, this Bill is not likely to prevent fraud—it may compensate for fraud. It is too timid; it does not grasp the problem. I would sum the whole thing up in this way. It deals with fraud after fraud has been committed instead of preventing it. Unless the Law Society are prepared to see a large amount of the family will and trust business go to the Public Trustee in cases where money and securities are dealt with, they will have to move on different lines. First, they have at least to exercise greater control

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over, if not to abolish, single partnership firms. Secondly, any accountant's certificates must be proved by visual observation of all securities and instruments of value held by solicitors for clients before the entries are made in solicitors' books and certified by the accountant. "As shown by the books" is not sufficient. Nor is certification of money sufficient. The existence and disposal of securities must have been verified.
The third thing I would say is that no solicitor should be allowed to practise unless it is shown that he has sufficient capital to render him unlikely to use clients' money for running his business. A Lloyd's Underwriters' Fund scheme should replace the discretionary fund mentioned in Clause I. Books should be specially designed to record the receipt, custody and disposal of securities as well as money. It may be said that it is difficult to design such books. I do not believe it. There is no difficulty. Books have been constructed by accountants to deal with the business of a man who buys at auctions mixed bundles of secondhand books, some of which he later sells for a penny, threepence or a shilling, and some for pounds, and these books show what the result of these transactions has been. Books have been constructed by accountants to deal with very difficult, technically-involved accounts relating to the hire-purchase transactions in household furniture. I do not think, therefore, there can be any doubt that effective books can be constructed for solicitors. Moreover, if you go to any branch bank in any town or in any branch bank in the streets of London, you will find, from time to time, travelling inspectors confirming the accounts there. When securities, bonds, documents, title deeds, and the like are handed to a bank, they are entered in the books, and the receipt, custody and disposal of them, and if necessary their sale, are recorded in the books and checked by the inspectors. If the banks are able to do that, there is no difficulty in getting a suitable type of book produced for the use of solicitors as a safeguard for preventing the mishandling of money and securities entrusted to them.
I do not propose to obstruct the quick passage of this Bill. I hope it will pass, and therefore I shall put down no Amendments. As I noted what my noble and learned friend said about Amendments so
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my observations may possibly be taken into consideration in the later stages of the Bill. I must remind him of this, that Clause 30 of the Bill adheres to the Solicitors' Accounts Rules, 1935, under the Act of 1933. These Rules have failed, quite evidently, otherwise there would be no need for this Bill. It is now eleven years since the attention of the Law Society was drawn by the House of Commons to defalcations by solicitors, and it was intimated to the Law Society, by the attention given to the matter in the House of Commons at that time, that they should put their house in order. Eleven years is too long for this problem to have drifted unsolved. If the Bill which is now introduced by the Law Society does not provide the remedy, public opinion, will eventually compel Parliament to remove certain classes of monetary work from the solicitors, such as business connected with wills and trusts where money and securities are concerned, and make it compulsory for executors and trustees to hand over this particular type of work to the Public Trustee. If the Law Society are not prepared to take means strong enough for the purpose, then they must blame themselves if they see much more of their work pass from them. I wish to support the principles of the Bill and I hope I have given no offence to my noble and learned friend in the observations I have made.
5.22 p.m.
THE LORD CHANCELLOR (VISCOUNT SIMON): My Lords, I should be very unwilling to detain your Lordships more than a moment or two or to prolong this debate, but in view of the special relations that exist between the office I hold and the Law Society and the solicitors' profession, I feel it my duty to inform your Lordships that, in my view and in the view of the Government, it would be well to give a Second Reading to this Bill. It is, of course, a Bill prepared by the Council of the Law Society for which the Government take no responsibility, and it appears from the speech which has just been made by my noble friend Lord Mancroft, that there may be matters of structure and detail which at a later stage may call for consideration. But on the.Second Reading of the Bill I do not doubt that the House would do well to allow the Bill to go forward.
It comes before us under very distinguished auspices. My noble and

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learned friend who introduced it did not tell your Lordships but it is the fact that he was himself the Chairman of the Select Committee of both Houses which considered this subject, I think last year, and upon the Report of which the present Bill is largely framed. Moreover, my noble and learned friend was for some time Master of the Rolls, and the Master of the Rolls has special duties and special jurisdiction in connection with solicitors. May I take this opportunity of saying how entirely I agree in the proposal mentioned by the noble and learned Lord, and also by the noble Lord who has just spoken, that Clause 2 should not be left in the Bill? There is no justification for seeking to reduce the public revenue and to diminish the fees which are paid by a solicitor to the Crown as the condition of his practising, in order to contribute to a fund to protect those who suffer from the defalcations of a black sheep. But the main object of the Bill—I leave its precise method to be considered later—is one which every honest man must support. Here is a great and honourable profession, containing many men of the highest integrity and skill, but none the less from time to time it is found to contain in its ranks some despicable creature who cheats his clients of their money. This is an effort by the Law Society to bring about a better state of things.
I imagine that special importance is attached by the society to the clause in the Bill which will require that there is to be an annual certificate by a qualified accountant that he has examined the solicitor's books of account and bank books. Whether the provisions are adequate or need to be more stringent will be considered hereafter, but this is a proposal of very great importance, and I think the public will widely appreciate and welcome its passage into law. The other proposal which creates a Fund out of which those who suffer from defalcations may get relief raises, as the noble Lord has just said, difficult questions as to the best form that proposal should take, but the general principle that a numerous and honourable body of men practising a useful and highly-trained profession should endeavour to secure the public against the lapse of some black sheep is surely a principle which we ought to welcome. It is a principle which is contained in this
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Bill, and is one which the Law Society are anxious to develop in this legislation in the best possible way. Subject, therefore, to an inquiry upon the points raised by the noble Lord (Lord Mancroft), and provided that Clause 2 is removed from the Bill, I hope we may see the principle of the Bill generally approved in order that its precise form may be settled hereafter.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

BRITISH NORTH AMERICA BILL. [H.L.]
5.25 p.m.
Order of the Day for the Second Reading read.
VISCOUNT CALDECOTE: My Lords, this Bill arises out of a judgment which was given in the Judicial Committee of the Privy Council*in 1937, holding that the Employment and Social Insurance Act, 1935, passed by the Dominion Parliament, was ultra vires that legislative body. The Canadian Government and Parliament thereupon desired that the decision should be reversed, and they have taken steps to secure that this should be done. There is no power in the British North America Act to amend that Act in the Dominion Parliament. Consideration has been given to the question as to the best method of amending that Act, but no decision has been reached, and when the Statute of Westminster was passed a clause was inserted to Section 7 (1) of the Act providing that the amendment of the British North America Act should be excepted from the general powers conferred by the Statute of Westminster upon the Dominion Parliament. The Bill has been framed upon the basis of an Address to the King, and its provisions are generally in accordance with similar legislation which has been passed from time to time amending the British North America Act. I beg to move that the Bill be now read a second time.
Moved, That the Bill be now read 2a.—(Viscount Caldecote)
On Question, Motion agreed to: Committee negatived.
Then, Standing Order No. XXXIX having been suspended, Bill read 3a, and passed, and sent to the Commons.

BUSINESS OF THE HOUSE.
5.28 p.m.
THE EARL OF LISTOWEL: My Lords, in the absence of my noble friend Lord Addison, I should like to ask the noble Viscount, the Leader of the House, whether he can make any statement about business next week.
VISCOUNT CALDECOTE: My Lords, on Tuesday the Colonial Development and Welfare Bill will be taken in Committee. It is also proposed to take the Second Reading of the Truck Bill, and the consideration of Commons Amendments to the Courts (Emergency Powers) Bill. My noble friend Lord Munster is asking a question about the charge to the Exchequer for the maintenance of evacuated children, and is moving for
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Papers. On Wednesday the remaining stages of the Truck Bill will be taken and the Report stage of the Colonial Development and Welfare Bill, and there will be a Royal Commission that day. On Thursday there will be the Third Reading of the Colonial Development and Welfare Bill and my noble friend Lord Denman has a question relating to the Local Defence Volunteer Force. It is expected also that the Unemployment Insurance Bill and the Merchant Shipping (Salvage) Bill will be received from another place that day. I have also been informed that my noble friend Lord Barnby will raise a question concerning the British Purchasing Commission in America and Canada and will move for Papers.
House adjourned at half-past five o'clock.