Lords Sitting of 29 January 1959

Preamble
The House met at three of the clock, The LORD MERTHYR on the Woolsack.
Prayers
The Lord Boston—Sat first in Parliament after the death of his father.
The Lord Lindsay of Birker—Sat first in Parliament after the death of his father.

FALMOUTH DOCKS BILL [H.L.]
Read 2a, and referred to the Examiners.
ROUND OAK STEEL WORKS (LEVEL CROSSINGS) BILL [H.L.]
Read 2a, and referred to the Examiners.

LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [H.L.]
Read 2a.
House adjourned during pleasure, and resumed by The LORD CHANCELLOR.

HERR KRUPP'S ASSETS
3.5 p.m.
VISCOUNT ELIBANK: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government (1) if they can state the total value of the personal property, steel, iron and coal-producing assets of Herr Alfried Krupp von Buhlem und Halbach (a) already sold under the 1953 deconcentration plan, and (b) remaining in his possession and due to be sold; (2) whether Herr Krupp recently reacquired such parts of the Bochumer Verein und Rheinhausen as had been sold under the 1953 agreement, and, if so, under what authority; and (3) what is the present position regarding the enforcement of the deconcentration orders.]
THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE FOR FOREIGN AFFAIRS (THE MARQUESS OF LANSDOWNE): My Lords, the value of the assets sold or ceded under the Krupp deconcentration plan is approximately £12,000,000. According to information received from the Federal German Government, the nominal capital value, including reserves of those remaining to be sold, is in the region of £14,000,000. The answer to the second part of the Question is that, although the High Authority of the European Coal and Steel Community has approved a proposal that the HËtten und Bergwerke Rheinhausen Company, which is one of the companies subject to the obligation to sell, should acquire a majority shareholding in the firm Bochumer Verein, this proposal has not been put into effect. As regards the third part of the Question, I have nothing to add to my reply of December 9, 1958.
VISCOUNT ELIBANK: My Lords, I beg to thank the noble Marquess for his answer. Does he remember the statement by Herr Krupp in 1953, namely:
"I have signed an undertaking not to produce coal and steel, and I will stick to it"?
Is it not the case, therefore, that in these approaches for the re-acquisition of the Bochumer Verein und Rheinhausen Herr Krupp has deliberately broken his word in this respect? Is it not the case that if he re-acquires these assets—which it looks as if he is going to do—he will have become the largest single steel manufacturer in West Germany, as the properties include the great Konstantin coal mine? Is it not clear that he has made these approaches for re-acquisition with the acquiescence of the Bonn Government which, in the words of The Times of January 21, is as much opposed to the 1953 selling order as is Herr Krupp himself?
LORD HENDERSON: My Lords, before the noble Marquess replies, and apart from any question of Herr Krupp breaking his word, may I ask whether the acquisition of these two undertakings would not be quite contrary to the intention and spirit of the 1953 deconcentration plan?
THE MARQUESS OF LANSDOWNE: My Lords, in reply to the noble Viscount, Lord Elibank, may I say first of all that

969
I am aware of the articles and the quotations to which he has referred. I think I can answer both the noble Lord, Lord Henderson, and the noble Viscount, Lord Eubank, together. The Treaty of the European Coal and Steel Community contains provisions to guard against further excessive concentrations. Furthermore, remarks made recently by Dr. Adenaeur show that the Federal Government is fully alive to the dangers of excessive industrial concentration. After the deconcentration plan has been completed there will be no legal obligation on the Federal Government to enforce Herr Krupp's undertaking.
VISCOUNT ELIBANK: My Lords, may I ask the noble Marquess whether it is not the case that under the Bonn Convention the obligation is upon Herr Krupp, under Law 27, to sell. Is it not the case that the Dr. Adenaeur Government took over the legal obligations under Law 27, and should those not be carried out quite apart from any of the dealings with the High Authority?
LORD HENDERSON: My Lords, may I again ask the noble Marquess whether we are to understand that the arrangements made under the Coal and Steel Community override Law 27 to which my noble friend has referred? The intention of Law 27 was to break up this concentration. Are we to understand that under the Coal and Steel Community this concentration can be re-concentrated? It seems to me quite contrary to the intentions of the Allies when they carried through Law 27.
THE MARQUESS OF LANSDOWNE: My Lords, I hope I have not misled your Lordships. The High Authority of the European Coal and Steel Community does not affect the obligation to sell in any way.
LORD HENDERSON: My Lords, if it does not affect the obligation to sell, does it also not affect the obligation to keep the de-concentration that was established or sought to be established under Law 27?
THE MARQUESS OF LANSDOWNE: My Lords, the High Authority is an international body, as the noble Lord is well aware. We are dealing here with the
970
Bonn Convention to which there are three signatories, France, the United States of America and ourselves, and the High Authority has no overriding power whatsoever.
LORD HENDERSON: My Lords, may I ask for a final answer? Are we to understand that Law 27 is going to be implemented regardless of the Coal and Steel Community?
VISCOUNT ELIBANK: My Lords, may I help the noble Marquess by asking this question? Is it not the case that there is no relationship at all between Law 27, which the Bonn Government undertook to enforce, and the High Authority?
EARL HOWE: My Lords, may I ask the noble Marquess whether any further questions had not better be addressed to Mr. Dulles?
THE MARQUESS OF LANSDOWNE: No, my Lords. As I have repeatedly said in your Lordships' House, this is a matter which concerns three Governments and it is a matter which will be decided by three Governments.
VISCOUNT ELIBANK: My Lords, with great respect, that does not answer my question. May I ask it again? Is it not the case that there is no relationship whatsoever between Law 27, as it ought to be applied, and the High Authority?
THE MARQUESS OF LANSDOWNE: The noble Viscount is perfectly correct.
LORD HENDERSON: My Lords, I understand, of course, that there are three Governments responsible for Law 27. But may I ask for a simple answer to a simple question? Have Her Majesty's Government changed their attitude as regards the implementation of Law 27?
THE MARQUESS OF LANSDOWNE: My Lords, I should very much like to take a swipe and hit the thing for six over the pavilion, but I am obliged to reply in the same cautious vein with which I have replied to these questions all along. This is a tripartite matter, and it would be most improper for me, as the noble Lord probably knows better than anyone else, to try to answer that question unilaterally. It would be very improper to do so.

LOAN FOR NEW SCOTTISH STRIP MILL
3.18 p.m.
LORD SILKIN: My Lords, on behalf of my noble friend Viscount Alexander of Hillsborough, I beg to ask the Question which stands in his name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government (1) what is the extent of State capital at present involved in the capitalisation of Messrs. Colvilles Limited, and what is its nature; (2) what is the present debenture debt of Colvilles Limited, who are the holders of the 6 per cent. convertible debenture stock, how much is at present outstanding, and what are the assets at present charged to secure the existing debentures held by the Iron and Steel Holding and Realisation Agency; and (3) whether they intend to arrange for an additional measure of security to be entered into by the company before the first advance under the scheme set out in Col. 702 of the OFFICIAL REPORT Of the House of Lords Debates of Wednesday, 21st January, 1959.]
THE MINISTER OF POWER (LORD MILLS): My Lords, State capital in Colvilles, Limited, at present consists of the holdings of the Iron and Steel Holding and Realisation Agency as follows: £10 million 4½ per cent. debenture stock 1975–1985 (fully paid); £4 million 5½ per cent. cumulative preference shares of £1 each (fully paid). In addition to the £10 million debenture stock held by the Iron and Steel Holding and Realisation Agency, Colvilles, Limited, have a further debenture debt consisting of £6 million 6 per cent. convertible debenture stock, 1978–81, which was issued to the public in January, 1958. All of these debenture stocks are at present outstanding. The debentures are secured on certain heritable properties of the company in Scotland, comprising its works at Motherwell (including Ravenscraig), Cambuslang, Tollcross, Glengarnock and Bells-hill, together with heritable plant, machinery, fixtures and fittings thereon and the whole of the issued share capitals of the company's principal subsidiaries.
As regards the third part of the Question, the company have undertaken at any time during the currency of the
972
loan, if so requested by Her Majesty's Government, to create a second debenture in favour of Her Majesty's Government. However, the creation of a debenture deed under Scottish law is somewhat expensive, and it has been agreed that there is no object in incurring this expense until the necessity arises. Since the undertaking given by the company fully protects the Government's interests, it is not intended to seek any additional measure of security before the first advance is made under the scheme.
LORD OGMORE: My Lords, may I ask the noble Lord why it is necessary to invest State funds in this company and why they cannot get their funds in the market like other people do?
LORD MILLS: I should have thought the noble Lord would be well aware of the answer to that question, since the attitude of his own Party creates an atmosphere in which it is not likely that they would succeed in getting funds from the market.

BRITISH TENDERS FOR AMERICAN CONTRACTS
3.20 p.m.
LORD STONHAM: My Lords, I beg to ask the Question which stands in my name on the Order Paper.
[The Question was as follows:
To ask Her Majesty's Government what plans they have for the protection of British firms who, having accepted invitations to tender for installations and equipment in the United States of America, find, after submitting the lowest tender, that they are denied the contracts on grounds of alleged "national security".]
THE MINISTER WITHOUT PORTFOLIO (THE EARL OF DUNDEE): My Lords, the final decision on the acceptance of any tender must rest with the authority placing the order, but the views of Her Majesty's Government on this unfortunate case have been made abundantly clear to the United States Government.
LORD STONHAM: My Lords, is the noble Earl aware that the vigorous protests made, which we strongly support, have apparently been rejected by Mr. Dulles, who, in regard to our protests at

973
this un-American activity, says that this w as an honest decision? How can we free restrictions on dollar imports if they are able to stop our exports on any pretext? Will the Government seek a firm undertaking governing future dealings and, meanwhile, demand compensation for the losses which British firms have sustained in this way?
THE EARL OF DUNDEE: My Lords, under the Buy American Act the Executive is entitled to reject any order on grounds of national security, which they did in this case. The matter was referred to the Office of Civilian and Defence Mobilisation who stated that if this present procurement was not awarded to the domestic producer there was reason to believe that the domestic productive capacity in the United States would be reduced to a level inadequate for emergency requirements. I think the United States Government must be the judge of its own security. There is nothing we can do about compensation. All we can do is to say that this sale would have represented an extremely insignificant proportion of their total need of the kind of material: in question; that the security issue was not raised until the last moment, and that, of course, this sort of action does not increase confidence in the sincerity of the American Government in carrying out the liberal trading policies into which we and they have entered.
LORD STONHAM: But could not the noble Earl suggest to the United States Government that they could make up their mind whether the supply of two turbines was a matter of national security before inviting British firms to tender, arid not after those firms had been successful? And does it not strike the noble Earl as grossly unfair that this British firm should be put to the great expense of tendering in this way, and should then be deprived of the contract in an arbitrary way? Is it not the case that it was not national security but the fact that a politician wanted to secure some advantage at an election that caused this switch of the contract?
LORD SHEPHERD: My Lords, would not the noble Earl agree that this is not an isolated case? Could be also say whether similar pressure has been brought to bear to prevent the adoption of the Decca electronic system for the naviga-
974
tion of international aircraft and shipping lines, which we all know to be vastly cheaper than the American system, and very much more efficient?
THE EARL OF DUNDEE: My Lords, in reply to the noble Lord, Lord Stonham, I think the considerations which he mentioned in his supplementary question have all been clearly and forcefully presented to the United States Government. As for this not being an isolated case, I should not like to say, without notice, whether or not it is isolated; but I am glad to say that it is exceptional and that, in general, the United States Government are carrying out the more liberal trading policy which both of our countries are endeavouring to pursue.
LORD HENDERSON: My Lords. may I ask the noble Earl whether in the future Her Majesty's Government will seek to obtain from the United States Government a decision on national security before they apply for estimates?
THE EARL OF DUNDEE: My Lords, I think that that is certainly desirable. The noble Lord may have. noticed that Mr. Dulles said at a Press conference on January 27, when he conceded that the national security issue was raised after the bids were called for, that sometimes the timing between Government agencies is not what it should be.
VISCOUNT ELIBANK: My Lords, is the noble Earl aware that it would be more becoming on the part of our Ally. the United States, when they are putting forward preposterous excuses for denying contracts to British traders, if at the same time they ceased putting obstacles in the way of British traders doing trade with China?
THE EARL OF DUNDEE: My Lords, I think the noble Viscount has a Question on that subject next week.
LORD STONHAM: My Lords, could the noble Earl say, since. to use his own words, this was an isolated case, whether Her Majesty's Government have asked the United States Government to compensate the British firm for the losses sustained through their arbitrary decision, and would it not be fair to do so?
THE EARL OF DUNDEE: I do not think so. But perhaps, to be more sure, the noble Lord had better put down a Question. I think I had better have notice of that point.
LORD CONESFORD: My Lords, is it not a fact that the rejection of this tender on the alleged ground of security, though not disclosed beforehand by the American Government, was accurately prophesied by an interested American politician?
THE EARL OF DUNDEE: I think that that is correct.

NAVY, ARMY AND AIR FORCE RESERVES BILL
House in Committee (according to Order): Bill reported without amendment.

RIGHTS OF LIGHT BILL [H.L.]
3.27 p.m.
Order of the Day for the Second Reading read.
THE LORD CHANCELLOR (VISCOUNT KILMUIR): My Lords, in rising to commend this small Bill to your Lordships I cannot but reflect that it has been my duty, during the four and a half years which I have had the honour of serving your Lordships from this place, to move the Second Reading of a number of Bills of a singularly complex and indigestible nature. I should like to-day to pay tribute to the patient and attentive hearing which your Lordships have always been good enough to accord my attempts to expound these complicated and often obscure measures.
On glancing at this Rights of Light Bill your Lordships may have derived some comfort from its Title, and may reasonably have supposed that the matters with which it deals require very little illumination from its mover. I should not be too ready to adopt that view, because I fear that the law which it is proposed to amend by this Bill is, frankly, the law of specialists. There are, as some of your Lordships know, certain sets of Chambers in Lincoln's Inn which are known colloquially as "Light and Air Chambers." The penetration of light and air into those desirable premises is probably no greater
976
than into the Chambers of Mr. Serjeant Snubbin, of immortal memory; they are occupied, nevertheless, by lawyers who have devoted a lifetime to this somewhat esoteric field and, as I shall mention before I sit down, this Bill has been prepared with their skilled help and advice.
My Lords, the other thing I want to say by way of preliminary observation is this. Although its terms may not be as clear as daylight, the Bill deals with a very real and pressing need, arising out of the devastation caused in some of the big cities by bomb damage during the late war. We have also taken the opportunity of making some permanent improvements in the law.
Perhaps your Lordships would now find it convenient if I were to attempt to say a few sentences about the existing law, and then to tell your Lordships why we are bringing forward this measure. The law is that any substantial interference with a man's comfortable use and enjoyment of his home according to the usages of ordinary persons in the locality is actionable as a nuisance at common law. There is, however, a difference between enjoyment of freedom from noise and smell and the enjoyment of the access of light to one's windows. Unless a right to access of light becomes attached to one's property—by the acquisition of what is known as an easement of light—there is no right to be enforced. This stems from the general law with respect to land that—planning controls and building bye-laws apart—everyone may build upon or otherwise utilise his own property, regardless of the fact that it involves interference with the light which would otherwise reach the land and buildings of another person.
There is, therefore, no natural right to light automatically incident to one's property; it has to be acquired. And the two usual methods of acquiring it are, first, by uninterrupted enjoyment of a flow of light to one's windows for a stated period—what we lawyers call acquisition by prescription—or by agreement with the owner of the adjoining site. The owner or occupier of a building who wishes to claim a right to the continued enjoyment of the flow of light to his windows can do so if he can show that he has enjoyed the flow of light for an uninterrupted period of twenty years. That is laid down in the Prescription Act,

977
1832, which also provides that nothing short of a full year's break shall count as an interruption. So an indefeasible right to light in fact accrues after nineteen years.
Once a building has acquired rights of light the owner or occupier can, by appropriate action in the courts, prevent the erection on a neighbouring site of any structure which would reduce the amount of light he enjoys below that required for the ordinary uses of habitation or business to which his building is put. The owner of an empty site who does not wish to be hampered in his freedom to develop it by rights of light acquired against it will, therefore, normally have nineteen years in which he can obstruct the flow of that light by building or otherwise. If he fails to do so, his ability to build on his site may be seriously impaired.
Normally I would say that nineteen years is long enough to enable owners of undeveloped sites to protect their own rights, but an exceptional situation will shortly arise. Your Lordships will remember that the first of the heavy bombing took place in the late summer of 1940; therefore it will not be long before nineteen years will have elapsed and rights of light will begin to be acquired over bombed sites which are still empty. During the greater part of the last twenty years special factors have operated which have prevented or impeded reconstruction. From 1940 until the latter part of 1954 there have been statutory restrictions on building. These restrictions, and shortages of materials have, at times wholly, and at other times to varying degrees, prevented the rebuilding of bombed sites, so that there are to-day in the cities and townships of this country considerable numbers of such sites still awaiting reconstruction and now in danger of being seriously impeded in their redevelopment by adverse rights of light.
In these circumstances, I appointed, in March, 1957, a Committee, under the chairmanship of Mr. Justice Harman, to advise me on the size of this problem and the appropriate remedies. In their Report, which was published last July, the Committee make certain recommendations for the temporary extension of the twenty-year period of enjoyment which are implemented by Clause 1 of the Bill. The result will be that anyone wishing
978
to claim a right of light before the end of 1962 will have to rely on uninterrupted enjoyment of the access of light for a period of twenty-seven years instead of twenty years. The time between now and 1963 should be sufficient to enable the owners of the bombed sites either to develop them or to take the necessary steps, which I will mention a little later, to preserve their rights for the future. As the Harman Committee recommended, the proposed extension is not confined to bombed sites. It would not be reasonable to distinguish in this connection between bombed sites and other sites which were ripe for development or reconstruction at the outbreak, of the war and which have also remained undeveloped through circumstances outside the owners' control.
When, in July last, I told your Lordships of Her Majesty's Government's intention to introduce legislation giving effect to the Harman Committee's recommendations, I said that we proposed to let the extended period operate from the date of publication of the Report. Clause 1 accordingly applies to all claims to rights of light asserted in proceedings in the courts begun after the 14th July, 1958, the date of my announcement. Otherwise, the owners of neighbouring sites would be free at any time before this Bill comes into effect to defeat its provisions by seeking a declaration from the court that they already have a right of light on the strength of the twenty years' enjoyment under the present law. As is usually provided in modern legislation, the Bill will not, however, upset any final judgment given before it receives Royal Assent.
The clause, however, also operates retrospectively in an indirect way, which I want to bring to the attention of the House, because I am a firm opponent of retrospective operation in any form unless the case for it is overwhelming. Broadly, the effect of Clause 1 is that where the flow of light across a site to a neighbouring building did not commence until 1934, the owner of the site will yet be able to prevent a right of light accruing to that building. Rights of light which buildings have enjoyed for more than nineteen years will thus be liable to be disturbed, and the owners may in some cases suffer financial loss—for instance where the value of the

979
assumed right of light was reflected in the price recently paid in purchasing the building. I have mentioned this point specifically to your Lordships because it is one which has caused me considerable thought, and I should like to say that in adopting this view, I have followed the course suggested by the Harman Committee. Those of your Lordships who are interested in the matter will find that the Committee set out in paragraph 36 of their Report what I believe are very good reasons for this course.
My Lords, I now turn to permanent changes in the law which will be made by the remaining clauses of the Bill. Clauses 2 and 3 set up a system of registration of notices which will prevent the acquisition of rights of light. At present the owner of a site who wants to prevent the acquisition of such rights across his land must, if he cannot build before those rights accrue or induce his neighbours to forgo their rights by written agreement, erect a screen to cut off the neighbour's flow of light. These screens, sometimes somewhat appropriately and poetically called by my profession "spite screens", are at best unsightly and an unproductive use of labour and materials. Moreover, their erection is subject to planning permission which, since the structure is normally æstlietically objectionable, ought not to be granted and which yet cannot be refused without depriving the owner of the site of his ability ultimately to develop his own land. The Bill will provide a simple alternative to the crude remedy of the screen by setting up a system for the registration in the register of local land charges of notices, which will have the same effect in law as the erection of such a structure. A notice registered under the Bill will have, in the same way as a screen has at present, to be in existence for a year in order to be effective. Clause 3 accordingly provides that those likely to be affected shall be given adequate notice of the registration, so that they may, if they wish, challenge it in time by action in the courts.
I do not think I need detain your Lordships with many observations on the remaining clauses of the Bill, except for a few words on Clause 4. That clause, which provides for the registration of agreements permitting the obstruction of access of light, is not based on anything
980
in the Report, but is intended simply to prevent the system of registration from being by-passed. The object is to enable purchasers to discover, by searching the register, whether the flow of light is enjoyed under a written agreement, because, if it is, an easement of light does not accrue. But purchasers ought to be able to find out the true position, and Clause 4 accordingly makes unregistered agreements of no effect against them.
Before I conclude my commendation of the Bill to your Lordships, I should like most sincerely to pay a tribute to the work of the Committee whose labours will, I hope, bear fruit when this Bill is enacted. Theirs has been the difficult task of assessing the need and finding the best way to meet it, and I think that we owe them a debt of gratitude for the way they have carried it out. I remember so well that, when I was a Minister and a Law Officer of the Crown during the war years, with all the varying circumstances and all the measures we had to take, one was conscious of banking up during that time needs and rights which would have to be preserved in order to do equity after the emergency period had passed. This, as I said to your Lordships, is a relatively small problem, but it is a very real problem caused by the bombing, and I am most grateful to Mr. Justice Harman and his colleagues for doing the work so well. I believe that this Bill combines the virtues of meeting an immediate problem and of making a lasting improvement. I hope that your Lordships will approve of the objects we are trying to achieve and of the methods by which we shall do so. I beg to move that this Bill be read a second time.
Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
3.45 p.m.
LORD SILKIN: My Lords, I should like to begin by associating myself wholeheartedly with the concluding remarks of the noble and learned Viscount. We do indeed owe a great debt of gratitude to those who for the benefit of the community give of their services and of their skill in, very often, dull and complex matters. It is right that those services should be fully and handsomely appreciated. In this particular case the Committee presided over by Mr. Justice Harman have acted not only with great skill but with promptness. They were

981
able to produce a Report on this most difficult matter within a period of just over a year, and we are very grateful to them for it.
I should like to include in those thanks our thanks to the organisations and individuals who took the trouble to give evidence before them. As the noble and learned Viscount has explained, this is a matter which is clear to a very limited number of people; and the organisations which took the trouble to give evidence must have been put to a great deal of trouble and carried out a good deal of research in order to enable them to be of assistance; and, of course, without that assistance, without the evidence produced to the Committee, the Committee would have been very much hampered and restricted in their efforts. I refer particularly to the Law Society and the Bar Council, to the Surveyors' Institutes, to the Architects, to the Auctioneers and Estate Agents' organisation, to the local authorities, and to the others who gave oral evidence. All of them in their way have contributed to the production of this Report in fairly good time, and I am sure the House would wish them all to be included in the expression of thanks uttered by the noble and learned Viscount.
While I am thanking them, I should like to thank the noble and learned Viscount himself for a very clear explanation of this most difficult subject. I suppose it would be too much to hope that his explanation was apparent to every single Member of the House who is present, but to those who have some knowledge of the law—and I cannot claim to have any knowledge at all on this particular subject—coupled with the Bill and the Report of the Committee, I think that what it is intended to do and what is the evil that it is proposed to remedy are now quite clear. So far as I am able to judge, the provisions of the Bill do ample justice to the difficulty which it is proposed to put right both temporarily and permanently; and, so far as I am concerned, and, I am sure, so far as every Member of this House is concerned, we are willing to give the Bill a Second Reading.
There may be some points of detail—for instance, as to whether the times are adequate. One of my noble friends has pointed out that at the end of a year a person's rights come to an end. I am not sure whether a year is sufficient; his attention may not have been drawn to
982
the particular claim that is being made. But these are Committee points, and it may well be that in Committee there will be a case for having a discussion about them and possibly making some variation of the terms. I can say certainly that the substitution of a registered charge for a screen is a great improvement as regards both the amenities of this country and the clarity of the purpose. The purpose of a screen is not always clear, but there can be no ambiguity or doubt about a registered charge, and it is undoubtedly a great advantage. So I welcome this Bill and the speed with which the Government have acted; and, subject to any Amendments we may desire to put forward at a later stage, I hope that this Bill will go forward.
3.50 p.m.
THE LORD CHANCELLOR: My Lords, I am grateful to the noble Lord, Lord Silkin, for what he has said and I should like to associate myself with the thanks to the witnesses and local authorities which he mentioned, With regard to any doubts, I need hardly say that if anyone has any point—whether it is a legal point or a point of another kind—and would care either to write to me or to come and see me before the Committee stage, I should be very pleased to discuss it with either the noble Lord or with any friend of his who is interested. I am very grateful to him for what he has said.
On Question, Bill read 2a, and committed to a Committee of the Whole House.

DAMAGES FOR LOSS OF EARNING CAPACITY
3.51 p.m.
LORD DOUGLAS OF BARLOCH LORD DOUGLAS OF BARLOCH rose to call attention to the unsatisfactory state of the law relating to damages for civil injuries resulting in loss of earning capacity and to the Report of the Law Reform Committee thereon (Cmnd. 501); and to move for Papers. The noble Lord said: My Lords, in bringing this Motion before your Lordships' House I am asking the House in its legislative capacity to reconsider a decision which was given some time ago by the House in its capacity as the final court of appeal. This is not a thing which I should usually have the temerity to do, but in this particular case there is a very considerable doubt as to whether or not

983
the present state of the law is satisfactory. The decision to which I refer was in the case of British Transport Commission v. Gourley, which is reported in 1956 Appeal Cases at page 185, and I think I can best explain to your Lordships the point which is at issue here if I recount, very briefly indeed, what the nature of that case was.
The plaintiff, Mr. Gourley, was an eminent civil engineer who, in partnership with others, was earning a very high income in his profession. He met with a railway accident, which caused him severe injuries and greatly reduced his earning capacity. He took proceedings against the British Transport Commission to obtain compensation. Liability was admitted, but the Transport Commission fought very tenaciously the amount of the compensation which they ought to pay. They disputed the principle of law which had invariably been applied in such cases in this country—namely, that the loss of earning capacity was to be estimated in the light of the anticipated reduction of earnings due to the injuries—and they contended that, instead of the anticipated earnings being looked at, the Court ought to look at it from the point of view of the net amount which would be left to the plaintiff after he had paid income tax and surtax upon those anticipated earnings. In the case of a man with a large income, some of which would continue after the accident and be brought into account in calculating surtax, the difference between the two methods of approach can be very great indeed. In this particular case, the Judge in the Court of first instance found that, on account of the impairment of his earning capacity, Mr. Gourley should have the sum of £37,720; but he found as an alternative that, if the point of law taken by the Transport Commission should be sustained on appeal, the damages should be reduced to £6,695—a very large reduction.
The case went to the Court of Appeal, which upheld the decision of the Judge in the Court of first instance, and it then went to your Lordships' House, where the decision was reversed by a majority of four to one. That decision became the subject of serious discussion in legal circles, and doubts were expressed about it; and the noble and learned Viscount
984
who sits on the Woolsack referred the matter to the Law Reform Committee which produced a report. The members of that Committee were hopelessly divided upon the question. Six of them thought that the law ought to be restored to what it was before the decision in Gourley's case, but three of those thought that there should be added on to that a provision with regard to taxation upon the damages which a plaintiff receives. The other nine members of the Law Reform Committee thought that the law ought to be left as it now is, but they admitted that there might be difficulties in the administration of it, and that the position should at any rate be carefully watched.
Now, my Lords, let us consider for a moment what the basis of this decision was. It was quite clearly related to the fact that the sum awarded by the Court for damages in a case such as this would be treated for purposes of income tax as a capital receipt, and would therefore not be subject to income tax—and that, of course, would be so, no matter upon what basis the damages were calculated. It was said, therefore, that if the damages continued to be calculated upon the old basis—having regard merely to the anticipated loss of earnings of the plaintiff, and not taking into account what he might have had to pay for income tax—he would be awarded more than he had lost. That is an argument which is perfectly understandable, although I venture humbly to submit that it was not good law, because in fact it was based not upon the matter which was at issue between the plaintiff and the defendant but upon a collateral result which would arise ultimately out of the law of this country relating to income tax. I respectfully submit that that was something which should not have been taken into account at all.
It is admitted by everybody, I think, whether they uphold this decision or not, that the old system was not unfair to the defendant in such a case, that it was not unreasonable that he should pay for the full amount of damages which could be claimed in that way, and that he had nothing whatever whatsoever to complain of. It is also clear that the question of taxation has really nothing to do with the case at all, because the decision which your Lordships' House came to by a majority of the Appellate Committee does not recover any income tax for the Inland Revenue. It merely

985
reduces the amount of damages which the defendant has to pay, so that the inland Revenue is not benefiting, except maybe in a remote and indirect fashion.
In the vast majority of these cases which arise out of accidents, and particularly out of accidents upon, the streets and highways, the defendant is insured with an insurance company, and it is the insurance company which, under this judgment, is relieved from paying as much as otherwise it would have had to pay. I suppose it can be argued that in the long run the profits of the insurance company might be slightly increased upon that account and the amount of income tax which it paid would also be increased. However that may be, it is going into matters which are far too remote from the question which was at issue between the plaintiff and the defendant and has nothing whatever to do with the case, and should not have been allowed. I would say with all respect, to influence the minds of those who had to decide this point.
It is undoubtedly correct that a lump sum received in compensation in a case of this kind is exempt from income tax, and very properly so, because it is a capital sum. The plaintiff has suffered a diminution in his earning capacity, and although under conditions of freedom the services of a human being are not sold outright for lump sums, they are in a sense equivalent to a capital loss. They are the means by which he earns his living, and it is quite appropriate that it should be a capital sum which he receives in compensation. During the deliberations of the Appellate Committee, when they came to give their judgment, a number of opinions were given. One was that the basic principle which ought to apply is that the injured person should be placed in the same financial position., so far as that can be done by an award of money, as he would have been had the accident not happened. As a broad statement, that is undoubtedly correct. But, in fact, the plaintiff is not literally put back into the same position, and cannot be. In order to put him back, what he should be awarded would he an annual payment to compensate him for the loss of income, but that is not a course which the courts in this country adopt. They adopt the course of awarding a lump sum instead of awarding an annual payment, which would
986
be the real equivalent of what the plaintiff is going to lose in future. Nobody has ever attempted to deal with cases of this kind upon any other basis than by the award of a lump sum.
Let me come to one of the consequences which arise out of this particular case. It has been applied not only in claims for compensation for personal injuries which result in the diminution of earning capacity. It has also been applied in cases of breach of contract—for example, cases of breach of contract of employment by which in consequence the plaintiff has lost the prospect of obtaining a certain remuneration or salary. Not long after Gourley's case, a case of that kind came before the court. It was the case of Beach versus Reed Corrugated Cases Limited. The plaintiff had been under a contract of service and was to be paid a salary of £5,000 a year. The contract was wrongfully terminated some ten years before it was due to expire and the learned Judge who heard the case said that if he had not had to take into consideration the results of the decision in Gourley's case, he would have awarded Mr. Beach £48,000. But Mr. Beach happened to be a very wealthy man. He had investments which were bringing him in £20,000 a year in addition to this salary. Therefore the Judge said that, following Gourley's case, he would have to reduce the damages.
But evidence was given that this gentleman was in the habit of giving assets away or entering into deeds of covenant, though at that time the deeds of covenant running were relatively small, and the Judge said that he was going to take into account the probability that in future he would resort to means of that kind by which his liability to income tax or surtax would be diminished, and he therefore, instead of awarding the amount which the defendants contended for—some £4,650—awarded £18,000, having regard to the fact that the plaintiff might at any time enter into covenants to pay away his income, or might give away his securities to his relations, or might invest his money in investments which offered a prospect of capital appreciation which would not be subject to income tax but which would not bring in any revenue.
Observe the difference between that case and Mr. Gourley's. Mr. Gourley got

987
no benefit of that kind. He had apparently not very much investment income; he was dependent upon his earnings. His earnings were going to continue to some extent, and the amount which was awarded to him in respect of anticipated loss of earnings was reduced on account of the income tax factor from £22,500 to £1,750–1s. 6d. in the £; whereas in Beach's case the damages which would otherwise have been awarded were reduced from £48,000 to £18,000–7s. 6d. in the £. This illustrates the kind of difficulties and confusions which arise out of this method of looking at things and the kind of pleas which will invariably be put forward in the future in order to try to mitigate the results of the decision in Gourley's case. I think it produces a state of affairs which is extremely unsatisfactory and unfair. It may be true that, as the law stood before, and with our very high rates of income tax and surtax, the plaintiff did to a certain extent get a fortuitous benefit, varying considerably according to the circumstances: but it can equally be said that the defendant out of Gourley's decision gets a gratuitous benefit which has nothing whatever to do with the circumstances arising between him and the plaintiff, but which arises solely and simply out of our system of taxation.
I mentioned the Report of the Law Reform Committee. Six of that Committee said that the law ought to be restored to what it was before, and three out of the six said: "Yes; but there ought to be super-added to the law some system of taxing the lump sum which is awarded to a plaintiff in a case of this kind." They did not tell us how that was to be done, and, so far as I am concerned, I should doubt very much whether it can be done. But if it is to be done, it is a matter which has to be dealt with by the Chancellor of the Exchequer through a Finance Bill. It has nothing whatever to do with the law relating to negligence or the law relating to breach of contract, and that is the way in which, if anybody wants to deal with it, it ought to be dealt with.
On the matter of principle, let us assume for a moment that the law of this country with regard to taxation was somewhat different from what it is at the moment. Suppose that we had no income tax, but that we had very heavy taxation upon capital—and such a state of affairs
988
has existed in various civilised countries and may exist again. In those circumstances it is quite clear that the anticipated loss of income would have been of income not subject to income tax, but the capital sum awarded would have been subject to a capital tax. In those circumstances, would the court have increased the damages in order to compensate the plaintiff for the fact that he was subject to a capital tax upon the commutation of his loss of earnings in the future into a capital sum? If the former proposition is true under Gourley's case, the latter proposition is equally true. Cases of that kind may conceivably arise in the future.
Curiously enough, one case of a slightly similar character did arise in respect of salvaging a ship—I do not say that the decision was correct, and in fact I think it was overruled upon appeal. Your Lordships will know that people who voluntarily render assistance to a ship in distress and enable the ship or its cargo to be saved are awarded under Admiralty law a remuneration for doing so. In that particular case the Judge increased the amount of the award in view of the fact that the salvor would be subject to income tax upon the amount which he was awarded. As I say, this was overruled, but it illustrates the prospects which can be opened up as a result of this decision, and it shows how haphazard this thing can be.
I am sorry to detain your Lordships for so long on a question of this kind, but it does, after all, affect a large number of people, because accidents continue to happen. It is going to make the law extremely uncertain. It is difficult enough for any member of the legal profession to advise a prospective plaintiff about what amount of damages he might be likely to recover in an action for personal injury; but it becomes almost impossible to do so if one has to take into account what the possible rates of income tax and surtax may be at some time in the future. And remember, my Lords, that when you are dealing with people whose incomes are considerable, a slight variation in the tax rate will make a large difference to the residue which is left. It is still more difficult to foresee the future, if questions have to be entered into, such as in Beach's case, about what the intentions of the plaintiff are as to tying up his income by means of covenants so that it will not be liable to tax; or giving away

989
part of his capital so that his income will be reduced; or investing it in ways which produce less revenue but will produce capital appreciation.
I venture, with all respect, to say that this is impeding the course of justice. The law as it stood before was not at all unreasonable and, as is admitted by everybody, it inflicted no injury upon the defendant in such a case. If in some cases it produced some fortuitous benefit to the plaintiff, I do not think we should grudge it to him, because life is uncertain in any event, and the results of injuries cannot be totally foreseen. If, for example, to take the case of Mr. Gourley, his health subsequently deteriorated still further so that he was no longer able to earn the income it was anticipated he would still be able to earn after the accident, then he would have been left with merely the income from the relatively small amount of money which was awarded to him upon the assumption that the residue of his earning capacity would continue indefinitely, and attract a high rate of tax. This is getting into a field which, with all respect, I submit is making the administration of justice in this particular field quite impossible. Therefore, I beg to move for Papers.
4.22 p.m.
LORD DENNING: My Lords, may I say a word in support of my noble friend's plea that the state of the law is unsatisfactory in this matter? After Gourley's case the matter was referred to the Law Reform Committee in England and in Scotland in the hope of finding a solution for the difficulties—Committees, I am afraid, which found a difficulty for every solution. Indeed, before Gourley's case, for many years the judges had always given damages to an injured man on the basis of his full wages, without deduction of tax. That was perhaps over-generous to him. Since Gourley's case the direction is that they must assess his compensation on the basis of all the tax having been deducted. That, perhaps, is over-generous to the wrongdoer, the defendant, who has injured him. In Gourley's case it meant that instead of getting £30,000 or £40,000 damages, as he would have done before, after it he got £7,000. One would have thought that in point of justice the full amount ought to be paid and some proportionate part of the tax paid to the Crown.
990
The courts and this House, in its judicial capacity, realised that these damages for loss of earning capacity can be assessed only on a rough and ready basis. There are a great many difficulties in assessing what the future tax will be, how a man may escape tax by covenant, and so on. The unsatisfactory part is that Gourley's case not only applies to injury cases where a man is crippled or disabled, but also applies to cases before the court where a man is dismissed or leaves his service and is compensated for loss of income. It really goes on the same principle as compensation for loss of office. What happens to-day when compensation is paid for wrongful dismissal, on leaving a business or retiring, or for loss of office, is that loss of income is taken at the gross rate and no tax is payable. The Commission presided over by my noble and learned friend Lord Radcliffe recommended that the tax law should be altered so as to make compensation for loss of profits taxable. Is that not the solution to be considered here? In that way the plaintiff would not get too much for his damages; the defendant would have to pay the proper amount and, if there was a sum due—a reasonable amount—by way of tax to the Crown, then it could be paid. I agree that it would require a great deal of working out, but it would, I suggest, be a just result, and the matter could be considered from that aspect.
4.26 p.m.
LORD SILKIN: My Lords, I do not wish to add anything to the two speeches which have just been made and which set out the problems and the difficulties in the clearest possible way. Any solution of this problem has its difficulties and disadvantages. The noble and learned Viscount, I think quite rightly, faced with this problem, set up a powerful Committee to advise him. As is not unusual, this powerful Committee came to a number of conflicting views, and the noble and learned Viscount was left just where he was before. But I would submit that that is not a reason for not acting. Every Minister is placed in the position of having conflicting advice presented to him, but if he said, "Well, as a result of this conflicting advice I will do nothing" he is really coming down on one side of the question. He is in effect making a

991
decision, but he is making it on totally fallacious grounds.
I would therefore merely add my voice and ask the noble and learned Viscount on behalf of the Government to make up his mind as to what is the right thing in this problem. For myself, I cannot think that it is right to leave matters as they are. Whether we should go back to the position before the Gourley case is a matter for consideration. Whether there should be some modification of the law or not I should not like to pre-judge at this moment. But it is a matter which has to be decided, and I hope that the noble and learned Viscount will be able to tell us what are the Government's intentions in those matters.
4.28 p.m.
LORD CHORLEY: My Lords, I should not like this debate to terminate without adding my support to the cogent and powerful speech which the noble Lord, Lord Douglas of Barloch, has addressed to your Lordships this afternoon. I do not wish to detain your Lordships for long, but after what the noble Lord has said I should have thought we all realised, as the noble Lord, Lord Silkin, said only a moment ago, that the matter cannot be left in its present position. It is quite true that the Law Reform Committee have been unable to reach agreement on this subject, and that is understandable in the exceptionally difficult circumstances of the case. But, after all, the old rule worked, I should have said, perfectly well, and if it is not possible to reach some kind of a sensible agreement in regard to the reform of the law then, surely, the argument is strongly in favour of going back to the situation as it was before the Gourley case was decided.
I think there is a great deal to be said for trying to get a much more elastic system of awarding compensation in these cases. What was all right in the early nineteenth century when these rules were laid down is not appropriate to the situation, as I see it, in a modern community. But I appreciate that that would require a great deal of elaborate investigation, and would be an exceedingly difficult objective to attain. Therefore I would suggest that we should go back to the law as it stood for so many years before Gourley's case.
If you look at the situation from the point of view of Mr. Gourley, and of
992
many other people who are being smashed up in industrial, motor car and other accidents at the present time, and see this wretched man deprived of a large part of his source of living and being awarded, as a result of this decision, a capital sum which will bring him in £200 or £300 a year—for that is all he can really rely upon—surely it does not require much imagination to think of the bitterness which must be in his heart: what a contempt for the law of England that man, and many of these other men, must have. That seems to me to be a very important aspect of this business.
LORD SILKIN: My Lords, is it not a fact that even on the income he will derive from the investments he will be taxed, and therefore he will be taxed twice over?
LORD CHORLEY: My Lords, my noble friend has made the next point I was coming to. After all, it was a strong argument in favour of the law as it stood before Gourley's case that, normally speaking, when a man received a substantial sum of this kind he invested it, and paid income tax in the usual way on the dividends or the interest which the investment brought in. Surely, that is what normally happens in this type of case, and therefore, in the substantial majority of cases, the man is, in fact, going to pay the income tax in the end. I appreciate that there are all sorts of ways by which people evade and avoid income tax, and that sort of thing, but, as the noble Lord, Lord Douglas of Barloch, has shown, really one gets into Alice in Wonderland when the judge who has to decide the case is faced with the problem of investigating all the possible ways in which the man may make use of his money and all the possible devices that his advisers may be able to put at his disposal. I suggest that one has to deal with a problem of this kind in a broad general way, and in these circumstances I should have thought that the argument was overwhelmingly in favour of going back to the situation which worked very well for a long period and which common sense suggests we should revert to now.
4.33 p.m.
THE LORD CHANCELLOR: My Lords, I am grateful to the noble Lord, Lord Douglas of Barloch, for raising this point, because I am the first to agree that

993
it is one of importance, and I do not think anyone has suggested or could suggest that I have not treated it as one of importance. When the Gourley case came up to your Lordships' House arrangements were made for it to be considered by seven Law Lords. The only slip which the noble Lord, Lord Douglas of Barloch, made was that I think he said it was a majority of four to one. The point was, in fact, decided in favour of the law he criticises by a majority of six to one. My noble and learned friends the late Lord Jowitt, and Lord Goddard, Lord Reid, Lord Radcliffe, Lord Tucker, and Lord Somervell of Harrow formed the majority, and my noble and learned friend Lord Keith of Avonholm was the minority of one. Their decision is now the law; I think one ought to make it clear. It is the law of the land, as found by the highest tribunal.
The next question that I had to consider was ought it to remain the law, and therefore I thought it was right to refer the matter to the Law Reform Committee to consider whether the rule should remain; that is, whether the liability to tax of a person entitled to damages is required to be taken into account in assessing the damages. As the noble Lord, Lord Silkin, said, I had the advantage of a very distinguished Committee, and I hope your Lordships will not think I am intruding on your patience if I explain a little more fully the different views held by members of the Committee.
Three members, Mr. Justice Donovan, Mr. Parker, and Professor Wade thought that the present law was unsatisfactory and that it should be restored to the state in which it stood before the decision of this House—that is, that the plaintiff got his damages untaxed. That is the position for which the noble Lord, Lord Chorley, has argued; and I think it is also the position which the noble Lords, Lord Douglas of Barloch and Lord Silkin, would favour. Three of the members of the Committee, the honourable and learned Member of another place, Mr. John Foster, Mr. Gerald Gardiner and Sir David Hughes Parry agreed that the law should be altered so that the plaintiff would receive his damages in full, but they said that thereafter the sum should be taxable in his hands—on the receipt of the damages, as I appreciate their
994
argument; not the income from the damages. The remaining nine members, Lord Justice Jenkins, who was Chairman of the Committee, Lord Parker of Waddington (as he now is, the present Lord Chief Justice), Lord Justice Pearce, Mr. Justice Diplock, Mr. Burrows, Professor Arthur Goodhart, Mr. Gray, Mr. Megarry and Mr. Morley, took the view that the law as stated by the House of Lords in what we call Gourley's case should remain the law of the land.
May I just examine those three different points of view? If I may take the view of Mr. Justice Donovan and his two colleagues, I think one could summarise the arguments on which they adopted the view that is favoured to-day by the noble Lords, Lord Chorley, Lord Douglas of Barloch and Lord Silkin, under four heads. They said that damages should represent compensation for loss of earning capacity and not for loss of earnings. Secondly, what the plaintiff would have done, or been required to do, with his money had he not suffered the injury or sustained the accident is, so far as the defendant is concerned, irrelevant. Thirdly, the net sum representing what the plaintiff would have received after deduction of tax is not adequate compensation for loss of the ability to deal freely with the gross sum. He could reduce liability and third parties might benefit. Fourthly, the argument was based on the analogy of breach of contract, and they said it is now frequently more profitable to pay damages for breach of a contract than to perform it, because the employer saves the tax. I think I have tried to put quite fairly the arguments which that minority of three put forward.
I should like your Lordships to appreciate the reply of the majority, that is Lord Justice Jenkins, the Lord Chief Justice and the others whom I have mentioned. In their view the decision in Gourley's case gives full effect to the well-settled principle that damages for tort—that is a wrongdoing short of a crime—or for breach of contract are intended to compensate the injured party for the loss he has suffered, and ordinarily, except for cases of punitive damages, to do no more than this. I say "excepting punitive damages"; I think everyone who has taken part will agree they are quite irrelevant to our problem.

995
On facts such as those in Gourley's case the majority could not see why it should be thought right to amend the law so that a plaintiff who had been deprived of the prospect of receiving some £37,000 and paying away some £30,000 of it in tax should, instead, be given £37,000 free of any obligation to pay any of it away in tax. That is the first argument of Lord Justice Jenkins, Lord Parker of Waddington and the other seven who agreed with them.
Their next argument was that the imposition of income tax and sur-tax has become so regular a feature of modern society, and liability to tax is so inextricably attached to the earning of income, that it would be unrealistic to ignore the tax element in asessing the damages. I did not check my history, but I think I am right in saying that after the imposition of income tax by Pitt during the Napoleonic Wars there was a brief period before it was reimposed in, I think, about 1842, and it has gone on fairly steadily now for a hundred years. The majority accepted that when tax is deducted under the P.A.Y.E. system it amounts to a charge on income.
They went on to say—and I see great difficulty in rejecting this view—that it is difficult to see anything fundamentally wrong in a rule that gives a plaintiff £7,000 for what to him is a net loss of £7,000. If in any case there is a real prospect that the plaintiff, by deeds of covenent or otherwise, would have disposed of some of the prospective income lost, that might well be a proper ground for making some augmentation of the sum awarded. That is not really very difficult. After all, a man may say "I intended to make a deed of covenant", but you can tell whether that is so by the circumstances of his income, the stability of his income prospects, the number and age of his children—because, as your Lordships are aware, it does not help at all to make a deed of covenant until your children are over twenty-one, because if you do you have to pay the tax on the amount just the same.
My Lords, these are circumstances which can easily be brought to the notice of the court. If I understood correctly the argument of the noble Lord, Lord Douglas of Barloch, in one case such an intention of the plaintiff's had been
996
brought to the attention of the court; and the court had acted on it and for that reason reduced the amount to be deducted in tax. Anyway, the majority of the Committee including four experienced Judges, said that that was a matter which they could take into account and provide for in arriving at the figures. That would reduce the amount of the deduction and augment the final figure. Of course, in many cases there will be no such prospect of covenants or the like, and the mere existence of the possibility is no sufficient ground for making a general alteration in the law.
Now, my Lords, I come to one point which was mentioned with some force by the noble Lord, Lord Chorley. He said —and it is the case—that one result of the present law is that the defendant benefits (possibly, as in the case of Mr. Gourley, to a very considerable extent) from the chance that the plaintiff is liable to a high rate of tax. Another aspect of the same point is the one that I have mentioned: that in some cases it is cheaper to break a contract than to perform it. But that is no isolated phenomenon in the law of contract. In any case, the real answer is that the injured person (who alone can complain) will be compensated as fully as damages can do so; and, as I have already mentioned, that—and not to punish the defendant—is the object of damages for tort and breach of contract, whether the defendant is a person, an insurance company, an industrial undertaking or what you will.
The noble Lord, Lord Douglas of Barloch, said that there might be practical difficulties to which the decision gave rise—for example, that the court would have to decide whether the plaintiff would be liable to tax. Of course, there is the point that the court's decision does not bind the Inland Revenue, and there is, no doubt, a theoretical position that the plaintiff might suffer tax twice over or, conversely, that the plaintiff might benefit because the court, in assessing the damages, might not take into account tax, in the mistaken view that the damages would be subject to tax in the plaintiff's hands. On this point there is an extraordinary measure of agreement. Not only is there the majority of the Committee, but there is the view of the General Council of the Bar; and the Board of Inland Revenue consider that

997
this is not a serious difficulty, since, over most of the field, the law is well settled on the question whether a particular source of income or profit is liable to tax. It was represented that a conflict was unlikely and (a point that may appeal to anyone who considers it) that the likelihood of a conflict is further reduced by the fact that it will normally be to the advantage of the plaintiff to argue that the damages will be taxable in his hands. If he is unsuccessful on this point and the issue has been genuinely contested, the Revenue would rarely wish to challenge the result.
I have considered this matter carefully because the Scottish Committee, who also considered it, and to whom I shall refer in a moment, took a different view on this point. They suggested, as perhaps my noble friend Lord Strathclyde will remember, that the Revenue should be brought in in one way or another. I do not think that on our present experience anything would be gained by joining the Revenue as a party, because that would mean in every case a considerable amount of delay and additional cost, and I think that in most cases the parties get the tax position cleared up and the case goes into court on an agreed basis.
On this point I am inclined to go against my national sentiment and agree with the English Committee, rather than with the Scottish Committee. As I say, the real answer is that there will be difficulties in some bigger cases, but that generally the matter can be agreed, and I do not think one need depart from the present situation. I do not make this merely as a debating point, but I should like the noble Lords, Lord Douglas of Barloch and Lord Silkin, to have another look at the memorandum which the Law Society put before the Law Reform Committee. It is obviously a document which has been given great attention, and I take only two of the difficulties which they raise. I want to quote a word or two of their reply because I should not like anyone to think that I had not given consideration to this point, for I have tried to do so.
One of the points with which the Law Society deal is the criticism which was advanced by the noble Lord, Lord Douglas of Barloch, to-day, that the level of future taxation is always uncertain
998
and that it is therefore impossible to compute with any degree of accuracy either the rates or the amount of income tax and surtax which a plaintiff would have had to pay on his earnings during future years. The Law Society's first point, as I think your Lordships will agree, is an answer flatfooted in common sense. They say:
"This is true, but as the House of Lords in fact pointed out in the Gourley case, even a rough and ready computation of the potential tax liability leads to a more just result than is attained by ignoring the tax liability altogether. To take the Gourley case as an example, if the plaintiff had been paid £37,000 damages without taking tax liability into account at all, he would clearly have received several times the net amount which he would have been able to retain from his income after payment of income tax and surtax. It would be ignoring the realities of the situation to suggest that because it is difficult to tell whether the net amount retainable would have been £6,000, £7,000, or £8,000, no attempt should be made to take the tax position into account at all and the whole £37,000 should be paid to the plaintiff."
I am not going through all the points, but the other point which interests me was the criticism, as the Law Society stated, that it is the insurance companies and the large industrial concerns that will benefit from the decision, to the detriment of the ordinary individual. The answer of the Law Society to that is:
"As was pointed out in the House of Lords, it is fallacious to consider the problem as though a benefit were being conferred upon a wrongdoer by allowing him to abate the damages for which he would otherwise be liable. If the basic principle is applied, the wrongdoer is liable only for such damage as, by reason of his wrongdoing, the plaintiff has sustained. Moreover, the fact that the payment may usually (though not invariably) be made by an insurance company or large industrial concern and be a deductible expense for tax purposes, while forming a non-taxable receipt in the hands of the recipient, is no stronger argument for making the insurance company or industrial concern pay more to the plaintiff than the amount of the loss sustained."
That must be so. There is no reason why an injustice should be committed against someone in this country simply because that person is art insurance company.
I will turn, for only a moment, to the report of the Scottish Committee, because they deal with the point which the noble Lord, Lord Douglas of Barloch, raised in his speech: that the liability to pay tax is really a collateral matter with which others are concerned. As we

999
lawyers put it in our tag, it is res inter alios acta—something done between other people and not concerned with this matter. The Scottish Committee considered that carefully and said that the contract of employment, to take one example, which gave the injured party the right to the earnings for the loss of which he claims, or the fact that after the incident giving rise to his claim he has obtained remunerative employment with a third party, and business expenses which he, if a professional man, had to meet out of his fees, are all in a sense again res inter alios actae; that is, all matters which take place between persons other than the person who caused the accident and the person who suffered.
The obligation to pay tax is almost universal in its application, and just as these other matters should be taken into account, so, they say, should this. They go on to say, as I am afraid we all realise, that the obligation to pay tax is ever present in the minds of taxpayers, and hardly anyone regards salary, wages or net profits before taxation as the equivalent of his available income. If he does, he gets into serious trouble in a very short time. Income tax, although not actually a charge on earnings, is imposed by law as a necessary consequence of their receipt and is relevant to the ascertainment of the loss suffered by the person claiming damages. That is the Scottish view on a very important point. I have quoted it and I have also told the House that the only point on which they differ is whether the Inland Revenue should be brought in; and I have given my consideration of that.
I am sorry to go on so long, but it is an important matter and I should like again, for a brief moment, to consider the solution advocated by Mr. John Foster and his friends: that is, that the plaintiff should get all his damages and that they should be taxable in his hands. Now in the view of the majority of the Committee so many other factors come into play when a man receives a capital sum in place of the income he has previously enjoyed that it is not possible to assert categorically that the Crown loses in such a case; but more important than this is the fact that a person whose earning capacity is wholly or partly destroyed loses the whole or part of a capital asset —sometimes the only one that he has—
1000
and it is fundamental in our income tax code that capital is not taxed. In the view of those opposed to my learned friend Mr. John Foster and my equally learned friends Mr. Gerald Gardiner and Sir David Hughes Parry, a worse start in this direction could hardly be made than to tax as income the compensation a man receives because his ability to earn a living has been wrongfully destroyed or crippled.
I regret having taken up so much of your Lordships' time, but I have always regarded this as a serious point; and if the noble Lord, Lord Douglas of Barloch, has (as I am sure he has) the Report of the Law Reform Committee, I would ask him to look at paragraph 14, from which he will see that the English Committee said:
"We would conclude this Report by saying that it may turn out that the difficulties to which the law gives rise in practice are greater than some of us are at present disposed to believe. We are agreed in thinking"
—the whole fifteen, the three groups—
"that it may well become desirable to review the practical implications of the decision in this case after a further lapse of time."
In paragraph 25 the Scottish Committee said:
"While therefore we think that the decision in Gourley's case is in accordance with principle and do not recommend that any legislation should be introduced to alter it, the possibility that it may give rise to further practical difficulties which (as we have indicated in paragraph 11) cannot be clearly foreseen at present makes it desirable in our view that the matter should be reconsidered after a period of years in the light of any development that has by then taken place."
My Lords, I say this for any time that I am Lord Chancellor: that I will keep this matter under review in accordance with the spirit as well as the letter of what has been suggested by these Committees, and if anyone will bring to my attention matters of difficulty I will consider them again.
In answer to the noble Lord, Lord Silkin, I would say that I have tried to form my own view and not be merely guided by the weight of authority of the names I have mentioned. At the moment I agree with the majority nine members of the English Committee, and I agree with the general sense of what I have just read from the Scottish Committee, and I do not think there should be legislation. But I myself am quite prepared, say in six months' time or twelve months' time, to

1001
consider any new matter; and I know that I can give the undertaking on behalf of any successor of mine of any Party who sits on the Woolsack that he will do the same. I hope the noble Lord will not press his Motion, because I have done my best to show my interest in it. I am grateful to him for raising the point, and I can give him that most firm undertaking that this important subject will be constantly considered in the Lord Chancellor's Department and we will gladly view any new information that gives us a new facet about it.
5.3 p.m.
LORD DOUGLAS OF BARLOCH: My Lords, I am grateful to the noble and learned Viscount for dealing with this matter so fully and so carefully, and I accept with the utmost good will the promise which he made in the concluding part of his speech to consider this matter further at some time in the future if reasons are adduced why he should do so. I did not expect that he would be able to go any further to-day, because I recognise that this is a matter in which very divergent opinions are held.
I am, of course, familiar with the Reports of the two Committees for England arid Scotland, and I am also familiar with the memorandum which was submitted by the Law Society to the Law Reform Committee. It was submitted, of course, by the Council of the Law Society, not by the whole of its members. When it did come before the members at the annual meeting I took the opportunity of criticising it, because I did not agree with it. The issue of principle in this matter can be compressed into a very short space indeed, and that is simply: what is relevant and what is not relevant in assessing damages in cases of this kind.
The proposition for which I stand is that the consequential effects upon taxation are not relevant, but the decision which was come to in Gourley's case was, in effect, an attempt at law reform upon the part of the majority of this House which decided it on a matter which was not before them at all. I am putting the matter quite clearly and bluntly in that way. I do not accept the argument which was put forward by the Law Reform Committee that income tax is something with which the Court was concerned. It was in my opinion an extremely extraneous matter. The basic principle is simply that the plaintiff
1002
should be compensated for what he has lost; and what he had lost in that particular case was the capacity to earn his income, because he had suffered from serious physical injuries which impaired his earning capacity. What would have happened to his income afterwards if he had earned it is no concern at all of the tribunal, or ought to be no concern of the tribunal, before whom the matter is brought.
This is not an attempt to punish the defendant. It is a purely accidental thing, so far as the defendant is concerned. The income tax position of the plaintiff has nothing whatsoever to do with the case which gives rise to the claim against the defendant. I do not think that anybody who has considered this matter, either the noble and learned Lords who sat upon the Appellate Committee or the members of the Law Reform Committee, really seriously thought that it was an injury to the defendant that he should pay the damages calculated upon the full scale in relation to the income. The decision was based, and is defended, upon the ground that the income tax which would have been suffered on earnings is something to be taken into account and that therefore not to take it into account is to give the plaintiff too much —not to damnify the defendant; that is only a side issue in the discussion.
Just let me say (if I may be forgiven for detaining the House for a moment) a further word about what the consequences of this decision are going to be. I have referred to the case of breach of a contract of employment. But this principle will be extended to cases in which other contracts are broken, so involving a loss of income or of earnings. It will be extended to cases of commercial contracts; it will be extended to cases of charterparties and all kinds of things; and all this will have to be gone into by the Court—what the prospective earnings are, and what the possible rate of income tax will be in the future.
Supposing we have a company as plaintiff in a case of this kind, which involves loss of profits, the amount of damages in that case will depend on whether the company was making a profit or not. If it happens that the company was in difficulties at the time it will get a larger amount of damages than if it was making profits and they were being subjected to

1003
income tax. And not only will income tax came into the picture but, on the same arguments as prevailed with the majority in the Gourley case, profits tax will also be brought into consideration because it is a tax upon the income of companies. The state of profits tax at this moment, happily, is comparatively simple, owing to the reform which was made in the last Finance Act. But if this matter had had to be dealt with at the time when there was one rate upon distributed profits and another rate upon undistributed profits, and the Court had had to consider whether the rate of profits tax to be brought into account was 3 per cent. or 27 per cent., what difficulties would have arisen. Other difficulties also will arise, owing to this decision.
The noble and learned Viscount who sits on the Woolsack himself referred to the plaintiff getting his damages taxed or untaxed, but the decision in Gourley's case does not tax the damages: it reduces the damages which reach the plaintiff; and it does not produce any revenue for the Inland Revenue—except, it may be, in a remote and incidental manner by
1004
increasing the profits of insurance companies, or some other defendant. The whole basis of the matter, I respectfully say, wants to be reconsidered completely. However, I do not wish to detain your Lordships further this evening. I am grateful to the noble and learned Viscount for the attention which he Chas paid to these arguments. I willingly accept the pledge which be has given, and I ask your Lordships' leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

BUSINESS OF THE HOUSE
THE EARL OF ONSLOW: My Lords, before the House adjourns, I should like to inform the House that it has been agreed through the usual channels that we shall sit at 2 p.m., instead of 2.30 p.m., next Wednesday, February 4, owing to the very large number of speakers on the Motion of the noble Lord, Lord Pakenham, on Youth Services.
House adjourned at twelve minutes past five o'clock.