§ Order of the Day for the Second Reading read.
§ 3.13 p.m.
§ LORD CONESFORD
My Lords, the purpose of this Bill is to carry out the principal recommendation of the Eighth Report of the Law Reform Committee which was published in December, 1958 (Cmnd. 622). It may be convenient if I state briefly the circumstances which led to that Report.
At Common Law a corporate body can bind itself only by a contract under seal. There are exceptions to this rule. It does not apply to contracts of a trivial nature or frequent occurrence; and a 1297 contract not made under seal may be enforced by a party who has fully carried out his part of the bargain. These exceptions, however, are ill-defined and cover relatively few transactions. In the case of trading corporations the rule requiring the sealing of contracts was abrogated in the 19th century, and companies incorporated under the Companies Act, 1948, and earlier enactments have been empowered by Statute to enter into contracts with no more formality than is required in the case of an individual. For all other corporate bodies the Common Law rule still applies, but it had been widely ignored or overlooked until fresh attention was drawn to it by a decision of my noble and learned friend Lord Goddard in a case which came before him in November, 1956—the case of Wright v. Romford Borough Council  1 Q.B. 431.
In that case the plaintiffs, a firm of demolition contractors, sued the Borough Council for damages for breach of a contract under which they were to be employed by the council to demolish certain buildings. The Borough Council had invited tenders for this work and the plaintiff's tender had been accepted in writing by the Borough Engineer. The Council had later repudiated the agreement and they were able successfully to resist the plaintiff's claim, on the ground that the agreement was not under seal and so not binding on them. The case naturally attracted attention. It seemed clear that a technical defence could defeat substantial justice. The publicity given to the decision made it far more difficult to continue the practice of ignoring the need for a seal; on the other hand, strict compliance with the rule would involve serious inconvenience and needless expense.
Accordingly, in March, 1958, my noble and learned friend the Lord Chancellor invited the Law Reform Committee to consider, in the light of the decision that I have cited, whether alterations were desirable in the law as to the formalities required in the case of contracts made by bodies corporate. The bodies corporate which the Committee were invited to consider did not include companies within the meaning of the Companies Act, 1948. The reason for this exclusion was that statutory provision for such companies had already been made in Section 32 of that Act.
1298 The principal recommendation of the Law Reform Committee is most easily set out in their own words. I shall quote the beginning of paragraph 14 of their Report:In our view, a body corporate of whatever category should be able effectively to express its will by the action of one or more individuals to whom the corporation has delegated, expressly or impliedly, power to act on its behalf. The manner in which such action is to be taken should be controlled by the internal rules of procedure which govern its management and activities; but that is exclusively a matter of internal management and there seems to us to be no reason of principle why the authenticity of the act as regards the outside world should be treated in any way differently from that of an act purporting to be done on behalf of a natural person.The Bill before your Lordships carries out that recommendation. It has been approved by all Parties in another place. It applies to bodies corporate wherever incorporated. Among the bodies which will benefit from its passage into law are local authorities, universities, colleges, schools and City companies. I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Conesford.)
§ 3.24 p.m.
§ THE LORD CHANCELLOR (VISCOUNT KILMUIR)
My Lords, I am here to welcome this Bill on behalf of Her Majesty's Government and to express my appreciation to my noble and learned friend Lord Conesford for the task he is undertaking in promoting it. This is the fifth occasion on which a Bill has come before your Lordships which implements recommendations put forward by the Law Reform Committee, and we must all be very pleased about the growing body of reforming legislation which is finding its way on to the Statute Book following the labours of this eminent body of busy Judges and practitioners who give so freely of their time and experience to advise on improvements in the law.
I have particular cause for welcoming the present Bill because when I invited the Law Reform Committee to consider the formalities required in the case of contracts made by bodies corporate I had considerable misgivings about the state of that branch of the law, as revealed in the decision in the case of Wright v. Romford Borough Council, to 1299 which my noble and learned friend has referred. I was confident, however, that what shortcomings there might be would soon be revealed in the Committee's investigations and might before long be put right. My expectations will be fulfilled in this Bill, thanks to the initiative of my noble friend and of the honourable Member who preceded him as the promoter of the Bill in another place. We have become accustomed to expect the Law Reform Committee to unravel for us some of the more esoteric complexities of the law and to make recommendations in branches which are, end perhaps even when analysed and simplified by that eminent body remain, to the layman, something of a mystery.
The present Bill, by way of contrast, deals with a reform of a simple and intensely practical nature. The formalities of contracts made by bodies corporate, which are not companies within the meaning of the Companies Act, 1948, have, largely for historical reasons, been left substantially unaltered for hundreds of years and they are no longer suited to the numerous end various contracts which these bodies daily enter into at the present time. In doing away with these out-dated formalities this Bill will certainly save local authorities, incorporated charities, schools, universities and many other bodies a great deal of trouble and expense. If in some cases the inconvenience of the present law has not been felt to be quite as serious as one might have expected, it has been so only because, as my noble friend said, the strict requirements have been very extensively ignored. That is all the more reason for doing away with those requirements, for a law which is habitually disregarded, as I said in another connection on Monday, is assuredly a bad law.
My Lords, I suppose that for some of us the seal of a great and perhaps ancient institution, with all its historic associations, sometimes evokes a nostalgic appeal so that one might be reluctant to reduce or do away with its application. I should certainly be sorry if the pressure of any drive for greater efficiency were ever to do away with any of the uses of the Great Seal, whose custody is my special charge; but in the vast majority of the cases to which this 1300 Bill will apply the Seal is used for transactions of little, if any, historical importance, and I am sure that no consideration of mere sentiment ought to stand in the way of a reform which will make for greater expedition and economy. I welcome this Bill and hope that your Lordships will speed it along its Parliamentary course.
§ LORD CHORLEY
My Lords, may I add a few words, as one whose professional life, or a great deal of it, has been devoted to teaching the law of contract? The noble and learned Viscount referred to the great work which has been put in on the Advisory Committee by Judges and distinguished practitioners. There have been a certain number of reforms of the university law schools as well. While it is perfectly true, I suppose, that when this particular part of the law became out of date the Judges became acute to try to find ways round it, it never became completely a dead letter; and the result has been that one could never be quite certain, at any rate in a substantial number of cases, whether one needed the Seal or not. And certainly to try to teach this branch of the law to the younger students who are going into the profession is one of the most difficult and troublesome aspects of the many difficult and troublesome aspects of contract law. Therefore, I am quite sure that, even from that point of view, which is in some ways only a small one but in other ways a quite important one, this reform will be warmly welcomed in the great law schools which are now such a distinguished part of our universities.
§ THE LORD CHANCELLOR
My Lords, before the noble Lord sits down, may I say that if I unintentionally appeared to exclude the academic members of the Committee that does not mean I am not most grateful for their services. I am, and I realise how immensely they have helped in this field. I am sorry if my words gave that impression.
§ LORD CHORLEY
My Lords, I am sure that my colleagues will be grateful for the charming way in which the noble and learned Viscount has expressed his appreciation of their work.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.