§ 4.37 p.m.
§ Order of the Day for the Second Reading read.
§ THE LORD CHANCELLOR (LORD GARDINER)
My Lords, the law of misrepresentation has been the subject of criticism for some years. As your Lordships know, under the existing law if a man is induced into a contract, such as a contract of sale, and he is so induced by misrepresentation by the vendor, his remedies are limited to two: he can rescind the contract but only if it has not been performed—and he may have committed himself to liabilities on the strength of the contract—and, secondly, he is entitled to damages if, but only if, he can prove the misrepresentation was made fraudulently. This is not easy for him to do, because he does not know what the knowledge of the vendor was and, in any case, the burden of proof of fraud is naturally very high.
It was in these circumstances that in January, 1959, the noble and learned Viscount, Lord Kilmuir, asked the Law Reform Committee to consider this problem. The Law Reform Committee did so; and reported in July, 1962—now four years ago. I was a member of the Committee myself at that time, but all the other members of the Committee were singularly distinguished. They included the noble and learned Lord, Lord Jenkins, the noble and learned Lord, Lord Pearce, the noble and learned Lord, Lord Donovan, Lord Justice Diplock, Mr. Justice Ashworth, Professor Goodhart, Professor Sir David Hughes Parry and Professor Wade. Their Report was a 922 unanimous one; and the object of this Bill is to implement that Report.
The way in which they themselves put the existing criticisms was as follows. They said in paragraph 2 of their Report:We have been impressed by the fact that there is extensive criticism of three aspects of the existing law. First, in the majority of the memoranda we have received the restrictions on the right to rescind a contract on account of misrepresentation are attacked as being too stringent, although opinions differ as to the extent to which rescission should be made easier; secondly, there is an almost unanimous demand for a remedy in damages, either in addition to, or in lieu of, rescission; thirdly, it is said by those speaking from practical experience of sales and other commercial transactions that there ought to be some curtailment of the freedom to exclude liability for misrepresentation by a provision in the contract in cases where the parties are not bargaining as equals.To these criticisms must be added others of a more technical character.
My Lords, this Bill implements the recommendations of the Committee under five heads. First, it extends a party's right to rescind a contract induced by innocent misrepresentation. Secondly, it confers on a party to such a contract a right to recover damages where the misrepresentation was made negligently and has caused him loss. Thirdly, it empowers the court to award damages instead of ordering rescission of the contract. Fourthly, it limits a party's right to exclude by contract his liability for misrepresentation. Fifthly, it amends the Sale of Goods Act 1893, so as to extend the buyer's right to reject goods which do not conform with the contract.
First of all, on the right to rescind, the rule is at present that if "A" enters into a contract with "B" as a result of a statement made by "B" which is untrue but is not made a term of the contract, then once the contract has been executed, "A" is bound by it unless he can prove that "B" made the statement fraudulently, that is to say, knowing it to be untrue. The operation of this rule outside the field of contracts affecting land rests on a High Court decision which although frequently criticised and sometimes doubted is, nevertheless, followed, a case called Seddonv.The North East Salt Company Limited. The most frequent occasions for criticism of the rule have been cases where somebody has bought a piece of fairly complicated 923 machinery, like a motor car, where the non-technical buyer of the car is unlikely to notice technical defects until after he has taken delivery, and by that time he is too late to obtain a rescission. The view formed by the Law Reform Committee was that the rule in the Seddoncase was unsatisfactory and works injustice, and they thought that authough there is a distinct possibility that the rule might not be upheld by the appellate court, it would be better for it to be abrogated now by legislation. Paragraph 9 of the Report reads as follows:However, whatever its merits in law, the rule in Seddon's case is to-day generally accepted and acted upon. Even if, as we think, it is not impossible that the rule may yet be held by the Court of Appeal or the House of Lords to be without foundation, it cannot be right to leave a matter of such everyday importance to be settled by the accidents of litigation. In our view it should be provided by statute that (except in the case of those contracts for the sale or other disposition of any interest in land to which we have already referred) the fact that a contract has been executed should not of itself be a bar to proceedings for rescission.Clause 1 of the Bill therefore implements this recommendation, together with a recommendation in paragraph 16 of the Report, that rescission should not be barred by the subsequent incorporation of the misrepresentation in the contract. It provides that neither such incorporation nor performance of the contract should by itself be a bar to rescission. Other bars are not affected. That is the substance of Clause 1 of the Bill.
If I may now come to damages for misrepresentation, which are the subject matter of Clause 2, the second main ground of criticism of the current law, as I have said, is that the victim of a misrepresentation has no right to recover damages for consequential losses unless the misrepresentation was either incorporated in the contract as a term or was made fraudulently. The harsh operation of the rule may be illustrated by a case where the plaintiffs, who were breeders of prize poultry, were induced to take a lease of property by a misrepresentation that the premises were in good sanitary condition. This misrepresentation was not made a term of the lease and was in fact untrue, although it was not made fraudulently. As a result of the in-sanitary condition of the premises, the 924 plaintiffs suffered severe losses. Their manager fell ill through poisoning; their stock either died or was made valueless, and they lost their profits on potential sales.
The Law Reform Committee, at paragraph 17 of their Report, refer to the evidence they received in criticism of this aspect of the law. Even when fraud may be strongly suspected, it is difficult for the other party, more usually I suppose the purchaser than anyone else, to bring this home to the vendor; and, of course, if he takes proceedings in a hazardous case he may have to pay the costs. So the Committee's conclusion was that in this respect current law does not provide the victim of a misrepresentation with an adequate remedy. On the other hand, the Committee did not think, that every such victim should be entitled to damages irrespective of any fault on the part of the representor. Their recommendation was that it should be a defence for the representor to prove (the burden being on him) that he believed the representation to be true and that this belief was founded on reasonable grounds. In other words, if neither party was at fault, the loss should lie where it fell. And this is the recommendation which is now implemented in Clause 2(1) of the Bill.
I now come to damages as an alternative to rescission. The Committee recommended that a discretionary power should be conferred on the court to award damages in lieu of ordering rescission where damages would afford adequate compensation to the victim of an innocent misrepresentation, whether it was made negligently or not. They thought that there would be a number of cases where the remedy of rescission might be too drastic in the circumstances. This is the recommendation which is implemented by Clause 2(2).
I turn to exclusion of liability. This was the third main ground of criticism of the current law, that the representor is entirely free to exclude any liability for misrepresentation by inserting a term in the contract to that effect. The Committee thought that the modern tendency to have contracts in standard forms made this factor particularly important. Standard forms are often used where one party is in a much stronger bargaining position than the other, and the presence of a comprehensive clause excluding liability 925 would go a long way to nullify the effect of the other reforms proposed by the Committee. The Committee's conclusion was that it would not be possible to exclude by contract liability for negligent misrepresentation. In the Committee's view the victim ought to be able to exercise the right both to rescind the contract and, where appropriate, to claim damages for consequential losses, unless the representor could show that up to the time the contract was made he had reasonable grounds for believing the misrepresentation to be true. This is the subject matter of Clause 3.
I come now to the amendments to the Sale of Goods Act 1893. If the principal recommendations of the Law Reform Committee were implemented, the change in the law would have repercussions on the Sale of Goods Act. One result of amending the law relating to misrepresentation in the way suggested by the Committee would, if the Sale of Goods Act were left as it is, be to put the buyer of goods in a better position if the relevant misrepresentation were not a term of contract than if it were. This result would be anomalous. Moreover, the provisions of the Sale of Goods Act in question (namely, those which restrict a buyer's right to reject defective goods) have been independently criticised and are described by the Committee as unsatisfactory. The Committee accordingly suggested that the Act should be amended so as to meet these criticisms and to make it consistent with their proposals for amending the law relating to misrepresentation. Clause 4 implements this suggestion. Its effect is, briefly, thatprima faciethe buyer of goods will not lose his right to reject them for a breach of condition until he has had an opportunity to examine them, notwithstanding that they were specific goods the property in which was transferred to him on completion of the contract, or that he has dealt with them before the opportunity for examination arose.
I think I ought to say a word here about hire-purchase contracts. The Committee recommended that where the negotiations for hire-purchase contract are conducted by a dealer, he should, in spite of any agreement to the contrary, be deemed to be the agent of the "finance company"—that is to say, the party financing the deal who actually makes 926 the agreement—for the purpose of any representations about the goods. The Committee recommended, as a consequence, that the finance company should not be able to exclude liability by disclaiming the dealer's authority to make the representation. These recommendations have, in substance, already been implemented by Section 10 of the Hire-Purchase Act, 1964, now superseded by Section 16 of the Hire-Purchase Act, 1965. That is the reason why there is no reference in the Bill to those recommendations of the Committee. The Bill does not apply to Northern Ireland or, apart from the consequential amendment made to Section 35 of the Sale of Goods Act, to Scotland.
In moving this Second Reading, I think I ought to say an additional word on two further points. As I have said, Clause 3(1) implements the recommendations of the Committee with regard to the avoidance of exclusion clauses. It is quite clear from the Report itself that what the Committee had primarily in mind were cases where the parties are not in an equal position, and, in particular, where there is some standard form of contract. What is now Clause 3(2) was not in the Bill when it was in Committee in another place in the last Parliament. But the Confederation of British Industry have drawn attention to the fact that there are cases where this might operate some hardship. There are cases, involving contracts for very large plants, or for machinery, where the contract was preceded by long negotiations between people of an equal bargaining strength, and where the precise matters for which the plant was being provided may have been carefully negotiated. The Confederation felt that in cases of this kind it would not be difficult for a purchaser to get on its feet an argument that he had been misled by some oral representation made in the course of negotiations about the performance which might be expected from the plant, notwithstanding the fact that the guaranteed performance provided for by the contract itself was more restricted.
If such a claim were pressed—and I think they have particularly in mind cases where large British contractors contract to provide large plants for overseas customers—the foreign purchasers might be particularly liable to take advantage of such an opportunity. The manufacturer would be faced with a claim for rescission 927 or for damages which would not be limited by the terms of the contract. They readily recognised the need for Clause 3(1) in the context of the ordinary contract for the sale of consumer goods, but they argued strongly that the position was entirely different in the case of contracts negotiated at arm's length of the kind to which I have referred.
The Government considered these arguments, and came to a conclusion that it would be possible to amend Clause 3 in a way that would meet those objections without seriously weakening the effect of the clause. Subsection (2) has accordingly been inserted in the Bill, in order to give effect to that decision.
The final point to which I should refer is this. The Committee themselves recommended that the changes in the law which they were advocating should not apply to contracts for the sale of land. This exclusion was very much criticised in Committee in another place, from all sides, primarily on the ground that it was very often contracts affecting land which, in practice, involved a purchaser or tenant in considerable losses as a result of misrepresentations to him, though he was unable to establish fraud. The Committee took the view that finality was desirable in contracts relating to land; that the parties had usually every opportunity of making their own inquiries or surveys; that it was peculiarly a case in which both parties had probably already acted, either by somebody wanting to marry the sale of one house with the purchase of another, or by the raising of a mortgage.
Consultation has taken place between the Government and bodies who have great experience of contracts relating to land—the Chartered Auctioneers' and Estate Agents' Institute, the Royal Institution of Chartered Surveyors and the Law Society—and all three bodies express themselves as being in favour of keeping this subsection (that is to say, Clause 1(2)) in the Bill, excluding contracts relating to land.
It appears to me that there is a good deal to be said on both sides on this point. I think perhaps the strongest argument of those who would be in favour of omitting this subsection—that is to say, applying the change in the law to contracts relating to land, like 928 any other kind of contract—is this. They say it is quite true that in many cases, probably in most cases, a court cannot order rescission because there would be a mortgage, or things would have been done which would make it impossible to restore the parties to the status quo;but why is that an argument for not giving the court power to do so if the case arises in which it is possible to restore the parties to their previous condition? None of this, of course, contains any Party political points at all. I can only say, so far as the Government are concerned, that I should wish to be guided by the views of the House, and particularly perhaps by the views of noble and learned Lords, as to where they think the balance of advantage would come.
I am glad that after four years Parliamentary time has been found to implement the recommendations of the Committee. I know from experience that when one is a member of a Committee one gives up a great deal of time, and it is rather disappointing when no Government seems to be able to find Parliamentary time to give effect to the views which have been expressed. Law reform is sometimes thought to be a dull subject, but, as all your Lordships know, everyone is affected by the law. The object of these reforms, after all, is not in any way to help the lawyers, but to help people who it is felt have not had in the past certain remedies which they ought to have had. My Lords, I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a. —(The Lord Chancellor.)
§ 4.59 p.m.
VISCOUNT COLVILLE OF CULROSS
My Lords, as the noble and learned Lord the Lord Chancellor has said, this Bill implements, with one omission and one addition, both of which have been explained, the recommendations of the Law Reform Committee in its Tenth Report. The noble and learned Lord could not say so himself, but I think I may say that he is among the distinguished members of that Committee. I am sure it is entirely welcome that the provisions of this Bill have now been brought forward. Of course, it is an extremely technical Bill, as anybody who begins to read it will see. While agreeing, I hope, with all the principles in it, I think the duty of the House 929 is to see that, in a matter which must clearly be one where translation into Bill form is very difficult, the recommendations of the Committee have been put into the proper legislative language. And, of course, there are one or two other matters which clearly will need discussing.
Subsection (1) of Clause 1 needs little comment after the explanation the House has just heard, except, perhaps, to underline that the field is now not open for all possible circumstances to lead to rescission, because. as the noble and learned Lord said, the existing restrictions and bars other than that specially removed by this subsection still remain: plaintiff's delay, the change of circumstances which makes restoration of previous position impossible, and, of course, the ordinary rules of limitation.
When we come to subsection (2) of Clause 1, there is this difficulty about land. As was said, this was considered and discussed for a great length of time in Committee in another place in the last Parliament, and, as I understood it, the principle that was then acceptable to the Government was that it might be possible to modify the present form of this subsection by allowing rescission to take place, except upon matters of title. I do not know whether the noble and learned Lord could comment on that subject a little later. But there is this difficulty, as I understand the Bill: it is not only a question of rescission that is involved here, and from which all transfers and interest in land except for short leases are now excluded, but subsection (2) of Clause 2 hangs upon the right to get a rescission of the contract. Therefore it would not be possible for the court to give damages in lieu of rescission in the case of land—that is to say, under that subsection, which they would ordinarily be able to do in the case of any other contract. As I understand it, the tortious remedy which is being introduced by Clause 2(1) still remains available in the case of land. There is, however, the other remedy, which does not depend upon any proof of innocent misrepresentation in the circumstances required for subsection (1) of Clause 2. It may well be that some sort of damages in contract ought to be awardable in the case of land as well. No doubt this point could be discussed at a later stage of the Bill.
930 Clause 2, on its face, appears to be very difficult. I imagine that the problem is that one wants neither to refer specifically to the tort of deceit, nor to set out in statutory form the tests that are required to prove it. This is why there is the analogy to the fraudulent misrepresentation case, which has previously been the only remedy in tort for this state of affairs. Again, this matter led to a great deal of discussion in Committee in another place, and it emerged quite clearly that what is being provided in this subsection is a completely new tort with a remedy in damages accordingly.
As I have already indicated, there are two ways in which one can get damages under Clause 2 as a whole: first of all, in lieu of rescission, and, secondly, for the tortious claim. These two in subsection (3) are inter-related in terms of the sum actually received in the end. The analogy with fraud in subsection (1) seems to me to be a little complicated, and I hope I have it right. It does not, I think, mean that you must use the rules that now prevail for fraud in order to see whether or not there was an innocent misrepresentation under the Bill. It is not, of course, negligent misrepresentation, which is the way the Law Reform Committee described it, because, as I shall show in a minute, the test for the defence is not a matter of negligence. Rather the analogy is one of drafting, which puts a label on the circumstances.
Therefore, we are not going to run into the sort of peculiar difficulties which arose in cases likeArmstrongv.Strain, which was much discussed in another place, where the point was that there were two or three persons involved and you had to decide whether you could (add up the knowledge they all possessed to see whether this constituted fraudulent knowledge for the purposes of the tort. Rather the analogy is simply used to suggest that all you have to do for the new tort, as I understand it, is to prove three out of the four elements which are necessary for the existing tort of deceit. In other words, the false statement of fact, which need not now he fraudulent; the intent that it should be acted on, and the fact that the plaintiff has acted on it and (or partly because of it) has suffered damage.
931 I believe, all the same, that subsection (1) may be a fruitful field of litigation for some time, because while the Bill lays down—at least, I hope it lays down—that principle, the detailed application of it will be left for the courts to work out. For instance, the whole field of the rules relating to agency and master and servant will have to be worked out afresh, as I understand it, because there is really no precedent for this type of situation. The only precedent is the situation in fraud, which will not apply. Secondly, there is a difficult point, I think, under the defence which is laid down in this subsection, because it does not seem to me that the defendant is going to be held to what would be the ordinary rules in negligence: in other words, the objective test of what was the reasonable ground that he had for believing at the time that he made the contract that the facts represented were true. But there would be some sort of subjective test under this wording in which different defendants, perhaps with different degrees of intelligence, may be able to rely upon similar facts, and in the one case make out a defence, and in the other fail to do so. If this is in fact the true reading of this subsection, I believe that there will be a great deal of litigation upon it.
On Clause 2, I should also like to ask the noble and learned Lord whether he could say what circumstances he envisages in which there would be damages, or might he damages, under both subsection (1) and subsection (2), because these clearly go together in some cases. Is the dual provision in order to take account of the difference of the measure of damages in tort and contract, or what are the circumstances that are envisaged?
Clause 3 has been explained at great length by the noble and learned Lord, and I am grateful for that fact because certainly there is nothing in the Report of the Law Reform Committee which recommends subsection (2). I do not think that the explanation given by the noble and learned Lord would immediately spring to mind when one reads the words of that subsection. The general principle in subsection (1) is one of which I entirely approve, and one could do nothing else, with the strength of the recommendation that it in fact implements.
932 Again, I think subsection (2) may require a certain amount of examination at a later stage. For instance, what is envisaged by the words "in negotiations"? Is this something other than the simple offer and acceptance involved in the contract? Have there to be some special negotiations with regard to the particular clause in the contract which is being dealt with? If not, could it possibly be made a little clearer in the Bill? I believe I am right in saying that this subsection may also be necessary under various international agreements to which this country subscribes. If that is so, I wonder whether it would afford any guidance to look at the terminology of those agreements to see whether they are exactly in line with what now appears in the new subsection in Clause 3. Again, the provisions of this subsection are in effect a defence to an ordinary action under subsection (1), and I think that those who would wish to take advantage of the rule in subsection (2) would be glad of a little more clarification of the precise degree to which they have a defence.
I have one small point to raise on Clause 4. It must, I think, be in this obscure wording, because of the reference to the Sale of Goods Act, but I wonder here again whether the Government have had any consideration of the effect on negotiable instruments and on the position of importers, because, as I understand it now, the negotiable instrument which very often passes long before the goods arrive in this country may well be somewhat invalidated by the fact that when the goods do arrive and are capable of being inspected there may still remain an action for rescission of the contract. I suspect, at any rate, that some care would be required in commercial transactions in order to see that this does not result in considerable confusion. I shall be grateful if the noble and learned Lord is able to make some comment on it. With those comments, my Lords, nay I say that I think this Bill is entirely acceptable in principle to those who sit on these Benches, and we hope that your Lordships will give it a Second Reading this afternoon.
§ 5.11 p.m.
§ LORD REID
My Lords, I, too, entirely welcome the substance of the changes 933 proposed in this Bill. The Bill may look slender, but in fact it makes substantial changes; and of some of them one might well say that they are overdue. But I am not by any means so happy about the form of the various clauses in the Bill, particularly having regard to the ideals which my noble and learned friend on the Woolsack has more than once expressed in this House, with a view to improving the form of future legislation. Two of these ideals are, I think, relevant in the case of the present Bill. The first is that the amendment made should be clear to the non-expert, and the second is that all changes relating to one subject should be kept in one place so as to be readily accessible. But before coming to these points of comparative detail I should like to raise three questions of a more general character.
First, a word in regard to Scotland. For some reason that I am not able to understand, Scotland is excluded from the application of Clauses 2 and 3 but is included in the application of Clause 4. I quite follow that Clause 1 is probably unnecessary in Scotland, because in many respects, as many of your Lordships know, Scots law is, for one reason and another, a good deal ahead of the law in England; and I think this is one example. But I cannot see any possibility of the Courts of Scotland, or of this House, sitting in a Scots appeal, holding that the whole of the provisions of Clauses 2 and 3 already apply in Scotland; nor can I see any difference in the need for those provisions in both countries. The problem is the same and we ought to keep in step. Ever since I can remember, the principle has been that we have a common Bill for the two countries, with a Scottish application clause if the reform is equally necessary in both countries, and unless the differences between the two systems are such as to make it necessary to devise different schemes for the two countries. I cannot believe that this applies with regard to Clauses 2 and 3 of this Bill.
I do not know whether the Scots Law Commission has been consulted. Perhaps the noble and learned Lord on the Woolsack will tell us whether it has or not. May I just say this, too, in order to save time in future perhaps?—and I hope I am not too much out of order. Can the noble and learned Lord tell us whether the Scots Law Commission is being consulted 934 about the Sale of Goods Bill which we have to discuss next week, and about the Matrimonial Homes Bill, which we shall be discussing later? With regard to the latter I can quite see that, if anything is to be done, the scheme would have to be different, and therefore there is no point in pursuing that. But on the Sale of Goods Bill I should have thought there was every reason for keeping the two countries in step, and again it cannot be said that all the reforming provisions for England already apply in Scotland.
My second point is in regard to Clause 3, and it is this: is piecemeal legislation a good thing? This misrepresentation provision is only a small element in the very large problem of how to treat standard conditions. I understand that that is already the subject of an inquiry. It is certainly promised in the programme of the English Law Commission, and I should have thought that, unless there is any great urgency about this, it would have been much better to leave Clause 3 but make it part of a general scheme. But if it is to proceed—and I do not wish to move to leave it out—will the noble and learned Lord make it clear that the fact that this clause becomes a section of an Act of Parliament will in no way preclude the Committee from inquiring into the general question, from re-examining the whole matter as one and, if necessary, altering the provisions of this clause in order to make them fit the new and more comprehensive scheme.
A Committee might well feel that the fact that Parliament had enacted a provision with regard to a particular kind of clause in standard conditions was to be regarded as a pointer to what they were to do, or was intended in some way to tie their hands. Perhaps the noble and learned Lord will make it quite clear that passing this clause will not in any way limit the Committee in their consideration of what is the proper and general solution of this incredibly difficult problem. Indeed, I should think that the proper thing to do, in the end, in order to keep all the law in one place, would be to repeal this section, if it becomes law, and incorporate it, in the same or a different form, in the more comprehensive Act dealing with general conditions which I earnestly hope I shall survive to see as an Act of Parliament. I may be a little optimistic about that, 935 looking at the speed with which these matters proceed, but I am trusting the noble and learned Lord on the Woolsack to accelerate these matters very considerably.
The third point is this. Clause 4 says nothing about misrepresentation. It is perfectly true that anomalies might result if Clause 4 were not passed, but next week we are to have before us a Sale of Goods Bill, and it passes my comprehension why Clause 4 is included in this Bill and not in the Sale of Goods Bill. I earnestly beg the Government to drop this clause from this Bill when we come to the Committee stage, and to insert it in the Sale of Goods Bill when it comes to the Committee stage. Mere tidiness surely requires it. Why should we, in the same Session, have amendments to the Sale of Goods Act contained in two different Acts of Parliament? I cannot conceive any possible reason for it. Indeed, the difference between Clause 4 and the rest of this Bill is illustrated by the Long Title of this Bill. This is a Bill entitled:An Act to amend the law relating to innocent misrepresentations and to amend sections 11 and 35 of the Sale of Goods Act 1893.There are two quite different matters covered by the Long Title. I cannot for the life of me see why it should not be included in the other Bill, and I hope it will be.
May I now come to some points which are in the nature of Committee points? I do not wish to move Amendments myself. I merely wish to make suggestions. If the Government adopt them, well and good. If they do not, I shall simply acquiesce. But I think I should put the points forward for consideration, and I venture to think it is perhaps more convenient to do it at this stage than in Committee where it might perhaps be more regular. I think in the end it will save time if one deals with these matters at this stage. With regard to Clause 1(2) I have no strong view, but I am bound to say I should rather leave it out. On this I entirely agree with my noble friend Lord Colville of Culross. I do not wish to expand my remarks on this, but as at present advised I should be in favour of leaving this out.
936 Clause 2, however, I would deal with in a little greater detail. I cannot object to the form of drafting, though it is a kind of legislation by reference, because it says that if certain things would have happened if the defender had been fraudulent, similar things are to happen if he is not fraudulent, and therefore it leaves the layman in considerable doubt as to what the clause really does. But I do not think one can reasonably object to that provided that it is otherwise clear. But this I must draw attention to. The fact that you link up innocent misrepresentation with fraud in this way causes difficulties. Let me mention just one. I am not sure that it has been considered. I refer to Section 26 of the Limitation Act. As my noble and learned friend well knows, that enacts that where a right of action has been concealed by the fraud then time does not run against the plaintiff until the right of action has been or ought to have been discovered. Does that, or does it not, apply to this new tort? I am inclined to think it does on present drafting, because the third, fourth and fifth lines of Clause 2(1) contain the words:if the person making the misrepresentation would be liable … had the misrepresentation been made fraudulently.So what you, do is to write into the facts the charge of fraud and then you see whether an action lies. If you write in a charge of fraud then an action will lie if the innocent misrepresentation has concealed a right of action.
I cannot think that was intended. It may have been. I should think it probably wrong to put it in that way, because everything is presumed against a fraudulent person, quite rightly, but to allow this sort of thing to be raised after ten or twenty years against an innocent misrepresenter, and then to put him to the proof of not only belief but reasonable grounds of belief, seems to me rather unreasonable, and I think that I myself would prefer to see an amendment to Clause 1 so that this does not bring in Section 26 of the Limitation Act 1939.
That is a minor point in comparison with my criticism of Clause 3(2). The noble and learned Lord has explained that this subsection was inserted at a late stage as a result of representations, but I venture to think that if he looks art it carefully he will find in goes very 937 much too far. I agree something was needed, but this does very much smooth the way for the man who wishes to evade the new Act. Evasion of Acts of Parliament has now become something of a fine art. Suppose we imagine a trader who wishes to evade this clause and to maintain his standard condition with regard to misrepresentation. Then suppose he says to his customer, "I will drop Clause X, which protects me in the event of misrepresentation, if you will pay 10 per cent. more than the price which I have quoted." Of course the buyer says "No." But surely that is negotiation, all he has to do is to spin it out a little more until it is negotiation. I venture to think that this is an impossible way of achieving justice to limit the application of this and other general conditions.
I should be prepared to go a great deal further. In the old days it was thought improper for the courts or Parliament or anybody else ever to re-write a bargain. It was quite proper to annul a bargain if the right conditions applied, but it was never proper to say, "Now we will strike out half of it and then hold the parties to the rest". A court was not entitled to do it and Parliament was very chary about doing it. But that outlook has gone long ago and every day Parliament is interfering with the terms of contract, and I do not think they are doing it too much. It seems to me that we have got to pluck up courage very soon and must say, not that we are going to have blunt rules in an Act of Parliament, which never work properly on marginal cases, but that we are going to enable the court to deal with each individual case that is brought before it. I know people will say that this will immensely increase the volume of litigation. I do not believe it. I think that the expiscation of complicated sections is probably going to take up more time of the courts than dealing with individual cases, because people will see, except in the marginal case, whether or not they have a case to fight.
Why should we not say, not only here but in the whole subject of standard conditions, that the court can strike out a condition in any particular case if—and then you can use any words you think right: "if unjust in the circumstances", "if unreasonable", "if harsh and op- 938 pressive", "if unconscionable". A number of alternatives can be found, but I think you can find a phrase which can reasonably be put in. I would very much rather—this is perhaps aimed rather at the Committee examining these matters than at your Lordships here this afternoon—see standard conditions subject to that kind of check than to some easily evaded general loophole.
I have already said that I do not think Clause 4 ought to be in this Bill at all. But if it is put in this Bill I would venture to ask my noble and learned friend whether he will reconsider the drafting. I know he is a busy man, but I would venture to ask him to have the complete Sections 34 and 35 written out as amended, then to read the perfectly clear recommendation of the Committee, and, following that, see whether he thinks that subsection (2) is a creditable piece of work from the drafting point of view.
The recommendation of the Committee is perfectly plain: thatit should be made clear that acts which would amount to acceptance within the meaning of Section 35 should not be held to do so until the buyer has had a reasonable opportunity of examining the goods as contemplated by Section 34.Nothing could be clearer. Then look what we do. In front of the wordswhen the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the sellerwe put in, in brackets, the words:(except where Section 34 of this Act otherwise provides)";and it does not otherwise provide a thing with regard toany act in relation to them which is inconsistent with the ownership of the seller.It is about as bad a piece of drafting as I have seen for a long time, and I hope that my noble and learned friend will look at it. It may be that he inherited this Bill. It may have been lying in a pigeonhole for a long time. I do not blame him in the least. I am only asking him to find ten minutes to have a look at this and, if he can come back to this House and say that he is fully satisfied with the drafting, then I will withdraw everything that I have said.
But, seriously, my Lords, this is an example of a complaint which I have had occasion to make more than once, both in this House, in the course of debate, and 939 in the course of my judicial duties, when the House is sitting judicially. There is an almost intolerable tendency for some draftsmen to prefer brevity to clarity. In the present case we have four lines of a recommendation condensed into eight words of an amendment. I have no doubt that, technically, that is something of a feat. But surely, if we are going to prefer clarity to brevity, an extra line or two would not matter if we can make the thing look a little more respectable and intelligible. I hope that my noble and learned friend will find the time to look over future Bills or to get someone to draw his attention to the more doubtful passages, to see whether they do, in fact, come up to his most admirable standards for the future drafting of Acts of Parliament.
§ 5.35 p.m.
§ LORD DENNING
My Lords, may I say that I am greatly in favour of this Bill, largely, perhaps, because it does things which we in the Courts have been trying to do for a long time? I am glad that, after four years, the noble and learned Lord the Lord Chancellor has managed to get this Bill introduced. It may read a technical Bill, but in truth it affects many people in cases which we have in the Court of Appeal. It should do a great deal to protect the ordinary public from the smooth tongues of the salesmen. In the old law there was a maxim that the buyer had to look after himself—caveat emptor;let the buyer beware. He ought not to rely on what the seller told him; he ought to inspect the goods himself. If he relied on any particular term he ought to have it embodied in a contract, because otherwise he had no remedy unless he could prove fraud. Now I hope that we are getting it the other way round: that it is for the seller and for the salesman to beware. If he makes a statement to induce a person to buy a thing, or to take it on hire-purchase, let him beware. He must take good care to see that his statement is true. If he does not, he may find himself liable in damages, and indeed to have the whole contract set aside.
Let me tell your Lordships of two or three cases which we have had in the Court of Appeal and which will be altered by this Bill. They are ordinary, simple cases. One case concerned a 940 man who bought a picture of Salisbury Cathedral for £85. The salesman told him that it was by "J. Constable", and it was delivered to him. Nothing was put on the receipt about its being by Constable, but he believed it. After a little time, when he was going to resell it, he found it was not by Constable at all, so he wanted to set this sale aside and to get his money back. But the court said, "No, you cannot do that. You cannot even get damages, because it was not a term of the contract." I hope that this Bill will remedy that situation at once.
There was another case in which a man bought a lorry for £750. The seller told him it was in excellent condition and that it would do eleven miles to the gallon. After a few days he found that it was quite unroadworthy and would do only five miles to the gallon. He wanted to return it and to get his money back. But the court said, "No, you cannot get your money back; you cannot even get compensation." I am glad to say that these cases will be remedied. The seller or the salesman in these cases will not be exempt from damages unless he can prove that he had reasonable grounds to believe that the picture was a Constable or the lorry was in good condition, and that he did in fact believe this.
I may say that we have tried quite often in the Court of Appeal to get round that old law. We have often done it. We have often said that these representations are really warranties—what we call "collateral warranties"—and we have managed to make them liable. I do not know whether your Lordships have heard of Dick Bentley. He bought a Bentley car for £1,800. The salesman represented to him that it had done only 20,000 miles since the engine was last overhauled. When he had had it a little time it was discovered that it had done 100,000 miles. He brought his action before us, and despite those other cases, we held that this was a warranty and that it was binding on the person concerned unless he could show that he really believed, on reasonable grounds, that what he said was true. This he could not do, and we managed in that case to hold that the seller was liable. This Bill will remedy, as I see it, all such injustices.
Furthermore, and most important of all, Clause 3 will do away with some of the exemption clauses in standard 941 contracts. I remember years ago the case of a lady—she was a small shopkeeper—who had a salesman call upon her. He wanted her to buy a cigarette machine. He produced it, and managed to persuade her to buy it. He produced a long form, and he said, "Sign here". She signed the form. Afterwards, when the machine did not work at all, she wanted to return it. The sellers would not have it, and when she complained that it did not work, they pointed out that in the form there was this clause:This agreement contains all the terms and conditions under which I agree to purchase the machine, and any express or implied condition, statement or warranty, statutory or otherwise, not stated herein, is hereby excluded.I am afraid I argued the case on it for hours, but the Court of Appeal in those days held that that exclusion clause prevented the lady from recovering, even on any misrepresentation made by the salesman or anything else. Since I have been on the Bench I have tried to alter that, but not very successfully. Now this Bill covers it in Clause 3(1). Therefore, on the whole, I greatly welcome this Bill for enabling us in the Court of Appeal, as I hope, to do justice in these cases. It will also, incidentally, mean that the textbook writers on the law of contract will have to rewrite whole chapters of their books.
I should like to refer to two or three points. First of all, I would suggest that Clause 1(2) should come out. It seems to me that if a person makes a misrepresentation, even in the case of a sale of land or the grant of a tenancy for four or five years, and somebody is misled by it and is induced to enter into a contract which he would not otherwise have done, one should be able to set it aside, so long as the person comes along in time before other people are prejudiced. The Common Law has always done this in regard to chattels. It should now apply also to sales of land, and I consider that there should not be that exception in subsection (2). I agree with my noble and learned friend Lord Reid that one does not want too much of Clause 3(2), where one lets people get out of responsibility for the representations they have made. If they have made misrepresentation leading to a contract, I, for one, would in most cases rescind it, if I could; and if I could not rescind it I would give damages.
942 This Bill will greatly assist to those ends, and I warmly support it.
§ 5.43 p.m.
§ LORD UPJOHN
My Lords, as a constant attendant in your Lordships' House, in its Judicial capacity, for over two years, I feel that I owe your Lordships an apology for not addressing you before now. My only excuse can be that I was for the whole of last year much pressed with the affairs of one of the Inns of Court, a burden which I have now passed on to other shoulders better able to bear it; and I trust that I shall be a more constant attendant in your Lordships' House in future. But there is, indeed, some mystery about it to-day, in the office which organises these affairs, which at this very moment is stoutly maintaining that I have already made my maiden speech. I ask your Lordships to bear in mind that an occasion so unique as that of having the privilege to address your Lordships for the first time makes me a much more reliable witness of fact, and I ask you to accept my evidence. But whether that be so or not, I hope your Lordships will accept my assurance that in this regrettable matter I have been guilty of no misrepresentation, either innocent or fraudulent.
I welcome this Bill most strongly. We ought to be most grateful to Lord Jenkins and his Committee for the very hard work which they have put into this Report and for the admirable result which they have produced. The law relating to rescission for innocent misrepresentation after the performance of the contract is, in my view, quite unsatisfactory, and indeed, except in relation to contracts affecting the sale of land, is not even well settled. It depends on someobiter dictaof Mr. Justice Joyce inSeddonv.North Eastern Salt Company Limited. My noble and learned friend Lord Denning has denied the existence of the rule, and he may be quite right. As your Lordships have heard, your Lordships, sitting Judicially, have never yet had occasion to consider this point. The Bill therefore puts the law of innocent misrepresentation on a sound basis. In addition, of course, it enables parties to sue for damages where they have been induced to enter into a contract by reason of an innocent misrepresentation, unless the person who has made the 943 representation can establish affirmatively that he had reasonable grounds at the time the contract was made for believing it to be true. So I give wholehearted support to this Bill.
I have three points which I should like to make at this stage, and I hope that the Lord Chancellor will consider that they are worthy of consideration when we come to deal with the Bill in Committee. First of all, when working out the remedy of rescission after a contract has been performed—and that must, of course, include a case where it has been partly performed—I think the courts will require much greater powers to adjust the rights of the parties, so that justice may be done between them, than this Bill at present confers. Although I think that the draftsmen have in mind a rather simpler type of contract, we must remember that this Bill is going to apply to complicated commercial contracts of every sort; and there will be many cases where acts will have been done by both sides which will require adjustment. The case where a contract is rescinded for innocent misrepresentation bears a certain analogy to the cases of frustration where a contract has become impossible of performance or is otherwise frustrated. That matter is now dealt with by the Law Reform (Frustrated Contracts) Act, 1943. That Act provides (it is all in Section 1, and I will put it very shortly in my own words) that the court can make the necessary financial adjustment for money paid, work done and benefits received in order to achieve real justice between the parties. I am sure that there ought to be some similar provisions in this Bill if it is to become workable.
My second point deals with contracts affecting land. I must confess that I have spent most of my working life in the Chancery Division, either at the Bar or at the Bench, but I hope that does not mean that I am an old-fashioned fuddy-duddy. For my part, I am very glad to see that subsection (2) of Clause 1 is in the Bill, and I hope that it will remain there. I believe that if it were removed, if one could have rescission of a conveyance on sale after the legal estate has passed, it would give rise to many difficulties. I think the law in respect of innocent misrepresentation should remain: that if you want to 944 rescind you must do so before conveyance. After all, contracts affecting land are in a very special class of their own. The solicitor investigates the title, and the surveyor inspects the property and any adjoining properties which he thinks fit. With all respect to my noble and learned friend Lórd Denning, I think this is where the rule of caveat emptorapplies in its full rigour, and I should be sorry to see it removed. I think its removal might give rise to very grave injustice.
As the noble and learned Lord the Lord Chancellor pointed out, so many contracts of sale are married up with the sale or purchase of some other houses. Mortgages are almost invariably taken on some new property. I think, to use the words of Lord Jenkins's Report, that if you rescind where there has been a passing of a legal title you might set up a chain reaction. But, of course, I agree entirely that leases for under three years should be subject to what will be the new general rule; that is, they may be rescinded for innocent misrepresentation. The truth of the matter is that tenancies of that description are frequently entered into without legal advice, no proper surveys are made, and therefore the oral representations of the intending landlord play a far greater part in inducing the contract than they do in the bigger transactions.
I should like to see this provision in the Bill. I can see no reason why, if there has been an innocent misrepresentation the purchaser should not be enabled after conveyance to sue the vendor who has made the innocent misrepresentation, for damages. I can see no ground for excluding him from that at all, and the Jenkins Committee saw no objection to that. But I am very doubtful whether Clause 2(2) of the Bill, as it at present stands, is apt and appropriate to cover a case where the purchaser has completed the sale and executed conveyance from the vendor. If my noble and learned friend on the Woolsack tells me I am wrong, I shall be very happy, but at the moment I can see some highly technical arguments that after conveyance the original contract will have merged, and therefore it will be said that there is no ground for claiming damages under Clause 2 of the Bill. At all events, I hope that this point may be clarified in the direction of making it quite clear that the purchaser, although he has taken a conveyance of the legal estate, may 945 nevertheless claim damages for innocent misrepresentation.
My third point is this. Clause 2 provides that, although the plaintiff establishes a claim for rescission for innocent misrepresentation, the court may in its discretion order damages in lieu thereof. That is a very sensible provision, if I may respectfully say so, for there will be many cases where justice cannot be done by rescinding the contract and damages must be the only remedy. But I fear that what may happen in some cases is this. In this inflationary age a plaintiff who has purchased a property—whatever it is—may say, "I want to keep the property, but pay me damages for the misrepresentation. You misled me and I should not have entered into the contract without that representation." But it seems to me that the person who has made the representation may not unfairly say, "True. I misled you, though innocently, but I am willing to undo the contract and repay you all that you have paid me. But give me back my property. It is in fact now worth more. You have suffered no injustice for we shall rescind the contract." I hope that in Committee consideration may be given to a clause entitling a defendant, who is in a position to offer complete restitution, to insist on that remedy—that is, the remedy of rescission —if he so desires, except where there has been a conveyance of the legal estate in land.
There is one very small point on Clause 2(2). The middle of that subsection reads:… if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded"—the important words are, "has been rescinded"—the court may declare the contract subsisting".If out of court somebody has exercised his power of rescission and that has been acquiesced in by the other side, I do not myself see how the court can declare, in relation to such a contract which has been rescinded, that it is still subsisting. But that, I agree, is really a drafting matter.
I must, I fear, end on a note of sorrow rather than of anger. In fiscal legislation we have become very accustomed to much obscurity of language. That is no 946 doubt caused by the fact that those practising in Lincoln's Inn and other places have been sufficiently ingenious to find loopholes where the Crown did not think it was possible for a loophole to exist. So the draftsmen use a great plethora of language to try to fill up the loophole, and we are used to such obscurity. Indeed, as your Lordships know, this often leads three of your Lordships, sitting judicially, to think something means one form, and two to think it means precisely the opposite. That is no doubt necessary in fiscal provisions, but this is a simple Bill and I am bound to confess that I think the draftsman of it has entered into a great deal of obscure language.
I am not going into it in detail—my noble and learned friend Lord Reid has pointed out a number of points—but I personally find Clause 1 difficult to understand. Indeed, one of my colleagues said to me, "You will not understand it at first. You had better go and get Lord Jenkins's Report and then you may follow it." So I did get the Report, and found it very useful in helping me to understand Clause 1. It has said what is intended all right, but I venture to think that Clause 1 and the other clauses could have said it in clearer and more simple language. However, I hope that your Lordships will give this Bill a Second Reading.
§ 6.0 p.m.
§ LORD WILBERFORCE
My Lords, for the main and really important task of this evening I am, frankly, hopelessly unqualified. I should very much have hoped that the duty of congratulating my noble and learned friend Lord Upjohn on his maiden speech would have fallen on someone other than one who has to his credit only one or two speeches in your Lordships' House. Nevertheless, it is a very great personal pleasure for me to offer my respectful congratulations to my noble and learned friend upon his most admirable intervention; and I am sure, so far as authority is concerned, that in saying that I may rely on the general support of noble Lords present and speak on behalf of the whole House. It is quite obvious that your Lordships have suffered a serious loss in the last year or two, during which my noble and learned friend has been obliged to keep silent, 947 and it is equally apparent that we shall gain very much from the future interventions which I have no doubt we shall have from him.
Now, my Lords, may I make a few observations on this Bill? And if I do so with something less than full enthusiasm, I hope that the noble and learned Lord on the Woolsack will acquit me of any general indifference to the cause of law reform, or of any lack of appreciation of the work of the Jenkins Committee. It is just because I have a great respect for the comprehensive programme of law reform which the noble and learned Lord the Lord Chancellor and his Government have set on foot that I feel some reservations as to this example of piecemeal legislation. Generally on the Bill, its character is one which deals with the law of contract over a fairly wide front. It deals with warranties; it deals with statements inducing contracts; it deals with the terms of contracts; it deals with remedies and it deals with exemption clauses. What it does is to attempt the rather ambitious task of putting into statutory language matters which normally are dealt with by judicial development of the law. That is by no means an easy thing to do.
One sees from the very first section of the Law Commission's Report, which was laid before Parliament in 1965, that the Commission is to undertake a review with a view, possibly, to codification of the law of contract as a whole. The Report says:It will be necessary to pay special attention to the recommendations on innocent misrepresentation made by the Law Reform Committee in its Tenth Report"—that is, the Jenkins Committee—and to various other matters".That, I understand, has not been done up till now, and I am therefore generalising what was said by my noble friend Lord Reid in relation to a particular clause when I express the thought that, for myself, I should have been happier if, before this interference with the law of contract had been presented for legislative approval, we had had the general survey of the law of contract from the Law Commission, and, in particular, its review of this matter of innocent misrepresentation which it was promised should be made before the Bill was presented.
948 My Lords, it may be that one's fears can be assuaged if the noble and learned Lord on the Woolsack does as he was invited to do by my noble friend Lord Reid, and assures us that anything that we do now will be without prejudice to an ultimate and broader review by the Law Commission. But that still leaves me with the doubt whether it is wise to embark on this legislation now when, with perhaps one exception, there is no great urgency as to the measures to be taken.
Perhaps I might illustrate what I have in mind by one supporting piece of argument; and it is this. The American Law Institute, in its restatement of tile law, which represents the most modern thinking on so many matters, has given very great attention to this question of representations inducing contracts, or entering into contracts, and there is a long and elaborately-worded section there, with a lot of comparative material which deals with fraudulent misrepresentation, on the one side, and innocent misrepresentation, on the other, comparing and differentiating the kind of facts which may form the subject of one or the other, and the kind of remedies. There is a great deal of other material of that sort which I have no doubt the Law Commission, when it studies this matter, as one hopes it will, will take into account. But that has not so far, I believe, found its way into the deliberations which preceded this Bill, and I should have thought it would have enriched the propositions which are to come before this House, and before Parliament in general, if the benefits of that wider examination had been available.
But when that is said, the question then is perhaps this: have we here in this Bill specific reforms which we can usefully take at this present stage without waiting for the wider review? If so, I should be quite in favour of undertaking them, on the understanding that we can look at the whole thing again later. So let us look at Clauses 1, 2 and 3 in that spirit. Clause 1 has been sufficiently discussed, and I need not say very much about it. It gets rid of the effect of the decision—or, rather, thedicta— inSeddon'scase, which, as my noble and learned friend Lord Upjohn has said, is a precarious decision: it lays down a rule which other eminent judges have 949 said is not a rule; at any rate, it could be got rid of, if it were thought fit to do so, by judicial action. But there it is; it has been on the books for 60 years, and a case may be made, I quite see, for getting rid of it. I am in favour of that provision in the Bill which does dispose of it.
But then, of course, we are brought up against this distinction between contracts generally and contracts for the sale of land, one dealt with by the Bill and the other not to be dealt with by it—and that does raise a problem. I do not want to discuss that at any length at this stage, but would say simply that I am rather with those who would be in favour of deleting from the Bill the existing subsection (2) of Clause I on the simple ground that misrepresentations as to houses or bungalows are just as common, and just as damaging to purchasers, as are misrepresentations about other goods. One does not see at first sight why buyers of motor cars are more liable to be duped or are more in need of protection than buyers of bungalows.
It is perhaps rather significant to remember that the case which, far more thanSeddon'scase, gives rise to the difficulty in the existing law (the noble and learned Lord the Lord Chancellor referred to it: a case about drains, decided in 1911) is itself a case about the sale of a house. So the problem does exist in relation to houses. One would think it needs to be solved, and I do not see any difficulty in solving it in the way already suggested—namely, by giving a right of rescission where rescission can be carried out without interfering with third party rights. Of course, in some cases that will not be possible, though in others it will. But, on the face of it, I do not see any reason for differentiating between sales of land and other sales.
However, I do not wish to detain your Lordships on this point, which no doubt will be further discussed, but will pass to Clause 2 of the Bill, which is of very much greater importance. This introduces—let there be no mistake about it—a very remarkable innovation into the law, and I feel myself perhaps alone in this House in experiencing some alarm about it. What it does is this. The law has up till now made a difference, a distinction between cases of fraudulent mis- 950 representation, for which you can get damages, and cases of innocent misrepresentation, for which you cannot. One would think that this is a perfectly sound distinction which in general is based on common sense as well as on jurisprudence. Recently, though perhaps not so very recently, the courts have recognised that there may be a third class in between the two where there is a duty of care when you are making representations. The courts have worked out cases where it has been thought fit to say that a person, when he makes a statement must take care to see that what he is saying is accurate and right. As your Lordships in this House put it in one recent case, where there is a special relationship between the parties then this situation arises: you must take care; you are liable if you do not.
What Clause 2(1) of the Bill does, as I read it, is to impose generally a duty of care, in relation to all contracts—and I repeat, all contracts; it is not limited to cases of sales of goods as to which my noble and learned friend Lord Denning addressed your Lordships with such conviction. According to the words of the Bill, the person making a statement must show that he has "reasonable ground to believe" that what he said was true. One wonders whether "reasonable ground" is subjective or objective. One does not know. That was discussed in another place. Let us assume for the moment that it imposes an objective duty to take care that what you say is correct. What it does in that case is to impose a general duty of care in making representations.
Now, if one looks at the Jenkins Committee Report, the basis on which they recommend this is, with respect, really very slender. It says that in cases of sales of motor cars there are a lot of fraudulent sales where you cannot prove fraud and that it is necessary in such cases to give a remedy in damages. They go on to say there is no case for giving a general right of damages; but there is such a case where one party was at fault in making the representations. Elsewhere they use the word "culpably". It seems to me, with respect, that there is a lack of clarity and of thought here. When they talk about culpability, are they thinking of a case where there is a duty to be careful, or not? The Bill is drafted on the basis 951 that there is always a duty to be careful, and that unless you have taken steps to see that what you are saying is correct you are to be liable.
The analogy given by the Jenkins Committee after this passage, which is the only other justification they give for this very wide extension of the law, is an analogy drawn from the Companies Act legislation. They point out, rightly, of course, that directors of a company are under a duty to show that they have reasonable ground to believe that what is said in a prospectus is correct. But is that a sound basis on which to generalise the law as to misrepresentation? Surely directors of companies are in a very special position. They are in possession of special information as to the company's affairs. They are dealing with a numerous class of people, many of whom are completely ignorant and many of whom are simply gulls; and they are persons rightly thought by the Legislature to be in need of protection. But outside the City of London, is there any evidence for supposing that the human race is to be sharply divided between the sharks, on the one hand, and the gulls, on the other? I know of no such evidence. Is every party to every contract to be treated like the widow or the vicar who is invited to subscribe for shares? It seems to me to be going very far. And if these are perhaps subjective doubts, they are reinforced by a cross-check one can make from other legislation.
I venture here to remind your Lordships of a Bill which was introduced in the last Parliament, the Protection of Consumers (Trade Descriptions) Bill. I do not know whether that Bill is to be brought back in the present Parliament or not; I do not think Her Majesty's Government have so far shown their hand. For my argument, it makes no difference whether we are going to hear any more about that Bill or not; because the point I want to make is this. The Bill was based on the recommendations of the Molony Committee on Consumer Protection, a very authoritive committee; and it is a Bill which has been produced by the Board of Trade, a very well-informed Department and one very much in touch with the needs of consumers. What does that Bill do? If we turn to Clause 2 of the previous Bill, as it was before this House, we see it gives a list a what it calls "trade 952 descriptions". It says that a trade description is a statement about a number of matters, method of manufacture—whether it is painted by a Constable, to take my noble friend's example—composition, physical characteristics, the standard of performance, the person by whom manufactured and other history including previous ownership or use. There is a long list of what comes under a "trade description".
Then in Clause 34 of the Bill one finds this provision: that in any contract for the sale of any goods to which a trace description is applied there shall be an implied warranty that the trade description is not a false trade description, unless the warranty is excluded by a statement in writing at the same time. So what there is in that Bill is this. There is a number of important matters as to which statements may be made by the persons selling the goods: there is a statement saying there is to be civil liability if the trade description is not true—there is nothing about fraud—if it is objectively not true; and there is a statutory permission to exclude liability for that warranty if you put the exclusion in writing at the time of the contract. One might mention one other material provision in the Bill. There are a number of matters specified in the Bill which are said not to be trade descriptions, as to which this liability is not to attach. They are matters of some importance.
Having drawn attention to that, one is faced with a number of questions in relation to the Bill now before us. Does this Bill, when it gives a right to damages in respect of a misrepresentation which is not true, include contracts for the sale of goods and trade descriptions? If so, how is one to reconcile what this Bill sets out to do with what apparently is thought to be the policy of the Protection of Consumers Bill and the interests putting that forward?
The second question is this: does this Bill extend to other contracts, other than trade descriptions? In which case, what evidence is there and what case has been made for treating other contracts in this way, when the Board of Trade and the Molony Committee think that the provisions of the former Bill should be limited to trade descriptions? What is the duty; in fact, what is the case for imposing a general duty of care in other 953 cases than trade descriptions and in other cases where there is a special relationship? What is the case for treating exclusion clauses in relation to other contracts more severely than such clauses are treated in the Consumer Protection Bill, where they are allowed in relation to trade descriptions? And what about the cases which are excepted from the Protection of Consumers Bill, where it is said that liability is not to exist and there is not to be an implied warranty? Does this Bill go back on that and reintroduce liability in respect of these matters? I confess myself very puzzled by all this, and it leaves me with the thought that it might be better to have consolidated these two matters into one measure, or at least to have ensured what ground is covered by one measure and covered by another.
My Lords, I will detain the House a moment with Clause 3, which deals with the right to contract out. That, as has been said, is a difficult matter and a very troublesome subject altogether. The Molony Committee which preceded the Protection of Consumers Bill, felt itself unable to consider this subject generally though it did so in some particulars. And the Jenkins Committee, again in paragraph 23, gave some rather halfhearted reasons for their recommendations—recommendations which, in any case, as the noble and learned Lord the Lord Chancellor has made clear, did not extend to the whole of what is now in Clause 3 of the Bill. That it had not all been properly thought out is now confirmed by what we have been told: that Clause 3(2) of the Bin was inserted after representations made by important trade interests.
The position is this: that under the Protection of Consumers Bill contracting out of the implied warranty created by that draft legislation as to the truth of a trade description is allowed: but this Bill makes a distinction between contracts made after negotiation, whatever that means, and other contracts; and it gives a limited and, I must say, rather obscure right to contract out in the former case. My Lords, I must say that I feel a good deal of doubt about this. I share the doubts expressed by other noble Lords who have already spoken as to whether the basis of division is workable and whether it will not lead to 954 evasion in its present form. I doubt whether what is put in this Bill is really sound as a matter of policy.
Of course we all know that there are very grave cases of abuse in these exclusion clauses—and my noble and learned friend Lord Denning has referred to many of them. But the world is not populated only by "slick" salesmen; not all trade is carried out through the medium of such persons, or door-to-door contracts; and it is quite wrong, in my belief, to lump together all standard forms of contract, and to condemn them together; to assume that an equal degree of protection is required in every case. The Jenkins Committee, in its recommendations, limited what it said to cases of inequality, where there is a person who is in need of special protection. In many cases that is not so: in many cases trade cannot go on without standard conditions; in many cases buyers and sellers are in a perfect state of equality; in many cases the buyer is a member of an association which has vetted the standard forms of contract, in the interests of both buyer and seller, and they are perfectly acceptable. No doubt they exclude liability, but that is appropriate to the kind of trade which is being carried on. Again, as has been pointed out, I think by my noble and learned friend Lord Reid, the Law Commission has this matter under consideration. Paragraph 2 of its First Report refers to the extent to which the Molony Committee dealt with this subject and promises us in due course a more comprehensive review.
So my Lords I am left in this position as regards the Bill. I find that Clause I brings about a modest, but perhaps useful, measure of reform. I feel very great doubts as to both Clauses 2 and 3; whether the implications of them have been properly worked out at this stage. T feel fairly clear as regards both those clauses that what they recommend will be overtaken by what the Law Commission ultimately propose, and generally I have the feeling that this Bill does accompany a positive measure—that in Clause1—with proposals of considerable difficulty which will give rise not only to a lot of discussion in this House and in another place but possibly also to litigation. Quite frankly, I should have preferred to see them more comprehensively 955 dealt with by the Law Commission before legislation was presented to Parliament.
§ 6.25 p.m.
§ THE LORD CHANCELLOR
My Lords, I am extremely grateful for the welcome which, in general, has been given to this Bill. I think that your Lordships, with the exception of the noble and learned Lord, Lord Wilberforce, have thought that the Bill as a whole is on the right lines and should be enacted; and the noble and learned Lord, Lord Wilberforce, has confined his commendations to Clause 1. The noble Viscount, Lord Colville of Culross, will, I am sure not misunderstand me if I say that I am particularly grateful to the noble and learned Lords who have given us the benefit of their advice on the Bill. The noble Viscount raised one or two points; first of all, the question of agency. I would submit that there is no need for the Bill to deal with questions of agency as the ordinary law of agency will apply. Then he raised the question of damages and there again I apprehend that the ordinary measure of damages will be as in tort.
The noble and learned Lord, Lord Reid, raised a number of points; first of all regarding Parliamentary drafting. I do not draft Bills myself, and I am sure I should make an awful hash of it if I did. They are necessarily drafted by Parliamentary draftsmen, who have had a certain training in a certain school. I have in the past expressed views suggesting that this is a style which might with advantage be simplified. I am still of that opinion. But a change in that repect is not going to come, I think easily or quickly. I know that the Law Commission are themselves considering the whole question of Parliamentary drafting, together with what is, perhaps the other side of the same coin: that is, the interpretation of Statutes. They have found it necessary to consider the two together. I hope to receive their advice, if and when they come to conclusions on the points. When the noble Viscount raised this matter the other day I said that it was a difficult question, and, of course, in my position one is apprehensive that if one expresses the view that one would like to see Statute Law quite differently drafted, it may be taken as some reflection on our present 956 draftsmen, whose skill I am sure we all admire.
As to Scotland and the other point raised by the noble and learned Lord, Lord Reid, regarding the Sale of Goods Bill and why alterations in the Sale of Goods Act were not put into that Bill I would say that the reason is that the Sale of Goods Bill is a Private Member's Bill. Therefore it was not possible for the Government to put anything into it. The position as to Scotland, as I understand it, is that Scottish law or the subject of misrepresentation is different from English law and that those provisions of the Bill which relate solely to mirepresentation could not conveniently be applied to Scotland. The Sale of Goods Act is an Act which applies to Scotland as well as to England, and therefore, of course, it was necessary to apply in to Scotland so far as that Act is concerned.
I can assure both the noble and learned Lord, Lord Reid, and the noble and learned Lord, Lord Wilberforce, that anything done in the passing of this Bill will not prejudice the work of the Law Commission, in this field. The Law Commission is considering the codification of the whole of the law of contract I appreciate that, in a sense, part of this Bill may be said to be part of that, but that is a very large task which I think is likely to take two or three years. The Scottish Law Commission is also, quite independently, engaged in the codification of Scottish law of contract, and the two Commissions, I know, have already considered together how far it is really necessary, in a small country like Britain to have two entirely different codes of contract law, according to whether you happen to live in the South or the North. Whether it will be possible completely to assimilate the contract laws of England and Scotland I' do not know, but I understand that this is a point which both Commissions have very much in mind. A number of other points were raised by the noble and learned Lord, Lord Reid, which he said were Committee points. They will be borne carefully in mind before the Committee stage of the Bill.
I am sure that in all parts of the House we are grateful to noble and learned Lords for the obvious thought which they have given to the Bill and 957 for the observations which they have made, even those which may seen critical of it. The noble and learned Lord, Lord Denning, gave us, if I may say so, his blessing, and we appreciate hearing from him just the sort of cases with which the Bill is intended to deal.
It was a great pleasure to me personally to hear the observations of the noble and learned Lord, Lord Upjohn. I can assure him that whether or not anybody else has heard him before, I personally have not. His knowledge of the subject, and particularly of contracts relating to the sale of land, is such that it has been of the greatest advantage to us to have the benefit of his opinions. I will take carefully into account before the Committee stage all the points which he made. Each in turn obviously demands careful consideration which each will get.
The reason why I am particularly delighted to have had the comments and thoughts of noble and learned Lords is precisely because of their value. They will not expect me to say off-hand whether any of the proposed alterations they have in mind will be given effect to. For my part, I am still in some doubt whether contracts relating to land should be excluded or not. I think, speaking from memory, that two noble and learned Lords thought they should, and two thought not. But I will think carefully over what is to be said on that subject on both sides.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.