COMMONS AMENDMENT (Hansard, 27 July 1967)

§ LORD HUGHES
My Lords, with Amendment No. 37 I wish to associate Amendments 79, 80 and 127. The substantive Amendments are Amendments 79 and 80. Amendment No. 79 extends the provisions under Clause 24 to the spouses and the children of directors. Clause 24 prohibits a director of a company from buying an option on the shares or debentures of his company or of any other body corporate which is a subsidiary of the company or the holding company of the company or a subsidiary of the company's holding company. This clause extends the prohibition so that it also applies to the spouse of a director and to a director's infant children. For example, the wife of a director is prohibited from buying an option on the shares of the company of which her husband is a director.
Subsection (1) states that Clause 24 shall apply to the spouse or infant child of a director as it applies to the director. It is a defence for a person charged with an offence under Clause 24 as applied to prove that he did not know that his spouse or parent was a director of the company in question. Subsection (2) includes step-children and adopted children. Subsection (2) of Clause 24 states that a person in accordance with whose directions or instructions the directors of a company are accustomed to act shall, for the purposes of the clause, be deemed to be a director of the company. Such 1185 a person is also deemed to be director for the purpose of this clause. My Lords, I beg to move Amendment No. 37.

§ LORD DRUMALBYN
My Lords, I understand we are discussing these Amendments en bloc. Of course we have no observations on Amendment No. 37; but I think we ought not to part with Amendments Nos. 79 and 80 without some discussion.

§ LORD HUGHES
My Lords, I deliberately did not say anything about Amendment No. 80, which is of course associated but is slightly different. Noble Lords may think that I should speak at this time to Amendment No. 80, and they may wish to take these Amendments together. I will adopt whichever course is convenient to your Lordships.

§ LORD DRUMALBYN
My Lords, I think it would be better to take Amendment No. 80 when we come to it, in order that we do not get confused between these two clauses. The point here is that the spouse or child in whose name an option is taken is deemed to be, or will be, guilty of an offence unless that person can prove that he or she had no reason to believe that, in this case, the husband or the father had been or was a director of the company. Surely this cannot be adequate.
We are totally in sympathy with the purpose of this clause to avoid evasion. In fact, one wonders whether it goes far enough. But surely if a person is going to be charged with an offence, that person must have knowledge of that offence. It is quite wrong to say that somebody has constructive knowledge merely because, let us say, the wife knows that her husband is a director of a company. Wives do not know all the things that directors or their husbands do in companies. Why should they know this particular thing? If the director takes an option in his wife's name, how can she possibly know about it? And why should she be convicted of an offence unless she does have knowledge that this has happened? I am not sure that this is satisfactory. I should be grateful if the noble Lord could give us a further explanation.

§ LORD HUGHES
My Lords, I think the point which the noble Lord has raised is perfectly understandable. But we must not assume that in every case where there is reason to suspect that something wrong has been done, it will necessarily go to the courts. The cases where it will go to the courts are obviously those where there appear to be reasonable grounds for believing that an offence has taken place. So we must, in the first instance, accept as common sense that the obviously innocent cases will never get near the courts; and we must accept that there are obviously cases where this offence could be committed in innocence and where, therefore, it is a complete defence that the wife or child did not know that the husband or father was a director of the company.
Take the case of a child. It might be that, notwithstanding what I have said, a case reaches the courts and the argument is put forward that the child or the wife was in fact an innocent party—this is the more serious of the points which the noble Lord raises. I should like to point out that, particularly in relation to the child, in practice, where the offence by an innocent child had been procured by his father, the father would be charged as an accessory and the court would obviously be in the position to assess quite clearly that the guilt rested with the father as the accessory, and not with the child who had been innocently procured to do this.
The noble Lord said that there could be a case for extending this provision. In fact, in another place it was suggested: why stop at a wife or child? Why not a brother, a mother, a father, a cousin?—going through the whole range of relatives. Obviously, there is a distinction between a wife or child, on the one hand, and a brother on the other. It is a fairly narrow line to draw but the links in a family between a husband and wife, on the one hand, and between a father and his children (and, remember, they have to be under the age of 21) are normally closer than they would be with other members of the family; and it seemed to be a reasonable point at which to draw the line.
I hesitate, when such a term as "ex cathedrâ" has been applied to the words of the President of the Board of Trade to quote him again, but I think that 1187 either he or the Minister of State at the Board of Trade said on this subject, quoting, perhaps appropriately, from the lines of a hymn:
One step enough for me".

§ LORD CHORLEY
My Lords, perhaps I may add a word to what my noble friend has said. Anybody who has had any practical experience of the administration of the law, not only in respect of companies but in other branches, knows perfectly well that it is one of the most common dodges of the unscrupulous person, whether a company director or a businessman who is getting near to bankruptcy, to put shares or other property into the name of his wife or of his children. The advantage of that from the point of view of the fraudulent man is obvious and clear, as is the obvious disadvantage to the community, and particularly to the people who are doing business with that company or with that man as a partner or as a private businessman.
But when the matter comes to be threshed out in a court of law, the task of proving that the wife is cognisant of this is difficult, and the same applies in regard to the children. This is not peculiar to company law. There are numbers of cases where the normal rule that a person who affirms must prove do not hold in English law, because of the considerable practical difficulty of laying down any such rules. I suppose one of the commonest examples is that of a man who is charged with receiving stolen goods, well knowing them to have been stolen. It is difficult to prove affirmatively that a man found in possession of stolen goods knew at the time when he got them that they had been stolen. The simple method is to put on him the job of proving to the jury, or of satisfying the jury, that he was an innocent holder of the goods. It is obviously common sense, and has been the law of England for a long time. Surely, then, this is one exemplification of that quite commonsense rule. In a case such as this, the wife or the child is obviously the person who should satisfy the judge or the official in charge of the investigation that she or he did not know the actual facts of the matter. That should be quite easy and is the common sense of the matter.

§ LORD ERROLL OF HALE
For once I agree with the noble Lord, Lord Chorley. The whole crux of the matter is that if a man is seeking to evade knowledge of share transactions or putting the shares into the hands of the spouse or child, what matters is whether the spouse or child knows that the shares are being so put in their names. It is the same principle as receiving stolen goods, well knowing them to have been stolen. What is so faulty in the present situation is that the spouse or child is to be found guilty, even when the spouse or child has no knowledge of the fact that they have received shares for the purpose of evasion of this sort. That is what is wrong, and that is where the legislation does not go far enough and is not competent. I would urge noble Lords opposite, in considering their next Companies Bill, to pay particular heed to the noble Lord, Lord Chorley, and also to what was said by my noble friend, Lord Drumalbyn.