§ 3.36 p.m.
§ Report of Amendments received.
§ Clause 2 [No authorisation for insurance company under control et cetera of unfit persons]:
THE LORD CHANCELLOR moved Amendment No. 1:
Page 2, line 14, after ("any") insert ("director,").
§ The noble and learned Lord said: My Lords, I rise to move on behalf of my noble friend the first Amendment standing in his name. In doing so I should like to speak also to Amendments Nos. 2, 28, 31 to 34, 41, 42 and 50, although of course they will be separately moved. It would be convenient if I might also speak to some extent on the subject matter of the Amendment to be moved by my noble friend Lord Aldington, which is Amendment No. 3, because it is closely aligned to the subject matter of the Amendments which I am speaking to now, although I do not wish in any way to preclude my noble friend from either moving or speaking to the Amendment when the time comes.
§ When this matter was discussed in Committee, the Committee expressed anxiety on a number of different points. I undertook to report these points to my right honourable friend Sir Geoffrey Howe and, in addition, I know that my right honourable friend has had conversations with several of the noble Lords who took part in that debate. It is the fact that my noble friend Lord Limerick and I have had other conversations. As a result, both my noble friend and I, and Sir Geoffrey Howe, have considered carefully all that has been said, both in public and private, and the series of the Amendments, the first of which I now 871 propose, is the result. They require explanation since they are expertly drawn, which means that they would be wholly unintelligible if they were not explained in ordinary language.
§ I hope that the House will feel when I have explained the purpose and effect of the Amendments both that the Governments have gone a long way to meet the criticisms which were made on Committee, and, where we have not done so to the full extent, we have had good reason for the attitude which we have decided to adopt.
§ Before I deal with the major matters which occupied the attention of the House when in Committee, may I say we have taken careful note of the criticisms coming from the Opposition, and others, about the drafting of Clause 11. Apart from the Amendments of substance, we have decided to substitute the word "desirable" for the word "expedient" where it occurs in subsection (1) and subsection (3) and, as part of a rather more substantial package (which it may be desirable to explain in greater detail when we come to it), to restrict the operation of subsection (4) to ten years, but on condition that the enabling power can be exercised art any time in the first five years of the company's life.
§ But it was with the problems of natural justice that the Committee was most exercised in earlier debates. Starting again with the smaller matters first, we have taken to heart the criticisms directed at the definition of the word "controller" in subsection (2) of Clause 2, and have decided to remove what I believe was called the lone director from the definition. The effect of this involves first of all that a mere change of director, other than the managing director, will not require prior approval under Clause 32. Secondly, it will relieve any company whose individual directors only change from the ambit of Clause 11(1)(f) which enables the powers provided in the subsequent clauses to be exercised on the ground that there has been a change of control.
§ The third consequence of altering the definition of "controller" in the direction which I have explained is that we have decided to put in subsection (1) of Clause 2 individual members of the board 872 so that they remain within the ambit of that subsection and therefore Section 61 of the principal Act of 1967, which affects the entrance of new corporations into the insurance field. But the director of a holding company other than a managing director will no longer come under scrutiny.
§ Passing from that relatively minor but I fear rather complicated matter, by far the most serious criticism, to my mind, was directed to the changes in the law contained in Clause 21(3) and Clause 22(3) of the Bill as drafted which, if passed as they are drafted, would exonerate the Secretary of State from giving particulars of unfitness to a company or a person where a person's fitness is in question when a question arises as to the use of powers under Section 12 et al by the Secretary of State. Under the law as it stands, that is to say under the law as enacted by the Companies Act, 1967, the Secretary of State is under an obligation to give such particulars, but by the two subsections I have named it was proposed, under the Bill as it is drafted before your Lordships, that he should be relieved of the obligation to give such particulars. This gave rise to criticism from noble Lords in all parts of the House that it was contrary to natural justice. It was argued that the individual or company affected could not know what case he had to meet if he were not given the particulars, and that to this extent the omission to give particulars stultified the right which was given to make representations, since without knowledge of what was alleged it was impossible to aim the representations and to define the target.
§ I am happy to tell the House that my right honourable friend has taken these criticisms to heart and has decided to revert to the status quo under which the particulars have to be granted—the status quo, that is, under the Act of 1967. And indeed to show that he is dealing with the question in no niggardly spirit he has gone a little further than this and in the case of those who are not executive officers (that is mere directors as well as officers) he has decided to confer an additional privilege; namely, the right to receive a notice of one month and to make representations to the Secretary of State before any notice of intention is given by the Secretary of State to his 873 employing company, and to apply that procedure not only when the action contemplated is a restriction order under Clause 12 but in addition when any exercise of the less lethal powers is in question on his account.
§ Only on one point of substance has my right honourable friend felt that he should stand firm, and here on reflection I hope the House may support him, as in our opinion much, if not most, of what is valuable in the Bill might otherwise be lost or at least jeopardised. At present as the law stands, that is under Section 61 of the Companies Act 1967, a company which is a new entrant to the insurance business has to satisfy the Secretary of State (among other things) that its directors, controllers and managers are fit and proper persons to be associated with an insurance company. If it appears to the Secretary of State that they are not fit and proper persons the company is not authorised to carry on an insurance business. That is the law as it stands. It is the law as it was enacted by our predecessors, the Labour Administration; it is the law which was considered by the previous Parliament to be essential after the Savundra scandal, and my right honourable friend regards it as essential that this provision should be maintained. Therefore he has re-enacted the existing provisions of Section 61 in Clause 2 of the present Bill, and he repeats them in Clause 32, which in his view raises the same point of principle as Clause 2 raises, because it applies the principles of Clause 2 not merely to a new entrant company—that is to say, a new corporation seeking to conduct business—but to those who enter the business by buying an existing company or buying themselves into an existing company.
So in the view of my right honourable friend and of the Government there is all the difference in the world between depriving an existing business, lawfully carrying on its trade and/or an existing individual lawfully carrying on his calling—between them and a new entrant, and this distinction was very clearly recognised by the noble and learned Lord the Master of the Rolls sitting judicially when he came to consider the activities of the Gaming Board in connection with giving authorisations to new entrants. I speak with feeling because I spoke in the House of Commons at the Committee stage of
the Bill when it was passing through, and I spoke before the Master of the Rolls when the case was being decided. It is not that the principles of natural justice differ from one place to another; it is simply that their application can be different. There are a great number of occupations—and I am happy to think that there are a great number of occupations—public and private, where before you can join in, whether you are self-employed or whether you are employed by somebody else, you have to satisfy the competent authority of your fitness from the point of view of skill, from the point of view of experience and from the point of view of moral reliability. In such cases the rule which applies—and I am here quoting from the Judgment of the Master of the Rolls in the case to which I referred—is that
They must give the applicant an opportunity of satisfying them of the [matters specified in the particular case]. But I do not think they need quote chapter and verse against him as if they were dismissing him from an office or depriving him of his property. They are simply inquiring into his capability and diligence and having regard to his character, reputation and financial standing. They are there to protect the public interest; to see that people running the gaming clubs"—
in that case—
are fit to be trusted.
§ It is of course the general law of this country that a person may engage in a lawful occupation without any prior authority from anybody, but as I have said there are many exceptions to this. One cannot become a solicitor or a barrister without satisfying the appropriate authorities, both of one's competence and of one's skill. The same, I am told, is true of members of Lloyd's; the same is true of, I think almost all, if not all, the great professions; it is true of the London Stock Exchange; it is true of the licensees of public houses. It is not here a case of being innocent unless and until you are proved guilty; it is a case of positively establishing your reliability and suitability, owing to the inherent nature of the insurance business, and I am sorry to say that recent experience of insurance scandals has established this beyond a peradventure.
§ Take, for instance, the life insurance business. The business of insuring people's lives is almost like having a Trustee Savings Bank, in which relatively poor 875 people put their money against old age, against sickness or against their own decease. The company which takes that money has to be as sound as the Trustee Savings Bank is sound; not in the same sense as the manufacturer of pots and pans is sound. It must be sound over a period of twenty years and not simply sound over a period of six months. And I would think that this is no ordinary responsibility. Or take the case of general insurance. Let us take, for instance, the ordinary motor car or fire insurance risks. That insurance lends itself, as we have learned to our cost, very easily to fraud or to doubtful practices. Premiums are paid at once. They are paid in advance. Claims on the other hand fructify and must be settled only over quite a long period of succeeding years. It is fatally easy to put premiums low, too low, in order to attract the business. The claims do not come in and the money is there, but premiums do come in and the money in unscruplous hands can be siphoned off through devious channels to Lichtenstein or to other places. We know that this sort of thing has happened in the past. I need name no names and I need thereby incur no pack drill. But all of us have startling recollections of recent scandals.
§ Thirdly, it is much more difficult to discern from the outside whether a particular ship has sprung a leak or not. The total liabilities are hard to ascertain because they are at the best, contingent, and in many cases, disputed. The assets are visible and for a long time may appear solidly respectable or, better, still, even liquid. All these factors have created scandals in recent years both here and elsewhere, and they have led to special legislation in almost every country in the world. For those reasons my right honourable friend has put forward the present group of Amendments as a kind of package. Taken as a whole I hope they show that he has taken to heart, and sincerely taken to heart, and that the Government have sincerely taken to heart, the criticisms made of the Bill as drafted in Committee. We have altogether resiled from the position that a person can have his existing livelihood put in peril without a chance of answering a specific charge. We have proposed numerous other improvements of one sort or another but we adhere to the view, to which the 876 last Government were also committed and which is enshrined in the existing law, that new entrants must establish their bona fides and suitability.
§ I hope that this Bill, which is a genuine attempt to meet the views of the Committee without compromising the essential safeguards to the public, will meet with the approval of the House and with that in mind I beg to move Amendment No. 1 standing in the name of my noble friend.
§ THE EARL OF ONSLOW
My Lords, I am almost sure I am out of order, for which I apologise, but before the noble and learned Lord sits down, would he like to elucidate to the House what percentage of motor claims and fire claims have failed to be met by fraudulent companies? Because he gave the impression that there was a very large percentage of fraudulent claims arising.
§ THE LORD CHANCELLOR
My Lords, I certainly did not intend to give that impression. I only said that I would name no names and incur no pack drill. Certainly as a percentage of the whole they are a tiny percentage. People would very soon not tolerate that kind of thing. But there have been scandals resulting in judicial inquiries, and sometimes in prosecutions, and it was those very small numbers that I was referring to.
§ 3.54 p.m.
§ LORD STOW HILL
My Lords, I was one of the Members of your Lordships' House who sought to raise the criticisms which the noble and learned Lord referred to in his speech. May I at the outset thank him and his colleagues in the Government most sincerely for obviously giving the difficulties that we felt in raising those criticisms the most careful attention. May I also thank him for explaining with such clarity and so comprehensively the conclusions which he and his colleagues finally arrived at after considering the arguments that were put forward in your Lordships' House. I most sincerely thank him and his colleagues for having gone as far as they have. They have gone a very considerable distance. Having said that, I hope that I shall not be thought to be ungrateful if I, in a moment or so, proffer considerations to your Lordships' attention which at any rate lead me to the conclusion—and I 877 can only speak for myself—that the Government should have gone a little further than they have.
In developing my argument may I try again to crystallise the differences as they seem to me and as they emerge after the changes which the Government propose in these Amendments. The noble and learned Lord explained that the principle on which the Government have addressed themselves to this matter is that there is a radical distinction between the situation of a person who is already engaged in a particular vocation, profession, calling, or business undertaking, on the one side, and a person who has not yet entered it on the other and whose living therefore is not put at jeopardy if, for some reason or other, he is prevented from carrying on in the field of activity which he has chosen. May I say at once that obviously that is a most important consideration and the distinction is a very real one.
Having said that, may I nevertheless look at the field of activity which is not covered by the Amendments which the noble and learned Lord has proposed. He referred to Clause 2 and to Clause 32. Those two clauses are not affected by the changes, as he explained to us extremely clearly, and of course he gave his reasons. I would submit to your Lordships that the Government should have included new entrants under Clause 2 and new entrants under Clause 32. In practice, if I understand the effect of the Amendments correctly, so far as Clause 2 is concerned, its scope is considerably widened by the Amendment which seeks to insert into the clause the simple "director". I do not know whether I have it right or wrong?
§ THE LORD CHANCELLOR
My Lords, may I just say to the noble and learned Lord that I think he is mistaken about that. The insertion of the simple "director" in Clause 2 does not add to the meaning of Clause 2 as at present drafted, but if it were not inserted the change of definition in one of the later subsections, which leaves out the simple "director" from the definition of "controller", would restrict the operation of Clause 2 as at present drafted. It is to preserve the status quo after the amended definition that that new change is made.
§ LORD STOW HILL
My Lords, I am most grateful to the noble and learned Lord for what he has said. I had read it, and no doubt wrongly, as meaning that under the provisions of Clause 2 the Secretary of State could refuse to give a certificate enabling the company to begin business not merely if a controller or manager was in his opinion not a fit and proper person, but also if a simple director was not in his opinion a fit and proper person.
§ THE LORD CHANCELLOR
My Lords, the noble Lord is quite right about that, but what he is not so right about is in thinking that that is a change. That is a maintenance of the status quo. Under the old definition of "controller", the simple "director" was included. As we have changed the definition of "controller" to leave out the simple "director" we have had to specify him in subsection (1) to keep him in.
§ LORD STOW HILL
My Lords, I am much obliged. I quite see that. Therefore, the scope of the clause, I think I am right in saying in view of what the noble and learned Lord has said, is that the Secretary of State can say, "No certificate, because a simple director is in my opinion not a fit and proper person". That is the way I read it and I understand the noble and learned Lord agrees with me on that. I do not think that it would be taking up your Lordships' time to any useful purpose if I simply sought to restate the argument which I ventured to advance on the Committee stage of the Bill and which led me to the view that that was the clause which really required amendment. Your Lordships are in possession of that argument. I think it goes too far.
I make the same observation with regard to Clause 32. Again in the case of Clause 32 the Secretary of State does not have to give any grounds. The noble and learned Lord and his colleagues have explained perfectly clearly, in relation both to Clause 2 and to Clause 32, why they have left them out of the scope of these changes. I quite understand the explanation; it is a question of balancing the considerations on one side and the other. Should one give reasons to a person who has not yet entered and who wants to enter, or to a person whose presence is considered an obstacle to the 879 granting of a certificate? That is the sort of question. I feel that reasons ought to be given. I accept at once that the 1967 Act does not require that reasons should be given in that sort of situation. I think it was drafted on a mistaken principle in that respect. I am as much guilty as anyone else in not having sought to raise it at the appropriate occasion, but I did not.
The reason I would venture to proffer for your Lordships consideration—I hope I am not too repetitive—is simply this: to be told that one's presence as a director, controller, or manager of an insurance company is so objectionable that the company cannot be allowed to trade if one is associated with it, means, so I would submit to the House, that one is virtually converted into a pariah; one is beyond the pale. Again I apologise for repeating myself. Certainly that fact will become known. I should have thought it was a very serious thing for anybody to find himself in that situation. The noble and learned Lord pointed out, I thought with great force, that when you are entering other professions, for example, the Bar, the solicitors' profession and a number of others, roughly speaking the same situation obtains. With great respect, I do not think that the situation is parallel. You are there dealing with young men who are not, as it were, in the full flight of their careers. When you are considering the controller, director or manager of an insurance company, or the prospective controller, director or manager, you are considering somebody who is probably in the full flight of his career, who has probably had years in the field of commercial and industrial undertakings before he ever reaches the situation in which he might be considered for such a position. You are saying with regard to a man of that sort, "Stop! You are so undesirable that your presence is not to be tolerated".
I would submit that that is a distinction in principle from the case of a young man of 22 or 23 who wants to enter a profession. It is extremely hard on him, but in some bodies, at any rate, he has an opportunity of having his case considered by a large number of members of the profession. The noble and learned Lord will know the kind of arrangements to which I refer. I there- 880 fore simply round up that part of my argument by saying that, while I thank the noble and learned Lord very sincerely for going as far as he has gone, I wish he had felt able to go that degree further.
The other matter I would seek to raise in this context—I hope relevantly—is the question of appeal. When we were discussing this matter on the Committee stage of our proceedings your Lordships had under consideration an Amendment which would have provided an appeal to a Judge, who might hear the matter in chambers—a Judge of the High Court. There might be difficulties about that. Speaking for myself—and I can speak only for myself—I should feel much happier if there were some appeal, perhaps not to a Judge in chambers but to some committee. Speaking for myself again, I would go so far as to say that, having regard to the special situation with which one is dealing, having regard to the considerations mentioned by the noble and learned Lord that one is, after all, dealing with organisations which have the fate and happiness of large numbers of people in custody, I personally should be perfectly content if the onus of showing that he was a fit and proper person—on the hearing of an appeal, say, to a tribunal—were placed on the applicant, or the appellant I suppose one should say. I should be content if the position were that, the Secretary of State having said, "You are not a fit and proper person", and having given reasons for so saying, the appellant could go to a tribunal and have to shoulder the onus of showing that, contrary to the view formulated by the Secretary of State, he was a person who could properly be associated with an insurance company.
We all have the same objective here, and I accept entirely the purpose behind the arrangements which the Government have embodied in this Bill and which were embodied in the 1967 Act. There is no difference between us on that. We should probably all think that if a man is a rascal he deserves what he gets. But the anxiety that other noble Lords and I felt when we raised our criticisms was for the individual who did not deserve to be so stigmatised. Occasionally there may be a mistake of identity; and there may be many cases—I do not know how 881 many and I do not know what proportion they would be—in which the interpretation put upon their conduct is unfair to them, in which it was thought they had behaved in a way which was disreputable and which rendered them unreliable, whereas if the full facts were known and the individual were enabled to state his side of the case he might show that it was unfair to him. It is that sort of person that, personally speaking, I have in mind. We are embarking on a rather dangerous course if we do not provide for some outside hearing, outside the walls of the Department, in order to safeguard against what is really, in terms of our thinking in our community, a disaster, namely, the infliction of an injustice. It is a thing which we cordially detest and which we have always gone a long way to try to avoid.
Those are the reasons which impel me to say to the noble and learned Lord a very sincere "Thank you" for going as far as he has gone, and another sincere "Thank you" for having considered as carefully as he has the representations made, both in the debate and subsequently to him personally. He has taken a great deal of trouble, and for that I am personally sincerely grateful to him. I can only say that I wish he had been able to go further. I certainly would not seek to oppose the Amendment he has moved or those associated with it. I am most grateful to him, but wish he could have gone further.