UNFAIR CONTRACT TERMS BILL

HL Deb 04 July 1977 vol 385 cc12-80

2.56 p.m.

Report received.

Clause 1 [Scope of Part I]:

Lord JACQUES moved Amendment No. 1: Page 2, line 1, leave out from beginning to ("subject") in line 2 and insert—

("(2) This Part of this Act is subject to Part III; and in relation to contracts, the operation of sections 2 to 4 and 7 is")

The noble Lord said: My Lords, Part III of the Bill contains various provisions exempting certain types of contract from the controls in Parts I and II. This Amendment makes it clear that the provisions of Part I are subject to the provisions of Part III. An Amendment making a similar provision for Part II was introduced by my noble and learned friend Lord McCluskey during the Committee stage, and was accepted by your Lordships. I beg to move.

On Question, Amendment agreed to.

Clause 2 [Negligence liability]:

Lord JACQUES moved Amendment No. 2: Page 2, line 26, leave out from ("notice") to ("a") in line 28 and insert ("purports to exclude or restrict liability for negligence")

The noble Lord said: My Lords, this is a drafting Amendment. If noble Lords wish for details, I shall be glad to supply them. I beg to move.

On Question, Amendment agreed to.

Clause 4 [Unreasonable indemnity clauses]:

Lord JACQUES moved Amendment No. 3:

Page 3, line 13, leave out subsection (2) and insert— ("(2) This section applies whether the liability in question—

1. (a) is directly that of the person to be indemnified or is incurred by him vicariously;
2. (b) is to the person dealing as consumer or to someone else")

The noble Lord said: My Lords, during the Committee stage a Government Amendment deleted the words "his own" from Clause 4 as being unnecessary and likely to cast doubt upon the meaning of the clause. The noble and learned Lord, Lord Hailsham, questioned whether the amended wording of Clause 4 made it quite clear that the negligence referred to was that for which the person in question was himself responsible, whether directly or vicariously. On reflection, it seemed to us that the wording was not wholly clear. The present Amendment has therefore been tabled for the avoidance of doubt. In addition, the noble Lord, Lord Lyell, indicated that he thought that subsection (2) was not clear. This Amendment, as well as dealing with the point made by the noble and learned Lord, Lord Hailsham, also clarifies the subsection. I beg to move.

Lord LYELL

My Lords, I should like to begin this afternoon's proceedings from these Benches by thanking the noble Lord, Lord Jacques, for his very brief and swift clarification of the points which we raised at an earlier stage. He is satisfied, so are we, and we should like to thank him.

Lord AIREDALE

My Lords, perhaps this is the moment at which I should speak to my Amendment No. 4, because my Amendment is an attempt to redraft the Amendment which is now being discussed. It is a drafting point, really. In the Amendment which is now being discussed, your Lordships will see that there is no word connecting paragraphs (a) and (b). I should have thought that it would be better drafting to have the subsection read as in the next Amendment, No. 4, which enables a connecting word to be inserted between paragraphs (a) and (b), so as to make the new subsection flow.

Lord JACQUES

My Lords, the noble Lord, Lord Airedale, has really changed his role in this House. His role is normally to have words deleted because they are not necessary. Here he wants to put words in; and, I might add, they are not necessary. In that sense, he is doing exactly the opposite to what he usually does. We are confident that our Amendment is perfectly clear, and we prefer it because it is shorter. The noble Lord very often takes that view.

On Question, Amendment agreed to.

Lord AIREDALE had given Notice of his intention to move Amendment No 4:

Page 3, line 13, leave out subsection (2) and insert— ("(2) This section applies—

1. (a) whether the liability in question is directly that of the person to be indemnified or is incurred by him vicariously; and
2. (b) whether the liability in question is to the person dealing as consumer or to someone else.")

The noble Lord said: My Lords, after those fierce words from the noble Lord, Lord Jacques, I dare not move this Amendment.

Clause 5 ["Guarantee" of consumer goods]:

Lord JACQUES moved Amendment No. 5: Page 3, line 23, after first ("by") insert ("reference to").

The noble Lord said: My Lords, may I say that I would only use those words to a friend; I dare not use them to anyone else. This is a purely drafting Amendment bringing Clause 5 into line with the rest of Part I of the Bill. I beg to move.

On Question, Amendment agreed to.

Clause 7 [Miscellaneous contracts under which goods pass]:

Lord JACQUES moved Amendment No. 6: Page 4, line 23, leave out ("and (3)") and insert ("to (3A)").

The noble Lord said: My Lords, I hope that it may be to the convenience of the House that I speak to Amendment No. 7 in moving Amendment No. 6. At the Committee stage the noble Lord, Lord Lyell, made what I described as a gallant attempt to rephrase this subsection so as to get clarification. Unfortunately, I had to indicate to him that his Amendment was defective. I now produce an Amendment which achieves the purpose which the noble Lord had in mind and which, I hope, is not defective. I beg to move.

Lord LYELL

My Lords, we are very happy that the noble Lord, Lord Jacques, is being entirely consistent. He is removing inconsistencies and curing defects that we introduced into his Bill. We made an honest and gallant attempt to improve the Bill and our attempt has been crowned with success. We thank him for it.

On Question, Amendment agreed to.

Lord JACQUES moved Amendment No. 7:

Page 4, line 31, leave out subsection (3) and insert— (3) As against a person dealing otherwise than as consumer, that liability can be excluded or restricted by reference to such a term, but only in so far as the term satisfies the requirement of reasonableness. (3A) Liability in respect of—

1. (a) the right to transfer ownership of the goods, or give possession; or
2. (b) the assurance of quiet possession to a person taking goods in pursuance of the contract,

cannot be excluded or restricted by reference to any such term except in so far as the term satisfies the requirement of reasonableness".

On Question, Amendment agreed to.

Clause 8 [Misrepresentation]:

The Earl of SELKIRK moved Amendment No. 8: Page 5, line 16, leave out from ("1977") to end of line 17.

The noble Earl said: My Lords, this Amendment is an Amendment to a clause brought in from an entirely different Act of Parliament, the Misrepresentation Act 1967. This deals with innocent misrepresentation and not with fraud at all. It makes any restrictive practice in the clause, such as an error, subject to Clause 10, which is the reasonableness clause. This seems to be quite sensible; but it goes further than that. It changes the onus of proof on a different Act of Parliament in order to gain consistency with this Act of Parliament.

We had a long discussion on this Bill last time, but we did not really deal with this clause at all. We dealt with the main clauses, two other clauses, dealing with the question of onus of proof. Under this, "contract" applies to every kind of contract, so far as I can see, and is not in any way limited by Schedule 1. That is my interpretation. It is a different Act of Parliament.

Mr. Fraser, the Minister of Consumer Protection, says that any changes in the onus of proof should be backed with overwhelming and convincing arguments. In this case there was none. There was only one argument, and that was consistency with the Bill which we are discussing. This Bill is a separate Bill and it does not really deal at all with the main issue of the Bill on unfair contracts which we are discussing. It does not affect any other part of the Bill at all. What I do think is unwise is that purely on the grounds of consistency we should change another Act without considering the content of that Act at all. I do not know whether changing the onus of proof alters any other part of the Misrepresentation Act. I am not sure. I find it hard to believe it does not have some effect. I do not know how it is worked. It does not apply to Scotland, but I think it unwise to change a clause in another Act purely for consistency in the existing Bill.

There was no argument about consistency particularly which makes it desirable. It has no bearing on the standard of practice. I should have thought it very much better to leave out these words and let the normal procedures go ahead. I do not think it matters very much, because if anyone wants to bring forward a case—a case where someone has received some error of information not in the contract but in some letters or some conversation beforehand—he will have to go to court and explain, in the first place, what is the information he has received and why he thinks it affects him fundamentally. He must do this in any case. He must make something which may be called a plausible case. I do not think it makes much difference; but if a decision here is going to be regarded as binding on other parts of the Act, I would object to it being included. I think it unnecessary to put it here. It will not affect anybody else and I think that changing one Act on the grounds of consistency with another is wholly wrong. I ask the House to leave out these words which change the onus of proof in the Misrepresentation Act 1967. I beg to move.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, it may be that the noble and learned Lord is about to do what I am now going to ask him to do. It may be that I am pushing at an open door. In my simplicity, I had thought that this was just one of the onus of proof Amendments which my noble friend is putting forward, but it was clear from the way he put his case that this is not so. Therefore, I hope that the noble and learned Lord will tell us exactly what is the argument for consistency before we part with the Amendment in one way or another.

The LORD CHANCELLOR

My Lords, I confess that I also thought and have assumed that this Amendment was directly interrelated with Amendments Nos. 12 and 33 and that it would enable us to deal with the general question of the onus of proof at one and the same time. I confess that that is the approach I have made to the consideration of Amendment No. 8 and I would think that that is a convenient course. Perhaps the noble Earl, Lord Selkirk, would indicate whether he is, so to speak, taking a stand on a question of principle and distinction between Amendment No. 8 and the others or whether he would not agree that it would be convenient for us to discuss the general principle at one and the same time while taking a decision upon them at the appropriate intervals.

The Earl of SELKIRK

I think that this case is totally different from the others and that the word, "consistency" seems to me to have no bearing on it whatsoever. However, if the noble and learned Lord wants to do so, I have no objection. If he has no argument to put on this, then will be please give me the Amendment?

The LORD CHANCELLOR

My Lords, my proposal in this regard is to leave the Bill as it is. There then will be a consistent provision in the Bill for putting the onus of proof on those who seek to rely on the exclusion term in the contract. If it would be convenient for me at this stage to explain why we should do so, I should be willing to embark on that at this moment. I suggest, with respect, that that is the better course. There is a history to this matter of the duty of the burden of proof in the context of the reasonableness test. The history of the matter is as follows. Perhaps I ought to explain what I have just been reminded about. The Bill as it stands now does not change the law and we see no reason for amendment of the 1967 Act. If I may, I will come back to the general matters I was dealing with. When we considered the question of the burden of proof of reasonableness in Committee, there were three alternatives before us: the Bill as it now is, with the burden of proof on the person who seeks to rely on the exclusion term; the Bill as it was when it was originally introduced, with the burden of proof on the person who seeks to upset the term; or an intermediate alternative, which was to have one burden of proof for consumer cases, and another for cases not involving consumers. That last suggestion, the so-called "split burden", attracted very little support in Committee. I submit that the House should now decide which of the first two alternatives should be applied. This is the view which the noble and learned Lord, Lord Hailsham of Saint Marylebone, took in Committee, and it is a view with which I agree.

The noble and learned Lord suggested in Committee that the right course for the House to pursue would be to decide on this question irrespective of Party politics and upon a free vote, and I agree with that because there is no dogma on any side on this matter. This would be convenient, as there has frankly been a certain amount of shifting of ground over the course of the Parliamentary passage—

The Earl of SELKIRK

My Lords, I do not want to interrupt the noble and learned Lord, but I moved a very limited Amendment. I have not spoken to the other Amendment. This being Report stage, I am inhibited from speaking more than once. I feel slightly embarrassed; I have not moved the Amendment to which the noble and learned Lord refers.

The LORD CHANCELLOR

My Lords, I do not want to embarrass the noble Earl. What I have said in reply to his limited submission on Amendment No. 8 is that the Bill as it stands does not change the law. If I may say so with respect, it is for the noble Earl to indicate why he wants to amend the 1967 Act.

The Earl of SELKIRK

My Lords, I do not want to press this; I have said I do not think that this is all that important except in so far as consistency is concerned. It is curious if the law is not being changed because that is exactly what happened in the other place; it was changed from one side to the other. It was changed from what I regard as the normal, ordinary procedure of law to the procedure which is not normal. If the noble and learned Lord feels that he wants to retain consistency, I must say that, if this is to be regarded as consistency, I object to it. However, I would rather take the argument on the main clause. This particular clause is not any part of the report of the Law Commissions of England and Scotland. It is something which is entirely separate and which has been imported into the Act. Therefore, many of the arguments in regard to this Amendment do not apply, though they will apply to the other Amendments. Therefore, I would rather take the argument on the Amendment which comes later than on this one.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, may I, with the leave of the House, make a suggestion? I had thought, and apparently the noble and learned Lord on the Woolsack had thought, that this simply involved the same point as the other Amendments. It was obvious to me from the way in which the Amendment was moved by my noble friend that he does not think that that is so, and that there is a separate point involved in the proposed text affecting the Misrepresentation Act 1967. I wholly agree with my noble friend that it would be much tidier if we decided the question of principle first, and that means postponing the discussion until we come to deal with the other Amendments. But perhaps the noble and learned Lord can tell us that he will look at this between now and Third Reading and, if there is a separate point, perhaps he will write to my noble friend and me indicating what the point is and how he views it. In the meantime, the House would be assisted in its business if my noble friend withdrew his Amendment at this stage without prejudice to what he may want to do on Third Reading.

The LORD CHANCELLOR

My Lords, I am very happy to follow the suggestion that the noble and learned Lord, Lord Hailsham of Saint Marylebone, has made. Indeed, I was about to make it before he so helpfully intervened. I hope that the noble Earl, Lord Selkirk, will be assured that he will not be prejudiced as regards the consideration of this point. If correspondence does not satisfy him, he can return to the matter on Third Reading. I should not want to embarrass him by giving an advance version of the opponent's view of the question of principle, and we look forward to hearing him in due course. In the meantime, if he sees fit to withdraw this Amendment, I shall be happy to proceed as has been suggested.

The Earl of SELKIRK

My Lords, I thank the noble and learned Lord the Lord Chancellor for what he has said. I am happy to withdraw the Amendment on the understanding that it does not prejudice any other decision to which the House may come at a later date. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The LORD CHANCELLOR

My Lords, Amendment No. 8 is withdrawn. Amendment No. 9 is in the name of the noble Lord, Lord Lyell.

Lord LYELL

My Lords, I shall certainly have something to say when the noble and learned Lord has spoken; but I think that it would be presumptuous for me to adopt the posture of the noble and learned Lord on the Woolsack at this stage in my career!

The LORD CHANCELLOR

My Lords, it is apparent that I have now moved into the "Department of Utter Confusion", from which I hope to escape at the earliest reasonable opportunity!

3.17 p.m.

The LORD CHANCELLOR moved Amendment No. 9:

After Clause 9, insert the following new clause:

Arbitration of differences (consumer dealings)

.—(1) As against a person dealing as consumer, an agreement to refer future differences to arbitration cannot be enforced except—

1. (a) with his written consent signified after differences have arisen; or
2. (b) where he has himself had recourse to arbitration in pursuance of the agreement.

(2) Subsection (1) does not affect—

1. (a) the enforcement of arbitration agreements to which section 1 of the Arbitration Act 1975 applies (that is, arbitration agreements other than "domestic" within the meaning of that section);
2. (b) the resolution of differences arising under any contract so far as it is, by virtue of section 1(2) and Schedule 1, excluded from the operation of sections 2, 3, 4 or 7.

The noble and learned Lord said: My Lords, this Amendment relates to arbitration and, when we were considering this matter in Committee, I gave notice that we were contemplating the introduction of an Amendment to Clause 12 so that any agreement requiring a consumer to submit future differences to arbitration would be unenforceable unless the consumer consented to arbitration. This is the proposal which is now before your Lordships. I asked for comments on the proposal, as indeed did the Minister of State for the Department of Prices and Consumer Protection some weeks ago in another place.

During the debate which we had here, the noble and learned Lords, Lord Hailsham of Saint Marylebone and Lord Denning, spoke warmly in support of arbitration and against the proposal. I acknowledge with respect their learning and experience; but I venture to question whether they are right on this matter. The fact is that the Amendment would not in any way interfere with the process of arbitration as such. It would not make arbitration more difficult to administer; it would not make it less available. Were it to do any of those things, I should not support it. I believe arbitration to be an excellent way of settling a dispute; indeed, in some cases, arbitration is the best way of settling a dispute. The reputation that British arbitration has is due in no small part to the standards set and upheld by the Institute of Arbitrators.

I should also like to make it plain that this Amendment will not in any way interfere with the arbitration machinery in the county courts which has been such a warmly welcomed feature of recent reforms in the administration of justice. What concerns me is not that a consumer may be offered arbitration, but that it might be forced upon him when, for whatever reason it might be, he would rather go to court and have the dispute settled in court. All the Amendment would do is to ensure that, when a dispute arises, a consumer will be free to choose to go to court or use the arbitration service offered.

The Director General of Fair Trading believes that, in many cases, arbitration is preferable to going to law; but, in codes of conduct negotiated by his office, the consumer always has the choice. Once the choice is made to use arbitration, of course the ordinary law on arbitration applies. I hope that your Lordships will agree that the consumer's right to go to court rather than to use arbitration is not something which ought to be taken away from him by a discreet clause in a contract. If arbitration is cheaper and easier than going to court in a given case would be, and if a consumer has faith in its impartiality, then he will choose it. But, until the dispute has arisen, he should not be forced to decide which he prefers. This Amendment, I submit, safeguards a fundamental freedom of choice without in any way undermining or interfering with the normal process of arbitration, and I invite your Lordships to accept it.

3.20 p.m.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, let me, first of all, make two points. The first is that this matter is, of course, absolutely non-Party. There is no possibility of whipping on this and if a Division were to take place it would be an absolutely free vote. In the second place, I should disclose an interest in that I am a Fellow of the Institute of Arbitrators, and not just an honorary Fellow but, at any rate theoretically, a practising one who pays a subscription. So I have a direct financial interest although it is a pretty unusual one.

Having said that, I am myself persuaded that this proposal is a retrograde step. May I say just a word by way of introduction. Arbitration has been introduced into this country very slowly and rather hesitantly because of the jealousy of the courts in preserving their jurisdiction and their doctrine that to exclude the jurisdiction of the courts is a contract against public policy. I am speaking, of course, of the law of England. I am not sure that I know exactly what the history of the law is in Scotland.

From 1889 onwards, arbitration has been compulsory in a slightly modified sense. If you agree to refer disputes to arbitration—future disputes or actual disputes—and then bring an action in the courts contrary to your agreement to refer to arbitration, the courts still have jurisdiction to entertain that action and they occasionally do so. But under the provisions of Section 4 of the 1889 Act, which has since been replaced by subsequent Statutes, and ever since, the courts stay the action pending the arbitration as a matter of common practice, because they have found in practice both that arbitration is convenient in many circumstances—which the noble and learned Lord has accepted to be the case—and also that people on the whole should be kept to their bargains, and where bargains are to refer to arbitration not less than in the case of other bargains.

Not only has that been the case, but subsequent commercial practice has been safeguarded expressly in the Amendment put by the noble and learned Lord, but none the less giving an indication of what international opinion is about the subject: that we have entered into a number of international commitments by Convention to make arbitration virtually compulsory where the parties have so agreed, without even the degree of discretion which our own domestic law has retained since 1889. So the tendency has been absolutely consistent, up to and including the moment at which I am speaking, to advance arbitration and to compel parties who have undertaken to submit their disputes, present or future, to arbitration, to abide by their decision.

There is, therefore, no absolute right to take things to court at the moment if you have agreed not to take them to court, and up to this moment that has been considered to be good public policy, either in domestic law, subject to the overall supervision of the court, or in so much of international law as the Conventions apply to, compulsorily and without the option. The noble and learned Lord, by a side wind, is now proposing to reverse the process on a limited class of contract. It is that which I describe as retrograde and retrogressive, since I believe that it is.

This Bill, which has had a fairly wide blessing during its passage through both Houses and particularly in your Lordships' House, does in fact protect consumers and others from the small print of clauses exempting suppliers of goods and services from the consequences of their negligence or breach of statutory duty. That is the purpose of this Bill and there is one clause—Clause 4, I think—which extends to clauses imposing an indemnity upon the user of goods and services so that they are also subject to the reasonableness test. But, at any rate prima facie, the agreement to refer future disputes to arbitration is not within the scope of what has hitherto been supposed to be the purview of this Bill at all. It came in rather later without, I think, adequate consideration from the Govern- ment, and is now on the Report stage in the second of the two Houses through which this Bill must pass, proposed to be inserted by the Lord Chancellor.

I am myself convinced that, although it is a matter of limited importance, this is a retrograde step. As the noble and learned Lord, Lord Denning, said in the Committee stage when this was first outlined in debate to us, we, as a country, give much less respect to arbitration than almost any other modern industrial, commercial country. This proposal would make us even further out of step than we already are. As I say, nobody can pretend there is the slightest scintilla of Party politics about this—I happen to be speaking from the Opposition Front Bench, but I might equally well be speaking from the Cross-Benches or from the Government Benches so far as the value of my argument is concerned—but, as at present advised, I must tell the House that I am opposed to this Amendment.

Viscount HANWORTH

My Lords, I rise to support this Amendment. The noble and learned Lord, Lord Hailsham, has said that he considers it to be a retrograde step but, with all due respect, I do not think he has really made a very strong argument as to why it might be. His argument, if I am correct, is simply to say that we ought to be more in line with Europe. There are a great number of things, of course, which are not in line with Europe—

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, with respect to the noble Viscount, my main argument was that people should be held to their bargains and, if they promise to do something, they should keep their promise unless there is good reason for not holding them to it.

Viscount HANWORTH

My Lords, I was not for one moment disputing that. What is happening, of course, is that they are in a contract, and they really do not have a choice at all. If you are going on a holiday, for example, you are made to sign a form and we all know it is not very easy to cross out certain terms: it is just not accepted.

I, for one, would think that arbitration in many cases is excellent, but we have a very good alternative which in certain cases favours the consumer even more.

There are 300 county courts which are able to operate the small claims procedure, and in certain cases that is cheaper. Moreover, it may be that arbitration occurs at some place far more distant than the county court would be, and there are cases of arbitration where there has to be documentary evidence. We all know there are a number of people who are not so good on paper, whereas if you go along to the county court you can get help with your case. You do not have to rely solely on the documents you produce. So what I am saying is that this Amendment is right. It leaves a choice to the consumer. I think that that is common sense and t he way that it ought to be.

Lord DARLING of HILLSBOROUGH

My Lords, I too should like to support the new clause. I agree with the noble and learned Lord, Lord Hailsham, that it would have been far better if there had been no reference to arbitration in the Bill. However, now that the reference to arbitration is in, I think we must look the facts in the face.

The new clause refers to persons dealing as consumers. In my view all the noble and learned Lord's argument would rightly be directed at an arbitration clause in a contract where the contract was between two traders or two manufacturers, hut not between manufacturers, traders and consumers. Many of the arbitration clauses which consumers sign—as my noble friend has just said—without fully realising the import of the arbitration clause, are denying those consumers the right kind of arbitration. They are accepting terms of arbitration which are, in fact, laid down for them by the traders' organisations. They themselves have had no part at all in drawing up the arbitration contract. In these circumstances, as the reference to arbitration is in the Bill I think that, in all fairness to the consumers and to the general public, it should be made perfectly clear that they have a right to refuse the arbitration terms that are laid down, if they wish, and go to the county court.

The argument that has just been put forward about convenience is most important. There are about 300 county courts in this country. I speak only for England and Wales again, but very few people are far away from a county court. Most of the arbitration cases that crop up in implied contracts between a trader and a customer involve the customer, if the matter goes to arbitration, in travelling to London, getting documentary evidence and doing a great deal of hard work without the help that he ought to receive—in cases like this, the kind of help that he receives from the registrar of a county court. Therefore, I sincerely hope in justice and equity that the House will agree to this new clause.

Lord HAWKE

My Lords, I support my noble friend as regards this matter. In the distant past I used to be involved in selling cargoes of cotton and wool et cetera and where there was an arbitration clause one naturally expected, if there were a dispute, to go to arbitration. Any other course, such as this Amendment would provide, would have enabled a slippery customer to avoid payment while a long protracted law suit took place. All these big commercial contracts on commodities and so on are done on extremely fine margins, and on the expectation that one will be paid immediately or else receive very quick justice from arbitrators who always know the subject. Quite frankly, in matters of that kind I should much prefer to put myself in the hands of arbitrators than the courts, because I think that one would be more certain to get justice as it is known to be done in the particular trade in which one is engaged.

Lord DRUMALBYN

My Lords, I certainly agree with what my noble friend Lord Hawke has said in the realm of business. However, the problem is that a consumer will see a reference to arbitration in a contract; he will not really know what it entails or involves, but will put his name to it. In these circumstances, it seems to me that, certainly unless the meaning of arbitration is spelt out in the contract, the Amendment which the noble and learned Lord has moved should apply. However, it may be that there should be an exception where exactly what is meant by arbitration is spelt out in the contract.

Lord JACQUES

My Lords, I should like to follow up what the noble Lord, Lord Drumalbyn, has said. The position is quite different between when it is a consumer contract and when it is a commercial contract. The Amendment deals only with consumer contracts. Let us consider for the moment its relevance to the Bill. The Bill is concerned with the small print terms which have reference to future liabilities such as negligence or breach of contract. One type of term found in small print is that all disputes in the future will be referred to arbitration. If it is relevant for the Bill to deal with the terms which are concerned with negligence and with breach, it is relevant for the Bill to deal with the terms that force upon the consumer arbitration as regards future disputes. The consumer view—it is pretty unanimous among the consumer organisations—is that at the time when the dispute arises the consumer should have the choice whether he goes to arbitration or to the court and should not have forced upon him something which has been in small print in a notice or a contract.

The LORD CHANCELLOR

My Lords, I think that it may well have been my fault that, in moving the Amendment, I did not explain sufficiently clearly its limited scope. It is limited, as has been said, to consumer agreements. It reads: As against a person dealing as consumer, an agreement to refer future differences to arbitration cannot be enforced except—

1. (a) with his written consent signified after differences have arisen; or
2. (b) where he has himself had recourse to arbitration in pursuance of the agreement".

I respectfully agree with the realistic way in which the noble Lord, Lord Drumalbyn, viewed the position of the consumer in this matter. In fact, for the consumer it would be in most cases a great advantage to go by way of arbitration in the county court, but with the right, if he wishes to do so, of course, to go to arbitration without the court arrangements.

The advantage of going by way of arbitration to the county court would be, as has been pointed out by my noble friend Lord Darling and, indeed, by the noble Viscount, Lord Hanworth, the excellent procedures which now exist for arbitration in the county court and which enable these disputes to be disposed of without the incurring of legal costs. If it went into ordinary county court proceedings outwith arbitration—strictly speaking, under the court arrangements—the consumer might well be entitled to legal aid to which he would not be entitled in arbitration proceedings. He would also be entitled to the economies of scales of costs in the county courts, which are relatively cheap.

The emphasis of the Bill, frankly, is to help and protect the consumer. I should have thought that it is reasonable that he should be able to decide not at the time of entering into the contract, when the arbitration provision itself may be part of the small print, but when a dispute or difference has arisen between him and the supplier. At that stage he should be free to elect what he wants to do. That I regard as a fundamental principle.

Contrary to the view of the noble and learned Lord, Lord Hailsham, I do not regard this as a retrograde step. On the contrary, it would be in keeping with the whole trend of the use of arbitration through, and under the aegis of, the courts which have already helped thousands of people and which I suspect the noble and learned Lord himself would wish to encourage. I hope that, in the light of this explanation and the speeches that have been made, the noble Lord, Lord Hawke, will now be satisfied that it does not except his worry about commercial contracts at all because it does not affect them. I hope that the noble and learned Lord, Lord Hailsham, in view of the weight of opinion —or at least the quantum of opinion—will be disposed to withdraw this Amendment.

Lord McCLUSKEY

Before the noble and learned Lord, Lord Hailsham, replies, I should like to point out that I think that there is no separate Scottish point. Noble Lords will see that Amendment No. 24, to which we shall come, introduces for Scotland a similar new clause. I shall be moving that Amendment formally when we come to it. However, perhaps if we look at its wording, it will help to make the points which certain noble Lords have made. It refers to "an agreement to refer future differences to arbitration". The point of timing is, on the merits, surely all-important. When two commercial enterprises enter into a contract containing an arbitration clause, they both contemplate that in the future differences may arise, because that is what experience tells them. So they provide for a method of settling them, and they do it with their eyes open. But when a person who is simply a consumer enters into some kind of deal, he is not thinking of how things go wrong. He just wants to take his goods away, or to have the service. Therefore, there is a justification for drawing this distinction, and I support it by reference to the language in the Scottish new clause.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, by leave of the House, it will probably save time if I say a couple of words now. I still am completely unconvinced about this, but there are overwhelming arguments why I should not divide the House about it. I am not saying a word against the county court arbitration system; indeed, I think that the noble and learned Lord on the Woolsack might have remembered that I invented it. All the same, I think that this is a retrograde step, but I recognise that a very large number of Peers might come into the Chamber and vote with me if I were to divide the House, and the preponderance of speeches in the Chamber has been on the side of the Government, even if I discount the two Ministers who have spoken. In those circumstances, and having made my protest articulate, I do not propose to divide the House against the noble and learned Lord.

The LORD CHANCELLOR

My Lords, I apologise to the noble and learned Lord for not acknowledging the paternity of the arbitration court procedure. He founded it, and he is glad to know that his offspring is doing very well.

On Question, Amendment agreed to.

Clause 10 [The "reasonableness" test]:

3.42 p.m.

Lord LYELL moved Amendment No. 10: Page 5, line 34, at end insert ("only").

The noble Lord said: My Lords, it may be to the convenience of the House if, with this Amendment, I speak to Amendment No. 30 to Clause 22 which covers the analogous Scottish point. The purpose of the two Amendments is to attempt to remove an inconsistency in the Bill. Clause 22(1) applies to Scotland, and provides that in applying the test of reasonableness some regard shall be had only to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties to the contract at the time the contract was made".

Clause 10(1) applies to England and Wales, and omits the word "only". The reason for raising these two Amendments again is to seek a full explanation from the Government. My Lords, I beg to move.

The LORD CHANCELLOR

My Lords, this Amendment is, in the view of the sponsors and of myself, unnecessary and, I submit with respect, undesirable. It is true that, on first sight, the formulations of the test of reasonableness in Parts I and II appear to be inconsistent, but they are not. In no part of the United Kingdom will the courts, in applying the reasonableness test, be permitted to have regard to circumstances other than those mentioned in Clause 10(1) and Clause 22(1).

For England, Wales and Northern Ireland, the circumstances to which regard shall be had are expressed as part of the test. Clause 10(1) sets out the requirement of reasonableness. The requirement is, that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made". That is the test and, obviously, the court is not permitted to have regard to any other circumstances.

The Scottish provisions are formulated somewhat differently. The test whether it was fair and reasonable to incorporate the term is set out in Clauses 15, 16, 17, 19 and 21. Clause 22 provides a general explanatory provision, and provides that in determining whether the incorporation of the term was fair or reasonable regard shall be had only to certain circumstances. Noble Lords may well agree that the word "only" is necessary there. If Amendment No. 30, to which the noble Lord has already spoken, were accepted and the word "only" was deleted, it could be argued that it was open to the courts to have regard to other circumstances. To sum up, I submit that the word "only" is unnecessary in Clause 10, but is essential in the different context of Clause 22. In those circumstances, I hope that the noble Lord will not press his Amendment.

Lord LYELL

My Lords, I should like to thank the noble and learned Lord for his very full explanation of my semantic point. I have understood about nine-tenths of what the noble and learned Lord said, and I am sure that he and the House will be happy to allow me to study the remaining portion of what he said at my leisure, and not at the leisure of the House. My Lords, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

3.47 p.m.

Lord HAILSHAM of SAINT MARYLEBONE moved Amendment No. 11:

Page 6, line 5, at end insert— ("(3A) Where by reference to a contract term or notice a person seeks to restrict liability to a specified sum of money, and the question arises (under this or any other Act) whether the term or notice satisfies the requirement of reasonableness, regard shall be had in particular (but without prejudice to subsection (2) above in the case of contract terms) to

1. (a) the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and
2. (b) how far it was open to him to cover himself by insurance.")

The noble and learned Lord said: My Lords, I think I can propose this rather technical but important Amendment in rather few terms, because it only takes up a controversy which we had on Second Reading and pursued at rather greater length in Committee. If the House will forgive me for referring back to it, both the noble and learned Lord, Lord Denning, and I were concerned on Second Reading to deal with contracts, possibly by individuals or partnerships, where there was no possibility of insurance, and where, without going bankrupt, it might well be beyond the capacity of any single person without limited liability to meet the obligations which might arise.

I proposed an Amendment in Committee which would have dealt with that by way of adding to the guidelines in the Schedule. This was technically defective, for reasons which we discussed in Committee; so I withdrew the Amendment, the noble and learned Lord proving—I will not say unexpectedly or unwontedly —particularly co-operative and sympathetic to the views behind the Amendment which I was then proposing. Since then, I have taken a certain amount of advice and, in particular, I should like to give a word of thanks to the noble and learned Lord himself and his staff for the assistance which they have given to me. This is the best that I can do. The draftsmanship is not mine, and that I would add as a word of commendation of it. I hope that, having pursued the matter thus far, we have now come near to a point where we are going to put something on the Statute Book which will be an improvement. My Lords, I beg to move.

Lord JACQUES

My Lords, we are grateful to the noble and learned Lord for pursuing this matter which, as he said, was raised by himself and the noble and learned Lord, Lord Denning, on Second Reading. I am happy to tell the House that the Amendment proposed by the noble and learned Lord has the support of both the sponsor and the Government, and I commend it to the House.

On Question, Amendment agreed to.

3.50 p.m.

The Earl of SELKIRK moved Amendment No. 12: Page 6, line 6, leave out subsection (4).

The noble Earl said: My Lords, the purpose of this Amendment is to restore the onus of proof to those who challenge as opposed to those who are challenged, as it at present stands in subsection (4) of Clause 10. Secondly, the point which has been made frequently is that there should be a division between consumers and business. As the noble and learned Lord the Lord Chancellor has told us, this point has not been accepted. Therefore, what is now proposed in the Bill will affect both consumers and all business interests, and it is the latter to which I want in particular to draw attention. What is curious is that no less a person than the Promoter of the Bill elsewhere and two Ministers have suggested that the issue should be further considered in your Lordships' House—that is, Mr. Fraser, the Minister of State, Department of Prices and Consumer Protection, and the Lord Advocate.

To go back, it is worth telling your Lordships that the Royal Commission were set the task of seeing how they could check exemption clauses. This is simply a label of convenience rather than any precise designation. It is all very well for us to think of a man who buys a ticket for a steamer, and the company repudiate any liability for damage or injury, whether or not it is caused by the negligence of their staff. This can be so easily struck at by the Bill that in a sense it is quite irrelevant to the Amendment. The Law Commission examined the position and how best they could control this kind of activity. They thought of imposing a total ban. However, they said that this would be too rigid. The Law Commission also considered going to the Restrictive Practices Court, but they thought that that would not work, either. They thought of prior validation by the Director General of Fair Trading and they thought, too, of giving very wide powers to Departments to lay down specific regulations. They discounted all those courses in favour of the principle of the Bill as we now have it—that is to say, a judicial decision regarding the reasonableness and fairness of the arrangements—but they were deeply concerned with several propositions which come into the question.

The first is interference with the freedom of contract, a matter of enormous importance to business in general. Secondly, on account of the uncertainty of the law there would certainly be marginally different opinions. Thirdly, there was the unreliability of contracts. The Law Commission had to balance these factors against the relative bargaining strength of the different parties, which, if one thinks about it, requires a very delicate balance, one which nobody should hurriedly conclude he can hold. Nobody has gone into this problem more thoroughly than the two Law Commissions who worked in very close concord, except for two or three rather minor points. I am going to read their conclusions which appear in their report at page 66: Both Commissions concur in recommending that a reasonable test is the appropriate form of control in these cases, and it is for the party challenging the exemption clause to show that it is not fair and reasonable". This is a decision made by the parties who have examined the problem more closely than anybody else in the country. I believe I can say that in Scotland they are men who are held in the highest respect. I cannot speak of England, because I do not know, but I believe that exactly the same remark can be made about them.

Let us consider for a moment what happened. First, there was a private Bill, but there was no Second Reading debate. There was a short discussion in Committee which lasted just over 15 minutes. This discussion was largely based on the totally false assumption that they were speaking about consumer contracts. This is quite untrue; they were speaking about a wide range of contracts except those excluded by Schedule 1. A Division was taken, and if one adds up those voting on both sides they amounted to rather less than two figures. The Division put the onus of proof on to the party challenged to justify his position. After that, the alterations were made to the Bill, including the one to which I have just referred, purely on the grounds of consistency, without any discussion taking place.

I think that the decision to put the onus of proof on to the party who is challenged is a fundamentally dangerous principle so far as those who are engaged in business are concerned. Instead of a contract standing until it is challenged, no contract stands until it has been upheld by a judicial decision. This seems to me to place a fundamental difficulty in the way of assurance regarding the world of contract, with minor exceptions which may or may not arise.

Noble Lords may say that this applies to exemption clauses. An exemption clause is a condition. Almost anything might be interpreted as an exemption clause. I will give one or two examples, because I do not believe that anybody knows quite how far this Bill will penetrate, and it is for that reason that it should be regarded with considerable caution. Perhaps I may give indemnity as an instance. If a person discharges an indemnity by means of an extrajudicial settlement, that settlement can be challenged in the courts. At least, that is my interpretation, although the noble Lord may correct me if I am wrong. It means that if anybody enters into an agreement to pay damages, that agreement can be overturned by the court. I imagine that the result will be that there will be no extra-judicial settlements and that delay and public expenditure will be involved in going to the courts. I believe that this is quite dangerous.

I am thinking also about continuing contracts. It is very common for us all to have continuing contracts for deliveries, on condition that the price will go up, if necessary. We all know only too well that that is exactly what is happening. That provision is struck out of the Bill by Clause 3. Anybody can challenge it for a number of different reasons, and if he refuses to pay the bill he will have to be brought before the court. This will happen very often, simply as a means of evading the contract as a whole. Clauses providing for liquidate damage can also be struck out because the damages may not be considered to be enough. These are just some of the problems and I have no doubt that, using their imagination, most noble Lords can think of a range of others which quite rightly could be mentioned.

For that reason, it is a matter of principle running through the whole range of the law of contract whether this is the right way to approach it. The law respects small people just as it respects large people. It would undoubtedly encourage litigation which I should have thought should in every way be discouraged. I am putting forward the point of view of business and contracts. I do not believe that changing the onus of proof will damage the consumer. I can see no reason why it should. There could be no difficulty in the case of the blatant example I gave earlier, no matter where the onus of proof lay. I do not believe that it would create any great difficulty. They would have no difficulty over papers. Certainly they can be provided very easily in the Scottish courts. In the end, what will happen is that there will be insurance against this liability and, directly or indirectly, the premiums will be charged to the consumer. I suggest, therefore, that very great care needs to be exercised over changing a long established procedure in the courts without adequate reasons being put forward.

So far as I know, the Law Officers in the other place certainly did not think that this would be a good change to make. May I add that on the whole we are a consumer community. Probably that goes to the root of some of our present economic problems. This is placing an additional burden on those who produce and those who distribute goods in this country, and if that happens it is the consumer who will suffer in the end. We should be very rash if we added to the work of those who are involved in the productive, executive and economic work of this country without putting forward any convincing arguments. I believe that the normal procedure is right, and that is the procedure supported by both of the Law Commissions. I believe that we go against that procedure at our peril. I beg to move.

4 p.m.

Lord JACQUES

My Lords, I should like to put the layman's point of view on this question. If the consumer suffers damage it is his responsibility to show that such damage is due to negligence or some other similar act on the part of the other party to the contract. Quite properly it is his responsibility, so that the principal onus of proof rests upon the consumer. But once he has proved his point, if the other party to the contract comes along and says, "But I have a fair and reasonable exemption clause," it is surely up to that other party to show that his clause is fair and reasonable, and it is unreasonable to expect the consumer to have to show that that exemption clause is not fair and not reasonable. It is unfair because the other party knows exactly why he put the exemption clause into the contract. He knows the actual circumstances, he knows the facts about the case; he also knows the technical arguments behind the need for an exemption clause. To throw that burden upon the consumer, who cannot be familiar with those technical circumstances, is completely unreasonable and I hope the House will reject this Amendment.

Lord AIREDALE

My Lords, I should like to support the noble Lord, Lord Jacques, in what he has said. I think it is useful to look briefly at the Long Title to this Bill. It is An Act to impose … limits on the extent to which … civil liability … can be avoided … In other words, it is a Bill to impose limits on the extent to which one can set oneself outside the reach of the law. If you seek to say: "In this instance I can properly set myself outside the reach of the law because what I am doing is reasonable," it seems right that the burden should be upon you to assert and to prove that what you are doing is reasonable, in order thereby to set yourself outside the reach of the law.

Baroness PHILLIPS

My Lords, I too should like to support the noble Lord, Lord Jacques. While I appreciate that this is a highly technical Bill, basically it is a consumer Bill. I am sorry to disappoint the noble Earl, Lord Selkirk, but the people who are behind this were seeking to put right something which has caused a lot of discomfort—I put it no higher than that. To give an instance, yesterday I was at a swimming pool where it is obligatory to hand over all personal possessions in a basket and they are then placed in the care of a cloakroom attendant. A very large notice tells you that the authority is absolved from all responsibility for fire, loss, acts of God or anything else, so if your clothes and possessions disappear there is nothing you can do about it. I cannot see why, in that instance, the consumer should be asked to prove that this is an unreasonable exemption clause, and I suspect that this is the kind of action that will be taken.

Lord BOYD-CARPENTER

My Lords, the noble Lord, Lord Jacques, did not do complete justice to the argument put by the noble Earl, Lord Selkirk. It will be in the recollection of the House that the noble Lord addressed himself solely to the question of the consumer, but as I understand the position the changing of the onus of proof applies not only to the strict consumer type of case but also to the ordinary business deal. It may well be your Lordships will feel that different considerations—if it be technically possible so to draft, and I stress that—should apply in those two cases. But with great respect to the noble Lord, Lord Jacques, he cannot just brush aside my noble friend's argument that this reversal of the normal elements of proof in strictly commercial and business cases at least requires some fairly solid justification.

With great respect to those who have spoken, I have not heard such justification. Therefore, as one who has been listening to this debate and who came in with a wholly open mind, my disposition now, in the absence of any real evidence to the contrary, is to support my noble friend, who bases himself on the ordinary operation of the law that those who assert something have the onus of proof, and he is entitled to have a massive argument produced to show that in this particular case, because of the purposes of this Bill, that view is wrong. So far as the business type of case is concerned we have not had a scrap of evidence. If the matter remains that way and if my noble friend wishes to divide the House, I shall be with him in the Lobby.

Lord JACQUES

My Lords, before the noble Lord sits down I should like to point out that if there is a Division and he supports the Amendment he will be voting against the conception which I put to the House in regard to the consumer.

Lord BOYD-CARPENTER

My Lords, with great respect to the noble Lord, that is absolutely wrong. The noble Lord having failed to give any argument whatever about the commercial case, cannot really get out of it by then saying that those who take a different view from him are not supporting the consumer. It really is up to the noble Lord to answer his part of the case and not to indulge in that sort of argument.

Lord MORRIS of BORTH-Y-GEST

My Lords, I find myself very much in agreement with all that the noble Lord, Lord Jacques, has said. It is useful to approach this matter by remembering the situation with which we are dealing. We are dealing with the situation of somebody who is shown to have been negligent; the situation in which somebody is shown to have broken his contract. Also, in so far as it is relevant to refer to the misrepresentation point, we are dealing with somebody who is shown to have been guilty of a misrepresentation.

It seems to me that we are invited by the Bill to make new laws, but we either welcome the general proposal of the law or we take a different view. We could take the view, "Let freedom of contract never suffer any interference". I do not myself take that view. It seems to me that we are giving further validity to a new principle which has crept into the laws enacted by Parliament within the last few years, if somebody wants to excuse himself for his own negligence, if somebody wants to avoid the consequences of his own breach of contract, if somebody has been guilty of a misrepresentation and he says, "Oh, but I have put a clause in my contract saying that I am not to be liable", as I understand it, the principle of this Bill is that that should be allowed only if it is reasonable.

Where should the onus of proof lie? While seeing with admiration the persuasiveness of my noble friend Lord Selkirk, for myself my approach is that one almost follows the acceptance of the principle of this Bill. In the Sale of Goods Act in 1893 there were certain implied terms. If the noble and learned Lord on the Woolsack is going to speak in this debate, I hope he will correct anything that I say that may not be entirely correct. We had the principle in the Act of 1893 that there were certain implied terms. We have lived with that through all the years since 1893, and we have been very happy to do so. They were implied terms of merchantability and quality, fitness for the purpose.

Then, as I follow the argument, after an earlier report from the Law Commission, your Lordships and another place passed the Act in 1973 which somewhat altered the law. Although there had been a provision in the original Bill of Sales Act that it would be possible to contract out of the Act, I think Parliament in 1973 accepted the new principle that there are certain clauses from which people should not be allowed to escape. So in the 1973 Act it was said that a term exempting from liability, under Section 12, was to be void. That is very strong. A term exempting from liability, under Sections 13, 14 and 15, was to be void in the case of a consumer: … and shall, in any other case, not be enforceable to the extent that it is shown that it would not be fair or reasonable to allow reliance on the term". There might have been a question, was it a sale to a consumer; and a subsection in that Act said: The onus of proving that a sale falls to be treated for the purposes of this section as not being a consumer sale shall lie on the party so contending". This also follows very much the line of reasoning that was adopted when the Misrepresentation Act was passed. Originally there was no redress if misrepresentation had been innocent. Fraud, of course, was always heavily condemned by any court—there was always liability for fraud—but an innocent misrepresentation gave rise to great difficulty. The 1967 Act removed certain bars to rescission for innocent misrepresentation, and in sonic circumstances, where there had been a contract after a misrepresentation, enabled damages to be given for innocent misrepresentation. Then, by Section 3, it was enacted in these terms: If any agreement (whether made before or after the commencement of this Act) contains a provision which would exclude or restrict—

1. (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or
2. (b) any remedy available to another party to the contract by reason of such a misrepresentation;

that provision shall be of no effect except to the extent (if any), that, in any proceedings arising out of the contract, the court or arbitrator may allow reliance on it as being fair and reasonable in the circumstances of the case". So have we not for some years recognised that people should not be allowed to have complete freedom of contract, for if there is complete freedom of contract, even apart from fraud, one party to the contract is very often at a disadvantage. So we have introduced this principle of accepting what is fair and reasonable.

Your Lordships might say. "No, do not let us interfere with freedom of contract at all". But once we accept that, I for my part would feel it a natural step to say that it is to be justified by the party who comes to court and says, "Look, I have got a term here saying that I am not liable, though I have been negligent" or, "I have got a term here saying that I am not liable, though I have broken my contract"; or somebody may say, "Though I was guilty of misrepresentation, I have excluded liability". I find myself in complete agreement with the argument put by the noble Lord, Lord Jacques, in support of that point of view. Those who would introduce this exemption clause know why they have introduced it; it must be the easiest thing in the world for them to justify it. Is not that the fair way round, for them to justify it? They know the trade conditions. If it is something that is quite clearly fair and reasonable, what an easy task for them to show it is so. They have all the ammunition. They know the approach. I, for my part, would feel that it is a reasonable and natural step to say that it is for those who are seeking to rely upon these exemption clauses and who put them into the contract or arrangement to show that they have only done what is fair and reasonable.

The LORD CHANCELLOR

My Lords, the noble and learned Lord invited me to correct him if he was wrong on any matter of law or reference to any Statute. It would indeed be a very bold Lord Chancellor who would venture to do that. It used to be said in the Temple that the judicial decisions of your Lordships' House were infallible because they were final, but in the case of the decisions of the noble and learned Lord Lord Morris of Borth-y-Gest, it was said they were final because they were infallible.

I have given very careful thought to this matter since we discussed it in Committee. We are very grateful to the noble Earl, Lord Selkirk, for raising the issues again. They are not by any means simple, and I certainly do not take a dogmatic view. But having given it further thought, and having heard that explanation given, if I may so, in limpid clarity by the noble and learned Lord who has just spoken, I have come down in opposition to the proposal of the noble Earl, Lord Selkirk.

Your Lordships may like to know that since the Committee stage I sought the views of the two Law Commissions. The Law Commission for England and Wales saw much force in the arguments in another place against the burden of proof in the Bill as it was introduced originally in relation to Clause 2, the burden of proof resting on the person who seeks to upset the reasonableness term, at least where the victim was a consumer. I venture to think this is the area of difficulty: whether it should be extended across the board to the business contract as well. In their view, in the consumer context good arguments have been put forward for placing the burden on the person who relies upon the exemption clause. They took the view, and we have just heard it expressed, that the necessary technical and business information will be available to the person relying upon the exemption clause, the supplier, and the other party will be unable to challenge it.

This, and the general point that there should be a presumption against the exclusion or restriction of liability as against consumers, led them to suggest that the so-called "split" burden, which has not found favour in your Lordships' House, might be the solution. That, I think, would create a great deal of confusion, and I do not, frankly, think it would be practicable. The view of the Law Commission for England and Wales was that if it was impracticable, as I think the House may well think to be the case, the burden of proof should be placed in all cases on the party relying on the term. They found the analogy of the Misrepresentation Act 1967, and, earlier, the Railway and Canal Traffic Act 1854, to be helpful in this context.

It is right that I should say that the Scottish Law Commission, on the other hand, suggest that the decisions in another place should be reversed, and they have not shifted their ground. They stress that the Bill was put forward on the basis that a clause is valid until it is challenged; reversal of that, as in the Bill as it now stands, might, they thought, lead to an increase in litigation and in uncertainty. If exemption clauses do not have any effect unless they are brought to life in the courts, they thought, parties may refuse to comply with their contracts pending determination of the questions they wish to raise. They thought that the proponent of the term might be put in an unfair position in that he would not know what case he had to meet. They thought that the wide meaning to be given to an exemption clause might increase uncertainty over a wide range of different terms in contracts. Therefore, their conclusion was that the Bill should revert to its original form. I thought it right to inform the House of the up-to-date views of the Law Commissions upon this matter but, as I say, I have given great thought to it since the Committee stage and I conclude in supporting the view that the Bill should not be amended.

But I wonder whether it is primarily a legal issue after all. As I see it—and I think it has been put by the noble Lord, Lord Airedale, in this way—the funda- mental question is really whether our sympathies are to lie with the person who seeks to upset his own agreement or with the person who seeks—as the noble and learned Lord, Lord Denning, put it in Committee—to exclude the ordinary liability imposed by law. The noble and learned Lord, Lord Morris of Borth-y-Gest, put it that way just now. In the context of the Bill—which is carefully drawn so as to confer benefits only on persons who are economically inferior or who have suffered as the result of negligent conduct or disregard of basic contractual rights—I come down on the side of casting the burden on the person who is seeking to exclude the ordinary law. At the end of the day, I do not think that there is much dispute about the consumer's position in this context.

I believe that the case for the Bill in the context of negligence is very strong, and it would seem rather odd that a Bill designed in part to remedy the deficiencies in the law which have damaged consumers should cast a burden of proof upon them. As I do not regard the point as being of first importance in the business context, because businessmen are usually sensible about sorting out their differences without recourse to court proceedings, I think that this is an occasion where the arguments in favour of protection across the board should determine the point for the Bill as a whole.

The main argument which has been made against what I contend to be the better course is that, as it stands, the Bill will introduce a great deal of uncertainty. I doubt whether in practice that will arise. The experience that has followed the Misrepresentation Act 1967, where the same onus as is now proposed in the Bill applies, does, I think bear that out—short though the experience since then has been. Accordingly, I do not think that the uncertainty factor is a substantial one in the context of where the burden of proof is placed. The main significance of the burden of proof question is with regard to the pleading part. I am inclined to agree with the noble Earl, Lord Selkirk, about this; that is, that in the outcome of a case it may not be of determining influence. However, on the whole, my view on this matter—and, of course, it would be a matter for a free vote—is that, if the noble Earl presses his Amendment, it should be opposed.

Lord ROBBINS

My Lords, I should greatly reproach myself if I was thought to be opposing a measure designed in the interests of consumers. I freely admit that, in that respect, it may well be—as is apparently admitted by the Law Commissions of England and Wales—that the law needs amendment. But, with very great respect, and speaking as an amateur, I do not think that the noble and learned Lord the Lord Chancellor or the noble and learned Lord, Lord Morris of Borth-y-Gest, have completely met the arguments put forward by the noble Earl, Lord Selkirk.

I believe that, if the clause as at present drafted is passed, a great element of uncertainty as regards business transactions will necessarily be introduced. I believe that, as a consequence of that, there will be a great extension of insurance against such contingencies, and in that event the consumer will definitely suffer. Therefore, I humbly submit that there is a case for further consideration as to whether a distinction cannot be drawn between the ordinary course of business contracts, which I think can be left to take care of themselves within the framework of the law as it at present exists, and such cases as the noble Baroness, Lady Phillips, mentioned, where the unsuspecting consumer may easily be entrapped by notices and representations which obviously are not designed to carry the weight in the mind of the consumer which they should.

4.26 p.m.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I rise only to confirm what the noble and learned Lord the Lord Chancellor has said about the character of the vote, if there is to be a vote. It will be entirely free. It is very important that I should emphasise that, because, of course, the majority of persons inside the Chamber—and possibly outside the Chamber too—are members of my own Party. Therefore, it is absolutely vital that I should underline the fact that any vote that is taken should simply be a question of judgment as to the party upon whom the burden of proof in the se cases should rest. It is not at all an easy question to answer. Any attempt to answer it in a facile or superficial way is really doomed to failure.

Perhaps I could recall the history of the Bill. It has now been, I think, universally accepted that attempts by traders and suppliers to exempt themselves from the consequences of negligence, breach of contract—that is, breach of the terms of a contract which would otherwise be implied if nothing was said—or breach of statutory duty where that can be contracted out, have been a considerable abuse. The object of this legislation is to get rid of the abuse in the interests of those who receive goods and services, whether as consumers or sometimes in other capacities. There, I think, we were all at one.

But the particular road by which both Law Commissions have chosen to achieve this end is by imposing a test of "reasonableness" and not the various other alternatives which at some other stage of the debate were advanced for their consideration. On Second Reading, I expressed considerable caution about this test of "reasonableness", because the difficulty about the burden of proof arises not from the requirement that those who wish to escape the ordinary implications of law should have to prove the route by which they escape those implications. I believe that it arises from the difficulty of choosing "reasonableness" as the test and then saying to the person who wishes to escape from the ordinary implications of law, "You have got to prove that what you were doing is reasonable" when, as a matter of fact, that is one of the most difficult things to prove about anything in any circumstances that one cares to enumerate. That is where the legal difficulty is involved.

At that stage, both the Law Commissions and the law officers were in favour of the more cautious line of approach. They were beaten out of the field by the Conservative Party in the House of Commons in a very thinly represented Committee led by Mrs. Oppenheim and supported by the Labour Members of the Committee, so that the law officers received a defeat. This encounter has apparently led to a complete change of heart on the part of the Government, of the sponsors of the Bill and of the English Law Commission, although the Scots, with their character- istic pertinacity, have continued to defend their corner. That is something one can only admire.

In this House the balance of legal talent has undoubtedly been with the Government in their new armour as the gallant protectors of the consumer and not with the Government in their old armour as the protectors of the sanctity of contract. The noble and learned Lord, Lord Denning, in an earlier debate, and the noble and learned Lord, Lord Morris of Borth-y-Gest, in the present debate, in a magnificent piece of legal exposition, have come down on the other side. Thus, the legal balance has rather shifted in favour of the sponsors of the Bill in their present stance.

I am not going to give a conclusive view because, if I began to do so—or even voted in any Division that there might be—I should be accused of departing from the absolute freedom of the Division, which I am particularly anxious to safeguard at the present time. But I would ask those who are so enthusiastic about the Bill as it now stands to bear in mind very carefully what the noble Lord, Lord Robbins, was saying, because, at the end of the day, it is a commercial, not a legal judgment that has to be made.

What are the interests of the consumer? Of course, if somebody has a suit which does not fit, his interest is to rely upon the implied term as to fitness, merchantability and the particular use to which the suit is to be put. The well-known articles of the Sale of Goods Act—which the noble and learned Lord, Lord Morris, inadvertently referred to as the Bill of Sales Act—cover the interest of the consumer in that type of case. But the interest of consumers in any given case is rather more difficult to define. It is that they should have a supply of goods or services at a reasonable price and in sufficient quantities. If the fact be, as I think it is, that, over the wide range to which this Bill will apply, the wise supplier of goods and services will insure against whatever liability there may be under the Bill—and that that will be the commercial reality in the vast majority of cases—we are really asking whether it is in the interests of consumers to give compensation by way of litigation in cases where they have a just complaint of negligence or breach of contract. Alternatively, we are asking whether it is in the interests of consumers to get a supply of goods at a slightly better price, because, of course, if the risk is one which will in fact be insured against, the injured consumer will be protected by the Bill but the premium will be passed on to the consumer in the form of a heightened price. There is no question in my mind that that is the commercial reality we are discussing.

Lord JACQUES

My Lords, would the noble and learned Lord not agree that that is fundamental to the whole Bill and not just to this Amendment?

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I do not think that it is fundamental to the whole Bill rather than just to this Amendment, although I would agree with the noble Lord, Lord Jacques, that it was very much in my mind to make the point on Second Reading that this was a factor that ought to be taken into account. It seems to me that this clause is precisely the point which may be the critical factor, and that is not true of the Bill as a whole.

I can only leave the case with the belief that those who have listened to this interesting debate should come to a conclusion. The matter was not adequately discussed in the Commons. The Commons certainly did not have the advantage which we have had in the course of our successive debates of listening to the speeches in this House on the subject. It only remains, if my noble friend Lord Selkirk pushes this to a Division, for the decision to be taken in accordance with the ordinary procedures of Parliament, with the provision that, so far as this Party and, I believe, the Government are concerned, the vote is an absolutely free one. I have not tried, and I shall not try, to make up other noble Lords' minds for them in what I believe to be a difficult but important decision.

Lord McCLUSKEY

My Lords, may I rise to my feet because the matter is entirely free? I am in a difficult position in that, if I say which way I would vote, I shall differ either from the Scottish Law Commission or from my noble and learned friend the Lord Chancellor. Let me try to suggest that the matter is of less importance than the debate has suggested. What is at issue is not sanctity of contract at all. Any of the contracts to which the Bill applies is at risk if it contains a clause which the court may regard as unfair and unreasonable. To that extent, a bad contract contains the seeds of its own destruction, regardless of where the onus lies.

We are concerned with one very limited matter. It is a highly technical matter; namely, onus of proof. The onus of proof arises when, and only when, parties are in court. If what is at issue is a question of fact, then the legal question as to whom the burden rests upon to prove that fact is an important one because that person has to gather the necessary resources together and produce the witnesses. If he does not prove his fact, he fails. However, what is at issue here is, in truth, not an ordinary matter of fact at all but a matter of judgment whether something is fair or whether it is reasonable. In these circumstances, once the court has been told what happened when the parties entered into the contract, it then makes a judgment not of ordinary fact at all but of reasonableness and fairness. Therefore, I am entirely with the noble and learned Lord, Lord Hailsham, in saying that, if there is a problem, it arises through the introduction of the test of reasonableness and not through the way the onus is put. For that reason, I would ask your Lordships to regard it as a technical matter and not a matter of great importance in which anyone is challenging important principles.

4.38 p.m.

The Earl of SELKIRK

My Lords, I must say with great respect that some of the replies to this argument are very thin. The noble Baroness, Lady Phillips, brought forward a glaring example and suggested that I would have stopped the consumer getting her benefit. Nothing could be more untrue than that. I might even have been rejecting the Bill completely. I welcome the Bill, but we have to get the balance right, and the consumers are not the only people who are deeply affected. In some ways, they are affected perhaps even less than some others. The noble Lord, Lord Airedale, said that this puts people out of reach of the law. That is not true. All sorts of things will arise in the ordinary course of business which will be profoundly affected by this. The Lord Chancellor said so. He said there would be uncertainty, and that affects all kinds of business, one way or another.

I hesitate to criticise the noble Lord, Lord Morris of Borth-y-Gest, but I wonder whether he really saw how far this might go? He treated people as if they were wicked, but many of these people are not wicked at all; we are talking about liabilities which arise in the ordinary course of business, liabilities which cannot be avoided. In any case where a liability of this kind arises, this provision can come into play. Indemnity is an obvious example, or the continuing contract which I mentioned. There is nothing wrong with that; it is the way in which business is conducted and in my view it is important it should be so conducted.

The noble and learned Lord, Lord McCluskey, said that it did not matter all that much. Does the word, "uncertainty" not matter? Is it of no consequence that many contracts of business are uncertain? Might that not have a slightly adverse effect on the structure of business and the ways in which it is conducted? Although there is a thin House, I think we should divide on this Amendment, because a point of major principle has arisen here.

I want to make it quite clear that, in my view, it will not affect adversely the consumers at all. If this was meant to be a consumers' Bill, which it is not—but, if it is, it is only partly so—it should have been made such a Bill and I would not have minded a split if it were essential. I recognise the difficulties of doing so, but it cuts wider than even the noble Lord, Lord Jacques, seems to think. No doubt the Consumer Council is enthusiastic, but this is supposed to be fair in a much wider context. If it is necessary to make a split, let us do so, but I fear that I must press the Amendment because it is one of very great importance to the whole business community of the country.

Lord SHEPHERD

My Lords, before the noble Earl, Lord Selkirk, presses the matter, I wonder whether he would consider making an appeal to the Government. Most of us who have listened to the debate on the Amendment, particularly those of us who are not lawyers, recognise the considerable dilemma which exists within the law and the way in which this provision may affect both business and the consumer. While I think the noble Earl would be right to press the matter to a Division, may I ask whether he would consider making an appeal to the Government to see if it is possible to devise some method within the Bill to meet the points which the noble Earl has made in terms of commercial law and practice? Such a method would not be in any way upset by this change but would meet the undoubted points advanced by my noble friend Lord Jacques and the noble and learned Lord, Lord Morris of Borth-y-Gest. I hope the noble Earl will make that appeal because I have a deep sense of unease as to which way I should vote.

Lord WAKEFIELD of KENDAL

My Lords, I support what the noble Lord, Lord Shepherd said. In view of the great interest and importance attaching to what has been said, I too have unease about which way to vote on this issue. I do not like sitting on the fence and I hope that my noble friend Lord Selkirk will accept Lord Shepherd's constructive and helpful suggestion.

Lord DRUMALBYN

My Lords, I wish to add my voice to the plea made to my noble friend Lord Selkirk by the noble Lord, Lord Shepherd. Many of us feel in difficulty over this simply because we feel that in a consumer case the onus of proof should lie on the supplier while in a business case it should lie on the person challenging the transaction. The noble and learned Lord the Lord Chancellor indicated that, in his view, this would cause confuson. I suggest that it is the quantity of confusion at which the Government should look and whether it is worth incurring that confusion to achieve, if I sense the opinion of the House, what noble Lords would like to achieve. Is it really the case that the confusion would be real and damaging? If not, surely it is possible to devise a formula which would put the onus of proof in the one case on the supplier and in the other case on the challenger.

The LORD CHANCELLOR

My Lords, perhaps I may be permitted briefly to address the House again. I pointed out the view of the Scottish Law Commission that confusion would be caused. My view is that the risk of confusion in the business contract field would not be great, for the reasons I gave; but it is also my view that confusion, if we had an attempt to distinguish between the class of consumer cases and the class of business contract cases, would be far worse, and then we should be in the department of utter confusion. We have considered the split burden idea—we considered it in Committee—and the view which emerged was that it was not practical, indeed that it would bear very hard on the small businessman who would bear the burden both to his consumer customers and to his suppliers; so the view which I thought emerged then was against the split burden.

Therefore, although no appeal has been directed towards me by the noble Earl, Lord Selkirk, I am afraid that, speaking frankly, I could not give any reassurance that further consideration would alter the position. That, I fear, is where the matter stands, and if the noble Earl, Lord Selkirk, decides to press the matter to a Division, then I think the House should come to a decision, and I say that without dogma on my part.

The Earl of SELKIRK

I hope the noble and learned Lord the Lord Chancellor is not accusing me of not appealing to him, my Lords. We had appeals in Committee, and although I thought the Lord Chancellor was very fair I thought he was also rather dogmatic in his approach. I feel very strongly about this issue and I feel that the anxiety which has been expressed is real and that the confusion which may result may be much greater than expected. We are in large part on unknown land here. I would certainly be willing to appeal to the Minister, but I do not know what procedure we might adopt. We have only the Third Reading to come. Could we defer this stage of the Bill to another day or adjourn it? Certainly I would welcome the opportunity of further discussion.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I too seek the leave of the House to speak again. I have given considerable thought to this matter, and if I speak shortly it is not because I have not given thought to it at considerable length. Sooner or later we must come to a conclusion about this. It is a very nicely balanced argument, but there is in the end only one way of coming to a conclusion about it; that is, by voting on it. If my noble friend's Amendment is lost on a free vote, it will be open to him on Third Reading to propose the compromise which has been canvassed. If it is won on a free vote, then it will be open to the Government or the sponsors to propose the compromise which has been suggested on another free vote. But I believe that until

Clause 11 ["Dealing as consumer"]:

4.57 p.m.

Lord AIREDALE moved Amendment No. 13:

one really knows where, after this prolonged debate, the balance of opinion lies, one will not be able to devise a compromise or identify the side which will have to put it forward.

4.49 p.m.

On Question, Whether the said Amendment (No. 12) shall be agreed to?

Their Lordships divided: Contents, 52; Not-Contents, 77. Transpose Clause 11 to the end of Clause 3 as subsections 3 to 5 of that Clause.

CONTENTS
Aldenham, L.	Exeter, M.	Reigate, L.
Amory, V.	Fairhaven, L.	Robbins, L.
Auckland, L.	Fraser of Kilmorack, L.	Romney, E.
Avon, E.	Fraser of Tullybelton, L.	Ruthven of Freeland, Ly.
Balfour of Inchrye, L.	Gridley, L.	Sackville, L.
Berkeley, B.	Hereford, V.	Sandys, L.
Boyd-Carpenter, L.	Hornsby-Smith, B.	Savile, L.
Bridgeman, V.	Kinnoull, E.	Selkirk, E. [Teller.]
Brooke of Cumnor, L.	Long, V.	Strathclyde, L.
Brooke of Ystradfellte, B.	Lyell, L. [Teller.]	Strathspey, L.
Camoys, L.	Marley, L.	Teviot, L.
Cathcart, E.	Molson, L.	Trenchard, V.
Cottesloe, L.	Mottistone, L.	Tweedsmuir, L.
Cullen of Ashbourne, L.	Mowbray and Stourton, L.	Vickers, B.
Daventry, V.	Moyne, L.	Vivian, L.
de Clifford, L.	Northchurch, B.	Ward of North Tyneside, B.
Elliot of Harwood, B.	Nugent of Guildford, L.
Emmet of Amberley, B.	Orr-Ewing, L.

NOT-CONTENTS
Airedale, L. [Teller.]	Elwyn-Jones, L. (L, Chancellor.)	Morris of Borth-y-Gest, L.
Amherst, E.	Evans of Hungershall, L.	Noel-Buxton, L.
Ampthill, L.	Greenway, L.	Oram, L.
Aylestone, L.	Greenwood of Rossendale, L.	Peart, L. (L. Privy Seal.)
Banks, L.	Grey E.	Phillips, B.
Barrington, V.	Hale, L.	Ponsonby of Shulbrede, L.
Beaumont of Whitley, L.	Hampton, L.	Popplewell, L.
Blyton, L.	Hanworth, V.	Rathcreedan, L.
Broadbridge, L.	Henderson, L.	Sainsbury, L.
Brockway, L.	Houghton of Sowerby, L.	Shepherd, L.
Brown, L.	Hylton-Foster, B.	Shinwell, L.
Buckinghamshire, E.	Jacques, L. [Teller.]	Sligo, M.
Burntwood, L.	Janner, L.	Stamp, L.
Byers, L.	Jessel, L.	Stedman, B.
Champion, L.	Killearn, L.	Stewart of Alvechurch, B.
Chorley, L.	Lee of Newton, L.	Stone, L.
Clancarty, E.	Leinster, D.	Strabolgi, L.
Clwyd, L.	Listowel, E.	Taylor of Mansfield, L.
Collison, L.	Llewelyn-Davies of Hastoe, B.	Thomson of Monifieth, L.
Craigavon, V.	Loudoun, C.	Vaizey, L.
Darling of Hillsborough, L.	Lovell-Davies, L.	Wallace of Coslany, L.
Davies of Leek, L.	MacLeod of Fuinary, L.	Wells-Pestell, L.
Davies of Penrhys, L.	Maybray-King, L.	Wigoder, L.
Douglas of Barloch, L,	Meston, L.	Wynne-Jones, L.
Douglass of Cleveland, L.	Monck, V.
Drumalbyn, L.	Morris, L.

Resolved in the negative, and Amendment disagreed to accordingly.

The noble Lord said: My Lords, this Bill is riddled with definitions in all kinds of places. Parts I and II each have their own interpretation clause, and, in addition to that, many of the clauses use terms which they proceed to define. For instance, line 1 of Clause 1 defines the term "negligence", and Clause 1 goes on to use and define the term "business liability". Clause 5 uses and defines the expression "in consumer use", and examples of other clauses in the Bill which make use of terms which they then proceed to define are Clauses 16, 26 and 27. But in relation to the expression "deals as consumer", a different pattern of work is used. The expression "deals as consumer" first occurs in Clause 3, but it is not there defined. Clause 4 uses the expression "dealing as consumer". Clause 6 uses the expressions, "dealing as consumer" and, "dealing otherwise than as consumer". Clause 7 uses the term "dealing as consumer". Clause 8 does not refer to this expression, and nor do Clauses 9 and 10.

It is, therefore, rather surprising to find, on reaching Clause 11, that it is entirely devoted to defining the expression "dealing as consumer" Clause 11 is not part of an interpretation clause; it is not even next to an interpretation clause. It seems to have been cunningly placed where it is in order that the hurried reader shall have the least possible chance of finding it.

My Lords, would it not be more reasonable and sensible to print the words of Clause 11 as the final subsections of Clause 3, which is the clause in which the expression, "deals as consumer" is first used? In that way it will avoid the reader speculating on what these words mean and having to search to a rather strange place in the Bill in order to find the definition of the expression. I floated this idea at the Committee stage, and I was much encouraged by the support for it which I received from the noble Lord, Lord Drumalbyn. I hope that it commends itself to your Lordships this afternoon, and I beg to move this Amendment.

Lord DRUMALBYN

My Lords, I have not changed my view on this. The noble and learned Lord the Lord Chancellor very kindly said that he would look at this kind of suggestion. I think that the form which the noble Lord, Lord Airedale, has devised to remedy what I thought was a defect is a good one, and I hope it commends itself to the Government.

Lord JACQUES

My Lords, since the Committee stage both the sponsors and the Government have had a look at this to see whether they could meet the point of view which was put forward by the two noble Lords. We have come to the conclusion that the Bill should stay as it is, for this reason. People who look at a Bill such as this usually look first of all at the page which shows the arrangement of the clauses. People do not get hold of a Bill with a view to reading it right through from beginning to end; it is used as a reference. They refer to the arrangement of the clauses, and, as the Bill is at present, they see in the arrangement of the clauses quite clearly where "Explanatory provisions" are. They see that in fact under "Explanatory provisions" there is, in Clause 11, a definition of "Dealing as consumer". It is clear right from the beginning.

If we transposed Clause 11 to Clause 3, as is now suggested, it would not be clear; it would not be on the front page; it would not be seen. We also feel that, if it were included in Clause 3, as suggested, we should then have to cross-reference to Clause 3 every other place in the Bill where the term "Dealing as consumer" is used; and that, we think, ought to be avoided if possible. We therefore feel that, on balance, the present arrangement is the better of the two possibilities.

Lord AIREDALE

My Lords, I wonder whether the noble Lord, Lord Jacques, is right about this. Is it true that, if you open a bound volume of the Statutes, you find at the beginning of each Statute the arrangement of clauses such as you have in a Public Bill? The noble Lord may be right about this, but my instinct is to believe that you go straight into Section 1 of the Act when you open the bound volume of the Statutes; and, really, if my instinct about this is right, I believe that that demolishes the argument that the noble Lord, Lord Jacques, has just put forward. I do not know whether the noble Lord wishes to interrupt me in order to say anything? He does not, apparently. My Lords, I have a private arrangement with myself that I will not divide the House on any matter which is a matter of drafting, but I think we really might look at this point again before the next stage of the Bill. In the meantime, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

clause 12 [varieties of exemption clause]:

5.5 p.m.

Lord JACQUES moved Amendment No. 14:

Page 6, line 38, at end insert— ("(3) A person is not bound by any contract term prejudicing or taking away rights of his which arise under, or in connection with the performance of, another contract, so far as those rights extend to the enforcement of another's liability which this Part of this Act prevents that other from excluding or restricting.").

The noble Lord said: My Lords, the purpose of this Amendment is to prevent evasion of the controls in Part I of the Bill. It does so by ensuring that where one party to a contract, party A, is prevented by Part I of the Bill from excluding or restricting his liability to the other party, party B, then B, as the party whose rights under the contract are protected by Part I of the Bill, is not bound by a term of another contract made with a third party that B will not enforce his rights against A. This is not an easy point to explain, and I think I might do it by way of example. Suppose a shopkeeper wishes to have installed a system of central heating. For that purpose he enters into a contract with a company which installs central heating. Let us suppose that in the contract there is either no exemption clause or, if there was one, it would not stand up to the test of reasonableness.

The heating system is installed, but it has to be serviced, so company A, which did the installation, say, "We would recommend you, Mr. Shopkeeper, to go along to company B", which is one of their subsidiaries and which specialises in servicing. So we now have the second company, the servicing company. The servicing company say, "We will not merely service your central heating but we will look after any defects which might arise from the installation. But you will have to give us an undertaking in the contract that you will not take action against the installing company; the liability will rest solely with us". Let us suppose that the shopkeeper enters into that maintenance contract and that there is an explosion of the boiler due to negligence on the part of the installers. Now action against the service company alone would not satisfy the shopkeeper, because not merely are questions of defects in the central heating to be put right, but his shop has been shattered by the explosion. Consequently, he sues the installing company and says, "You have been negligent". He proves negligence, and he claims not merely to have the central heating system put right but to be compensated for the damage to his shop.

The installing company then sues the servicing company for indemnity because it has had had to pay where it did not expect to have to pay, to the shopkeeper. The servicing company can then take action against the shopkeeper for breach of contract because he has taken action against the installing company when, under the contract, he said that he was not going to take such action. This Amendment seeks to deal with that situation. By itself, Clause 2 of the Bill could not apply to such a case. It assumes that a contract term excluding or restricting a supplier's liability to a customer will be contained in a contract between the supplier and the customer; that is, between the installer of the system and the shopkeeper. For the same reasons, Clause 3 would also be evaded. This Amendment seeks to prevent these evasions. In conclusion, I should mention that the Sale of Goods Act, as amended, and the Supply of Goods (Implied Terms) Act 1973 make provision for preventing evasion of the controls under those Acts by the methods I have just described, and it is clearly important that we should also have such a provision in this Bill. I beg to move.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I wonder whether this is a necessary improvement, or an improvement at all. I do not think there is any difference in principle between the noble Lord, Lord Jacques, and myself but I would ask him to reflect upon the following considerations. This Bill has been produced after prolonged scrutiny by the two Law Commissions, both in Scotland and in England. It has had careful consideration before a Commons Committee and a Commons Report. It has been examined by this House in Committee. Now, on Report, we are told that this Amendment is important and necessary. I wonder whether it really is so at this stage. I am always a little suspicious of provisions in Bills which are not desired for their own sake but seek to forestall evasion, which is a dirty word among anybody in modern Parliaments. But there will be attempts to evade any kind of Bill. I have never known Parliament successfully prevent them in advance. Ex post facto if they become a nuisance they can be dealt with fairly easily. I am a little suspicious of clauses which have it as their sole purpose to prevent evasion. I doubt whether it is necessary to prevent evasion.

I am not sure whether, in the suppositious case that the noble Lord has given, the contract would effectively be valid. To begin with, supposing the suppositious maintenance engineer brought an action on the clause of his contract seeking to protect the original installation engineer, one wonders what damage the service engineer could say that he had suffered. If you paid a couple of pounds into court, I think that would put an end to the whole proceedings. I cannot see a court giving an injunction in such a case. It would be a very perverse court if it did so. So I doubt that it is necessary.

Let us look at the drafting. It is put as a new subsection in Clause 12. Clause 12, which comes between two interpretation clauses, is designed to say that if, for instance, a clause already makes liability or enforcement subject to restrictive or onerous conditions, it is already excluded by the Bill; you are to take it into account as amounting to the same thing.

There is a very clear interpretation grafted on to an existing prohibition. But this clause inserts, to my mind, a totally new prohibition and tucks it away in the middle of a lot of interpretation matter and leaves somebody almost bewildered as to what it is about. With his customary lucidity, the noble Lord, Lord Jacques, has told us what it is about, but I do not think anyone reading the clause would know what it is about. Look at what it says! I am going to read it out slowly and ask noble Lords, and in particular the noble Lord, Lord Jacques, who is a very sensible noble Lord, if I may say so, this question: If somebody else produced a clause saying this, would one have the slightest idea of what on earth it meant: a person is not bound by any contract term prejudicing"— whatever that may mean— or taking away rights of his which arise under, or in connection with the performance of, another contract, so far as those rights extend to the enforcement of another's liability which this Part of this Act prevents that other from excluding or restricting". I can see the noble and learned Lord, Lord Morris of Borth-y-Gest, smilling, but I wonder whether this is a wise thing to introduce at this stage of the Bill. The noble Lord, Lord Jacques, can introduce an Amendment on Third Reading. I wonder whether he would not be rather better advised to take this wretched little misery away and see if somebody cannot make sense of it for him.

Lord JACQUES

My Lords, I am impressed by the argument as to the lack of clarity, but I am not impressed by the argument that the Amendment is not necessary. In fact, this Amendment carries out a Law Commission recommendation that evasion should not be possible, subject to the reasonableness test, by means of that or any other contract as in the Supply of Goods (Implied Terms) Act. I believe that the noble and learned Lord took an active part in the Supply of Goods (Implied Terms) Act. The Bill was considered during the period when he was Lord Chancellor. I am suggesting that there should be an Amendment to this Bill making a provision which is identical to that in that particular Bill. Therefore, I would not accept that the Amendment is not necessary, but I am a little concerned at the lack of clarity. For that reason I will withdraw the Amendment, but with the promise that it is almost certain to come back at Third Reading.

Amendment, by leave, withdrawn.

Clause 13 [Interpretation of Part I]:

5.17 p.m.

Lord AIREDALE moved Amendment No. 15: Page 6, line 40, after ("and") insert ("all").

The noble Lord said: My Lords, Amendment No. 36 is an identical Amendment to Part II of the Bill; so perhaps we could discuss these two Amendments together. This is another Amendment to try to overcome lack of clarity in the definition of the term "business" which reads: 'business' includes a profession and the activities of any government department or local or public authority". I should have thought there was an ambiguity as to whether that meant that "business" includes the business activities of any Government Department, et cetera, or whether it means that "business" includes all the activities of any Government Department, et cetera.

I should have thought that the reader would have been excused for thinking to himself that the non-business activities of Government Departments surely cannot be intended to be included in the definition of the word "business" because, for one thing, is it not straining language to say that "business" shall include non-business activities? Further, the reader would say to himself: "Surely, if that was what Parliament intended, Parliament could so easily have made its intention clear. Therefore I, the reader, am driven to the conclusion that these words are put into the Act because local authorities do not normally, for the most part, engage in business activities and are not therefore regarded as businesses; and, therefore, it is made clear in this definition that in so far as local authorities do conduct some business operations, to that extent they shall be included in the Bill".

My Lords, we know that the intention of the sponsors of the Bill is that all the non-business activities of the public authorities are to be covered by the Bill. Surely we need to make this clear in the interpretation clause so that the reader is not left wondering exactly what it means. My method of doing so is simply to insert the word "all" so that the definition reads: 'business' includes all the activities of any Government Department …". Reading that, the reader will be left in no doubt. Without the word "all", I feel sure that some readers will be left in serious doubt as to whether the non-business activities of the public authorities can possibly be intended to be included in the definition of the word "business". I beg to move.

Lord JACQUES

My Lords, I assure the noble Lord that the present wording covers all and not just some of the activities of Government Departments and local and public authorities. In those circumstances, we feel that the addition of the word "all" is unnecessary.

Viscount BARRINGTON

My Lords, does it do any harm? Would it alter the intention of the Government if it were included?

Lord JACQUES

My Lords, no. We intend the wording to cover all activities, and we believe the present wording does so.

Lord AIREDALE

My Lords, I cannot go on encouraging the noble Lord to make speeches, but although nobody is going to be left in any doubt, they would be left very much happier if the word "all" were included so that they could see that Parliament obviously did intend all the activities of public authorities to be covered.

Lord JACQUES

My Lords, we believe that the present wording is clear. It covers all the activities and it is not necessary to add the word "all".

Lord AIREDALE

My Lords, I am not overcome by the volume of support that I am receiving from other parts of the House, and I think I had better beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord LYELL moved Amendment No. 16: Page 6, line 41, at end insert ("or statutory undertaker").

The noble Lord said: My Lords, for the convenience of the House I will speak to Amendments Nos. 16, 37, 51 and 52. All of these stand in my name and they are, in broad terms, the same Amendment which I moved at an earlier stage. In case the House thinks that it is sheer impudence on my part in again raising these minor, semantic points, the reply which the noble Lord, Lord Jacques, gave us was brief, swift and to the point. It achieved its purpose. I wonder whether the noble Lord might be able to give a slightly more detailed explanation of why the term "statutory undertaker" is not in the Bill? I understand that its omission from the Bill will have results in other legislation and enactments. I do not think that there is anything sinister in wishing to insert "statutory undertaker". It is not an office under the Crown or anything else. It is a plain definition. I beg to move.

The Lord CHANCELLOR

My Lords, the definition of "business", which is fundamental to the Bill because of its operation only in relation to "business liability", makes it clear that the activities of various kinds of public body (Government Departments and local and public authorities) are included. In the draft Bills prepared by the Law Commissions, the definition of "business" made a specific reference to the activities of statutory undertakers but, as has been rightly pointed out earlier, not in terms to those of public authorities.

The expression "statutory undertaker" does not however have a specialised meaning, though in the context of the Bill it may be taken as covering any body, such as the nationalised industries, which undertakes to provide goods or services in the exercise of statutory functions. However, it is doubtful whether certain statutory bodies being bodies which are of a public nature but whose functions do not involve, or do not primarily involve, the provision of goods or services, would be included in that expression. For example, the National Consumer Council, the British Airports Authority or the Police authorities. Yet bodies of that kind have occasion to make contracts (either with members of the public or with people or firms carrying on business in the conventional sense) which might contain terms which ought to be subject to control under the Bill.

These bodies are more aptly described in modern legislation as "public authorities", an expression which equally covers those, like the nationalised industries, which are aptly described as "statutory undertakers". Hence the former expression has been substituted for the latter to which on that basis, it becomes unnecessary to refer. It is not thought that any body exists which could aptly be described as a "statutory undertaker" but not as a "public authority" but which was not carrying on a business in the conventional sense and whose activities are therefore within the general meaning of that expression, apart from the special cases covered by the definition. I hope that that explanation will satisfy the noble Lord.

Lord LYELL

My Lords, I was in error earlier in looking towards the noble Lord, Lord Jacques, for an explanation. I wondered what was awaiting me when the noble Lord, Lord Jacques, showed no emotion. I am immensely grateful to the noble and learned Lord for his very full explanation. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 14 [Scope of Part II]:

5.25 p.m.

Lord McCLUSKEY moved Amendment No. 17: Page 7, line 15, leave out ("17") and insert ("(Arbitration of differences in consumer contracts)").

The noble and learned Lord said: My Lords, it will be for the convenience of the House if, with this Amendment, I also speak to Amendments Nos. 19 and 24. Amendment No. 24 is the Scottish equivalent of the matter which was discussed in reference to Amendment No. 9, the clause in relation to arbitration. There is a difference in relation to the drafting and that derives from the fact that the Scottish Part of the Bill, which is Part II, is structured differently from the English Part. The shape is different and the terminology is to some extent different. I should say—because this applies to a number of other Amendments—that the basic difference, as one can see from Clause 14, is that the Scottish Part of the Bill applies to contracts which are in effect listed or specified, whereas, as one sees from Clause 1(2), the Bill is intended to apply to all contracts unless they are excepted. That gives rise to certain differences in terminology.

Just to exemplify it briefly here, there is no equivalent in the new clause which is mentioned in Amendment No. 24 to the provision in the new clause mentioned in Amendment No. 9, Clause 9A(2)(b). Its scope does not apply to disputes arising under any of the contracts listed in Schedule I. This is because the same effect is achieved in the context of Part II by bringing the new proposed clause 17A within the ambit of those contracts to which clauses Nos. 15 to 17 apply. This is achieved by amending Clause 14(2) and (3) by Amendments Nos. 17 and 19 to extend the references therein to Clauses 15 to 17 to include the new clause. It is therefore unnecessary to have any equivalent in the proposed new clause to the provision made by new Clause 9A(2)(b).

On Question, Amendment agreed to.

Lord McCLUSKEY moved Amendment No. 18:

Page 7, leave out line 25 and insert— ("(d) relates to the liability of an occupier of land to persons entering upon or using that land; (e) relates to a grant of any right or permission to enter upon or use land not amounting to an estate or interest in the land.")

The noble and learned Lord said: My Lords, this Amendment should be considered along with Amendment No. 20. The general purpose of these Amendments is to replace the existing provisions of Clause 14(2)(d) and Clause 14(3)(a)(i) by a more precise description of the types of contractual provisions relating to land to which Clauses Nos. 15 to 17 are to apply and by doing so to make those provisions more easily understood. It is intended that those clauses should apply, first of all, to provisions relating to services in any contract including a lease. This is already achieved by Clause 14(2)(c) and the Amendments do not affect this position.

Secondly, it is intended that those clauses should apply to provisions relating to an occupier's liability to persons entering upon or using his land, such as provisions excluding or restricting such liability. That is achieved by the proposed replacement of Clause 14(2)(d). And, thirdly, the provisions relating to a licence to enter upon or use land—this is achieved by the new paragraph (Clause 14(2)(e)). Your Lordships should be aware that, as the expression "licence" is not a term of art in Scots law, it has been found necessary to define what is meant by it in such a way as to distinguish it from a lease or other contract relating to land. The way which has been adopted is precedented in Section 32(1)(d) of the Caravan Sites and Control of Development Act 1960.

As a result of specifying precisely the types of contractual provisions relating to land to which Clauses 15 to 17 are to apply, it is unnecessary and indeed inappropriate to retain any general exception relating to land contracts, as was contained in Clause 14(3). Accordingly, that part of Clause 14(3)—in other words, 14(3)(a)(i)—is to be deleted. I beg to move Amendment No. 18.

The Earl of SELKIRK

My Lords, I take it from what the noble and learned Lord has said that there is no intention of any change in meaning whatever in the references to land occupation. The noble and learned Lord made a change recently —and I am afraid I did not read it at the Committee stage—so that the word "refers" has become "relates". May I ask whether there is any difference between those two words? "Refers" strikes me as slightly narrower in meaning than the word "relates", particularly in time. "Refers" would tend more to relate to a situation at a given time but "relates" might be extended over a considerable period. I wonder whether any real alteration in meaning has been made, particularly relating to events occurring before or after certain things have happened. If there is no change in meaning I am quite content: if there is a change, f should like to know what it is.

Lord McCLUSKEY

My Lords, I think I explained at the time why we were changing "relates" to "refers". and that was accepted then. There was no intention to change the matter. This is merely a matter of consistency in that regard with the rest of the Bill. No other change is intended in relation to occupiers' liability. What I think would be achieved if Amendments Nos. 18 and 20 are accepted would be a clarification of what it is intended to cover. I think it emerges much more precisely, and I hope we shall see that when the Bill is ultimately reprinted. It is perhaps rather difficult to see it at this stage when we are working with bits of paper and going from one to the other.

On Question, Amendment agreed to.

Lord McCLUSKEY moved Amendment No. 19: Page 7, line 27, leave out ("17") and insert ("(Arbitration of differences in consumer contracts)").

On Question, Amendment agreed to.

Lord McCLUSKEY moved Amendment No. 20: Page 7, leave out lines 30 and 31.

On Question, Amendment agreed to.

Clause 15 [Liability for breach of duty]:

5.34 p.m.

Lord McCLUSKEY moved Amendment No. 21: Page 8, line 24, leave out ("or") and insert ("and").

The noble and learned Lord said: My Lords, with your permission, in moving this Amendment I should like to refer to a great many other Amendments which are of exactly the same kind. They are Amendments Nos. 22, 23, 25, 26, 27, 28, 29, 31, 34 and 40. At one stage it was suggested by the noble and learned Lord, Lord Hailsham, that perhaps the noble and learned Lord the Lord Chancellor might consider conferring an honorary Q.C. upon the noble Lord, Lord Lyell. When his petition to be made a Q.C. goes forward, I should like to add my name to those supporting it, because this is another example of the noble Lord's having brought good sense to a Bill.

Several noble Lords: Hear, hear!

Lord McCLUSKEY

The Government accept what the noble Lord has proposed. The Amendment being made here to delete the word "or" and insert the word "and" are merely to do what the noble Lord, Lord Lyell, asked us to do at Committee stage. We are very grateful to him. We accept it, although I would defend the draftsmen and indeed the Law Commission, who used the term "fair or reasonable" rather than the one to which we move, by saying that I think ultimately it makes no difference but it certainly makes good sense. I commend these Amendments to your Lordships. I beg to move.

Lord LYELL

My Lords, I am very grateful for your Lordships' acceptance of these Amendments. Indeed, they follow from points that I raised which I regarded as semantics and mere questioning at an earlier stage. I am very flattered by the kind remarks that have come my way at this stage and at an earlier stage of the Bill from both sides of the Border, so far as law is concerned. I must say I was a little apprehensive when the noble and learned Lord, Lord McCluskey, accepted all these Amendments. He says that "fair or reasonable" or "fair and reasonable" makes no appreciable difference. I am glad that he says so, because I have learned to my cost, I hasten to add, that in a theoretical examination room all is not what it appears to be in the legal paper. Certainly, if the noble and learned Lord, Lord McCluskey, believes that I have added clarity to the Bill, I feel that his remarks will not reflect solely upon me but also upon an institute not a hundred miles from the Law Society of Scotland: indeed, their address is in Queen Street, Edinburgh. I am sure that they, too, will be pleased that my legal training has shown an independent and inquiring mind into these small differences. But if the noble and learned Lord, Lord McCluskey, says that the removal of "or" and the insertion of "and" makes no difference to the Scottish law, then I, and I am sure the whole House, will be delighted.

On Question, Amendment agreed to.

Clause 16 [Control of unreasonable exemptions in consumer or standard form contracts]:

Lord McCLUSKEY moved Amendments Nos. 22 and 23:

Page 9, line 3, leave out ("or") and insert ("and");

Clause 17, page 9, line 14, leave out ("or") and insert ("and").

On Question, Amendments agreed to.

Lord McCLUSKEY moved Amendment No. 24:

After Clause 17, insert the following new clause:

Arbitration of differences in consumer contracts.

—(1) In the case of a consumer contract, an agreement to refer future differences to arbitration cannot be enforced against the consumer except—

1. (a) with his written consent given after differences have arisen;
2. (b) where he has himself had recourse to arbitration in pursuance of the agreement.

(2) Subsection (1) above does not affect the enforcement of arbitration agreements to which section 1 of the Arbitration Act 1975 applies (that is, arbitration agreements other than "domestic" within the meaning of that section).

The noble and learned Lord said: My Lords, I spoke to this Amendment in connection with earlier Amendments, and I now beg formally to move Amendment No. 24.

On Question, Amendment agreed to.

Clause 19 [Obligations implied by law in sale and hire-purchase contracts]:

Lord McCLUSKEY moved Amendments Nos. 25 to 29:

Page 10, line 21, leave out ("or") and insert ("and");

Clause 20, page 10, line 30, leave out ("or") and insert ("and");

Page 10, line 33, leave out ("or") and insert ("and");

Clause 21, page 11, line 15, leave out ("or") and insert ("and");

Clause 22, page 11, line 23, leave out ("or") and insert ("and").

On Question, Amendments agreed to.

Lord McCLUSKEY moved Amendment No. 31: Page 11, line 29, leave out ("or") and insert ("and").

On Question, Amendment agreed to.

Lord HAILSHAM of SAINT MARYLEBONE moved Amendment No. 32:

Page 11, line 35, at end insert— ("() Where a term in a contract purports to restrict liability to a specified sum of money, and the question arises for the purposes of this Part of this Act whether it was fair and reasonable to incorporate the term in the contract, then, without prejudice to subsection (2) above, regard shall be had in particular to—

1. (a) the resources which the party seeking to rely on that term could expect to be available to him for the purpose of meeting the liability should it arise;
2. (b) how far it was open to that party to cover himself by insurance.")

The noble and learned Lord said: My Lords, this is the Scottish equivalent of Amendment No. 11 which was accepted. I therefore beg to move it formally.

On Question, Amendment agreed to.

Lord McCLUSKEY moved Amendment No. 34: Page 11, line 36, leave out ("or") and insert ("and").

On Question, Amendment agreed to.

Lord McCLUSKEY had given Notice of his intention to move Amendment No. 35:

After Clause 22, insert the following new clause:

Interference with provisions of Part II. (".Any term of any contract shall be void which, either expressly or by implication, disapplies or restricts the application of the provisions of this Part of this Act in respect of that or any other contract.")

The noble and learned Lord said: My Lords, this is the Scottish equivalent of Amendment No. 14 and, having regard to the fate of that Amendment, I shall not move this one.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I was going to commend this one to the noble Lord, Lord Jacques, as being a better version, but perhaps it is right not to pass it now. I was really going to say that if the noble Lord, Lord Jacques, had taken a leaf out of the Scottish draftsman's book he would have had a less violent reaction from me.

Lord McCLUSKEY

I almost said that myself, my Lords, but I am happy that it should come from the noble and learned Lord, Lord Hailsham of Saint Marylebone, rather than from me.

Clause 23 [Interpretation of Part II]:

5.40 p.m.

Lord McCLUSKEY moved Amendment No. 38: Page 12, line 30, at end insert ("act or omission giving rise to that").

The noble Lord said: My Lords, Amendment No. 38 is purely a drafting Amendment. When I spoke to Amendments Nos. 66 and 69 in Committee I indicated that I was not entirely happy with the wording. I think that the reason was that although the wording was perhaps readily comprehensible it was not entirely logical as it stood in the Bill, because it is not the breach which is not intentional or deliberate but rather the act or omission which causes the breach. This Amendment is intended to remedy that logical defect by altering Clause 23(2) so that it reads: … whether the act or omission giving rise to that breach was inadvertent or intentional". That is the only purpose of the Amendment. I beg leave to move Amendment No. 38.

On Question, Amendment agreed to.

Clause 24 [International supply contracts]:

Lord LYELL moved Amendment No. 39: Page 13, line 18, leave out ("subsection (3) below") and insert ("this section").

The noble Lord said: My Lords, it might be for the convenience of the House that I should speak not only to Amendment No. 39 but to other minor Amendments that appear in my name—namely, Amendments Nos. 41, 42, 43 and 44. I hope that such a course will be convenient. It would certainly add to the speed of our proceedings. Clause 24 as it stands at present excludes from the scope of the Bill any international contracts for the sale and supply of goods. However, the Bill does not exclude international contracts for the supply of services. Let us take an example of the kind of services that I have in mind. There are professional engineers, management consultants, chartered accountants and many others who render service overseas.

The reason for distinguishing in this particular way between the two different types of contract—international contracts for the supply of goods and the supply of services—is not immediately clear. Indeed, the position is that much more difficult to understand when we consider that international agreements often combine the sale of goods with the provision of services. The noble Lord, Lord Jacques, had a florid example, of the heating that blew up and I presume that he was referring to a United Kingdom boiler. We can foresee many refrigeration services that might be going to lands in the Middle East and, clearly, combined with contracts for the sale of these refrigeration plants or whatever is being sent to Saudi Arabia and other places in the Gulf, one finds a contract for the provision of services for maintenance of this complicated and complex equipment.

Of course, these services are of considerable importance to all professional groups. It is not clear from the Law Commissioners' Second Report that they specifically directed their minds to this particular class of international contract. There were no precise reasons that we could find for not treating contracts for the supply of services in the same way as contracts for the supply of goods. Finally, we could not really believe that the acceptance of the Amendments would have any serious effect on the protection which the Bill is intended to give and, we believe, does give to consumers. We hope that that is not a reason for not giving further and more detailed consideration to these Amendments. I should therefore now like to move Amendment No. 39.

The LORD CHANCELLOR

My Lords, the noble Lord, Lord Lyell, has returned with his Amendments to the discussion which we had on the same matter during the Committee stage. In Committee the noble and learned Lord, Lord Hailsham, asked whether I would consider between then and the Report stage the position of a supplier of services who wishes to supply them abroad under a contract concluded here. I have given this consideration and am grateful to the noble Lord, Lord Lyell, for putting down these Amendments so that we can consider the matter.

The Amendments raise the question whether the Bill should deal with international contracts for the supply of services on the same, or roughly the same, basis as the provision which it makes for international contracts for the supply of goods. Clause 24 in part restates the law as laid down in the Supply of Goods (Implied Terms) Act 1973. So far as Clause 24 relates to the sale of goods, it is a pure restatement. Clause 24 extends this régime to international contracts for the supply of goods otherwise than by sale.

The 1973 Supply of Goods (Implied Terms) Act gave exemption to international contracts for the sale of goods which satisfied the characteristics which are given in subsections (3) and (4) of the clause, and the reasons for this were the following. First, where goods are exported from one country to another protection for consumers and purchasers is really a matter for the importing State. Secondly, international contracts are usually transactions of some considerable size between commercial men who wish to be free to negotiate their own terms without the controls imposed by the Bill. Thirdly, it was suggested to the Law Commission before 1969 that control over international sales of goods could damage our export drive. These reasons appeared in their First Report.

With these Amendments the noble and learned Lord now asks why that reason is not equally applicable to international contracts for the supply of services. It is a very reasonable question to ask. The answer, in the first place, is, I think, that the Law Commissioners themselves considered that there was a distinction between contracts for the supply of goods and contracts for the supply of services. The main reasons given were that in the context of personal injury and death there was no need to provide an exemption from the categories of exemptions to be rendered void, and this reason is, if anything, stronger as a result of the general acceptance that has been given in both Houses to Clause 2(1) of the Bill. Furthermore, the reasonableness test was, they thought, likely to prove flexible enough in operation to be able to take account of the international character of the contracts in question.

The noble and learned Lord, Lord Hailsham, put to the Committee the case of the consulting engineer who contracts for the supply of services in New Zealand. The reasonableness test would, I think, enable the courts to take account of the fact that there was international corn-petition for the order in question, and would give full weight to this when deciding whether or not the exception clause was reasonable. If the competition for the services of an architect was keen so that the foreign customer was in a strong bargaining position, then the fact that he had none the less accepted a contract which contained an exemption clause, could operate as an indication that it was fair and reasonable for it to have been included. At any rate, it is the kind of factor which the court could, and would no doubt, consider.

In dealing with this Amendment in Committee my noble friend Lord Jacques mentioned that the Amendments might impose a serious limitation on the protection which the Bill gives to consumers. He and I have since discussed this and are agreed that this criticism would apply to the Amendments in question only in so far as the consumer was contracting with someone across an international frontier from him. None the less, I think there is still something in the point.

A further reason for not extending Clause 24 for contracts for services is that this would indeed pose serious problems of drafting. The Amendments of the noble Lord, Lord Lyell, go as far as possible towards a satisfactory draft, but they raise a difficulty about where a contract for the supply of services is to be performed. This has caused difficulty in the context of value added tax and would, I think, prove substantially more difficult here. The difficulty is that there is not always something tangible which can be seen, as in the case of goods as they move from one country to another. So that, ill general, I believe there is a good deal of practical sense in the Law Commissions' joint recommendation, which, in a sense, suggests that these difficulties can be left to the operation of "reasonableness" in the courts and the way in which it is interpreted. It may not be a completely satisfactory answer, but I hope that it is, at any rate, thought to be a practical one.

Lord LYELL

My Lords. I should like to thank the noble and learned Lord for his very lengthy, detailed and concise reply to my Amendment. I was pleased that he said that it might not have been a full argument, and I hope that at some stage we may be able to obtain the full argument. But I take his point that it was a practical answer, and it provided much more information than I had received before. I am grateful to the noble and learned Lord, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord McCLUSKEY moved Amendment No. 40: Page 13, line 22, leave out ("or") and insert ("and").

On Question, Amendment agreed to.

Clause 25 [Choice of law clauses]:

5.52 p.m.

Lord JACQUES moved Amendment No. 45:

Page 14, line 8, leave out ("that") and insert— ("(either or both)— (a) the")

The noble Lord said: My Lords, I think it will be for the convenience of the House if, in moving this Amendment, I speak to Amendment No. 46. These Amendments are designed to give consumers additional protection against terms in contracts which, by providing that the law governing the contract is to be the law of a country outside the United Kingdom, would prevent the Bill from applying to the contract. Under Clause 25(2) as it is now, the Bill will have effect despite the fact that the parties have chosen to apply a foreign law to the contract, but only where it can be proved that the choice of the foreign law was made in order to evade the operation of the Bill. It is now recognised that, in practice, this may well throw a heavy burden on the very person whom Clause 25(2) is seeking to protect, because he will have to prove that the sole or main purpose of the other party in applying the foreign law was to evade the operation of the Bill.

We consider, therefore, that additional protection is needed for consumers as regards contract terms which apply a foreign law, and this Amendment will give it. It does so by providing that, where the consumer is habitually resident in the United Kingdom and takes all the steps necessary on his part for the conclusion of the contract in the United Kingdom, the Bill will apply despite the term which applies the foreign law. In other words, where a foreign law is chosen and consumers are involved, the rules in the Bill will prevail. But in dealings between businessmen, their express choice of that law will normally prevail. My Lords I beg to move.

On Question, Amendment agreed to.

Lord JACQUES moved Amendment No. 46:

Page 14, line 11, at end insert— ("or (b) in the making of the contract one of the parties dealt as consumer, and he was then habitually resident in the United Kingdom, and the essential steps necessary for the making of the contract were taken there, whether by him or by others on his behalf. (3) In the application of subsection (2) above to Scotland, for paragraph (b) there shall be substituted— (b) the contract is a consumer contract as defined in Part II of this Act, and the consumer at the date when the contract was made was habitually resident in the United Kingdom, and the essential steps necessary for the making of the contract were taken there, whether by him or by others on his behalf.".")

On Question, Amendment agreed to.

Clause 27 [Saving for other relevant legislation]:

Lord AIREDALE moved Amendment No. 47: Page 15, line 26, after ("function") insert ("and is not a term in a contract to which the competent authority is itself a party.")

The noble Lord said: My Lords, this is an Amendment to a new subsection which was introduced into the Bill at the Committee stage by the noble Lord, Lord Jacques. That new subsection propounds the proposition that a contract term is to be taken as satisfying the requirement of reasonableness if it is approved by a competent authority—and that includes a statutory undertaker—acting in the exercise of any statutory jurisdiction. Perhaps I may pause there and say that I have no quarrel at all with this subsection so far. It is the last two words "or function", that I suggest to your Lordships need qualification, because it seems to me that if those words are not qualified they will establish a charter for statutory undertakers, merely by giving their blessing to the terms of their own contracts with their customers, to oust the jurisdiction of the court and to prevent the customer, if he is aggrieved, from taking the case to the court and getting an impartial decision from the court as to the reasonableness of the terms of the contract of the statutory undertaker about which he is complaining.

I therefore seek to insert the words in this Amendment, which make it quite clear that the subsection is not intended to apply in a case in which a statutory undertaker is itself a contracting party, and that the clause is therefore referring solely to cases in which the competent authorities are exercising a quasi-judicial authority in relation to contracts entered into between other people, and not contracts to which they are themselves a party. My Lords, I beg to move.

Lord JACQUES

My Lords, it has never been intended that a public authority could take advantage of this clause in relation to contracts to which it is a party. I have had consultations, and I am happy to say that the draft is acceptable to both the sponsor and the Government. Therefore, I accept the Amendment and commend it to the House.

On Question, Amendment agreed to.

Clause 29 [Commencement; amendments; repeals]:

5.57 p.m.

Lord JACQUES moved Amendment No. 48: Page 16, line 4, leave out from ("force") to end of line 5 and insert ("on 1st February 1978").

The noble Lord, said: My Lords, this Amendment arises out of a minor debate that we had in Committee as to the commencement date. The effect of it is to delay the commencement from three months after the Bill is passed to six months after it is passed. We are very reluctant to extend the date, but we recognise that it will be necessary for business and professional men to have a look at their insurances, in order to make sure that they get adequate cover. I am happy to commend this Amendment to the House. My Lords, I beg to move.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I am very grateful to the noble Lord, Lord Jacques, for paying attention to what we said in Committee. I expect that this will be just long enough, but not much more.

On Question, Amendment agreed to.

Clause 30 [Citation and extent]:

Lord HAILSHAM of SAINT MARYLEBONE moved Amendment No. 49. Page 16, line 14, leave out from ("the") to end of line and insert ("Exemption Clauses").

The noble and learned Lord said: My Lords, here again we come to the famous question of the Short Title of the Bill. I really take exception to Unfair Contract Terms Bill. It is a completely misleading, name, it is ungrammatical English and I think that if we were labelling goods in this way we should render ourselves liable to prosecution under the Trade Descriptions Act. I venture to take a leaf out of the book of the noble Lord, Lord Airedale—or perhaps it was another noble Lord on the Liberal Benches—who gave me qualified support for an earlier and limping suggestion which I made and I think that, on the whole, the term which I have inserted into the Amendment is not misleading, is fairly honest and is not unduly long and cumbersome, as my previous suggestion was. I know it may be said that it does not cover the entire area covered by the Long Title, but what Short Title does? The Long Title covers, by Clause 4, the indemnity clauses and will also cover the arbitration clause if the final Amendment is accepted. However, I think that I have done better than the sponsors. Therefore I commend the Amendment to the House and beg to move.

Lord AIREDALE

My Lords, I am very happy to give my support, for what it is worth, to this Amendment—as I did, indeed, at the Committee stage. Very briefly, I should like to mention one point which has not been made. My problem is that the existing Title of the Bill begins with an adjective which is in common use; one visualises the harassed, busy practitioner racking his brain to try to remember what common adjective it is that the has to look up in order to find the Title. Is it "unfair", is it "unreasonable", is it "inequitable", is it "objectionable"? Which of these common terms is it that he has to try to search for and find in the index to the Statutes? I should have thought that that was a solid ground for objecting to any Title which begins with a common adjective having many synonyms. I hope the House will consider that the noble and learned Lord's alternative Short Title is very much to be preferred.

The LORD CHANCELLOR

My Lords, what is important in the Bill is not its Short Title but its content, and I hope that we shall not have too prolonged an argument about the mere Title. The difficulty is that, so far, no wholly satisfactory Title has been discovered. At least the present Title is meaningful. I do not believe that it is emotive. It will be easily understood by the man in the street and the small shopkeeper. The name "Exemption Clauses Bill" does itself have a number of drawbacks. For instance, a number of the provisions in the Bill are not exemption clauses but conditions under which licences are granted or benefits voluntarily conferred. In addition, in Clause 4 We have indemnity clauses which, in general, are not exemption clauses, either. Certainly there is no perfection, nor, indeed, is perfection claimed for the proposed substitution.

My view of the matter is that the Bill is directed towards controlling the major kinds of unfair contract terms. I am informed by the sponsors of the Bill that not only do they desire to adhere to the present description but that they believe it highly likely that, if your Lordships reject the present Title, it will be reinstated in another place. However, that is a factor which certainly ought not to dominate decisions in this House, though it is perhaps worth bearing in mind at this stage. Although I agree that "Unfair Contract Terms Bill" is not perfect, it has the merit, at any rate, of being short and easily understood. I hope, accordingly, that your Lordships will leave it unchanged.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I find that a very unsatisfactory reply. Our Title is as short and it happens to be accurate and honest. The existing Title is, I think, misleading and therefore dishonest. If the Commons have nothing better to do than to change the names of Bills without altering their content, I am rather unimpressed by their threats. However, as it is going to waste a great deal of your Lordships' time to have this Amendment back again, perhaps I had better withdraw it with as ungracious an attitude as I can possibly adopt.

Amendment, by leave, withdrawn.

Schedule 2 ["Guidelines" for application of reasonableness test]:

Lord JACQUES moved Amendment No. 50: Page 18, line 4, after ("7(3)") insert ("and (4)").

The noble Lord said: My Lords, this Amendment is consequential upon Amendment No. 7. I beg to move.

On Question, Amendment agreed to.

The LORD CHANCELLOR moved Amendment No. 53: In the Title, line 7, at end insert ("and (for the whole of the United Kingdom) to render arbitration agreements unenforceable in certain cases").

The noble and learned Lord said: My Lords, this Amendment extends the Long Title of the Bill to cover the addition of the new clause on consumer arbitration. I beg to move.

On Question, Amendment agreed to.