HL Deb 07 July 1977 vol 385 cc512-26

5.53 p.m.

Lord JACQUES

My Lords, I beg to move that this Bill be now read a third time.

Moved, That the Bill be now read 3a.—(Lord Jacques.)

On Question, Bill read 3a, with the Amendments.

Lord JACQUES moved Amendment No. 1: After Clause 10, insert the following new clause:

Evasion by means of secondary contract

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, Clauses 2 and 3 of the Bill assume that a clause excluding or restricting the liability of the supplier of goods or services under a contract will be contained in a contract between the supplier and the customer, but this is not necessarily so. It may be contained in a contract between the customer and a person who was not a party to the original contract. I gave a detailed example during the Report stage on Monday. The purpose of the Amendment is to prevent evasion of the controls contained in the Bill by means of such a secondary contract.

I withdrew this Amendment during the Report stage on Monday in order to reconsider it in the light of the observations made by the noble and learned Lord, Lord Hailsham of Saint Marylebone, who doubted the need for the Amendment and criticised both its placing and its drafting. To deal first with the necessity for the Amendment, I should like to point out that the possibility of three-cornered contractual situations engineered by companies acting in collaboration came directly from the Law Commission. I submit that their advice on these matters ought not to he lightly disregarded. As to the placing of the Amendment, when I moved it on Monday it was to be found at the end of what is now Clause 13. Accepting the criticism of the noble and learned Lord and following the Scottish example, now I move it as a new clause after Clause 10, under the cross heading "Other provisions about contracts" rather than under the cross heading "Explanatory provisions".

Finally, I come to the wording of the Amendment. I have to report with regret that, after the most careful examination of the wording, we are unable to improve it. This is a difficult subject matter. We believe that the wording as it is now will stand up to analysis. It is, of course, not possible to achieve the desired purpose in the way it is achieved by the Scottish draftsman in his equivalent new clause, That method would be wrong for Part I, which is drafted throughout in terms different from those in Part II. I beg to move.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I am grateful to the noble Lord, Lord Jacques, for having considered the criticisms which I felt bound to make at the first attempt and for giving effect to some of them. I still think that this is an over-elaboration. The mania of modern legislation to try to predict every form of evasion and to stop the hole in advance is cluttering up the Statute Book with an absolute mass of gobbledegook, and I believe this to be an example of it. Also, despite what the noble Lord has said, I vastly prefer the relatively lucid language of the Scottish equivalent to the extremely obscure language of this new clause. Having said that, I do not wish to hold up the business of the House, and I am grateful to the noble Lord for having improved the position, even to a modest extent.

On Question, Amendment agreed to.

Clause 15 [Scope of Part II]:

The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey) moved Amendment No. 2: Page 8, line 3, leave out ("and").

The noble and learned Lord said: My Lords, may I speak to Amendments Nos. 2 and 3 at the same time. The real purpose of these Amendments is to avoid doubt—to make it clear, in other words, that the validity of any discharge or indemnity granted in settlement of any claim is not affected by any of the provisions in Part II of the Bill. Part II of the Bill contains several provisions which render void or of no effect a term of contract which purports to exclude or restrict liability for breach of duty or breach of contract. One finds an example in Clause 16(1) and, indeed, in other clauses.

It is not, of course, intended that controls should apply to any contractual provision which discharges any claim a person may have in respect of any liability which some other person may have incurred in the past. I understand that the problem which we visualise and have sought to cover by this avoidance of doubt provision does not arise in England. In England, the view is taken that what is termed in English law accord and satisfaction does not include or restrict any liability arising in future and that it merely operates to discharge a preexisting liability. I beg to move Amendment No. 2.

The Earl of SELKIRK

My Lords, I made an oblique reference to this point in my remarks during the Committee stage of the Bill, although I did not put the question directly to the noble and learned Lord. I believe this to be a sensible Amendment.

On Question, Amendment agreed to.

Lord McCLUSKEY moved Amendment No. 3: Page 8, line 4, at end insert ("and does not affect the validity of any discharge or indemnity given by a person in consideration of the receipt by him of compensation in settlement of any claim which he has.")

The noble and learned Lord said: My Lords, I beg to move Amendment No. 3.

On Question, Amendment agreed to.

Lord DRUMALBYN moved Amendment No. 4: Page 8, line 28, at end insert ("or the rights or obligations of its corporations or members or relates to the formation, constitution or dissolution of any unit trust scheme (as defined by section 26(1) of the Prevention of Fraud (Investments) Act 1958) or the rights or obligations of its trustee or managers or beneficiaries;")

The noble Lord said: My Lords, this Amendment relates to those who offer the opportunity to participate in investment in a particular way—that is, through unit trusts. I suppose that I should declare a modest interest. Like many others, I am a unit holder, with investments in two or three unit trusts. What the Bill provides in relation to these unit trusts is not clear, at least to some lawyers, particularly in relation to Scotland. I am not a lawyer and certainly the position is not clear to me.

It is important that in a matter of this kind the effect of the law should be the same in Scotland as in other parts of the country. The way in which the law is expressed in the Scottish part of the Bill—Part II—is necessarily different because of the difference between Scottish and English legal procedures and institutions. However, the outcome should be the same. That is what I think the EEC call "harmonisation". It is unfortunate that the point was not put to the Scottish Law Commission and there is doubt as to what the Bill intends. Clause 15(1) says that Part 11 applies only to contracts and subsection (2) says that Clauses 16 to 19 apply to any contract only to the extent that the contract fulfils one of five conditions, one of which is that it relates to services of whatever kind.

Subsection (3) goes on to exclude any contract, again to the extent that it is a contract of insurance or that it relates to the formation, constitution or dissolution of any body corporate or unincorporated association or partnership. As to the second paragragh, it appears that a unit trust scheme is not a body corporate or an unincorporated association or a partnership. Yet a unit trust provides opportunities for investment in much the same way as does a company. Indeed, under Section 17(1) of the Prevention of Frauds Investments Act, a unit trust scheme can be brought into operation only if it is sanctioned by the Department of Trade—if it is not the Department of Prices and Consumer Protection, because I am not quite clear how the Board of Trade empire was divided up between several separate departments—and its provisions are closely examined by a Government Department before authorisation is given. In those circumstances, one would have thought that the exclusion of unit trusts to the extent that they relate to the formation, constitution or dissolution of the trust should a fortiori extend to unit trusts as well as to companies, since no such authorisation is required in the case of companies.

The purpose of the Amendment is to ensure that a unit trust scheme shall enjoy the same exclusion as a company, corporated or unincorporated, or a partnership. It may be that, because of its nature and the authorisation that is needed, a unit trust scheme does not need such an exclusion. If so, I hope the noble and learned Lord the Solicitor-General for Scotland will tell us so, so far as Scotland is concerned. For that matter, perhaps he can tell us if the same applies to England.

It hardly seems conceivable that any unit trust scheme would be authorised if it included any provision restricting liability for breach of duty that the Department considered unreasonable. Nevertheless, unless this is explicitly stated in the Bill, beneficiaries under the trust—that is, investors—might challenge the reasonableness of any provision in the courts, and I suppose the courts might reach a different conclusion from that reached by the Department. I think this is undesirable, and for that reason I propose this Amendment, which would add further words to the exclusions in favour of unit trust schemes and the rights or obligations of these corporators or members. The reference to the rights or obligations of its corporators or members is taken from Schedule 1, paragraph 1(d)(ii) which provides exclusions from Clauses 2 to 4 of the Bill relating to England and Wales. I submit that the same provision should apply to Scotland, but I find no comparable words in Part II. I beg to move.

6.4 p.m.

Lord McCLUSKEY

My Lords, I am indebted to the noble Lord, Lord Drumalbyn, for giving me notice yesterday evening of his intention to move this Amendment. As he suggested, it really comes along rather late in the day, and I agree entirely with what he said; that is, that it is a great pity that this matter was not put, in the terms in which he has put it, to the Law Commissions. As the noble Lord has explained, this Amendment seeks two objectives: first, to add to the matters which are exempted from the Bill by Clause 15(3)(a)(i) the words, …or the rights or obligations of its corporators or members", and of course as the noble Lord has explained these words are taken from the corresponding English part of the Bill. Secondly, the Amendment seeks to insert special exemption for contracts, so far as relating to the formation, and so on, of a unit trust or the rights or obligations of its trustees, managers or beneficaries.

If I may take the two points in that order, first the appropriate paragraph to which he has made reference in Schedule I makes a specific reference to: …the rights and obligations of corporators or members". We have considered this phrase very carefully in relation to Scotland and I have to advise the noble Lord that we have concluded that we cannot see that its inclusion in the Scottish part of the Bill in Clause 15 would make any significant improvement. Indeed, I fear it would cause some confusion because there would certainly be difficulty in Scotland in construing the term, "corporators", which I cannot confess to ever having encountered in my brief career in the law. It is not a word which is a term of art in Scots law, and for that reason I should be reluctant to allow it to come into this clause in this part of the Bill. It would seem to me to add confusion. In any event the words which he wishes to add seem to be covered already by the words in Clause 15(3)(a)(ii): … formation, constitution or dissolution of any body corporate or unincorporated association or partnership". For these reasons I am not happy with, and would ask your Lordships not to accept, the first part of the Amendment. With regard to the second part, I would suggest that the noble Lord has chosen the wrong vehicle to move the Amendment, because he is proposing to amend the policy of the Bill in regard to unit trusts. If he wanted to do that, he should surely also have moved an Amendment to Schedule 1 as well as to Clause 15. It is our judgment that if he does not do so, and if this Amendment were to be carried, the law in Scotland would then in the result be different from that in England and Wales.

The question of the application of the Bill to unit trusts has been carefully considered in detail, both by the Department in England—the Department of Prices and Consumer Protection—and by the Scottish Office advisers concerned with the same matter. The view of both Departments is that, in so far as there are any provisions in a unit trust scheme which are contractual in character—and of course there may be provisions which are not contractual in character—and provide for services being rendered by the managers and the trustees, or by the trustees alone, no reason has been presented why they should not be subject to the controls imposed in the Bill. In so far as those provisions in a unit trust scheme are not contractual but fiduciary in nature, they would not of course be caught by Part II at all, because as Clause 15(1) makes clear, Part II, as the noble Lord has pointed out, applies only to contracts.

The provision in relation to companies was included because of the recommendation of the Law Commission. I would certainly he inclined to accept what the noble Lord has suggested or has implied; that is, that it is hardly likely that a unit trust scheme which has got past the Department—in fact it is the Department of Trade which is responsible —could then be attacked in the court as being unreasonable in some particular. So it may be that, in fact, this is very much a shadow of a fear rather than a real fear.

For that reason, also, I would ask the noble Lord not to press this Amendment. But I should like to make it clear that, in so far as the unit trust scheme contains contractual provisions relating to services, the policy of the Bill, both in England and Wales and in Scotland, is to cover the appropriate term of the contract. In case the noble Lord should think there is some difference between England and Scotland, I would remind him that if he looks at Schedule 1 in relation to England, and in particular at paragraph 1(e), the wording of that does not exclude a unit trust scheme. The wording there is: … any contract so far as it relates to the creation or transfer of securities or of"— and perhaps, "of" is the important word— any right or interest in securities". I suggest that the policy, as the Bill stands, is applied equally to England and Scotland and the effect of the Amendment would be to change the policy for Scotland. I therefore ask the noble Lord, Lord Drumalbyn, not to press this Amendment.

Lord DRUMALBYN

My Lords, I am grateful to the noble and learned Lord, Lord McCluskey. I apologise for giving him such short notice of this matter. However, perhaps an apology is also owed to me. The noble and learned Lord has explained the position with great clarity. I appreciate that, had I had the time and foresight, I would have amended the Schedule as well to make certain that there was no difference between the law of England and the law of Scotland, or its substance in relation to the Bill. The noble and learned Lord has satisfied me of the reasons for the policy decision to exclude unit trusts from the purview of the exclusions, and for that reason I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord DRUMALBYN moved Amendment No. 5:

Page 8, line 28, at end insert— (iii)relates to the creation or transfer of securities or of any right or interest in securities;".

The noble Lord said: My Lords, this is an Amendment to which the noble and learned Lord the Solicitor-General has already referred obliquely. It is certainly shorter than the previous Amendment, and its meaning appears, on the face of it, to be clear. Therefore, I shall be brief. Schedule 1, as the noble and learned Lord has said, relates wholly to England and Wales, and includes a provision in paragraph 1 where it says:

"Sections 2 to 4 of this Act do not extend to— (e) any contract so far as it relates to the creation or transfer of securities or of any right or interest in securities". I cannot find any comparable provision in Part II of the Bill which applies only to Scotland.

Therefore, my first question must be: is the same result achieved in Part II in different words? If so where, and if not why not? My second question is: what is meant by "securities"? I cannot find a definition in the Bill, but from what the noble and learned Lord has already said it would seem to me that perhaps "securities" does cover the units of unit trust, and perhaps he will confirm this.

Although unit trusts differ from companies in that they do not engage in the provision of goods or services other than the services of their expertise and investment, a unit holder is investing in much the same way as the holder of securities in a company, except that they are spreading their risk over a number of securities chosen by the managers. For the purposes of the Bill there seems no reason why unit trust units should not be treated as securities. After all, I am advised that for tax purposes an authorised unit trust scheme falls to be treated by the Inland Revenue as if it were a company and the units were shares. In this case, of course, we are talking solely about a contract so far as it relates to the creation or transfer of securities or of any right or interest in the securities—"so far" and no further. To that extent it seems to me that the same general provision should apply to Scotland as to England and Wales. I hope that the word "securities" covers units in unit trusts as well as shares, whether fixed interest or otherwise, in companies.

Lord McCLUSKEY

My Lords, the reason why the noble Lord, Lord Drumalbyn, cannot find the equivalent provision in the Scottish part is that, as he knows, it is not there. I assure him that the same result is achieved. The reason it has to appear in Schedule 1 relating to the English part but is not required to appear in relation to the Scottish part. is that the whole drafting scheme of the Scottish part is different from the drafting scheme of the English part. In effect, the English part of the Bill applies to contracts unless they are taken out under Schedule 1. In the Scottish part of the Bill, Clauses 16 to 19 apply only to those contracts which are specified. Therefore, unless a contract is specified in Clause 15(2) one does not need to exclude it unless possibly for the avoidance of doubt, as one has in one or two cases. Therefore, if one now looks at Clause 15(2) one simply does not find that a contract of this kind is included. For that reason we did not go to the trouble of excluding it. That is the explanation.

As regards the other matter, there is, in fact, no definition of "securities" in the Bill. No definition is needed and I advise the noble Lord that my advice is that it certainly includes units or covers units under a unit trust. I am advised that the only statutory definition of securities which is available does not cover a wide enough area of all securities. However, my advice is that "securities" here does cover unit trusts.

Lord DRUMALBYN

My Lords, I am much obliged to the noble and learned Lord, Lord McCluskey. It is clear from what he has said that it would be unnecessary, and possibly undesirable, to put these words into the Bill, and therefore I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.17 p.m.

Lord McCLUSKEY moved Amendment No. 6: After Clause 23, insert the following new clause:

Evasion by means of secondary contract

Any term of any contract shall be void which purports to exclude or restrict, or has the effect of excluding or restricting—

  1. (a) the exercise, by a party to any other contract of any right or remedy which arises in respect of that other contract in consequence of breach of duty, or of obligation, liability for which could not by virtue of the provisions of this Part of this Act be excluded or restricted by a term of that other contract;
  2. (b)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 provision designed to have the same effect as the one introduced into the Bill in the first Amendment spoken to this afternoon by my noble friend Lord Jacques. The noble and learned Lord, Lord Hailsham of Saint Marylebone, complimented the Scottish draftsman on the previous occasion for the succinctness and lucidity of the drafting. Unfortunately, my noble friend Lord Jacques gave an example of a particular case which had not occurred to the draftsman and the Departments and he has caused a good deal of extra work since he introduced that example during the Report stage on Monday. The end result is that we have had to change the wording which was praised by the noble and learned Lord, Lord Hailsham of Saint Marylebone, on Monday night.

My Lords, again there is a difference in the drafting style and approach to the Bill in this regard. Part I of the Bill is expressed in personal terms and imposes controls upon the extent to which a person can exclude or restrict his liability for negligence and the like. However, when one turns to the Scottish Part it is not drafted in personal terms. Its provisions are addressed not to persons but in respect of contract terms. For example, it provides that a contract term which purports to do a certain thing shall be void or of no effect in certain circumstances. Therefore we could not adopt the English wording, and so the wording is different. The wording in the new clause achieves for Scotland what my noble friend Lord Jacques has spoken of as regards England. Paragraph (b) is designed to cover the particular example that he gave during the Report stage debate. I beg to move.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, again all I have to say about this is that I am sorry that the noble Lord, Lord Jacques, has obscured the felicity of language of the original draft of the Scottish draftsman. This again is a meaningless piece of gobbledegook designed to guard against an imaginary danger which will never come about and which, if it did come about, would either be wholly unreal or the courts could deal with it effectively without the aid of the complicated draftsmanship of this miserable Amendment. Having said that, I shall not hold up the business of the House.

On Question, Amendment agreed to.

Clause 27 [Choice of law clauses]:

Lord JACQUES moved Amendment No. 7: Page 15, line 19, after ("7") insert ("10").

The noble Lord said: My Lords, this is a consequential Amendment on an Amendment which was accepted by the House at the Report stage. I beg to move.

On Question, Amendment agreed to.

Lord JACQUES

My Lords, I beg to move that this Bill do now pass. I ask the House to bear with me for just two minutes so that I might do what I very much want to do; that is, to express thanks for the help I have been given from all sides. First of all, I would especially thank my noble and learned friend the Lord Chancellor and his staff for the considerable assistance which they have given me. Without that assistance I doubt whether I could have piloted this Bill through the House. I would also thank my noble and learned friend Lord McCluskey and his staff for the help they have given me in handling the Scottish side. May I also thank my right honourable friend the Secretary of State for Prices and Consumer Protection and his staff for the assistance and briefing I have had on this Bill.

I thank noble Lords on all sides who have tried to improve the Bill, particularly the noble and learned Lord, Lord Hailsham and the noble Lord, Lord Lyell, from the Opposition Benches, and Lord Airedale from the Liberal Benches; nor do I forget the considerable help that we had from the noble and learned Law Lords on the Cross-Benches. They were of considerable help on the intricate, and in one case contentious. part of the Bill. I am grateful to all concerned. I am sure that my honourable friend Mr. Michael Ward, the MP for Peterborough who sponsored this Bill in the Commons, will feel that this House has dealt with his Bill in a very constructive way. I wish him every good fortune in the final stages of the Bill.

Moved, That the Bill do now pass.—(Lord Jacques.)

6.22 p.m.

Lord HAILSHAM of SAINT MARYLEBONE

My Lords, I thank the noble Lord, Lord Jacques, for the kind things he has said about us on this side, and particularly about my noble friend Lord Lyell, who on our behalf has really shouldered an extraordinarily difficult and detailed task, with which I do not think I could have coped had I had to face it alone. If I may be allowed to say so, it is only another example of the way in which hereditary Peers are able to discharge important functions. They are young men of professional qualifications; they give their services for nothing. I do not think I could have coped with this technical little Bill if I had not been assisted by someone of that character. I am sure my noble friend will be glad to know what the noble Lord, Lord Jacques, has said.

I should also like to offer my congratulations to Lord Jacques. He has shouldered an immensely difficult task with extreme skill. We on this side miss him from the Government Bench; we know his extreme kindness and patience and conscientiousness in dealing with our various complains, whether querulous or reasonable, and these we have experienced again in the way in which he has dealt with us on this occasion. I think he has performed a very important task in getting the Bill through this House, with the assistance of the Government, as he rightly said. I do not think one ought to pass legislation of this kind unless it is approved by the Government of the day; it is far too complex and one is bound to make mistakes. But he had the assistance of the Government, and I think he has performed a very important task. The weight of opinion behind this Bill and the demand for it was really overwhelming. The words of the noble and learned Lord, Lord Morris of Borth-y-Gest and the noble and learned Lord, Lord Denning, will be fresh in your Lordships' minds. The two Law Commissions have backed it. The various consumer organisations have backed it, and I suppose the various particular interests whose views we felt it necessary to ventilate at various stages have not really knocked much of a dent in it.

I retain, I am sorry to say, my own scepticism about introducing reasonableness into the law of contract as a legal test, or rather extending it, because it is already there. I appear to be alone in this respect, or almost alone. I have done my best, as the noble Lord, Lord Jacques, very kindly said, to take a constructive and not destructive part in these debates. I am grateful for the small additions and amendments that, with the assistance of the Government and Lord Jacques, we were able to carry through. I hope in this respect I am not Athanasius contra mundum, but I feel that, sitting where I do with the background that I have, I ought to hold a sort of watching brief for the general theory of law in the legislation we pass. If I do not express quite the same enthusiasm for the Bill that the noble and learned Lords on the Cross-Benches expressed, I can only end by saying that I hope I am wrong. At any rate, the great mass of public opinion is with the noble Lord, Lord Jacques, and against me. I congratulate him on his success. It would have been wholly wrong had he not been allowed to carry through his worthy endeavours to fruition, because that is what the public wants.

6.24 p.m.

The LORD CHANCELLOR

My Lords, may I on behalf of the Government express my gratitude to Lord Jacques, the sponsor of the Bill in this House, for the cheerful, competent and masterful way in which he has led us through this highly technical Bill. The noble Lord, Lord Lyell, was not present to hear the well deserved tribute paid to him by the noble and learned Lord, Lord Hailsham, in a gracious speech for which we are all grateful. He suffered the long days and nights, the heat and battle, of the Patents Bill with a similar fortitude worthy indeed of his military background, and we are grateful to him.

The agreeable thing about the progress of this Bill is that sometimes it has enjoyed criticism, but always constructive criticism, from noble Lords of all Parties and of none. I think that perhaps we should expressly indicate our debt of gratitude to the Law Commission and the Scottish Law Commission, who laid the foundation for the Bill and continued their interest during the passage of the Bill. For our part also, we would like to thank those one does not often expressly refer to who have been guiding us with their expertise through the Bill.

I believe that the Bill represents a major step forward in the development of the law of contract and it is good that it has been given a general welcome in your Lordships' House. The experience has yet again shown the value of this House in improving legislation as it goes through the House.

On Question, Bill passed, and returned to the Commons.