§ 2.55 p.m.
§ Lord RITCHIE-CALDERMy Lords, I beg to move that this Bill be now read a third time.
§ Moved, That the Bill be now read 3ª—(Lord Ritchie-Calder).
§ On Question, Bill read 3a
§ Clause 5 [Effect on property rights of recall or variation of decree]:
§
Lord CAMPBELL of CROY moved Amendment No. 1:
Page 5, line 15, leave out from ("annuity") to ("or") in line 16.
§ The noble Lord said: My Lords, this is a bit of unfinished business on this Bill, but it will not take very long. I beg to move Amendment No. 1 and I suggest that Amendment No. 2 be discussed with it. This Bill, which has the general support of your Lordships' House, has to go through Parliament quickly if it is to receive Royal Assent, as we hope, this summer. The Committee stage took place only a week ago in your Lordships' House. There was virtually no Report stage because it was taken formally immediately after the Committee stage, and there was no opportunity, therefore, for Amendments to be moved on Report stage. A few days were needed for the Government to consider the one principle point which was made at Committee, the point raised by the life insurance companies in Scotland. This is the opportunity to see whether during the intervening week the Government have been able to examine what was raised at the Committee stage 775 and see whether they can accept these Amendments.
§ Briefly, the Bill rationalises the position when somebody has been missing for a long time; it provides that after seven years, in certain circumstances, that person can be presumed dead. The part with which we are dealing governs the position when a person reappears, where there has been by fraud an attempt to appear to be dead, or where by genuine mistake somebody has been assumed to be dead and then reappears. The provisions in Clauses 4 and 5 allow, among other things, for insurance payments which have been paid in good faith on somebody's presumed death to be repaid.
§ There is one category of insurance payment which has been specifically excluded from the discretion of the court which is to consider these matters. Neither the noble Lord, Lord Ritchie-Calder, who is sponsoring this Bill, nor the Government could clarify why this exclusion had been put in the Bill, other than that it appeared in the draft Bill which the Scottish Law Commission produced. But the draft Bill was not precisely the same as the recommendations in the report of the Scottish Law Commission, and that is why there appeared to be a discrepancy. It is a technical insurance point. The Government were good enough to say they would look into the matter and they needed a few days to do it.
§ The kind of policy which could inappropriately be excluded is a family income policy. This is called that name, or some other special name. Under it there is provision, on death within a specified period, for payments, fixed monthly or quarterly, to be payable until the end of that period. That policy is basically a temporary decreasing assurance payable by instalments. Although those instalments are sometimes called income they are by nature capital, and under long-standing Revenue practice are not subject to income tax. That is an important point. It is accepted that they are not income and they have not had to pay income tax. To include that kind of payment in the wording of this Bill would be to cause quite unnecessary difficulty and possibly litigation in future, because it would look as though those payments were not being regarded as capital but as income.
776§ I am grateful to the noble and learned Lord, Lord McCluskey, for saying that he personally would look into the matter before today. He has pointed out that the Bill says that the court dealing with such a case has only to have regard to what is laid down in Clause 5, that it is not mandatory. But, none the less, if something is specifically mentioned for exclusion from their regard it will look as though they are not supposed to deal with that kind of payment. So I would again ask what reason there is for this specific exclusion? Why cannot this also be left to the discretion of the court? This is something which the Scottish insurance industry, which has been a leader in insurance throughout the world, is worried about. I hope that the Solicitor-General can today give us an answer to this point, and that he will be able to accept these Amendments.
§ The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey)My Lords, as the noble Lord, Lord Campbell of Croy, has said, these two Amendments were discussed during the Committee stage and we undertook to go away and look at the Amendments and the whole general question. The noble Lord, Lord Campbell of Croy, suggested that the intentions of the Scottish Law Commission had not been given effect to in their own draft Bill or in the present Bill which, in fact, is an exact replica of the draft Bill in this regard. The Scottish Law Commission have informed my noble friend Lord Ritchie-Calder and myself that they consider that the Bill, as drafted, correctly represents the policy proposed by them in paragraph 107 of the report to which the noble Lord, Lord Campbell of Croy, made reference during the Committee stage. In particular, they confirm that the words,
or other periodical payment",are intended to cover the type of policies described as "income benefit" policies by the noble Lord, Lord Campbell of Croy.We and the Scottish Law Commission have looked closely again at the policy underlying this provision in the light of the views expressed by the noble Earl, Lord Selkirk, and the noble Lord, Lord Campbell of Croy, and we are not persuaded that any change to the Bill is justified. I should like to give three reasons. First, the periodical payments 777 made under such policies as the noble Lord, Lord Campbell of Croy, described in column 278 of Hansard during the Committee stage and, indeed, today, and known as "income benefit", are likely to be regarded by the beneficiary as income, because of their very name. The insurance companies who sell these policies to the public under names such as "income benefit" or "family income policy" may be said to encourage members of the public to look upon them in this way; that is, as income payments. Payments made under such policies are likely to have been expended by the beneficiary as normal living expenses and considerable hardship might be suffered if these sums had to be repaid. Therefore, the first point is that the insurance companies which sell the policies as family income policies and income benefit policies cannot complain if they are treated in the Bill as, and equated to, income.
Secondly, the effect of the Amendment to line 3 of Clause 6(3) would be to enable the insurer, without any specific provision in the original policy, to require the beneficiary to effect insurance in respect of any claim the insurer might establish in the event of a variation order being pronounced in respect of each periodical payment. It is not uncommon for the benefits of such policies to be payable in relatively modest monthly or quarterly instalments. The expense of effecting appropriate insurance could bear harshly upon the beneficiary. If the original policy provides for substantial payments, the insurer can write that policy in such terms that a beneficiary who takes benefit following a Section 2 order could be required to insure against repayment. That is a particular example of the general answer that I gave to the noble Earl, Lord Selkirk, during the Committee stage. The Bill does not restrict the freedom of insurance companies to write their policies in whatever terms they deem to be appropriate.
Thirdly, the problem that we are discussing will be a very rare problem indeed. Several distinct circumstances must occur before any possible prejudice can be suffered by the insurance company. In the first place, decree in an action of declarator must be granted. During the past five years the number of petitions under the 1891 Act has averaged just over six per year in Scotland, the greatest 778 number being eight in 1975. In the second place, there must have been effected in respect of the particular person a relevant income benefit policy on the life of the person whose death is presumed. In the third place, there must be circumstances occurring within five years of the decree to justify the recall or variation of the order. Therefore, if one studies those three circumstances, one sees that we may well be talking about a problem that will never arise.
I understand from what the noble Lord, Lord Campbell of Croy, has said, and indeed from what the insurance companies have written, that the life assurance companies may be particularly concerned that the provision in Clause 5(3)(b) might enable anyone with fraudulent intent to take out an income benefit policy, and thereby at a very small cost obtain substantial benefit from an assurance company with no prospect of being required to repay on variation or recall of the original decree of declarator of death. There is nothing in the Bill which would prevent the assurance companies from raising an action for repayment of the sums paid as a result of this fraudulent scheme. If the decree of declarator were obtained by fraud, an action to recall or to reduce that decree would, it appears to me, be competent and an action of damages would also appear to be competent against the party who had perpetrated the fraud. There is no five-year limit in respect of such an action. I hope that this explanation will reassure the life assurance companies. In the light of what I have said, perhaps the noble Lord, Lord Campbell of Croy, may feel able to withdraw his two Amendments.
Lord CAMPBELL of CROYMy Lords, I am grateful to the noble and learned Lord, Lord McCluskey, for having looked into the matter and today given us the result of the Government's investigations. We have been trying to get this part of the Bill right. However many cases might arise, the important point is to get the Bill worded correctly. The type of policy that we have been talking about is regarded, of course, by recipients, in many cases, as payments of income. and no doubt that is how income has been used in these policies in the past. However, as I pointed out a few moments 779 ago, it is not regarded as income from the point of view of income tax, but it is regarded as repayment of capital, and that is what matters.
As regards the question of the Bill being used for fraud in the future, which the noble and learned Lord, Lord McCluskey, raised, that may well, of course, be in the mind of insurance companies. However, it is up to the insurance companies to write policies in future in such a way as to make that as difficult as possible for anybody contemplating fraud. The noble and learned Lord, Lord McCluskey, has said that he does not think that the Bill should be amended in the sense which my noble friend Lord Selkirk and I suggested during the Committee stage. However, I think that what the noble and learned Lord has said today will be helpful when the Bill, after enactment—I hope that it will be enacted fairly soon—is interpreted by the courts. I am grateful to him for his statement and I now beg leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 2 not moved.]
§ Lord RITCHIE-CALDERMy Lords, I am grateful to the noble Lord, Lord Campbell of Croy, and to my noble and learned friend Lord McCluskey, for bringing this matter to a conclusion. I beg to move that the Bill do now pass.
§ Moved, That the Bill do now pass.—(Lord Ritchie-Calder.)
Lord CAMPBELL of CROYMy Lords, I should like to congratulate the the noble Lord, Lord Ritchie-Calder, for having taken on this task because it is an area of the law in Scotland which certainly needs rationalisation. It is complicated and technical and we are grateful to him for taking on the task and for the help which he has received from the noble and learned Lord, Lord McCluskey.
§ Lord McCLUSKEYMy Lords, I join in the congratulations. I am happy to support my noble friend Lord Ritchie-Calder in this endeavour. It is a long time since I appeared as junior counsel, but on this occasion I have done so with him as my senior. I am happy to support him and to be led by him.
§ On Question, Bill passed.