208 After Clause 45, insert the following new clause:
"Extension of section 26 of 1967 Act.
§ —(1) In subsection (1) of section 26 of the 1967 Act (disclosure of director's service contract with company) the following paragraph shall be inserted after paragraph (b)—
§ "(c) in the case of each director who is employed under a contract of service with a subsidiary of the company, a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract;".
(2) The following subsection shall be inserted after subsection (3) of that section—
(3A) Subsection (1) above shall not apply in relation to a director's contract of service with the company or with a subsidiary of the company if that contract required him to work wholly or mainly outside the United Kingdom, but the company shall keep a memorandum—
- (a) in the case of a contract of service with the company, setting out the name of the director and the provisions of the contract relating to its duration;
- (b) in the case of a contract of service with a subsidiary of the company, setting out the name of the director, the name and place of incorporation of the subsidiary and the provisions of the contract relating to its duration,
§ (3) Each reference in subsections (4), (5) and (7) of that section to subsection (1) shall be construed as including a reference to subsection (3A) of that section; the reference in subsection (7) of that section to a contract of service with a company shall be construed as including a contract of service with a subsidiary of a company; and in subsection (8) of that section, paragraph (a) shall cease to have effect."
§ Lord LYELL
My Lords, I beg to move that this House doth agree with the 1082 Commons in their Amendment No. 208. I have already spoken to the main amendment. My Lords, I beg to move.
Moved, That the House doth agree with the Commons in the said amendment.—(Lord Lyell.)
§ Lord MISHCON moved, as an amendment to Commons Amendment No. 208, Amendment No. 208A.
§ 208A Leave out subsection (2).
The noble Lord said: My Lords, I said earlier that there were unfortunate examples of where, as a result of the Government not having taken advantage of the advice of the Opposition in this House in July last, material and important clauses were being hurriedly prepared and put before Parliament. It is only right that I should cite examples of this, having made that statement, and I certainly come to one now. Amendment No. 208 is, as we have prevously heard, an extension of Section 26 of the 1967 Act. Very sensibly, in subsection (1) of the new clause there is a provision that,
in the case of each director who is employed under a contract of service with a subsidiary of the company "—
that means, as if it were the company itself—
a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract
§ shall be duly disclosed and registered. Your Lordships will appreciate that the words"terms of that contract"obviously mean the duration of it, the remuneration and the various duties under the service contract into which the director and the company have entered.
It had not been thought of by the Government at the Committee stage of this Bill—and we are dealing with a very important matter of disclosure of service contracts of directors—but at the Report stage a few weeks ago there was suddenly flung before another place subsection (3A) of this new clause, which provides:
Subsection (1) above shall not apply in relation to a director's contract of service with the company or with a subsidiary of the company if that contract required him to work wholly or mainly outside the United Kingdom".
§ May I pause there for a moment, in regard to clear thinking about the wording of a clause in a Bill dealing with a very important matter. It is not the main 1083 gravamen of my dislike, and the dislike of my friends, of this new subsection, but it is an illustration, in my respectful submission, of the way in which this matter has been hurried. Does this clause mean that if there is a service contract, which provides that the company can require the director wholly or mainly to carry out duties outside the United Kingdom, it is supposed to be free of the requirements of subsection (1)? Without any doubt at all, this clause is capable of that interpretation.
§ There are many contracts which, I assume, if that interpretation is correct, could now be worded by companies to provide that the company most certainly required the director to carry out his services wholly or mainly outside the United Kingdom. In fact, he will not be doing it, but if the contract requires that he may do it there is certainly doubt as to whether the company would have to register the contract. That is an example of not very clear thought or very clear wording, but it is not my main objection.
§ My main objection and that of my friends is that we see no reason whatsoever for there not being as frank a disclosure in regard to the terms of such a contract, as there is in regard to an ordinary service contract for carrying out work in the United Kingdom. Shareholders ought to know and the public ought to know, because there can be very extraordinary arrangements made for such conduct of a director's services abroad, which may operate in a way which it suits the company and the director concerned to conceal. What can be the reason for excluding such a contract from proper disclosure?
I may be wrong about this, but I tried to discover whether anybody had observed the very essential differentiation which occurred in this subsection. This was so hurried when it was thrown in at the Report stage, and nobody seems to have commented upon the fact that there is no requirement for the terms of the contract of a director, who is serving wholly or mainly abroad, to be registered. If your Lordships will look very closely at paragraph (a) you will see that it provides as follows:
in the case of a contract of service with the company, setting out the name of the director and
the provisions of the contract relating to its duration".
§ That is the requirement in regard to the memorandum which must be kept. In other words, not even if a shareholder wishes to go to the registered office of the company and look at the memorandum, can he see anything else but the name of the director and how long the contract will last. Much joy may that inspection give him, in regard to the proper disclosure of the circumstances!
§ If your Lordships look at paragraph (b), you find that it is exactly the same in regard to the subsidiary company. The reason why I move for the deletion of subsection (2), and the consequential words that follow in subsection (3), is that all these contracts ought to be subject to precisely the same provisions in regard to disclosure and registration; namely, the terms of the contract should be there for all the world to see. My Lords, I beg to move.
§ Moved, That this House doth agree with the said amendment to the Commons Amendment No. 208.—(Lord Mishcon.)
§ Lord WEDDERBURN of CHARLTON
My Lords, I hope that the noble Lord's reply will not be, in effect. "Look at Section 26(7)(a)". Section 26(7)(a) already says that this section shall not require there to be kept a copy of the terms of the contractso long as the contract requires him "—that is, the director—to work wholly or mainly outside the United Kingdom".My noble friend's amendment would perhaps require some reconsideration of of that. What we on this side of the House are saying is that this loophole is now so enlarged, via the contracts with subsidiaries, just by mentioning their duration, that it has become such a serious matter, like so many other things in Section 26, that it has to be reconsidered. If this matter goes back to another place, as now it has to do, then the whole of Section 26 should be reconsidered. Therefore I support my noble friend's amendment as one which the Government ought to accept in the knowledge that Section 26(7)(a) will also need amendment in another place.
§ Lord LYELL
My Lords, I should like to thank the noble Lord, Lord Mishcon, for very clearly spelling out his amendment. I tried to follow the noble Lord, Lord Wedderburn of Charlton, but I must admit that he was very swift. I think, though, that I followed some parts of what he said. If I could attempt to reply to the noble Lord, Lord Mishcon, I hope he is not arguing that the Government's Amendment No. 208 as it stands is relaxing in any way the provisions—not necessarily the provisions of subsection (7) but any of the provisions of Section 26 of the 1967 Act. We believe that Amendment No. 208 imposes new requirements in relation to overseas service contracts which did not apply under the 1967 Act, whether by Section 26 or by any other section. We believe that there is not this doubt. We hope that Amendment No. 208 removes any doubt about the spread of Section 26. However, the amendment which has been tabled by the noble Lord, Lord Mishcon, would delete the exemption which is provided for directors' contracts of service overseas from this particular requirement in Section 26.
Your Lordships will have noticed that Commons Amendment No. 208 is a very technical clause. It deals with the disclosure of directors' contracts of service. It brings these into line with the substantive provisions of the Bill. However, the important change which Amendment No. 208 makes is to require merely the duration term of overseas contracts to be placed on the register so that it can be ascertained whether the provisions of Amendment No. 194 have been respected.
I would quickly remind your Lordships that Commons Amendment No. 194 deals with the duration of any agreement relating to a director's employment, whether at home or overseas. In particular, if it cannot be terminated by the company by notice after a period of five years, it must have been approved by the company in general meeting. That is the exact scope of Amendment No. 208. Rut we have not sought to alter the exemption in Section 26, as was spelled out by the noble Lord, Lord Mishcon, for terms relating to matters other than duration. The main policy that lies behind the exemption already in existence in Section 26 is to prevent any details emerging on the other side of disclosure, a point which has 1086 been raised by the noble Lord, Lord Wedderburn of Charlton, and, indeed, by the noble Lord, Lord Mishcon, which might, and, indeed, would, be embarrassing either to the director or to the company in its dealings with customers, or any prospective customers abroad.
I am sure that your Lordships will be aware of at least two directors who are at this moment in custody in countries around the world. Whether they did or did not do anything which was against the law of this country for which they are at present incarcerated remains to be seen. However, we envisage circumstances in which the details of various contracts of service in certain parts of the world ought to be kept confidential. I think the noble Lord, Lord Mishcon, might agree with me upon that point. We take his point that Section 26 is fairly wide—
§ Lord MISHCON
My Lords, before the noble Lord turns to another point, I wonder whether he will permit an intervention. He said that I would no doubt agree with him in a proposition that I thought he was putting before the House; namely, that certain directors are incarcerated abroad for certain offences. I do not know to which directors the noble Lord is referring. I learned only a few days ago that one of them had been released. There is no need to mention names in this House. If, however, the noble Lord is trying to associate me or my friends with the suggestion that we ought to try to protect people who have breached the laws of a foreign country, I want to dissociate both myself and my friends from this immediately. I do not know what point the noble Lord was trying to make.
§ Lord LYELL
My Lords, that is the brief: that there are certain parts of the world where details ought to be kept confidential. That is the point I was making.
§ Lord LYELL
No, my Lords; I think it would be better that I should not give an example to the House, because it could be embarrassing. I would much rather not do that. I think the noble Lord will understand that there are certain cases of this type—
§ Lord LLOYD of KILGERRAN
My Lords, surely the noble Lord can give us some examples. If he continues to say that there are these cases, surely he should reply to the noble Lord, Lord Mishcon, by giving an example.
§ Viscount TRENCHARD
My Lords, I think the analogy was unfortunate; in fact, it forms no part of the Government's answer. The noble Lord, Lord Lyell, is aware of a number of details going on in this kind of area. What I want to say is that the policy lying behind the exemption in Section 26 is to prevent details—not the kind of details that we may have put into your Lordships' minds—from emerging that could be embarrassing to the director or the company in its dealings with customers or prospective customers abroad. One can, in that situation, imagine circumstances in which details of contracts of service in various parts of the world, like the Middle East, are best kept confidential. I cannot give examples, but I do need to withdraw the kind of example that we introduced into this debate.
§ Lord MISHCON
My Lords, the noble Viscount has brought a breath of fresh and clean air into the House. I was wondering what sort of atmosphere we were walking into before he did so; but he has done it, and I will not take any more advantage of the point. The point I was trying to make was specifically related to remuneration. For the life of me, I cannot see for the moment how the question of the remuneration of a director could in any way be adverse to the interests of any company in regard to its directors' operations abroad, but no doubt I shall be enlightened by the noble Lord, Lord Lyell, when he comes to deal with a different sort of point from the one he was trying to make before.
§ The DEPUTY SPEAKER: (Lord Nugent of Guildford)
My Lords, does the noble Lord wish to press his amendment?
§ Lord MISHCON
My Lords, I hoped that the noble Lord, Lord Lyell, would answer the amendment in full.
§ Lord LYELL
My Lords, we are getting a little out of order. I have spoken at least twice so far and there have been interruptions. With leave, may I com 1088 plete my comments. I understand that one example that I am authorised to give of such details, where we believe that they ought to be kept confidential, covers the Arab-Israeli boycott. I am told that that would be an example of where such remuneration might well be kept confidential. The noble Lord, Lord Mishcon, asked for an example, and I have given him one. He may not regard it as satisfactory, but that is the best I can do so far.
§ Lord WEDDERBURN of CHARLTON
My Lords, may I be quite sure that I am clear about what the noble Lord is saying?
§ Lord WEDDERBURN of CHARLTON
The noble Lord is speaking about remuneration which would be a matter of some delicacy in relation to the particular international situation which he described. I hope the noble Lord will assure the House that he is not talking of anything in the nature of association with "slush funds" or the like. I think the Government had better give that assurance because when we come to read Hansard this debate so far will read as a very extraordinary one.
§ Lord LYELL
My Lords, by leave I really think it is the noble Lord, Lord Wedderburn, who is introducing what he calls "slush funds" and that is not a term, I am sure, that he would approve of being used in his examination papers or even being bandied around your Lordships' House in a debate of this kind. No, my Lords, let us leave it there and I do not think I can go further than I have already gone, which is to say that we believe that Amendment No. 208 covers the duration of any agreement under 194 and it does not seek to go any further. That is just one example of where we believe that remuneration should be kept confidential. I hope the noble Lord, Lord Mishcon, may accept it and I do not think we can go much further than that, apart from mentioning that we have altered Section 26 only so far as is necessary for the effective functioning of this Part of this Bill which is dealing with directors' conflicts of interest. We do not think that a wider revision of Section 26 1089 and the various other provisions relating to statutory disclosure of the terms of a director's relationship with his company is a matter for this Bill.
Lord BRUCE of DONINGTON
My Lords, I must apologise for detaining the House on this particular point and also for a slight inaudibility which I think for me, the House will agree, is not quite customary. I am still a little mystified by the situation with regard to this amendment that has been revealed by the noble Lord, Lord Lyell. Let us take a circumstance where a director whose terms of contract or whose contract of service does not explicitly state that his work lies mainly overseas. Let us say that he is in the position of an executive director, a sales director or a managing director and be goes abroad to negotiate a very large deal. Let us say that he takes with him a director who, because his duties are explicitly within his agreement, is required to perform his duties wholly or mainly overseas. Here we are then with a circumstance where two directors are involved in negotiations, presumably with an important foreign customer. The agents of the company concerned can go hack to London and, if they happen to know a shareholder, they can of course get full particulars of the managing director's contract, including the salary, the duration and everything else, but in respect of the other director accompanying him they simply cannot get that information.
That does not seem to me to make any logic at all and certainly the reply which the noble Lord, Lord Lyell, has given so far I regret to say does not help to elucidate the position. I am hopeful, particularly after the lucid comments made by my noble friend Lord Mishcon and my noble friend Lord Wedderburn, that the Government can give the House some assurance that this aspect of the matter can be looked at again because quite clearly some rather more convincing explanation has to be given than that which the noble Lord has given to the House so far.
§ Lord LYELL
My Lords, I am sorry that I cannot elucidate further and especially on the point raised by the noble Lord, Lord Bruce of Donington. I think that is going a little way off. As I have said several times, as we understand 1090 it, Amendment No. 208 is dealing with the duration of the contract of service and especially on the conflict of any interests which might occur between the director and the company and I cannot see how further details that the noble Lord has raised in these interesting examples logically need be put into this particular Part of this Bill. I see that there is merit in what the noble Lord is saying, but not necessarily in this Part of the Bill. That is why I am afraid I cannot go further than I have already done. Indeed, as your Lordships will see, I have been in trouble already in attempting to help and I regret that I cannot go further.
§ Lord DENHAM
My Lords, I wonder whether I may come in at this point because I think we are getting very much out of order on this. This is not a Committee stage. I know it is difficult because some of these points are new. My noble friend has the ability to speak again by leave of the House, but I do not think he can do it again and again, and again and again. I wonder whether it would not be possible after this amendment—when we come on to the other amendments—for noble Lords to make all their points together, so that my noble friend does not have to speak too often, because at this stage we are rather going beyond the rules of order.
§ Viscount SIMON
My Lords, perhaps I may continue what I was saying—and this is the first time that I have spoken on this amendment. It is rather hard to say that we cannot speak after the noble Lord has expressed the Government's view, as we do not know what the Government's view is until we hear it. On this occasion I merely wanted to say that I did not follow the logic of his argument. In paragraph I it is provided that these particulars about the directors' remuneration will be made known and then there follows a clause which says that they need not be made known if his work is principally abroad. I think the noble Lord, Lord Lyell, said that this had nothing to do with remuneration, but is that not exactly the case?
§ Lord MISHCON
My Lords, I think I had better save the Government from further embarrassment by merely saying that I propose to divide the House.
§ 8.5 p.m.
§ On Question, Whether the said amendment (No. 208A) to the amendment shall be agreed to?
§ [Amendment No. 208B not moved.]