HL Deb 27 March 1980 vol 407 cc1091-8

208C At end insert— (" (4) The following subsection shall be inserted after subsection (8) of that section:

" (9) Subsection (1) above shall apply to a contract for services as it applies to a contract of service ".").

8.14 p.m.


My Lords, I beg to move as an amendment to Commons Amendment No. 208, Amendment No. 208C. This amendment is also a very serious matter which is caused by the same events as those which my noble friend Lord Mishcon described. It arises from the very unsatisfactory discussion on 26th February in another place at cols. 1162 to 1165, where this issue of Section 26 was put on the agenda by the Government. As I have suggested to your Lordships in speaking to a previous amendment, it

Their Lordships divided; Contents, 20; Not-Contents, 46.

Boston of Faversham, L. Howie of Troon, L. Ross of Marnock, L.
Bruce of Donington L. Lloyd of Kilgerran, L. [Teller.] Simon, V.
Collison, L. Lovell-Davis, L. Stone, L.
Galpern, L. Mishcon, L. Wade, L.
Gregson, L. Pitt of Hampstead, L. Wedderburn of Charlton, L.
Hale, L. Ponsonby of Shulbrede, L. [Teller.] Whaddon,L
Houghton of Sowerby, L. Wynne-Jones, L.
Airey of Abingdon, B. Kinnaird, L. St. Just, L.
Bellwin, L. Long, V. Sandys, L. [Teller.]
Belstead, L. Lyell, L. Selkirk, E.
Caithness, E. Mackay of Clashfern, L. Selsdon, L.
Cork and Orrery, E. Macleod of Borve, B. Sharples, B.
Cullen of Ashbourne, L. Mansfield, E. Strathclyde, L.
Denham, L. [Teller.] Margadale, L. Sudeley, L.
Falkland, V. Merrivale, L. Torphichen, L.
Fortescue, E. Morris, L. Trefgarne, L.
Galloway, E. Mottistone, L. Trenchard, V.
Glasgow, E. Mowbray and Stourton, L. Tweedsmuir, L.
Gowrie, E. Nugent of Guildford, L. Vickers, B.
Greenway, L. Redesdale, L. Vivian, L.
Hampden, V. Renton, L. Wardington, L.
Hives, L. Rochdale, V. Young, B.
Hornsby-Smith, B.

Resolved in the negative, and amendment disagreed to accordingly.

raises the whole question of the difference between a contract of service, sometimes described as a contract of employment, which is registrable under Section 26 of the 1967 Act, and a contract for services, which is in most people's opinion not registerable under Section 26 of the 1967 Act. I say "most people" advisedly because this is not just a technical legal point. Section 26 does speak of "a contract of service" between the director and the company, and to a lawyer that clearly excludes contracts for services. If we may make the distinction, an executive contract is one whereby the director works whole time for the company. A consultancy contract is a contract for services. But businessmen, like the Stock Exchange, tend to talk about "service contracts".

I had no reply on the previous occasion when I touched on this matter in regard to the Stock Exchange listing requirements in Schedule 8 speaking of "service contracts". I can only hope that the noble Lord has now taken advice and has some reply to make on it, because it is this business term "service contracts" which leads to what I am advised is a variation in practice between companies. Some believe that "contract of service" in the 1967 Act does not mean what it says and that they have to register contracts for services. I think in policy those companies are right, but they are a very small minority. Most keep to the letter of the law, disclosing on the register contracts of service.

Having raised Section 26 of the 1967 Act on Report in another place, the Government have a responsibility to get it as right as possible. The contention of myself and my noble friends is that having put Section 26 on the agenda the Government have not fulfilled their obligation to the House and to the country and especially to the business community by getting Section 26 into a proper state. They have certainly not fulfilled their obligation to the country as a whole, in the respect that our company law demands disclosure properly and fairly and fully made, and there is absolutely no reason why the technicalities of a distinction between contracts of service and contracts for services should be the metes and bounds of the obligation, even in the face of the other obligations which are exposed by the amendments from another place which we have already passed.

There is no reason why this distinction should be made in Section 26 in policy. There is even less reason if one turns to the law. How does a lawyer recognise a contract of service rather than a contract for services? I quote from the leading book three little sentences or episodes; Hepple and O'Higgins on Employment Law, the third edition; they give the following as the possible tests of a contract of service. As the noble and learned Lord the Lord Advocate will know, even in Scotland the practice is somewhat similar and the difficulties somewhat similar to those in England, though the Scottish answer is no doubt superior. In England, the traditional test—and here I quote Hepple and O'Higgins—is control: An employee works under the control of another not only as to what he must do but how and when he must do it". Then there arose the difficulty of the difference between the taxi driver who drives his employer from one place to another as an independent contractor and the taxi driver who is an employee. So the cases were not enough, especially in regard to skilled workers, and the courts introduced a different test. I quote again from Hepple and O'Higgins: Did the alleged servant form part of the alleged master's organisation? What a test to apply to a director! Whether he is a consultant as well as a director, and a chief executive as well as a director, he is obviously part of the organisation.

How do we use that test? Lastly, I should like to quote again from Hepple and O'Higgins. They say: The courts have come in recent times to prefer a more flexible, multiple or mixed test. At its most casuistic level this is simply said to be a common sense approach of the reasonable man". When you get to the common sense approach of the reasonable man in the mouths of lawyers you know that they have reached the end of their tether and cannot really give you a definition at all. Indeed, Hepple and O'Higgins say: Recently it has been suggested that a multiple of tests should be applied". It has been suggested that they should all be mixed up. This is a matter that has come to the attention of the courts in the case of Parsons v. Albert Parsons and Sons Limited, reported in 1979 Industrial Cases Reports at page 271. The Court of Appeal had to deal with the case where a director was dismissed and claimed unfair dismissal. This he could do, of course, if he was an employee under a contract of service; but not if he was not an employee, but merely acting by way of rendering services to his company as well as being a director in office. The industrial tribunal thought that he was not an employee. The employment appeals tribunal thought that he was or might well be, even though there was no express contract. The Court of Appeal thought that the industrial tribunal had the better view.

If a learned tribunal, a learned employment appeal tribunal and the Court of Appeal take three distinct views of the same transaction upon which a director is engaged with his company, how can it be right to place upon company secretaries and businessmen, albeit with advice, the responsibility to decide what to put and what not to put upon the register? It is, in policy, a bad formulation in Section 26. I say that in the full knowledge that the noble Lord will probably say that it was passed by a Labour Government, but that would never inhibit me from saying that something was bad. It was very bad in 1967. I believed that it should cover services then, and so did many other people; including many businessmen; and I believe that it should cover services now. It is bad in policy and it has been shown to be absurd.

Case law has shown it to be ridiculous. Any company secretary who is to deal with this matter must read all the cases, including the case last year concerning whether the principal oboist of the London Philharmonic Orchestra was a servant or a consultant—and he turned out to be a consultant. It is quite absurd to keep Section 26 in its present form if the Government have put it on the agenda. In view of the difficulty that they ran into with the last amendment—although they will not run into the same embarrassment, I hope, over this amendment (albeit they won—that is not the point; it is when they read Hansard, that they will be embarrassed, not with the"verb ")—I hope that their embarrassment on this clause can be a little less and that they can give us some comfort and idea that they are prepared to look at it again.

I hope that the noble Lords and Ministers opposite will take this matter seriously. What has happened is that a very important area of commercial law—and I say this seriously to the noble Lord, Lord Lyell—is being legislated upon on the basis of 10 minutes in another place, on Report, and a refusal of the Government to answer the arguments in this House. If that is the basis for bicameral government, then unicameralism may have something to be said for it. Noble Lords are not doing themselves justice in paying attention to these important matters of commercial law on the basis of things, put in at Report at the last moment in another place, which will never be properly debated. I say for the record that if the Government refuse to consider this matter seriously, as they did the last amendment, and as they perhaps will our future amendments concerning Amendment No. 208, then they will have a lot to answer for when some poor litigant or poor person who could have received justice with a proper registration of director's contracts, comes knocking at their door after they have left office. I beg to move.

Moved, That this House doth agree with the said amendment to Commons Amendment No. 208.—(Lord Wedderburn of Charlton.)


My Lords, I entirely appreciate the point which the noble Lord, Lord Wedderburn of Charlton, is making, and I think that I should be right in saying that most of the cases to which he has referred in respect of which difficulty has arisen in distinguishing between contracts of service and contracts for services, have not arisen in relation to Section 26 of the Companies Act 1967. If what we could do by accepting his amendment tonight would be to rid the law of that difficulty in all circumstances, then I think that it would be well worthy of very serious consideration. However, that is not to say that the point is not worthy of serious consideration.

The position so far as we are concerned is as follows. Section 26 of the 1967 Act has been on the statute book for some time. What we have sought to do so far—the noble Lord speaks about putting Section 26 on the agenda—is to put into Section 26 those amendments which are consequential upon the policy which has been promoted in the rest of these amendments.

I certainly agree that the situation is not by any means happy, but I do not feel that simply to accept the amendment would solve the matter. I think that the view that Section 26 requires independent consideration, consideration independently of these policy considerations which have led to some amendment to Section 26, is the correct course and that the Government should take time to do that. It looks as though—and again one must be careful about prophesying—an opportunity might present itself in due course.

So far as the listing agreement is concerned and so on, one can approach the matter in the following way. Section 26 contains stipulations as to what must be recorded. There is no harm, if one is in doubt, in erring on the side of safety, and that may well be the wise practice. So, while I appreciate the point that the noble Lord is making, I would respectfully submit to your Lordships that this is not the time to give effect to it.


My Lords, the noble and learned Lord talks about looking at this matter "in due course" and he regarded it as a matter which certainly ought to be looked into for the reasons that were advanced so cogently by my noble friend. Did he mean in the course of this Bill, or did he mean in the course of time? If he meant in the course of this Bill, he will make everybody happy. However, if he meant in the course of time, then we may be postponed to eternity.


My Lords, with the leave of the House, I distinguish between time and eternity, but it is in the course of time that I had in mind, but I hope not such time that it might trespass on eternity, as I hope this debate will not. I think that there are reasonable prospects of a fairly early reconsideration of company law. I think that enough has been said to show that Section 26 is quite a difficult area in that it requires proper consideration. I would respectfully submit that due time—not in this Bill—would be the correct time in which to do it.


My Lords, I thank the noble and learned Lord for what he has said, although I cannot agree with it. I should like to make two points in reply. First, the Government's attitude—and I think this ought to be said this evening because one should be frank about it—seems to be that they are determined not to accept any amendment, however reasonable, albeit that there are arguments for and against—there are always such arguments. But they are not really seriously concerned to accept any amendment to this Bill, obviously because they want it on the statute book before Easter.

I cannot understand what is so magical about getting a Companies Bill. At long last we shall have one that will reach the statute book. It failed in 1973 and it failed in 1978. Now we shall have one. The 1976 measure was, after all, not a very big reform. Now we shall have a major Bill and little bits and pieces are put in amending previous Acts. I cannot understand why, for the sake of a week and getting it on the statute book before Easter, the Government are taking this obdurate attitude.

Secondly, I do not find in my breast the same incorrigible optimism as that in the noble and learned Lord's, that the Government will be here to present any further Companies Bill to this or any other House. Indeed, events may make it very difficult for them, even if they are here, to put it in their parliamentary timetable. I am most disappointed that the Government will not put right what could so easily be put right, but in view of the circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.