LORDS AMENDMENT TO COMMONS AMENDMENT No. 208 (Hansard, 27 March 1980)

§ Lord WEDDERBURN of CHARLTON
My Lords, I beg to move as an amendment to Commons Amendment No. 208, Amendment No. 208E. This is an amendment which can be expressed briefly in three points. Prefacing them, I should like to say to the Minister that this really seems to me something which is justifiably moved as an amendment to this Bill. It is something on which the Government must have an attitude, and I hope it will be to accept this amendment. It arises because Section 26 is put on the agenda by the Government's move at Report in another place. Section 26 of the 1967 Act has an ambiguity in it. Because it has an ambiguity in it this amendment is a consequential amendment upon the Government's own amendment in another place.
It is consequential because the new subsection (3)(a) which the Government wish to put in Section 26 will also contain the ambiguity as to the registration of the duration of a contract where the work is abroad, unless the Government cure that ambiguity in Section 26 as a whole. This is a golden opportunity to do some law reform. Having had time to ponder it, I say in reply to the Lord Advocate's point that no cases have arisen under Section 26, and certainly none of any magnitude or of report. I accept that, but it is my contention that in commercial and company law whether there has been a lot of litigation is not the test of whether there is a problem. Businessmen may have varying practices, and different companies with a register like this may adopt different practices which are in fact unfair on the directors of one, or the shareholders of the other. It is on standard practice in disclosure, which is where the law intervenes, that the law ought at least to insist.
My second point is what the ambiguity 1104 is. I can put it no better than by quoting two passages, again from text books, but that is quicker than doing it by reference to case law. In the fourth edition of Professor Gower's Modern Company Law, at page 589, it is stated: The intention"— that is, the intention of Section 26 dealing with contracts of service— was presumably to cover all service contracts with someone who was a diector, but it is arguable that only contracts for service as a diector are caught. My second quotation is from a book which is not yet published, but I have had the privilege of seeing the page proofs of a book by Mr. Joffe on this very Act before it has become an Act. It is an interesting work. In the course of it he says in Chapter 10: It is uncertain whether ' contract of service ' includes a contract of service in some capacity other than director"— That is, under Section 26, or whether it is restricted to directors' contracts of service qua director". That is not a point of mere technicality because I know of a company where directors take the view that it is only their contracts of service which they conclude qua director with the company that they will put on the register. I know of that happening in one case.
The noble and learned Lord may tell me that it is not very widespread, but there is an uncertainty. Other companies I am sure take the view, which I believe must be the intention of the section, that where the director has a contract of service—now that we have even lost contracts for services—having gone through that horrible morass he surely does not get into another one in asking himself, "Am I required to register the contract because I perform my obligations qua director rather than as anything else?" The noble and learned Lord, without the Lord Advocate, will allow me to advert to the decision of the Privy Council since it is not technically an English law in Lee v. Lee's Air Farming 1961, in the Appeal Cases, which I am sure he will know, where the person who held 99 per cent. of the shares was also the chief director and chief pilot of the aeroplane which the company ran, and that was more or less its business; he was held to be both director and employee in another capacity. In 1105 fact, he was employing himself, in layman's language, but we lawyers know that there is more to it than that. I say that in such a case, in English, in Scottish and in British law he should be obliged to register his contract on the register at Companies House. That is what this amendment is designed to do.
The Government must have a view about it. I hope their view is what is stated here, because if they resist this amendment a great many companies are going to have to take in their lawyers rather more often to decide which contract is a contract qua director and which is not. I cannot believe that that is the Government's view, so I hope that for once they will accept this amendment. This Bill has to go to another place. Why can we not cure a minor defect in our law of this kind?

§ Lord LYELL
My Lords, the noble Lord believed that there was some ambiguity. I am advised that it seems that the amendment is designed to specify that the register of director service contracts, which is kept in accordance with Section 26, should include the contracts whether the director is to perform his obligations under it in his capacity as director of the company or not. I am advised that the reference in Section 26 to contracts of service is open-ended. Therefore, it would apply to contracts of service qua employee, manager, and so on, in just the same way as it applies to contracts of service qua director. I hope that that will go some way to answering the noble Lord in his amendment.

§ Lord WEDDERBURN of CHARLTON
My Lords, I am filled with nothing but delight to learn that the noble Lord's advisers are in agreement with me. I am mystified as to why the Government will not adopt this little clause in this important Bill. If there is a doubt about it, I could cite many other works and discussions where the ambiguity has been referred to. This is a legislature. It will probably create litigation, or if it does not it will cause expense, because people will have to go to their solicitors to get the advice which the Minister receives for free from his advisers. Why should he put the 1106 business community, merely because of the Government's obduracy this evening, to the expense of going to see their solicitors every week to decide on this matter?
It is quite extraordinary how if this Government, who are supposed to favour enterprise, and wanted to remove obstacles from the way of the businessman, saying that employment legislation must go, and all sorts of other rights must go before the small business, are posed with a little ambiguity, a nasty, nagging little thing which the small businessman with a company may come up against—like our chief pilot in the Lee case any week—they say that it is much too dfficult; although they agree with me that it is right, they will not put it in the Bill.
When one reads these debates on Amendment 208, I think the Government may well consider, when this Bill goes to another place, that their right honourable friends ought perhaps—as they did before—to take another look at these matters. The Government were wrong in this House before, and are wrong in this House tonight, on a large number of the matters that we have debated. I only hope that they will be put right in another place, as to some extent they were put right before. As the Government are obdurate, I beg to withdraw the Amendment.

§ Viscount TRENCHARD
My Lords, there are no amendments to these two Commons amendments—Nos. 209 and 210—and therefore I should like to move their adoption formally. I beg to move.