Lords Sitting of 19 March 1981

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Exeter):
The LORD CHANCELLOR on the Woolsack.

Water Charges
Lord Boyd-Carpenter: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what requests they have made to water authorities to reduce proposed increases in their charges; and what responses they have received.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin): My Lords, following the consultants' review of water authority budgets in February, the authorities were asked to look at possible ways of moderating the increase in charges proposed for 1981–82. As a result, the total of water rates to be collected in England and Wales in 1981–82 will be some £91 million lower than had been planned.
Lord Boyd-Carpenter: My Lords, while congratulating my noble friend on succeeding in making water cheaper—as a slight offset, perhaps, to making whisky dearer—may I ask him whether the need for this kind of action by the Government is not a rather vivid illustration of the lack of machinery for consumer representation in the water industry?
Lord Bellwin: That may be an interesting point to consider, my Lords, but we should have to look at the procedure that exists at present in the water industry, at what it was the Government did to try, if you like, to persuade the industry themselves—because it was they who called in the outside people—and the effect that that had.
Lord Harmar-Nicholls: My Lords, will the £91 million that is being saved be spread over the whole country or will some sections get a lot and the others get none?
Lord Bellwin: My Lords, it will be spread over the whole of the country. It will of course vary according to each separate authority.

Consumers and the Nationalised Industries
3.3 p.m.
Baroness Burton of Coventry: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government when they expect to complete their review of the position of consumers and the nationalised industries; and whether this review will be published as a Green Paper for circulation among interested organisations or as a White Paper for discussion in Parliament, or both.
The Parliamentary Under-Secretary of State, Department of Trade (Lord Trefgarne): My Lords, there will be consultations before the review is completed, and we are currently considering what form of consultation would be most appropriate.
Baroness Burton of Coventry: My Lords, does the noble Lord recall, or does he have a note of it in his brief, that his noble friend Lord Trenchard told me on 22nd October that the Minister expected the report by the end of the year? His noble friend said then that it had taken rather a long time. Could the noble Lord say how much longer we shall have to add to that long time?
Lord Trefgarne: I am afraid I cannot be precise, my Lords, but I can tell the noble Baroness that it will not be very long.
Baroness Burton of Coventry: My Lords, I was not clear from the Answer whether the paper will be published and whether we shall then have an opportunity to discuss it in Parliament as well as outside. If not, what is the procedure to be?
Lord Trefgarne: My Lords, the Government have not decided what form this document should take and how it should be published, but whatever we decide I have no doubt the noble Baroness will find a way of raising it in your Lordships' House.
Baroness Macleod of Borve: My Lords, is my noble friend aware that the consumer councils attached to the nationalised industries are of vital importance? Having been a member of one, I know that the main way in which consumers of nationalised industry products can make their position felt is through those consumer councils. Is my noble friend aware, therefore, how vital it is that these councils should be kept in being, and will he take note of this point?
Lord Trefgarne: My Lords, I certainly agree with my noble friend that it is vital that nationalised industries should be made aware in the most effective way possible of the views of their consumers. It was with a view to improving arrangements for this that this inquiry was originally set in train.

Drug Addiction Units and Patients
3.5 p.m.
Baroness Trumpington: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many drug addiction units there are, and what has been the increase in patients in them over the past 10 years.
Lord Sandys: My Lords, there are 56 units or other special facilities for the treatment of narcotic drug addiction within the National Health Service in the United Kingdom, including four units for in-patient treatment only. Other National Health Service hospitals may sometimes use beds for the treatment of drug misuse, but information on this is not available centrally. Information on the number of patients over the last 10 years is not available for all parts of the United Kingdom. However, the number of patients in England and Wales rose from an annual average of 1,104 in 1971 to 1,713 in 1980, an increase of 55 per cent.
Baroness Trumpington: My Lords, while thanking the Minister for that reply, may I ask him whether the number of deaths due to drug addiction is on the increase, and would he agree that the closure of any facilities for the rehabilitation of those with drug dependence must be a cause for national concern, in view of the limited number of facilities available for this group of people?
Lord Sandys: Indeed it is a cause for national concern, my Lords. The figures of deaths from drug addiction, I must stress, are available only up to 1979. The available figures show that there were 38 deaths from drug dependency in 1971 and 111 in 1979, the last year for which figures are available. Those include deaths where the cause or underlying cause of death is recorded as drug dependency—that is, from any drug, not only opiates or barbiturates but also analgesics and tranquilisers, including overdose cases.
Lord Soper: My Lords, are the Government fully aware of the change in the nature of this dependency in the last few years, away from personal characteristics which would render particular people liable to become addicts, to the general stress and sense of loss of useful occupation, which has meant in many of the places where they have been cared for a need for greater attention to be paid to rehabilitation after the preliminary drying out has been secured?
Lord Sandys: My Lords, the Government are aware of that, and in the debate on an Unstarred Question in this House on 30th October 1979 that fact was made very clear by noble Lords who took part.
Baroness Faithfull: My Lords, has the success rate of the clinics been monitored?
Lord Sandys: My Lords, the success figures are monitored to the extent that one could say that a success rate of 30 per cent. could be thought to be a maximum in present circumstances, but it is an extremely difficult figure to calculate.
Lord Wallace of Coslany: My Lords, how many units in the National Health Service are scheduled to be closed as an economy measure?
Lord Sandys: My Lords, so far as I am aware no unit is at present under immediate threat of closure. The noble Lord may be referring to the Ashdown ward of Bexley Hospital. That is under consideration now and I am glad to say that the regional health authority and the area health authority are trying to find ways by which it may remain open.
Lord Wells-Pestell: My Lords, the noble Lord was good enough to give the House figures of drug addicts who attend as in-patients in hospitals. Can he say, so far as the second figure is concerned, how many of them are patients who have already been in hospital, have been discharged and have had to return? I understand the difficulty one is in when talking about success, but may I ask the Minister to say, when he says it is estimated that the success rate is about 30 per cent., what aftercare and supervision there is, so enabling one to form some sort of judgment as to the yardstick which is being used?
Lord Sandys: My Lords, I think that the yardstick is an extremely difficult one. This is no more than a "guesstimate". With regard to the aftercare situation, I fear that I am not able to give the noble Lord an answer to the first part of his supplementary question.
Lord Gridley: My Lords, bearing in mind the great extent of the incidence of drug smuggling in the last few years, has the noble Lord any information regarding the apprehension of offenders in this light? Is this not one system that should be tightened up and brought under stricter control?
Lord Sandys: Yes, most definitely, my Lords; but that is beyond the ambit of this Question.
Baroness Trumpington: My Lords, would not the Minister agree that all the figures that he has produced are really "guesstimates", bearing in mind the vast number of people who are not registered drug addicts and who are not known to the medical profession or to ordinary members of the public as being drug addicts?
Lord Sandys: My Lords, perhaps I may refer to what my noble friend Lord Belstead said, as reported at column 363 of the Official Report of 30th October 1979, which is most relevant:
"Perhaps the most scientific indication that we have had of the possible size of this unknown grey area of narcotic addiction is contained in studies which were carried out by Dr. Hamid Ghodse into the drug problems dealt with by 62 London hospital casualty departments".
Baroness Macleod of Borve: My Lords, can my noble friend give the House any reassuring figures? It is within my knowledge that the amount of drugs coming into this country has escalated enormously, possibly since the figures referred to were given. Does my noble friend agree that it is vitally important, through both the DHSS and voluntary organisations, to encourage the setting up of as many drug assessment centres and rehabilitation centres as possible? Does my noble friend also agree that some young people take to drugs more than they take to smoking or to drink, and this is harmful to their future? Will he

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please encourage voluntary organisations, as well as the DHSS, to set up as many drug centres as possible?
Lord Sandys: My Lords, with regard to the number of addicts, the number notified to the Home Office rose to 2,815 on 31st December 1979. Provisional statistics for 1980 show a continuation of the upward trend of the past few years. Of particular concern is the rise in the number of newly-notified addicts from outside London and the Home Counties. Provisional figures for 1980 suggest that such notifications are 41 per cent. up on the 1979 figures. With regard to the point about the clinics, I do not think I can add to what I have already said; but the Government are very well aware of the increasing trend of the figures.
Lord Leatherland: My Lords, will the noble Lord agree that if the tax on alcoholic beverages were not so high, more people might be inclined to be satisfied with the mild stimulation of those beverages without being driven to buy drugs?

Land Registers in the London Area
3.14 p.m.
Lord Gainford: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will increase the number of local authorities required to publish land registers of vacant and under-used land in their ownership, so as to include all Inner London boroughs and metropolitan district councils.
Lord Bellwin: My Lords, Her Majesty's Government do not propose at this stage to increase the number of 33 districts and London boroughs which are currently designated for registers, but it is expected that the scheme will be extended later in the light of experience.
Lord Gainford: My Lords, I thank my noble friend the Minister for that Answer. In the light of the proposals of Her Majesty's Government for the use of vacant and under-used land, and bearing in mind the importance of the land registry offices concerned, is there any likelihood of difficulties arising from the fact that land registration is so specialised a profession that it is almost an esoteric mystery to the outsider? Will any obstacles to administration arise from the fact that, where land has changed hands a number of times, some of the land registry offices are in danger of becoming mausoleums of parchment?
Lord Bellwin: My Lords, I should have thought that one of the objects of the legislation is to ensure that the mausoleums to which my noble friend refers are opened up and air is allowed in, so that one can see exactly what is available. With regard to the first part of his supplementary question, the scheme is in its relatively early days. Indeed, the registers are not to be published until April, and so we want to see what experience is gained after the scheme comes into operation.

Business
Lord Denham: My Lords, with the leave of the House, at a convenient moment after 3.30 p.m. my noble friend Lord Gowrie will repeat a Statement that is to be made in another place on International Computers Limited.
It may also be for your Lordships' convenience if I announce that dinner will be available this evening at the usual time.
It is proposed that the Committee stage of the Companies (No. 2) Bill be adjourned at approximately 7 o'clock for approximately one hour. The Committee stage of the Water Bill will be taken during the adjournment.

Business of the House
The Minister of State, Ministry of Agriculture, Fisheries and Food (Earl Ferrers): My Lords, on behalf of my noble friend the Leader of the House I beg to move the Motion standing in his name on the Order Paper.
Moved, That Standing Order No. 43 (No two stages of a Bill to be taken on one day) be dispensed with for the purpose of taking the Consolidated Fund (No. 2) Bill through its remaining stages this day.—(Earl Ferrers.)
On Question, Motion agreed to.

Consolidated Fund (No. 2) Bill
Earl Ferrers: My Lords, on behalf of my noble friend Lord Cockfield I beg to move that this Bill be now read a second time.
Moved, That the Bill be now read 2a.—(Earl Ferrers.)
On Question, Bill read 2a: Committee negatived.
Then, Standing Order No. 43 having been dispensed with, pursuant to Resolution, Bill read 3a, and passed.

English Industrial Estates Corporation Bill [H.L.]
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, I understand that no amendment has been put down either to this Bill or to the next three Consolidation Bills in my name on the Order Paper, and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee on any of these Bills. Unless, therefore, any noble Lord objects, I propose to move that the Order of Re-commitment in respect of each of these four Bills be discharged.
I beg to move that the Order of Re-commitment in respect of the English Industrial Estates Corporation Bill be discharged.
Moved, That the Order of Re-commitment be discharged.—(The Lord Chancellor.)
On Question, Motion agreed to.

Public Passenger Vehicles Bill [H.L.]
The Lord Chancellor: My Lords, I beg to move, for the same reasons as were given in regard to the previous Bill, that the Order of Re-commitment in respect of the Public Passenger Vehicles Bill be discharged.
Moved, That the Order of Re-commitment be discharged.—(The Lord Chancellor.)
On Question, Motion agreed to.

National Film Finance Corporation Bill [H.L.]
The Lord Chancellor: My Lords, for the same reasons beg to move that the Order of Re-commitment for the National Film Finance Corporation Bill be discharged.
Moved, That the Order of Re-commitment be discharged.—(The Lord Chancellor.)
On Question, Motion agreed to.

Film Levy Finance Bill [H.L.]
The Lord Chancellor: My Lords, for the same reasons I beg to move that the Order of Re-commitment for the Film Levy Finance Bill be discharged.
Moved, That the Order of Re-commitment be discharged.—(The Lord Chancellor.)
On Question, Motion agreed to.

Royal Assent
The Lord Chancellor: My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts:

Gas Levy Act,

Consolidated Fund Act,

Redundancy Fund Act,

Industry Act,

House of Commons Members' Fund and Parliamentary Pensions Act,

European Assembly Elections Act.

Companies (No. 2) Bill [H.L.]
3.23 p.m.
Lord Trefgarne: My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, that the House do now again resolve itself into Committee.—(Lord Trefgarne.)
On Question, Motion agreed to.
House in Committee accordingly.
[THE LORD ABERDARE in the Chair.]
Lord Mishcon Lord Mishcon had given notice to move Amendment No. 60:
After Clause 22, insert the following new clause:
("Preparatory steps before registration of
.—(1) Application shall not be made for registration of a company under the 1948 Act or for re-registration under that Act or the 1980 Act until 21 days after notice of intention to apply has been published in the Gazette, stating the proposed name of the company.
(2) Any person, being a body the name of which is entered on the index of names kept by the registrar in pursuance of section 23 of this Act, may make to the Secretary of State an objection in writing within 21 days after the publication in the Gazette of notice of intention to apply for registration or re-registration, but such objection shall be limited to an objection on the grounds that the proposed name of the company is so similar to the name of the person making the objection that confusion is likely to be caused.
(3) The Secretary of State shall take account of any objection under subsection (2) above before deciding whether to permit the registration or re-registration of a company by a name to which objection has been made.").
The noble Lord said: Those Members of the Committee who were in attendance at a very late hour on Tuesday night heard from all sides of the Committee an expression of view that to rob the Registrar of Companies of the power to disallow a similar name was wrong, and the amendment now before the Committee is a long-stop to that amendment. In view of the attendance of the Committee at that time and the number of organisations which supported the amendment, quite apart from its looking as though it were an all-party amendment from the speeches then made, the amendment was then withdrawn so as to be dealt with at the Report stage. I think it would be an inconvenience to your Lordships' Committee, therefore, if I were to make a speech or to move an amendment which deals with this long-stop position. That is the reason why I shall not be moving this amendment this afternoon.
Clause 23 [Index of names]:
[Amendment No. 61 not moved.]
Lord Lloyd of Kilgerran Lord Lloyd of Kilgerran moved Amendment No. 62:
Page 30, line 35, at end insert—
("; and
(f) business names within the meaning of the Registration of Business Names Act 1916.").
The noble Lord said: I have the privilege to submit this very important amendment, which appears, from the names that are appended to it in the Marshalled List, also to be on an all-party basis. It is an amendment to Clause 23 of the Bill, which gives instructions to the Registrar of Companies to keep an index of the names of various bodies; and the object of this amendment is to restore the Registration of Business Names Act 1916 into this Bill so that the Registrar of Companies has to maintain a business names register. This register of business names, in spite of certain deficiencies, is and has been for over half a century an important source of information about business activities of firms. As those of your Lordships who are concerned with international business will well know, piracy in the field of business names and trade marks is a very profitable international growth business in this Elizabethan age. This piracy is more subtle, no doubt, than the piracy occurring in the first

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Elizabethan age, but it is just as extensive and is very profitable internationally.
The operation of the Registration of Business Names Act 1916 and of the registry certainly helps to prevent the fraud and malpractices now so rampant in the course of trade in the United Kingdom, in the export trade and, of course, in the business activities of many foreign companies. So far the Government seem to have remained obdurate in their proposals to repeal the Registration of Business Names Act in the face of many representations from outside bodies concerned with trade internationally. I say at once that the Government have endeavoured to put in alternative steps to deal with this matter, but the suggestions put into this Bill by the Government are totally inadequate to deal with the position and certainly offer little protection to business creditors in this age.
In your Lordships' House at Second Reading many of your Lordships made strong representations to the Government in favour of retaining and strengthening the present business names system. At Second Reading, the noble Lord, Lord Lyell, dealt with this important matter in his winding-up speech quite shortly and with his usual charm and persuasiveness.
Several noble Lords: Hear, hear!
Lord Lloyd of Kilgerran: I am much obliged to have that support. He indeed suggested that noble Lords who were opposing the Government's proposals were (to use his words) overlooking,
"perhaps naturally, the deficiences of the existing system".—[Official Report, 26/2/81; col. 1202.]
His use of the phrase "perhaps naturally" as an aside in all these circumstances would, if I had the time and real incentive, tempt me to indulge in a careful analysis of its likely significance. "Perhaps naturally" does not apply to me, because I am well aware of the deficiencies and the advantages of the register in the course of my experience in international trade mark matters. The noble Lord went on to say, however, that
"the Government recognise the reality of confusion in the current situation".
That certainly seemed to me to be a step forward. It may therefore be—and I am always an optimist—that the phrase which he used, "perhaps naturally", indicated that the Government may be willing to think again, perhaps quite naturally in the face of the furore aroused from and on behalf of industry in regard to their proposals to repeal this Act.
Confusion of trade names is of great commercial significance. This confusion can arise accidentally; and remarkable coincidences arise in the course of trade where a new company adopts the trade name of another one which has been in business for some time. I have personally been concerned with a large number of these cases; but the confusion is often caused deliberately and fraudulently. I think I can say positively that there is an international industry today where people set out to trade under names deliberately chosen to be like the trade name and trade marks of some well-known businesses. They deliberately set out to deceive and cause confusion so as to mislead potential customers into the belief that their goods are connected with the business of another person or firm.
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This is known as trading on the goodwill of another company, and is a well-known fraudulent business operation.
The business names register affords a source of information as one means of helping to limit confusion in the course of trade, as well as fraud and malpractices. I hope your Lordships will allow me on this important matter to go into some detail about the Registration of Business Names Act. Your Lordships may not, all of you, be familiar with it. I apologise if I take up a certain amount of time, but I have here in my hand—and I must confess an interest here—the 38th volume of Halsbury's Laws of England, edited by a Lord High Chancellor of Great Britain, the late Lord Simonds. It is dated 1962 and I am very familiar with it.
Your Lordships will allow me to say that I am the author of the several hundred pages in Volume 38 dealing with trademarks, trade names and design section. May I say at once that the book cannot be an authority because, under the legal jargon, a legal textbook can only be an authority if the author of it is dead. Now that I have confessed that I have in my hand a book largely written by myself, I am quite sure from the smile and the look of happiness on the face of the noble and learned Lord, the Lord Advocate, remembering his distinguished career at the Bar, that he is happy to find that he has another opponent who has written a book. We all at the Bar are delighted if we come on to a case where the opposing counsel is the author of a book. May I turn to page 627? I shall be brief about this.
Several noble Lords: Hear, hear!
Lord Lloyd of Kilgerran: This is a very important matter. If your Lordships' applause means that you are unanimously in my support then I shall sit down immediately; but I am not so sure that the applause was as great from the Front Benches of the Government; and it is to them and not to other Members of the House that I am directing my attention.
Under this Act, every firm having a place of business in the United Kingdom and carrying on a business under a business name which does not consist of the true surname of all partners who are individuals and the corporate names of all partners who are corporations, without any addition, must register with the Registrar of Companies. There is a similar duty to register imposed on every person having a place of business in the United Kingdom. The duty to register is also imposed on every company carrying on business under a name which does not consist of its corporate name without any addition—and so it goes on. There is a procedure for registration. It is very simple. The remarkable thing in this age is that the fees for registration and the fees associated with the registration are minute by present-day standards: £1 for registration; 25 pence for certain other formalities. It is about time that realism in some monetary sense was introduced into the finances of registration.
There are set out penalties for default of registration; and I say at once that there have been deficiencies in the system because there have been many defaults, hundreds who have not registered; and these have not been pursued. There is a penalty for false statements, for the disability of defaulters; and then it goes on to say how appeals can be made from the decision of the

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registrar—not to the High Court, the expensive High Court, but to what is known in the section as the "Board of Trade" but which is now the Department of Industry. Then there can be the removal of the name from the register by the registrar. It is a simple procedure and it should be self-financing. In my view, it would be simple to make it self-financing.
May I give another example which has not yet been raised where the absence of a business register of this kind can affect United Kingdom trade? It is desirable for a trader before selecting a business name or a trade mark to make a proper search through all the available sources of information to see whether he is free to proceed. Business names, therefore, are potential obstacles to proposed new trademarks, and clearance searches would be less effective if the functions of the business names register were to disappear. It would definitely increase expense and may increase delay and produce frustrations which could damage the export potential. Again, the absence of a business names registry would mean that large companies would have to maintain a watching service for new names—which is expensive and time consuming. The proposals put by the Government as to how they can deal with this problem are, in my view, quite futile. This would not help industry to keep down prices.
Several commissions or inquiries during the past 20 years have reported to the Government on this matter. There is the well-known Jenkins Committee on Company Law in 1962, which recommended the reorganisation of the business names registry by increasing the fees. Then there was the Mathys Committee in 1973 investigating trade names and trademarks, which emphasised that the services in the registry were of considerable help to industry. The gentleman who chaired this committee was a distinguished chartered patent agent and deputy chairman of Courtaulds. To conclude: to abolish the business names register will leave companies with virtually no protection against a new business using a name confusingly similar to their own, whether this name has been adopted accidentally or deliberately. Overwhelming commercial arguments for retaining this registry have been presented to the Government. I urge the Government in the strongest possible terms to reconsider their proposals. I beg to move.
Lord Ponsonby of Shulbrede: I should like to support the noble Lord, Lord Lloyd of Kilgerran, in moving this amendment. It is a paving amendment for the deletion of Clauses 28 and 29 and the substitution of Clause 29 by Amendment No. 102 and also for Amendment No. 158, which deletes the reference to the repeal of the Business Names Act. The noble Lord, Lord Lloyd of Kilgerran, has given a lawyer's point of view of the effect of the abolition of the registry. I think it can be said clearly that if the registrar is abolished there will be no central register of unincorporated businesses. This means there will be no access to information about a business other than from the business itself. The point has been made already that there is no reason why the registry should not become self-financing, and there have been many indications from businesses themselves that there would be no objection to a considerable increase in the size of the registration fee and a considerable increase
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in the amount of search fee which at present is only five pence and could easily be substantially increased.
One may well ask why the Registry of Business Names is so important. One comes to look at the sort of problems which the consumers face. For example, one can take the case of somebody who has paid a deposit of £100 for the re-covering of a three-piece suite. This is an actual case reported by the Consumers' Association. When the customer returned to the shop the shopkeeper said that the business had changed hands, that he had no record of the deposit and would not accept the previous owner's receipt. The shopkeeper demanded full payment for the work before he would return the suite. The customer appealed to the local consumer advice centre who consulted the Register of Business Names. This enabled the customer to prove that the business was still owned by the same person. The customer was then able to take action to get her suite back in return for payment for the work, less a deposit. This is the sort of case which is well documented, where there is very real use for, and protection for the consumer provided by, the existence of the Registry of Business Names.
Great concern has also been expressed in many other quarters that people register a name, such as the name of a whisky, and then use it as a trade name. This can cause great confusion and many problems. We know that in the past there has been a low level of compliance with existing requirements of the registrar, but this has been considerably improved over the past few years now that banks demand that registration certificates be produced by those opening accounts. I understand that the level of compliance is up from some 50 per cent. to 80 per cent. I do not wish to take too long in speaking in support of the noble Lord, Lord Lloyd of Kilgerran, but I am sure that the proposal to retain the registry is something worthy of the support of this House.
Baroness Elliot of Harwood: The noble Lord, Lord Lloyd of Kilgerran, has said that this is an all-party amendment. Certainly I am speaking from these Benches with great conviction and experience in this subject, having been a chairman of the Consumer Council. I can also speak for the noble Viscount, Lord Hanworth, who unfortunately could not be here. He and I were together on the original Consumer Council and I do not think that he would disagree with anything I have to say. In this amendment, and on this occasion, we have a group of all-party people. How many people on this side of the Committee are going to support me I cannot tell until the vote, but I am speaking with absolute conviction when I say that I do believe that what has been said by the noble Lords, Lord Lloyd of Kilgerran and Lord Ponsonby of Shulbrede, is absolutely correct.
Since the Second Reading, when I spoke on behalf of the Consumer Council, I have received a mass of correspondence and information from a variety of societies; from the consumer groups, of course, because they were the ones I was speaking for—but also from the Law Society, complaining about the abolition of the Register of Business Names. I have also received documents from the Consultative Committee of Accounting Bodies, from the CBI, from a company named Dun and Bradstreet which is a firm dealing

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with business information services. There are a great many organisations deeply concerned about this.
The Consumer Association runs a service based on giving help and advice to people with consumer problems, and at least half the inquiries which come before it have involved tracking down the company through the Register of Business Names. Another point is that a great deal of direct selling goes on involving goods bought by the consumer direct from a small company or trader, and, without the Register of Business Names, certain transactions could not take place. If the trader is dishonest the only way that the consumer has of tracking down the company is through the Register of Business Names. I believe one of the most important things of all is that anybody who wishes to start or run a small business and who wants to open a bank account has first to obtain a registered number. All these things are absolutely necessary.
I think it is quite unnecessary for this service to cost the Government any money at all. The noble Lord, Lord Ponsonby of Shulbrede, has pointed out that only a ridiculously small sum of money is asked for at the present time. I would say that this register is so important that an assessment should be made of what it really costs, and any company that wishes to be registered and wants to open a bank account would be able to do so if it pays the fee. If we all had to pay, as we do now, £70 to licence a motor car, I am perfectly certain that most people would pay for a licence for their business without any difficulty at all.
I should like to quote from two letters, the first from the National Federation of Consumer Groups:
"We represent voluntary consumer groups in towns throughout the country, whose members are well aware that it can be extremely difficult but absolutely crucial for an individual consumer to find out who is the responsible person in a firm with which he or she is in dispute. It must be made as easy as possible for consumers and for those who act on their behalf to enforce the rights which have been given to them in both civil and criminal laws. While this register is by no means perfect, abolishing it would not improve the situation. We would very much like to see it centralised using modern technology, made self-financing and enforced".
Another letter I have received makes the point:
"If it were not for this register, there would be no central register of unincorporated businesses. There would be no access to information about a business other than that available from the business themselves, yet objective information is vital to trade creditors in protecting themselves from the risk of dealing on open credit terms with a business they know nothing about".
I do not think that this need cost the Government anything if they will look at it in a perfectly straightforward manner and charge people what it is going to cost. Certainly I think that anything which makes it impossible for honest people to deal with dishonest traders is something we should not allow. If we do insist on this and improve it—and of course there is room for improvement—it will provide a vital service to both consumers and traders, and to the whole business conception in this country. I hope very much that all will support this amendment and that we shall not do away with what is a vital matter.
3.47 p.m.
Lord Davies of Leek: I shall take only two minutes. It must be realised that this on no account imposes a burden on small businesses. If that argument is being
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put forward, it does not hold water. Somebody who knows a little about the commodity market and the modern use of telex will know that that can—as it does in the case of commodity prices—increase the word of a man; his word in a telex, and on the telephone internationally, is his bond. It makes it much easier to maintain the integrity of companies when the register is there and available as it has been up to now. Anyone who has listened to BBC radio on Monday morning will have heard the Checkpoint programme, which looks into fraudulent cases all over the country in which cowboy firms, without setting up business names and everything else, diddle people and destroy their happiness, sometimes even leading to suicide; these are people of small means who have been involved with bogus companies. I hope to heaven that the noble Lords opposite do not see this as a piece of "clean legislation" which will improve business. Here they can help by insisting that the register is kept. I said that I would take only two minutes and I have!
Lord Trefgarne: May I first deal with the amendment which the noble Lord, Lord Lloyd of Kilgerran, has moved and then come to the more general point of the register itself, which really hes at the heart of the noble Lord's amendment. The amendment itself would involve an enormous extension of the controls on names which have been applied in the past under the Companies Acts and the Registration of Business Names Act. It has never been unlawful, nor indeed has it ever been considered undesirable, to allow a company to be registered by the name of an unincorporated business. The index which the registrar maintains at present, and against which the names of new companies are checked, includes about 860,000 entries covering the names of those bodies which it is proposed in future to cover in the statutory index. This index has never included business names registered under the Registration of Business Names Act, of which there are now some 2,600,000.
A business name is no more than a trading convenience. Throughout the country there must be countless instances in which different businesses are trading under the same name. For example, the Castle Tea Shoppe or Phoenix Garage. The Registrar of Business Names has power to refuse to register an "undesirable" business name, but has never held that a name of this sort is undesirable simply because it is already in use. The broad purpose of the Registration of Business Names Act 1916 was to enable the public to identify the true owners of a particular business, whatever the name it used. It was not, and has never been, the effect of that Act to preclude two businesses from using the same name.
In the same way, there has been no legal obstacle to the registration of a company by a name on the Register of Business Names. There is no cross-check between the two indices. The name of a company, on the other hand, identifies its corporate personality. As such, it is important in legal processes and the registrar has always sought to secure that no two companies are registered by the same name, and under the Government's proposals this will be prohibited by the combined effect of Clauses 22 and 23.
I am afraid that the noble Lord's proposal would be quite impracticable without considerable investment

869
and extra staff. To start with, it would involve a combination of the existing indices of companies and of business names, to produce a massive index of upwards of 3½ million entries. Thereafter, the noble Lord is proposing that on a continuing basis the user of any business name should be required to send it to the registrar. How could such an obligation be enforced in the absence of a registration requirement? Even under the present system, we know that the Register of Business Names is largely defective. The outcome would be a vast and unreliable index. It would severely restrict the area within which companies are free to select their names and it would not serve the purpose of either of the registers which are at present maintained.
The noble Lord, Lord Lloyd of Kilgerran, made it clear that the amendment relates only to the names of businesses within the meaning of the Registration of Business Names Act; it does not require that that register be maintained. The present Registry of Business Names does not seek to avoid confusion. Many names are duplicated, as I have already said, solely to identify who owns which business. It must not be confused with the Companies Registry or the Trade Marks Registry. Putting all these names on the companies register would merely confound the position.
May I turn now to some of the more general points in relation to the Register of Business Names? The reason for closing the registry is that since its operation cannot be made wholly effective under legislation, the Government, in assessing their priorities, have decided that it is preferable to admit this fact and, by the closure, save 65 staff and put public spending in line with Government policy to reduce their demand on national resources.
Clause 28 defines the circumstances in which persons will be considered to be carrying on a business under a business name, and specifies the conditions under which certain business names cannot be used without the approval of the Secretary of State. The Government, while believing that a central registry can no longer be maintained, recognise the need for details of the ownership of a business, particularly for the purpose of legal proceedings, to be available to the public. A consultative document published by the Department of Trade in April 1980, accordingly proposed that a new legal requirement should be introduced; namely, that the names and addresses of the proprietors of businesses carried on under a name other than that of the owners should be displayed at the place or places of business and on business communications. In addition, customers should be given a legal right to require such information in writing in cases where they would not normally have access to the firm's place of business; for example, in the case of doorstep sales.
My noble friend Lady Elliot made a number of points, particularly on the financial implications of these proposals. Other noble Lords (I think the noble Lord, Lord Ponsonby) referred to the possibility of putting up the cost of the present registration arrangements. That matter was also referred to at Second Reading. Several noble Lords have suggested that if the charge were raised to, say, £6 or a higher figure, that would cover the present costs. So it might; but the fact is that the scale of operation which is presently
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relied upon is wholly inadequate. I have referred to the number of staff who are presently employed on this business. The fact of the matter is that if the system is to be made effective, we should have to increase the number of staff very substantially. Thus the figure of £6 or so, to which noble Lords referred, would be wholly inadequate to cover what we believe would be necessary if the scheme, as noble Lords envisage it, were to be made to operate on the present basis.
It is the case that 40 per cent. or so of the entries in the present Register of Business Names are thought to be defective for one reason or another. If we were to eliminate all those defects, that means something upwards of 1 million of the present entries would need to be investigated, their errors rectified and, if necessary, the perpetrators of those errors taken to court. Is it really thought that the cost of all that operation should be placed upon the shoulders of the small businesses involved? Remember, we are dealing only with the owners of small businesses who are trading under names other than their own. It is the case that the Register of Business Names has never sought to be a comprehensive register of unincorporated businesses, it is only a register of unincorporated businesses trading under a name other than that of the proprietor himself. The suggestion that we are doing away with what is a comprehensive register is not one that can be sustained. I believe that these difficulties and drawbacks are sufficient to justify the Government's policy in this matter, and I hope that your Lordships will reject this amendment.
3.57 p.m.
Lord Ponsonby of Shulbrede: May I pick up a point raised by the noble Lord? On the basis of 65 staff it would appear that the average staff costs would be, approximately, under £500,000. In 1980 there were 144,504 new registrations. On that basis, a fee of £3·50p would cover the staff costs, and that is not taking into account any additional income from inspection charges which could raise a considerable additional amount.
Lord Trefgarne: The noble Lord is no doubt quite right. The present level of staff could be covered in terms of cost by increasing the fee to £4 or £5, whatever the figure may be. What I have endeavoured to explain is that the present level of staff is wholly inadequate for the purpose which we see as being contained in the thoughts of the Opposition in this matter. They seek to maintain this register as it is—as an effective register. I have sought to suggest that the present register is not effective. At least 40 per cent. of the present entries are believed to be in error in one way or another.
The noble Lord, Lord Ponsonby, referred to the case of somebody who had paid a deposit on the repair of a piece of furniture. When he took his receipt back to the shop, the shop had changed hands and it was not possible to locate the old owner because the new owner disclaimed reponsibility for what happened to the deposit. Under our proposals, the receipt which the householder had received for his deposit would bear the names of the previous shop owner. Thus it would be unnecessary to institute a search at the Register of Business Names. If our proposals had been in force at the time the affair, which the noble Lord related,

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occurred, then that customer would have been much better protected than he was.
Lord Lloyd of Kilgerran: I do not propose to keep the Committee much longer in view of the important business to follow, particularly as, when moving the amendment, I addressed the Committee at length. The reply from the noble Lord the Minister once again emphasised that the Government do not fully appreciate the value of the registry's function which I outlined. We have talked about fees and administration. The administration, as was so ably pointed out by the noble Baroness, Lady Elliot of Harwood, can easily be done under modern technology, which would save an awful lot of time, trouble and staff. I could not understand the Minister's reference to certain figures but, if I may detain the Committee for a few moments more, I understand that a number of new registrations in the Registry of Business Names dealt with so ably by the registry in 1980 was of the order of 144,000. That was an increment of about 7.5 per cent. over the previous year. The number of changes that arose as a result of the operations of the registrar were just over 5,000. The number of cessations was 4,000—
Lord Trefgarne: I wonder whether the noble Lord would allow me to intervene? He referred to, I think, 5,000 changes of particulars recorded last year. I referred only to the fact that there were 2,600,000 entries. Is the noble Lord really suggesting that only 5,000 of those had changes to report to the registrar?
Lord Lloyd of Kilgerran: I am not sure whether I can answer the noble Lord the Minister on that. All I know is that they made in that year 5,000 changes. The registrar must have considered, and indeed certainly did consider, the large number of names that were on the register at that time: he must have done in order to make those changes in relation to the new registrations. Again, he issued 50,000 copies of certificates; there was an inspection of 34,000. Therefore the total activities in regard to copies of certificates and inspections were of the order of 100,000. This is quite a large matter and therefore the operation of this business registry cannot be so difficult to administer as the noble Lord has suggested. I do not propose to delay your Lordships any further, and I beg to press the amendment.
4.2 p.m.
On Question, Whether the said amendment (No. 62) shall be agreed to?
Their Lordships divided: Contents, 96; Not-Contents, 90.

CONTENTS

Adeane, L.

Blease, L.

Airedale, L.

Bowden, L.

Amherst, E.

Briginshaw, L.

Ampthill, L.

Brockway, L.

Amulree, L.

Brooks of Tremorfa, L.

Ardwick, L.

Bruce of Donington, L.

Avebury, L.

Caradon, L.

Balogh, L.

Collison, L.

Banks, L.

Cooper of Stockton Heath, L.

Belhaven and Stenton, L.

Cudlipp, L.

Beswick, L.

Darling of Hillsborough, L.

872

David, B. [Teller.]

Mishcon, L.

Davies of Leek, L.

Monson, L.

Denington, B.

Nathan, L.

Diamond, L.

Oram, L.

Donaldson of Kingsbridge, L.

Paget of Northampton, L.

Elliot of Harwood, B.

Peart, L.

Elwyn-Jones, L.

Phillips, B.

Gaitskell, B.

Polwarth, L.

Galpern, L.

Ponsonby of Shulbrede, L.

Gladwyn, L.

Rathcreedan, L.

Goronwy-Roberts, L.

Richardson, L.

Gosford, E.

Ritchie-Calder, L.

Greenwood of Rossendale, L.

Robbins, L.

Grey, E.

Rochester, L.

Hale, L.

Sainsbury, L.

Hampton, L.

Seear, B.

Henderson, L.

Seebohm, L.

Hooson, L.

Segal, L.

Houghton of Sowerby, L.

Somers, L.

Jacobson, L.

Stamp, L.

Janner, L.

Stedman, B.

Jeger, B.

Stewart of Alvechurch, B.

Kaldor, L.

Stewart of Fulham, L.

Killearn, L.

Stone, L.

Kilmarnock, L.

Strabolgi, L.

Kirkhill, L.

Underhill, L.

Leatherland, L.

Wallace of Coslany, L.

Listowel, E.

Wedderburn of Charlton, L.

Llewelyn-Davies of Hastoe, B.

Wells-Pestell, L.

Lloyd of Hampstead, L.

Whaddon, L.

Lloyd of Kilgerran, L. [Teller.]

White, B.

Wigoder, L.

Lovell-Davis, L.

Wilson of Langside, L.

McGregor of Durris, L.

Winterbottom, L.

Mackie of Benshie, L.

Woolley, L.

McNair, L,

Wynne-Jones, L.

Milford, L.

Young of Dartington, L.

Milne, L.

NOT-CONTENTS

Alexander of Tunis, E.

Gowrie, E.

Alport, L.

Gridley, L.

Armstrong, L.

Hailsham of Saint Marylebone, L.

Auckland, L.

Avon, E.

Hawke, L.

Balfour of Inchrye, L.

Henley, L.

Barnby, L.

Hornsby-Smith, B.

Bellwin, L.

Hylton-Foster, B.

Belstead, L.

Ilchester, E.

Bessborough, E.

Ironside, L.

Boyd-Carpenter, L.

Kinnaird, L.

Brentford, V.

Long, V.

Burton, L.

Luke, L.

Caccia, L.

Lyell, L.

Campbell of Croy, L.

McAlpine of Moffat, L.

Carrington, L.

Mackay of Clashfern, L.

Chelwood, L.

Macleod of Borve, B.

Clancarty, E.

Mancroft, L.

Clitheroe, L.

Mansfield, E.

Clwyd, L.

Marshall of Leeds, L.

Cockfield, L.

Mersey, V.

Colville of Culross, V.

Milverton, L.

Cottesloe, L.

Montgomery of Alamein, V.

Craigton, L.

Newall, L.

Daventry, V.

Noel-Buxton, L.

Davidson, V.

Nugent of Guildford, L.

Denham, L. [Teller.]

Renton, L.

Derwent, L.

Rugby, L.

Drumalbyn, L.

St. Davids, V.

Ebbisham, L.

St. Just, L.

Eccles, V.

Saint Oswald, L.

Effingham, E.

Sandys, L. [Teller.]

Ellenborough, L.

Savile, L.

Elles, B.

Selkirk, E.

Falkland, V.

Skelmersdale, L.

Ferrers, E.

Slim, V.

Ferrier, L.

Spens, L.

Fraser of Kilmorack, L.

Strathcarron, L.

Geoffrey-Lloyd, L.

Strathclyde, L.

Glasgow, E.

Strathspey, L.

Glenkinglas, L.

Sudeley, L.

873

Swinfen, L.

Trumpington, B.

Terrington, L.

Vaux of Harrowden, L.

Teviot, L.

Vivian, L.

Trefgarne, L.

Wise, L.

Trenchard, V.

Resolved in the affirmative, and amendment agreed to accordingly.
Lord Trefgarne: I beg to move that the House do now resume.
Moved accordingly and, on Question, Motion agreed to.
House resumed.

International Computers Ltd.
4.10 p.m.
The Minister of State, Department of Employment (The Earl of Gowrie): My Lords, with the leave of the House, I should like to repeat a Statement being made in another place by my right honourable friend the Secretary of State for Industry, on International Computers Ltd. My right honourable friend's Statement reads as follows:
"With your permission, Mr. Speaker, I wish to make a statement about International Computers Ltd.
"The House will be aware that the Government is a user on a substantial scale of ICL computers with equipment to a value of more than £300 million supporting vital operations in some 20 departments including defence, revenue assessment and collection, agriculture, health and social security. Because of this dependence upon ICL's products we have therefore shared the concern expressed by the company's chairman at the annual general meeting on 3rd February about the deterioration in its tradign position. In reporting the results for the year ta 30th September 1980 he indicated that there had beeo a sharp drop in profit in the second half of that yern, that the company was currently trading at a loss and that adverse trading conditions could continue well into the current year. However, given a revival in markets, the chairman said that ICL expected a significant improvement in the profitability of its operations.
"The trading position of the company is of course essentially for its management, its shareholders and its bankers and it is to the banks that ICL looks primarily to maintain its credit facilities on a world wide basis. However, the Government have a special interest in ICL as a substantial customer for its products. To protect this special interest we have, therefore, given a positive response to a proposal that the Government should provide a limited, temporary measure of support for ICL. This support for ICL, in addition to a contribution towards R and D which could be available under existing criteria, should give the company the chance to review its longer-term business opportunities. I am glad to be able to say in this context that the company's principal banks are continuing their support for the company in an amount of £70 million.
"I therefore intend to seek from the House at the earliest opportunity its authority to provide a guarantee for further facilities to be provided
874
by banks for ICL under Section 8 of the Industry Act 1972. The terms I will be proposing to the House will be for a guarantee of up to £200 million for a period of up to two years. Such a guarantee will not lead to any public expenditure unless it is called. I emphasise that it will be a limited amount and for a limited time".
My Lords, that ends my right honourable friend's Statement.
Lord Beswick: My Lords, I thank the noble Earl for the Statement and, given the facts as set out in it, the Government would seem to be taking the right decision. I am sure that the House will be especially interested in this decision as another case when the non-interventionist dogma just does not fit in with the realities of the modern world. May I ask the noble Earl to refresh our memories of the date on which the National Enterprise Board were instructed to sell their interest in ICL; and, with hindsight, may I ask him—I am sure he will think it is a fair question—would it not have been better for this support to have been provided by the NEB? Is that not what the board was for?
May I also ask the noble Earl whether, in making this not inconsiderable sum available, the Government have satisfied themselves about the future strategy of the company? Is there, for example, any question of collaborating with any other companies, perhaps in Europe? Finally, arising out of that last question, if this Statement is to be taken as a proof, and a welcome proof, of a determination to maintain a United Kingdom position in this modern, high technology growth business can we take it now that there is no question of allowing American companies to take a dominating interest in ICL?
Lord Avebury: My Lords, while we also welcome this Statement, and the continuing support that it affords for what we consider to be an essential national enterprise, should it not have been accompanied by some admission on the part of the Government that the number and the scale of the commitments which they are now making to rescue industry from the consequences of the Government's own policies are incompatible with past declarations that they have made, such as that of the right honourable lady the Prime Minister on 21st April last, when she said:
"Loss makers must be free to do what is needed to get rid of their losses"?
Does the Minister also recall the Prime Minister saying that it was assumed that no large enterprise could be managed successfully without the help of the State?
Is it not true that as a result of the Government's policies and, particularly, their maniac adherence to high interest rates and the unrealistically strong pound, most of the key industries of this country are, in fact, bleeding to death and requiring the kind of help which the Government are now forced to announce? Where they have not plummeted into the red since monetary extremism began to rule, have not many companies been forced to reduce their research and development staff and to close laboratories in a desperate attempt to cope with their cash flow problems, so that when the recession comes to an

875
end it will be that much more difficult for them to recover against the competition which they face from the United States and Japan?
When are the Government going to start listening to the cries of agony that are arising from the industrial heartland of this country, and recognise that unless there is a prompt and substantial reduction in interest rates, accompanied by a lowering in the value of the pound, there will have to be many further rescue operations of this kind, with the result that the public sector borrowing requirement will not be under control, but will be incalculable because of the scale of commitments, such as the present one, which they will have to enter into?
Is it not highly damaging to a company such as ICL to persist with a policy of indiscriminate cuts in public spending, which means that, while it is being made impossible, because of the strong pound, for the company to compete overseas with the Americans and the Japanese, the orders which were the vital basis of their prosperity in the home market have dried up? So should not Government departments be given authority during the present recession to increase their orders for computers, so that, first, companies such as ICL which are in the business of information technology—which is, after all, an essential business of the 21st century—are in a position to compete once we emerge from the recession; and, secondly, the public administration would benefit from the use of computers which ICL could provide? I have in mind my noble friend's Registry of Business Names, which is a perfect example of where computers can help.
What is the contribution towards research and development which is mentioned here? Is this an industry Act provision? Has ICL submitted proposals for assistance under that Act and, if so, how much has it asked for, on what date and when do the Government expect to reply? The guarantee is for £200 million compared with the borrowing of the company, at the moment, of £70 million. Is it, therefore, anticipated that the cash flow of the company will deteriorate to the extent of £130 million during the current year? Finally, may I ask the Minister whether the company is now in a position, as the chairman hoped at the annual meeting, to sustain as far as possible levels of investment in key areas of business, so that they can remain competitive and be in a position to respond when demand returns?
4.19 p.m.
The Earl of Gowrie: My Lords, perhaps the noble Lord, Lord Beswick, will forgive me if I take the questions in reverse order, as it were, as the noble Lord, Lord Avebury, asked me so very many. I cannot tell the noble Lord, Lord Avebury, about the applications by the company for research and development assistance outside this contingency rescue fund. If I may, I will write to him about that, or if he cares to put down a Question for Written Answer and the House is interested I will, of course, answer that.
On the general issue, I think that both noble Lords are, perhaps, overstating the position a little. The bankers of this company, which has been affected strongly by the world recession and the fact that, inevitably, expensive investment in hardware suffers
876
during a recession, are prepared to continue funding the company to the degree of £70 million. But this was not sufficient. The Government's contingency reserve for this purpose will cover the needs of the company during this limited period.
I cannot accept the arguments about monetary extremism because they are so circular. The noble Lord, Lord Avebury, wishes us to bring down interest rates and thereby, by proxy, the pound; but simultaneously he wishes us to borrow more money. Those two things are not compatible. The more money which the Government borrow, the higher interest rates are liable to be and the higher the pound is liable to be. Obviously the company has been hit, as other companies have been hit, by high levels of sterling, though it is the lower demand for orders which has probably hit them most. I do not know whether the noble Lord, Lord Avebury, has suggestions to make to us as to how sterling should artificially be brought down, but it would involve Government expenditure on a quite massive scale. I do not see how one could equate that with aid to companies or lower interest rates.
The noble Lord, Lord Beswick, asked me whether it would have been better to keep this company in the hands of the National Enterprise Board. I do not accept that. We are not yet clear whether this contingency fund will be called on, or to what extent. I am glad to be able to say that the company has placed major orders internationally in the last few days. It may be that it will be able to pull itself up by its own bootstraps, so to speak. We should all wish to see that.
Both noble Lords were interested in our continued commitment to high technology industries. Of course I am happy to say that we have made such a commitment. This is clearly the way that industry in this country must go. It is because we are so heavily involved in this particular industry as a purchaser that we have made the facility available. I would say to the noble Lord, Lord Avebury, that the Government are, as the Statement suggests, still placing major orders with ICL, and that can only help its position.
Finally, the noble Lord, Lord Beswick, asked me about any foreign involvement in the country. No one to my knowledge has expressed an intention to make an offer for the company. If there were to be any approach, our attitude as the Government would depend upon the particular circumstances, the nature of the approach and, of course, upon where any such approach came from. I shall have to rest on that.
Lord Beswick: My Lords, I asked the noble Lord a specific question as to the date upon which the NEB was instructed to sell its interest in this company. Looking back, is it not inconceivable that the Government did not know of the difficulties which would arise in a business of this kind where investment is so high and where lead times are so great? In the circumstances, would it not have been advisable to have left it with the NEB? Does not the noble Earl recognise that in an industry of this kind one has to have Government involvement?
The Earl of Gowrie: My Lords, the date which the noble Lord is seeking is December 1979. At that time the company looked very healthy. However, as the

877
noble Lord is well aware, the recession has deepened since that time and the position has deteriorated since then.
Lord Beswick: My Lords, may I press the noble Earl? There is a case on major national grounds for getting some European industry into this computer business. If there is to be any collaboration, is the noble Earl telling me that there is to be no endeavour to find a suitable European partner?
The Earl of Gowrie: My Lords, the future is all before this company. The noble Lord is going too fast for the Statement. The Statement refers to the provision by the Government of a limited amount of funds for a limited period of time to ease the company over a severe cash flow problem. The Government are doing that for this particular company because of two things: first, as I said to the noble Lord, Lord Avebury, because of our commitment to high technology industries, and secondly because we are substantially involved in this company as a major purchaser and placer of orders in a number of sensitive areas, including the revenue and defence areas. That is the reason why we have made available this contingency liability. What happens now that the acute cash flow difficulties of the company have been eased is a matter for the company, though of course the Government will take a very close interest in any suggestions which are made to them.
Lord Kaldor: My Lords, is the noble Earl aware that the traditional method for regulating exchange rates throughout the 19th century and, indeed, this century has been through variations in interest rates? If the Government really wish to bring down the exchange rate, the normal method is to bring down very substantially the interest rate, which makes the country a less good place to lend in and a better place to borrow from. Is the noble Earl also aware that there is nothing whatever in the Government's argument that a higher public sector borrowing requirement requires higher interest rates, because that is offset by higher private sector lending requirements, which bring down interest rates. All the historical evidence tends to suggest that the times when the nation's borrowing requirements were highest—as, for example, during the Second World War—were the times when interest rates were particularly low and when medium and long-term borrowing took place at very low rates.
The Earl of Gowrie: My Lords, during the Second World War, as the noble Lord with all his experience is well aware, the world was not awash with "hot" money looking for favourable rates of return. If the Government increased their borrowing at the present moment in time and in present market conditions, they would have to compete in the money markets of the world for that money. At the moment the prime rate in America is, I think, 18 per cent. That would be very uncomfortable competition in which to have to engage.
Lord Boyd-Carpenter: My Lords, are the Government supporting this company also by using their very considerable influence throughout the public sector by securing that bodies in the public sector place their
878
purchases with a British computer manufacturer and not overseas?
The Earl of Gowrie: My Lords, the Government not only are doing this but have been doing it for some considerable time. It is because the Government are so involved in this company as a purchaser or placer of orders, as I said, that they have made available this tide-over provision.
Lord Polwarth: My Lords, would the Government bear in mind, in applying their policy, that however desirable it may be to maintain a strong British-based company in this industry, there are a number of overseas-owned companies with substantial manufacturing operations in this country which give considerable employment, notably in a number of the regions?
The Earl of Gowrie: Yes, my Lords, I am well aware of that.
Lord Polwarth: My Lords, I thank the noble Earl.

Companies (No. 2) Bill [H.L.]
4.28 p.m.
Committee stage resumed on Clause 23.
Lord Lloyd of Kilgerran Lord Lloyd of Kilgerran moved Amendment No. 62A:
Page 30, line 36, at end insert ("; and
(f) Societies registered under the Industrial and Provident Societies Act 1965.").
The noble Lord said: The noble Lord the Chairman of Committees, Lord Aberdare, has received a letter from the noble Lord, Lord Mottistone, explaining that he is unable to be present and asking whether I might substitute for him, with the leave of the Committee. This is another amendment to Clause 23 which concerns the kind of indexes which the Registrar of Companies should maintain. Amendment No. 62A seeks to add to that list that there should be an index in relation to societies registered under the Industrial and Provident Societies Act 1965. When I accepted the invitation of the noble Lord, Lord Mottistone, to move this amendment I did not realise that I may have an interest in the Industrial Provident Societies Act because I am chairman of a charitable society which is registered under that Act (or its previous Acts); namely, a charitable society which is responsible for the activities of Bembridge School in the Isle of Wight and of Brantwood, the house and estate of John Ruskin on the shores of Lake Coniston, which is maintained open to the public for seven months of the year.
The effects of this amendment would be to require the Registrar of Companies to include on the index of names the names of societies registered under the Industrial Provident Societies Act. The purpose of the amendment is to ensure that companies cannot be registered in a name identical to that of a body corporate taking the form of a society. Like companies, societies have limited liability and there is usually nothing in the name indicating that they are not limited companies. I beg to move.
The Lord Advocate (Lord Mackay of Clashfern): We can see the merit of this amendment which the noble Lord has proposed and we should like to consider it further.
Lord Lloyd of Kilgerran: I am very much obliged to the noble and learned Lord the Lord Advocate for agreeing to consider this amendment, and, in those circumstances, I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Lord Lyell Lord Lyell moved Amendment No. 63:
Page 30, leave out line 40 and insert ("do not appear to the registrar not to have a place of business in Great Britain.").
The noble Lord said: I beg to move the amendment standing in the name of my noble friend Lord Trefgarne. In so doing I should like to explain its purpose, which is to improve the effectiveness of a particular definition which relates to what we call overseas companies, whose names have to be included upon the statutory index. The Bill which is before us this afternoon states in Clause 23(2) that the registrar would be placed under a very strict obligation to do one particular thing; namely, to act on some information which he might well not be able to find out and that information would be that the particular overseas company was actually carrying on business in Great Britain at that time.
Section 407 of the 1948 Act requires oversea companies which establish a place of business in Great Britain to register with the Registrar of Companies certain particulars and to deliver to him certain statutory documents. These documents may imply that business is being carried on, but there is no certainty in this and the only firm criterion is where a place of business of an oversea company is established.
The reason for the double negative in the Bill is that in certain cases the registrar may not readily be able to ascertain when the company ceases to have a place of business. This amendment proposes that, in such doubtful cases, the company's name shall be retained on the index and if there was certain and firm evidence that this company no longer had a place of business then the name could be removed. It is with that in mind that I beg to move the amendment.
Lord Bruce of Donington: I should like to question the noble Lord a little on this amendment. If this amendment is carried in the form in which it is now set down and the entire line 39 is eliminated—because that is what the amendment says, "leave out line 39".
Lord Lyell: No, line 40.
Lord Bruce of Donington: I am sorry, but I have line 39 on my Marshalled List. I refer to page 2 of the second Marshalled List of amendments, where it says, under Amendment No. 63,
"page 30, leave out line 39 and insert ('do not appear to the registrar not to have a place of business in Great Britain')".
If those words as printed are inserted in the text of the Bill, with the greatest possible respect, the subsection makes no sense at all, aside from the question of the double negative which has already been referred to.
Lord Lloyd of Kilgerran: I may be able to help, because in the first Marshalled List it was line 40 and not line 39. There is quite clearly a printing error of some kind.
Lord Lyell: I apologise to your Lordships for the slight pause. I hope that the main substance of my amendment made some sense but we are grateful for the detailed scrutiny given by the noble Lord, Lord Bruce, and indeed the eagle eye of the noble Lord, Lord Lloyd of Kilgerran. I understand that it might be in order if I ask leave of the Committee to amend the Marshalled List, because I understand that it is a misprint and that if the amendment were amended to read "page 30, leave out line 40", as I have on the amendment, then I hope what I mentioned to the Committee would make some sense.
Noble Lords: Withdraw Amendment No. 63!
Lord Lyell: In view of doubt about the line number, I beg leave to withdraw Amendment No. 63.
Amendment, by leave, withdrawn.
Lord Lyell: I beg to move as a manuscript amendment that Amendment 63 on the Marshalled List should read "page 30, leave out line 40 and insert"—the words as printed. I beg to move.
On Question, manuscript amendment agreed to.
On Question, Whether Clause 23, as amended, shall stand part of the Bill?
Lord Mishcon: I hope I am not detaining the Committee, but I rise only because I am looking at line 40 and I am trying awfully hard to delete line 40 and make sense of this amendment. I find myself confused beyond confusion. I am perfectly sure that the noble Lord, after further reflection, will wish to withdraw the amendment that he has now moved after having withdrawn the amendment that he previously moved.
Lord Lyell: I am afraid we are too late at this particular stage, but if the noble Lord, Lord Mishcon, were to examine the amendment that I moved and were to insert the words which are in the Marshalled List at the end—to delete what is now in line 40 and to insert the words in the manuscript amendment—I think then the particular paragraph would make some sense because the paragraph would read,
"and which do not appear to the registrar not to have a place of business in Great Britain".
That is the double negative and that is very much the gist of the main amendment that I moved.
Lord Boyd-Carpenter: Would my noble friend help me by reading out the words which it is proposed to delete because in my copy of the Bill the figures "40" are opposite a blank space neatly equidistant between subsections (2) and (3). I am genuinely at a loss to know whether my noble friend is conducting the sleight of hand of leaving out a blank space or whether he is leaving out some words, and if so, what are the words?
Lord Lyell: Is my noble friend referring to the Bill or the amendment?
Lord Boyd-Carpenter: To the Bill.
Lord Lyell: I think there are different prints of the Bill. The Bill I have been working from tallies with what I have moved this afternoon.
Lord Boyd-Carpenter: Would the noble Lord read out the words he wants to leave out?
Lord Lyell: Yes, certainly. The words I want to leave out are:
"for the time being carry on business in Great Britain".
Perhaps it would help if I read subsection (2):
"In subsection (1) above 'oversea companies' means companies which have complied with Section 407 of the 1948 Act (delivery to the registrar of statutes of company, etc.) and which for the time being carry on business in Great Britain".
The amendment I proposed was to leave out the words,
"for the time being carry on business in Great Britain".
and to substitute,
"do not appear to the registrar not to have a place of business in Great Britain".
I hope my noble friend was here when I explained that double negative and explained that the registrar might well not be able to ascertain whether an overseas company had ceased to have its place of business in the United Kingdom.
Lord Bruce of Donington: Would the noble Lord for final clarification refer to Amendment No. 63 as it is in the second Marshalled List? He will find that there are brackets round,
"do not appear to the registrar not to have a place of business in Great Britain".
Will he confirm that in the amended form the brackets will no longer appear as they appeared in the original Amendment No. 63? Will he note that there has evidently been some confusion about this?
Lord Lyell: I think it is the arrangement with every amendment we move that we do put brackets round the quotation which we seek to insert. I am sorry if I did not read out in my amended amendment that the brackets should be there, but I hope it is taken that they should.
Lord Wells-Pestell: My attention has been called to the situation which seems to create the difficulty. I do not know whether the Committee knows that all the numbers on page 30 have slipped; 5 should be 6, 10 should be 11. They have slipped down, and I think this is the cause of the difficulty.
Clause 23, as amended, agreed to.
Clause 24 [Change of name]:
[Amendments Nos. 64, 65 and 66 not moved.]
4.43 p.m.
Lord Lloyd of Kilgerran Lord Lloyd of Kilgerran moved Amendment No. 67:
Page 31, line 14, leave out ("twelve") and insert ("four").
The noble Lord said: I beg to move this amendment to Clause 24. Under Clause 24 the Secretary of State has powers to deal with this situation. There may have
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been, inadvertently or otherwise, an application for registration or re-registration of two companies with the same name. It may have been through inadvertence; it may have been as a result of malpractice. But there are two names which are the same. The Secretary of State, according to the Bill in its present form, may within 12 months of having made this discovery direct the company to change its name.
As was pointed out by the noble Lord, Lord Mishcon, at Second Reading, it does seem a long time to give somebody who has got a name on the register which is the same as that of another company; he is given up to 12 months in which to put the matter right. It does seem to be a long time for that to happen and for action to be enforced, particularly where the person introducing the same name has not done it inadvertently but is doing it as part of a deliberate fraud. My amendment is simply to say that 12 months is too long. Is not four months a better period in which to allow the Secretary of State to act? That is all it is. I beg to move.
Lord Mackay of Clashfern: The particular power that we are discussing at the moment is the power of the Secretary of State to give a direction. We are not dealing with the time within which the direction must be complied with. That, unfortunately, was misprinted. We intend to leave that as it is, and a later amendment will correct that, as six weeks instead of six months. That was a misprint. But the power we are considering just now was deliberately altered from the present period to 12 months for the purpose of giving added protection to companies on the register. The reason for that is that, if the company has been put on the register the circumstance will normally be brought to the attention of the Secretary of State by the company that has been disadvantaged by the second registration. It may be some time before they get round to noticing that a registration has been entered. It may be a registration that has not been greatly publicised, or the company is a small one in a different part of the country. The company may not notice that its name has been copied by another, and it is in order to give more time for that that this period has been extended. Practical experience has been that very often these applications from disadvantaged companies come in after the present period has expired. It seems a beneficial change, therefore, in the sense for which the noble Lord was arguing, that this period should be somewhat extended.
Lord Lloyd of Kilgerran: It does not seem that there is any support for my amendment. In view of what the noble and learned Lord has said, may I reconsider the situation and look at it again at Report stage? I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lloyd of Kilgerran Lord Lloyd of Kilgerran had given notice of his intention to move Amendment No. 68:
Page 31, line 15, leave out ("six") and insert ("two").
The noble Lord said: The noble and learned Lord has explained that there is a misprint in lines 15 and 16 of this clause. My amendment was to say that, instead of directing a company to change its name within six months, which I thought was a rather long time to

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give the company, six months should be left out and two months inserted. Now, I understand that the Government are being even more generous and are limiting the period not to two months, as I suggested, but to six weeks. In those circumstances, I shall not move this amendment.
Lord Lyell Lord Lyell moved Amendment No. 69:
Page 31, line 16, leave out ("months") and insert ("weeks").
The noble Lord said: I beg to move Amendment No. 69, which is in the name of my noble friend the Minister and my noble friend Lord Mottistone. The purpose of this particular amendment is to rectify a small error in the print of the Bill. I stand corrected in the last amendment that I moved. If we correct this small printing error this will retain the present time limit of six weeks during which a company must comply with a direction from the Secretary of State to change its name. The experience of the Registrar of Companies has been that this is a reasonable period, and it is right that, if an improper registration is brought to light, this situation should be corrected as quickly as possible. I am pleased to see that the noble Lord, Lord Bruce, might agree on this occasion. I beg to move.
Lord Mishcon: I hope that I shall not be accused by the Committee and certainly not by the Front Bench opposite, of making cheap debating points. This is not meant to be that type of point at all. However, I want to point out to the Committee again the really clumsy thinking—and I must be forgiven for using the phrase—as regards the way in which the extremely important provisions in Part II have been dealt with.
I raised the question of the six months period during the Second Reading debate on this Bill. I said that I thought that it was unconscionable that six months should be allowed, or, as stated in the Bill, such longer period as the Secretary of State might specify. There was a speech in reply by the Government. In the circumstances, whether or not the Minister had even read the Bill, I am doubtful if there was an actual misprint because no explanation was given in the winding-up speech that it was in fact a misprint and that therefore the point that I had rather labouredly made was an empty point since we were merely dealing with a misprinted clause. It is regrettable, and I am only pointing out to the Committee that we must be extremely careful about these provisions on business names and companies because not a great deal of thought has been given to them—that is obvious.
Lord Boyd-Carpenter: I hope that I shall not be accused either of pedantry if I say how unhappy, it seems to me, is the way in which this Bill has been presented. My noble friend will recall that I made this point on Second Reading. We were presented with a number of misprints and erratum slips. Now we have reached the Committee stage and find that a really quite important provision has been misprinted and has reached this late stage before being spotted.
I do not want to take an unkind point either, but it has really been noticeable that, in particular in documents emanating from the Department of Trade, the errors are becoming very frequent indeed. We had a statutory instrument last December to which I
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invited attention—namely, the Companies' Charges Order—where a vital point was misprinted as to the day it was presented to Parliament. I would ask my noble friend, who now I am very glad to say has responsibility in that department, whether he will indicate that it is not treating Parliament properly to produce legislation riddled with misprints so that when we try to study these measures in advance and try to consult outside interests we are doing so on an inaccurate basis. It is very unhelpful.
I am the last man to urge that the department should increase its already very large staff, but is it not possible to recruit just one man who can read and write and who will scrutinise Bills before they are presented to this House? I know that they are printed by the House authorities, but they are presented to us on the responsibility of the department and of the departmental Minister. No one expects a busy Minister to spend his time reading through these Bills for misprints, but he has plenty of officials and perhaps just one of them could look at these Bills occasionally and see that they are right before, and not after, they are presented.
Viscount Montgomery of Alamein: Unlike my noble friend Lord Boyd-Carpenter and the noble Lord, Lord Mishcon, I was not able to be present during the Second Reading debate. However, I have some sympathy with what they have both said. I ask my noble friends in the Government whether we are not making too much of an issue of the whole business of business names at this particular stage of the Committee proceedings? It may be that this came out earlier and that my noble friend will be able to say that the Register of Companies and the Register of Business Names are two distinct issues. Are we not allowing ourselves to get bogged down on an issue which is really less important than the objectives of the Bill?
Lord Lyell: I should like briefly to reply to my noble friend Lord Montgomery of Alamein. He has made a major point which probably would be best dealt with by my noble friend the Minister. As far as the printing is concerned, I accepted responsibility as a Lord in Waiting for your Lordships' House. The department informed me that the printing took place here although my noble friend was quite correct in saying that probably the department and indeed we ourselves should check it. I also accepted responsibility at Second Reading for the misprints. I remember my noble friend pulling my leg by saying that at least there might be one honest man who could both read and write in the department. He may have been referring to me—I do not know—in which case I was more than flattered!
However, I hope that my noble friend and the Committee will bear with me, in that, as regards the amendment which I have moved—Amendment No. 69—I take the point made by the noble Lord, Lord Mishcon. I am sure that the department and my noble friend the Minister will bear this very closely in mind. As regards the previous amendment, over which I was in considerable difficulty, I point out that I have the first Marshalled List of amendments—(72—II)—and that refers to "page 30, line 40". In the Bill that I have before me it is page 30, line 40.

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I apologise to your Lordships if my Bill—which I am sure has come from the same source as all of your Lordships' Bills—tallied with what I was mentioning, but other noble Lords found themselves in some confusion. I hope that that does not go down to the responsibility of the department.
Lord Boyd-Carpenter: I do not want to be a bore but I think that my noble friend slightly misunderstood me, in which case I am sure that it was my fault. I accepted what he said on Second Reading—namely that the printing is undertaken by the House authorities. But I hope that he will accept and confirm two matters: first, that responsibility for what we are asked to put into the law of the land is the responsibility of Her Majesty's Ministers and in particular the Ministers in the department concerned and not the responsibility of the House authorities who are responsible for printing. Secondly, I hope that he will confirm that, in the light of the experiences, particularly as regards measures from the Department of Trade, something is being done in that department to ensure that this does not happen again, at least on this scale.
Lord Trefgarne: I know that my noble friend was expecting that I should respond to this point and as he has specifically mentioned the department in which I serve, perhaps I should do so. I am informed that the proof-reading of Bills is not, in fact, the responsibility of the department and is not conducted by them. Indeed, they are given no opportunity to do so. On the other hand, in fairness to the printer who thus comes under my noble friend's lash, I think that it is correct to say that on this occasion, in respect of this particular measure, the draft that was presented to him for printing did contain a number of manuscript amendments to the typescript which may have caused him some difficulty. I understand also that there is considerable pressure on the Government printer at present, for one reason or another, which has no doubt added to his difficulties. Any failing of the department is, of course, the responsibility of that department's Ministers. If there is any failing in this case, then, of course, I accept the appropriate responsibility.
On Question, amendment agreed to.
4.58 p.m.
Lord Ponsonby of Shulbrede Lord Ponsonby of Shulbrede moved Amendment No. 70:
Page 31, line 20, at end insert ("section").
The noble Lord said: I beg to move Amendment No. 70. I do not know whether this is another misprint or a drafting error, but it would certainly seem that this particular subsection would read better if the word "section" were added as the last word of the subsection. I beg to move.
LoId Mackay of Clashfern: We are happy to agree with the noble Lord's suggestion.
On Question, amendment agreed to.
Clause 24, as amended, agreed to.
Clause 25 [Companies exempt from requirement to use word 'limited', etc.]:
Lord Lyell Lord Lyell moved Amendment No. 71:
Page 31, line 38, after ("company") insert ("(a)").
The noble Lord said: I beg to move Amendment No. 71 and I hope that it will be for the convenience of the Committee if I speak to Amendments Nos. 72 to 80 as well. I hope that your Lordships will find that those amendments comprise the entire list of amendments to Clause 25 on the Marshalled List.
The Government's proposals to allow certain companies which meet strict conditions to enjoy the privilege of omitting the word "limited" from their names has been welcomed by all the organisations which replied to our consultative document. However, it was pointed out that although the overwhelming majority of the companies to which this privilege is currently granted by a licence under Section 19 of the 1948 Act are indeed limited by guarantee, there is a very small number which is limited by share.
The Committee might be interested to note that Amendments Nos. 71 and 72 will remedy this particular deficiency. As a consequence of these two amendments, any company which at present holds a licence to omit the word "limited", and which meets the conditions of this particular clause, will be able to continue that privilege. But we consider that it would not be entirely appropriate to extend it to any further companies limited by share, which nowadays is a status which is normally adopted for commercial rather than charitable purposes.
The other amendments to this clause are, we hope, designed to improve its effectiveness. The inclusion of the words "any profession" among the qualifying objects will enable, for example, a local law society formed as a company limited by guarantee to omit the word "limited" from its name, while the provision in Amendment No. 77 will, we hope, provide a little more flexibility in the distribution of any remaining assets if that company is wound up, while retaining the control in that regard which has been fundamental to the operation of the system which we have at the moment.
Finally, I would draw the Committee's attention to Amendment No. 80, which provides that a company which meets the conditions of the clause and which wishes to assume this special privilege may do so in the simplest way possible—by resolution of the directors rather than by requiring the consent of the company in general meeting.
These are fairly detailed amendments. I hope that I have adequately explained them. I beg to move Amendment No. 71.
On Question, amendment agreed to.
The Deputy Chairman of Committees (The Earl of Listowel): Does the noble Lord wish to move the remaining amendments en bloc?
Lord Lyell: Yes.
Lord Lyell Lord Lyell moved Amendments Nos. 72 to 80:
Page 31, line 40, after ("guarantee") insert ("or

(b) which immediately before the appointed day is a private company limited by shares the name of which does not,

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by virtue of a licence granted under section 19 of the 1948 Act, include the word "limited";

and which complies with the requirements of subsection (1A) below.
(1A) The requirements referred to in subsection (1) above are—

(a) that the objects of the company are or, in the case of a company about to be registered, are to be the promotion").

leave out line 41.
line 42, leave out ("or charity") and insert ("charity or any profession").
Page 32, line 1, at beginning insert ("that")
Page 32, line 1 leave out ("which") and insert ("the company").
Page 32, line 8, leave out from ("up") to end of line and insert ("either to another body with objects similar to its own or to another body the objects of which are the promotion of charity and anything incidental or conducive thereto.").
Page 32, line 9, at beginning insert ("Subject to subsection (6) below,")
Page 33, line 1, after ("name") insert ("by resolution of the directors")
Page 33, line 2, at end insert—
("Section 143 of the 1948 Act (certain resolutions to be registered) shall apply to any resolution passed by the directors of any company in compliance with a direction under this subsection.").
The noble Lord said: I am sure that it would be for the convenience of the Committee if I were to move Amendments Nos. 72 to 80 en bloc. Unless any member of the Committee seeks enlightenment on any particular amendment, I beg to move.
Lord Mishcon: I am sure that the Committee is indebted for a very clear explanation of the group of amendments, and we have been saved several speeches. We are obliged to the Minister for that. My speech will also be very short. It is limited to the point which is made in Amendment No. 74—namely, the inclusion of the words "or any profession". I am much obliged to the Minister for indicating as an example the splendid profession of the Law Society and that of solicitors connected with that profession. I am sure that solicitors and other well-known professions are grateful to the noble Lord.
However, I think I am right in saying that there is no definition of "profession" in this Bill. I have the unhappy task of seeing the notepaper of bookmakers, hairdressers and goodness knows what referring to their "profession". I am just wondering, if we leave it like this without any definition, what it will lead to in a clause which gives a very valuable exemption indeed—a very treasured exemption; that of leaving the word "limited" out of a name even though it be a company limited by guarantee or whatever.
That is my sole point and I therefore ask whether I am right in thinking that there is no definition of "profession". If I am right in thinking that, between now and the Report stage will the Government look at this matter?—because, as I said, we used to know what was a profession; we no longer do in current language.
Baroness Phillips: I should like to follow up what my noble friend has said, in that, as the noble Lord, Lord Lyell, will be aware, a charity carries certain privileges, including a zero rating for VAT. Will this also have to be extended to professions? It seems to me to be a slightly dangerous precedent to establish.
Lord Lyell: Perhaps, first, I may try to reply to the noble Baroness, Lady Phillips. I think that the matter of value added tax is a little beyond my responsibility. Perhaps I may refer her comments to my noble friend Lord Cockfield, who I am sure will read carefully what she has said. We are very grateful for the comments of the noble Lord, Lord Mishcon. I understand that the particular company to which he refers is the Liverpool Law Society and, indeed, we take the noble Lord's comments very much to heart.
I understand that there is no definition of the word "profession" in this Bill. We shall read carefully what the noble Lord has said today, at an earlier stage today and, indeed, late on Tuesday night. Perhaps I may reply to him informally later.
Lord Mackay of Clashfern: Just before we leave this point perhaps I may mention that the word "profession" is, I think, used in the 1916 Act without any further definition. At least for purposes up till now it has not proved too difficult to deal with that aspect of the 1916 Act, although, as your Lordships know, it raises many other difficulties.
Lord Mishcon: The noble and learned Lord, Lord Mackay, will know—as will other members of the Committee—that the word "client" was understood in 1916 and until fairly recently. Now everyone, including grocers, candlestick-makers and so on, has clients; they no longer have customers. In exactly the same way, I am afraid that the word "profession" has been somewhat minimised in our vocabulary, and there are many who seek to come within that category who should never be in it. I think that in 1981 we must ensure that we know that for which we are legislating.
On Question, amendments agreed to.
Clause 25, as amended, agreed to.
Clause 26 agreed to.
Clause 27 [Names of oversea companies]:
Lord Lyell Lord Lyell moved Amendment No. 81:
Page 34, line 15, leave out ("(3)") and insert ("(2)").
The noble Lord said: We are happy to see, coupled with the name of my noble friend the Minister, the name of the noble Lord, Lord Bruce of Donington, who temporarily is not in his place to receive this encomium, and, indeed, that of the noble Lord, Lord Ponsonby of Shulbrede. I hasten to inform your Lordships' Committee that this amendment seeks to correct a misprint. I beg to move.
On Question, amendment agreed to.
Lord Ponsonby of Shulbrede Lord Ponsonby of Shulbrede moved Amendment No. 82:
Page 34, line 28, leave out ("two months") and insert ("of that notice").
The noble Lord said: This amendment is not actually a misprint; this is a drafting point. This clause would, in fact, read better if the new words "of that notice" were inserted in the subsection instead of the words "two months". I beg to move.
Lord Lyell: We are grateful to the noble Lord for his brief explanation, but I am afraid that my reply is

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somewhat lengthy and a little convoluted. I shall attempt to do my best to be clear, but I understand that the requirement in Section 31 of the 1976 Act is that if a company registered overseas proposes to carry on business in Great Britain, it may be given notice requiring it not to continue to do so under its corporate name if that name is considered to be undesirable. In other words, it allows the same considerations as are applied to the names of companies registered in the United Kingdom to be applied to foreign registered companies. The subsection of the Bill seeks to provide that if a notice is issued in such circumstances, the time allowed for compliance may be extended a little beyond the two months specified in the Act of 1976. This extension would allow some flexibility for overseas companies who may not otherwise be able to meet what is, after all, a fairly tight time limit for that, or who may have to approach a designated body elsewhere should they, the oversea company, require evidence of non-objection to the use of a prescribed word in their particular name.
We believe that the amendment seeks to ensure that the time allowed for compliance shall run from the date of service of the notice. But I suggest that the wording of the clause is sufficiently clear on this point, which is that:
"An oversea company on which a notice is served … shall not at any time after the expiration of two months or such longer period as may be specified in the notice "—
and that is relevant—
"carry on business in Great Britain under its corporate name"
We do not think that the insertion of the words "from the service of that notice" after "two months" is necessary. The full amended sub-paragraph seems not to be capable of any other particular construction. That is somewhat convoluted. I hope it may go some way to satisfy the noble Lord, Lord Ponsonby.
Lord Ponsonby of Shulbrede: I do not feel so strongly about this amendment that I wish to press it. I take the noble Lord's explanation, which I shall read with interest, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 27, as amended, agreed to.
Clause 28 [Control of business names]:
On Question, Whether Clause 28 shall stand part of the Bill?
5.12 p.m.
Lord Ponsonby of Shulbrede: This Motion to leave out Clause 28 is consequential upon the decision of the Committee earlier today, and I understand that the Government accept the consequences of the vote we took then. Therefore, I beg to move that Clause 28 be left out. For the convenience of the Committee—and I am not quite certain what the correct procedure is—I would also (although it is out of numerical order) beg to move Amendment No. 102, which is to leave out Clause 29 and insert the words as printed. This is also consequential. It seems to me that otherwise we should be dealing with a number of amendments to Clause 29 which, as a consequence of the earlier vote, would not now be in the Bill. I understand that
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the Government have reserved their position to come back to this matter at Report stage.
Lord Trefgarne: Indeed we have. Furthermore, I think it is improper—I do not wish to use that in any pejorative sense—to move amendments out of order. It would not be right for the noble Lord to move Amendment No. 102 now. As for the question of whether or not they are consequential, perhaps my noble and learned friend Lord Mackay can deal with that particular point in a moment, as he will wish to address your Lordships on this particular Motion.
Lord Hawke: Supposing Ian Smith, Charles Robinson and Ian Stewart band together in a partnership, can they register themselves as ICI?
Lord Mackay of Clashfern: I think it might depend a little on the circumstances in which they proposed to carry on business. So far as the present law and the Register of Business Names is concerned, they would be able to get it on that register. Whether they would be able to carry on business under that name for any length of time would depend a great deal on the nature of their business. I am pretty certain that if it was anything remotely to do with business which ICI conducted they would speedily be invited to discontinue, with possibly one or two threats added about what would happen if they did not. So far as Clause 28 is concerned, it is not, strictly speaking, consequential on the amendment already dealt with. It would certainly be useful from our point of view to know the view of the Committee on this clause as it stands.
The Deputy Chairman of Committees (The Earl of Listowel): The Question is, That Clause 28 stand part of the Bill. As many as are of that opinion will say "Content". To the contrary "Not-Content". I think the "Contents" have it. Clear the Bar.
Tellers for the "Contents" have not been appointed pursuant to Standing Order No. 50. A Division, therefore, cannot take place, and I declare that the "Not-Contents" have it.
Lord Ponsonby of Shulbrede: I think the correct procedure would be for me not to move all of the amendments standing in my name between No. 83 and No. 101.
Clause 29 [Disclosure of names of persons using business names]:
[Amendment No. 83 not moved.]
5.21 p.m.
Lord Noel-Buxton Lord Noel-Buxton moved Amendment No. 84:
Page 36, line 28, after ("letters") insert (", order forms, written material used for the purposes of creating, effecting, maintaining or increasing sales of goods or services (not being material offered or to be offered for sale)").
The noble Lord said: In view of what has happened and the remarks of the noble Lord, Lord Ponsonby, I do not know what purpose will be served by my moving this amendment, which has the same intention as Amendment No. 83. On Second Reading I took issue on the proposed requirements of Clause 29 ex

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tending only to business letters and written demands for the payment of debts and said I should like to see the requirements extended so far as practicable to all promotional material. The noble Lord, Lord Mishcon, also drew attention to the omission of order forms. My amendment seeks to extend the scope of the requirements in the way I said on Second Reading I thought was desirable, and I trust it is essentially self-explanatory. The phrase
"written material used for the purposes of creating, effecting, maintaining or increasing sales of goods or services (not being material offered or to be offered for sale)"
is my attempt at a definition of "promotional material". I am not sure in the circumstances whether it is appropriate to commend the amendment to the House, but I beg to move it.
Lord Mackay of Clashfern: The Government have considered this matter again, particularly in view of what my noble friend said on Second Reading, and we have tried to see whether we could strike a better balance than we already have. It is obvious that if the full details are to be included the total amount of literature which would go out, would become a tremendous burden on such businesses. If one looks at some suggestions for this sort of provision, one can see that the proposal would go as wide as any promotional material. Our view at present is that the balance which has been struck in the Bill is reasonable and that so long as these provisions are complied with, that would be sufficient for the purposes of securing that reasonable information about the matter is giving to people who have an interest to know.
Lord Mishcon: On Second Reading I made the point that an order form was of particular importance because the person to whom the order was directed was keen to know who was in charge of the business that was trying to order something from him, so that he could decide whether credit should be given and whether it was sensible to supply that business. Do the Government agree that in the Bill as drafted an order form is a document on which the particulars of the principals, and so on, do not have to appear? If so, whatever be the ultimate wording of an amendment, either on Report or hereafter, do the Government agree that order forms should be among the documents on which it should be mandatory that the particulars appear?
Lord Mackay of Clashfern: As matters stand there might be some doubt whether order forms are covered in the Bill as drafted, and in view of what has been said we will consider the matter further between now and Report.
Lord Noel-Buxton: With that assurance, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 85 to 89 not moved.]
Lord Lloyd of Kilgerran Lord Lloyd of Kilgerran had given notice of his intention to move Amendment No. 90:
Page 36, line 42, at end insert (";and
(c) cause the business name to be recorded in the index kept by the registrar of companies.").
The noble Lord said: This was spoken to in connection with Amendment No. 62. In the circumstances, however, I do not propose to move it.
[Amendment No. 90 not moved.]
The Deputy Chairman of Committees: Before I call the next amendment I should point out to your Lordships that if it is agreed to, I shall not be able to call Amendments Nos. 92 to 95.
[Amendments Nos. 91 and 92 not moved.]
The Deputy Chairman of Committees: Before I call Amendment No. 93, I should point out that it pre-empts Nos. 94 and 95.
[Amendments Nos. 93, 94, 95 and 97 not moved.]
The Deputy Chairman of Committees: The next amendment pre-empts No. 96.
[Amendments Nos. 96, 98, 99, 100 and 101 not moved.]
Lord Ponsonby of Shulbrede Lord Ponsonby of Shulbrede moved Amendment No. 102:
Leave out Clause 29 and insert:
("Certificate of registration
.—(1) Any person to whom the Registration of Business Names Act 1916 applies shall—

(a) state in legible characters on all business documents—

(i) in the case of a partnership, the name of each partner;

(ii) in the case of an individual, his name;

(iii) an address at which service of any document relating in any way to the business will be accepted by or on behalf of each person so named;

(b) in any premises where the business is carried on and to which the customers of the business have access, display in a prominent position a copy of the certificate of registration issued in accordance with the requirements of the Registration of Business Names Act 1916.

(2) Subsection (1)(a) shall not apply in relation to any business document sent out by a partnership of more than twenty persons if the document states the names of the partners may be obtained on request from the stated address.").
The noble Lord said: This is consequential on the earlier vote. I beg to move.
On Question, amendment agreed to.
5.29 p.m.
Lord Noel-Buxton Lord Noel-Buxton moved Amendment No. 103:
After Clause 29, insert the following new clause:
("Telephone numbers
30.—(1) This section applies to any person not being a company who carries on business in Great Britain.
(2) A person to whom this section applies shall state in legible characters an extant British telephone number in such manner and location as to give reasonable notice thereof on all business letters, order forms and written material used for the purposes of creating, effecting, maintaining or increasing sales of goods or services (not being material offered or to be offered for sale), issued in the course of the business and on all written demands for payment of debts arising in the course of the business.
(3) Any proceedings or other document intended to be served on any person to whom this section applies shall be duly served on him if it is served upon the person and at the address recorded by the Post Office as the subscriber to the telephone the number of which is stated as required by subsection (2) above.
(4) Any person who contravenes subsection (2) above shall be guilty of an offence and liable on summary conviction to a

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fine not exceeding one-fifth of the statutory maximum or on conviction after continued contravention to a default fine not exceeding one-fiftieth of the statutory maximum.").
The noble Lord said: I think this amendment is untainted by what has been happening this afternoon. Following Second Reading, I have received a number of representations, and the thread running through all of them has been concerned with the ability—or, rather, the inability—of any aggrieved party to pursue a rogue unincorporated business, and I should like to think that that concern is shared by the House and the Government. I do not take issue with the Government on the abolition of the Register of Business Names, though others clearly have. I do not think that in general the Register of Business Names has proved much help, or that it could be made to be of much help.
I have given thought as to how best to legislate in order to assist aggrieved parties in their pursuit of rogue businessmen operating even under their own name, but not through a company. It occurred to me that in the absence of a registration number, which is often the key to a registered person or entity sought to be pursued, an effective key might prove to be a telephone number. Surely few businessmen nowadays can carry on business without a telephone. The particulars of a person with a telephone are by necessity recorded by the Post Office, if it is not now British Telecom—
Lord Lyell: It is.
Lord Noel-Buxton: I am obliged to my noble friend. I understand that it is easy for British Telecom to find the particulars of a subscriber merely from a telephone number. That is how British Telecom works when it goes about billing the use of a telephone. The vast majority of businessmen put their telephone number on their written business material in any case. An obligation so to do should place no extra burden, or only a minimal extra burden, on businesses. Having required unincorporated businesses to publish their telephone number, there automatically arises an easy means of identifying the businessman. So far so good.
But a link in the chain is the divulgence by British Telecom to an inquirer of the particulars of the subscriber. I understand that British Telecom is currently not required to give the name and address of a subscriber upon an inquirer quoting only a telephone number. However, surely British Telecom could easily be so required. Once it is established that businessmen must publish a telephone number, and that the particulars of the subscriber to the telephone are easily available, it remains only to provide that service of proceedings on the person whose name and address are supplied by British Telecom is due service on the businessman who publishes the telephone number. I beg to move.
Lord Lyell: We are very grateful for the clear way in which my noble friend has explained his amendment. Indeed, we all but come to expect such clarity of lawyers and solicitors, especially of my noble friend Lord Noel-Buxton. I am sure that the Committee understand and very much appreciate the intention behind my noble friend's amendment, as indeed I do, too. A number of hats descend upon me and some of my noble
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colleagues in your Lordships' House, and so from time to time I speak on matters relating to the Post Office or, as my noble friend so accurately said, British Telecom, as we must now call it.
The very brief answer to my noble friend's amendment is that at the moment his proposition is not feasible. The amendment would require British Telecom to disclose information about the subscriber who was listed against a particular telephone number. At the moment that does not apply. I understand that there are certain exceptions to that rule. They relate to instances of dire emergency, such as extreme illness of relatives and other such personal matters, but I do not envisage the need to pursue a rogue businessman or others as coming under matters of dire emergency.
Furthermore, it appears to us that even if it were possible from one particular telephone number to obtain the information sought, the consequence of such an arrangement would be that every company or every person carrying on a business in Great Britain, except limited companies—we spoke earlier about 2frac12; million registered names—would be required to have a telephone. It is possible that there would have to be a separate telephone for each separate business name if effective service of writs or documents were to be achieved with certainty; and that is a very important point so far as the law is concerned. We believe that to require each single business to have a separate identifiable telephone line would be an unjustifiable imposition, and I am sure that such a requirement would not be at all welcome in general, given the long waiting list of British Telecom for telephone lines.
We regard the intention of my noble friend's amendment as laudable, but we consider that it goes far beyond the scope of the Bill that is before us today, which, as your Lordships' Committee will appreciate, is concerned here with businesses carried on under names other than the names of the owners. While my noble friend was speaking a thought crossed my mind, somewhat evilly, in relation to my noble friend or any other person wishing to find out a registered name against a telephone number. We might embark upon the Chinese Box puzzle if opposite every telephone number one could find a business name. We would then return to the problems that we spoke about earlier this afternoon. That is a further point, which possibly goes too far into the realms of hypothesis. I must tell my noble friend and the Committee that while the amendment and the intention behind it are laudable, the current law as it appertains to British Telecom would not permit such a proposal to be carried out.
Lord Noel-Buxton: I am very much obliged to my noble friend for that explanation, and in the circumstances I am happy to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 30 agreed to.
Clause 31 [Words and expressions requiring approval of Minister]:
5.38 p.m.
Lord Lyell Lord Lyell moved Amendment No. 104:
Page 38, line 15, leave out ("subsection (2)") and insert ("subsections (2) and (3) ").
The noble Lord said: I should like to commend this amendment to the Committee. Clause 31(1) provides for regulations to be made by the Secretary of State, who would specify not only certain words or expressions that could not be used in company and business names without his approval, but also a Government department or other body whose opinion would have to be sought by the applicant. Subsection (3) describes the procedure to be followed by an unincorporated business in such a situation and requires an approach to be made to the relevant body. It would follow from that that Clause 31(1)(b) should have referred also to subsection (3), and I hope that the Committee will support us in making this necessary correction. I beg to move.
On Question, amendment agreed to.
Clause 31, as amended, agreed to.
Clauses 32 to 34 agreed to.
Lord Seebohm Lord Seebohm moved Amendment No. 105:
After Clause 34, insert the following new clause:
("Preliminary

PART (JOB OWNERSHIP COMPANIES)
This part of this Act has application to companies qualified hereunder as "Job Ownership Companies".").
The noble Lord said: This is perhaps a slightly unusual form of amendment and needs a little explanation. A job ownership company is a form of cooperative. Unfortunately, the word "co-operative" is now used to cover a very large diversity of organisations, some of which are nothing more than a small partnership and others of which have thousands of members. Their history has, to put it mildly, been very erratic. Mr. Robert Oakeshott, who I expect many of your Lordships have heard of, and who has made a study of the worker co-operative movement from both a theoretical and a practical point of view over many years, has just published a book (which I have not brought with me but which I strongly recommend everybody to read) which he called The Case for Worker Co-operatives. He could actually have called it, I think, The Case Against Worker Co-operatives, because it is a completely objective account from very early days of the co-operative movement with examples of those which have succeeded and those which have failed.
As I say, it is an entirely objective study and really a most important contribution, I believe, to our knowledge. It is as a result of the work that he and his colleagues have done, and particularly of the study they have made of the remarkably successful enterprise in Spain known worldwide as Mondragon, that this addition to the Companies Bill is being put forward. I think I should explain a little about Mondragon, which perhaps some noble Lords do not know. A film of it was shown some time ago and had another showing yesterday, which some noble Lords came to see, and I think they were very impressed by what they saw.
Mondragon is a town or city in the Basque country. It was a very poor little village in 1955, when the first co-operative was started. It employed about 1,500 people. Today, 25 years later, it employs 18,000 people; its sales are something in the order of
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£350 million, or its equivalent; and they have had no unemployment since it started. The only strike they had was one in the biggest of the co-operative members, which has about 3,000 people, when 17 revolutionaries organised a strike and the rest of the workers quickly threw them out of the works and they went on normally. In fact, there are 62 manufacturing worker units in this organisation. There are other co-operatives of various types, including agricultural ones. The main principle is that the workers are the owners of all the shares in the company and in the organisation, and it is on the basis of this concept that this amendment is put forward.
It is rather interesting that the whole origin of Mondragon in fact came from this country. It was a local priest who had studied the thoughts and works of Robert Owen and the Rochdale pioneers who started the Mondragon scheme. It is also interesting that he pointed out at the time why Robert Owen's pioneers and their factory failed. They started the same way, with the workers owning all the shares in the business. They began to expand fast, and they started to take in outside capital, with outside shareholders. Very soon these outside shareholders took control and put in their own management, and in due course the business failed. The original concept was, I think, a very good one, and it worked for quite a long time until they over-expanded.
A job ownership company which is now proposed is something quite different, as I have said, from the usual concept of a workers' co-operative, and has the following purposes. First, to establish a class of companies owned by those who work in them and, in effect, only by those who work in them; secondly, to enable such companies to purchase their own shares, as without this facility the first requirement is not practicable. That I shall come back to later because there is an amendment set down by the Government which very considerably facilitates the operation of the organisation which is proposed.
The aim of the clauses is to make available a simple form of business organisation which can be owned and directed by those who work in it and which has special advantages as follows. First, to escape from the traditional confrontation between capital and labour. We all know that change must come in the structure of industry if there is to be harmony and increasing productivity. We must get away from management by confrontation. Sooner or later this will happen. Secondly, to assist in the spread of wealth in a tangible and realisable form, and at a valuation that does not depend on the whims of portfolio investors. Mondragon employees who entered some years ago, in its early days, have now been retiring, and they find that they have something in the order of £20,000 of realisable assets on which to retire. Thirdly, which I think is important, to avoid the dangers of absentee ownership, which can result in mergers and takeovers which are not in the interests of the company or those who work in it, and which in fact ruined Robert Owen's theories.
This type of company would be particularly useful and appropriate in those cases, which are not uncommon, where there is a succession problem and the proprietor wishes to hand over or sell his interests to those who have worked with him over many years in

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the business. It seems particularly relevant to me in view of the rapid growth of management takeovers at the present time, and perhaps I may give your Lordships a concrete example of what has been happening in the last few years in this field. Before about three years ago it was very difficult to get over Section 54, which I believe we are going to discuss later, in order to organise these management takeovers, in view of the fact that the company could not lend money to any of its employees or to anybody else to buy its own shares, and was to be taken to be a reduction in capital. But we found a way round this. I think it was fairly close to the wind, but we found a legal way round it some three years ago, and in my last year as chairman of ICFC we in fact did about 38 management buy-outs. Since then—and I see that Lord Caldecote is here; he can confirm my figures—we in fact did about 49 in the year which ended the 31st March last year, very nearly one a week, and this year it is running at about 70 in the financial year, which is getting near to 1½ a week.
We are not the only people in the field, and in fact it has become very infectious. This is a growing form of change in the business and industrial structure of this country. It is, I think increasing the number of small and medium-sized businesses, which is highly satisfactory; and I believe that what we are putting forward today is in fact something which would be very welcome to quite a number of these private proprietors who are wishing to hand over their businesses, not only to their senior management, perhaps, but to all the employees in the firm.
There are other advantages which I hope subsequent speakers will mention, but there is one important point which I wish to make and which convinces me that this legislation is necessary. I am sure the point will be made that there is adequate provision, or there shortly will be, for such a structure to be set up without further legislation. I personally doubt whether this is true, and I should like to see a memorandum and articles of association drawn up to prove the case. But even if it were true, I find the case for consolidation and simplification very strong. After all, it is necessary to dip into the Industrial and Provident Societies Acts, the Industrial Common Ownership Act and no doubt others.
The reason why I want to make so much of this point is that in the many years that I have been providing finance and, at times, advice for small and medium-sized companies I have found that smaller firms of accountants and solicitors, although having high professional skills, cannot have the specialist partners, and certainly not specialist departments, who have the capability for the elaborate adaptation of provisions not designed especially for the purpose. The critical argument, therefore, for a new class of company embodying these principles in statutory form is precisely that it would be widely available to the many professional advisers to whom company law is familiar but to whom co-operative law is a closed book.
Much was said at the Second Reading of this Bill about the help needed for small businesses. It is my opinion that there is as great a need for comprehensible procedures as there is for finance. I have recently seen a draft of a report prepared by a very large
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company about small businesses and their problems over eight of the major countries in OECD, and right at the beginning they point out that the main problem they have discovered is not necessarily finance; it is simplification and decentralisation. If small businesses are to grow I feel quite certain we have got to go for this simplification.
I believe that the clauses we have put in our suggested amendments to the Bill would in fact remove a great cloud of fog which, to many, has the density of a pea-souper. I also believe that these proposed changes fit very well into this Bill, and help to achieve one of the main objectives; that is, to facilitate the formation and growth of small and medium industrial enterprises. The clauses have been carefully worded to meet the needs of the directive; and, really, a lot of them are mainly a form of consolidation. I very much hope that we can come to some agreement on this Bill, particularly in view of the new proposals put forward by the Government on companies buying their own shares, which I am sure will need further discussion and which in fact does not quite meet the full requirements that we have put forward in the proposals for job ownership companies. I beg to move.
5.50 p.m.
Lord Oram: I should like to support, with certain reservations, the new clause moved by the noble Lord, Lord Seebohm. If in what I say I seem to stress the reservations rather than the support, this is because the noble Lord himself, it seems to me, has made out admirably the general case for the setting up of job-ownership companies; and, as he has explained, they are a different kind of company. They would incorporate some features of conventional companies and some features of workers' co-operatives; but they would be neither one nor the other. When I put forward my reservations and suggestions, it is in the hope that they may help the noble Lord improve on the scheme which he has put forward in Committee. Perhaps I should explain that I approach the whole question of enterprises owned by those who work in them from the point of view of a lifelong co-operator; and maybe I should indicate an interest in that I am the chairman of the Co-operative Development Agency, which your Lordships may know as a body set up by Parliament for the encouragement of co-operatives and which, in its first two years, has concentrated particularly on the encouragement of industrial cooperatives.
Co-operatives of all kinds, including industrial cooperatives, need to conform to a number of well-known principles of which two are of particular importance; and I stress them. The first is that the membership should be open to all who can directly benefit from the operations of the society—in the case of industrial co-operatives this means the workers in the enterprise—and the members should exercise full control over the enterprise on the principle of one member, one vote.
That is provided for in the new clause that the noble Lord has moved. It means that the member, as a person, together with his fellow-members, exercises control irrespective of the size of his own shareholding. It is on the basis of one member, one vote, This distinguishes a co-operative sharply from a conventional

899
business and ensures that there shall be democracy in the exercise of control. The second essential cooperative principle that I would wish to stress is that profits at the end of a trading period are divided among the members in accordance with their transactions with the society. In the case of worker co-operatives this means that profits are distributed in proportion to the input of work or of skills to the operations of the enterprise. It is what they put in that is the basis for the calculation of the division of profits.
It is in the light of these two principles that I should like briefly to examine the noble Lord's new clause, because I find in respect of both of these principles that his new clause is somewhat defective, although not seriously so. The definition that the noble Lord put forward is that members are required to be employees, workers, in the enterprise. But I can find no provision—perhaps this was an oversight—that all employees should have the right to become members. In other words, there is no indication that the first co-operative principle is to be operative—that is, that there should be open membership in the sense that have defined it earlier. It seems to me that unless the noble Lord incorporates such a requirement in his proposition, it is possible that a small number of the employees could get control of the company and establish themeslves as an élite from which other workers would be excluded.
Lord Seebohm: I apologise for intervening; but in our plans every worker must be a member and must have a stake in the company.
Lord Oram: I am glad to hear that but I suggest that it is not contained in the new clause. I suggest, therefore, that it would be an improvement if at a later stage that could be made clear. It is perfectly clear that all members must be workers; but it is not clear that all workers should have the right to be members; and that should be included.
Equally, I believe that additional thought needs to be given by the noble Lord to the question of how profits are to be divided. I can find nothing in this new clause on that point. Looked at from the point of view of a co-operative organisation, I think that that is an important thing to be taken care of. The noble Lord might say that it is not his intention that profits should be divided according to the co-operative principle which I have described. In that case, no doubt we could agree to differ as to our objectives in that respect, but I would point out to him that when the Chancellor of the Exchequer introduced his Budget only last week he brought forward a most welcome concession to industrial co-operatives. I will not detail it now, but it was an important concession; and I have no doubt that that concession will be administered according to clear precepts as to what an industrial co-operative is. I have no doubt, also, that the Inland Revenue will wish to see that the profit sharing is on a proper co-operative basis if an industrial cooperative is to benefit from the concession that he makes. Therefore, I suggest that unless the noble Lord takes care of this point, the company which he envisages might well not qualify for the concession which, in a welcome way, the Chancellor of the
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Exchequer brought forward last week.
I welcomed what the noble Lord said by way of description of the highly successful co-operative nexus at Mondragon, in the Basque country. But there are many other examples—in France, Italy, Denmark and elsewhere—of equal success. It is Mondragon that has caught the public eye, but there are many other examples throughout the world of the successful application to industry, to manufacturing, and the provision of services of the principles which I have described. In the Mondragon enterprises they apply the principle of admitting to membership all the workers in the enterprise and they divide the profits among the workers in proportion to their input of work and skills within the enterprise. In other words, in my judgment they are bona-fide co-operative societies. I believe it true to say that if what the noble Lord has in mind is the growth in this country of comparable enterprises it is possible (as I think the noble Lord, Lord Lyell, said at the Second Reading of this Bill) for them to be set up under the existing state of the law. But we have listened to what the noble Lord has said and it may be that a change of this kind could facilitate it. As I see it at the moment, there are the defects—which I hope that I put forward in a friendly and constructive way—and if they could be taken care of I think it would make the proposition that the noble Lord puts forward stronger than it is already.
6 p.m.
Lord Lloyd of Kilgerran: I am pleased to have the opportunity to follow the noble Lord, Lord Oram, as my name is associated with this amendment. Your Lordships are probably aware that the Liberal Party has been closely concerned with a number of job ownership schemes, and indeed a former leader of the Liberal Party who is still a Member of the other place, Mr. Jo Grimmond, is, I believe, chairman of certain job ownership schemes. It seems to me that at the present time this kind of scheme, if it can be called a scheme, so lucidly and clearly explained by the noble Lord, Lord Seebohm, is extremely appropriate today. It provides a convenient vehicle, similar to a partnership but with limited liability, to deal with an increasing number of men and women in this country who have been made redundant in their thirties and who wish to combine together in order to work in this form. There is a lot of redundancy money in areas such as South Wales. The first reaction of many of the men and women who are made redundant and receive a large amount of redundancy pay is to have a little leisure, but they get tired of a trip to Miami or wherever it is they go, and they group together wanting to work and make things which they can market in the local area.
I am presently concerned with finding commercial outlets for men and women who have made simple inventions which they can manufacture with the minimum of tools and apparatus, and there is a demand for these simple inventions which the normal firm—large or small—would not necessarily take up. These skilled men and women know their markets, and if they can have an opportunity to get places where the rent is cheap, or where the premises are given to them without any rent being charged, then that is an opportunity for them to make a living. The question then

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arises, how should they form themselves? It seems to me that it is in a system of this kind that they would find the greatest opportunity.
I was very glad to hear the helpful observations made by a person so experienced as the noble Lord, Lord Oram, and I am personally grateful for the observations he made to improve this amendment. With regard to one point he raised about all employers having the right to be members of the scheme, it seems to be inherent in the amendment as it stands, as the noble Lord, Lord Seebohm, has explained, that all employees shall have the right to be members of the scheme. I should like to support this amendment very strongly, and my remarks are directed not only to Amendment No. 105 but also to Amendments Nos. 106 and 107.
Lord Boyd-Carpenter: It would be wrong for any noble Lord to feel that enthusiasm for schemes of this sort was confined to one side of the Committee. I believe many of us feel that in these days a variety of developments for dealing with what may be called the "we-they syndrome" in industry are required and should be encouraged. I myself thought that the noble Lord, Lord Seebohm—and I nearly said, for personal reasons, "my noble friend" because in everything except the purely technical, procedural sense I like to think he is—made a very important speech and one having a good deal of significance, perhaps, in the longer term. I do not think he would claim that in this amendment and those which follow it he has evolved a perfect scheme. I believe there was some force in the moderate criticisms which the noble Lord, Lord Oram, made, based on his own great experience. However, I think that the general proposition made by the noble Lord, Lord Seebohm, that some form of structure a little different from that of a normal Companies Act company would facilitate the growth of these worker co-operatives is very soundly based indeed.
For the reasons which the noble Lord gave—and I will not weary the Committee by repeating them—there are practical difficulties in complying with our somewhat complex company law (which we are at the moment busily engaged in making even more complex) when one is setting up an organisation of this sort and perhaps starting on a modest scale without being able to afford or obtain high-grade professional advice. The noble Lord's initiative is a very valuable one indeed. I am sure he would not contend, and if he did so contend I would not agree, that it is the only method of dealing with this problem. I happen myself to be the chairman of a company having a normal company structure which has encouraged employee shareholding to the extent that today over 90 per cent. of our employees in the United Kingdom hold shares in the company. We have been assisted in this by Finance Act legislation of successive Governments, although the tax limitations on the development of such schemes are still, in my view, unduly severe. We have certainly found, in a normal Companies Act structure, that the wide development of employee shareholding such as we have is very valuable; and, based, on strong practical experience, I would commend it strongly to the Committee.
I accept that we want varieties and that the ordinary Companies Act structure, for the reason that I mentioned
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earlier, is not necessarily the sole or only answer to this problem. I should be extremely interested to hear what my noble friends on the Front Bench have to say. If 1 may say this without impertinence, I hope they will not confine themselves to seeking to point out defects in Lord Seebohm's clauses, because I have not the slightest doubt that with their great abilities and with their staffs behind them they would be able to do so. With respect, I do not believe that at this stage that is what the Committee is particularly interested in. What I hope they will say is that they would like to see encouragement given to the development of activities of this kind.
They may argue, and the noble Lord, Lord Lyell, did so on the Second Reading, that there really are no difficulties under present company law. I do not think the weight of evidence would support them, and even if there was a certain amount to that argument, as there may be, I hope they will not underrate the presentational and moral advantages of putting into our law a new provision deliberately tailored to job ownership, co-operation, or whatever one likes to call it and one likely to have an encouraging effect on people who are hesitating as to whether to go forward with these proposals. It would be something more than a gesture; it would be an indication of Government sympathy and understanding and indeed of Government encouragement. I, for one, should very much like to see this. I think it is wholly in the spirit in which this Government were elected that we should seek to encourage developments of this sort, and I hope that when one of my noble friends replies from the Front Bench he will, whatever his comments on the details of the amendments may be, indicate a broad sympathy with them—and, more than that, indicate a desire on the part of Her Majesty's Government to help forward movements of this kind.
Viscount Caldecote: I would support most strongly the noble Lords, Lord Seebohm and Lord Boyd-Carpenter, and in particular the words used by Lord Boyd-Carpenter when he said in the latter part of his speech that this would encourage people to set up this kind of company. As the noble Lord, Lord Seebohm, has already pointed out, there has been a very great success rate with what has been called management buyouts, and this amendment would provide for employee buy-outs on a larger scale. I therefore support it strongly. I agree that there are all the advantages which the noble Lord, Lord Seebohm, put forward, and I support them strongly too.
Whilst the co-operative principle which the noble Lord, Lord Oram, put forward, is no doubt important, I believe I am right in thinking that the job ownership company involves the ownership of shares in the company by the employees. All employees have the right to participate but not necessarily all employees would be shareholders. There might be some who would not but they would have the right if they so wished. So if there were certain tax advantages of becoming closer to co-operatives, as the noble Lord suggested, then no doubt these companies could take advantage of them.
I should like to make a plea that there may well be detailed problems connected with this proposed new

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clause. I very much hope that we take the advice of the noble Lord, Lord Boyd-Carpenter, and look for ways of implementing it and not look for difficulties. Let the best not be the enemy of the good. This is a real opportunity—as I said on Second Reading—of moving from a property-owning democracy to a company-owning democracy. I should like to give this new clause my very strong support.
6.12 p.m.
Lord Diamond: There is very little left for me to say except to make it clear that support for this kind of approach comes from every possible quarter of the Committee. I have been interested in this problem for very many years. I took part in drawing up a plan which the Labour Party considered. However, the plan has not yet reached manifesto status. I hope that it might do so at some time or other. It is a problem to which we all want to address our minds.
I subscribe to what has been said about the practising accountant and, I dare say, the practising solicitor, finding it a great and difficult problem to show the way to a group of people who want to get together and form a job ownership scheme of this kind. This is a new clause and what we are doing is giving a Second Reading to a new proposal, although in technical terms we are in Committee. This proposal would provide a fillip of the kind which is more than necessary. It would also be a clarification. It will be a great encouragement and I am sure a great success.
My anxiety is that and number of the tiny businesses that we are so anxiously pushing inexperienced workers into trying to run, might fail to a surprisingly and unpleasantly large extent. If an organisation of the kind was suggested there would be a much greater chance of such activities being successful. I do not see this merely in terms of small businesses. When in Spain one is bound to notice the fact that practically every refrigerator one sees is made by the factory within the Mondragon village. They are very successful in terms of both domestic production and sales and overseas exports. There is no reason why business should not be carried on in an increasing and extensive scale within this kind of system.
I am sure that the noble Lord, Lord Seebohm, will not object if a dot or comma is excluded. What we are anxious to do is urge the Government—and encourage people outside the Committee—to take this step forward to enable people to take in this venture. It is an excellent way of overcoming all sorts of problems. It is entirely within the development of the philosophy of the Companies Acts which we are now considering, especially in terms of buying one's own share capital, and I hope that the Government will give the idea the encouragement which our economy needs.
Lord Rochester: I had not intended to say a word. I am not sure that I should do so now as I have little of substance to add to what has been said. However, like the noble Lord, Lord Diamond, I have been enormously impressed by the degree of support that has come for this amendment from all parts of the Committee and, if I may say so, by the calibre of those
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who have lent it support. Like the noble Lord, Lord Diamond, I should like in these few words to add my personal support and express the hope that the Government will take these factors into account. Whatever are the defects of detail in this amendment, I hope that the Government will find it possible to speed the underlying principle of it on its way.
Lord Kilmarnock: I am sure that the noble Lord, Lord Seebohm, is anxious to hear what reception the Government will give to this proposal. My only reason for intervening at all is that I have visited Mondragon, as no doubt have other noble Lords. I was there about 18 months ago. The note I made in October 1979, when I returned, was:
"If the two sides of industry could be more widely dissolved on Mondragon lines and if Mondragon type agreements on rewards were to replace the clumsy ritual of free collective bargaining, that would be a great step forward in the direction of a fairer and less divisive society".
That was simply a personal note that I made on return from a three-day trip to the Mondragon complex of co-operatives.
The atmosphere there is extraordinarily impressive. There is tremendous sense of participation and dedication. It is important to point out that there is nothing wild or woolly about this scheme. The Mondragon complex is extremely professional. Before a co-operative is set up at least three years of studies go into the preparation. Once it has been accepted into the major group, it is monitored for a further two or three years. There is a very stringent rolling accounting procedure. There is absolutely nothing which could be vague or merely idealistic about this. There is obviously a basis of idealism to it but it is also profoundly and very stringently practical.
Something that attracted me about it is the ratio of rewards. The noble Lord, Lord Seebohm, mentioned that there is a general 1:3 ratio. In other words, the newest apprentice begins by getting one and the managing director does not get more than three. This differential is even narrower in practice. The apprentice speedily jumps to 1:2 in the ratio: many of the top management do not get more than 2:6 or 2:7 of the ratio, though I understand that technological requirements these days produce some variants and some outside advisers are being paid a higher wage or get a higher participation.
In terms of motivation for collaboration in industry, there is no doubt that this is a most impressive experiment. It is true, as the noble Lord, Lord Oram, has said, that there are other examples of this around Europe and Mondragon has slightly scooped the headlines. Simply on those grounds I do not think that we should turn ourselves away from the experience it can offer us.
I am not qualified to comment on the technicalities of Lord Seebohm's clause. Many members of the Committee seem to feel that in general principle it is correct, although there could be some improvement at a further stage. I hope that the Committee will give it a fair wind.
Lord Davies of Leek: I have just come into the Committee because I was interested in this matter and I apologise for speaking. I have taken an interest in this experiment and it is rather remiss of me to indulge

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on the good temper of the Committee by making a long speech, having, by accident, absented myself. Nevertheless, may I record, without going into the arguments which I have read and the history of the Spanish experiment and others, that this development may be very worthwhile. Without going into it in detail, having missed the full debate, I should like to put it on record that I support this amendment and if we go into the Lobbies I shall go into the Lobbies in favour of it.
The Earl of Halsbury: If I may come to the help of the noble Lord who has just spoken, I, too, sincerely apologise to the Committee because I missed the beginning of this debate; it was called a little earlier than I had budgeted for, and I arrived late. Like the noble Lord, I do not wish to take up the time of the Committee by doing more than recording my support for this amendment. I think that one or two bits of sandpaper could perhaps be used before Report stage, but I should like my noble friend to be assured of my support.
6.21 p.m.
Lord Mackay of Clashfern: A great deal of support in principle for these interesting proposals has been manifested on all sides of the Committee. So far as Her Majesty's Government are concerned, they are interested to promote enterprises of this kind and to make it reasonably easy for them to promote themselves and to be continued. It is in that spirit that I approach the amendments which have been proposed by the noble Lord, Lord Seebohm. The principles he has explained and the desires he seeks to achieve are ones which we would certainly seek to facilitate.
As I think has already been acknowledged, a company which is broadly on the lines of the company proposed in these amendments can presently be set up under the Companies Acts, subject to two major matters. The more important of them is the difficulty about the purchase of its own shares by a company, and it is in order to facilitate that in proper circumstances that the Government have proposed in later amendments new clauses to provide more generally for the purchase by a company of its own shares, subject to certain safeguards. There are also questions with regard to the restrictions imposed by Section 54 of the 1948 Act to which the noble Lord, Lord Seebohm, referred and we have proposed in this Bill a certain relief in this respect.
If these later amendments to which I have referred are passed, the result would be that, subject to safeguards of detail which I would not propose to go into fully now, in the spirit of my noble friend Lord Boyd-Carpenter, the sort of company that is here proposed could be set up. However, it is important not to lose sight of the point made by a number of your Lordships: this is not the only vehicle by which the sorts of objective we are here seeking to promote can be achieved and therefore it may not be wise, or indeed in the best interests of the ultimate success of this development, that it should be singled out for very special treatment in the Companies Acts. Surely it is better to look at the obstacles to the development which have been experienced and see to what extent those obstacles can be removed, under proper safeguards. That has been Her Majesty's Government's
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approach and, as I say, the most important obstacle to the formation of these companies was undoubtedly the difficulty over a company purchasing its own shares. That we have sought, by the proposal of the later clauses, to remove.
I appreciate, as the noble Lord, Lord Seebohm, pointed out—and it was a point also taken up by other speakers—that the Companies Acts are apt to be a little complicated. I am not certain that I would go along with the view that we are now engaged in making the provisions more complicated: in some ways we are giving considerable help and alleviation to small and medium-sized companies in connection with the rules with which they must comply. Nevertheless, the Companies Acts are somewhat complicated and I appreciate that people to whom small enterprises might go—solicitors, accountants and possibly even members of the Bar—might not be familiar with the details of the model that the particular amendment incorporates. We would suggest that the way to overcome that is not to put this particular model, in its present stage of development, into statute but to engage in publicising it so that even the humblest practitioner will come to be aware of it. Indeed, it may be wise to circulate it in other sorts of literature apart from professional literature.
We feel that we have, by the general provisions I have referred to, sought to overcome the principal obstacles to the development of this type of company and we would suggest that the right way forward is for such companies to develop, making use of these general relaxations. We would also suggest to the Committee that it may not be in the best interests of this development, as I have mentioned, to "freeze" it at this stage into an Act of Parliament. Once it is in an Act of Parliament, as your Lordships know, it is not particularly easy to have it altered; and experience might show that in some details it could be improved in practice. Therefore, we would suggest that the objectives of these amendments can be achieved without the necessity of particular provisions of this kind. I shall not go into details of the provisions now—
Lord Diamond: I am most grateful to the noble and learned Lord for giving way. He was referring to the fact that the Government proposes to publicise methods whereby this can be achieved within the framework of the Companies Acts. Did he have in mind, for example, that there would be a new model Table A and that anyone could take the whole of that table and the articles of association and say, "This is a model of the way in which you could operate, for example, this job-ownership scheme"?
Lord Mackay of Clashfern: I did not mean to imply that the publicity would necessarily be undertaken by the Government, although no doubt the Government might be able to assist in one way or another in such publicity. To frame an alternative to Table A on the lines of these proposals might have the kind of difficulty I have mentioned. It would tend to put the company, in its present stage of development or in the formulation of its memorandum and articles in its present state of development, into the statute, and thus inhibit further development. Therefore, while I can see that doing so would achieve a fair measure of

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publicity for the form, it would have the sorts of disadvantage to which I have drawn attention and, certainly for my part, I would suggest that publicity of a more general character might be more appropriate.
I was saying a moment ago that I did not propose to go into the details of the clauses that have been proposed by the noble Lord at the present stage, because our principal view is as I have expressed it. However, as the noble Lord, Lord Oram, has mentioned it, I would say that my understanding of the clauses as they are at present is that they restrict membership of the company to the employees, but not conversely. In other words, not every employee would have a right, in terms of this memorandum and articles to be a member; but of course—
Lord Seebohm: I would just intervene once more to say that it is the full intention of our scheme that every employee should be a shareholder.
Lord Mackay of Clashfern: I can well understand that; and I was just about to say that I can well understand that that sort of arrangement would be over and above the provisions of the memorandum and articles: in other words, it might well be a condition of part of the employee's contract on taking up the employment that he should be entitled to become a member of the company. Perhaps it would be more appropriate to have a contractual arrangement of that sort rather than to incorporate it into the memorandum and articles; and of course it does mean that this sort of proposal we are talking about would have flexibility to be used, for example, in a case where for some good reason the general co-operative arrangement to which the noble Lord, Lord Oram, referred might not be appropriate. Apart altogether from the question of development forward of this project, we would also say that in the interests of flexibility, in the interests of trying to fit this kind of scheme into a number of different situations, it is unwise to legislate about it in too much detail.
In the light of that explanation, I hope the noble Lord will feel that, while we support very much the objectives which he is seeking to achieve here, the way in which we have put it is perhaps preferable. I should be happy if the noble Lord felt that, between now and Report stage, we could look at it, possibly with him, to see whether there were any points about our general proposals which he felt required to be altered in any way to accommodate his proposal.
Lord Wilson of Langside: Before the noble and learned Lord spoke, it had never occurred to me to address your Lordships on this amendment, because I cannot match the knowledge and experience of the several of your Lordships who have spoken to it. I found the response of the Government, as expressed by the noble and learned Lord on the Front Bench, to these imaginative and potentially exciting innovations in the industrial scene more than somewhat disappointing. Indeed, I thought, in spite of the note on which the noble and learned Lord concluded, that the Government's approach to these matters tended just a little—I hope that this is not an unkind thing to say—to express the spirit of a man who has a problem for every solution.
Lord Mackay of Clashfern: Perhaps I might be allowed to say that I greatly regret that the noble and learned Lord should feel that. That is certainly not the spirit in which we have approached this matter—quite the reverse. I would say, particularly, that the fairly elaborate amendments which we have brought forward to provide for the purchase by a company of its own shares are a very positive response to trying to push forward the kind of proposal which the noble Lord, Lord Seebohm, has made. Far from trying to put obstacles in his way, we have sought to deal with these obstacles to some extent. I should perhaps correct one thing that I said earlier about Section 54. We have certainly made proposals in relation to Section 56. We are considering what could be done in relation to Section 54.
Lord Wilson of Langside: I certainly apologise to the noble and learned Lord if I misinterpreted the spirit in which he replied to the amendment. I readily apologise for that, but, certainly, that was the impression I gathered. But, of course, I may have been wrong.
Lord Mishcon: I wonder whether, upon that note which the noble and learned Lord sounded of Government encouragement to what is a brave initiative in this field and to an amendment for which the Committee is deeply grateful—because it has been a most interesting debate—I may say this. The noble and learned Lord caught the spirit of the Committee in wanting to further the principle behind the amendment, and very correctly referred to the general policy in certain clauses of this Bill, which would make what I think will inevitably be called JOCs something better known and something practised.
But I also wonder whether, bearing in mind that the noble Lord is speaking for the Departments of Trade and Industry in connection with this Bill, he could make the Committee a little happier—and I am not criticising him for not having made the Committee happy up till now—by saying that it is the Government's intention, so welcome is this proposal, to conduct in very near months from now discussions with the Confederation of British Industry, discussions with commerce and discussions with the trade unions, and perhaps the co-operative movement, on the furtherance of this idea, so that the publicity of which he spoke, and for which, understandably, he did not want to take responsibility on behalf of the Government at this stage, is something that is likely to be fairly imminent.
Many of us know of the good intentions of the noble and learned Lord. What we are scared of is that, having had this useful debate, with all the trouble taken by the noble Lord who moved the amendment, the proposal will be lost in the labyrinths of our Official Report and not come forward once we have excluded it from the Bill. If the noble and learned Lord could help with some pronouncement of intention to further the scheme, most members of the Committee, who have spoken in favour of this amendment, would be happier.
Lord Mackay of Clashfern: I am inclined to the view that actions speak loudly in this context and I would have said that in this field the Government have shown,

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by action, their encouragement, by bringing forward their amendments in order to enable companies, subject to certain qualifications, to purchase their own shares. That is an active response to this matter.
Lord Mishcon: I must persist but only for one moment, because I do not want to bore the Committee. This is an important matter, and we do not want this debate to resolve itself into mere print upon pages, with all of us praising ourselves tonight for the speeches we have made and the matter resting there. The noble and learned Lord is a very frank person, and I do not think that he would put forward to the Committee that the reasons for looking at Section 56, and, ultimately, for looking at Section 54 and at the whole idea of a company's ability to purchase shares, were specifically in relation to our debate on these amendments. There were many other reasons why the Government had, quite properly, to look at those provisions and to bring in those reforms.
The noble and learned Lord will be the first to admit that, if we merely pass these sections in regard to a company's ability to purchase shares, and to finance the purchase of shares, and they become enacted, that will not forward the scheme in any way. What we are anxious about is that the scheme itself should go forward, not just the enabling powers. I therefore press the noble and learned Lord again. Is he prepared, on behalf of the Departments of Trade and Industry, to say that discussions to further this kind of scheme will be initiated by his departments?
Lord Seebohm: I so much agree with what the noble Lord, Lord Mishcon, has said. I had hoped that we should get more encouragement than we have had from the Front Bench. It is perfectly easy for legislation to do what I have put forward. But unless there is some positive encouragement from the Government, by way of stating the case—by no means do I say that this evening has been wasted—the Government will not have done what I wanted. I do not believe that a single person has spoken against my amendment.
Lord Lloyd of Kilgerran: May I attempt to clarify a few points by asking the noble and learned Lord the Lord Advocate two questions? I, too, was a little disappointed at his approach, but I may have misunderstood him in this matter. In the early part of his speech, he referred to the fact that he was not going to deal with these amendments in detail. He was talking about the whole scheme, subject to certain details, but he did not want to bore the House, he said—or words to that effect—and did not give us the details which he had in mind in relation to these amendments. As the noble and learned Lord will appreciate, one of the amendments associated with what the noble Lord, Lord Seebohm, spoke about was the new clause for amendment of the Companies Act 1980, to enable a limited company to acquire its own fully paid shares.
Secondly, when the noble and learned Lord so courteously and in a friendly way suggested that there should be talks, I was not clear about the nature of those talks. Would they be talks relating to the structure of these amendments and taking place before Report? Or did the noble and learned Lord have in mind other kinds of talks? As I have my name down
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to this amendment, I think it would be very helpful if the noble and learned Lord could assure us that the talks which he has suggested will relate to the clauses which we have put into the Marshalled List.
6.40 p.m.
Lord Mackay of Clashfern: I did not examine the clauses in tremendous detail because I sensed that the Committee had accepted the suggestion put forward by my noble friend Lord Boyd-Carpenter. I certainly am in a position to give to the Committee views about the clauses in considerable detail, if that is thought to be wise. However, I concluded, rightly or wrongly, that perhaps it was unnecessary at this stage to go into that kind of detail. When I spoke earlier, the kind of further discussions which I had in mind were discussions about whether we had, to the extent necessary to allow the scheme to proceed in the general clauses, met the points which the noble Lord, Lord Seebohm, considers to be essential. That is the sort of discussion which I had in mind, for the reasons which I have explained. I hope I have made it clear that it seems to us not to be right to go ahead along the lines of these particular clauses, for the reasons which I have mentioned. I submit that the correct and wise approach is to remove, so far as possible, the obstacles as general obstacles and to permit therefore development of this sort of idea without these obstacles.
Lord Lloyd of Kilgerran: May I thank the noble and learned Lord the Lord Advocate for his explanation of why he did not go into the matter in detail? However, another aspect of the speech which he has just made reminds me that he seemed to suggest that possibly these amendments are not suitable for a Companies Bill. I thought he indicated to the Committee, with his great skill in these matters, that these clauses should not be in a Companies Bill. I feel, however, that these clauses ought to be contained in a Companies Bill, subject to the discussions to which the noble and learned Lord referred regarding certain improvements to their drafting.
Lord Mackay of Clashfern: In that case, I have not made my main proposition very clear. The view which we take is that the sort of company which is proposed in these amendments is of a very specialised form and subject to the matters which I have mentioned, could be created under the Companies Acts as they presently stand. If therefore they are a good thing—and your Lordships have plenty of evidence that for some circumstances they are an extremely good thing—then it is right that they should proceed. But in order for that to happen there is no need to put them into the Companies Acts as a special model. To select one possible model and to give it pre-eminence in the Companies Acts would be a mistake and possibly would inhibit the very development which your Lordships are anxious to promote.
There are other models which are possible. If one were to have the Companies Acts full of all possible models for doing everything that is good, the Companies Acts would be infinitely more complicated than they are. Accordingly, it is our view that the thing to do in the Companies Acts is, so far as it is right, to remove obstacles to desirable developments. That leaves the

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developments to take place at the initiative of those who want them, helped, so far as it is desirable, by Her Majesty's Government. In that connection, which may help the noble Lord, Lord Mishcon, may I say that, as the noble Lord, Lord Oram, has already pointed out, my right honourable friend the Chancellor of the Exchequer gave in his Budget very practical help in the direction of enterprises such as this.
Lord Mishcon: The noble and learned Lord has helped me, but only by a minuscule amount. I was asking him, as he very well knows, for something further. The Committee in my judgment, and I shall be corrected if I am wrong, regards the debate we have just had as very valuable. As has been pointed out, not one speaker—and we have heard speakers of great experience—has spoken against the proposals. The noble and learned Lord has given very good reasons, in my judgment, as to why it is not appropriate to legislate within this Companies Act for a specific type of company. I do not want to argue with him about that; he has given very good reasons why we should not have another Table A. I think that point is debatable, but I do not want to argue about it. However, the noble and learned Lord, I am sure not intentionally, has evaded the one question which I put to him.
This Committee, I feel, wants action upon this point—not just action which enables, from a legislative point of view, but action to encourage companies of this kind to be set up. Therefore I ask the noble and learned Lord, in straightforward, simple English, are the Government, through the Departments of Trade and Industry, prepared in the near future, having heard what this debate has told the Government and which the Government themselves have been good enough to say they have looked upon with favour, to initiate discussions with these organisations which are concerned with these matters to try to progress companies of this kind? Without that, we are in a position of de mortuis nil nisi bonum—concerning the dead say nothing but good. And this clause will be dead, and these amendments will be dead, and we shall have done nothing but express good about them.
Lord Oram: As I understood the Minister, he wanted to confine his talks with the noble Lord, Lord Seebohm, to the practicalities of the Government's amendments which are on the Marshalled List. I wonder whether I may press the noble and learned Lord to go somewhat wider than that and to offer to enter into discussions with the noble nord, Lord Seebohm, with a view to looking at the position which we may reach at the Report stage in order to find out whether or not some other form of amendment might be moved. I believe that talks of that wider kind might help the Committee out of the present difficulty in which it is placed.
I have considerable sympathy with the Minister's position in not wanting to give approval to a particular pattern of progress in this respect. I did not make this point in my earlier remarks, but I am very conscious that there is a completely different area of law under the Industrial and Provident Societies Acts which were specifically enacted for the setting up of co-operative
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societies. I believe this to be very relevant to the discussions which we are having this evening. If the Minister could go somewhat wider than he has about the possibility of this matter being further discussed, perhaps informally outside the Chamber, it might help.
Lord Boyd-Carpenter: Before my noble and learned friend replies, may I say that I am a little surprised that my noble and learned friend's, I thought, very helpful response has not been, apparently, as fully appreciated by one or two noble Lords as, frankly, I should have expected. Certainly they do not seem to regard it in the same favourable terms as I do.
However, can we not leave the matter like this? My noble and learned friend on the Front Bench has said that he would like to have discussions with the noble Lord, Lord Seebohm. The noble Lord, Lord Seebohm, is a great enthusiast who has done a great deal of work on the subject. Both he and my noble and learned friend are reasonable men. I should have thought the sensible thing to do would be to allow them both to have a discussion such as has been promised and to await the outcome of that discussion. If unhappily they are unable to agree, then anybody will be free—the noble Lord, Lord Seebohm, or any other noble Lord—to raise the subject at Report. However, to attempt to pin down my noble and learned friend in advance of the discussion with the noble Lord, Lord Seebohm, seems to me to be rather counter-productive. I hope the Committee will feel that the stage we have reached is a good one. There has been a successful debate with, as everybody has pointed out, general agreement with the spirit of the proposals made by the noble Lord, Lord Seebohm. There is a suggestion of a discussion between the two (if I may so describe them) protagonists at this moment; would it not be sensible to await the outcome of those discussions?
Lord Lloyd of Kilgerran: I should like to express my thanks to the noble Lord, Lord Boyd-Carpenter, for his helpful suggestion. I heard the noble and learned Lord the Lord Advocate refer to discussions and in my further speeches I tried to evaluate what those discussions would comprise. As my name is associated with this amendment as well as that of the noble Lord, Lord Seebohm, I would welcome such discussions if the noble Lord, Lord Seebohm, agrees. I would welcome such discussions with the Government as soon as possible in the context of the amendments as now in the Marshalled List, in order to see whether we can go any further without detaining this Committee any longer.
Lord Seebohm: I agree with that and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 106, 107 and 108 not moved.]
Clause 35 agreed to.
Clauses 36 to 39 agreed to.
Clause 40 [Provisions supplementary to Sections 36 to 39]:
Lord Ponsonby of Shulbrede Lord Ponsonby of Shulbrede moved Amendment No. 109:
Page 45, line 24, at end insert—
("(11) References in sections 37, 38 and 39 of this Act to the issue of shares at a premium include references to the issue of shares where the value of the consideration given for the shares exceeds the nominal value of the shares issued whether or not the excess is or would but for those sections be recorded in the share premium account.").
The noble Lord said: Clause 39(1) provides retrospective relief from Section 56 of the 1948 Act where the issuing companies issued shares at a premium, and it would seem to be helpful if it were made clear that "issued at a premium" includes issues made at a premium, whether expressly or by implication. The intention of this amendment is to clarify the situation. I beg to move.
Lord Mackay of Clashfern: The question of whether or not a share premium has arisen is a question of law to be determined in the light of the facts, and I should have thought that the amendment was unnecessary. The Bill as it stands achieves its purpose and I would suggest that in the light of the ordinary principle of economy this amendment should not be agreed to.
Lord Ponsonby of Shulbrede: I thank the noble and learned Lord for his reply, which I will study in detail. The intention of the amendment was to clarify the situation and I will see whether in fact his remarks meet that situation. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Trefgarne: I understand that it has been agreed through the usual channels that we should now adjourn consideration of this Bill in Committee, proceed with the other business, and then continue with this Bill again at eight o'clock. Accordingly, I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Water Bill
6.56 p.m.
Lord Bellwin: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, that the House do now resolve itself into Committee.—(Lord Bellwin).
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ALPORT in the Chair.]
Clause 1 [Increased borrowing powers of British Waterways Board]:
Lord Burton Lord Burton moved Amendment No. 1:
Page 1, line 8, leave out from ("million") to end of line 10.
The noble Lord said: I rise to move this amendment with not a little trepidation because it deals with figures rather above those which I am accustomed to handling. Furthermore, any suggestion of cuts in public expenditure is never popular and this is certain to be unpopular with the Minister of the Environment, who is hoping to dispense the money. However, my noble friend Lord Bellwin on Second Reading referred to this Bill as being uncontroversial. No doubt he hoped that it would be, but since he made those remarks we have had a tough Budget and clearly figures of £15 million should not be allowed to pass unscrutinised and some consideration should be given to the sort of return which may be expected from such an investment. The Bill authorises borrowing up to £35 million; but to quote from the British Waterways Board's report for 1979, the board were paying over £1 million in interest. However, the board's total net income was only £6 million and the country was having to top up this income with an annual subsidy of £21 million.
The Minister and the speakers from both Opposition parties agreed that this money is mainly for recreational purposes, and I ask your Lordships whether we should go on running up a debt of this nature in the current financial atmosphere to provide recreation for a comparatively small section of the community. Not only that, but as the Caledonian Canal runs past my house I have a golden opportunity of seeing how some of this money is spent, and I do not like what I see. I am not going into details just now, but the British Waterways Board seem to be totally unwilling to accept that there can be anything wrong with their management.
I do not expect an answer just now, but presumably some of this borrowing of £35 million is to be applied to a highly speculative marina planned by the board for Dochgarroch on the Caledonian Canal and perhaps the Minister can let me know before the Report stage how much public money it is intended to devote to this venture and what sort of return is expected from the investment.
I have another suggestion which may appeal to the Minister, though I appreciate that perhaps it has implications beyond the British Waterways Board; indeed, it arose on the forestry debate we had recently when a question was put as to what would happen to receipts for the sale of forestry ground. So far as the British Waterways Board are concerned, they have got surplus property which could well be sold, but the proceeds of this would be paid to the Exchequer and would be lost to the British Waterways Board. At the moment, any revenue received from these properties, such as rents, accrues to the board, so that if they were sold the board would lose net income. This seems illogical. Would it not be possible for any sales to be used to offset borrowing, thereby reducing the board's liability for interest?
Finally, I think it must be agreed that anyone who can afford a boating holiday cannot be among the poorest section of the community. One wonders, therefore, whether it is right to subsidise this comparatively small proportion of the population to the extent of £21 million a year. Perhaps I may just draw one parallel. The petrol duty at an extra 20p per gallon is, I gather, to bring in £910 million; if the British Waterways Board had no annual subsidy (and I agree

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that is not really feasible) this would mean ½p off the petrol tax, which I suggest would be a very much better way of spending recreational money. I beg to move.
Lord Underhill: At the Second Reading of this Bill I expressed concern as to the indebtedness of the board and also the amount of interest charges that have to be paid by the board. The figures that I have (and I think they are correct) from their 1979 accounts was an indebtedness of £14 million. That may seem very small but in relation to the net income from the board's own activities of only £6 million, it is a substantial amount.
At this stage I must express my warm thanks to the noble Lord, Lord Skelmersdale, who sent me a detailed letter on quite a number of the points which I raised at Second Reading. He will be disappointed, of course, to note that some of the amendments are necessarily still on the Marshalled List. The important thing is that the borrowing, as was made quite clear by the Minister on Second Reading, relates to capital expenditure for buildings, equipment and new developments, and the last thing that we on this side of the Committee would wish to do would be to stop any new developments. Moreover, some of the equipment may be required for maintenance work, even if not actually coining under the heading of maintenance. We should not wish to restrict the board in any possible developments. I would disagree with what the noble Lord, Lord Burton, said, that this is merely for recreation; there is a commercial aspect to it to which we wish to pay a certain amount of attention. Therefore, we should not be in favour of supporting the amendment, even though there are some cautionary words which I have given and would like to add.
The noble Lord, Lord Burton, mentioned the question of the grant, and those noble Lords who were here at Second Reading will recall that there was discussion about the actual level of the grant. I will not argue that tonight, except that it is agreed that there is a decrease in the amount of the annual grant. I believe the Government take the view that it is only a small amount and the board can easily cope with this issue. It may be remembered that I enquired of the Government Front Bench how much of the maintenance arrears, as revealed by the Fraenkel Report, has been cleared, and the noble Lord, Lord Skelmersdale, said 10 per cent. and that if I was patient it could all be cleared within a period of years. Since Second Reading there have been press reports about the backlog. I hope the Committee will bear with me while I raise this matter, because this is the only opportunity we have to raise the question of the British Waterways Board and its financial affairs.
It is stated in that report that the board's officials are now negotiating with the Department of the Environment and the Treasury for up to £100 million to clear the backlog, and another £25 million to do essential work on some of the 90 reservoirs for which the Board is responsible, and for other installations. The report went on to say that because of their poor state of repair six of the reservoirs are being kept only a quarter full as a safety precaution. Therefore, we are talking about money not just for leisure and recreation but for safety, as well as the actual commercial use of the
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waterways and the water from the reservoirs. It was mentioned in this report that the water level in these reservoirs, with urban development below them, is being kept well down because of this danger. Sir Frank Price, the board's chairman, has stated that as a result the board is short of millions of gallons of water, and should there be a very dry summer, he is reported to have said, there could be a danger of the reservoirs drying out altogether, and even some of the canals in the system which are supplied by reservoirs also drying out and their sides cracking. Therefore, we are talking about serious matters.
Sir Frank has stated that to bring the reservoirs up to standard would cost £9 million, and maintenance of the bridges another £16 million—I understand the board is responsible for something like 1,600 bridges which come under its jurisdiction. He is reported to have said that the cost of the backlog of maintenance is today no less than £100 million at current prices.
At Second Reading I said that whatever case there may be for cuts in public expenditure, there are times when to put off public expenditure only stores up trouble for the future. If what the chairman of the board has said is correct, there is a danger not only in regard to meeting the interest charges from revenue, not only as to whether or not they can proceed with developments, but also, because of the urgency of some of the things Sir Frank Price has mentioned, whether or not they can cope with the backlog of maintenance work. I know it is not competent for this Committee to move anything, but this does bring into question the whole issue of the annual grant. I wonder whether in reply to the amendment moved the Government can say something about the grant in the light of this report about the statements by the chairman of the board.
Lord Skelmersdale: I am grateful to my noble friend, Lord Burton, for moving this amendment and also for the support which it will be seen to have received—if that is the correct English—from the Front Bench opposite. We have really had two points of view about the effectiveness of the operations of the British Waterways Board. I think we can agree that our inland waterways are a national asset which deserve to be preserved and enjoyed for their recreational value, and also, and here I particularly agree with the noble Lord, Lord Underhill, for their transport function. This is the Government's firm intention and we propose to continue to assist the board to maintain the waterways in a useful condition consistent with their status to the extent that national economic circumstances allow.
I appreciate the point that the board's operations are heavily dependent on Government grant to meet the inevitable deficit between the costs of operating and maintaining the waterways and the money that can be generated from their various activities, the income from Government licences, tolls and dues from their freight services, sales of water and so on. I can also understand the point of view that suggests that the board's finances should be kept under close parliamentary scrutiny because of their dependence on Government grant, and that is exactly what Clause 1 of this particular Bill seeks to do. I can assure your

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Lordships that officials of the department are in close touch with officials of the board, and while they do not seek to interfere with the board's day-to-day management functions—nor do they, of course, with any nationalised industry—they do consider with them in detail the board's financial requirements.
I should perhaps again distinguish, as I did at Second Reading, between the board's revenue requirements and their capital requirements which are the subject of this clause. Their maintenance and operating costs are met from revenue, from income they receive plus grant. Their capital needs are relatively small, and they raise loans to buy new equipment such as dredgers and so on, or for actual waterway improvement, such as the Sheffield and South Yorkshire Navigation. They do not spend money on investments such as marinas, which they prefer to leave to private investors. My noble friend Lord Burton said that one of the intentions behind his amendment was to bring the affairs of the board more closely under the scrutiny of Parliament. I would submit that the clause already provides for the opportunity for debate in another place before any extension of borrowing powers beyond £25 million can be approved, because of the requirement for the Affirmative Resolution procedure.
The noble Lord suggested that if the board disposed of their houses and other assets, probably land and other buildings, they would not need to raise their borrowing limit to the extent proposed in this Bill. The board's annual report for 1979, the most recently published one, shows that they hold freehold land and dwellings put at £14 million. Of this sum, property worth £7½ million was used for their various operations, freight services and so on, £6½, million was the value of their estate strictly surplus to operational needs, which yielded gross revenue of nearly £2 million. After deducting all overheads, including interest, administrative and essential charges, there was a surplus of £670,000, which of course was used to help finance the maintenance of waterways. Without this surplus the board would be forced to look to the department for an equivalent increase in annual grant. If such an increase were not forthcoming, the waterways would, to that extent, be less well maintained, which is to nobody's advantage.
Nevertheless it remains Government policy to encourage nationalised industries to dispose of surplus assets where it makes commercial sense to do so. To that end the board are preparing a list of their assets for purposes of discussion with the Department, and of course will register those properties which fall within the property registration requirements of the Local Government (Land and Planning) Act 1980. Should it prove possible for the board to realise to any appreciable extent its surplus assets, then it could be for consideration by the board, the Department and the Treasury how the borrowing requirement for a particular year would be affected.
With regard to the point raised by the noble Lord, Lord Underhill, on the backlog, the chairman of the British Waterways Board has put the costs for arrears of maintenance at £100 million, plus £25 million for repeairs to major structures. Those are his prices, but we do not challenge them, or the indication of the size of the problem. We know that there is a problem here, and as soon as there is money available to deal
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with it, over and above the strict safety requirements which the noble Lord mentioned, we will do exactly that and put money into the British Waterways Board. We are currently in discussion with the board about how to tackle these particular problems. I hope that that goes some way at least towards answering the various points that have been raised in the debate.
Lord Underhill: The noble Lord said that as soon as money is available the Government would naturally do what they could to look at the points raised by the chairman of the board. Do I have his assurance that the urgently needed safety measures will be able to be tackled by the present annual grant—that is the important point—without any deterioration of the position?
Lord Skelmersdale: Yes, my Lords, that was what I thought I said, but obviously I did not make myself clear.
Lord Burton: I should like to thank my noble friend for that very lengthy and useful answer to the amendment. First, I should like to say to the noble Lord, Lord Underhill, that I appreciate that of course, there is a commercial use for the canals. In fact, the income, as he probably knows, was £4,335,000 from commercial uses, whereas leisure produced only £1,651,000. I am wondering whether the leisure side is paying as much as it should, because these waterways cost a great deal of money to maintain. Furthermore, the reason why I made remarks about leisure uses as opposed to commercial uses was that the noble Lord, Lord Winstanley, said that my noble friend Lord Bellwin indicated that the main purpose of the inland waterways network was, frankly, recreational.
However, I propose to leave that point. I shall just say that the feeling about the amount of subsidy which has to go to lame duck nationalised industries is really very strong throughout the country at the moment, particularly when industry and private commerce are suffering so severely and having to subsidise those industries out of their taxation. The Government must look at every possible method of restricting the amount of public money that goes to those industries.
Finally, I should like to know when the board's full estate was last valued. Clearly I do not want an answer now. My noble friend gave us figures regarding the value of the houses and the commercial property. Clearly valuing property is quite an expensive business and I would not like to ask the board to incur a great deal of expense by doing that. However, I wonder on what date the valuations were last made.
There is undoubtedly in some cases a surplus of houses on these canals. They have been modernised and the locks can now be operated with far fewer personnel. Of course, the question of where the money is to go is a much wider subject. I do not want to press my noble friend Lord Skelmersdale at this stage because this is the first time that he has spoken from the Front Bench in Committee—and I should like to congratulate him on the way in which he has answered the points which have been raised. However, I think that the Government should look at the question of what happens to the capital assets of nationalised

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industries that are sold. With those few remarks I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 agreed to.
Clause 2 [Exemption from charges for water for fire fighting]:
7.13 p.m.
Lord Underhill Lord Underhill moved Amendment No. 2:
Page 2, line 19, after ("purposes") insert ("providing that such criteria impose no additional charges upon domestic users").
The noble Lord said: I beg to move Amendment No. 2. It may be for the convenience of the Committee if I speak also to Amendments Nos. 3 and 4. Clause 2 with which we are now dealing provides for the exemptions from charges of private water supplies for fire-fighting purposes, to serve, for instance, a sprinkler system that may be installed. As was made clear on Second Reading, only a limited number of the water authorities levy such charges and the Minister explained that it is only one, the North-West Water Authority, which has any charges of any significant size. In the last year the total of those charges was £600,000. I think that it is generally agreed that if those charges are no longer to be levied, then that amount of money must obviously be made up from somewhere.
On Second Reading I was very surprised to hear the noble Lord—and the noble Lord, Lord Skelmersdale, has confirmed what he told me in his kind letter—when replying for the Government, state that, based on views which were expressed by the North-West Water Authority, the Government originally took the view that the exemption would be recovered from metered industrial and commercial consumers and that domestic consumers would not be affected. The noble Lord added that, at its meeting on 23rd February the North-West Water Authority changed its plans and proposed to spread the cost of the exemption among all consumers, and therefore domestic consumers would be affected.
I have been studying very carefully the stages in the other place, because they seem to reflect that the Government's attitude was either put badly in the other place or, frankly, was based on a view which the Government sincerely held and which may justify the reason for my first amendment. On 20th January Mr. Giles Shaw, the Under-Secretary of State for the Environment, stated, in column 231:
"It is not correct … that the burden of the withdrawal of those charges will fall on the domestic ratepayer. It will fall on the same category of consumer as that on which charges are currently levied, namely, the industrial and commercial user".
That was quite a definite statement. When the Opposition spokesman challenged the statement, the Minister commented:
"The right hon. Gentleman is wrong about that, as he was wrong about many other matters".
It was not just a view expressed by a particular water authority. In Standing Committee the matter was reopened and there were quite a number of amendments tabled to propose various exemptions when the charges are reallocated. The Minister, Mr. Shaw, said, at
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column 108:
"The consequence of the clause will not be to shift a higher burden on to the smaller and more vulnerable consumers and domestic consumers".
Again, at column 110, he said:
"Water undertakers will need to distribute"—
note that he said "water undertakers"; he used the plural, he did not refer just to the North-West Water Authority—
"the loss of income involved in these connection charges among consumers but, as I indicated on Second Reading, I envisage this as falling on the measured consumers—in other words, on the metered sector".
Finally, at column 111, the Minister said:
"If the Bill is passed unamended, as we intend, the redistributed charges will fall on the same category of consumers who currently pay the charges".
The important point is that, in view of those assurances, a number of amendments, including the one which I am now proposing to the Committee, were withdrawn. I would again emphasise that these extracts seem to make absolutely clear that it was the Government's interpretation of the proposed clause and the Government's intention that it would apply to all water undertakings and not just to the North-West Water Authority.
The first of the amendments which I am moving is to exempt from any reallocation of charges the domestic consumers. The second is to exempt the small family businesses, and the third is to provide that these charges should not fall at all upon the commercial or industrial consumers employing less than 50 persons, with the proviso
"where there is not installed equipment for extinguishing fires".
I should like to make a few comments on the consumers' amendment. This amendment will restore to the clause the meaning that the Government, by the Ministers' various statements in the other place, intended. Therefore, we are really asking the Committee to put into the Bill what the Minister in the other place made quite clear should be the position. If he was wrong in making that statement then no doubt we shall be told. It seemed to be based on something more than a statement of the North-West Water Authority.
As regards the two other amendments, can it possibly be justified that a large concern with, say, a sprinkler system, shall be exempt from charges and that small family businesses—to which this Committee always gives considerable attention—should be called upon to help to meet the loss of revenue in consequence of that exemption? The third exemption deals with the firms that may employ fewer than 50 persons. I make it clear that the amendment says:
"…where there is not installed equipment for extinguishing fires";
that is, equipment such as a sprinkler system. Those last words are important. Can we justify making a small concern employing fewer than 50 persons that has no sprinkler system bear charges in order to afford exemption to the large concerns which, as I made quite clear on Second Reading, already—because they have a sprinkler system—are in a favourable position regarding the small concern, in that they receive a considerable reduction in their insurance premiums? I am concerned that we cannot justify the two points dealt with in Amendments Nos. 3 and 4. Amendment

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No. 2 seeks to restore the Bill to the position about which the Government in another place gave assurances. I beg to move.
Lord Burton: I should like to make two short points. I am rather at a loss to understand how the North-West Water Authority managed to expend, I think £600,000—not £300,000 as is stated in Hansard—or at any rate a large sum of money, which cannot have been entirely just for the use of water to fight tires. If one installs a sprinkler system, it is presumably largely for the safety of the workers working on that premises; and presumably as the workers live within a reasonable distance, the chances are that they will be the very people who may be charged some of the cost. It will be only a very small proportion when it is distributed among the various domestic houses, but it does not seem to be inequitable that they should be charged a little for their own safety.
Lord Skelmersdale: I, too, with the permission of the Committee, should like to take these three amendments together. The noble Lord, Lord Underhill, has made very clear his view that the cost of exempting charges for water for fire-fighting should not fall on certain categories of consumer, and his amendments are designed to achieve this. None the less, the Government must ask your Lordships to reject them. If accepted, they would impose unnecessary and troublesome constraints on water undertakers in the way in which they structure their charges. Imagine the additional administrative work involved in identifying these categories in each water authority area. The cost of this could well outweigh the relatively small revenue lost by these exemptions and, of course, it would be quite open to the water authority to pass on these administrative costs to all consumers—and I stress "all''.
We have acknowledged that water undertakers will need to re-distribute the loss of income among consumers. But I think that there is danger of making too much of a meal of this. It must be borne in mind that at present no water undertaker actually charges for water taken for fire-fighting and only one levies significant charges for making water available for this purpose. Yet these services have costs which must be recovered. So the vast majority of the water undertakers already absorb the costs of these services in their general charges as, indeed, they absorb the costs of supplying water to public hydrants for fire-fighting purposes. This may mean adding a small extra cost to every consumer's bill, or it may be that some water undertakers choose to recover the cost from certain classes of consumer. But it is certain that the extra costs involved are small.
To be simplistic is perhaps to use the wrong word and eventually the right word will come to me, but I am sure that your Lordships would not be surprised if I were to say that I was not expecting a certain amount of flak as a result of the Committee and subsequent stages on this Bill in another place. But, to be fair, I am sure that the noble Lord, Lord Underhill, will agree that the Government can speak only on the facts as they know them at the particular moment in time that they are speaking. That is exactly what my honourable friend Mr. Shaw did. I, equally, have
922
tried to be as fair as I could with the Committee and with the noble Lord. When I discovered that the facts had changed, I, of course, let him know; and I hope he will agree that that was the right and proper thing to do.
Reverting to what I was saying about the extra costs involved being small, I would point out that if we take as an example the North-West Water Authority—at the moment the only one to levy significant charges for making fire-fighting water available—they have estimated that when they can no longer levy these charges, they will have to levy an extra charge on the community as a whole; that is, on both measured and unmeasured consumers. So far as unmeasured consumers are concerned—the class to which the three categories of consumer in these amendments would normally belong—the authority reckons that the exemption will add, on average, only 11.5 pence per year to every water bill. I would stress that this is the authority's own figure, but I think it serves to make the point. What I must ask your Lordships is whether this is too high a price to expect people to pay for the extra public safety that Clause 2 is intended to secure, and whether amending the Bill to protect certain categories of consumer is worth the extra administrative cost to which I have referred. The Government firmly believe that the answer to both these questions is "No"; but I would add that the community at large, as my noble friend Lord Burton stressed stands to benefit from these proposals which will help protect shops, factories, offices and other buildings which the public frequently use. There is also the point that where no fire occurs anywhere in a local authority area, there is a saving to all the ratepayers in that particular local authority area. Therefore, for these reasons, I hope that the noble Lord will agree to withdraw his amendment.
Lord Underhill: I have already expressed my thanks to the noble Lord, for the letter that he sent me, and on this issue he gave me the full facts concerning the North-West Water Authority. However, the point I was endeavouring to make is that the Government in the other place were so adamant that it seemed to us that it was not just the North-West Water Authority about which they were worried, but the general principle; so much so that the debate went on for many hours and took up many columns.
The only other point I would make is that the noble Lord said that this would be creating an immense amount of administrative work for small sums involved. I shall not be tabling any amendments on the other subsections of this clause, but there is much administrative work involved. I know that the Government say that they will try to keep it down but, because of these exemptions, where there is one common supplier to supply both fire-fighting equipment and general purposes, much administrative work is involved. I should have thought that with the modern computer system, the allocation of charges, whatever they might be, would be very slight. I think that I have made my point quite clear. Therefore, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 3 and 4 not moved.]
Clause 2 agreed to.
Clause 3 agreed to.
[Amendment No. 5 not moved.]
Clause 4 [Separation of common water service pipes]:
On Question, Whether Clause 4 shall stand part of the Bill?
Lord Burton: I should like to raise one point on Clause 4. It is a question of individual water pipes. I believe that this question arose through urban development, particularly where council houses were being sold. Will the Government please look at the rural situation where, when a pipe is renewed, if the public supply is not close enough to the individual dwelling three or four lengths of pipe may have to be used where only one has existed before. I can think of one particular instance of two cottages and a farm building. If these cottages were separated away, it would involve quite a long piece of pipe to reach the individual properties, whereas probably it would be better for the mains to be moved nearer to them. I do not know whether I have made that clear.
Lord Skelmersdale: On that point, Clause 4 says that the statutory water undertaker:
"shall not require the provision of separate service pipes for those houses until either—"
one of four conditions has been met. But it does not mean that if one of these four conditions is met, this will necessarily happen on every occasion. I hope that that will satisfy my noble friend.
Clause 4 agreed to.
Clause 5 agreed to.
7.30 p.m.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 6:
After Clause 5, insert the following new clause:
("Civil liability of statutory water undertakers for escapes of water
.—(1) Where an escape of water, however caused, from a communication pipe or main of statutory water undertakers causes loss or damage, the undertakers shall be liable, except as otherwise provided in this section, for the loss or damage.
(2) Statutory water undertakers shall not incur any liability under subsection (1) above if the escape was due wholly to the fault of the person who suffered the loss or damage or of any servant, agent or contractor of his.
(3) Statutory water undertakers shall not incur any liability under subsection (1) above in respect of any loss or damage suffered by any excepted undertakers for which they would not be liable apart from that subsection.
(4) The Law Reform (Contributory Negligence) Act 1945, the Fatal Accidents Act 1976 and the Limitation Act 1980 shall apply in relation to any loss or damage for which statutory water undertakers are liable under this section, but which is not due to their fault, as if it were due to their fault.
(5) Nothing in subsection (1) above affects any entitlement which statutory water undertakers may have to recover contribution under the Civil Liability (Contribution) Act 1978; and for the purposes of that Act, any loss for which statutory water undertakers are liable under that subsection shall be treated as if it were damage.
(6) Where statutory water undertakers are liable, under any enactment or agreement passed or made before the coming into force of this section, to make a payment in respect of any loss or damage, they shall not incur liability under subsection (1) above in respect of the same loss or damage.
(7) In this section—

(a) "communication pipe" and "main" have the meanings assigned to them by section 1(1) of Schedule 3 to the Water Act 1945;

(b) "damage" includes the death of, or injury to, any person (including any disease and any impairment of physical or mental condition);

(c) "excepted undertakers" means—

(i) statutory undertakers within the meaning of section 290(1) of the Town and Country Planning Act 1971;

(ii) any highway authority within the meaning of the Highways Act 1980;

(iii) any bridge authority, bridge managers, street authority or street managers within the meaning of section 39(1) of the Public Utilities Street Works Act 1950; and

(iv) any person on whom a right to compensation under section 26 of the said Act of 1950 is conferred;

(d) "fault" has the same meaning as in the Law Reform (Contributory Negligence) Act 1945; and

(e) "statutory water undertakers" has the meaning assigned to it by section 11(6) of the Water Act 1973.

(8) This section shall come into force on such day as the Secretary of State may by order made by statutory instrument appoint.").
The noble Lord said: I must apologise in advance for the length of what I am about to say, but it is an extremely complicated issue. This amendment results from a Government promise in another place that we would bring forward our own proposals to provide for compensation to those suffering damage as a result of burst water mains. If it is for the convenience of the Committee, and particularly the noble Lord, Lord Underhill, I should like, in speaking to this amendment, to deal with his amendment as well.
The present position in law is of long standing and is as follows. As the result of the case Green v. Chelsea Water Works Company, decided by the Court of Appeal in 1894, statutory water undertakers have been under no liability to pay compensation for damage caused by escapes of water from burst water mains, except where it is possible for a plaintiff to prove they have been negligent. Statutory water undertakers have been able to defend themselves on the grounds that, though there are inherent dangers in conveying water through pipes under pressure, nevertheless because they have been authorised by Act of Parliament to lay their mains, and because they have a statutory duty to maintain a continuous supply of water, not for their own purposes but for the purposes of the public, they should not be made liable for any damage if the water escapes.
It is true that they can be held liable if they are shown to be negligent. But this is a very difficult thing to prove. For instance, how old should a pipe be before it is reasonable to expect things to go wrong with it? The courts have had to make decisions on just such a matter. If a pipe is less than the required age, and if there are no other grounds for assuming negligence, it is virtually impossible to prove. Or again, how many degrees of frost should water mains be designed to withstand? If a burst occurs as a result of a cold spell, was it a normal cold spell (in which case negligence might be proved) or something worse than that?
It is unreasonable, in our view, that such questions should have to be considered. If there is an escape of water from a water main, however it may have been caused, the assumption should be that the public, for

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whose benefit the pipe has been laid, should pay. This can be achieved by making the water undertakers liable, and that is the purpose of this clause.
It may be asked—and has been in some quarters—why confine this amendment to water mains and communication pipes? Communication pipes, incidentally, are the pipes leading off the mains to the boundary of the individual's property and are, like mains, the undertakers' responsibility. Why confine the clause in this way to water pipes? My honourable friend the Parliamentary Under-Secretary of State has already explained the reasons for this in another place. A particular problem for property owners stems from the present law about the laying of water mains. Statutory water undertakers have wide powers to lay mains across private land. These are wider than the powers enjoyed by most other statutory undertakers (for example, the British Gas Corporation).
Water undertakers do not require the owner's consent, and in consequence they do not need to obtain any easement or deed of agreement which (typically) would provide that in the event of escapes of water from the main the owner would be entitled to compensation. So they do not get this. In rural areas, where mains cross individual owners' land for considerable distances, it is impossible for the owners to insure themselves against the risk of damage from escapes of water at anything less than a prohibitive cost. It is equally impossible for the water undertakers to insure themselves since—because of the Green v Chelsea judgment—they have no liability to pay anything. The result is that, when a burst occurs, possibly damaging a farmer's crops, then the farmer has no redress against the water undertakers for the damage caused. This is a real source of grievance. In towns, where it is possible to obtain insurance, the water undertakers in recognition of the present illogical state of the law have agreed to make ex gratia payments to uninsured householders who suffer damage in this way. We understand however that the compensation payable under this arrangement is often only a partial recompense for the damage. We do not in any case feel that it is right to depend on a regular system of ex gratia payments of this kind. There is an inherent oddity in this concept. The principle in our view is—and I repeat it—that the public should pay the private individual who suffers damage in these circumstances.
It seems from his amendment that the noble Lord, Lord Underhill, would extend this principle—the principle of strict liability—to cover escapes of substances from sewers. As my honourable friend said in another place, sewers present a more complicated problem than water mains. The water authorities have no control over the volume of effluent carried by particular sewers. Anyone can connect a drain into a public sewer. That fact, combined with the age of the sewerage system, has led to substantial problems of overloading of sewers, and of decrepit sewers in certain parts of the country. We need to consider whether this should affect the principle of liability, and it if does not, whether liability should be imposed in respect of damage caused directly by collapses, or by leaks of sewage, or in any other circumstances. Many housing and industrial estates are served by private sewers. The noble Lord's amendment would benefit only those whose properties were drained by
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a public sewer. Is this an appropriate limitation?
When this matter was considered in another place my honourable friend said that he could not easily exclude that the principle of strict liability should be established for the sewerage system, but he did not think it feasible to table an amendment on this subject during the passage of this Bill. I did also try to underline that in my winding-up speech on Second Reading, when I pointed out to the House that this was a Water Supply Bill. However, my honourable friend did agree to a proposal of the Opposition that he should meet an all-Party delegation—later the suggestion was widened to include outside interests such as the National Farmers' Union, the Association of Metropolitan Authorities and others—to discuss the matter further. In our view that is a reasonable position to have reached, and we do not think that we should contemplate extending the principle of strict liability to sewers until more thought has been given to the subject.
I should briefly explain the limits we have imposed on the extent of this clause because I know that there has been a certain concern in various quarters. These limits are not many. We have provided that where it is wholly the fault of the person suffering the damage, or his servant, agent or contractor, that he has suffered this damage, then no liability should rest on the water undertakers (subsection (2)). Where it is partly his fault, subsection (4) provides that the undertakers' liability should be diminished accordingly. Subsection (3) provides that no other statutory undertakers, highway authorities or allied body should benefit under this provision. That is because the relationships between these bodies are governed generally by the Public Utility Street Works Act 1950, and we do not wish to disturb those provisions. It would be unreasonable to put a higher degree of burden onto statutory water undertakers vis-à-vis other undertakers than is already imposed on those other undertakers. Subsection (6) prevents the duplication of payments of compensation.
I hope that with the benefit of these explanations your Lordships will be able to agree that what we propose represents an important measure to help those who at present, through no fault of their own, have to sustain losses and damage which properly should be borne by the public at large. I commend this clause to your Lordships, and I would ask the noble Lord, Lord Underhill—although he has not yet moved it—to consider withdrawing his own amendment for the reasons which I hope I have fully explained and the fact that it goes too wide for the present Bill. I beg to move.
7.38 p.m.
Lord Underhill Lord Underhill had given notice of his intention to move as an amendment to Amendment No. 6, Amendment No. 7:
Line 2, after ("main") insert ("or escape of any substance from a sewer").
The noble Lord said: I can assure the noble Lord that I shall not move this amendment but speak on his own amendment, for the reason that I shall explain. I am grateful to the noble Lord for the helpful outline and explanation he has given of the Government's amendment. We welcome in general the amendment moved by the noble Lord on behalf of the Government.

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But the Committee will understand that I only saw this amendment yesterday, and therefore its full implications and the various law points mentioned must be given some study, but in general we welcome it at this stage.
The reason why we wished to add the amendment I had put on the Marshalled List is because everyone would understand that there are as many cases of serious loss and damage arising from leakage from sewers as there are from water. In fact some are so bad that I am certain your Lordships will be aware of the situation. That is why we felt the sewers ought to be covered as well. I thought there would be no danger in putting forward such an amendment because, after all, this is a Water Bill. The Water Act places sewerage and the responsibility for sewers upon water authorities. Therefore, I am certain that it would have been a competent amendment to have moved but for the explanation given by the noble Lord.
The Minister in another place had a good deal of sympathy for including sewers and at one stage promised to look at the matter with a view to introducing a suitable amendment on Report. I readily understand, because of the legal points which the noble Lord explained, that it was impossible for him to do that. However, would it be possible for the consultations which I am pleased are to take place to consider the question of escapes from sewers—in other words, the Government are saying that consideration should be given to the matter and that they wish to look at all the problems—to take place before the Bill leaves your Lordships' House? That is important, otherwise we may find that we have compensation provisions for leakage from water mains but not from sewers, and there may be little chance of including that in legislation for a considerable time.
Have any views on the new clause been received from the National Water Council, which is, I understand, concerned with certain aspects? I am not saying that I support the points about which the council is concerned, but it would be helpful to know if its views have been received. Although the new clause would place some burdens on water authorities, in effect it means placing a burden on the whole of society, because we all pay water rates. However, I welcome the Government proposal, subject to what I said about studying it carefully, and I hope the other consultations will take place before we part with the Bill.
Lord Nugent of Guildford: I thank my noble friend for his lucid exposition of the new clause, an important provision which introduces an important new principle. I can meet the inquiry of the noble Lord, Lord Underhill, about the views of the National Water Council, because I heard their views today. They, like the noble Lord, have found the time all too short because they saw the amendment only yesterday and had not been brought into consultation on its form. They, and the water industry generally, are perfectly willing to accept any liability which Parliament wishes to put on them, and in practice they have been makirg ex gratia payments where anybody has suffered from burst mains; although, following the principle of Green v. Chelsea Water Works Company to which my noble friend referred, they have no legal liability unless negligence has been proved.
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Having said that they are in principle willing to shoulder whatever burden Parliament wishes to put on them, I should express their serious anxiety about the form of my noble friend's new clause. It places an almost unlimited liability on the water industry and they feel some doubt as to whether that is sensible. As the noble Lord, Lord Underhill, said, whatever additional costs fall on the water industry have to be paid for by the whole community in increased water charges. Be that as it may, I would call attention to a few aspects of the new clause.
My noble friend explained that subsection (2) reduces the liability on water authorities and water companies where negligence by the claimant has been proved. That is fair enough and it is a useful little concession. But the rest of the liability is enormous—it is virtually unlimited—and such anomalies would occur as where a water main is running in the same trench as a gas main (which is frequently the case, especially in urban areas) and then, if the gas main bursts and bursts the water main, the water industry has to pay, and that is absurd. The other public utilities have no liability in the matter at all; nor, similarly, have the electricity industry, the Post Office or British Railways.
I suggest that this liability, which is probably justified in terms of public policy, needs looking at in the context of the liabilities of the other national utilities which have many similar features. Incidentally, they would also be liable for the act of a third party or an act of God. Maybe Parliament wishes to make them subject to all those liabilities, but they are very great liabilities indeed and the National Water Council, speaking for the water industry, has not yet had a chance of expressing its views on the new clause because, like the rest of us, it has only just seen it. I therefore hope my noble friend will feel that in the points I have made there is sufficient substance to justify another look to see whether the liability has been set just right. My guess is that the right solution would be to make the water industry's liability a responsibility without the claimant's obligation to prove negligence by the water industry. That would of course limit it considerably compared with the new clause.
I was glad to hear my noble friend resisting the blandishments of the noble Lord, Lord Underhill, to extend the liability to sewer mains as well; the liability involved there is a good deal more serious because the water industry has no control over what is put into sewers. It would therefore be unreasonable to make them liable for bursts which occur there. Incidentally, the nature of bursts from sewers is different, in that they are not under pressure. Such an occurrence is much more in the nature of a collapse, especially in urban areas where the original sewer was badly built, the whole structure has worn away and leaked, so that eventually a huge chasm appears under the road and suddenly the whole road falls in, and probably a bus goes down with it. It is a very different liability and I was glad to hear my noble friend resist any extension of that liability.
I hope my noble friend will be willing to take the new clause back for further consultation, perhaps with myself and the leaders of the water industry, to see whether the extension of public liability in this sphere, which I am sure is right in principle, has perhaps gone a little too far in the new clause as drafted.
Lord Burton: I join my noble friend Lord Nugent in welcoming the new clause, on which I have three points to make. The first is that it says the provision shall come into force on a day to be appointed by the Secretary of State. Can my noble friend give any indication as to when it is likely to come into force? Secondly, can he give any indication at all of the extra cost which is likely to Call on water authorities? That may go part of the way to answer what Lord Nugent was saying.
Thirdly, I welcome in some respects what the noble Lord, Lord Underhill, said about sewers. If it is not possible to include sewers in this legislation—and it seems the Government are against doing so—would it be possible to go part of the way by giving water undertakings a directive to the effect that whereas at present they give compensation on an ex gratia basis for water bursts, they might consider giving ex gratia payments to someone who has suffered severely from something going wrong with the sewers? That is just a thought on the matter; a directive might go part of the way towards dealing with the situation.
It seems that no Government when in power devote to the question of sewerage the same amount of energy or finance as they devote to water. I do not know why this should be. Perhaps it is because water, as it goes into a house, is more appreciated. Certainly sewerage does not receive the same priority as water, but I feel that the two are equally important. Perhaps I may be a little personal here. In my own area the sewerage of the whole of Inverness borough still goes crude into the firth, which is really disgraceful. Perhaps that is another matter, but we are, I believe, giving £50 million to Egypt for new drains in Cairo, and yet we cannot spend £7 million on laying new drains in Inverness.
Lord Skelmersdale: It is difficult to know where to start in replying to the points made. With the permission of the noble Lord, Lord Underhill, I should like to refer first to my noble friend, whose experience and expertise in these matters we welcome to our deliberations. Of course, I know about the letter of his successor, Sir Robert Marshall, to my honourable friend Mr. Shaw. In fact, I have a copy of it before me. Perhaps I can tie in this point with something that the noble Lord, Lord Underhill, said. The letter is dated 12th March, and it is now the 19th March. We have already decided to widen the consultations that are to take place, and I do not consider that we are being exactly laggard in how we are dealing with the matter.
My noble friend Lord Nugent has commented on the very wide nature of this provision and on the point that it is possibly an open-ended liability. As he said, the water industry in England and Wales has accepted for some time that the rule in the Green v. Chelsea Waterworks Company case should be reversed. That is to say, it has accepted that it should no longer be necessary to prove negligence where bursts have occurred. This is a very significant element in the new liability that the Bill is imposing. In our view, for practical purposes the clause is not going so very much wider than that. We are not allowing the water undertakers to plead non-liability for bursts caused by an act of God or by a third party. If the industry's
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wish were observed, both those defences would be open to them. However, we do not accept that an act of God is a common enough occurrence to be concerned about. How many times, for example, has a water main been struck by, say, a bolt of lightning, causing damage? As for the action of a third party, one water authority has estimated that a quarter of its bursts are caused by others; for instance, other statutory undertakers, developers, contractors, and so on.
All the clause provides is that where such an accident occurs the water undertakers should be liable to anyone who suffers damage from the escaping water. We are not reducing the water undertaker's powers to proceed against any third party which may be responsible for the damage, and subsection (5) is intended to make that clear. I hope that my noble friend will be able to take that point.
My noble friend Lord Burton suggested that we should direct water authorities to make ex gratia payments. I regret to have to tell him that there is no way in English law in which that can be done. The noble Lord, Lord Underhill, while generally welcoming the clause, said that he wanted more time to study it, and he asked me about the consultations that had taken place regarding sewers which I mentioned in moving the amendment. The position is that we must get the Bill back to another place in order for it to agree or disagree with any amendments that we may make, and we must bear in mind the question of the Bill receiving the Royal Assent by about the middle of April. I am advised that that would not allow enough time for consultations to be concluded. Of course consultations will begin in the period—I willingly give that promise from this Dispatch Box—but there is really not enough time for them to be concluded.
My noble friend Lord Burton asked about the coining into effect of this clause. Since water authorities have now prepared their budgets for 1981–82, and bearing in mind that these obviously do not take account of the new liability that this provision imposes upon them, we feel that it is therefore totally impossible to bring the provision into force before the 1st April 1982. Our provisional view is that the day appointed should be 1st April 1982, though that will be subject to further consultation with the water industry. I should also stress to my noble friend Lord Nugent that these consultations will continue. I hope that in the light of those answers the Committee will feel able to approve this new Government clause.
Lord Nugent of Guildford: I thank my noble friend for his answer, but I must say that it does not convince me in the least. I consider that the liability being put on the water industry by this proposal is absolutely out of proportion in comparison with those imposed on all other public utilities and is entirely unfair in the instance that my noble friend proposes. The point that my noble friend has made gives water undertakers a course of action, but that is all; there is no question of putting them on the same basis as other public utilities. I am not satisfied with my noble friend's answer. I feel that the consultations have been inadequate. Any liability in this context should be placed equally on all public utilities, and then we could put the matter in the correct perspective. I must advise my noble friends that I shall put down an

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amendment for the Report stage to accomplish that end.
Lord Burton: I thank my noble friend for his answer to the question about the starting date. If the actual starting date cannot be fixed, can consideration be given to advancing the date of liability, even if payment is to come at a later date? I should like my noble friend to think about that; I do not want an answer at this stage. I gather that we are pressed for time and so I shall raise now a point which I had intended to raise on a later amendment. The Scottish local authorities have apparently been refusing to pay compensation unless the aggrieved person can prove that the authority concerned was negligent. Clearly that is a very hard thing to do. Can the Minister tell me whether or not the Scottish authorities are right in withholding compensation in such cases? If the authorities have a right to withhold compensation unless negligence is proved, can the Government give an assurance that Scotland will be brought into line with England on this matter?
The Minister of State, Scottish Office (The Earl of Mansfield): Perhaps it will be for the convenience of the Committee if at this stage I intervene in regard to the Scottish interest in this matter. I fear that I have to tell my noble friend that it is not for me to say whether or not Section 10 of the Scottish Act imposes a strict liability on a Scottish water authority. That would be a question for a court to decide, and so far no court has been asked to test the matter. What I can tell my noble friend—and I hope that it may be of some comfort to him—is that, naturally enough, the Government are taking account of this particular amendment which is being inserted in the Bill at the behest of the Department of the Environment, and we shall have to take stock of our own particular Scottish conditions to see whether legislation will be necessary in the future. I say that, bearing in mind that our water authorities are local authorities and their customs are different from those of English water authorities. Similarly, they operate under pressures and constraints which are different from those affecting the English authorities.
We shall have to consider the effects of the amendment of the law on the subject, and then consult the Convention of Scottish local authorities to see what it has to say. I tell my noble friend that because there will not be any question of our coming forward on Report with any kind of amendment in this regard. There simply is not time for the consultation and cogitation that would be necessary. My noble friend spoke about public expenditure and expressed the very laudable desire to contain it. I should tell him that an amendment on these lines which extended to Scotland would, in terms of public expenditure, have the effect of placing new burdens on Scottish local authorities.
Lest, however, my noble friend were to come to the conclusion that the Government are in effect putting off some evil day, what I can say to him is that I give no undertaking but if the Government decide that legislation on these grounds is needed in the future, then I think certain legislative vehicles will present themselves, either perhaps later in this Session or certainly next Session, to bring into the law any
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desirable reform which the Government may wish to introduce.
Lord Burton: I thank my noble friend for giving a little, perhaps, on this, and for his helpful reply. I only hope that Scottish local authorities are not as unhelpful as my noble friend Lord Nugent seems to have been on the English part.
On Question, amendment agreed to.
[Amendment No. 7 not moved.]
Lord Denham: I think this might be a convenient time to adjourn this Committee stage. I do not know how long the noble Lord, Lord Underhill, thinks the remaining amendments will take but I understand there are points of substance here. I think it might be better to go back to the Companies Bill, unless he violently disagrees with that.
Lord Trefgarne: I beg to move that the House be now resumed.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Companies (No. 2) Bill [H.L.]
8.2 p.m.
House again in Committee.
Clause 40 agreed to.
Clause 41 agreed to.
Lord Mackay of Clashfern Lord Mackay of Clashfern moved Amendment No. 110:
After Clause 41, insert the following new clause:
("Power of company to issue redeemable shares
.—(1) Subject to the following provisions of this Part of this Act, a company limited by shares or limited by guarantee and having a share capital may, if authorised to do so by its articles, issue shares which are, or at the option of the company are to be liable, to be redeemed.
(2) No redeemable shares may be issued at any time when there are no issued shares of the company which are not redeemable.
(3) Redeemable shares may not be redeemed unless they are fully paid.
(4) The terms of redemption must provide for payment on redemption.
(5) Subject to section (Power of private companies to redeem or purchase own shares out of capital) of this Act—

(a) redeemable shares may only be redeemed out of distributable profits of the company or out of the proceeds of a fresh issue of shares made for the purposes of the redemption; and

(b) any premium payable on redemption must be paid out of distributable profits of the company.

(6) Subject to the provisions of this Part of this Act, the redemption of shares under this section may be effected on such terms and in such manner as may be provided by the articles of the company.
(7) Shares redeemed under this section shall be treated as cancelled on redemption, and the amount of the company's issued share capital shall be diminished by the nominal value of those shares accordingly; but the redemption of shares under this section by a company shall not be taken as reducing the amount of the company's authorised share capital.
(8) Without prejudice to subsection (7) above, where a company is about to redeem any shares under this section it

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shall have power to issue shares up to the nominal amount of the shares to be redeemed as if those shares had never been issued.
(9) For the purposes of section 47 of the Finance Act 1973 the issue of shares by a company in place of shares redeemed under this section shall constitute a chargeable transaction if, and only if, the actual value of the shares so issued exceeds the value of the shares redeemed at the date of their redemption; and where the issue of the shares does constitute a chargeable transaction for the purposes of that section, the amount on which stamp duty on the relevant document relating to that transaction is chargeable under subsection (5) of that section shall be the difference between—

(a) the amount on which that duty would be so chargeable if the shares had not been issued in place of shares redeemed under this section; and

(b) the value of the shares redeemed at the date of their redemption.

(10) Subject to subsection (11) below, for the purposes of subsection (9) above shares issued by a company—

(a) up to the nominal amount of any shares which the company has redeemed under this section; or

(b) in pursuance of subsection (8) above before the redemption of shares which the company is about to redeem under this section;

shall be regarded as issued in place of the shares redeemed or (as the case may be) about to be redeemed under this section.
(11) Shares issued in pursuance or subsection (8) above shall not be regarded for the purposes of subsection (9) above as issued in place of the shares about to be redeemed unless those shares are redeemed within one month after the issue of the new shares.").
The noble and learned Lord said: It might be helpful if I were to take this opportunity to describe the objectives of Amendments Nos. 110 to 122 taken together. The general legal prohibition in this country of a company buying its own shares is very nearly 100 years old, as it was established by a case in 1887. In this particular aspect of company law we have been somewhat out of step with the position in the United States and in Europe, where the purchase of own shares is generally permitted.
When the Jenkins Committee considered this matter in 1962 it reported that it would be possible to devise effective safeguards to protect both creditors and shareholders if it were considered appropriate to permit the purchase of own shares. But, they said, they had received no evidence that British companies needed the power, and most witnesses were against it. They therefore recommended that the general prohibition should remain.
Since then, opinion has developed remarkably on this subject. A growing number of representations have been made in recent years that this was a facility that should be available to companies in the United Kingdom, as to their counterparts in the European Community. The Government indicated during the passage of the Companies Act 1980 that they believed that the present prohibition should be relaxed. A Green Paper was published in June 1980 discussing the main issues involved. Much of this Green Paper comprised a paper by the department's research adviser on company law, Professor Gower, and I should like to take this opportunity to express the Government's appreciation of the contribution that he has made on this and other company law matters in the period since his appointment, which has (I do not need to remind noble Lords) been a particularly active period for company law.
The Government made their position in principle clear on this matter last year, and the Green Paper
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was launched on a very fair wind. But the Government were delighted and impressed by the scale and warmth of the response which it evoked. Whatever the position in 1962, it is certainly the case in 1981 that there is a widely-felt demand among companies for this facility and a keen interest in the Government's proposals, particularly, but not exclusively, among small companies.
In the light of this response, the Government are confident that your Lordships will welcome these amendments to the Bill. I know that your Lordships' welcome would have been even warmer had we been able to incorporate the clauses in the Bill on introduction. But I think it is apparent from the scope and content of these clauses that in providing this facility to companies we have had to take considerable care to ensure that the legitimate interests of companies themselves, of shareholders and of creditors are not prejudiced. In other words, we felt it better to table clauses that have been thought over, rather than inadequate clauses earlier. But I understand that noble Lords will wish to have time to reflect on these provisions, and may well wish to return to them in greater detail.
With the leave of the Committee, I shall briefly describe each of the clauses at this stage, and for convenience I shall refer to them by their amendment number. Amendment 110 enables companies to issue redeemable shares. This will replace Section 58 of the 1948 Act, under which companies could issue only redeemable preference shares. Your Lordships will remember that earlier in this Committee stage I moved amendments to delete the word "preference" now and again. That was in consequence of this change, where the phrase "redeemable preference" had previously been used. Subject to Amendment 116, which I shall refer to shortly, shares must be redeemed out of distributable profits or the proceeds of a fresh issue. Shares redeemed are to be treated as cancelled on redemption.
Amendment No. 111 has the virtue not only of brevity but of providing the key new power for companies to purchase their own shares. Similar conditions apply as to redeemable shares. I should draw the attention of noble Lords to the fact that this facility will be available to both public companies, including investment trust companies, and to private companies.
Amendment No. 112 contains the requirements for the authorisation of purchases of own shares off a market. It should be considered in conjunction with Amendment No. 113, which deals with the procedures for the authorisation of purchases of shares on a market. The Government's approach here has been to devise arrangements for the authorisation of purchases which are practicable in the circumstances of a share purchase, which nevertheless provide due opportunity for the approval of shareholders to be given to purchases, and which meet the requirements of the European Community Second Directive, which lays down a régime for public companies. The effect of the clauses is to provide one procedure for purchases of shares listed on a recognised stock exchange or dealt in on a market such as the unlisted securities market, where it is not practicable to require authorisation of particular purchases, and a different procedure for other purchases.
Amendment No. 114 provides for the disclosure

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of purchases and contracts to purchase as part of the safeguards I referred to earlier. Amendment No. 115 provides for the creation of a capital redemption reserve to ensure that, subject again to Amendment 116, capital is maintained in the event of a redemption or repurchase. This is clearly one of the most important safeguards for creditors.
Amendments Nos. 116 to 119, however, provide for the situation in which a private company wishes to effect a redemption or a repurchase, but has insufficient distributable profits or is unable to raise the amount required by way of a fresh issue. As proposed in the Green Paper, we are in these clauses providing a procedure for capital reduction which avoids the need for the company to apply to the court under the appropriate provisions of the 1948 Act. Of course, we have had to build in adequate safeguards for shareholders and for creditors, including requirements as to special resolutions, publicity, declarations and the right for them ultimately to take the matter to the court. But we would expect the new arrangements to have considerable advantages for private companies in terms of time and expense.
Amendments Nos. 120 and 121 deal with circumstances which we all hope will be rare but which we must provide for, where the provisions in the clauses which I have briefly described earlier are not fulfilled because the company goes into liquidation at an early date or because an agreement to redeem or purchase is not carried through. Amendment No. 122 contains miscellaneous and supplemental provisions of the type normally associated with provisions of this sort.
I apologise for taking up so much of your Lordships' time on these amendments, but I hope noble Lords will have found this indication of the background and our objectives helpful. I would accordingly move Amendment No. 110, which I have briefly described.
Lord Ponsonby of Shulbrede: May I thank the noble and learned Lord for explaining the purposes of Amendments Nos. 110 to 122? He rightly anticipated the views of the Committee in moving the amendments in saying that the Committee would have been much happier if these amendments had been included in the Bill when published. As it is, tonight we are virtually engaged in a Second Reading debate on these 12 clauses, because they are very substantial in their effect. We have no particular objection to the purpose of these clauses but shall want to examine each of them carefully and possibly come back with amendments of detail at Report stage.
Lord Mishcon: I entirely echo the words of my noble friend Lord Ponsonby, but I want to ask two questions which could help in considering the two clauses. Although the Committee could not be consulted before now on these clauses because they have only just been put in as amendments, can the noble and learned Lord inform us whether the Stock Exchange, the Institute of Chartered Accountants, the Law Society and the Bar Council have had the opportunity of making representations on the clauses? I think that the answer to that may facilitate our own consideration of the situation before reaching Report stage. I confess to the noble and learned Lord that my second question might result
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from my foolishness and, if it is so, I would ask him to be merciful. In Amendment No. 110, there is a requirement in subsection (2):
"No redeemable shares may be issued at any time when there are no issued shares of the company which are not redeemable".
We seem to have gone in draftsmanship from double negative to triple negative. I see what it means. It means, I assume, that unless you have got a share issued which is not a redeemable share, you cannot issue any more redeemable shares. I should like the noble and learned Lord to explain the purpose of this and whether, whatever the purpose may be, it has any practical effect when presumably all that you need to do is to issue an ordinary share which is not redeemable—one insignificant share to some insignificant shareholder—and the whole subsection is completely worthless from the point of view of saving or preventing anything that this subsection is supposed to prevent. It may be that there is something very simple which will explain all this. I should be grateful if the noble and learned Lord could clarify the matter.
Lord Mackay of Clashfern: So far as the first point is concerned, there has been extensive consultation with all the bodies mentioned in connection with the formulation of these clauses. I am not saying that they have seen the precise detail of the clauses, but there has been extensive consultation with them about what was proposed. The object of subsection (2) is to ensure that there is always some non-redeemable equity issued in the form of ordinary shares before this redeemable share is possible. It is true that the equity can be small but it is still necessary to have that as a starting point for the company; otherwise the position would be that a company would be able to redeem its whole capital and wipe itself out. Even a small, rather insignificant share of the type the noble Lord referred to would have that effect, although the resulting company would be a modest one.
Lord Lloyd of Kilgerran: May I apologise for the fact that I was not in my place when the noble and learned Lord the Lord Advocate recommenced the proceedings. I should like to say, to save time, that so far as these Benches are concerned, we agree in principle with all the amendments in the 16 to 17 pages of amendments which are now put in by the Government regarding the purchase of shares? Also, may I apologise, in view of another commitment that I have 200 miles away tomorrow morning, for the fact that I shall not be staying for as long as I ought on this occasion? I am obliged to your Lordships for allowing me to say those few words.
Lord Mackay of Clashfern: My Lords, I should like to thank the noble Lord for his remarks. I sympathise with him in his journey. I am in somewhat the same position myself; but, for me, the journey will be first thing tomorrow morning.
The Deputy Chairman of Committees (Lord Alport): I understand that the noble and learned Lord the Lord Advocate spoke to Amendments Nos. 110 to 122. Is it the desire of the Committee that I put these amendments to the Committee en bloc?
Lord Wedderburn of Charlton: No.
On Question, Amendment agreed to.
8.15 p.m.
Lord Mackay of Clashfern Lord Mackay of Clashfern moved Amendment No. 111:
After Clause 41, insert the following new clause—
("Power to purchase own shares
Purchase by a company of its own shares
.—(1) Subject to the following provisions of this Part of this Act, a company limited by shares or limited by guarantee and having a share capital may, if authorised to do so by its articles, purchase its own shares (including any redeemable shares).
(2) Section (Power of company to issue redeemable shares) of this Act shall apply in relation to the purchase by a company under this section of any of its own shares as it applies in relation to the redemption of redeemable shares by a company unde that section, save that the terms and manner of purchase need not be determined by the articles as required by subsection (6) of that section.
(3) A company may not purchase any of its shares under this section if as a result of the purchase of the shares in question there would no longer be any member of the company holding shares other than redeemable shares.").
Lord Wedderburn of Charlton: If the noble and learned Lord the Lord Advocate is of the opinion that he has moved this amendment which I understand is the position in this Committee, I did not speak to the last amendment for the reason that that amendment did not change company law in a fundamental way; it extended the ability to have redeemable shares—which already exists—to some degree. This amendment, I would submit, is the very centre of the new structure which, as the noble and learned Lord has suggested, will be entirely novel, albeit we have for centuries been out of step with many European legal systems and with the United States jurisdiction in certain respects as well. Nevertheless, since the noble and learned Lord, I am sure, has relied a great deal upon the most interesting report by Professor Gower, The Purchase by a Company of its own Shares, it is right to judge the proposals which the Government have brought forward perhaps by some other words of Professor Gower ill his Textbook of Modern Company Law—words which, since I am now associated with it, I hasten to assure the noble and learned Lord were there in the edition long before the assistant editors had anything to do with it. Professor Gower described in Trevor v. Whitworth of 1887, to which the noble and learned Lord referred, the rule that a company may not purchase its own shares, in the following way:
"Such acquisitions are dangerous, not only because they might result in the reduction of the capital yardstick to the detriment of creditors, but also because, if the company paid more than the true worth of the shares, it would dilute the value of the remainder, while, if it paid too little, it would increase the value of the remainder and might be used by the directors to enhance the value of their own holdings. Moreover, such purchases might be used by the directors to maintain themselves in control".
That, I suggest, is a reasonable summary of some of the problems to which the Green Paper (to which Professor Gower so admirably contributed) addressed its mind. But the subsequent pages of the book, pages 226 and 227, relate to that issue the other parts of our company law especially in the statute of 1948. The noble and learned Lord will know that I am referring in particular to Section 27 of the 1948 Act,
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which bears a very close proximity in purpose with the long-established rule which it is now proposed to change—namely, that the subsidiary cannot be a member of its holding company.
Also I refer to Section 54 of the same Act which, although somewhat amended in the 1980 Act, is still substantially and correctly described, I think, as the section which prohibits financial assistance for the purchase or subscription of a company's shares. The most recent judicial decision has put the most strict interpretation on that section. It is, therefore, highly odd that the Government come forward with clauses which they could not put into the Bill on first publication because they had not then made up their mind exactly how they should be framed; odd to produce clauses relating to a company purchasing its own shares as against the previous clause in relation to redeemable shares, which is a minor useful enhancement of company law, and yet not have any conclusions about clauses of that kind. I apprehend that I have not given the noble and learned Lord a full list; he can make one for himself, or, if he is off early in the morning, perhaps one of his advisers will do it for him. But there is a large hinterland of company law which I submit is not dealt with at all in these amendments, some of which must be dealt with.
Indeed, in approaching these amendments, for all the warmth with which the noble and learned Lord said companies have displayed towards their publication—and I think that is not, as it were, an unblemished canvas—there are some who have evinced fears; those who know far more than I do about open-ended funds have not had un-mixed feelings, as I am sure the noble and learned Lord will tell us. But when the noble and learned Lord speaks to this clause as opposed to the last one, which allowed him to give us a wider panorama, I hope he will tell us just what the position will be in his understanding in regard to such funds.
It is very strange to come forward and say we are going to change company law and that a company can buy its own shares, and then not add whether or not a company can provide financial assistance for the purchase of its own shares. I am aware that the noble and learned Lord will tell me that in the last paragraph of Professor Gower's report on the purchase of own shares, where he makes proposals to which I should like to come in a moment, Professor Gower says that the view is held that to retain Section 54 while giving companies the right to purchase their own shares appears to be anomalous. Then, at the end of paragraph 66, Professor Gower says, and I quote:
"This, however, is not the view taken by the second directive (sec Article 23) and it is thought that that view is correct. The abuses which can flow from the latter practice, as many inspectors' reports have shown, both prevalent and likely, are more dangerous than an open purchase by the Company itself. This is not to suggest that the section is not indeed a clarification and amendment".
I think that is a fair quotation. It seems to me that what Professor Gower is saying is that the view to do nothing in Section 54, but to pass these amendments, is indeed to introduce an anomaly, but it will not be a very big or dangerous one because while breaches of Section 54 are very serious and dangerous the open purchase of shares by the company itself is not as dangerous as that.

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It seems to me that the Government must tell us a little more about its ultimate intentions. I cannot believe that the noble and learned Lord is going to tell us that these clauses are in their final form. To take five matters almost at random: first, which of the purposes in paragraph 11 of the Green Paper are being pursued by these amendments? I immediately add that of course it is not headings J to K; that is to say, in effect allowing companies to rig the market or to traffic in their shares—but it is interesting that Professor Gower had to take account of that. if it is not market rigging and it is not trafficking in shares, which of the other purposes—all of them arguable but very different—are being pursued? And are the ones which are being pursued for private companies exactly reflected in these clauses or not?
That leads me to a second question. Where there is to be permission to purchase own shares, are the Government fully satisfied that in regard to both public and private companies the three problems mentioned especially in the report are dealt with? The first is that of disclosure. There is a lot about disclosure in the subsequent clauses, but when we come to them later there may perhaps be cause for looking at them a little more carefully. More importantly, and much more worrying, is the question of the executory contract; the problem which is sometimes illustrated by the right to buy shares in instalments, which is dealt with to some extent in Clause 119—the noble and learned Lord will tell me if that is wrong—but not, I think, in regard to all matters.
Lastly under this heading, there is the requirement that members' approval must be obtained. Why is it that sometimes it is by a special resolution but in other cases—and particularly in one case we are coming to—it is by an ordinary resolution? What is the logic behind the structure of the approval mechanism? Thirdly, there is the problem of the protection of the minority which is discussed in paragraphs 40 and 44 of the Green Paper. There, one suggestion is that one should stop those who are interested in having an improper effect on the voting on those resolutions, which is somewhat reflected in the clauses that follow. The other proposal (one which Professor Gower rather prefers) is to allow the dissident minority to petition the court. I appreciate that there is that right in one clause—unless I misunderstood it, the clause dealing with the permissible capital reduction—in regard to private companies, but have the Government considered the proposals rather more widely than that, if not to apply to both private and public companies then at any rate to apply to private companies outside the ambit of the clause wherever it appears.
Lastly, and this is something I hope we shall come back to on Report stage, because I do not quite understand the clauses as I have been able to read them, what is the relationship to the structure that the Government is putting before us and the problem of insider dealing? Because of course all the protections which are being built in are fine so far as they go, but is it not the case that to allow a company which in effect means the directors, to purchase its own shares, is to open up a new front in the battle on insider dealings? It may be that it has escaped me in the clauses, but I have not found in the clauses themselves any great bulwark
940
against the practice, which now, as a legislature, we condemn; we made it criminal under the 1980 Act (Part V) and surely it must be right that something should be done to apply Part V to the rather wide area which has now opened up.
I immediately hasten to say that I am not suggesting that the companies which will make use of these provisions are all chaired and run by rogues who wish to take part in insider dealing, but insider dealing does exist and that is why we made it a crime. However much it exists, here is a new opportunity to engage in it. What is the Government's response? Is it not right that they should take these clauses away and relate them to insider dealing, to match their own statutes which they passed last year and which appear to be reflected not at all in these clauses? I have taken the opportunity in regard to this clause, because this is the central clause, to open up some questions for the Government to answer.
Lord Robertson of Oakridge: May I follow the noble Lord, Lord Wedderburn of Charlton, on his last point dealing with possible insider dealing. Section 68(6) of the 1980 Companies Act provides that persons in possession of non-published price-sensitive information are unable not only to deal themselves but also to counsel and procure another person to deal in the securities concerned. I should be grateful if the noble and learned Lord could say whether it is the Government's opinion that that section covers directors acting collectively as a board, and if he would give an assurance that this particular point will be the subject of further discussions which will take place with the relevant bodies.
8.30 p.m.
Lord Mackay of Clashfern: Noble Lords have opened up a wide range of matters. May I answer by identifying what the Government feel are the advantages that will result from the new clauses, first of all so far as private companies are concerned. It can often be very difficult to transfer shares at present, with the result that shareholders can become "locked in"; that is, unable to sell their shares and recover their investment in a company. It is considered that the availability of a power of the company itself to use its funds to purchase its own shares will in many cases afford companies the means of releasing such investments. This will increase the attraction of investment in private companies from the point of view of the investor, who will have greater assurance that he will be able to recover his investment. Also the power to purchase own shares should make entrepreneurs and family companies less reluctant to accept participation of outside capital as equity capital, as they will have the assurance that there need be no long-term dilution of control.
The power may also contribute to improved management of small companies as such companies will be able to use their funds to purchase by agreement the shares of persons not closely involved with the conduct of their affairs or the shares of dissenting shareholders. Small family companies will find it easier to maintain family control, as they will be able to use the funds of the company to purchase shares of

941
deceased or retiring family members. The power should also make it easier for capital transfer tax liabilities arising on the transfer of shares between members of such companies to be met.
If I may bring this to a particular example, the job ownership companies—if I can use their full title—referred to in the amendments proposed by the noble Lord, Lord Seebohm, are a good example of the particular way in which companies of this type would benefit from having this power.
The advantages which have been identified for public companies, in the case of which shares may well be found more readily transferable, are somewhat less clear cut. However, some large companies and financial institutions have asserted that a power to purchase own shares could provide a means for such companies to return surplus funds to shareholders, thus allowing financial resources to be deployed more usefully within the economy. The evidence of experience in other countries, most nobably the USA, is that large companies find advantage in a power to purchase their own shares as affording flexibility in ordering their capital structure and matching that structure to their needs at a particular stage in the development of a company. It has been suggested that the power will facilitate what has come to be called "demergers", and, in the special case of investment trust companies, that a reduction of issued share capital achieved by a purchase of own shares will enable market prices of shares to be more properly related to asset value. There is no doubt that the risk of abuse of a power to purchase own shares is greater in the case of public companies with shares actively traded on a market, but the Government consider that adequate safeguards can be provided against abuse. While acknowledging that the arguments for a power are less compelling in the case of public companies, the Government do not consider that the possible objections to provision of the new power for such companies are sufficiently strong to justify denying it under the safeguards which have been proposed.
May I turn now to the question which has been asked specifically on insider dealings? The insider dealings of the 1980 Act will apply to market purchasers of own shares as defined in the proposed clauses, and to transactions effected through licensed dealers. The Government take the view that no amendments are needed to these provisions. It is unnecessary to provide a remedy against insider dealing in transactions effected directly between a company and a shareholder such as will normally be the case in private companies. All such transactions will be undertaken only with the consent of the seller under the terms of the Government Amendment No. 121A, who will be well aware of the advantage that the company has in this respect.
If, on the other hand, the seller seeks to use some confidential information which he has at the expense of the company, he will be in breach of his duty to the company and a remedy will lie accordingly. In those cases, we believe that it can be left to the prudence of the company, on the one hand, and the seller, on the other, to make necessary inquiries of one another whenever a purchase is suggested and to take such steps as the circumstances indicate would be justified
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to ensure that they comply with the general law.
In answer to the question raised about instalment contracts by the noble Lord, Lord Wedderburn, that I would refer him to subsection (4) of the new clause provided by Amendment No. 110, which provides for payment on redemption and this also applies to purchase. Amendment No. 121 deals with the possible questions of breach of executive contracts to redeem on their own shares. These are the main provisions which deal with the problems of the instalment contract. I hope that, in the light of these explanations, the Committee will agree to Amendment No. 111.
On Question, amendment agreed to.
Lord Mackay of Clashfern Lord Mackay of Clashfern moved Amendments Nos. 112 to 120:
After Clause 41 insert the following new clause:
("Authority for off-market purchase.
.—(1) This section applies to an off-market purchase by a company of any of its own shares.
(2) A purchase by a company of any of its own shares is an off-market purchase for the purposes of this section if either—

(a) the shares are purchased otherwise than on a recognised stock exchange; or

(b) the shares are purchased on a recognised stock exchange but are not subject to a marketing arrangement on that stock exchange.

(3) For the purposes of this section shares of a company are subject to a marketing arrangement on a recognised stock exchange if either—

(a) they are listed on that stock exchange; or

(b) the company has been accorded facilities for dealings in those shares to take place on that stock exchange without prior permission for individual transactions from the authority governing that stock exchange and without limit as to the time during which those facilities are to be available.

(4) A company shall not make an off-market purchase of its own shares unless the purchase of those shares and the terms of the contract of purchase have first been authorised by a special resolution of the company.
(5) The authority conferred by any such resolution may be varied or revoked by special resolution of the company.
(6) In the case of a public company an authority for an off-market purchase of any of its own shares must specify a date on which the authority is to expire; but, subject to the preceding requirement, any such authority may be renewed from time to time by special resolution of the company.
(7) The date specified in accordance with subsection (6) above in any special resolution of a public company to confer or renew authority for an off-market purchase shall not be later than eighteen months after the date on which the resolution is passed.
(8) A special resolution of a company to confer, vary, revoke or renew authority for an off-market purchase of any of its own shares shall not be effective for the purposes of this section if any member of the company holding shares to which the resolution relates votes on the resolution, otherwise than—

(a) on a poll; and

(b) in respect only of shares other than shares to which the resolution relates;

and the resolution would not have been passed if he had not done so; and, notwithstanding anything in a company's articles, any member of the company may demand a poll on the question whether any such resolution shall be passed.
(9) Any such resolution shall not be effective for the purposes of this section unless (if the proposed contract of purchase is in writing) a copy of that contract or (if it is not in writing) a written memorandum of its terms is available for inspection by members of the company both—

(a) at the registered office of the company for not less than the period of fifteen days ending with the date of the meeting at which the resolution is passed; and

943

(b) at the meeting itself.

(10) A public company may make a purchase of its own shares in accordance with this section after the expiry of any time limit imposed by virtue of subsection (6) above in any case where the contract of purchase was concluded before the authority expired and the terms of the authority permitted the contract to be executed wholly or partly after the authority expired provided that it was concluded before it.
(11) Where a company proposes to agree to a variation of an existing contract for the purchase of any of its own shares the references in subsection (9) above to the proposed contract of purchase shall be read as referring to the orginal contract together with the proposed variation (and any variations previously made).
(12) For the purposes of this section a vote and a demand for a poll by a person as proxy for a member shall be the same respectively as a vote and a demand by the member.")
After Clause 41 insert the following new clause:
("Authority for market purchase.
.—(1) This section applies to a market purchase by a company of any of its own shares.
(2) A purchase by a company of any of its own shares is a market purchase for the purposes of this section if it is a purchase made on a recognised stock exchange, other than a purchase which is an off-market purchase for the purposes of section (Authority for off-market purchase) of this Act by virtue of subsection (2)(b) of that section.
(3) A company shall not make a market purchase of its own shares unless the purchase has first been authorised by the company in general meeting.
(4) A resolution authorising market purchases of a company's own shares in accordance with this section may confer general authority for that purpose or authority limited to the purchase of shares of any particular class or description, and the authority conferred may be unconditional or subject to conditions.
(5) Any such authority must—

(a) specify the maximum number of shares authorised to be acquired;

(b) determine both the maximum and the minimum prices which may be paid for those shares; and

(c) specify a date on which the authority is to expire.

(6) Subject to subsections (5) above, any such authority may be varied, revoked or from time to time renewed by the company in general meeting.
(7) The date specified in accordance with subsection (5)(c) above in any resolution of a company to confer or renew authority for market purchases shall not be later than eighteen months after the date on which the resolution is passed.
(8) A company may make a purchase of its own shares in accordance with this section after the expiry of any time limit imposed by virtue of subsection (5)(c) above in any case where the contract of purchase was concluded before the authority expired and the terms of the authority permitted the company to make a contract of purchase which would or might be executed wholly or partly after the authority expired.
(9) A resolution of a company to confer or vary authority for market purchases of its own shares may determine either or both of the prices mentioned in subsection (5)(b) above by—

(a) specifying a particular sum; or

(b) providing a basis or formula for calculating the amount of the price in question without reference to any person's discretion or opinion.

(10) Section 143 of the 1948 Act (registration of copies of certain resolutions and agreements) shall apply to any resolution of a company conferring, varying, revoking or renewing any such authority.")
After Clause 41 insert the following new clause:
("Disclosure of particulars of purchases and contracts of purchase.
.—(1) Within the period of twenty-eight days beginning with the date on which any shares purchased by a company under section (Power to purchase own shares) of this Act are transferred to the company the company shall deliver to the registrar of companies for registration a return in the prescribed form stating with respect to shares of each class purchased the number and nominal value of those shares and the date on which they were transferred to the company.
(2) In the case of a public company the return required by this section shall also state—

(a) the aggregate amount paid by the company for the shares; and

(b) the maximum and minimum prices paid in respect of shares of each class purchased.

(3) Particulars of shares transferred on different dates and under different contracts of purchase may be included in a single return under this section; and in any such case the amount required to be stated by subsection (2)(a) above shall be the aggregate amount paid by the company for all the shares to which the return relates.
(4) Where by virtue of section (Power to purchase own shares) of this Act a company enters into a contract to purchase any of its own shares the company shall keep at its registered office—

(a) if the contract is in writing, a copy of that contract; or

(b) if it is not in writing, a memorandum of its terms;

from the conclusion of the contract until the end of the period of ten years beginning with the date on which the transfer of shares under the contract is completed.
(5) Every copy and memorandum required to be kept by subsection (4) above shall, during business hours (subject to such reasonable restrictions as the company may in general meeting impose, provided that not less than two hours in each day are allowed for inspection) be open to the inspection—

(a) of any member of the company without charge; and

(b) if the company is a public company, of any other person on payment of such reasonable fee for each inspection as the company may prescribe.

(6) If default is made in delivering to the registrar of companies any return required by this section, every officer of the company who is in default shall be liable—

(a) on conviction on indictment to a fine;

(b) on summary conviction to a fine not exceeding the statutory maximum or, on conviction after continued contravention, to a default fine not exceeding one-tenth of the statutory maximum.

(7) If default is made in complying with subsection (4) above or if an inspection required under subsection (5) above is refused, the company and every officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, to a default fine not exceeding one-fiftieth of the statutory maximum.
(8) In the case of a refusal of an inspection required under subsection (5) above of a copy or memorandum, the court may by order compel an immediate inspection of the copy or memorandum.
(9) In relation to any contract for the purchase by a company of any of its own shares, the obligation under subsection (4) above to keep a copy of the contract or (as the case may be) a memorandum of its terms until the end of the period there mentioned shall apply to any variation of the contract as it applies to the contract.")
After Clause 41, insert the following new clause:
("The capital redemption reserve Maintenance of capital on redemption or purchase of own shares otherwise than out of capital
.—(1) Where in pursuance of section (Power of company to issue redeemable shares) or (Power to purchase own shares) of this Act any shares of a company are redeemed or purchased wholly out of the profits of the company the amount by which the company's issued share capital is diminished in accordance with subsection (7) of section (Power of company to issue redeemable shares) of this Act on cancellation of the shares redeemed or purchased shall be transferred to a reserve, to be called "the capital redemption reserve".
(2) Subject to subsection (6)(b) of section (Power of private companies to redeem or purchase own shares out of capital) of this Act, where in pursuance of either of those sections any shares of a company are redeemed or purchased wholly or partly out of the proceeds of a fresh issue and the aggregate amount of those proceeds is less than the aggregate nominal value of the shares redeemed or purchased, the amount of the difference shall be transferred to the capital redemption reserve.
(3) The provisions of the 1948 Act relating to the reduction of the share capital of a company shall apply as if the capital redemption reserve were paid up share capital of the company,

945
except that the reserve may be applied by the company in paying up unissued shares of the company to be allotted to members of the company as fully paid bonus shares.").
After Clause 41, insert the following new clause:
("Power of private companies to redeem or purchase own shares out of capital
Redemption or purchase of own shares out of capital
.—(1) Subject to the following provisions of this Part of this Act, a private company limited by shares or limited by guarantee and having a share capital may, if authorised to do so by its articles, make a payment out of capital in respect of the redemption or purchase under section (Power of company to issue redeemable shares) or (as the case may be) under section (Power to purchase own shares) of this Act of any of its own shares.
(2) The payment which may (if authorised in accordance with the following provisions of this Part of this Act) be made by any company out of capital in respect of the redemption or purchase of any of its own shares shall be such an amount as, taken together with—

(a) any available profits of the company; and

(b) the proceeds of any fresh issue of shares made for the purposes of the redemption or purchase;

is equal to the cost of redemption or purchase (including any premium payable on redemption or purchase).
(3) The payment permissible in accordance with subsection (2) above in respect of the redemption or purchase by a company of any of its own shares is referred to below in this Part of this Act as the permissible capital payment for the shares.
(4) Subject to subsection (6) below, if the permissible capital payment for any shares redeemed or purchased by a company is less than their nominal amount, the amount of the difference shall be transferred to the capital redemption reserve.
(5) Subject to subsection (6) below, if the permissible capital payment for any shares redeemed or purchased by a company is greater than their nominal amount, the amount of any capital redemption reserve, share premium account or fully paid share capital of the company may be reduced by a sum not exceeding (or by sums not in the aggregate exceeding) the amount by which the permissible capital payment exceeds the nominal amount of those shares.
(6) In any case where the proceeds of a fresh issue are applied by a company in making any redemption or purchase of its own shares in addition to a payment out of capital under this section—

(a) the references in subsections (4) and (5) above to the permissible capital payment shall be read as references to the aggregate of that payment and those proceeds; and

(b) subsection (2) of section (The capital redemption reserve) of this Act shall not apply.

(7) Subject to subsection (8) below, the reference in subsection (2)(a) above to available profits of the company is a reference to the company's distributable profits, determined in accordance with Part III of the 1980 Act as if for the purpose of determining whether a distribution within the period of three months ending with the date on which the resolution approving the payment out of capital in accordance with section (Requirements for redemption or purchase out of capital; special resolution approving payment) of this Act is passed would contravene section 39 of that Act.
(8) The relevant accounts for the purpose of determining in accordance with section 43 of that Act whether the company has any available profits and the amount of any such profits shall be such accounts, prepared as at any date within the period mentioned in subsection (7) above, as are necessary to enable a proper judgment to be made as to the amounts of any of the relevant items (within the meaning of that section), and subsection (2) of that section shall not apply.").
After Clause 41 insert the following new clause:
("Requirements for redemption or purchase out of capital: special resolution approving payment.
.—(1) Subject to any order made by the court under section (Objections by members or creditors) of this Act a payment out of capital by any company for the redemption or purchase of any of its own shares shall not be lawful by virtue
946
of section (Power of private companies to redeem or purchase own shares out of capital) of this Act unless the requirements of this section and section (Publicity for proposed payment out of capital) of this Act are satisfied.
(2) The payment out of capital must be approved by a special resolution of the company (referred to below in this section and in section (Publicity for proposed payment out of capital) of this Act as the resolution for payment out of capital.)
(3) The directors of the company must make a statutory declaration specifying the amount of the permissible capital payment for the shares in question and stating that, having made full inquiry into the affairs and prospects of the company, they have formed the opinion—

(a) that there will be no ground on which the company could be found to be unable to pay its debts immediately after the date on which the payment out of capital is proposed to be made; and

(b) that, having regard to their intentions with respect to the management of the company's business during the year immediately following that date and to the amount and character of the financial resources which will in their view be available to the company during that year, the company will be able to continue to carry on business as a going concern throughout that year; and

(c) that accordingly the company will be able to pay its debts as they fall due throughout that year.

(4) In forming their opinion for the purposes of subsection (3)(a) above the directors shall take into account any liabilities of the company which the court would be required by section 223(d) of the 1948 Act to take into account in determining for the purposes of section 222(e) of that Act (circumstances in which a company may be wound up by the court) whether the company was unable to pay its debts.
(5) The statutory declaration made by the directors must have annexed to it a report addressed to the directors by the auditors of the company stating that—

(a) they have inquired into the company's state of affairs; and

(b) the amount specified in that declaration as the permissible capital payment for the shares in question is in their view properly determined in accordance with section (Power of private companies to redeem or purchase own shares out of capital) of this Act; and

(c) they are not aware of anything to indicate that the opinion expressed by the directors in that declaration as to any of the matters mentioned in subsection (3)(a) to (c) above is unreasonable in all the circumstances.

(6) The resolution for payment out of capital must be passed within the week immediately following the date on which the directors make the statutory declaration required by subsection (3) above, and the payment out of capital must be made not earlier than five nor more than seven weeks after the date of the resolution.
(7) A special resolution of a company to approve a payment out of capital for the redemption or purchase of any of its own shares shall not be effective for the purposes of this section if any member of the company holding shares to which the resolution relates votes on the resolution, otherwise than—

(a) on a poll; and

(b) in respect only of shares other than shares to which the resolution relates;

and the resolution would not have been passed if he had not done so; and, notwithstanding anything in a company's articles, any member of the company may demand a poll on the question whether any such resolution shall be passed.
(8) Any director of a company who makes a declaration under this section knowing it to be false or misleading or without reasonable cause to believe in its truth shall be liable—

(a) on conviction on indictment to imprisonment for a term not exceeding two years or a fine or both; and

(b) on summary conviction, to imprisonment for a term not exceeding six months or a fine not exceeding the statutory maximum, or both.

(9) For the purposes of this section a vote and a demand for a poll by a person as proxy for a member shall be the same respectively as a vote and a demand by the member.")
After Clause 41, insert the following new clause:
("Publicity for proposed payment out of capital
.—(1) Within the week immediately following the date of the resolution for payment out of capital the company must cause to be published in the Gazette a notice—

(a) stating that the company has approved a payment out of capital for the purpose of acquiring its own shares by redemption or purchase or both (as the case may require);

(b) specifying the amount of the permissible capital payment for the shares in question and the date of the resolution for payment out of capital;

(c) stating that the statutory declaration of the directors and the auditors' report required by section (Requirements for redemption or purchase out of capital: special resolution approving payment) of this Act are available for inspection at the company's registered office; and

(d) stating that any creditor of the company may at any time within the five weeks immediately following the date of the resolution for payment out of capital apply to the court under section (Objections by members or creditors) of this Act for an order prohibiting the payment.

(2) Within the week immediately following the date of that resolution the company must also either cause a notice to the same effect as that required by subsection (1) above to be published in an appropriate national newspaper or give notice in writing to that effect to each of its creditors.
In this subsection "an appropriate national newspaper" means a newspaper circulating throughout England and Wales in the case of a company registered in England and Wales and a newspaper circulating throughout Scotland in the case of a company registered in Scotland.
(3) References below in this section to the first notice date are references to the day on which the company first publishes the notice required by subsection (1) or first publishes or gives the notice required by subsection (2) above (whichever is the earlier).
(4) Not later than the first notice date the company must deliver a copy of the statutory declaration of the directors and the auditors' report required by section (Requirements for redemption or purchase out of capital: special resolution approving payment) of this Act to the registrar of companies.
(5) The statutory declaration and auditors' report shall, during business hours on any day during the period beginning with the first notice date and ending five weeks after the date of the resolution for payment out of capital, be open to the inspection of any creditor of the company without charge.
(6) If an inspection required under subsection (5) above is refused, the company and every officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, to a default fine not exceeding one-fiftieth of the statutory maximum.
(7) In the case of a refusal of an inspection required under subsection (5) above of a declaration or report, the court may by order compel an immediate inspection of that declaration or report.").
After Clause 41 insert the following new clause:
("Objections by members or creditors.
.—(1) Where a private company passes a special resolution approving for the purposes of this Part of this Act any payment out of capital for the redemption or purchase of any of its shares—

(a) any member of the company other than one who consented to or voted in favour of the resolution; and

(b) any creditor of the company;

may within five weeks of the date on which the resolution was passed apply to the court for the cancellation of the resolution.
(2) An application under this section may be made on behalf of the persons entitled to make the application by such one or more of their number as they may appoint in writing for the purpose.
(3) If an application is made under this section, the company shall—

(a) forthwith give notice in the prescribed form of that fact to the registrar of companies; and

(b) within fifteen days from the making of any order of the court on the hearing of the application, or such longer
948
period as the court may by order direct, deliver an office copy of the order to the registrar.

(4) On the hearing of an application under this section the court may, if it thinks fit, adjourn the proceedings in order that an arrangement may be made to the satisfaction of the court for the purchase of the interests of dissentient members or for the protection of dissentient creditors, as the case may be, and the court may give such directions and make such orders as it thinks expedient for facilitating or carrying into effect any such arrangement.
(5) Without prejudice to its powers under subsection (4) above, on the hearing of an application under subsection (1) above, the court shall make an order on such terms and conditions as it thinks fit either confirming or cancelling the resolution; and, where the court confirms the resolution, it may in particular by order alter or extend any date or period of time specified in the resolution or in any provision of this Part of this Act which applies to the redemption or purchase of shares to which the resolution refers.
(6) Subsections (7) to (9) of section 11 of the 1980 Act (provision in orders of the court for purchase of shares and alterations in memorandum and articles) shall apply in relation to orders under this section as they apply in relation to orders under section 11.
(7) A company which fails to comply with subsection (3) above and any officer of the company who is in default shall be liable on summary conviction to a fine not exceeding one-fifth of the statutory maximum or, on conviction after continued contravention, a default fine not exceeding one-fiftieth of the statutory maximum.")
After Clause 41, insert the following new clause:
("Liability of past shareholders and directors
.—(1) This section applies where a company has made a payment out of capital in respect of the redemption or purchase of any of its own shares otherwise than out of the proceeds of a fresh issue of shares, referred to below as the "relevant payment".
(2) Where the company is being wound up and the aggregate of the amount of its assets and the amounts paid by way of contribution to its assets (apart from this section) and by its debtors is not sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up, then, if the winding up commenced within one year of the date on which the relevant payment was made—

(a) the persons from whom the shares were redeemed or purchased; and

(b) the directors of the company who signed the statutory declaration made in accordance with section (Requirements for redemption or purchase out of capital: special resolution approving payment) (3) of this Act for the purposes of the redemption or purchase, except a director who shows that he had reasonable grounds for forming the opinion set out in the declaration;

shall, so as to enable that insufficiency to be met, be liable to contribute to the assets of the company to the extent specified in subsection (3) below.
(3) A person from whom any of the shares were redeemed or purchased shall be liable to contribute to the assets of the company an amount not exceeding the amount of so much of the relevant payment as was made by the company in respect of his shares and the directors of the company shall be jointly and severally liable with that person to contribute that amount to the assets of the company.
(4) Any person who has contributed an amount to the assets of a company in pursuance of this section may apply to the court for an order directing any other person jointly and severally liable in respect of that amount to pay to him such amount as the court thinks just and equitable.
(5) Section 212 of the 1948 Act (liability of contributories) shall not apply in relation to any liability accruing by virtue of this section.
(6) Any reference in the articles of any company to a contributory shall not unless the context requires include a reference to any person who is a contributory only by virtue of this section.
(7) A person who is liable by virtue of this section to contribute to the assets of any company in the event of its being wound up may by petition apply to the court for the winding up

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of the company on either of the grounds set out in paragraphs (e) and (f) of section 222 of the 1948 Act (inability of company to pay its debts and the "just and equitable" ground) and paragraph (a) of the proviso to section 224(1) of that Act (restrictions on right of contributory to present petition) shall not apply in relation to a petition made by any such person; but unless he is a contributory otherwise than by virtue of this section he may not in his character as contributory present such a petition on any other ground.").
On Question, amendments agreed to.
8.35 p.m.
Lord Mackay of Clashfern Lord Mackay of Clashfern moved Amendment No. 121:
After Clause 41 insert the following new clause:
("Effect of company's failure to redeem or purchase own shares, Miscellaneous and supplemental
.—(1) This section shall apply where a company—

(a) has issued shares on terms that they are to be redeemed; or

(b) has agreed to purchase any of its own shares.

(2) Any failure on the part of the company to redeem any shares in accordance with the terms on which they were issued shall be treated (if it would not otherwise be) as a breach of contract by the company, actionable by the shareholder accordingly.
(3) Where at the commencement of the winding up of any company, any shares in the company which were to have been redeemed or purchased by the company before that time have not been transferred to the company, those shares shall on the commencement of the winding up be cancelled; but the holder of the shares at the time of their cancellation may (notwithstanding their cancellation) claim in the winding up in respect of any loss resulting from the fact that the shares have not been redeemed or purchased by the company, as the case may be.
(4) Where at the commencement of the winding up of any company, the company is obliged (contingently or otherwise) to redeem or purchase any shares in the company at a date subsequent to the winding up, those shares shall not thereafter be transferred to the company; and, subject to any provision to the contrary contained in the terms of redemption or purchase, the company shall thereupon be taken to be in breach of its obligations to the shareholder to purchase or redeem his shares.
(5) There shall be paid in priority to any amount which the company is liable to pay (whether by virtue of this section or otherwise) in respect of any failure on its part to fulfil any of its obligations to redeem or purchase any of its shares all other debts and liabilities of the company; and the provisions of Part V of the 1948 Act (winding up) shall have effect accordingly.
(6) For the purposes of section 212(1)(g) of the 1948 Act (postponement of debts, etc. due to members) any amount due from a company to a member the payment of which is postponed by this section shall be taken to be a sum due to him otherwise than in his character of a member.
(7) Where by virtue of section 66 of the Bankruptcy Act 1914 (payment of interest on debts) as applied by section 317 of the 1948 Act (application of bankruptcy rules to insolvent companies) a creditor of a company is entitled to payment of any interest only after payment of all other debts of the company, the company's debts and liabilities shall for the purposes of subsection (5) above include the liability to pay that interest.
(8) Subsections (3) to (7) above shall not apply in relation to any winding up which commenced before the appointed day.")
Lord Wedderburn of Charlton: I think that it is necessary to put on record the fact that at twenty-five minutes to nine o'clock this evening your Lordships have just passed over amendments in Committee—true we can come back to them on Report which no doubt is the assumption in everybody's mind. As has been said by my noble friend on this side of the Committee from the Front Bench, these are very important clauses.
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Some of us have not looked at them for very long. As my noble friend Lord Mishcon said, they have not been with us very long. I now cannot advert to the matters that I wished to discuss with those Members of the Committee who are present, and the noble and learned Lord who was going to speak to them on Amendment Nos. 112 to 119. There are a very large number of at least drafting points in these clauses. This is supposed to be a revising House. The Government treat it as though it was a conduit pipe through which one could throw clauses after dinner at as rapid a rate as they can be consumed.
May I address myself to Amendment No. 121? I failed to get up in time for Amendment No. 120. Let me ask a small question of the Government on this matter. In subsection (2) it is said, in dealing with the question of a company's failure to redeem or purchase its own shares, that failure on the part of the company to redeem them in accordance with the terms on which they were issued is treated as a breach of contract by the company if it would not otherwise be—which in many cases I would have thought it would. But were it not so, then the subsection makes it clear. But then it continues:
"actionable by the shareholder accordingly".
I want to know what the Government understand by that last phrase. Is it meant to indicate that all the remedies that flow from a breach of contract, at any rate in the English jurisdiction, will flow from it; and whatever the Scots' jurisdiction remedies may be, that they flow? If it is, it is quite an important little subsection stuck away in the back. It is normally understood that the shareholder cannot claim damages from his company whether for misrepresentation, fraud or breach of contract—according to the cases still extant on the matter—while he remains a shareholder.
In regard to this matter, the particular shares involved are being redeemed or purchased and it will not be in respect of them that he can be alleged to be a shareholder. But he may of course have other shares; he may even have shares of the same class; it depends how the company have arranged their purchase and redemption.
Is this a part of a remedy? It may well be that it is the correct remedy. It may well be this is the right thing to introduce into English company law. But if it is right, then the Government must have thought very carefully about the very large number of judicial interpretations and other arguments as to why we have this principle that a shareholder is not allowed to claim damages from his company and remain a shareholder—even, it appears, in the face of fraud, subject to statutory remedy. But this is not a statutory remedy; this is statute saying, "You are deemed to have the ordinary contractual remedy at common law."
So is this in effect saying to the courts that those decisions must now be put aside? If that is what the clause is saying—and it may be what the clause ought to say—then I suggest that the Government should take it away and tell us in so many words that that is the case for the clarity and certainty of the law, which I know the noble and learned Lord and I have very much at heart. They should not leave it to the vicissitudes of the courts—I am sure the Court of Session is safe, but at any rate of the English courts—but should say

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not merely what the remedies are but also, if damages are to be available, what the measure of damages is to be. It may be that it is obvious in the average case, but there could be difficulties, and if we are coming back to this on Report I would invite the noble and learned Lord to tell us that this matter and perhaps a few previous matters we have passed over will be examined rather more carefully.
Lord Mackay of Clashfern: So far as this matter is concerned, the intention is to provide that the failure on the part of a company to redeem shares, that is to let the shareholder out, in accordance with the terms on which they were issued is to be treated as a breach of contract. In other words, the shareholder and the company will be treated as if they had a contract in these terms and the ordinary remedies will apply. If I am not mistaken—and if I am I shall be corrected—the situation is that a shareholder under the present law may have an action in respect of breach of contract where that contract is with the company and is not simply a matter of the arrangements that are contained in the memorandum and articles. Therefore I do not at the moment see that the problems that the noble Lord has suggested will flow from this will actually do so. However, I shall be happy to consider the matter further though that is the view I have formed in listening to him now.
Lord Wedderburn of Charlton: It would be unfair of me not to substantiate a slightly wider area of difficulty than the noble and learned Lord has suggested. Of course he is right in saying in the situation he has suggested that, where there is a clear breach of contract and no other problem emerges, then if you apply this clause to that situation, yes, that is as far as you get. But there is another area of difficulty. If you take cases such as Houldsworth v. The City of Glasgow Bank in 1880 and more particularly the case of re Addlestone Linoleum Limited in the 1880s in the Court of Appeal, which dealt with the question of breach of contract in regard to prospectus, subscription and so on, one there has a general principle where the courts lean against damages. If the Government wish damages to be available, then, because of those cases and not the situation to which the noble and learned Lord adverted, I think it would be wise to say so and in doing so to spell out some of the things he has just mentioned.
Lord Mishcon: I do not want to detain the Committee and I shall not do so for more than a second or so; but what the noble Lord, Lord Wedderburn, has said conveys the feeling of a number of Members, that it is awfully difficult to carry out our duties properly in the circumstances, which I do not intend to repeat or to complain about again. May I make this respectful suggestion? Normally when you have got a complicated Bill of this kind you have notes on the clauses. I am wondering whether, between now and Report stage, your Lordships would not be greatly convenienced by having some notes on clauses produced, purely and simply covering the provisions we have had to deal with so hurriedly tonight, and which do in fact re-make and indeed create new law. If a document, however roughly prepared, could be issued to the Members of the Committee, and especially those who are interested
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in this, I think it would make our task easier for the Report stage. I do hope, that, having placed the Committee in the difficulty which the noble Lord, Lord Wedderburn, so correctly talked about, the noble and learned Lord can at least help us in this respect.
Lord Mackay of Clashfern: I shall certainly consider what we may be able to do in that particular respect, and I am happy to consider further the suggestions made by the noble Lord, Lord Wedderburn.
On Question, amendment agreed to.
Lord Mackay of Clashfern Lord Mackay of Clashfern moved Amendment No. 121A:
After Clause 14, insert the following new clause:
("Restriction on company's powers to require members to sell back shares
.—(1) Subject to subsection (2) below, a company which has power to alter its memorandum or articles of association to require any person in any circumstances to transfer to the company or to any other person any share in the company shall not without the written consent of the Secretary of State exercise that power in relation to any share which has been allotted before the alteration takes effect.
(2) Subsection (1) above shall not prevent any company from altering its memorandum or articles of association (without the Secretary of State's consent) to require a member who is proposing to transfer any of his shares in the company to any person other than the company or another member, to offer the shares first to the company or another member, either on the same terms as or on terms more favourable to him than the terms on which that transfer is proposed to be made.
(3) Where a company alters its memorandum or articles of association for the purpose mentioned in subsection (1) above by resolution made with the written consent of the Secretary of State, it shall send with the copy of that resolution forwarded to the registrar in compliance with section 143 of the 1948 Act a copy of that consent; and subsection (5) of section 143 (criminal penalties) shall apply in relation to a failure to comply with the requirements of this subsection as it applies in relation to a failure to comply with the requirements of section 143(1).").
On Question, amendment agreed to.
Lord Mackay of Clashfern Lord Mackay of Clashfern moved Amendment No. 122:
After Clause 41, insert the following new clause:
("Interpretation, repeal of section 58 of the 1948 Act and savings
.—(1) In this Part of this Act—
"distributable profits", in relation to any company, means those profits of the company which are available for distribution (within the meaning of Part III of the 1980 Act); and
"permissible capital payment" has the meaning given by section (Power of private companies to redeem or purchase own shares out of capital) (3) of this Act.
(2) Section 58 of the 1948 Act (which is superseded by sections (Power of company to issue redeemable shares) and (The capital redemption reserve) of this Act) shall cease to have effect; but any preference shares issued by a company before the appointed day which could but for the repeal of section 58 have been redeemed under that section shall be subject to redemption in accordance with the provisions of this Part of this Act.
(3) In any case to which section (Power of company to issue redeemable shares) applies by virtue of this section—

(a) any premium payable on redemption may, notwithstanding the repeal by this Act of the words in section 56(2) of the 1948 Act which enabled such premiums to be paid out of the share premium account, be paid out of that account instead of out of profits or partly out of that account and partly out of profits (but subject to the provisions of this Part of this Act so far as the payment is out of profits); and

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(b) to the extent that the premium is paid out of the company's share premium account it shall not be a distribution for the purposes of Part III of the 1980 Act (restrictions on distributions of profits and assets).

(4) Until 22nd June 1982 (that is to say, until the expiry of the period which is the transitional period for the purposes of Part I of the 1980 Act) any reference in this Part of this Act to a public company shall include a reference to an old public company within the meaning of section 8(1) of the 1980 Act and any reference to this Part to a private company shall be construed accordingly.
(5) Any capital redemption reserve fund established before the appointed day by any company for the purposes of section 58 of the 1948 Act shall be known as the company's capital redemption reserve and be treated as if it had been established for the purposes of section (The capital redemption reserve) of this Act; and, accordingly, any reference in any enactment or in the articles of any company or in any other instrument to a company's capital redemption reserve fund shall be construed as a reference to the company's capital redemption reserve.").
On Question, amendment agreed to.
Lord Lyell: I understand it has been agreed through the usual channels that this would be a convenient adjournment point for this evening. I beg to move that the House be now resumed.
Moved accordingly and, on Question, Motion agreed to.
House resumed.

Allied Irish Banks Bill
Examiners Certificate that no further Standing Order is applicable: Ordered to lie on the Table.