§ 12.34 p.m.
§ Lord Mishcon
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 Mishcon.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [THE LORD AMPTHILL in the Chair.]
§ Clauses 1 to 11 agreed to.
Lord Drumalbyn moved Amendment
After Clause 11, insert the following new clause:
- .—(1) In section 12(2) of the Unfair Contract Terms Act 1977 the words "by auction or" are hereby deleted.
- (2) After the words "of no effect" in section 3 of the Misrepresentation Act 1967 there shall be inserted "in consumer contracts and shall be of no effect in other contracts".
- (3) In subsection (2) above "consumer contract" has the same meaning as in section 12 of the Unfair Contract Terms Act 1977.
- (4) The Secretary of State may by order provide that in relation to auction sales of a description specified in the Order such sales shall be other than consumer sales, and such an order may include different provisions for different circumstances.").
§ The noble Lord said: I feel some embarrassment, I am bound to say, in introducing an amendment to this excellent Bill, which has not only received no opposition so far—and it will not get any from me, either—but has been so widely applauded, both in its content and in the manner in which it has been handled. Nevertheless, the Bill offers an opportunity to raise again a matter which was of some difficulty and was only at the last moment resolved when the 1973 Bill was before the House.
§ The purpose of this new clause is to bring consumer sales at auctions into line with other consumer sales by removing the right of auctioneers to exclude or limit the terms which are implied in contracts of sale under the Sale of Goods Act—terms which (I may say in parenthesis) under this Bill are also to be implied in contracts for the transfer of goods otherwise than by sale. This exceptional right of auctioneers is contained in Section 12 of the Unfair Contract Terms Act 1977. Subsection (1) of the new clause would remove it. The rest of the first amendment and also the second new clause are consequential.
§ The two clauses emanate from the body which represents dealers in antiques and the like, the London and Provincial Antique Dealers' Association (which is known as LAPADA for short) with whom auctioneers are in competition. Indeed, it seems that in recent years auctioneers have been tending more and more to handle the same classes of goods as antique dealers, and have been actively seeking sources of supply for sale by auction. It is not greater competition that LAPADA objects to: it welcomes the stimulus to the market and the benefits to the public that competition evokes. All it asks is that the terms of competition should not be weighted against it, as they are now, in ways I shall try to explain.
The Law Commission said this in paragraph 114 of their report in 1979, at the beginning of the passage dealing with auction sales:
We deal separately with auction sales because they have certain features which call for special consideration. An auction sale, as such, is of course merely a method of selling either to private purchasers or to business purchasers, or to both. In some
cases, for example in certain classes of commodity sales by auction, sales will clearly be to business purchasers. Other types of auction on the other hand, for example, those held in some markets, are obviously a method of selling to consumers. But there are many auctions where the purchaser may or may not be a private purchaser, and this practical consideration must clearly affect the question how, if at all, contracting out in auction sales should be controlled ".
With the greatest respect, I suggest that this practical consideration is one for the auctioneers. If it raises a problem, it is one for the auctioneers themselves to solve, not at the expense of their competitors, the antique dealers, or of the purchasers. Surely any problem that exists should not be invoked to justify enjoyment by one set of traders of the advantage over others of being able to claim exemption from complying fully with rules of fair trading which govern consumer contracts in the form of implied conditions—to the detriment of consumers.
§ I am not saying that there may not be certain kinds of auction sales which should be treated differently, notably where in practice all the purchasers, or nearly all, are acting in the course of business. I had in mind the commodity or fat-stock markets, in which not to my knowledge are antique dealers interested. This kind of exception can be dealt with along the lines of subsection (4) of the amendment, which would enable the Secretary of State to specify by order certain kinds of auction sale to be treated as other than consumer sales. This would mean that in such auction sales exclusion clauses would be allowed as at present so long as they were adjudged to be reasonable in the circumstances.
§ The reason why I move this amendment is that it seems to me to be obviously unfair that, where two sets of traders are selling the same goods by two different methods, one set should be given legal privileges in the strict sense of the word which not only place the other set at a disadvantage but also place the private purchaser, the consumer, at a disadvantage. In my submission, that should be put right if at all possible.
§ May I describe as best I can what the new clauses will do? I am not a lawyer, and I would claim indulgence for any shortcomings in my explanation, but there arc lawyers here who, I am sure, will be glad, however kindly, to correct any of my mistakes. The Supply of Goods (Implied Terms) Act 1973 introduced for the first time in this country a distinction between what were called consumer sales and those which could not be so described. For the sake of convenience, the latter are usually referred to as "business sales", although that phrase is not to be found in any statute. The Act rendered void and ineffective all clauses which sought to exclude or limit the terms implied by the Sale of Goods Act 1893 (now by the Sale of Goods Act 1979) if they appeared in consumer sales.
§ If they appeared in business sales, those excluding clauses could be effective if they were proved reasonable. These provisions were carried forward into the Unfair Contract Terms Act 1977, which replaced most of the 1973 Act.
The Unfair Contract Terms Act contains a definition of "consumer sale" in Section 12(1). I give it to your Lordships although you may be very familiar with it:
A party to a contract deals as a consumer in relation to another party if he neither makes the contract in the course of a business nor holds himself out as doing so and if the other party does make the contract in the course of a business ",
and (and I abbreviate here) if the goods passing under or in pursuance of the contract are of a type ordinarily supplied for private use or consumption. That is in Subsection 12(1). Then comes Section 12(2), which says:
But on a sale by auction or by competitive tender the buyer is not in any circumstances to be regarded as dealing as a consumer ".
§ My recollection is that this section was added towards the end of the passage of the Bill before it became an Act. One thing is certain and it is that the Law Commission were more or less equally divided in the matter. They recommended that further study should be given to it, but I do not think that it has. Two things follow. First, that the use of exclusion clauses in a sale by auction has only one constraint at present—that of the reasonableness of the exclusion clauses used—and, secondly, that, even if the buyer is a private buyer, the exclusion or limitation clauses will not automatically be void but will be void only if the court finds them unreasonable.
§ On the other hand, in vivid contrast, if a dealer attempts to use clauses which seem to exclude or limit the contractual liability imposed by Sections 13 and 14 of the Sale of Goods Act (which is about merchantable quality or fitness for a particular purpose or correspondence with description) not only will such a clause be immediately void, whether or not it could be adjudged reasonable, but also the dealer would be committing a criminal offence punishable by a fine of up to £1,000 if he attempted to make use of such void and ineffective clauses. This last sanction was introduced by order made under the Fair Trading Act 1973. It is called the Consumer Transactions (Restrictions on Statements) Amendment Order 1976.
§ If this new clause is accepted, the next new clause will be needed to amend the existing order to ensure that all consumer transactions, whether or not they take place at auction sales are covered. A complication arises because, under the Fair Trading Act, an order must be recommended by the Director-General of Fair Trading as needed to deal with a practice detrimental to the interest of consumers. If that recommendation is made, it must be approved by the Consumer Protection Advisory Committee before it is made by the Secretary of State.
§ I hope I have made it clear the use of exemption clauses at auctions in the case of consumer sales is, or can be, detrimental to the interests of consumers as they are not protected by the implied terms. I hope I have made it clear that that is so. It seems to me so obvious as not even to need clarification. The order made by the Secretary of State would be laid before Parliament in draft to be approved by each House. I hope that the first new clause satisfactorily resolves the complication, but it is a complicated matter and, all the same, if it does not, it cannot be beyond the wit of man to devise other ways to overcome it.
§ I would not expect the auctioneers to welcome these amendments any more than any persons or group of persons welcome the loss of privileges, but all that these clauses seek to do is to place auction houses and dealers on an equal footing and to allow them to 426 compete on equal terms in areas where they compete. I put it to your Lordships that this is fair and reasonable. I beg to move.
§ Lord Mishcon
The role of anyone who attempts in Parliament to pilot through a Private Member's Bill is a hazardous and at times an unhappy one. It could not have been put better than it was some two days ago in the Cinematograph Amendment Bill, a Private Member's Bill moved in this House, which had the support of the Government, The Minister, the noble Lord, Lord Elton, put it in this way:This Bill has the Government's support. I hope your Lordships will assist its passage through this House. Private Members' Bills are a little less robust, if I can so put it, than Government legislation, and they need that help. In particular, therefore, I hope that your Lordships will be very sparing indeed of amendments to it. Some for the purposes I have mentioned may be unavoidable. But clearly the more there arc, the riskier will be the future of the Bill when it returns to another place. It deserves a place on the statute book. It can protect many of our fellow citizens from affront, and some of them, I believe, from real harm ".—[Official Report, col. 264; 9/6/82.]I could not put it better myself and in regard to this present Bill. I preface these remarks to my answer to the amendment of the noble Lord, Lord Drumalbyn, because nobody could have put his case more clearly, lucidly or courteously than he did; and it may be a very strong case.
Unfortunately, it is completely inappropriate for inclusion in this Bill. Here is a Bill which one is hoping will be non-controversial. This amendment seeks to amend two Acts of Parliament already passed and following upon a report of the Law Commission, so far as one part of that legislation is concerned.
As I say, the case may be a very powerful one, but I submit not for the amendment of this Bill. I say this not because I feel that the noble Lord's points are not valid and may find a more successful result through another journey. Nobody could be a better guide on that journey than the noble Lord. However, on this journey I must point out to him the arguments against —not that I support them but I merely show that this would be a controversial addition to this Bill and therefore would jeopardise its future to a very great extent.
I summarise some of the arguments against. I repeat that I do not necessarily support them. The first is that the Law Commission recommended that sales by auction should, like competitive tenders, be excluded from the definition of consumer sale. This was accordingly incorporated into the 1973 and 1977 Acts. When that was debated at that time, so far as I can trace there was no attempt to make any provisions such as the noble Lord suggested completely void. It was only a question of whether one made them subject to certain defences or whether one did not. Furthermore, it is said that people buying at auctions have different expectations of their legal rights.
It is also argued by some that it will not be possible or easy to distinguish between consumer bidders and business bidders at auctions. It is further said by others that the auctioneer may not know whether the seller is a private individual or a dealer. It is claimed by others that auctions provide a convenient method of selling goods, where the seller may not be able to give normal undertakings. I refer to such 427 sales as sales by executors or by order of a liquidator or receiver.
I merely say this in order that the Committee will realise that this is unfortunately an addition, not only one which would not be properly embodied in this Bill but also one which would be controversial and therefore may well impede the passage of the Bill if it were incorporated in it. For that reason, and for that reason alone, I am afraid that I shall have to oppose this amendment.
§ Lord Cockfield
Perhaps it will be for the convenience of the Committee if I indicate the views of the Government on my noble friend's amendment. We enter the fascinating if at times perilous world of sales by auction. Many people who bid at auctions do so in the expectation of acquiring a bargain; many are disappointed. I do not suggest that auction rooms should carry the immortal words of Dante:All hope abandon, ye who enter here".But they certainly ought to bear the maxim of the common law: "Caveat emptor".
The present law follows the recommendations of the Law Commission. The chief reason for those recommendations is a purely practical one. The very full protection which is given by the 1977 Act applies only where a person buys as a consumer. There are two elements in buying as a consumer. The first is that he himself is a consumer. Secondly, he buys from a trader. There are those two elements in the equation. Where you have a sale by auction, the auctioneer is a mere agent. The contract is between the owner of the goods and the final purchaser. The owner of the goods may be a trader; he may be a private individual. Those of you who have experience of sales at auction will remember the well-known phrase appearing in so many catalogues:The property of a gentleman ".The identity of the vendor therefore is frequently not disclosed. By definition, the identity of the purchaser cannot be disclosed until the sale is completed. It is quite impossible therefore at the outset to know whether or not the full protection of the 1977 Act, which applies only where a person buys as a consumer, would or would not be relevant. It would introduce an element of confusion and doubt which we think would raise serious practical problems.
There is the further point that auction sales provide a valuable forum for the disposal—if I may put it in this way—of second-hand goods, personal effects, household effects, and so forth. Very often of course there are properties of deceased estates and the owners of them are in no position to give any warranties or assurances. The people who buy these goods do so well-knowing what the position is. As a practical matter, therefore, I fear that I need to advise the Committee that we would not think that the amendment was a feasible one.
There is, however, a further point. My noble friend was good enough to make it quite clear that he was expressing the anxieties felt by the London and Provincial Antique Dealers' Association. In other words, from this point of view what was really involved was not so much consumer protection as protection of the interests of one section of the trade against the interests of an- 428 other. This, if I may say so, does rather go outside the spirit of the Bill. I would not want on this occasion to enter into any debate on the merits of the proposition, but it would seem to me to be straying rather wide. But primarily on the basis that such a new clause as that proposed by my noble friend would create serious practical difficulties in working, the view of the Government would be that the amendment is not one which should commend itself to the Committee. I hope that my noble friend will take this advice into account.
§ Lord Drumalbyn
I am grateful to my noble friend and the noble Lord, Lord Mishcon, for the way in which they have dealt with this amendment. I am particularly grateful to the noble Lord, Lord Mishcon, because I realise that this is an embarrassment to him. I entirely accept what he says, that at this time of the year particularly, whenever a Private Member's Bill has come from another place and is amended here it places in jeopardy the possibility of the Bill becoming an Act. I am fully conscious of that. I do not know whether I need to apologise for taking up the time of the Committee because this is an important matter that deserves to be studied.
I have expressed my opinion that it is primarily a matter for the auctioneers themselves to sort out. It also has to be dealt with at the instance of the Government. And as the Law Commission suggested that it needed further study, I hope it will get the further study that has been suggested. I fully recognise, of course, as indeed did the Law Commission, that there are peculiar difficulties in this, but the fact remains that while the auctioneer is an agent it is the agent who sets up the terms on which the auction is conducted: it is not the seller. It is therefore for the agent to establish conditions, I would have thought, which are compatible with fair and equal competition with the dealers. That is what I have suggested, and I still believe this to be true. It is not that I "have it in" for the auctioneers in any way at all—far from it; I think they are a distinguished body and many of them hold great international reputations. That was also recognised in the Law Commission's report.
However, the fact remains that the Law Commission were not quite so definite as was suggested by my noble friend the Minister. In fact the actual words they used were:We are divided on the question whether there should be any control on a sale by auction of the seller's freedom to contract out of the conditions and warranties implied by Sections 13 to 15 of the Sale of Goods Act ".If my recollection is correct—and I was there at the time when the 1973 Act was going through—this was the amendment which gave the exemptions from the implied terms of the contract and it was introduced at a very late stage and rather took Parliament unawares at the time. I may be wrong, but that is my strong recollection. I quite see that the owners who are sellers are not always in a position to alert the auctioneer to defects in the goods, but I think there is an obligation on them to do so and any action taken by the auctioneers should recognise that obligation.
Plainly this amendment at this stage and in this context—because I recognise that it does not fit very easily into the Bill—is not going to make very much progress, especially on a Friday morning when the House is relatively thin. Simply because the House is 429 relatively thin and because the opportunity for discussion of it has been limited although, so far as it goes, it has been pretty comprehensive, it would obviously be wrong for me to test the opinion of the House today. Therefore, I should like simply to acknowledge the way in which this amendment has been received by your Lordships and ask leave to withdraw it.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 2 not moved.]
§ Clause 12 [The contracts concerned]:
§ 1.5 p.m.
Lord Nathan moved Amendment No. 3:
Page 8, line 7, at end insert (", and" the supply of a service" does not include—
§ The noble Lord said: This amendment, which covers two matters, is designed to avoid confusion and difficulty arising in the future. The Long Title of the Bill refers to the amendment of the law, although I recognise that on Second Reading both the noble Lord, Lord Mishcon, and the noble Lord, Lord Cockfield, indicated that their purpose was not, in this part of the Act, to amend but rather to codify the law.
§ There is no doubt at the moment that the grant of credit or the making of a loan imposes no duty of care or skill owed by a banker to consider the prudence of the customer in borrowing. This has been well established and understood, but was contested in a case where the court held strongly that there was no such duty on the bank. The case to which I refer is Williams and Glyn's Bank v. Barnes, which was reported in the Commercial Law Reports of 5th October 1981. The report starts on page 205 and the passage to which I refer occurs on page 208.
§ The question therefore is whether the making of a loan or the giving of credit may be, within the meaning of this Part of the Act, the supply of a service. That question could be one of crucial importance to potential litigants, and it is with a view to avoiding that difficulty that this amendment is put forward. If it were held or thought to be a supply of a service, then that would be governed by Clause 13 and therefore would import a duty which presently does not exist.
In view of the Long Title referring to amendment of the law, I believe there is real cause for concern that a court might feel that the decision in Williams and Glyn's case no longer stood and that this Act had an effect upon the position, which is clearly not in the minds of the noble Lords, Lord Mishcon and Lord Cockfield. On those grounds I would propose that the amendment set out in paragraph (a)—
the making of a loan or the provision of credit ",—
should be adopted. As to paragraph (b)—
the supply of the services of a solicitor in his capacity as an advocate "—
the position is that either a barrister or a solicitor may be an advocate in certain courts. So far as barristers are concerned, no contract exists between a barrister and his instructing solicitor, nor with his client. Therefore, Clause 13 could not be applicable in any
event. The solicitor is in a different position. He has a contract with his client—his retainer—and he has a contract with his client whether his function is in the court as an advocate or not in the court, which is his most common function. This question as to the responsibility of a solicitor when acting as an advocate came before the court in the case of Rondel v. Worsley, and there it was held that barrister and solicitor advocates enjoy the same immunity in respect of negligence while functioning as advocates.
§ In view of the terms of this Part of the Act, some doubt might be cast upon the decision in Ronde! v. Worsley and it seems very desirable that any possibility of that should be resisted or, in the case of a loan or credit, should be avoided. It may be said that these matters could easily be dealt with, as indeed they could, by an exclusion order made under Clause 12(4) of the Bill. If that were so, if an undertaking to make such an exclusion order were given, that would seem to me entirely satisfactory. However, the response on Second Reading to the possibility of a specific exclusion order of this kind from the noble Lord, Lord Cockfield, was far from such an undertaking. For that reason, I thought it right to put before your Lordships this amendment.
§ May I say one further word? A few moments ago, the noble Lord, Lord Lloyd, mentioned to me that he would like added to the amendment as printed, after the words "the services of a solicitor" in paragraph (b), the words "or chartered patent agent". I would entirely support such an amendment, if the procedural requirements have been complied with, but in that respect I think it would be appropriate that I should leave the matter to the noble Lord, Lord Lloyd. I beg to move.
§ Lord Lloyd of Kilgerran
May I briefly support what the noble Lord, Lord Nathan, has said in introducing this amendment. He has mentioned that only this morning I approached him to see whether he would agree to the addition of the words "or chartered patent agent" being inserted after the word "solicitor". In my experience, I have seen, and been involved with, chartered patent agents as advocates in the patent court. I therefore consulted the clerk who is concerned with this Bill, and he suggested that the procedure which we have now adopted would be suitable, rather than that a manuscript amendment should be circulated at this stage. I have also notified the Table on this matter. But, if there is some kind of procedural difficulty that was not disclosed to me earlier, I shall, of course, withdraw this kind of amendment. But I was assured that it was perfectly in order to proceed in this way. May I add that Part II of this Bill may substantially alter the existing law. There is some ambiguity about this, but it seems that this is not merely a codifying Bill. Therefore, I strongly support this amendment.
§ Lord Mishcon
I have been introduced to a new procedure. One is always anxious to learn and, from these Benches, it may be convenient to throw last minute verbal amendments at the Government, in the hope that they can be embarrassed thereby. I can only say that this is a new procedure to me. But I am taking it as an intimation that someone who is 431 supporting the amendment that has been moved by my noble friend Lord Nathan would also like to see patent agents included in this connection. With his usual courtesy, to which we are so accustomed, the noble Lord, Lord Lloyd of Kilgerran, has intimated this to those who are responsible for the Bill, in order that they may have warning on another occasion. Having so interpreted his words, I continue to deal with the amendment.
One obviously wants to see that this Bill is as clear as it possibly can be. My own view, and the view of those who are guiding me on this Bill, is that it is quite impossible to construe as a service the granting of a loan or the giving of credit simpliciter. Naturally, if someone who is going to advance money or give credit decides to take on the garb of an adviser on whether or not the transaction, in respect of which the loan is being made or the credit is being given, is an advisable one, or on whether the person concerned ought to be taking the loan or credit, in any event, having regard to his means and his ability to pay, that will be a service, and I would be the last one to think that it was proper to exempt such a person from the duty of acting with reasonable care when he is giving such advice.
I cannot conceive—this is my personal view and the view of those who advise me on this Bill—that the service recorded in paragraph (a),the making of a loan or the provision of creditis a service that is caught by the Bill. But if there is any doubt about it, and if someone of the stature as a lawyer of my noble friend Lord Nathan regards it as being doubtful, then anyone who has the respect that I have for my noble friend would immediately say that it was a matter that ought to be looked at. If one says that, one then asks: what is the best way of looking at it? —bearing in mind my anxiety, which I have expressed before, that there should not be amendments to this Bill, in order that it may progress and get upon the statute book as quickly as possible.
There is, of course, the alternative way of taking advantage of Clause 12(4), which was indicated by my noble friend, but that is very much a matter for the noble Lord the Secretary of State. That subsection reads:The Secretary of State may by order provide that one or more of sections 13 to 15 below shall not apply to services of a description specified in the order, and such an order may make different provision for different circumstances.If I may respectfully suggest this to the Secretary of State, who, I believe, will courteously be rising in a moment to guide the Committee, I should have thought that the interval of time between now and Third Reading might usefully be employed by a discussion—unless the noble Lord can give some kind of firm assurance now that this is the sort of case where he would exercise his powers and give an exclusion order—as to whether it is more sensible to deal with the matter by way of an exclusion order or by way of an amendment. And I believe that the noble Lord the Secretary of State is as anxious as I am to see that there are as few amendments as possible to this Bill.
Turning to paragraph (b), which reads,the supply of the services of a solicitor in his capacity as an advocate ",432 that has already been dealt with in another place. I see that the right honourable gentleman the Minister for Consumer Affairs dealt with it at col. 596 of the Official Report of another place on 2nd April 1982. He then said:If in future we discover that there are problems—for example, for people providing a particular type of service which clearly should be exempted from some of the provisions of Part III—the amendment "—and he was, of course, referring to the very clause that I am talking about—will enable the Secretary of State to make an exclusion order.The only example that I have been able to discover where this might be necessary—and I am still not sure that it will be—is the highly specialised case where there is a contract with a solicitor which includes a provision for him to provide his services as an advocate. As I say, we shall look into this further.That is, of course, the very case to which my noble friend is referring in paragraph (b) of this amendment.
I imagine—though it is not for me to forecast what the noble Lord the Secretary of State will say—that he may wish to refer to this and to say that this is the type of case where one can take it for granted that an exclusion order will be made.
The noble Lord the Minister is of such capacity that he needs no assistance from me. Nevertheless, in fairness to him I ought to say that at Second Reading he made it very clear, for the protection of everybody, that he had no intention of Part II of this Bill being operative until he had given the fullest opportunity to those who felt they might be unfairly affected to make representations in order that they could be considered in relation to this power to make an exclusion order.
So I turn, with the friendliness which I hope I always exercise, towards him, to the noble Lord, Lord Lloyd of Kilgerran, who endeavoured to put patent agents into this amendment. I had no notice of it. Nevertheless, may I say to the noble Lord that if there is a strong case for patent agents they will no doubt make it in due course.
§ Lord Cockfield
If I may speak briefly on this subject, so far as making of loans is concerned the Government take the same view as the noble Lord, Lord Mishcon. In the case of the provision of credit there is an arguable case that this is a provision of services, but at this stage I am not at all certain that an adequate case has been made out for their exclusion. The right course, I would suggest, is that which the noble Lord, Lord Mishcon, has suggested; namely, that there should be further consultations on this matter to see what the right way of proceeding is. I shall be only too happy for such consultations to proceed.
In the case of a solicitor acting as an advocate, we recognise that there exists at present a rule of law which gives to a solicitor the same immunity from actions for negligence in relation to those particular activities as is enjoyed by a barrister, and it was not intended that the Bill should alter this position. There is an argument, which I do not want to press at this stage, that the Bill does not in fact affect the defence which would be open to a solicitor if somebody tried to proceed against him. There is a reputable argument there that the Bill does not alter the nature of the defences open to a solicitor. Nevertheless, I realise the anxieties which exist on this score.
433 As the noble Lord, Lord Mishcon, has said, there is power under Clause 12(4) for me to make an exclusion order. I hesitate to give a categorical assurance today that such an order will be made because I think it is only right that the legal profession should themselves reflect upon the matter and come along to me with their own clear-cut recommendations about what should be done. I promise the noble Lord that I shall then approach the matter with a completely open, if sympathetic mind. I hope he will accept this as the kind of assurance for which he is looking.
§ Lord Nathan
Of course I accept the offer of an open and sympathetic hearing. As the position of solicitor-advocates was raised, which I did not previously realise, as long ago as October, it is remarkable that the consideration has not been able to be given to this matter until now.
So far as the exclusion orders are concerned, as the noble Lord, Lord Mishcon, said, they must be effective as at the date of the bringing into operation of Part II, otherwise there would be a complete distortion of the position. So far as the loan and credit situation is concerned, I was interested in the distinction drawn by the noble Lord, Lord Cockfield. As he has suggested, I should certainly like to consider that aspect. In withdrawing the amendment I think I ought to say that I reserve the position for a later stage of the Bill as it proceeds. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 12 agreed to.
§ Clauses 13 and 14 agreed to.
§ Clause 15 [Implied term about consideration]:
§ 1.26 p.m.
Lord Nathan moved Amendment No. 4:
Page 8, line 34, at end insert (" where the supplier is acting in the course of a business ").
§ The noble Lord said: This is a very simple point, I believe. The amendment brings Clause 15 into line with Clauses 13 and 14. It introduces the words which appear in those other clauses: "acting in the course of a business". The concern is that there are many informal agreements for the supply of a service—for example, between neighbours—with no intention of any monetary consideration passing: say, in relation to mutual arrangements concerning gardens, mowing and so forth.
§ It has been suggested to me that the words "in the course of a business" were omitted from the clause by analogy with the sale of goods under Section 8 of the Sale of Goods Act 1979. But it is an implied term that consideration for the sale of goods shall be a monetary one. I do not think that applies at all in the case of a supply of services. The introduction of this provision under Clause 15, which has no relation to the person carrying on the supply of a service in the course of business, will I think extend the Act far further than was intended or is desirable. It is for that reason that I move the amendment.
§ Lord Mishcon
As the noble Lord, Lord Nathan, has just said, this is not one of the major points which 434 he has brought before the Committee this afternoon. It so happens—I wish frankly to say this—that in the draft Bill which accompanied the report of the Consumer Council these words, or similar words, occur. But the advice which was received from the draftsman—and I rather imagine that it was correct advice—was that the words were unnecessary.
The type of transaction to which the noble Lord referred and the chances of it ever reaching even a solicitor's office, let alone the court, must be minimal: neighbour swapping a service with neighbour and finding that he had certain rights (or that one or other of them did) under the Bill. However, everything must be taken into account when one accepts the responsible role of legislator, as this House does.
Therefore, may I suggest that between now and Third Reading—in saying that I am assuming that no Report stage is necessary—one should take further advice to see whether these words are necessary. If they are necessary, then I can no doubt bring an amendment before the House at Third Reading in words which will not be quite the same as the words of this amendment, for certain reasons with which I shall not weary the Committee. If one can avoid it, I should like to do so, for the reasons which have already been given.
I do not think that an amendment of this kind, if it is necessary to be brought forward, will impede the progress of the Bill in another place, although it would mean a report back, with the Bill amended, to another place. Upon that basis, I hope that my noble friend can see his way clear to withdraw his important amendment.
§ Lord Cockfield
There is very little for me to add to what has been said by the noble Lord, Lord Mishcon. I myself would be remarkably surprised to find, if one entered into a mutual arrangement with a neighbour under which he mowed your lawn while you were on holiday and you mowed his when he was on holiday, that the law regarded that as a contract. Indeed, I think the important thing is that the clause as drafted applies only to contracts and does not apply to friendly arrangements which do not in fact constitute contracts. I believe that this is the real answer to the case for the amendment. But in the light of what has been said by the noble Lord, Lord Mishcon, I do not consider that it is really necessary for me to say anything more.
§ Lord Nathan
In the light of the statement made by my noble friend Lord Mishcon, I will withdraw this amendment.
§ Amendment, by leave, withdrawn.
§ Clause 15 agreed to.
§ Clause 16 [Exclusion of implied terms, etc.]:
§ 1.31 p.m.
§ Lord Nathan moved Amendment No. 5:
Page 9, line 19, at end insert—
(" (5) Nothing in this part of this Act affects the duties owed to a company by any of its directors in his capacity as such.").
§ The noble Lord said: Whatever may have been said about the last amendment, this clause really does raise matters of considerable difficulty and importance. It is a vexed question, in practising the law, to know whether a contract is one of service or for 435 the supply of a service. It is precisely that problem that arises in this case. In my view, it is probable that non-executive directors supply a service while executive directors operate under a contract of service. I believe this approach is the one that must be generally applied. There are, of course, some non-executive directors who are non-executive directors of quite a number of companies, and in that context it may be said that they are acting in the course of a business. It is for this business that an anomaly arises. Under this part of the Bill, if non-executive directors are supplying a service, whereas executive directors are not, they are exercising a responsibility towards the same company but their responsibilities are governed by different rules.
§ Under Clause 13 there is a duty to take reasonable care and skill which is, as I interpret it, to be assessed objectively—that is to say, that the exercise of the reasonable care and skill is to be assessed objectively, whereas in brief it might be said that the duty of directors generally under company law is assessed subjectively, having regard to the qualifications of the person exercising it. Therefore, one could find that if the directors of a company entered into a contract on the company's behalf in perfectly good faith but for some reason or another it did not turn out well, then any possible liability of the executive directors would, it seems to me, be assessed on a different basis to that of the liability of the non-executive directors. I cannot imagine that was ever intended.
§ The purpose of this amendment is merely to ensure that in relation to the duties of directors to the company of which they are directors, nothing in the Act shall have any effect. I beg to move.
§ Lord Mishcon
As my noble friend Lord Nathan has said so correctly, there is a difference, very often worrying to lawyers, between a contract of service and a contract for service. There is no doubt at all that a non-executive director comes into the latter category. I can only say for those who are responsible for this Bill that there certainly was no intention to include the non-executive directors in this sense; it would be recognised as extremely untidy from the point of view of the law if outside company legislation there was a provision in an Act somewhere which dealt with, or covered the duties of, some directors of a company who were in fact non-executive directors. This would be a very untidy way of dealing with company law and the duties of directors. If I may say so, that point is recognised. Whether it is necessary to deal with it in this way—and I know that my noble friend will forgive me if I say that the wide term, undefined, of "company" and the wide term, undefined, of "directors" in this amendment would have to be looked at more carefully—or whether it is a question of an exclusion order, or whether the Government with the benefit of their great advice and wisdom take another view of how to deal with this matter, I shall await to hear with interest.
§ Lord Cockfield
I wonder whether I might express the view that I have some reservations as to whether this case is well-founded in law. As far as I know, there is no legal distinction between an executive director and 436 a non-executive director. They are both directors of a company and their duties and obligations as directors must be identical. It is perfectly true that some directors also have a contract of service as managers or as executives, but that is a separate contract quite distinct from their office as director. Admittedly, it is a matter of convenience to be able to refer to some people as executive directors and to other people as non-executive directors. It is equally a matter of convenience to refer to some people as finance directors, production directors, sales directors, marketing directors or public relations directors—but none of these phrases has any foundation in law.
If this is not the position I would have expected some authority to have been quoted in support of the contrary view. But no such authority has been quoted, either statutory or case law, or even a statement of a leading text book. Therefore, in so far as this argument is based upon a claimed difference in law between executive and non-executive directors, I wonder whether it is soundly based and whether the position may not in fact be that all directors of a company are covered by the decision in City Equitable Fire Insurance Co. Ltd., and that the problem which the noble Lord sees does not exist.
There is another aspect of this—mainly that the provisions of the Bill would apply only if the services were rendered in the course of a business. A directorship is not a business. It is assessed under Schedule E of income tax as an office or appointment. It is not assessed under Schedule D as the profits of a trade, profession or business. That this is so is clearly borne out by the fact that where a director's fees are brought into the computation of the profits of a partnership or of solicitors or accountants, that is done by way of an extra-statutory concession. In fact, the concession is No. 40 in the latest list of statutory concessions published by the Inland Revenue.
I would, therefore, suggest to the noble Lord that he should consider the question whether, if it is necessary to make an extra-statutory concession, it does not therefore follow that the strict law is precisely the opposite; namely, that in law even if a director is a member of a firm of solicitors or accountants, and even if as a result of the extra-statutory concession his fees are brought into the computation of their profits, nevertheless in law he remains a holder of an office assessable under Schedule E and he is not carrying on a business. I put it no stronger than that it seems to me, at first sight, that the fears which have been expressed are not well supported on either ground, and had the position been different I would have expected to have seen it more closely argued.
I would, therefore, like to make two suggestions. The first one is that the people who entertain these doubts, and I agree they include the Law Society, should give further thought to the matter to see whether the doubts are well founded. Secondly, of course, there is the provision in Clause 12(4) for an exclusion order to be made, and if in fact a case can be established I would be very willing to give consideration to such an order. But I hope the noble Lord will not in any way misunderstand my position if I say that I believe it does need to be established first that there is a problem before we then set out to solve the problem.
I would make only one comment, if I may. The noble Lord the Secretary of State when addressing us from the Dispatch Box does so in a remarkable manner. 1 was full of wonder, as he quoted rules and cases and so on, looking straight at the members of the Committee and without once looking at his notes. My admiration, I hope, is going to be genuine. I found myself in a similar situation when listening to the President of the United States some few days ago: I was full of absolute wonder when after 40 minutes he sat down, having looked at his notes but a couple of times, and having spoken very rapidly and with admirable quotations, not least from Sir Winston Churchill's speeches. I was only told afterwards that it was as a result of a device which I hope is not in your Lordships' Chamber at this moment that he was able to do this. Having been fooled once, I am sure I have not been fooled again.
§ Lord Nathan
I am very grateful for the comments of the noble Lord, Lord Mishcon, and the noble Lord, Lord Cockfield. Of course, I will look into the matter further, and, if necessary, contact the noble Lord, Lord Cockfield, with such material as there is on the point. I would only add that I have found it extraordinarily dangerous, particularly in the field of charities, and elsewhere, to ascertain what the law is according to what are the rules of the Inland Revenue in relation to a particular situation, though I was much interested in what the noble Lord had to say on that. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 16 agreed to.
§ Clauses 17 to 19 agreed to.
§ Clause 20 [Short title, etc.]:
Lord Wilson of Langside moved Amendment No. 6:
Page 11, line 38, leave out (" but not to Scotland").
§ The noble and learned Lord said: I beg leave to move Amendment No. 6 on the Marshalled List. In view of the day and the hour, I shall not pursue those aspects of Private Members' Bills touched on earlier by the noble Lord, Lord Mishcon, nor shall I pursue the possibilities of the use of laser beams as ready prompts in your Lordships' House.
§ The purpose of this amendment is simply to seek the application to Scotland of the provisions of the Bill, or at least to elicit from the Government a more satisfactory explanation than has so far been afforded to Parliament for the absence of Scotland from these provisions. One thing, I think, is certain, and that is that if the machinery of government had operated properly and as it ought to have operated, Scotland would indeed have been covered by the provisions of the Bill. In saying that, let me emphasise that I am not directing any generalised criticism, much less attack, on either the Scottish Law Commission or anyone else. All I am saying is that there is a question to answer as to why Scotland was not covered in the Bill.
§ What in fact happened, as your Lordships know, was that when the Bill was originally published Scotland was not covered, but thereafter in the Standing Committee in the other place an amendment was effected 438 to provide that Scotland should be covered by a new Part II of the Act and should also be covered by Part III of the Act with certain adaptations thereto. That amendment having been effected, on Third Reading the Government successfully moved to delete those provisions applicable to Scotland which had been added in the Standing Committee.
§ It is important to observe that in so doing the Government did not oppose in principle the need for legislation in this context for Scotland. Indeed they conceded, as I understand what was said—I cannot, of course, quote—that the existing law was scrappy and uncertain and required clarification. The reason for seeking to delete the application of the Bill to Scotland was that it had not been possible to carry out the necessary close consideration. I find this—and I must confine myself to the understatement, beloved of your Lordships' House—very difficult to accept, because of course the report on implied terms in contracts for the sale of goods, on which this Bill is largely based so far as the supply of goods is concerned, was the third in a sequence of three. The first two, presented if my memory is correct in 1969 and 1975, on exemption clauses in contracts, were joint reports carried out by the Law Commission jointly with the Scottish Law Commission.
§ The third report quite properly did not proceed as a joint report. The development of the law in the two countries had been slightly different, and for that reason the Law Commission proceeded in this matter on its own. But the point I seek to make is that at that point the Government and the Scottish Law Commission were, of course, alerted to this situation, and indeed it is a provision of the Law Commissions Act that the commissioners shall act in consultation with one another in exercise of their functions.
§ In that situation, I find it, as I have already said, very difficult to accept that it was not possible to give the matter of the law in this particular context full consideration and to be ready to proceed on the basis of a statute applicable not only to England, Wales and, I think, Northern Ireland, but also to Scotland. In those circumstances, if the Government are unable to accept that the Bill should be amended to cover Scotland here and now, then at least I hope that we would have an assurance that the necessary examination of the law in relation to the supply of goods and services will take place and that that examination will be given a reasonably high priority—certainly a significantly higher priority than I gather, from reading the reports of the debates in the other place, the Government were then prepared to give.
§ There is grave concern in many circles in Scotland that the matter, so far as that country is concerned, has been overlooked. Accordingly, I suggest that the matter should now be given, as a matter of urgency, the necessary consideration in order that we may be assured of the desirability, as regards the law in this matter, that the two parts of the country should be on the same footing. It is not a question of slavishly following the English, but in the context of the consumer interests involved here it is clearly desirable that the law should not be out of step further than necessary.
§ Baroness Burton of Coventry
In another place we always felt that it was a bold English Member who 439 intervened in Scottish affairs. But I was glad that my noble friend Lord Wilson of Langside had tabled this amendment for today. During Second Reading in our own House on 5th May each of us supporting the amendment today, mentioned the exclusion of Scotland. I should like to point out that my noble friend Lady Seear has just sent an apology to me. She has been trying to be in two places today and unfortunately at 1.30 she had to succumb only to be in one. Therefore, she has left her support for the amendment and regrets that she cannot be here to add to it. Additionally, in this respect, my noble friend Lady Elliot of Harwood also had to be in Scotland and she herself is not here. Therefore, your Lordships are left with a Scottish speaker and an English speaker in support of the amendment.
The noble Lord, Lord Young of Dartington, made the point on Second Reading that the noble Lord, Lord Wilson, has made today; namely, that he felt there was an advantage in having a uniform body of commercial law in the two countries unless there was strong reason to the contrary. In the few remarks that I wish to make today, I think it obviously would be better if I confine myself to the Scottish support for the amendment rather than to my own thoughts.
When we were discussing the Second Reading of the Bill great tribute was paid, and I think deservedly paid, to the work of the National Consumer Council in so far as the Bill was concerned. I am hoping very much that the noble and learned Lord the Lord Advocate, whom I assume will be speaking, will feel able to pay an equal tribute to the Scottish Consumer Council for the part that they played in the clauses relating to Scotland.
On 29th March the Scottish Consumer Council wrote to the Solicitor General for Scotland saying how disappointed the council were at the proposed exclusion of Scotland from the Bill. They asked a question and 1 should like to quote it. They asked:how, without Scotland's inclusion in the Bill, the Government hopes to achieve clarity in this area of law, so that judges, traders and consumers alike can quote it authoritatively?Matters did not go very well for the Scottish Consumer Council. So a month later on 29th April they wrote again saying how disappointed they were at the decision taken and furthermore that, although they had given very careful consideration to the points raised in the debate on Second Reading, the council remained convinced that Scotland should have been included.
We move on to the third letter—it seems to be my fate to deal with letters—dated 17th May when the Scottish Consumer Council tried again. First, they made the point that the Scottish Consumer Council were largely responsible for the inclusion of clauses applicable to Scotland in the Bill. They then went on to express the hope that it would still be possible to persuade the Government to offer some commitment that the law in Scotland in relation to the supply of services be the object of consideration by the Scottish Law Commission in the near future. Of course, as he will know, this last appeal was made to the noble and learned Lord, the Lord Advocate.
I have just received a letter from the Scottish Consumer Council dated 9th June. They informed me that they had not yet had a reply from the Lord 440 Advocate to their last letter which the Chairman of the Scottish Consumer Council wrote to him. It may be, of course, that since 9th June the noble and learned Lord may have already replied, but if not, let me point out that they did ask me if I would mention today a matter which I have already mentioned—namely, that in particular their concern is that the Lord Advocate refers the matter of supply of services to the Scottish Law Commission.
Therefore, in paying tribute to the Scottish Consumer Council I hope—as indeed did the mover of the amendment my noble friend Lord Wilson—that if the Government cannot include Scotland at this present stage, then the Lord Advocate, as the very minimum, will offer the statement that has been asked for by the Scottish Consumer Council.
§ Lord Drumalbyn
I should like briefly to support what has been said by both of the speakers so far. What is left in doubt in the Bill as it stands is the date upon which Part II will be brought into operation. I understood my noble friend the Secretary of State to have indicated at an earlier stage that in the interval he was going to make inquiries as to how far it will be possible to exempt certain forms of activities before the Bill was brought into operation in Scotland. Could not this time be used for the Scottish Law Commission to inquire into the matter and even for legislation to be carried through? Is it too tight a programme? We just do not know how long it will be before the England and Wales Bill will be brought into operation in respect of Part II. However, I emphasise and strongly support the proposition that the same kind of provisions should be provided for Scotland and at the same time, if at all possible, as for England. Perhaps my noble and learned friend the Lord Advocate could deal with that point.
§ Lord Mishcon
I do not assist the popularity of this Bill in Committee by speaking at any length at two o'clock and by repeating points that have already been made by those who support the amendment. Briefly, so far as I and those who are involved with the promotion of the Bill are concerned, it would indeed be ideal if the law could be the same throughout the United Kingdom on a matter of this kind. But one realises the difficulty again in regard to the passage of this Bill if one attempted to amend it in the way that is sought, for that would be contrary to the already expressed wish—even if it be the second expressed wish and not the first expressed wish—of another place.
So in view of that desire, which I should have thought would be a common desire, one can only hope that the noble and learned Lord the Lord Advocate can give us some assurance that he will use the influence that he has in regard to the Scottish Law Commission or, to put it another way, will ensure that recommendations are made to the Scottish Law Commission on what has been said this afternoon, and that he will add his own authority to any representations that may be made that this is deemed by this House to be an urgent measure and something that is urgently required to be examined in order that Scotland may have the same advantages as other parts of the United Kingdom by benefiting from this legislation.
§ 2.2 p.m.
§ The Lord Advocate (Lord Mackay of Clashfern)
I think there are three matters with which I would wish to deal in seeking to state the Government's position in relation to this amendment. First, the noble and learned Lord, Lord Wilson, in introducing his amendment, pointed out that on two earlier occasions the two Law Commissions had worked together. When it came to the stage which gave rise to the report on which Part I of this Bill is founded, the Law Commission made it perfectly plain that in their view the development of the law in the two countries in this particular area had been different, and therefore it was not appropriate to engage in a joint examination of the law at that stage.
I do not know whether that is being challenged as being incorrect, but I would certainly strongly take the view that the advice given by the Law Commissions in the exercise of their role is sound advice and we ought to accept it. When the two commissions are not working together in relation to a particular project they, of course, keep very closely in touch with one another as to what they are doing. The Scottish Law Commission has a working party whose responsibility it is to receive the working papers of the Law Commission and study them and their probable implications for Scotland, and to make comments to the Law Commission at an early stage. In my experience, that has been a satisfactory way of proceeding.
As regards this particular Bill—and I refer specially to Part I—the results of the English Law Commission's efforts are embodied in it. The Scottish Law Commission proposes to examine this area of the law in conjunction with an examination of a closely related and very important area of the law; that is to say the implied terms and buyers' remedies in relation to the sale of goods. In other words, they take the view very strongly that it is right that buyers' remedies in relation to the sale of goods should be somewhat the same as the remedies in relation to the supply of goods.
Therefore, before one reaches a conclusion on what is the correct formulation in relation to contracts for the supply of goods, this particular related area should be examined. The Law Commissions have the responsibility to develop the law in an orderly fashion and not in a piecemeal fashion. In fact, it is a keynote of the Law Commissions' Act—which the noble and learned Lord, Lord Gardiner, introduced with such skill into this House, laying the foundations for these institutions in such a very remarkable way—that they should operate in that way. In this part of the project, the two commissions are again able to work together because the buyers' remedies and the related matters of implied terms in relation to the sale of goods are matters which the Law Commissions consider that they can examine together, and they are in the process of doing so.
It will be seen from the nature of the Law Commission's own report, on which this Bill is founded, that difficulties are involved, which I need not go into, in legislating on these two matters separately. There are advantages in doing it together and it is that advantage that we seek.
When that work by the Scottish Law Commission is completed, I am unable to give a commitment that we shall be able there and then to legislate on the report. But I claim—T think very easily and fully in the light of 442 the record—that the Scottish Law Commission's reports are usually implemented by Parliament very fully and pretty quickly. I see no reason to anticipate any difference in this particular part of the operation.
As regards the supply of services, that is an immensely large area. There is much to be said for the view that good law reform proceeds after a proper examination of the law in that area has taken place. We have seen that there are certain difficulties which can arise if that is not the order of events.
On the Scottish Law Commission, this particular subject matter is part of its first programme of law reform —the law of obligations. I think that your Lordships can take it that the Scottish Law Commission will give it the appropriate priority in the light of the other claims on the attention of that commission. There are many matters in the law of Scotland that urgently require reform and the Scottish Law Commission is in a very good position to judge the urgency and the priorities that exist in that field. It has a number of fields to cover that, as it happens, are not covered by the Law Commission at the present time: it is not working in these areas at the present time. Perhaps the one that occurs most frequently in reference is the study on the law of diligence. Certainly for my part—and the Scottish Law Commission agree with this—it is of the highest priority that we should get our court enforcement procedures right.
What I can say to your Lordships is that I have discussed this matter from time to time with the chairman of the Scottish Law Commission. He is well aware of the situation and he will take full account of what has been said in your Lordships' House in reviewing the priorities of the commission with his colleagues on the commission, as they do from time to time. The Law Commission is in fact undertaking work in the supply of services area, and the Scottish Law Commission will keep closely in touch with that work and will certainly consider fully the implications for Scotland as the work proceeds. I do not think that it would be right for me to go further than that. I would only say that it does not necessarily follow that the introduction of legislation is necessary in order to secure rights for the people of Scotland. The Scottish Law Commission, as well as myself, are anxious to secure that the rights which exist in this area in Scotland are appropriate.
Finally, may I say that I should like to accept the invitation that the noble Baroness, Lady Burton, gave me to say something about the Scottish Consumer Council? I most gladly pay tribute to their work. They have done excellent work. I think I can also say that I keep in pretty close touch with them in a number of areas as well as this. I believe that we shall be able to work satisfactorily for the future as we have done in the past, but we have to recognise that their interests are not the only interests that the Scottish Law Commission have to serve, and the Law Commission does its best to balance these interests. I hope that in the light of that explanation your Lordships will not feel that the machinery of Government, so far as Scotland is concerned, did not operate properly in this connection.
§ Lord Wilson of Langside
We must all be most grateful to the noble and learned Lord for all that he 443 has said. It was, of course, like everything he says, most impressive. Of course I did not challenge—I thought I had made it clear, but I am sure that I did not—the decision of the two Law Commissions to carry out the report on which this Bill is based not as a joint exercise. That was perfectly understandable and perfectly appropriate. I mentioned the matter merely to focus on the point that all concerned must have been alerted to the needs of the situation about at least five years ago. That was the sole point that I made today. I found the noble and learned Lord's reply to the amendment much more impressive than I did that which was made in the other place. In the whole circumstances, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 20 agreed to.
§ The Schedule agreed to.
§ House resumed: Bill reported without amendment: Report received.