Lords Sitting of 10 July 1986

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

Public Libraries: Newspapers
Lord Harris of Greenwich: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask her Majesty's Government whether they propose to take action under the Public Libraries and Museums Act 1964 against the local authorities which have withdrawn from public libraries newspapers published by News International, following the dispute between the company and the printing trade unions.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, my right honourable friend the Minister for the Arts has used the powers in the Act to write to the 20 library authorities about which he has received complaints. He has asked them whether they have withdrawn News International newspapers, and, if so, how they reconcile their action with their duties under the Act. Replies are coming in and in the light of these my right honourable friend is considering what further action to take.
Lord Harris of Greenwich: My Lords, is the noble Lord aware that some of the local authorities have already passed resolutions confirming their previous decision? In the light of this wholly totalitarian action by this group of local authorities, is it not time that the Government acted when it is clear that local authorities intend to continue to defy the law?
Lord Belstead: My Lords, I have great sympathy with what the noble Lord, Lord Harris, says. We are taking legal advice in order to decide on the next steps. There is no doubt that some of the replies that my right honourable friend has received raise questions on which we have to have legal advice before we can decide what to do.
Lord Boyd-Carpenter: My Lords, is it not intoler-able that public libraries supported out of public funds should practice censorship of the press in order to support one side of an industrial dispute? If the Government have not sufficient powers to make the libraries change this practice, will they take them?
Lord Belstead: My Lords, I agree entirely with my noble friend that it is absolutely essential that public libraries should impartially maintain the public right of access to all the main publications of news and opinion. As I said in reply to the first question, there is no doubt about it. We have to look at the powers under the Act, and that is what we are doing at present.
Lord Fletcher: My Lords, is the Minister not aware that this is generally regarded as a flagrant breach by these local authorities of their duties under the Act? Is the Minister not aware that the powers open to the Secretary of State under Section 7 of the Act are quite explicit and would enable the Minister, if so minded, to take immediate action without incurring any delay by taking advice?
Lord Belstead: My Lords, I do not agree with the noble Lord.
Baroness Birk: My Lords, is it not the case that the Labour Party has made clear that it considers that this is absolutely undesirable censorship by the libraries? Is it not the case that under Section 2 of the 1964 Act two Library Advisory Councils, one for England and one for Wales, were set up to advise the Secretary of State on matters concerned with library facilities, and that the one for England was later named the Library and Information Services Council? Is not part of that council's terms of reference now to provide guidance, advice and comment on library and information matters for the providers and users of the relevant service, to promote consultation and co-operation, and to cover the whole field where anything of this sort arises? Has the council been brought into play on this matter?
Lord Belstead: My Lords, I am not aware that it has. The difficulty, I believe, is that under Section 7, dealing with the duty to maintain a comprehensive and efficient library service, we must have legal advice, which we are taking at present, on what constitutes an efficient and comprehensive library service and also what constitutes a political ban. I have no doubt that once my right honourable friend has received advice on that he will take the matter further forward. It is our hope that it could then be resolved without having to resort to further powers under the Act.
Baroness Birk: My Lords, may I come back on this? I put a question to the Minister to which his reply was that he was not aware of the point. Since the body to which I referred was established, it has been staffed, I understand, by volunteers from the Office of Arts and Libraries. Is he aware that there is a feeling that a more independent body might be of greater use in matters such as this? Is he aware that the terms of reference include advising the Minister for the Arts on matters that fall directly within his sphere of responsibility for library and information affairs? If the Minister does not have the answer available now, will he inquire as to whether action is being taken through a body set up under the 1964 Act?
Lord Belstead: My Lords, certainly I shall look into that and let the noble Baroness know. There is no disagreement, I believe, in the House and no disagree-ment from the Library Association which, is the professional body. It is clear that under the Act there must be a comprehensive and efficient library service. The difficulty is to find out, or to make sure, whether what is being done in certain library authorities constitutes a breach. I repeat that once my right honourable friend has legal advice on that he will consider what to do.
Lord Wigoder: My Lords, is not the issue that of whether the failure of a public library to make available certain national newspapers is a breach of its duty to provide a comprehensive library service? Is that not an issue on which legal advice could have been taken many weeks ago and so should have been forthcoming by now?
Lord Belstead: Possibly my Lords; but we are operating in the context of the replies received from the various authorities. It will not surprise the noble Lord to hear that those replies differ.
Lord Jenkins of Putney: My Lords, is the noble Lord aware that the chief sufferer from political discrimination until now has been the Morning Star, and that it would be the chief beneficiary if a general ruling was to be issued on this point? This would no doubt be welcomed. I am not sure, however, whether it is the objective of the Question put down on behalf of the socialist defectors' party.
Lord Harris of Greenwich: My Lords, is the noble Lord aware that the object of the Question is to give him and others the opportunity of saying firmly and unequivocally that they are opposed to political censorship in public libraries? Is he aware that although we welcome the fact that the department is apparently consulting legal advisers on the point, this matter, as my noble friend Lord Wigoder has indicated, has been before the department for many months? Is he aware that we hope very much to have a statement before the Summer Recess on what the Government propose to do? In the context of the question put by the noble Lord, Lord Boyd-Carpenter, the Government either have powers, in which case they should use them, or they do not, and if they do not, they should seek parliamentary approval for those powers.
Lord Belstead: My Lords, I have already made clear that the Government strongly disapprove of anything that smacks of political censorship. Now we have to see how we can prevent it, provided that we are absolutely certain that it is happening and that it can be put right under the Act.
Lord Mellish: My Lords, is the noble Lord aware that I know of one particular library where not only are the newspapers which have been referred to are banned, but, also, Gay News is allowed, which is, I suppose, very fundamental?

Milcolm Electronics UK
3.8 p.m.
Lord Hatch of Lusby: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what investigations they have made into the connections and activities of Milcolm Electronics UK.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, no such investigations have been made.
Lord Hatch of Lusby: My Lords, is the noble Lord aware that this company, Milcolm Electronics UK, based at Camberley in Surrey has, according to the chairman of Grinaker Enterprises, which is a major South African electronics industry closely tied up with the South African military complex, been licensed by Grinaker Enterprises to produce electronic equipment, in particular military equipment, in order to get around the ban on the import of South African military equipment into this country?
Lord Lucas of Chilworth: My Lords, I know that the company holds licences, but I would not regard normal commercial relations between two companies as necessarily being immoral. With regard to military equipment, we have taken advice and I understand that the equipment that is being made does not contravene any of our national or international obligations. Therefore there is no question that the company to which the noble Lord refers is in breach of any obligation.
Lord Bruce of Donington: My Lords, can the noble Lord inform the House whether this company is a company incorporated under the Companies Act? If so, will the noble Lord assure the House that the file with the registrar has been inspected and reveals the names of the shareholders, the directors and so on?
Lord Lucas of Chilworth: My Lords, I understand that Companies House have not suggested that there is anything irregular whatsoever with the company, its registrations or its returns to Companies House.
Lord Hatch of Lusby: My Lords, may I ask the Minister to look at this again? Is he aware that his right honourable friend the Prime Minister last October signed a Commonwealth communiqué which promised:
"A strict and rigorously controlled embargo on the import of arms, ammunition, military vehicles and para-military equipment from South Africa".
Is the noble Lord aware that Mr. Steyn, the chairman of Grinaker Electronics in South Africa has admitted that equipment which is supplied to the South African army and used in South Africa and in Namibia is licensed for production in this country? Therefore it is circumventing the pledge which the Prime Minister gave last October to the Commonwealth.
Lord Lucas of Chilworth: My Lords, there is no evidence that Milcolm Electronics has acted illegally. If the noble Lord has any evidence to the contrary then I shall certainly consider looking further into the matter. Otherwise I shall not.
With regard to the Accord agreed by the Commonwealth Heads of Government, the company is not in breach of the undertakings which my right honourable friend the Prime Minister gave at that time.
Lord Hatch of Lusby: My Lords, how does the Minister know that? He is asking for evidence. He

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knows, I am sure, because I told his subordinates, that the evidence is there and has been published by the Guardian newspaper, which has a great deal more evidence that has not been published.
Lord Lucas of Chilworth: My Lords, I know it because the import and export licensing procedures would have revealed such evidence. None such has been revealed.
With regard to the article, I prefer not to comment upon it.

Immigration Officers: Training
3.14 p.m.
The Lord Bishop of Manchester: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what training in human relations is given to immigration officers who are in contact with people entering this country, both before taking up this sensitive work and during their service.
The Parliamentary Under-Secretary of State, Home Office (Lord Glenarthur): My Lords, the training of immigration officers emphasises the careful handling of interpersonal relationships, and the need for courtesy, humanity, and impartiality. In particular, training in racial awareness is now given to all new and existing staff in the immigration departments.
The Lord Bishop of Manchester: My Lords, I thank the noble Lord the Minister for his helpful reply. I have been encouraged to read the positive comments of the Manchester Council for Community Relations in their reports on procedures at Heathrow Airport, in which they spoke of the sensitivity and understanding which immigration officers can and do bring to their work. The fact remains that on a recent tour of India—
Noble Lords: Speech!
The Lord Bishop of Manchester The Lord Bishop of Manchester—I received criticisms—
Noble Lords: Reading!
The Lord Bishop of Manchester The Lord Bishop of Manchester—and I should like to ask the Minister—
Noble Lords: Order.
The Lord Bishop of Manchester The Lord Bishop of Manchester—what steps have been taken to encourage immigration officers to learn more languages from the Indian subcontinent or, if this is impossible at the moment, to provide more interpreters?
Lord Glenarthur: My Lords, I certainly share the views of the right reverend Prelate about the Mancheser Council for Community Relations' report on Heathrow, Terminal 3.
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With regard to training generally, certainly it is the case that the department do their best to ensure that all staff treat their clients as individuals and with humanity and respect both in handling written applications and in face-to-face or telephone conversations. We also ensure that all staff consider all individual applications impartially without discrimination on grounds of colour, race or religion. We also ensure that there is no discrimination in staff development and staff management. It is also important that senior and middle-line managers provide leadership and support in these objectives.
On language training, this is something which is developed, but I shall certainly let the right reverend Prelate have further details of it.
Lord Bottomley: My Lords, is the noble Minister aware that in another place when I was chairman of the Select Committee on Race Relations and Immigration, a thorough investigation was made into the immigration services and the committee unanimously produced a report very favourable to the service?
Lord Glenarthur: My Lords, I am very grateful to the noble Lord for that remark. It is the case that the work that is carried out by these people is done with all the sympathy and understanding possible.
Lord Renton: My Lords, is my noble friend aware that there are several hundred different languages which are spoken in the Indian subcontinent, and that this problem is dealt with to a very considerable extent by our very careful procedures to enable people to obtain entry permits in their own country before they ever leave it? Is my noble friend further aware that the immigration officers unfortunately have to contend with a number of people who try to evade our procedures, but they nevertheless show great patience in those circumstances?
Lord Glenarthur: My Lords, yes. I entirely agree with my noble friend on both points.

Chemical Weapons: Soviet Minister's Visit
3.18 p.m.
Lord Orr-Ewing: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they intend to raise the issue of chemical weapons with the Soviet Foreign Minister when he visits the United Kingdom on 14th July.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords, we hope to have a full exchange of views on a range of arms control issues, including chemical weapons.
Lord Orr-Ewing: My Lords, will my noble friend, with her right honourable and learned friend (and mine too) the Foreign Secretary, remind the Foreign Secretary of the Soviet Union that we unilaterally destroyed our stocks of chemical weapons at the end of the 1950s; that the United States ceased to produce

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any more chemical weapons in 1969; and that this gesture of peaceful disarmament by both us and NATO has not been followed by the Soviet Union, which has continued to develop, produce and deploy chemical weapons so that 300,000 tonnes are now deployed? Is that not a very poor example of its spoken desire to follow a peaceful disarmament line?
Baroness Young: My Lords, I can confirm that we abandoned our chemical weapons in the late 1950s, and that the United States brought in a unilateral restraint since 1969 which has not been matched by the Soviet Union. I shall of course draw to my right honourable and learned friend's attention the point my noble friend makes so that it may be raised when this matter is discussed.
Lord Cledwyn of Penrhos: My Lords, while the record of the Government in this area has been a very good one, is it the case that Mr. Chevrov of the Soviet Government, who visited this country recently, said that good progress had been made towards a world-wide ban on chemical weapons? Can the noble Baroness say whether that is true and whether Her Majesty's Government agree with it? Secondly, can she say whether the Government have participated in the development of a new generation of binary weapons in this field?
Baroness Young: My Lords, on the first point that the noble Lord, Lord Cledwyn, raises, we welcome the Soviet chemical weapon initiative of 22nd April in so far as it includes some points of detail; for instance, an offer to declare chemical weapon production sites within 30 days and the beginning of a dismantling within one year, as opposed to the usual generalities that we have had from the Soviet Union.
We have also welcomed the acceptance of international inspection to verify cessation of production. All the details will need negotiation. What remains (and we attach great importance to it) relates to verification; that is, inspection on challenge. On the other matter, the United States has now said that it will move to restore its deterrent capabilities in chemical weapons if there is no agreement on the banning of chemical weapons in the future.
Lord Cledwyn of Penrhos: My Lords, I am obliged to the noble Baroness. Will she deal with my point about our participation in the development of new weapons?
Baroness Young: My Lords, there has been no change in government policy, and none is proposed.
Lord Kennet: My Lords, in the context of negotiations for an outright ban on chemical weapons, will the Government remind Mr. Shevardnadze of Mr. Gorbachev's dictum that verification makes weapons reductions possible in the context of disarmament? If verification makes reductions possible, it is only verification which will make abolition possible.
Baroness Young: My Lords, I shall draw the point made by the noble Lord, Lord Kennet, to the attention of my right honourable friend.
Viscount Trenchard: My Lords, does my noble friend agree that while it may be possible to know where chemical weapons are manufactured at present, they can be manufactured anywhere, and that it is extremely hard for any outside means of detection to reveal where?
Baroness Young: Yes, my Lords; I agree with what my noble friend says. That is why we regard challenge inspection as very important.
Lord Molloy: My Lords, will the noble Baroness ask Her Majesty's Government to point out to the Soviet Foreign Minister that this country, under both Labour and Conservative Governments, has shown an exemplary example by having nothing to do with chemical weapons? At the same time, will she consider asking the Soviet Foreign Secretary, when he visits this country, whether he will take back representations from our Government on the withdrawal of foreign troops from Afghanistan and from those countries in the Middle East occupied by Israel?
Baroness Young: My Lords, I am happy to confirm to the noble Lord, Lord Molloy, what I said to the noble Lord, Lord Cledwyn. There is no change in government policy with regard to chemical weapons, and none is proposed. NATO has no wish to see the United States resume the production of chemical weapons if a better option—a negotiated ban—can be achieved. I note his last point. I think that he will agree that it is wide of the Question.
Lord Jenkins of Putney: My Lords, on the point raised by my noble friend Lord Cledwyn, does the noble Baroness agree that there have been hints and suggestions in recent weeks from several Soviet sources that agreement on this matter is not only possible but imminent? Can the noble Broness confirm that? Is the verification problem the main difficulty standing in the way of such an agreement?
Baroness Young: My Lords, in answer to the noble Lord, Lord Cledwyn, I set out as fully as I could the Government's position on the proposals made by the Soviet Union in April. I confirm again that the problem is challenge inspection.
Lord Orr-Ewing: My Lords, will my noble friend draw to the attention of the Soviet Government the admirable foreign affairs debate that we had in this House last Friday, and in particular the speech by the noble Lord, Lord Chalfont, in which he drew attention to the amount of training that the Soviet Union is giving bright ANC members in violent acts of terrorism and the encouragement that it is giving to southern Africa in the troubles now going on there?
Baroness Young: My Lords, I think my noble friend will agree that the supplementary question is wide of the mark. I assure your Lordships that I have drawn the attention of my right honourable and honourable friends to the important debate that we had in your Lordships' House last Friday.

Business
Lord Denham: My Lords, it may be for the convenience of the House if I announce that the Committee stage of the Building Societies Bill will be adjourned at approximately 7.00 p.m. for a period and that during this adjournment the Third Reading of the Dockyard Services Bill will be taken.

Building Societies Bill
3.24 p.m.
Lord Brabazon of Tara: 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 Brabazon of Tara.)
On Question, Motion agreed to.
House in Committee accordingly.
[The EARL OF LISTOWEL in the Chair.]
Clause 35 [Prohibition on linking services]:
Lord Foot Lord Foot moved Amendment No. 105:
Page 52, line 6, at end insert—("nor shall a Society or its subsidiary offer to provide such a service subject to a condition that the person will accept a class 1 advance; nor shall the amount of the charge to be made for any such service depend on whether an advance is being made to that person.")
The noble Lord said: May I remind the Committee that under this Part of the Bill and under Clause 34 building societies will, in the future, when the necessary regulations have been made, be entitled to offer various ancillary services such as conveyancing, insurance, and so on, to the public and to their borrowers. The object of Clause 35 is to prevent and prohibit a building society from making it a condition of a loan to a borrower that he or she uses one or more of the ancillary services which the building society will be entitled to provide. I entirely agree and accept that prohibition. The reasons for it are evident, but I take the view that it does not go far enough.
The clause seems to assume that building societies ration their mortgages (if I may put it in that way) when there is a general mortgage famine, and will therefore seek to make it a condition of the granting of a mortgage that the borrower shall use one or more of their ancillary services. That is all right; but when building societies are flush with money and are looking for ways of placing it, and when they want to encourage and compete to find borrowers to whom they can make loans, the temptation is the opposite. They may be tempted to say to the borrower, "We will make an advance provided that you make use of one or more of our ancillary services". That is as objectionable as the matter with which the clause deals, and should also be prohibited. That is the effect of the first part of the amendment.
The other matter which is dealt with by the second part of the amendment is that it will be open to building societies to engage in what I might call differential pricing. They may subsidise the services or make them free to any borrower. However, if anyone who is not a borrower wants to make use of their services they may require that person to pay the full
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price. That would link the services and the borrowing, and is equally objectionable. I hope that I may get a favourable answer to this question from the Minister, because the whole spirit of it is to follow along what Clause 35 intends. I beg to move.
3.30 p.m.
Lord Brabazon of Tara: The noble Lord, Lord Foot, has made many interesting points in his remarks and I must express sympathy with at least some of them. But we must beware of trying in this Bill to usurp what are properly matters for competition legislation. I can foresee two dangers in this. First, as more lenders enter the mortgage market it would be wrong and unfair to shackle building societies with too many restrictions that do not apply to others.
Secondly, competition policy does not always lend itself to simple rules. The line between fair competition and unfair competition is sometimes a difficult one to draw. It is one which, I suggest, is best examined case by case by the Director General of Fair Trading using his powers under the fair trading and competition Acts and the expertise at his disposal in the Office of Fair Trading.
The Bill nevertheless includes two restrictions in this clause, but they deal with matters about which there has been concern in the past. Both parts of the noble Lord's amendment would go beyond those two clear-cut issues into matters which are by no means as black and white. The Bill prohibits building societies from tying the provision of a loan to borrowers using an ancillary service. There has been a lot of concern about this in recent years, particularly in the field of insurance, but the amendment would apply the prohibition the other way round, which I do not believe is justified.
The existing provision is justified because of the market muscle that the societies have in mortgages. The same argument does not apply to the Schedule 8 services. It would make little commercial sense for a society's estate agency or insurance arm to turn people away because they wanted to go elsewhere for their loan. This part of the amendment is unnecessary and therefore inappropriate.
The second provision in the Bill requires building societies to itemise the prices of individual services when offering several together. It is quite right and proper that the customer should know where he stands, but the noble Lord's amendment would go further and eliminate all cross-subsidisation. That would restrict the commercial freedom of the societies to a quite unacceptable extent.
Others in the house-buying market—banks, estate agents, insurance companies, and so on—can and do offer cut-price special offers. It is a perfectly legitimate marketing ploy—part of the cut and thrust of competition. It does not necessarily involve predatory pricing, as it is known, and if the practice turned into an anti-competitive one then the OFT would have the powers to investigate it.
The noble and learned Lord, Lord Templeman, spoke about conflicts of interest when he spoke to, I think, Amendment No. 7. He made some interesting points there which are along the same lines as those the noble Lord raised this afternoon. The Government

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agree that there are circumstances where particular conflicts are so serious as to warrant statutory prohibitions. There is, for example, Clause 13(2) of this Bill which prohibits anybody with an interest in the sale of a house, or the agent for the vendor, from advising the society of its value for the purposes of security.
The Government recognise the potential conflict between the role of estate agent and mortgagee, and have dealt with it in Schedule 8 by requiring estate agency services to be offered through separate subsidiaries and prohibiting a society's employees from acting on behalf of the estate agent's subsidiary. We have already discussed how the recognition rules to be made by my noble and learned friend the Lord Chancellor under Schedule 21 will address the potential conflict between lender and borrower, and we shall have a debate later this afternoon on those particular parts of the Bill. I can assure the noble Lord that my noble and learned friend will take into account all that is said when we come to that.
The Government think that conflicts of interest are best dealt with individually on their merits in this way. We should not discourage people from offering more than one service to the public, whether packaged or not. The generalised approach of this amendment would bring too much within the net without dealing adequately with the more serious conflicts. But having said that, the Government are certainly not deaf to the concerns expressed. There are safeguards both in this Bill and elsewhere, and for the reasons that I have given we think that the amendment is too sweeping. I hope that in the explanation I have given I may have given some comfort to the noble Lord and that he will agree to withdraw the amendment.
Lord Morris: My noble friend in his response to the noble Lord, Lord Foot, has admitted—as indeed Members in the other place have admitted—the dominant position of the building societies with regard to mortgages. It is this point that one must always bear in mind. What happens in the real world is that the vast majority of people (wisely, in my view) keep as far away from lawyers and financiers, and people of that ilk, as they can, except on one occasion in their life—and it is usually the first occasion in their life—that is, when they buy a house. That is what starts them off.
I believe strongly in the famous Jesuit principle that if you catch the child young enough, you have got him for life. Beyond any doubt at all that is what is going to happen. The building societies will try—as indeed the banks do this very day—to capture, and rightly so in a way, all the financial business of their customers. If my noble friend had words with the insurance brokers he would find that on a daily basis the banks are turning round to customers who go to the banks for mortgages and second mortgages and saying to them quite clearly, "We will be handling your insurances, won't we?" To which they will inevitably get the response, "I have been dealing with my insurance broker for the last 15 years, and I see no reason to change". They will then repeat, "We will be dealing with your insurances, won't we?" And they lose this business time after time. I am concerned about that, and it may happen with the building societies.
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My major concern is not that the Bill does not attempt to handle that, but I cannot see how Clause 35 can possibly be believed. I should like to know how the evidence will come before the authorities if it happens. It is certainly not going to come from the person affected, because he would obviously consider that it is not in his own interest to blow the whistle, so to speak, on the society that is lending him money.
Lord Brabazon of Tara: On the last point, surely the evidence, if there is any, will come from those who feel aggrieved; that is to say, the independent insurance broker or the estate agent. If they find that their local building society is doing something that they consider should be brought to the attention of the Office of Fair Trading, they are the ones who will bring it to the Office of Fair Trading. It obviously will not be the customer who thinks he is getting a good deal. I think that is the way that would operate.
Lord Williams of Elvel: The noble Lord in his reply to the amendment—a reply with which, incidentally, I did not disagree—pleaded in aid the powers of the Office of Fair Trading, the office having general supervision. On previous occasions we have had in this Chamber Bills where the Office of Fair Trading and competition law were pleaded in aid. The question I would put to the noble Lord is: is he satisfied or will he give us an assurance that the Office of Fair Trading will be adequately staffed to meet the extra demands that different Bills are placing upon it?
Lord Brabazon of Tara: The noble Lord makes a good point. I am well aware that not only this Bill but also other Bills are liable to put extra work on to the Office of Fair Trading. I would very much hope—I can go no further than that this afternoon—that indeed the noble Lord's anxieties will be satisfied in that the Office of Fair Trading will be well enough staffed to cope with this kind of problem. I must say straight away that in this particular case I do not see that there will be much of a problem. I do not see that there should be that much extra work for the Office of Fair Trading. That is not what I was trying to say on this occasion.
Lord Foot: I am afraid I am a little disappointed by the Minister's reply, but I am grateful to him for dealing with the matter so fully. The best I can do is to say only this: I cannot understand why the Government have produced Clause 35 in order to prohibit what they regard as a serious evil, because the only reason why the clause is in the Bill is that the Government think that to link the ancillary services with the loan is against the public interest. Yet the Minister will not have it that it is equally against the public interest for a building society to say to a prospective borrower, "Look, you can have access to all our ancillary services, our conveyancing services and the rest, but only on condition that you take a loan from us". That seems quite similar in principle. It is an example of the linking of the ancillary services with the loan, and it seems to me that it is just as objectionable as the evil with which Clause 35 at present deals. Having said that, unless the Minister would care to say anything further in reply, I shall beg leave to withdraw the amendment.
Amendment, by leave withdrawn.
Lord Morris Lord Morris moved Amendment No. 106:
Page 52, line 16, leave out subsection (3).
The noble Lord said: I tabled this amendment to draw attention to Clause 35(3), which in my view demonstrates that Her Majesty's Government must be the only people in the country who believe that there is such a thing as a free lunch. I also believe that it is fundamentally anti-competitive in that if the first part of Clause 35 prohibits the linking of services, this part positively encourages cross-subsidisation. It is only the big institutions which will be able to afford to do this. Any of the independent licensed conveyancers or solicitors would not be able to afford to do it. Of its very nature this demonstrates the anti-competitive element of this subsection. I can see why this provision is here—because certain building companies, offer, for example, free conveyancing as a carrot to selling a house; but I do not think it would be right and proper for a building society giving professional advice to the public to have this power. I beg to move.
Lord Brabazon of Tara: As I stated when replying to the previous amendment, we do not want to put building societies at a competitive disadvantage to their rivals in the home loans market. As my noble friend Lord Morris said, the building companies sometimes offer free conveyancing, and there is nothing to prevent banks or other people who offer mortgages from doing the same. I really do not think that in this respect to place on building societies a restriction which did not apply to others would be fair to them. As I said in reply to the noble Lord, Lord Foot, cross-subsidisation may frequently be a perfectly legitimate practice.
I take issue with the principle behind my noble friend's amendment; that is, that the building socieites will have an enormous amount of money available to offer free services such as this. They are very much in competition at the moment in their prime business; that is to say, the offering of home loans and the attracting of deposits with which to match them. I do not know whether my noble friend noticed in today's Financial Times a report that the United Kingdom's biggest building societies had yesterday to push up their interest rates without altering their mortgage rates. Therefore their margins have been squeezed. I do not think that they will therefore find themselves able to offer these sorts of services free of charge in any case.
There are also a couple of technical defects in my noble friend's amendment. First, leaving out subsection (3) would not prevent building societies from offering these services free. It is purely a declaratory subsection. Secondly, even if they did not offer them free, they could offer them for £1 or something like that. So I do not think my noble friend's amendment would have any effect at all; nor do I accept the dangers that he foresees.
Lord Morris: I am most grateful for my noble friend's interesting reply. Certainly I am if not wiser, better informed. In the light of that I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 35 agreed to.
Clause 36 [Powers in event of breach of limns on certain assets and liabilities]:
3.45 p.m.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 107:
Page 54, line 6, leave out first ("it") and insert ("the Commission")
The noble Lord said: With leave of the Committee I shall speak also to Amendment No. 108. These are drafting amendments. I beg to move.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 108:
Page 54. line 18, leave out ("their") and insert ("the society's").
On Question, amendment agreed to.
On Question, Whether Clause 36, as amended, shall stand part of the Bill?
Lord Houghton of Sowerby: Clause 36 is the first in Part VI of the Bill, and just for a moment or two I wish to draw attention to the price which the building societies will have to pay for the flexibility that they seek in this Bill in order to widen the scope of their activities and services. This is the clause in which the building societies embrace their chains. The controls and the authority of the commission are very wide indeed. It is quite obvious that the Treasury has insisted on this array of safeguards, restraints, oversight and authority for giving directions so as to avoid building societies misusing their new freedom or being negligent in using it.
It seems to me that the Bill is in some respects heavily distorted by the demands of the larger building societies. It enables them to do much more than they are doing now in the field of consumer lending. This I think is a danger. Consumer lending is the profitable part of the credit system at present. This is an addition to the area in which people may get personal unsecured loans and other forms of extended credit. These restraints may be necessary, but I think the building societies must feel that they are submitting to a degree of oversight, control and authority which robs them of some of the dignity and prestige which they have had in the past. They will be subordinate to a form of authority which is not applied to any other sector of similar activity. It is certainly more rigorous than anything they have had to submit to before.
However, I am not complaining; I am merely pointing out that this is a consequence of the ambitions of the bigger building societies, at any rate, to go into a wider area of financial activity. Whether they are going to be contributing anything to the welfare or the wealth of the nation is an open question. I am not going to pursue that. But here we have a sequence of clauses in the Bill which I think illustrate the full extent of the discipline which has been imposed upon the building societies as the price of the additional flexibility in their activities.
Lord Brabazon of Tara: I would make just two points to the noble Lord, Lord Houghton of Sowerby. Firstly, I think that on the whole the building societies seem to be going pretty willingly into this new legislation. In fact, the legislation has been worked out

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in very close co-operation with the association. They are keen to go down this path. As far as the extent of the supervision is concerned, it is not nearly as tough as that in relation to the banks, I understand, but it is in keeping with what is necessary for the new role which they themselves wish to undertake.
Clause 36, as amended, agreed to.
Clause 37 [Powers in event of breach of limits on assets or liabilities or abuse of purpose of building society]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 109:
Page 55, line 35, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
The noble Lord said: I spoke to this amendment with Amendment No. 72. I beg to move.
On Question, amendment agreed to.
Clause 37, as amended, agreed to.
Clause 38 [Power to determine building society's powers]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 110:
Page 58, line 13, at end insert (", including the holding of any property or rights").
The noble Lord said: I beg to move Amendment No. 110. This amendment is to broaden the definition of "activity" applicable to Clauses 38 to 40 to include the act of holding property or rights. I beg to move.
On Question, amendment agreed to.
Clause 38, as amended, agreed to.
Clause 39 [The determination: notification, effect, appeal]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 111:
Page 60, line 2, leave out ("to an appeal").
The noble Lord said: I beg to move Amendment No. 111 and to speak to Amendments Nos. 112, 114 and 115. These are drafting amendments, suggested to us by the Scottish draftsman, which apply Clauses 39 and 40 to Scotland. I beg to move.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 112:
Page 60, line 3, leave out ("to a petition").
On Question, amendment agreed to.
On Question, Whether Clause 39, as amended, shall stand part of the Bill?
Lord Williams of Elvel: I should like to clarify one point of Clause 39. Clause 39 defines the determination, notification and effect, and the appeal procedures. It seems to me that a situation could arise in which, until the determination to ascertain a building society's powers has actually been made, it is not realised by the society or by anybody that a certain activity is outside the powers of the society. I should
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have thought that Clause 39(6) should include some sort of provision allowing the High Court, on the application of a director, to absolve that director from personal liability—which is what the point is—if, in all the circumstances, it is just and equitable to do so. I would ask the noble Lord the Minister whether he will clarify that point and consider it and see whether he could adjust the wording at a future stage of the Bill.
Lord Brabazon of Tara: The best that I can do, I think, is to consider it rather than to clarify it at the moment. I shall certainly look into what the noble Lord, Lord Williams, has suggested. Perhaps I could write to him, if necessary, if there is a problem here.
Clause 39, as amended, agreed to.
Clause 40 [Power to make prohibition orders]:
Lord Brabazon of Tara Lord Brabazon of Tara move Amendment No. 113:
Page 61, line 37, after ("above") insert (", so far as it relates to directors,").
The noble Lord said: I beg to move Amendment No. 113. This is a purely drafting amendment.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 114 and 115:
Page 62, line 20, leave out ("to an appeal").
Page 62, line 21, leave out ("to a petition").
The noble Lord said: I spoke to Amendments Nos. 114 and 115 with Amendment No. 111. I beg to move the two amendments together.
On Question, amendments agreed to.
Clause 40, as amended, agreed to.
Clause 41 [Power to direct application to renew authorisation]:
On Question, Whether Clause 41 shall stand part of the Bill?
Lord Williams of Elvel: May I raise a question on Clause 41, with the leave of the Committee? Again, this refers to the power to direct application to renew an authorisation. When we look at Clause 41 it will be noted that the commission may direct a society to apply to renew its authorisation if the commission has reason to believe that the society's business is or may be being conducted in a way that may not adequately protect the investors. As far as I can see, there is no machinery for appeal against such a direction. There is a right of appeal against a subsequent refusal to grant renewal of authorisation, but this would involve a society having to go through the process of renewing its application for authorisation, which it would not have to do if the original direction to apply for renewal were wrongly made.
It is further the case that the commission are to decide under Clause 41(6) who are "fit and proper persons" and what are the "criteria of prudent management". While Clause 45, later on, provides certain guidelines for deciding the criteria for prudent management, that clause uses a number of expressions, such as "requisite accounting records", "sufficient number of persons who are fit and proper"

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and who have "prudence and integrity". On all these matters, it seems that the commission itself will be empowered to form its own view.
I would suggest, first, that the wording might be altered at a number of points requiring the commission not simply to take a potentially arbitrary view but to have good and sufficient reason for believing that the society's business is or may be conducted in a way which is not satisfactory; and that the commission also should be required to be reasonable in deciding who are fit and proper persons and what are the criteria of prudent management. I very much hope that the noble Lord the Minister will take my remarks away, as they say, and consider them if he cannot reply on the spot.
Lord Brabazon of Tara: My short answer to the noble Lord is that there is the matter of judicial review, which could be brought into operation on this aspect. The commission will be publishing guidance as to how it interprets "adequate", "sufficient", etc. Those two points might help the noble Lord. I shall certainly read carefully what he has said and see if there is anything which needs to be done.
Lord Williams of Elvel: Will the noble Lord the Minister specifically concentrate on the point whether or not, in addition, there should be a right of appeal against a direction requiring a society to apply for renewal of its authorisation?
Lord Brabazon of Tara: Yes, I shall certainly look into that.
Lord Morris: When my noble friend considers this point, I wonder whether he will also consider the immense importance of this clause. As I understand this clause, it gives the commission a very important power; namely, to act quickly. It is the time element which is often so important in these matters when things go wrong in a financial institution, and they must have the power to act quickly.
Lord Brabazon of Tara: Certainly I will take that into account.
Clause 41 agreed to.
Clauses 42 and 43 agreed to.
Clause 44 [Reauthorisation]:
4 p.m.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 116 and 117:
Page 68, line 27, at end insert—
("() if those matters are or include the matters specified in paragraphs (a) and (c), refuse to grant authorisation;")
Page 68, line 28, after ("(a)") insert ("in any other case")
The noble Lord said: I spoke to these amendments with Amendment No. 42, and I beg to move the two.
On Question, amendments agreed to.
Clause 44, as amended, agreed to.
Schedule 3 agreed to.
Clauses 45 and 46 agreed to.
Clause 47 [Determination of appeals]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 118:
Page 72, line 18, leave out ("Chancellor of the Exchequer") and insert ("Lord Chancellor or Lord Advocate.").
The noble Lord said: I beg to move Amendment No. 118, standing in the names of my noble friend Lord Barnett and myself. We are dealing here with a question of the membership of the tribunal to which appeals may be made. It is our view that since the Treasury are, as it were, the sponsoring and controlling department of building societies, they should not be the people who appoint the judges in a particular case of a tribunal. Without wishing to involve the noble and learned Lord the Lord Chancellor in even further obligations under this Bill, we feel it is more appropriate that he should assume the task of appointing the two other members, rather than leaving it to the Treasury in the form of the Chancellor of the Exchequer. In the case of Scotland, it would be the Lord Advocate rather than the Lord Chancellor. In that spirit of trying to get a proper judicial position for these tribunal appeals. I beg to move.
The Earl of Selkirk: I should like to ask my noble friend what is his intention in the structure of the commission. Is it intended that the commission should be composed to a major extent of Treasury officials? I have the highest possible opinion of Treasury officials, but I do not have quite the same confidence in their power of appointment. I think it would be quite wrong for this to be to a major extent a Treasury organisation.
It is quite true that the Treasury will be answerable in Parliament for the work of this commission, but I hope that the Government will make sure that the commission is composed of men of very broad outlook, with experience and knowledge over a wide range of subjects, and that it is certainly not composed of people who spend most of their time in the Civil Service. I think this is very important because the whole of this Bill turns on the confidence which the commission is able to maintain. It should be a commission of very widely experienced people whose exercise of their duties is based on the depth and breadth of their judgment.
I am delighted to hear that Mr. Walden is to be deputy chairman, I think it is. We could not have a more admirable man. I should like that kind of approach to continue—that men of wide experience in this whole area take part in the work of the commission.
Lord Morris: It appears that the noble Lord, Lord Williams of Elvel, has an interesting and good point here. However, I cannot help but point out to him that he does not seem to have a great deal of faith in his own amendment because there is a whole series of consequential amendments which should have been tabled with this. This is a purely technical matter, and if the noble Lord wants to know where it should go, I shall speak to him afterwards.
Lord Williams of Elvel: I am most grateful to the noble Lord, Lord Morris, for his advice, but I am

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perfectly aware that there are consequential amendments. We put down this one amendment knowing that if the Government took it up, they would table the appropriate consequential amendments. But I am grateful to the noble Lord for the technical advice he has so kindly sought to give me.
Lord Brabazon of Tara: I hope that neither the noble Lord nor I will need to put down consequential amendments since I hope I shall be able to satisfy the noble Lord, Lord Williams of Elvel, with what I have to say. I quite understand the fears that the noble Lord has expressed and I hope that I may be able to reassure him.
Given the particular mix of experience that an appeal tribunal will need to command, we fear that split appointments are inevitable. It is clearly right that the chairman should be a lawyer of some standing, and the noble and learned Lords the Lord Chancellor and the Lord Advocate are obviously the people best placed to appoint the right man or woman. But the other two members will need to have expertise in financial matters. As the Bill puts it more specifically, one should have experience of accountancy and the other experience of building societies or other financial institutions. I am sure that my noble and learned friend the Lord Chancellor will agree that his department is not necessarily the best equipped to consider candidates with that background. So I think it is a sensible and logical provision to provide for the Chancellor to make such appointments.
Having said that, I can assure the noble Lord that my right honourable friend the Chancellor of the Exchequer may be relied upon to appoint independent-minded and impartial people to the job. There will be no question of the Treasury taking the part of the commission in such hearings. Just as I sought to reassure my noble friend Lord Selkirk on Second Reading that the commission would be independent of the Treasury, so I now assure the noble Lord that the Treasury will be independent of the commission.
I should add that arrangements are in hand within the Treasury to make sure that those responsible for policy on prudential supervision and for the day-to-day relations with the commission will play no part in any appeals under these provisions. The secretary to the appeals tribunal will be someone from a completely different area of the Treasury. Any departure from the highest standards of impartiality will, of course, be capable of challenge on judicial review. So the incentive for the Treasury to make these provisions work fairly is a very strong one.
Perhaps I may turn to the point made by my noble friend Lord Selkirk. He is on a slightly different point at the moment. In this clause we are talking about the appeals tribunal. My noble friend talks about the composition of the commission itself, and I can give him the assurance that four of the members of it will be part-time and will be in the majority. I think there will be seven members to start with—three senior civil servants of different grades at the top and four part-time members, three of whom we have already appointed, including Mr. Walden, whom my noble
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friend mentioned, and Mr. Procter, who has great experience of banking. So I think I can give my noble friend that assurance. However, it is not actually quite the point we are on at the moment. Having given the assurance that I have to the noble Lord, Lord Williams of Elvel, I hope he will feel able to withdraw this amendment.
Lord Williams of Elvel: I am most grateful to the noble Lord the Minister and I apologise to the Committee for being somewhat provoked by the noble Lord, Lord Morris, into intervening at an improper time. But I am perfectly satisfied that the Government will take all possible measures to make sure that the membership of the tribunal is fair, independent and, as the noble Lord said, perfectly objective.
I am very grateful also to the noble Lord the Minister for his very firm statement on this matter which really goes as far as we can go, certainly at this stage. I accept his statement as a ministerial intent, and in the light of that I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 47 agreed to.
Clause 48 [Costs, procedure and evidence]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 119:
Page 74, line 18, at end insert:
("and for authorising the administration of oaths to witness;
( ) for granting to any person such discovery or inspection of documents or right to further particulars as might be granted by a county court in England and Wales or Northern Ireland or, in Scotland, for granting to any person such recovery or inpsection of documents as might be granted by the sheriff;").
The noble Lord said: I beg to move Amendment No. 119, and I shall speak also to Amendment No. 120. The first of these two amendments provides expressly for Treasury regulations under this clause to cover the taking of evidence on oath and the ability of the tribunal to grant discovery of documents to parties to the appeal. The second amendment extends the right of appeal to the High Court on a point of law to an individual whose fitness for office in the society has been adversely pronounced on in a commission decision. I beg to move.
On Question, amendment agreed to.
Clause 48, as amended, agreed to.
Clause 49 [Further appeals on points of law]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 120:
Page 75, line 6, after ("society") insert ("or other person").
The noble Lord said: I have already spoken to this amendment. I now beg to move it formally.
On Question, amendment agreed to.
Clause 49, as amended, agreed to.
Clause 50 [Powers to control advertising]:
On Question, Whether Clause 50 shall stand part of the Bill?
Lord Houghton of Sowerby: I wonder whether the noble Lord the Minister can think of any circumstances in which a direction would be given to a building society under subsection (2) to cease advertising of all descriptions. This is really a most draconian power which is given to the commission. Can any building society to which this direction might be given have any right to be in business at all? It seems to me that what has been prescribed within the powers of the commission is so authoritarian and so complete in some ways as to be almost incompatible with a more or less free society.
I do not think we ought to pass this kind of thing without at least a query as to why it is in the Bill. I can understand that this particular clause is intended to give some control over misleading advertisements that might appear when the cut-throat competition really begins between building societies in the new jungle of financial transactions; but to say that building societies should be prohibited from issuing advertisements of all descriptions I think beggars description. Can the Minister justify it?
Lord Brabazon of Tara: This of course is much the same as appears in the 1962 Act. Perhaps I may try to explain how and when this power may have to be used. If a society has issued advertising material which is for any reason undesirable it has generally been possible to get it withdrawn or modified. We fully expect that to continue, but we need statutory powers in the background.
The Building Societies Association's code of conduct is still in its infancy but it is hoped that it will be extended and policed by the association. That should be satisfactory in itself. However, this power might be used, for instance, where advertisements may mislead potential investors or borrowers in relation to interest rates or other terms, where persuasion has failed or where proceedings against a society are in hand. Potential investors would not be aware whether proceedings were under way with a view to the use by the commission of its statutory powers. It would be quite unfair in that situation if potential investors were encouraged by advertisements to invest in a society if the commission was just about to make a decision. That is really why this power is in now. We very much hope that it will never have to be used.
Clause 50 agreed to.
Clause 51 agreed to.
Clause 52 [Powers to obtain information and documents etc.]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 121:
Page 79, line 44, at end insert—
("(3A) This section does not authorise any requirement in relation to information, documents or other material to be imposed on a subsidiary of or other body associated with a building society unless that body carries on business in the United Kingdom; but a requirement may be imposed under this section on a building society in relation to information, documents or other material in the possession or control of a subsidiary or associated body outside the United Kingdom.").
The noble Lord said: I beg to move Amendment No. 121, and I shall speak also to No. 122. These amendments provide that requirements to obtain
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information and documents can only be imposed directly on subsidiaries or associates operating in the United Kingdom, but that the obligation to provide information may be placed on the building society if the subsidiary or associated body has no presence here. The second amendment is consequential upon that provision. I beg to move.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 122:
Page 80, line 1, after ("(4)") insert ("Subject to subsection (3A) above,").
On Question, amendment agreed to.
Clause 52, as amended, agreed to.
Clause 53 [Confidentiality of certain information obtained by Commission]:
4.15 p.m.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 123:
Page 81, line 37, leave out from first ("or") to ("body") in line 38 and insert ("other").
The noble Lord said: I beg to move amendment No. 123, and I should like to speak at the same time to the following group of amendments: Nos. 124, 125, 126. 128, 129, 130, 132, 133, 134, 135, 136, 137, 138, 139, 140, 141, 142, 143, 144, 145, 147, 151 and 153.
The amendments in this group affect further detailed scrutiny and discussions on the disclosure provisions in the light of the parallel provisions in the Financial Services Bill and the proposed new banking legislation. Most of these amendments are technical, and of course I should be glad to deal with any specific points noble Lords may have when we reach the appropriate amendments.
Several of the amendments deal with the further disclosure of information received by one supervisor from another. Following the passage of the series of regulatory Bills which are either before Parliament or are proposed for next Session, there will be a range of financial supervisors at work with a range of powers. The financial institutions they are supervising will in many cases be part of conglomerate groups, so that the jurisdiction of different supervisors will increasingly come to overlap. In these circumstances it is vital that there should be a free flow of information between the different financial supervisors to ensure that problems do not fall down any cracks.
The basic principle of these amendments is that when one supervisor passes information to another the second should not be inhibited from using the information for his own supervisory purpose. In some cases this may involve further disclosure; for example, to an appeal tribunal or to a professional body with which the first supervisor does not have any dealings in the normal course of events. But information will have been supplied to the first supervisor on the understanding that it will be subject to strict confidentiality restrictions. A potential problem therefore arises where the second supervisor wishes to disclose the information in a way which would not be open to the first supervisor who originally supplied it.
The amendments to Clause 53 accordingly provide that information supplied by the commission to another supervisor may be disclosed by the recipient, subject to his own confidentiality restrictions, provided that the commission gives its consent. The amendments to Clause 54 provide for a reciprocal arrangement for disclosure by the commission of information obtained from the Bank of England. Further disclosure by the commission is possible with the consent of the bank, the power being framed in general to allow the furtherance of the commission's functions. With that explanation, I beg to move.
Lord Williams of Elvel: I am very grateful to the noble Lord for speaking to so many amendments at the same time and also for explaining so clearly exactly what is the thrust of the amendments. I understand the problem the Government have got themselves into: that they are creating a number of supervisory bodies in all directions and some of those supervisory bodies have not yet come before this Chamber officially, so that we do not know what their powers are going to be or indeed what noble Lords may decide their powers should be in the future. So I reserve our position on these amendments until we have gone through the relevant legislation, particularly the Financial Services Bill, and can see exactly how noble Lords think the supervisory bodies should perform.
There is one particular amendment on which I would wish to reserve my position even more strongly, if I may put it like that. I refer to Amendment No. 126. As the noble Lord will realise, this starts to raise the question of the auditors' responsibilities to the commission. We shall come to this at a later stage in the Committee under a different amendment, but I wanted to signal to the noble Lord that I was not entirely happy with Amendment No. 126 and, should the Committee decide that our position on Government Amendments Nos. 188 and 189 is the proper one, there may be a consequential change on Amendment No. 126. Having said that, I do not wish to oppose these amendments, but we will look at them again at the Report stage, after we have had a chance to look more closely at the Financial Services Bill.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 124 to 126:
Page 81, line 41, leave out from first ("or") to ("may") in line 1 on page 82 and insert ("or other body").
Page 82, line 4, after ("relates") insert ("and (if different) of the person who furnishes it to the Commission").
Page 82, line 34, leave out ("as auditors") and insert ("to the Commission").
The noble Lord said: I spoke to Amendments Nos. 124 to 126 with Amendment No. 123. I beg to move all three en bloc.
On Question, amendments agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 127:
Page 82, line 38, at end insert—
("(h) in order to enable the Office of Fair Trading to discharge any of its functions under this Act or otherwise.").
The noble Lord said: I beg to move Amendment No. 127 on the Marshalled List in the names of my
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noble friend Lord Barnett and myself. This is, I think, a supplementary amendment, and the noble Lord, Lord Brabazon of Tara, may be able to satisfy me that it is an unnecessary amendment. But I have had experience in the past where information which has come to the attention of a particular body, such as the commission governing building societies, cannot be transmitted to the Office of Fair Trading, which is to carry out certain functions under the Fair Trading Act. Indeed, there was a specific clause put into the Price Commission Act 1977 to allow the Price Commission to communicate information that was required by the Office of Fair Trading.
In replying to, I think, the noble Lord, Lord Foot, on an earlier amendment, the noble Lord pointed out that competition law and the Office of Fair Trading were going to be active in supervising certain aspects of building society activity in the future, and it would seem only common sense that the Office of Fair Trading should be allowed to have access to confidential material which would allow it to discharge its functions under this Bill, under what the noble Lord has said or, indeed, under the various Acts which are now relevant to the office. The noble Lord may be able to say to me that this is already covered in the Bill, in which case he is one jump ahead of me and I shall be very happy. But I should be most grateful if he could look at this and assure us that this is either in the Bill or will be put into the Bill. I beg to move.
Lord Brabazon of Tara: The noble Lord makes a valuable point, and 1 hope that I shall be able to give him the answer for which he is looking. The good functioning of the financial system requires that the different supervisors need to be able to share information on matters of common interest or where their responsibilities overlap. I agree with the noble Lord that the Director General of Fair Trading has supervisory responsibilities which properly bring him within that net.
Nevertheless, the Government think that a disclosure power should not be necessary in furtherance of all of the OFT's functions. The principle that we apply is that disclosure should be allowed only to those who will have a reasonable need for the information. There may be no need to provide for disclosure in respect of the Director General's functions under, for example, restrictive trade practices or competition legislation. The commission will have little, if any, information that will be relevant to the discharge of those functions, and societies may be reluctant to discuss forward plans which are as yet at a formative stage if they believe that such information might find its way to the OFT before their proposals are properly formed.
Nevertheless, the Government think that disclosure to the Director General would be appropriate for the purpose of his functions under the Consumer Credit Act and the Estate Agents Act, both of which are regulatory legislation clearly irrelevant to building societies. I am advised that the order-making powers in this clause are wide enough to permit the disclosure to the Director General of Fair Trading, and I can give the noble Lord the assurance that they will be used for the purposes I have indicated. Further, if it appeared in

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the future that disclosure to the Director General was appropriate in respect of other functions, a further order could be made. Therefore, I hope that the noble Lord will be able to withdraw this amendment.
Lord Williams of Elvel: I am most grateful to the noble Lord for his reply. When he replied to, I think, the noble Lord, Lord Foot, on the first amendment that the Committee discussed this afternoon, he mentioned that competition law was adequate to deal with certain circumstances. I took him to mean by "competition law" that it would be the intervention —and I think he specified the intervention—of the Office of Fair Trading and, eventually, should that take place, a reference to the Monopolies and Mergers Commission. I am grateful for his answer and I do not wish to press him too far, but is he satisfied that the case that he mentioned in his reply to the noble Lord, Lord Foot, is covered by his answer and that the Office of Fair Trading would have adequate information coming from the privileged sources under this Bill to take action?
Lord Brabazon of Tara: I would not want to stand up here and give the noble Lord a clear assurance on that point at this stage without taking further advice, which may or may not arrive before I sit down. But what I think I said in answer to the noble Lord, Lord Foot, was that these are not necessarily matters which would need the commission's intervention. They would be matters between the aggrieved party and the building society, in particular. I am not certain how closely involved the commission would get in individual cases like that. I shall certainly look into what the noble Lord has said and will have to write to him on this point.
Lord Williams of Elvel: I am most grateful to the noble Lord. It appears that advice has not arrived magically from a certain quarter, and, therefore, I shall rely on the noble Lord's assurance that he will be communicating with me in due course. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 128 to 130:
Page 83, line 23, at end insert— ("nor does subsection (1) above prohibit further disclosure of the information by the Bank of England with the consent of the Commission and within the limits permitted by section 19 of that Act other than subsection (4)(a) so far as it relates to disclosure in the public interest.")
Page 83, line 29, after second ("or") insert (", in the case of information for the Secretary of State,")
Page 83, line 42, leave out ("investigators") and insert ("inspectors")
The noble Lord said: I spoke to Amendments Nos. 128 to 130 with Amendment No. 123. I beg to move.
On Question, amendments agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 131:
Page 84, line 1, leave out from ("under") to end of line 4 and insert ("Articles 424, 425(2), 435, 437, 439(1) or 440(2) or (3) of the Companies (Northern Ireland) Order 1986")
The noble Lord said: I spoke to this amendment with Amendment No. 63. I beg to move.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 132 to 142:
Page 84, line 6, at end insert—
("nor does subsection (1) above prohibit further disclosure of the information by the Secretary of State or the Department with the consent of the Commission.")
Page 84, line 18, at end insert—
("nor does subsection (1) above prohibit further disclosure of the information by a prescribed regulatory authority in prescribed circumstances, subject to prescribed conditions and with the consent of the Commission.")
Page 84, line 23, leave out ("authority") and insert ("authorities")
Page 84, line 26, after ("disclosed") insert ("or further disclosed")
Page 84, line 30, after ("disclosed") insert ("or further disclosed; and in that subsection "prescribed" means prescribed by an order under this subsection.")
Page 85, line 8, at end insert—
("( ) Subsection (11) above applies in relation to the disclosure of information which relates to any person who is or has been or has been appointed or, in the case of a director, nominated or proposed as an office of a building society or other body in the case of which that subsection authorises the disclosure of information which relates to it as it applies to the disclosure of information which relates to the society or other body.")
Page 85, line 15, at end insert—
(" "authority" includes any body (corporate or unincorporate) which is charged with the regulation of the carrying on of any description of financial business or the practice of any profession to which the carrying on of such business is incidental;")
Page 85, line 16, after ("any") insert ("government department or")
Page 85, line 19, leave out from ("with") to ("any") in line 20 and insert ("the regulation of the carrying on there of")
Page 85, line 23, leave out from beginning to ("and") in line 25
Page 85, leave out lines 26 to 28 and insert— (" "regulation", in relation to any public or other authority means regulation in the public interest or for the protection of private interests.")
The noble Lord said: I have spoken to Amendments Nos. 132 to 142 with Amendment No. 123. With the leave of the Committee, I should like to move them en bloc. I beg to move.
On Question, amendments agreed to.
Clause 53, as amended, agreed to.
Clause 54 [Information disclosed to Commission from other sources]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 143 to 145:
Page 85, line 36, after ("Commission") insert ("or further disclosed;").
Page 85, line 40, leave out ("or"). Page 85, line 41, after ("442") insert ("or 446").
The noble Lord said: I spoke to Amendments Nos. 143 to 145 with Amendment No. 123. I beg to move.
On Question, amendments agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos 146 to 153:
Page 86, line 6, leave out from beginning to ("(inspection") in line 7 and insert ("440 or 441 of the Companies (Northern Ireland) Order 1986").
Page 86, line 8, after ("disclosed") insert ("or further disclosed")
Page 86, line 10, leave out ("109") and insert ("442").
Page 86, line 12, leave out from ("under") to ("(investigation") in line 13 and insert ("Article 424, 425, 435 or 439 of the Companies (Northern Ireland) Order 1986").
Page 86, line 24, leave out line 24 and insert ("442 of the Companies (Northern Ireland) Order 1986;").
Page 86, line 27, after ("(4)") insert ("(5), (6), (8)").
Page 86, line 30, leave out ("109") and insert ("442").
Page 86, line 30, at end insert—
("but, in the case of subsections (5), (6) and (8), so far only as they relate to the discharge of the Commission's functions or the interests of shareholders and depositors.
(3A) If and in so far as it appears to the Bank of England that the disclosure of any information will enable the Commission better to discharge its functions under this Act (but not otherwise), information obtained by the Bank under or for the purposes of the Banking Act 1979 may be disclosed to the Commission and, with the Bank's consent, further disclosed by the Commission, notwithstanding the provision as to security of information contained in section 19 of that Act.
(3B) Subsection (1) of section 5 3 does not apply to information which has been disclosed to the Commission by virtue of subsection (3A) above, but—

(a) except as provided in paragraph (b) below, nothing in this Act authorises any further disclosure of that information in contravention of section 19 of the Banking Act 1979; and

(b) with respect to that information the references in subsection (3), (4), (6), (7), (8) and (11) of section 53 to subsection (1) of that section shall be construed as including a reference to the said section 19 but, in the case of subsections (6), (7) and (8), so far only as they relate to the discharge of the Commission's functions or the interests of shareholders and depositors.").

The noble Lord said: I have spoken to Amendments Nos. 146 to 153, either with Amendment No. 63 or with Amendment No. 123. With the leave of the Committee, I shall move them en bloc. I beg to move.
On Question, amendments agreed to.
Clause 54, as amended, agreed to.
Clauses 55 to 58 agreed to.
4.30 p.m.
Clause 59 [Chief executive and secretary]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 154:
Page 93, line 27, at end insert—
("() The offices of chief executive and director of a building society may be held by the same person.")
The noble Lord said: This is in the nature of a probing amendment to discover whether our reading of the Bill as drafted is correct or incorrect. It seems to us on reading the Bill that there is a difficulty about the chief executive of a building society also being a director of a building society. There would be certainly be many occasions on which this might be sensible and desirable. The noble Lord, Lord Skelmersdale, who is to reply, may tell me that my interpretation of the Bill is wrong, in which case there is no problem. But if my interpretation of the Bill is right we should like the Government to reconsider the position because the responsibilities of directors should embrace the sort of responsibilities that a chief executive has. I beg to move.
Lord Skelmersdale: The noble Lord is quite right in two respects, the second of which is that he is wrong, which I shall go on to explain. However, at the risk of disappointing him, I must tell the Committee that Clause 117 of the Bill already allows for the
476
circumstances which he envisages—namely, that an individual should be both a director and the chief executive of a society where circumstances warrant. That clause defines "executive" as meaning,
"in relation to a director … a person who holds office as a director and also as chief executive, secretary or manager".
I therefore hope that the noble Lord will be satisfied that the Bill already provides for what he wants.
Lord Williams of Elvel: I am most grateful to the noble Lord. This is what comes of having civil servants who are able to brief you rather than not having civil servants. The noble Lord has explained the position quite clearly and I therefore beg leave to withdraw the amendment.
Amendment, be leave, withdrawn.
Clause 59 agreed to.
Clause 60 [Directors: elections and retirement]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 155:
Page 95, line 33, after ("below") insert)", subsection (12) below")
The noble Lord said: With this amendment I should like to speak also to Amendment No. 157, which is the substantive amendment of this group.
Subsection (10) reflects Section 292(1) of the Companies Act and was intended to prohibit the election of a slate of candidates. It prevents only one vote being used in favour of two or more candidates. On reflection, however, the subsection appears to be unnecessary since Clause 60(3) already requires voters to have one vote per every vacancy. This amendment accordingly deletes subsection (10). I beg to move.
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 156:
Page 96, line 5, after ("directors") insert (", after consultation with the Commission,").
The noble Lord said: This brings us to a point about directors of building societies which has not been raised before. A number of noble Lords may wish to close their ears for this debate. We on this side of the Committee are rather worried that building societies, and particularly building societies in the future, with their new responsibilities, may not have a proper spread of directors and that, if I may speak in rather frank language, chairmen and directors of building societies in the past have been known simply to co-opt their friends on to the board of directors. This amendment seeks to address that problem.
We are very concerned that building societies, particularly in their new role and particularly with their new responsibilities and activities, should have proper boards of directors who are fully cognisant of the responsibilities which are placed on them and that whoever is co-opted should not be just a person whom you happen to meet on the golf course or anywhere else and who happens to be a friend. Therefore we seek to have some restriction on building societies appointing additional directors to fill vacancies without some sort of control.
I accept that this is in the nature of a probing amendment and I accept that this may not be the proper formula, but it seems to be incumbent on me to draw the points to the Government's attention. We are concerned about this. We believe that boards of directors of building societies should be properly representative and we believe that the commission should have more than just a passing interest in who is on the board of directors, who is co-opted and for what reason.
This is additionally important, as my noble friend Lord Houghton of Sowerby has pointed out, because we are moving into a completely new era in building societies. There are going to be some major financial institutions here. They should have a proper sense of their responsibilities and the commission should have a proper sense of the responsibilities of the boards which are controlling these new institutions. We do not want this to become or continue to be, if it is, a cosy club. We wish the commission to pay attention to this point and we wish the Government to pay attention to the point, which is why I have raised this matter. I beg to move.
Lord Houghton of Sowerby: Perhaps I may intervene for just a moment. I am going to support my noble friend. Much as I dislike giving the commission more opportunities for intervention, on this matter the commission ought to have a look sometimes at what boards are doing when they come to co-opt members to fill vacancies. At the present time the boards of building societies are largely a male chauvinist preserve. There are very few women on the boards of building societies. Leaving aside the possibility that the board may have some favourite son it wishes to appoint, the new responsibilities of the boards of building societies will, I believe, justify getting in some new blood. I do not know how they are going to get such new blood otherwise. The chances of a candidate being elected to a board of a building society against the will and consent of the board are very remote indeed. Moreover, experience has shown that the boards of building societies have a real box of dirty tricks when it comes to keeping off people who are candidates for election to the board.
For one thing many building societies try their hardest to dissuade anybody from standing because, apart from anything else, of the expense of holding a ballot throughout a large membership. It is after all an expensive matter. What the building society boards do not want is somebody being elected whom they do not like. In a number of cases the candidate for election has been a thorn in the flesh of a board; he has been a rebel in the building society. He has turned up at meetings and made a fuss. The boards do not want such people and therefore they use every opportunity they can to dissuade them.
I am not going to make allegations that I cannot prove but sometimes undue pressure has been brought to bear upon those who wish to stand for election. In the circumstances we are justified in bringing the commission into the selection of persons to fill casual vacancies; otherwise the boards of building societies are self-perpetuating oligarchies. A person cannot get his nose in unless the board will let him. I have been the person to whom many complaints have come at
478
different times from those who have sought to be candidates for the boards of building societies but who have found obstacles put in their way.
We ought to take this matter rather seriously. How else does the Minister think that we shall have the boards of building societies opened up for their new responsibilities and powers? When we come in a moment or two to Clause 61, concerning candidates standing for election, we shall have to think about what the conditions will be. But here is the only opportunity that we shall have of persuading the commission to examine what is happening with the composition of the boards of building societies. I certainly support my noble friend.
Lord Skelmersdale: I am grateful to the noble Lord, Lord Williams of Elvel, for raising this subject, because I, on behalf of the Government, accept straight away that long term co-options such as those which the noble Lord, Lord Houghton, has just mentioned are definitely not a good thing. However, a provision to allow for the co-option of directors is necessary. Co-option can cope with such circumstances as a director reaching retirement age and not wishing to wait until the next annual general meeting before leaving, or snapping up individuals who might otherwise be lost to societies it those individuals had to wait until the next AGM.
The co-option route may have been subject to a degree of abuse in the past, but any director who is co-opted under the powers of this clause is required to stand for election within a specified period, as is identified in Clause 61(13), if he wishes to stay in office. I hope that will go some way to satisfying the noble Lord, Lord Houghton.
Lord Houghton of Sowerby: If the noble Lord will allow me to intervene, it is the case that the director will first be co-opted, and when his period of co-option ends he must submit himself to election. How ever, if the situation emerges that no one puts up against him, then that director is automatically elected to the board.
Lord Skelmersdale: Yes, my Lords, I accept that point, but I was going on to say that Clause 45, which we have just passed, requires the commission to consider the overall direction and management of a society. I have no doubt that if societies were to get into the kind of difficulties that the noble Lord envisages, then the commission would want to know about it and would act. Although there may be a few cases in which such a thing happens, the remedy is between the building societies themselves and the commission.
Lord Williams of Elvel: I find the Minister's reply wholly unsatisfactory. First, I know of no case where a co-opted director has not been elected at a subsequent AGM. That is the normal procedure with companies where a co-opted director goes for re-election to the AGM. I myself have been co-opted to the boards of a number of companies—and I see my noble friends nodding at this—and I have never been rejected at the subsequent AGM, having been co-opted and having come forward with the recommendation of the

479
chairman of the board of directors. Shareholders do not reject such appointments, and I do not suppose that the members of building societies would do so.
Secondly, the Minister refers the Committee to Clause 45. That is a very general clause that deals with the criteria for prudent management. That does not respond to the point that my noble friend Lord Houghton of Sowerby was making. It is not the question of how many women are to be on the boards of building societies to which the commission is going to pay attention. The commission will not worry either whether so-and-so was met on the 17th hole of a golf course and was co-opted accordingly. The commission will not become involved in that kind of detail. I do not believe that under Clause 45 the commission will have the kind of authority that it needs specifically to answer the point upon which we are concentrating. I hope that the Minister will be able to give the Committee a much more encouraging reply.
Baroness Phillips: I wish to support my noble friend. This is a very curious anomaly. Most of us have been members of quangos or of various other bodies, where one is told to resign. That is usually done because of age. Age is the worst condition from which one can suffer in this country. If one has reached a certain age, one is assumed to be useless. However, one is certainly never asked to be co-opted because it suits the convenience of a particular group, so that later they can reinstate one in a full position.
It seems strange to me that we should be legislating in this way on a matter that affects so many people. I was horrified to find that there are something like 400 government amendments. I believe they are taking advantage of the fact that they had a long sitting on another Bill last night, and they imagine that they will gallop through this Bill because the building societies want it. In fact, this is a matter that affects thousands of people. Today, thousands of ordinary people are involved in building societies. It seems to me that the rules that apply in, for example, the consumers councils and various other groups should equally apply to the building societies. Hitherto, the building societies have had their own way, but as we are now legislating and have the opportunity to change matters, we ought to do so. My noble friend has made a very valid point, and the Minister gave a very unsatisfactory reply.
4.45 p.m.
Lord Skelmersdale: I am not sure that I can help the Committee very much further, except to say straight away to the noble Baroness, Lady Phillips, that there is no question, as my noble friend explained on the first Committee day, of trying to coerce the Committee or pull wool over the Committee's eyes. When either my noble friend or myself has been asked to explain matters, we have done so to the best of our ability. I accept that there are moments such as the one I am suffering now, when clearly I have not been able to satisfy the Committee as well as the Committee feels that it should have been satisfied.
I return briefly to the point at issue in this amendment. Overall, the Bill seeks to improve the accountability of boards. For example, candidates
480
seeking to stand are given new rights, such as having election addresses circulated. Also, there is a new provision, to which reference has already been made, for co-optants to submit themselves to election. There is also scope for abuses of the proxy system to be cut down.
At the end of the day, it is for the members of the building society to decide who they want on their board. If they find that the board is not doing the things for which it was elected, then the remedy must surely be in the members' own hands.
Lord Houghton of Sowerby: I am sorry to intervene again, but we really have reached a sticking point. The noble Lord has just spoken in a most engaging way, and I admire his candour about his state of mind on this amendment. However, this is an important matter concerning the government of the building societies. As the Bill is designed to fit the building societies movement to go forward in this new field with new responsibilities, one also wants to be satisfied that the boards will be fit to bear those responsibilities.
Let us be honest. Positions on the boards of building societies, especially in the case of medium-size and larger societies, are very attractive positions to be offered. Directors fees are between £5,000 and £10,000 a year. I can quite understand that those who are to be on the boards must be reasonably acceptable to those who are already on them. However, there is a danger that existing members may know somebody they would like to have on the board, and that person will then obtain that place. Once he was on the board in a co-opted capacity, as my noble friend, Lord Williams, said a moment ago, it would take an earthquake to move that person.
When the noble Lord, Lord Skelmersdale, says that it is up to the members of the society to decide who they want on the board, he makes me laugh. I do not know whether he realises what a ballot for a member of a board, and the response to it, is like. One discovers that among building society members there are hundreds of thousands, if not millions, who take no interest at all in the society. They are in a financial institution and interested only in what they get on their investment or the mortgage that they can get from it. They are not active members in the sense that we all understand. The smaller societies are much healthier in this respect. It is the larger societies that must be taken care of, because they will have much wider responsibilities placed upon them.
If we are realistic about this we have to admit that it would be difficult to justify leaving the present method of filling vacancies on the boards of building societies just as it is. If the commission is to have this degree of oversight that we have been speaking about in the clauses we have just passed, and if it is to oversee to the extent that the Bill provides, then I believe that the commission should be consulted about filling vacancies to ensure that candidates offered for consideration are regarded as suitable. Let us do it that way. I know of no other way.
One cannot get on to the board of a building society with all the weight of the establishment behind either the sitting members or behind the candidate who has been co-opted. The board makes sure that a member

481
is co-opted to be available when the election takes place. I know of no occasion when an election has taken place in any building society with which I have been connected where there has been a vacancy to be filled by ballot. There is always someone there, a sitting co-opted member—it is rarely a woman; I know of no women on boards—who is re-elected. Let us be absolutely realistic. That is the crude truth about how people become members of the boards of building societies; and once on the board, they stay there.
Lord Plummer of St Marylebone: I should not like the crude truth of the noble Lord, Lord Houghton, to be thought the normal in the appointment of directors. In my experience the appointment of directors is carefully gone into. Several candidates are brought forward, and after a period of examination and consideration they are very carefully selected. The professional experience they bring forward is also considered.
As my noble friend the Minister said, it is very important that the vacancies should be filled if it is a long time before the annual general meeting. Indeed, the Bill has strengthened the position of the examination of new directors in that they have to bring forward particulars and have their CV put down in the annual report. Whatever the experience of the noble Lord, Lord Houghton, might be, it is not my experience in the appointment of directors.
Lord Campbell of Croy: I again declare an interest as a director of one of the large building societies. The noble Lord, Lord Houghton, is probably right in saying that he does not know of occasions were there has been a vacancy without a nomination which has been put forward by the board or the chairman. However, I think he ought to remember that only this year there was a contested election in the second largest building society, and as a result someone came on to the board who had not been expected. It was unfortunate—and I say "unfortunte" because I am in favour of more women on the boards—that it was the woman member of the board who lost her seat.
Lord Morris: The noble Lords, Lord Houghton of Sowerby and Lord Williams of Elvel, are protesting a little too much. Unless I have this wrong, my understanding is that in company law there is no legal requirement whatever for a director to have any skill, ability or intergrity. That never has been the case. The noble Lord, Lord Williams, is quite correct that Clause 45 will only bite, so to speak, after the event when there is evidence of a failure in prudent management. However, it quite clearly states that some of the criteria of prudent management is that the directors be fit and proper, that they conduct their business with prudence and integrity and that they must have adequate professional skills. That is a much higher standard for directors than in the Companies Act, and I think we can rely strongly on that.
Lord Williams of Elvel: It has been an interesting debate. I am bound to say that I am glad the noble Lords, Lord Plummer and Lord Campbell of Croy, intervened. They are, of course, chairmen or directors
482
of building societies—and quite properly the noble Lord, Lord Campbell of Croy, declared his interest as such.
I still feel that I am not in the least persuaded by the arguments of the noble Lord, Lord Skelmersdale. I still feel that we must go further. There is an important point of principle about which we on these Benches feel strongly. Unless the noble Lord, Lord Skelmersdale, can reassure me on the points that I and my noble friends have raised, I shall seek the opinion of the Committee.
4.56 p.m.
On Question, Whether the said amendment (No. 156) shall be agreed to?
Their Lordships divided: Contents, 70 Not Contents, 107.

DIVISION NO. 1

CONTENTS

Airedale, L.

Kilmarnock, L.

Amherst, E.

Leatherland, L.

Ardwick, L.

Listowel, E.

Aylestone, L.

Llewelyn Davies of Hastoe, B.

Banks, L.

Lloyd of Kilgerran, L.

Barnett, L.

Longford, E.

Boston of Faversham, L.

Lovell-Davis, L.

Bottomley, L.

McNair, L.

Brockway, L.

Morton of Shuna, L.

Bruce of Donington, L.

Mulley, L.

Caradon, L.

Oram, L.

Carmichael of Kelvingrove, L.

Phillips, B. [Teller]

Cledwyn of Penrhos, L.

Pitt of Hampstead, L.

Crawshaw of Aintree, L.

Ponsonby of Shulbrede, L.

David, B.

[Teller.]

Dean of Beswick, L.

Ritchie of Dundee, L.

Diamond, L.

Rochester, L.

Elwyn-Jones, L.

Ross of Marnock, L.

Ennals, L.

Seear, B.

Ewart-Biggs, B.

Sefton of Garston, L.

Fisher of Rednal, B.

Serota, B.

Foot, L.

Shepherd, L.

Gallacher, L.

Silkin of Dulwich, L.

Graham of Edmonton, L.

Simon, V.

Grey, E.

Stallard, L.

Grimond, L.

Stoddart of Swindon, L.

Hampton, L.

Strabolgi, L.

Hanworth, V.

Tordoff, L.

Harris of Greenwich, L.

Underhill, L.

Hatch of Lusby, L.

Wallace of Coslany, L.

Houghton of Sowerby, L.

Wells-Pestell, L.

Jacques, L.

Whaddon, L.

Jeger, B.

White, B.

Jenkins of Putney, L.

Wigoder, L.

John-Mackie, L.

Williams of Elvel, L.

Kaldor, L.

NOT-CONTENTS

Abercorn, D.

Colwyn, L.

Ampthill, L.

Craigavon, V.

Auckland, L.

Cullen of Ashbourne, L.

Belhaven and Stenton, L.

Davidson, V.

Belstead, L.

Denham, L. [Teller.]

Blyth, L.

Denning, L.

Brabazon of Tara, L.

Dilhorne, V.

Brougham and Vaux, L.

Drumalbyn, L.

Broxbourne, L.

Eccles, V.

Cameron of Lochbroom, L.

Ellenborough, L.

Campbell of Alloway, L.

Elliot of Harwood, B.

Campbell of Croy, L.

Elliott of Morpeth, L.

Carnock, L.

Elton, L.

Cathcart, E.

Enniskillen, E.

Coleraine, L.

Foley, L.

Colville of Culross, V.

Fortescue, E.

483

Fraser of Kilmorack, L.

Perth, E.

Gainford, L.

Peyton of Yeovil, L.

Glanusk, L.

Plummer of St Marylebone,

Glenarthur, L.

L.

Gray, L.

Porritt, L.

Gridley, L.

Portland, D.

Hailsham of Saint

Quinton, L.

Marylebone, L.

Rankeillour, L.

Hardinge of Penshurst, L.

Reay, L.

Harvington, L.

Renton, L.

Hayter, L.

Rodney, L.

Henderson of Brompton, L.

Romney, E.

Hesketh, L.

Rugby, L.

Hives, L.

St. Aldwyn, E.

Home of the Hirsel, L.

St. Davids, V.

Hooper, B.

Selkirk, E.

Hylton-Foster, B.

Shannon, E.

Ilchester, E.

Shaughnessy, L.

Kimball, L.

Skelmersdale, L.

Kinnoull, E.

Soames, L.

Knollys, V.

Strathcarron, L.

Lawrence, L.

Strathspey, L.

Layton, L.

Sudeley, L.

Long, V. [Teller.]

Terrington, L.

Lyell, L.

Teviot, L.

Mancroft, L.

Thomas of Swynnerton, L.

Marsh, L.

Thorneycroft, L.

Massereene and Ferrard, V.

Thurlow, L.

Maude of Stratford-upon-

Tryon, L.

Avon, L.

Ullswater, V.

Maybray-King, L.

Vaux of Harrowden, L.

Mersey, V.

Vickers, B.

Morris, L.

Vivian, L.

Mottistone, L.

Westbury, L.

Mowbray and Stourton, L.

Whitelaw, V.

Murton of Lindisfarrre, L.

Wise, L.

Norfolk, D.

Wynford, L.

Nugent of Guildford, L.

Young, B.

Pender, L.

Ypres, E.

Resolved in the negative, and amendment disagreed to accordingly.
5.4 p.m.
Clause 60, as amended, agreed to.
Clause 61 [Directors: supplementary provisions as to elections, etc.]:
Lord Skelmersdale Lord Skelmersdale Moved Amendment No. 157:
Page 99, line 14, leave out subsection (10).
The noble Lord said: I spoke to this amendment with Amendment No. 155. I beg to move.
On Question, amendment agreed to.
On Question, Whether Clause 61, as amended, shall stand part of the Bill?
Lord Houghton of Sowerby: At Clause 61(2) (line 31, page 97) of the Bill, there is again the magic sum of £100—this nice round figure—which of course tallies with the "prescribed amount" in paragraph 36 of Schedule 2. I shall be returning to that subject at a later stage in the Bill, but in the meantime I draw attention to the fact that £100 is much less than the average industrial weekly wage. It is really a minimal sum to prescribe either as a qualifying condition of voting or for the purposes of this clause. I am not moving an amendment because I have not tabled one, but I think that to provide that no society can require a candidate to have more than £100 invested in the society is to put it at a very low value indeed.
At Report stage I shall say that the "prescribed amount" ought to be very much higher than £100. I do
484
not think that at any time an investment in a building society of just over half the weekly wage of the industrial worker constitutes an investment of such significance as to justify qualification for full rights. Still less do I think it can be regarded as a qualification of a candidate for a directorship. However, there it is. I think that this £100 must have been thought of about four years ago, when these discussions first started.
Clause 61, as amended, agreed to.
Clause 62 [Prohibition of tax-free payments to directors]:
On Question, Whether Clause 62 shall stand part of the Bill?
Lord Barnett: It is a simple question that I wish to put to the noble Lord. I wonder whether he can explain what Clause 62(1) means.
Lord Skelmersdale: This clause follows Section 311 of the Companies Act, and is the first of a number of clauses relating to directors where it is considered sensible to replicate that Act unless there are good and solid reasons for not doing so, because obviously building societies are peculiar and particular in certain respects.
So far as concerns this particular provision of the Bill, we see no reason why the two should not coincide. Its purpose is to limit the society's liabilities for directors' fees and to facilitate members' control over directors' fees. For example, qualifying members voting on a resolution at an annual general meeting quite rightly will have no way of knowing the tax position of individual directors. It is absolutely right that this provision should apply to societies as it does to companies; and banks, of course, are also caught under the Companies Act. So there is a generality among the financial services institutions of which I hope the noble Lord will approve.
Lord Barnett: I certainly approve of it, but I am not clear how anybody can receive any income free of tax. I should be very interested to know who receives income free of tax. I should like to join such an organisation. I can understand someone receiving a salary that is is net of tax and it being grossed up, but that is an entirely different matter from what is said in Clause 62(1). I am just not clear as to what the noble Lord means.
Lord Skelmersdale: As I understand the position— and if I get it wrong I shall certainly write to the noble Lord—the object of this provision, which is general to all financial services legislation, as I have said, is to prevent the payment of emoluments net of tax.
Clause 62 agreed to.
Clause 63 [Directors to disclose interests in contracts and other transactions]:
Lord Barnett Lord Barnett moved Amendment No. 158:
Page 100, line 27, at end insert ("and details of any such declaration shall be included in the annual report of the Society.")
The noble Lord said: The purpose of the Amendment is to seek information about the present

485
situation. It is a probing amendment. The current information could be insufficient in the case of a small building society where the directors effectively control it. That is why the amendment is put down. If the information is at least included in the annual report it will not be able to be kept within the close confines of the directors of what is effectively a director-controlled small building society. I beg to move.
Lord Skelmersdale: I assume that the noble Lord was not speaking to Amendment No. 159 at the same time. The provisions of Clause 63, like the earlier clause to which the noble Lord drew our attention, are based on the Companies Act 1985, in this case Section 317. I can see no reason to impose a more onerous requirement on building societies in this respect than on banks. However, Clause 102 of the Bill provides the Treasury with the power to amend relevant provisions of the Bill to mirror future changes in company legislation. If the Companies Act provisions are amended to require declarations from directors of interests in contracts to be included in the annual report, the Government will undertake to use the power to amend the Bill so that that provision will apply to building societies also; in other words, we want to keep all the financial institution legislation in line. I hope that the noble Lord will agree that that is a correct and proper aim.
Lord Barnett: I am obliged to the noble Lord. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 159 not moved.]
Clause 63 agreed to.
Clauses 64 to 68 agreed to.
Schedule 9 agreed to.
Clause 69 [Disclosure and record of income of related businesses]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 160:
Page 111, line 23, leave out from ("excuse") to ("shall") in line 25 and insert ("—

(a) fails to furnish the particulars required by subsection (6) above or furnishes particulars which are false or misleading in a material particular or, in the case of particulars under Part II to Schedule 10, are not a justified estimate, or

(b) fails to furnish any information lawfully required of him under subsection (9) above or furnishes information which is false or misleading in a material particular.")

The noble Lord said: If I may, I shall speak also to Amendments Nos. 161 and 162. These amendments have a little more meat to them. It is appropriate to extend the penalty provision for supplying false or misleading particulars so that those who read the register kept under Clause 69 are not misled. This amendment covers both the precise particulars to be given under Part I of Schedule 10 and the estimates within prescribed bands under Part II of this schedule. It is necessary to ensure that an estimate provided is a true one, justified by the available figures.
Parts II and III of the schedule were added during the course of the Bill's passage in another place in answer to criticisms that the original provisions imposed unduly burdensome administrative require-
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ments on societies and on firms in which their directors have interests. However, Parts II and III provide both belt (that is, the estimates) and braces (that is, the overlapping bands) with the obvious temptation to those concerned to opt for the lower of two overlapping bands. This amendment removes the braces; namely, the overlapping bands. That is Amendment No. 161. Amendment No. 162, I am glad to say, is purely drafting. I beg to move.
Lord Williams of Elvel: I wonder whether the noble Lord could help us on one point. What exactly is the definition of a justified estimate?
Lord Skelmersdale: If this were Question Time I could get away with saying, "Not without notice". I do not know the answer off the top of my head, and perhaps I may be permitted to write to the noble Lord and put a copy of that interesting information in the Library.
On Question, amendment agreed to.
Clause 69, as amended, agreed to.
Schedule 10 [Requisite particulars of income of related businesses]:
5.15 p.m.
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 161 and 162:
Page 218, line 6, leave out from ("provisions") to end of line 9.
Page 218, line 35, after ("commissions") insert ("or other amounts received")
The noble Lord said: I beg to move Amendments Nos. 161 and 162 together. I spoke to these with Amendment No. 160.
On Question, amendments agreed to.
Schedule 10, as amended, agreed to.
Clause 70 agreed to.
Clause 71 [Accounting records and systems of business control, etc.]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 163:
Page 114, line 32, leave out ("other")
The noble Lord said: I wish also to speak to a another pretty large group of amendments: Amendments Nos. 164, 165, 167, 168, 169, 170, 171, 175, 176, 178, 184, 185 and 186.
All the amendments are technical refinements to the accounting and audit provisions. Some respond to points raised with the Government by the profession (for example, Amendments Nos. 163 to 165) and others are purely for clarification. Again, I shall be glad to try to deal with any questions which noble Lords may have on the detail of any amendment. I beg to move.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 164 and 165:
Page 114, line 33, after ("or") insert ("there is reasonable ground for expecting").
Page 114, line 34, after ("society") insert ("other than insignificant assets or liabilities in respect of the management of the society").
On Question, amendments agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 166:
Page 116, line 11, leave out subsection (12).
The noble Lord said: With this I shall speak also to Amendments Nos. 223 and 224. These amendments concern the term "linked by resolution" with respect to a body corporate associated with a building society. The amendment to Clause 71 deletes subsection (12), which defines "linked by resolution", with reference to Clause 18, for application to Part VIII (accounts and audit) only. I beg to move.
On Question, amendment agreed to.
Clause 71, as amended, agreed to.
Clause 72 [Duty of directors to prepare annual accounts]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 167:
Page 117, line 25, leave out ("cases or classes of case") and insert ("descriptions of society").
The noble Lord said: I spoke to this with Amendment No. 163. I beg to move.
On Question, amendment agreed to.
Clause 72, as amended, agreed to.
Clause 73 [Contents and form of annual accounts]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 168:
Page 118, line 21, at end insert—
("() make different provision for different descriptions of society,").
The noble Lord said: I spoke to this amendment with Amendment No. 163. I beg to move.
On Question, amendment agreed to.
Clause 73, as amended, agreed to.
Clause 74 [Duty of directors to prepare annual business statement]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 169, 170 and 171:
Page 119, line 22, after second ("directors") insert ("and persons connected with them").
Page 119, line 22, leave out ("or") and insert ("and").
Page 119, line 23, after ("officers") insert ("and persons connected with them").
The noble Lord said: I spoke to these amendments with Amendment No. 163. I beg to move them en bloc.
On Question, amendments agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 172.
Page 119, line 24, leave out subsection (5) and insert—
("(5) The information comprising the annual business statement shall give a true representation of the matters in respect of which it is given.").
The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 179. These two amendments are to clarify that each of the particulars contained in the annual business statement must be true in itself and be fairly presented. The present requirement in the Bill for an annual business statement to give a true and fair view uses a term understood by accountants to relate to an overall view of a set of accounts that imposes a wider breadth of judgment than is appropriate to a compendium of discreet statistical presentations or statements of business information, which, it is expected, the annual business statement will contain.
Unlike a set of accounts, an annual business statement is not intended to be a composite set of financial statements which, together with its notes and the accounting policies behind it, can be considered as to whether they give an overall true and fair view. Instead, they will comprise a set of particulars, each of which must be true in itself and each of which must contain sufficient facts not to mislead by omission of relevant information. These amendments achieve that. I hope that they will also satisfy the noble Lords, Lord Barnett and Lord Williams of Elvel. I hope very much that we have met the points they put forward in Amendments Nos. 173, 174 and 180. With that, I beg to move.
Lord Williams of Elvel: I am grateful to the noble Lord for his presentation of the amendments and also for the fact that he referred to the amendments standing in the name of my noble friend Lord Barnett and myself, Amendment Nos. 173, 174 and 180, to which I can perhaps also refer.
The noble Lord is quite right in saying that the expression "a true and fair view" is a term of art in the accountancy profession and is clearly understood as such. The point of our amendment and indeed the point of the government amendment, I think, is to avoid having to use that expression where clear accounting information that can be properly examined and on which an audit report can be given is not available. It is to a certain extent a contradiction in terms to say that a business statement can be regarded as being true and fair, because the truth, like an onion, has a number of skins.
Referring to the particular wording, I would argue, and I hope the noble Lord will perhaps agree, that our wording is preferable to the Government's wording. We think that the auditors should be sure that the business statement is,
"fairly stated and properly prepared in accordance with this Act".
I would add that this is not our wording. It is the wording of the Institute of Chartered Accountants in England and Wales. The government wording says that it shall give a true representation of matters in respect of which it is given. That goes a little further in some ways, and less far in other ways, than ours. For auditors to satisfy themselves that there should be a true representation implies that the auditors have to get into the mind of those making the representation and satisfy themselves that the people who are making the representation regard it as being true. We are simply saying that it should be fairly stated.

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The government amendment does not place the duty on the auditors to make sure that the statement is,
"properly prepared in accordance with this Act".
We feel that this is a rather important duty and that the auditors should be aware of it. Having said that, I am not going to argue further. I hope very much that the noble Lord will take a look at the wording. We are happy with the Government's wording, if I may put it this way, as second best wording. We think that ours is better. But if what the Government propose is all that we are going to get, we accept it. I hope very much, however, that the noble Lord will take another look at the matter before Report stage.
Lord Brabazon of Tara: I shall certainly have another look at it. Obviously, one is in the hands of the parliamentary draftsman in these matters and this is what he has suggested in seeking, as we hope, the same aim that the noble Lord seeks to achieve. I shall certainly look to see whether we can improve upon the wording. I give that undertaking.
On Question, amendment agreed to.
[Amendment Nos. 173 and 174 not moved.]
Clause 74, as amended, agreed to.
Clause 75 agreed to.
Clause 76 [Summary financial statement for members and depositors]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 175 and 176:
Page 121, line 27, after ("statement") insert ("and, where this subsection extends under section 78(5A) to the auditors' report also, of the auditors' report").
Page 121, line 35, after ("statement") insert ("and, where this subsection extends under section 78(5A) to the auditors' report also, of the auditors' report").
The noble Lord said: I spoke to these amendments with Amendment No. 163. I beg to move.
On Question, amendments agreed to.
Clause 76, as amended, agreed to.
Clause 77 [Auditors: appointment, tenure, qualifications, etc.]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 177:
Page 122, line 24, after ("appoint") insert ("from a list of accounting firms approved by the Commission").
The noble Lord said: We have a worry about the quality of auditing firms that will be required to discharge their substantial duties under the Bill. As noble Lords will know, there is a wide variety of accounting firms, some small, some large. They have, if I can be perfectly honest (and no noble Lord will, I think, dissent from what I say) different capabilities. Some are relatively experienced in these matters. Others are less relatively experienced.
As building societies move forward, using the powers that they will have under the Bill, we believe that the auditing of building societies should be to the highest standard possible. We feel that there are
490
occasions when building societies, particularly smaller building societies, have used local accountants in particular areas who might not be as expert in the sort of matters that they will have to review in future as the larger firms.
I accept immediately that our formula in the amendment may not be perfect. It might be rather difficult for the commission to single out one firm of accountants rather than another, all firms of accountants being properly qualified. Nevertheless, there is a serious point lying behind the amendment. If we wish building societies to be properly audited and controlled, there must be some arrangement whereby the commission can intervene to make sure that the auditing firms understand the job that they have to do and that they are properly qualified to do it. It is therefore in the spirit of a probing amendment that I move the amendment. I beg to move.
Lord Brabazon of Tara: The idea of a panel of approved auditors, whether for banks or building societies, is not a new one. It has been discussed and rejected many times, by the inspectors appointed to investigate the Grays Building Society and most recently, last year by the report of the committee set up to consider the system of banking supervision under the chairmanship of the Governor of the Bank of England.
There are a number of reasons why the proposal has been so regularly rejected and why the Government do not consider it to be appropriate for this Bill: it would be wrong in principle and a retrograde step for the commission to be required to make a judgment on particular accountancy firms, since this is an area which is properly left to the respective responsibilities of the individual firms, the accountancy bodies and the boards of societies. The accountancy bodies in their professional guidance expect their members to carry out their professional work with due regard for the technical and professional standards expected of them as members and not to undertake professional work which they are not competent to perform unless they obtain the necessary advice and assistance to enable them to carry out the work competently. It is therefore for each auditor to satisfy himself that he has the necessary competence. If he fails to do so, he makes himself liable to disciplinary proceedings by his professional body. In addition, the onus is on the society's board to satisfy themselves that the auditors appointed have the appropriate knowledge, expertise and resources to fulfil their duties under the Bill in relation to the size and business of that particular society. If they are not so satisfied, they should bring forward proposals to the members for a change of auditors or, as in some cases happens, for supplementing the existing firm with another.
It seems to me entirely proper that the auditors, their professional bodies and the boards of societies should shoulder their respective responsibilities in this matter and not have them shrugged off onto the commission. As the noble Lord, Lord Williams of Elvel, said, it would be, moreover, an invidious task for a body such as the commission to make initial assessments of competence and then monitor performance continuously or periodically. Nevertheless, Clause 53(2)(g) enables the commission

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to refer shoddy audit work to the disciplinary authorities of the professional body. It is proper for the audit firm to be judged by its own professional peers. Furthermore, any inadequacy in a society's auditors is most likely to reveal itself in relation to the auditors' review of the society's systems of control and inspection. The commission has power to carry out inspection itself of the society's systems, to appoint others to do so, and to require an independent accountant's report on the information provided to it by a society. These powers can be used to enable the commission to take an initial view on the quality of audit and the commission can discuss any problems with the society and/or its auditors.
I think that I have given a fairly reasonable explanation. However, with regard to the point which the noble Lord, Lord Williams, made—that it would be a difficult job for the commission to start to form a list of this kind—I would ask him to withdraw his amendment in view of what I have said.
Lord Williams of Elvel: I must apologise to the noble Lord. I did not quite catch his reference. Was it Clause 52 of the Bill in which he said the commission has powers to look at audit? I wonder whether he would kindly refresh my memory on that?
Lord Brabazon of Tara: Clause 53(2)(g) on page 82 of the Bill says:
"with a view to the institution of, or otherwise for the purposes of, any disciplinary proceedings relating to the exercise by a solicitor, auditor, accountant or valuer of his professional duties".
That is the paragraph at which I was looking.
5.30 p.m.
Lord Williams of Elvel: I am grateful to the noble Lord; I have found it. The problem is that this clause deals with the disclosure of information. I fully understand that if disciplinary procedures are to be taken against an auditor, a commission under this clause, to which the noble Lord has referred the Committee, is entitled to disclose information. What the clause does not do—and in my view there should be some provision in the Bill that this should happen—is to allow the commission to intervene where it feels that an audit is unsatisfactory, or that an accounting firm needs to be complemented, as the noble Lord said, by a second accounting firm. The noble Lord may be able to point me to another part of the Bill where that can happen. If there is no place in the Bill where it happens, I hope very much that the noble Lord will consider this point, and perhaps bring it back at Report stage.
Lord Brabazon of Tara: I shall certainly look into that point and perhaps I can get in touch with the noble Lord on it.
Lord Williams of Elvel: I am most grateful. It is very important from our point of view. I hope that the noble Lord will recognise that. In the light of what has been said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 77 agreed to.
Schedule 11 agreed to.
Clause 78 [Auditors' report]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 178:
Page 123, line 17, at end insert—
("(5A) If the auditors' report includes a qualification of their opinion that the annual accounts give a true and fair view of the matters specified in subsection (4) above subsections (8) and (9) of section 76 extend also to the auditors' report.").
The noble Lord said: I spoke to this with Amendment No. 163. I beg to move.
On Question, amendment agreed to.
The Deputy Chairman of Committees (Lord Aylestone): If Amendment No. 179 is agreed to, I cannot call Amendment No. 180.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 179:
Page 123, line 23, leave out paragraph (a) and insert— ("(a) the information given in the annual business statement gives a true representation of the matters in respect of which it is given.").
The noble Lord said: I spoke to this with Amendment No. 172. I beg to move.
On Question, amendment agreed to.
Clause 78, as amended, agreed to.
[Amendment No. 180 not moved.]
Clause 79 [Auditors' duties and powers]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 181:
Page 124, line 14, at end insert—
("( ) If the auditors are of the opinion that the development of the system of control of a society's business is not or may not be adequate for the future development of the society's business, they should make a separate report to that effect to the Directors.").
The noble Lord said: I beg to move Amendment No. 181 standing in the name of my noble friend Lord Barnett and myself, in the words as on the Marshalled List. We come to an extremely important area in the Bill which is concerned with the duties of auditors towards their clients. There are a number of such amendments which we shall be debating in this Committee, and this is the first.
This amendment arises out of the inspector's report on the Grays Building Society collapse and, indeed it tries to strengthen the relationship between the auditor and the client. We are very happy that the Government have decided to include in the Bill a retrospective judgment by the auditors on a society's system of controlling its business. What worries us is that there is no provision in the Bill should the auditors see that the society in question for which they are auditors is going into a new form of business, is developing its form of business along the lines allowed in the Bill, and the systems of business control are not adequate for future development. We seek to introduce this amendment in order to ensure that the auditors will have the power, and indeed the duty, to make a separate report to the directors if they feel that the control systems inside the society are not, or may not in the future, be adequate for the future development of the society. It is those last words on which I would lay particular emphasis.
Societies will be allowed to do all kinds of things which they have not done hitherto. We should like to see that they are properly controlled. We have had a number of debates on this very matter. One of the major systems of control, and, indeed, probably the only system which will adequately stop fraud from occurring, is where auditors are happy with the internal systems of control that societies have. This has been proved time and time again in the case of banks. We think that it should be proved in the case of building societies.
The auditors will have this function to report not to the commission but to the directors. This in turn is designed to make sure that the audit relationship with the client is given greater prominence—we shall be coming back to this in later amendments—than it is in the Bill at the moment.
We are worried that the Bill, in general, seeks to make auditors some form of policemen or spies and does not instruct them to be sufficiently responsive to their relationships with their clients. This amendment is the first of a number which seek to do that. It concentrates on the system of control of the society's business and whether that will be adequate in the future. I believe that the amendment should commend itself to the Government. I do not believe that there is a difference between the two sides of the Committee on this point. The Government should look at this matter seriously. I beg to move.
Lord Morris: I question the necessity for the amendment. I remember those far off days when I was an auditor. An integral part of any audit was the audit of the system of internal control. Invariably, the accountants handling the audit of a building society or company will always report on that matter. It is central to the proper financial control of any business. I take the point that this amendment relates to reporting to the directors. Of course, the auditors would be reporting immediately to the company management if there is any weakness.
It is part of the practice rules of the Institute of Chartered Accountants in England and Wales, which have reams of instructions, if I remember rightly—I know that the noble Lord, Lord Barnett, will recall that—on this point. It is an essential part of the auditors work to look at the point that has been raised by the noble Lord, Lord Williams.
Lord Brabazon of Tara: I am grateful to my noble friend Lord Morris for his remarks. We believe that the amendment is unnecessary and possibly misconceived. It is misconceived because the auditor's statutory duty is to the members with respect to the stewardship of members' funds and the truth and fairness of the financial accounts; and to the commission regarding the accounting records and systems of control of the business.
The auditor's duty is not and should not be to the directors whose stewardship and fulfilment of their statutory duty is one of the areas reviewed by the auditor. The amendment is unnecessary because directors are free to instruct auditors to report to them on any matter. There is no need for a statutory duty for that purpose. In addition, auditors are required to review a society's system of control of its business, and
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"business" is defined in Clause 45 as embracing business that the society proposes to carry on.
If the auditors concluded that the systems did not comply with the Bill's provisions, they would have to report back to the commission via the board. If, however, the auditors were satisfied that the systems complied with the legislation they would advise the board of any shortcomings found.
I also believe the amendment to be unnecessary because it is accepted good practice and recommended in the accountancy profession's auditing guidelines on building societies that auditors should ensure that non-executive directors are made aware of their reports to the management, and that auditors should attend board meetings to explain any matters arising from their audits. I hope that with that explanation the noble Lord will be able to withdraw the amendment.
Lord Williams of Elvel: I am grateful to the noble Lord. It is a difficult point. I fully accept that the best auditing firms send a management letter each year which describes what the audit firm sees as being wrong with the internal control. I use the expression "best auditors". It is by no means universal practice. It is done by the best auditors. I have been in receipt of many management letters in my time and I know that they are penetrating and sensible documents.
I believe that such management letters should be compulsory under the present arrangements for the building societies. In the Grays report the inspectors recommended that the auditors should confirm to the supervisory authority that a management letter had been sent to the directors. If the noble Lord is telling me that that is what he is saying and that such confirmation will be forthcoming, I am happy. I am trying to ensure that there should be a management letter and that that should not be left to the best auditors to do it and the worst auditors not to do it.
Lord Brabazon of Tara: I think that I shall have to rely on the profession's auditing guidelines on building societies. It should be for the profession to apply this to its members.
Lord Williams of Elvel: I understand the noble Lord's last point. I hope that the professions will take it into account. In my last words I was paraphrasing the words of the former chairman of the accounting standards committee of the Institute of Chartered Accountants in England and Wales. In the light of what the noble Lord has said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.45 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 182:
Page 125, line 3, at end insert—
("(c) to attend meetings of Directors of the society at which the Annual Accounts and the annual business statement are approved,").
The noble Lord said: The amendment arises from a recommendation in the Grays case. It comes from the same gentleman who was previously chairman of the accounting standards committee of the Institute of Chartered Accountants in England and Wales. It seeks

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to ensure that auditors are fully involved in the process of deciding what is in the annual accounts and the annual business statement.
At present, there is no general provision for auditors to do other than ensure that the books have been properly kept and satisfy all the requirements under the Bill. There is no provision for them to talk to the directors of the company about the accounts. They will of course read out the audit report to the annual meeting. In our view, that is not enough, particularly because auditors have to make certain representations about the annual business statement.
We therefore feel it would be appropriate when describing auditors' duties that they should at least once a year—we think that is the point where the directors of the company decide on the content of the annual accounts—be present at that meeting and should take a full part in it. I beg to move.
Lord Brabazon of Tara: Before I reply to this amendment, may I make a couple of remarks on the last amendment which may be helpful. The commission will seek to see that there is a management letter and can demand to see it. That may clarify the point.
On this amendment, the commission, again, will be seeking to ensure that the auditors attend meetings. It will be the subject of a commission guidance note. We believe that the amendment is unnecessary. It is recognised good practice for building society auditors to attend board meetings at which the annual accounts are to be approved. In addition, existing guidance from the accountancy profession recommends that where an auditor considers that a qualified report may be necessary, he should fully discuss the matter with the directors of the society.
No responsible building society board would seek to exclude the auditors from attending the meeting to approve the annual accounts, and being heard there. If there were such a board, the amendment would not solve the problem because it only deals with attendance and not with the right to be heard. It would do little to establish the expected relationship. The analogous section of the Companies Act 1985 contains no such provisions. I therefore ask the noble Lord to withdraw the amendment.
Lord Williams of Elvel: I am grateful to the noble Lord for that explanation. I hope that I heard him aright when he said that the commission would be issuing a guidance note which would contain the principles which we are attempting to embody through this amendment. I am grateful for that information, and on that basis I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 79 agreed to. Clauses 80 and 81 agreed to.
Clause 82 [Auditors' duties to Commission and related rights]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 183:
Page 127, line 23, after ("society") insert—
("and after consultation with the Directors of the Society").
The noble Lord said: I beg to move Amendment No. 183 standing in the names of my noble friend Lord Barnett and myself, with the words as on the Marshalled List. Again we come back to the question of the relationship between auditors and their clients. In Clause 82 we are dealing with the auditors' duties to the commission and related rights.
It is our view that auditors should not be required to go behind the backs (if I may put it like that) of directors of a society of which they are auditors; and if they are going to make a report to the commission, in accordance with subsection (5) of the clause we are dealing with, on the conduct of the business of the society during that year, it seems to us only reasonable that they should discuss that report with the directors of the society before they send it to the commission. Any other procedure would prejudice the relationship between the auditor and his client. I beg to move.
Lord Morris: I question the necessity of this amendment, because the end of subsection (5) says:
"and the society shall, within the period of 90 days so beginning, send the report to the Commission together with such comments as the board of directors think fit to make".
I should imagine that the only way that could possibly happen would be if they consulted the directors beforehand anyway.
Lord Brabazon of Tara: We believe that this amendment which requires auditors to consult the directors before making their annual report to the commission on the society's accounting records and systems of business control is at best unnecessary and, I am afraid, at worst undesirable. The accountancy profession's guidelines on building societies emphasise the importance of reporting significant weaknesses in internal controls to management and of ensuring that non-executive directors are made aware of these reports, and recommends that auditors should attend board meetings to explain matters in the audit. It seems to me to be wholly inappropriate to try to legislate from the fine detail of relationships between boards and auditors. This is a matter best left to common sense and good practice.
The purpose of Clause 82 is to provide a formal means whereby auditors can draw the attention of the commission to failure to comply with statutory requirements for accounting records and control systems. It is therefore essential that, while an auditor will normally take the sensible precaution of both checking his facts and discussing the problems with the directors before making his report to the commission, he must be free to make his report without influence being exerted on him—something that the word "consultation" may be held to imply.
The clause does, however, include safeguards for directors in that the auditors' report is sent first to the society and the board, and the board have the opportunity to submit their comments alongside the report when they send the report to the commission. This means that if they are unhappy about any aspect of it, their comments are immediately available to the commission. In the light of that explanation I hope that the noble Lord will be able to withdraw this amendment.
Lord Williams of Elvel: I am again grateful to the noble Lord. He has the advantage over me in that he has knowledge of certain guidance notes that are undoubtedly going to be sent out which I do not have. I accept that if there is in some guidance note a general principle that the auditors should discuss these questions, and, I think the noble Lord said, verify their points before they send the report off to the commission, that is tantamount to consultation, and so I have no particular problem with that. I do not believe that the noble Lord's construction of the word "consultation" means quite what he says, but that is a matter of semantics.
Again we come to this in Amendment No. 187, and I feel that this is a question of establishing a proper relationship between the auditor and his client. However, in the light of what the noble Lord has said about the guidance notes and the general practice I shall read carefully what he has said, and in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 184 to 186:
Page 127. line 29. leave out (and").
Page 127, line 32. at end insert ("and,
(c) the system of safe custody of documents maintained under section 12(13).'").
Page 128, line 7, at end insert—
("(d) as regards the system of safe custody of documents, whether or not the system complies with the requirement of section 12(13) and, if not, specifying the respects in which it was not complied with.").
The noble Lord said: I spoke to Amendments Nos. 184, 185 and 186 with Amendment No. 163. I beg to move the three amendments en bloc.
On Question, amendments agreed to.
Lord Williams Lord Williams of Elvel moved Amendment No. 187:
Page 128, line 30, leave out ("as soon as is practicable after sending") and insert ("before they send").
The noble Lord said: I beg leave to move Amendment No. 187, standing in the names of my noble friend Lord Barnett and myself, with the wording as on the Marshalled List. This is essentially the same point as I was making before, as I am sure the noble Lord recognises. I think that the noble Lord, Lord Morris, drew attention to the provisions of this subsection, which allows the directors to comment on an auditor's report.
Our only point is that instead of being "as soon as is practicable after sending" the report, it should be "before they send" the report. This would seem to be a sensible way of dealing with the matter. If the noble Lord can tell me that there is a guidance note somewhere that I have not seen, or which will be issued, and that it will have this effect, I shall be perfectly happy. I beg to move.
Lord Brabazon of Tara: I did not want to miss the opportunity of replying on this occasion and accepting the noble Lord's amendment. I should draw attention to one thing that I think the noble Lord, Lord Williams, might have misheard in my reply to the last amendment. I was not referring to guidelines to be sent
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by the commission; I was referring to the accountancy profession's guidelines on building societies, which already exist. That is another point. Anyway. I am pleased to accept this amendment.
On Question, amendment agreed to.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 188:
Page 128, line 37, after ("them") insert ("and whether or not to do so would be contrary to the interests of the society").
The noble Lord said: I beg to move Amendment No. 188, and with the leave of the Committee to speak to Amendment No. 189 at the same time. These amendments were foreshadowed in another place in a Written Answer on the Financial Services Bill by my honourable friend the Parliamentary Under-Secretary of State for Trade on 9th June. Perhaps I may quote from col. 45 of the Official Report for that day.
"A further amendment will be proposed to provide that no duty which an auditor owes to a company or firm should prevent him from giving information to a supervisor. The auditor will accordingly not be liable for loss suffered as a result of such a report if made in good faith. Nor will he be liable for defamation as such reports would automatically attract qualified privilege".
My honourable friend concluded his answer by saying that the Chancellor of the Exchequer was considering the introduction of a parallel measure for banks, as described in the White Paper on banking supervision, and for building societies.
Under the Building Societies Bill, and Clause 82 in particular, auditors will owe duties to both the society and the commission, as the supervisory body concerned to promote the protection of the investments of both shareholding members and depositors. In the vast majority of situations communication between auditors and the commission would be with the knowledge of the society. This is the normal and well established position, and the Government have no wish to undermine traditional relationships between auditors and their clients. But there needs to be provision for exceptional circumstances where the auditor may need to alert the commission to a particular situation. By removing doubt as to the extent of an auditor's right to pass information, this amendment will facilitate communications between the auditor and the commission and contribute to the development of an effective relationship between them.
Turning to the second amendment, perhaps I may again quote from what my honourable friend said at col. 45 of the Official Report for 9th June:
"I have given especially careful consideration to the definition of those circumstances in which an auditor should be expected to report on his own initiative to a supervisor.
"In the light of this consideration and of the many representations which I have received from the profession, I have concluded that there should be no general duty placed on auditors in the Bill to report to supervisors. The particular circumstances in which a report should be made need to be carefully defined. I believe this is best achieved by professional guidance and I look to the professional accountancy bodies, in consultation with the supervisors, to draw up such guidance. But an amendment to the Bill will be brought forward to give the Secretary of State a reserve power to lay down rules obliging auditors to report in certain circumstances to the supervisors. Such a power would be invoked only if suitable professional guidance was not issued".
My honourable friend went on to say that a parallel measure for banks and for building societies was being considered by the Chancellor of the Exchequer.
The Government believe this reserve power to be desirable for this Bill because of the importance of effective communication between building society auditors (who must visit their societies regularly and may be the first to detect the danger signals) and the commission as the supervisor. However, as my honourable friend said, the Government are of the opinion that such matters are best dealt with by the professional bodies concerned. It is therefore intended that this power will only be exercised by the commission if the profession fails to produce an effective code of practice.
I feel that in some ways I have drawn the short straw in having to move these two amendments as they will probably be discussed on the Financial Services Bill and indeed if we have the banking supervision Bill in the next Session. Nevertheless, they have reached me and this Chamber first because this is the first time they have been debated in either House on the Building Societies Bill. I therefore commend them to the Committee. I beg to move.
6 p.m.
Lord Williams of Elvel: The noble Lord, Lord Brabazon of Tara, is quite right when he says that he has drawn the short straw. These amendments and the issues they raise have been the subject of intense debate in the press and elsewhere for a number of months now—indeed, ever since the Johnson Matthey affair and the Chancellor's committee of inquiry which was set up after that event and reported last August.
We fully understand that the Government propose to introduce similar amendments to this on the Financial Services Bill and the forthcoming Bill on banking supervision. The amendments—I am referring particularly to Amendment No. 189, which is to us the more objectionable of these amendments— specificially require the auditor to override his normal duty of confidentiality to his client. Thus he is required by law, by a statutory instrument, to break the relationship that an auditor normally has with his client. We believe that this idea arose out of the Chancellor's committee of inquiry into the adequacy of banking supervisory procedures which reported last August. It recommended the establishment of a dialogue between bank supervisors and auditors to,
"assist each other to carry out their respective functions"—
that is, the supervisors and the auditors. This recommendation set all kinds of alarm bells ringing among the professional accounting institutes.
The institutes' concerns were threefold: first, the audit relationship is dependent upon confidence between the auditor and the client. That confidence, in turn, is dependent to a considerable degree on the fact that the auditor will not divulge to any third party information obtained in the course of his work. The principle of confidentiality is vital to a system which depends on the auditor obtaining all the information and the explanations he may need for the purposes of his audit. The Chancellor's committee's proposal was seen as a fundamental breach of this principle.
The second concern is the nature of the auditor's role. He is not a source of information and should not be a source of information. But he is a source of
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opinion upon information supplied by his client. Unless the auditor himself is running the society, the bank or the financial services organisation in question, all he can do is rely on the quality of information that his client gives him. There is a problem with this for the auditor. He has to satisfy himself that the information is reasonably correct, but it is not the job of the auditor to dig out information which he then passes on to a third party.
Finally, there is the problem of fraud. We should have great reservations about a statutory requirement that requires an auditor to report suspected fraud. "Fraud" has multiple meanings in law and any duty to report what are inevitably no more than suspicions seems to us to be extremely dangerous. We are also concerned that a duty to report suspected fraud will come to be seen as a duty to detect fraud, which we regard both as unrealistic and not in the performance of the auditor's normal duties.
As I have said, these two amendments have been the subject of considerable debate in the press and elsewhere. They have come to the Committee at this stage of a Bill that has gone through the full procedure in another place. These amendments could have been tabled in another place. It is not very difficult to draft this amendment—at least, I do not think it is very difficult. The amendments have not been tabled. They have come to this Chamber and are not yet in the Financial Services Bill so far as I can see, because, having read through it, I cannot find them. I feel rather concerned for the noble Lord, Lord Brabazon of Tara, in that he has to stand up to defend amendments which properly should have been tabled in another place when this Bill was going through all the stages it did without the guillotine.
The noble Lord quite rightly said that Amendment No. 189 provided the Government with reserve powers in case the professions failed to issue proper guidance to their own members. Our preferred approach is for the professions to be free to issue professional guidance which is a genuine reflection of professional responsibilities, and not be subject to a sword of Damocles hanging over their head in case they fail to do so. We therefore oppose most vigorously both these amendments. I hope the noble Lord will see fit to take them away again, consider them and perhaps redraft them. Perhaps we will help him to try to find some sort of arrangement satisfactory to both sides of this Committee.
Lord Houghton of Sowerby: Whatever the noble Lord may have said about the close collaboration between the Building Societies Association and the Government, I really cannot believe that the Building Societies Association thought up this one. This is George Orwell stuff. The commission is already Big Brother, and almost every amendment that the Ministry has brought forward is making it a bigger brother than ever. All I can say is that if this is what the Building Societies Association has agreed, the Government must have got it into a grovelling condition and said, "Look, you have to put up with this. You want all that the Bill will give you in wider opportunities, but this straitjacket is to go on you". That is how it reads to me.

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I cannot understand this. One wonders whether we are dealing with responsible members of a board. Surely the building society movement today is not in a condition that this kind of thing has to be imposed on it. I know that whenever proposals get into the hands of governments, their advisers and the parliamentary draftsmen, every eventuality has to be thought of and every loophole has to be stopped. Whoever drafted all this should be promoted at once to be a member of the Board of Inland Revenue, because they need him badly. I think we should have an easier time on finance Bills if the draftsmen of this clause were available for them. It is difficult to treat this matter seriously. My noble friend, in his calm and collected manner, dealt with this proposition in almost an academic spirit. I cannot do that. I am not made that way. I want to protest, and that is what I am doing.
Lord Brabazon of Tara: In the vast majority of situations communications between the auditors and the commission would be with the knowledge of the society. This is the normal, well-established position, and the Government have no wish to undermine traditional relationships between auditors and their clients. But there needs to be provision for exceptional circumstances where the auditor may need to alert the commission to a particular situation and where informing the society's management would not suffice to secure the protection of investors.
An obvious, if perhaps extreme, example would be the suspicion of imminent execution of substantial fraud with direct involvement of those for the time being in de facto control of the society. In principle it is intended that there should be a power, not a duty, for an auditor to communicate with the supervisor where this is expedient in the interest of investors and depositors.
This is provided for in Clause 82(8). This would be exceptional. The normal mode of communication would be through the society or directly between commission and auditor with the knowledge of the society. But it is entirely proper that enabling provision should be there for the exceptional circumstance. The question of entitlement of auditors to send information to, or answer questions by, the commission relating to the society's affairs has been the subject of consultation and wide debate in relation to the Financial Services Bill and the proposed banking legislation.
Auditors will need guidance as to the circumstances in which a report should be made, and the Government expect, and would welcome, the introduction by the professional accountancy bodies of such guidance agreed with the supervising authorities. We think that that is the right way to proceed. But the Government also think that a reserve power is needed in case, for whatever reasons, the preferred arrangement fails. This reserve power is this amendment to the Bill.
The Government believe that this reserve power is needed as a fall-back. They remain convinced that their preferred option and that of the professional bodies—a power to communicate rather than a duty—is the right one. But we are moving into largely
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uncharted waters at a time of very considerable change in financial markets and in relation to financial institutions. We have to guard against the possibility not only that suitable guidance may not be agreed with the professional accountancy bodies, but also that it may not prove sufficiently effective in practice against the possibly unforeseeable needs of the future.
I am able to tell your Lordships that the preferred system is the voluntary system, and if possible it should be left to the professions. The auditors' duty is to the members and to the commission; it is not to the director and the managers. In the case of a building society, it is the members as the shareholders who need to be protected. It is not intended that auditors should do the commission's work for them. The Bill is careful to distinguish between the boards, the auditors and the commission. But it needs the ability in very exceptional circumstances for auditors to talk direct to the commission. The essential point is not the sensitivity of auditors but the protection of the investors. For those reasons I must urge your Lordships to accept these amendments.
The Earl of Selkirk: May I ask my noble friend whether any similar conditions exist in the Companies Act?
Lord Brabazon of Tara: These are new provisions.
Lord Williams of Elvel: I am afraid that there, is a very serious difference of opinion between myself and the noble Lord, Lord Brabazon of Tara. He says in his justification of these amendments that they are a reserve power, but perhaps I may just read to the Committee what is said in Amendment No. 189. in subsection (9) which is to be inserted:
"The Commission, with the consent of the Treasury, may by order impose on the auditors of building societies an obligation to furnish to the Commission, in such circumstances as may be prescribed in the order, relevant information available to thorn of such descriptions as may be prescribed in the order;"—
which means to say that the commission can ask for anything from the auditors. To say that that is a sort of reserve power that we are never going to use and that we hope very much that the accountants will all get together and sort it all out seems to me to be quite misrepresenting the nature of the amendment.
Lord Brabazon of Tara: What I meant when I said "reserve power" was in reference to Subsection (10) of Amendment No. 189.
Lord Williams of Elvel: I am sorry if I misunderstood the noble Lord. I understood him to say that the whole amendment was a reserve power, because he preferred to have the professions setting out their own guidelines, and that it was only if they tailed to do that that these arrangements would be invoked. I hope that I have not misunderstood the noble Lord on that.
Lord Brabazon of Tara: What I am saying is that the power to make an order under this subsection is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. In other words, it must come to Parliament before it can be used.
Lord Williams of Elvel: I am grateful. I understand that and I know what happens to orders when they come before Parliament under the annulment procedure. Nevertheless, I think that they are reserve powers and I think that the noble Lord said that he hoped very much, and the Government hoped very much, that the professions would sort it out themselves. We should like the professions to be left to sort it out for themslves. In case I seem too academic to my noble friend Lord Houghton of Sowerby I would say that I really feel that this is something on which my noble friend and I would agree and that if I appear academic, it does not mean to say that I do not feel very strongly about it. I would continue to oppose this amendment.
6.16 p.m.
On Question, Whether the said amendment (No. 188) shall be agreed to?
Their Lordships divided: Contents, 92; Not-Contents, 49.

DIVISION NO. 2

CONTENTS

Airey of Abingdon, B.

Long, V.

Alexander of Tunis, E.

Lucas of Chilworth, L.

Ashbourne, L.

Lyell, L.

Beloff, L.

Mancroft, L.

Belstead, L.

Massereene and Ferrard, V.

Bessborough, E.

Maude of Stratford-upon-

Blyth, L.

Avon, L.

Boyd-Carpenter, L.

Mersey, V.

Brabazon of Tara, L.

Morris, L.

Brocket, L.

Mottistone, L.

Brougham and Vaux, L.

Mowbray and Stourton, L.

Broxbourne, L.

Murton of Lindisfarne, L.

Bruce-Gardyne, L.

Newall, L.

Caithness, E.

Nugent of Guildford, L.

Campbell of Alloway, L.

Orkney, E.

Campbell of Croy, L.

Pender, L.

Carnock, L.

Peyton of Yeovil, L.

Cathcart, E.

Plummer of St Marylebone,

Coleraine, L.

L.

Colville of Culross, V.

Portland, D.

Craigmyle, L.

Quinton, L.

Davidson, V.

Rankeillour, L.

Denham, L. [Teller.]

Reay, L.

Dilhorne, V.

Renton, L.

Elliot of Harwood, B.

Renwick, L.

Elton, L.

Rodney, L.

Enniskillen, E.

St. Aldwyn, E.

Ferrers, E.

St. Davids, V.

Feversham, L.

Sanderson of Bowden, L.

Glanusk, L.

Shannon, E.

Glenarthur, L.

Skelmersdale, L.

Gridley, L.

Slim, V.

Hailsham of Saint

Strathcarron, L.

Marylebone, L.

Sudeley, L.

Halsbury, E.

Swinton, E. [Teller.]

Hardinge of Penshurst, L.

Terrington, L.

Hayter, L.

Thomas of Swynnerton, L.

Henderson of Brompton, L.

Thorneycroft, L.

Hives, L.

Trumpington, B.

Hooper, B.

Tryon, L.

Kimball, L.

Ullswater, V.

King of Wartnaby, L.

Vaux of Harrowden, L.

Knollys, V.

Vickers, B.

Lane-Fox, B.

Vivian, L.

Lauderdale, E.

Whitelaw, V.

Lawrence, L.

Wynford, L.

Layton, L.

Young, B.

Lindsey and Abingdon, E.

504

NOT-CONTENTS

Ampthill, L.

John-Mackie, L.

Ardwick, L.

Kaldor, L.

Barnett, L.

Listowel, E.

Boston of Faversham, L.

Llewelyn Davies of Hastoe, B.

Bottomley, L.

Longford, E.

Brockway, L.

Lovell-Davis, L.

Bruce of Donington, L.

Mishcon, L.

Caradon, L.

Morton of Shuna, L.

Carmichael of Kelvingrove, L.

Mulley, L.

Cledwyn of Penrhos, L.

Munster, E.

Dean of Beswick, L.

Nicol, B.

Denning, L.

Oram, L.

Elwyn-Jones, L.

Ponsonby of Shulbrede, L.

Ennals, L.

[Teller.]

Fisher of Rednal, B.

Rea, L.

Gallacher, L. [Teller.]

Seebohm, L.

Graham of Edmonton, L.

Serota. B.

Hatch of Lusby, L.

Shepherd. L.

Houghton of Sowerby, L.

Stallard, L.

Howie of Troon, L.

Stoddart of Swindon, L.

Ilchester, E.

Underhill, L.

Irving of Dartford, L.

Wallace of Coslany, L.

Jacques, L.

Wells-Pestell, L.

Jeger, B.

White, B.

Jenkins of Putney, L.

Williams of Elvel, L.

Resolved in the affirmative, and amendment agreed to accordingly.
6.25 p.m.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 189:
Page 128, line 39, at end insert—
("(9) The Commission, with the consent of the Treasury, may by order impose on the auditors of building societies an obligation to furnish to the Commission, in such circumstances as may be prescribed in the order, relevant information available to them of such descriptions as may be prescribed in the order; and it shall be the duty of any auditor to furnish information to which the obligation extends notwithstanding any obligation of confidence incumbent on him.
(10) The power to make an order under subsection (9) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(11) In subsection (9) above "relevant information" means information relating to the conduct of the business of building societies or their subsidiaries or associated bodies.").
The noble Lord said: I have already spoken to this amendment, and beg to move.
On Question, amendment agreed to. Clause 82, as amended, agreed to. Clause 83 agreed to.
Schedule 12 [Schemes for investigation of complaints]:
Lord Campbell of Croy Lord Campbell of Croy moved Amendment No. 190:
Page 228, line 47, leave out ("but not to be bound by").
The noble Lord said: I beg to move Amendment No. 190 on behalf of my noble friend Lord Ridley, and I suggest it would be convenient for his Amendment No. 192 to be discussed at the same time. If the Government agree, I think it would save time if their Amendment No. 193 were discussed also. The resumption of the Committee stage of this Bill today has been at short notice, though welcome, but my noble friend Lord Ridley could not break an engagement today and therefore cannot be here. He has asked me to explain briefly his amendments, and

505
I know he would wish me to declare his interest as a director of a building society.
The Bill appears to introduce a new power for ombudsmen. I use that as a generic term because the first ombudsman in this country was called the Parliamentary Commissioner, and in this Bill he is called the adjudicator. He could, under the Bill as it now stands, ignore or override a contract between a society and a customer. So far as I know, this has not been tried before in the legislation and arrangements for ombudsmen. If I am mistaken in this I hope my noble friend on the Front Bench will tell me, but, so far as I know, with the Parliamentary Commissioner and the ombudsmen for local government, national health services, banking and insurance, there has been no provision whereby the ombudsman could override a contract. It seems, therefore, that it is an innovation which has been carried out in this Bill, and that the building societies have therefore become the subject of a new departure.
It is also a serious matter, I submit. I know that in another place a great deal of time was given to the subject, but the result is that the ombudsman can intervene in legal agreements freely reached between persons. The Government's Amendment No. 193 appears to recognise this, and does go some way towards meeting the point. The Government are aware, I know, of the concern of the building society movement, which is glad that the problem is being recognised. I know my noble friend Lord Ridley hopes the Government will continue discussions to see if more can be done to solve the problem.
Earlier today my noble friend Lord Brabazon of Tara stated on the first two amendments which we considered that the Government were aiming to avoid putting societies at a disadvantage compared with their competitors, such as the banks. But this seems a situation, concerning the ombudsman, where the societies are being asked to be part of a scheme which has an important new element in it which has not appeared in previous schemes for ombudsmen, and this is to their disadvantage. I beg to move.
Lord Skelmersdale: I am grateful to my noble friend Lord Campbell of Croy for raising this issue. As he has said, it has been a matter for a certain amount of discussion between the Government and the Building Societies Association. The ombudsman's terms of reference should go beyond matters of strict legal entitlement. He must be able, having established the rights of the parties, to consider whether they were exercised in a just manner. In the Government's view, it is essential to have this recognised explicitly in the statutory requirements to belong to an ombudsman scheme. Without such recognition, the requirement would not be to belong to an ombudsman scheme, but simply to have an arbitrator. While the scheme set up in practice could go beyond that, the Bill must require the ombudsman to have the appropriate powers.
In seeking to provide a statutory requirement to belong to an ombudsman scheme it is important to include the minimum powers that an ombudsman must be expected to have. While a simple power to make recommendations may suffice for a purely voluntary arrangement, I believe that a statutory
506
requirement, with all that that implies, should spell out the duties with greater precision. Moreover, banks and insurance companies do not enjoy the freedom not to comply with the ombudsman's findings that the building societies are being given in this Bill.
Although the banks and insurance industries have self-imposed ombudsmen, this Bill provides for the first time for a statutory non-governmental ombudsman. The Government naturally understand the anxieties of societies about these novel provisions. But I firmly believe that if they continue to act in the best traditions of service to their members they will have little to fear. I am sure that where the ombudsman finds injustice or unfairness societies will be only to pleased to take the necessary steps to remedy the situation. But to guard against the possibility of a perverse decision by the ombudsman the provisions include the right of societies, in the last resort, not to implement his recommendations so long as they explain their reasons publicly in the way that the ombudsman requires.
As my honourable friend said in introducing this provision in another place, the Government hope that recourse to this procedure will be necessary only on rare occasions. I am sure that societies will find that to be the case once they have gained experience of the ombudsman's operations. However, I accept that the Government's first attempt to draft appropriate powers goes a little too wide. It is not the intention that the ombudsman should be able to rewrite contracts between building societies and their members or customers. That is a point which building societies have been worried about. It is no part of the ombudsman's functions to say that the wrong contract was entered into and that the parties should have gone into some quite different contract.
On the other hand, it is perfectly reasonable for an ombudsman to say that, whatever the strict terms of the contract might have been, it was unfair to enforce the contract in the particular case at issue. An example of this might be enforcement of an interest penalty for the early redemption of a mortgage when the borrower had reason to believe that it was not the society's policy to enforce such provisions. To take another example, it might be the withholding of interest on a share account where a fixed period of notice was required, without taking account of particular extenuating circumstances in the case in question. Other possibilities might be the levying of charges for the use of cheque facilities or the withdrawal of facilities unfairly. It is possible to envisage many examples of occasions when enforcement of the strict terms of the contract would not be fair and where, in the great majority of cases, a society would not seek to do so. However, there may be the occasional case where an individual is treated unfairly and where it would be right for him to have redress through the ombudsman.
The Government amendments, to which my noble friend has referred, seek to replace the present very wide power with one that defines much more precisely the circumstances in which the ombudsman should be able to act. I trust my noble friend will agree that the Government amendments go a very long way towards meeting the legitimate concerns of the building societies and that he will not feel the need to pursue

507
this amendment tonight but will come back to the subject at a later stage if, on reflection, he feels that the Government Amendment No. 191 and Amendment No. 193 (which is a technical drafting amendment on the same matter) need amplification. Indeed I am committed to continuing discussion on this matter at least until after Report stage; but for the moment I must tell my noble friend that the Government believe their proposals now strike the right balance between the legitimate rights of consumers and societies. I would accordingly invite my noble friend to withdraw his amendment.
Lord Campbell of Croy: I am grateful to my noble friend for giving a clear explanation of the reasons why the Government have put forward, first, the text of the Bill and, secondly, their amendments.
My noble friend did confirm that these were novel provisions: that was the term he used. I agree it is unlikely that there will be many cases, if any, in which the ombudsman would be required to do this and where there would be considerable difficulty with a society; but if a case did occur under the terms of the Bill as it stands, before the Government amendments are made, it would raise a matter of principle of some importance.
I hoped I had made it clear that I considered the Government amendments as coming some way towards meeting the wishes of my noble friend Lord Ridley and that they are improving the Bill. On hearing that the Government are committed to continuing discussions to see whether further improvements can be made, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 191:
Page 229, line 32, after ("take") insert ("or desist from taking").
The noble Lord said: I spoke to this amendment with the last amendment, and I beg to move.
On Question, amendment agreed to.
Schedule 12, as amended, agreed to.
Schedule 13 agreed to.
Clause 84 [Investigation of complaints: supplementary provisions]:
[Amendment No. 192 not moved.]
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 193:
Page 131, line 30, leave out from beginning to ("contractual") and insert ("or the complainant not to exercise or require the performance of any of the").
The noble Lord said: I spoke to Amendments Nos. 193 and 194 with Amendment No. 190. I beg to move.
On Question, amendment agreed to.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 194:
Page 133, line 3, after ("of") insert ("Part III of).
On Question, amendment agreed to.
Clause 84, as amended, agreed to.
Clause 85 agreed to.
Schedule 14 agreed to.
Clauses 86 and 87 agreed to.
Clause 88 [Voluntary winding up]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 195:
Page 135, line 12, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
The noble Lord said: I spoke to this amendment with Amendment No. 72. I beg to move.
On Question, amendment agreed to.
Clause 88, as amended, agreed to.
Clause 89 [Winding up by court: grounds and petitioners]:
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 196 to 198:
Page 135, line 28, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
Page 136, line 6, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
Page 136, line 35, at end insert—
("(5) In this section, "contributory" has the same meaning as in paragraph 9(2) or, as the case may be, paragraph 37(2) of Schedule 15 to this Act.").
The noble Lord said: I spoke to these amendments with Amendment No. 72 and I beg to move them en bloc.
On Question, amendments agreed to.
Clause 89, as amended, agreed to.
Clause 90 [Application of winding up legislation to building societies]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 199:
Leave out Clause 90 and insert the following new clause:
("Application of winding up legislation to building societies.
90.—(1) In this section "the companies winding up legislation" means the enactments applicable in relation to England and Wales, Scotland or Northern Ireland which are specified in paragraph 1 of Schedule 15 to this Act (including any enactment which creates an offence by any person arising out of acts or omissions occurring before the commencement of the winding up).
(2) In its application to the winding up of a building society, by virtue of section 88(1) or 89(1), the companies winding up legislation shall have effect with the modifications effected by Parts I to III of Schedule 15 to this Act; and the supplementary provisions of Part IV of that Schedule shall also have effect in relation to such a winding up.
(3) In sections 37, 88, 89 and 101, "the applicable winding up legislation" means the companies winding up legislation as so modified.").
The noble Lord said: Again, I spoke to this amendment with Amendment No. 72. I beg to move.
On Question, amendment agreed to.
Lord Skelmersdale Lord Skelmersdale moved Amendments No. 200 and 201:
After Clause 90, insert the following new clause:
("Power of court to declare dissolution of building society void.

.—(1) Where a building society has been dissolved under section 87 or following a winding up, the High Court or, in relation to a society whose principal office was in Scotland, the Court of Session may at any time within 12 years after the date on which the society was dissolved, make an order under this section declaring the dissolution to have been void.

(2) An order under this section may be made, on such terms as the court thinks fit, on an application by the trustees under section 87 or the liquidator, as the case may be, or by any other person appearing to the Court to be interested.

509

(3) When an order under this section is made, such proceedings may be taken as might have been taken if the society had not been dissolved.

(4) The person on whose application the order is made shall, within seven days of its being so made, or such further time as the Court may allow, furnish the central office with a copy of the order; and the central office shall keep the copy in the public file of the society.

(5) If a person fails to comply with subsection (4) above, he shall be liable on summary conviction—

(a) to a fine not exceeding level 3 on the standard scale, and

(b) in the case of a continuing offence, to an additional fine not exceeding £40 for every day during which the offence continues.").

After Clause 90, insert the following new clause:
('' Supplementary.
. Where a building society is being wound up or dissolved by consent, a member to whom an advance has been made under a mortgage or other security, or under the rules of the society, shall not be liable to pay any amount except at the times or times and subject to the conditions set out in the mortgage or other security, or in the rules, as the case may be.").
The noble Lord said: I hope it is for the convenience of the Committee, since these are two new clauses which I spoke to with Amendment No. 72, if I move Amendments Nos. 200 and 201 en bloc. I beg to move.
On Question, amendments agreed to.
Schedule 15 [Winding up: supplementary provisions]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 202:
Leave out Schedule 15 and insert the following new schedule:
("Schedule 15
APPLICATION OF COMPANIES WINDING UP LEGISLATION TO BUILDING SOCIETIES

PART I
GENERAL MODE OF APPLICATION
1. The enactments which comprise the companies winding up legislation (referred to in this Schedule as "the enactments") are the provisions of—

(a) Parts IV, VI, VII and XII of the Insolvency Act 1986, or

(b) Part XX of the Companies (Northern Ireland) Order 1986.

and, in so far as they relate to offences under any such enactment, sections 430 and 432 of and schedule 10 to the Insolvency Act 1986 or Article 678 of. and Schedule 23 to, the Companies (Northern Ireland) Order 1986.

2. Subject to the following provisions of this Schedule, the enactments apply to the winding up of building societies as they apply to the winding up of companies limited by shares and registered under the Companies Act 1985 or (as the case may be) the Companies (Northern Ireland) Order 1986.
3.—(1) The enactments shall, in their application to building societies, have effect with the substitution—

(a) for "company" or "building society";

(b) for "the registrar of companies" or "the registrar" of "the central office";

(c) for "the articles" of "the rules"; and

(d) for "registered office" of "principal office".

(2) In the application of the enactments to building societies—

(a) every reference to the officers, or to a particular officer, of a company shall have effect as a reference to the officers, or to the corresponding officer, of the building society and as including a person holding himself out as such an officer; and

(b) every reference to an administrator, an administration order, an administrative receiver, a shadow director or a voluntary arrangement shall be omitted.

4.—(1) Where any of the enactments as applied to building societies requires a notice or other document to be sent to the central office, it shall have effect as if it required the central office to keep the notice or document in the public file of the society concerned and to record in that file the date on which the notice or document is placed in it.
(2) Where any of the enactments, as so applied, refers to the registration, or to the date of registration, of such a notice or document, that enactment shall have effect as if it referred to the placing of the notice or document in the public file or (as the case may be) to the date on which it was placed there.
5. Any enactment which specifies a money sum altered by order under section 416 of the Insolvency Act 1986, or as the case may be, Article 614 of the Companies (Northern Ireland) Order 1986, (powers to alter monetary limits) applies with the effect of the alteration.

PART II
MODIFIED APPLICATION OF INSOLVENCY ACT 1986, PARTS IV AND XII
Preliminary
6. In this Part of this Schedule, Part IV of the Insolvency Act 1986 is referred to as "Part IV"; and that Act is referred to as "the Act".
Members of building society as contributories in winding up
7.—(1) Section 74 (liability of members) of the Act is modified as follows.
(2) In subsection (1), the reference to any past member shall be omitted.
(3) Paragraphs (a) to (d) of subsection (2) shall be omitted; and so shall subsection (3).
(4) The extent of the liability of a member of a building society in a winding up shall not exceed the extent of his liability under paragraph 6 of Schedule 2 to this Act.
8.Sections 75 to 78 and 83 in Chapter I of Part IV (miscellaneous provisions not relevant to building societies) do not apply.
9.—(1) Section 79 (meaning of "contributory") of the Act does not apply.
(2) In the enactments as applied to a building society, "contributory"—

(a) means every person liable to contribute to the assets of the society in the event of its being wound up, and

(b) for the purposes of all proceedings for determining, and all proceedings prior to the determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory, and

(c) includes persons who are liable to pay or contribute to the payment of—

(i) any debt or liability of the building society being wound up, or

(ii) any sum for the adjustment of rights of members among themselves, or

(iii) the expenses of the winding up;

but does not include persons liable to contribute by virtue of a declaration by the court under section 213 (imputed responsibility for fraudulent trading) or section 214 (wrongful trading) of the Act.

Voluntary winding up
10.—(1) Section 84 of the Act does not apply.
(2) In the enactments as applied to a building society, the expression "resolution for voluntary winding up" means a resolution passed under section 88(1) of this Act.
11. In subsection (1) of section 101 (appointment of liquidation committee) of the Act, the reference to functions conferred on a liquidation committee by or under that Act shall have effect as a reference to its functions by or under that Act as applied to building societies.
12.—(1) Section 107 (distribution of property) of the Act does not apply; and the following applies in its place.
(2) Subject to the provisions of Part IV relating to preferential payments, a building society's property in a voluntary winding up shall be applied in satisfaction of the society's liabilities to creditors (including any liability resulting from the variation to the liquidator's duty effected by section 28 or 31 of this Act) pari passu and, subject to that application, in accordance with the rules of the society.
(13) Sections 110 and 111 (liquidator accepting shares, etc. as consideration for sale of company property) of the Act do not apply.
(14) Section 116 (saving for certain rights) of the Act shall also apply in relation to the dissolution by consent of a building society as it applies in relation to its voluntary winding up.
Winding up by the court
15. In sections 117 (High Court and county court jurisdiction) and 120 (Court of Session and sheriff court jurisdiction) of the Act, each reference to a company's share capital paid up or credited as paid up shall have effect as a reference to the amount standing to the credit of shares in a building society as shown by the latest balance sheet.
16. Section 122 (circumstances in which company may be wound up by the court) of the Act does not apply.
17. Section 124 (application for winding up) of the Act does not apply.
18.—(1) In section 125 (powers of court on hearing of petition) of the Act, subsection (1) applies with the omission of the words from "but the court" to the end of the subsection.
(2) The conditions which the court may impose under section 125 of the Act include conditions for securing—

(a) that the building society be dissolved by consent of its members under section 87, or

(b) that the society amalgamates with, or transfers its engagements to, another building society under section 91 or 92, or

(c) that the society transfers it business to a company under section 95,

and may also include conditions for securing that any default which occasioned the petition be made good and that the costs, or in Scotland the expenses, of the proceedings on that petition be defrayed by the person or persons responsible for the default.

(19) Section 126 (power of court, between petition and winding-up order, to stay or restrain proceedings against company) of the Act has effect with the omission of subsection (2).
(20) If, before the presentation of a petition for the winding up by the court of a building society, an instrument of dissolution under section 87 is placed in the society's public file, section 129(1) (commencement of winding up by the court) of the Act shall also apply in relation to the date on which the instrument is so placed and to any proceedings in the course of the dissolution as it applies to the commencement date for, and proceedings in, a voluntary winding up.
21.—(1) Section 130 of the Act (consequences of winding-up order) shall have effect with the following modifications.
(2) Subsections (1) and (3) shall be omitted.
(3) A building society shall within 15 days of a winding-up order being made in respect of it, give notice of the order to the central office, and the central office shall keep the notice in the public file of the society.
(4) If a building society fails to comply with sub-paragraph (3) above, it shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale; and so shall any officer who is also guilty of the offence.
22. Section 140 (appointment of liquidator by court in certain circumstances) of the Act does not apply.
23. In the application of sections 141(1) and 142(1) liquidation committees) of the Act to building societies, the references to functions conferred on a liquidation committee by or under that Act shall have effect as references to its functions by or under that Act as so applied.
24. The conditions which the court may impose under section 147 (power to stay or sist winding up) of the Act shall include those specified in paragraph 18(2) above.
25. Section 154 (adjustment of rights of contributories) of the Act shall have effect with the modification that any surplus is to be distributed in accordance with the rules of the society.
26. In section 165(2) (liquidator's powers) of the Act, the reference to an extraordinary resolution shall have effect as a reference to a special resolution.
Winding up: general
27. Section 187 (power to make over assets to employees) of the Act does not apply.
28.—(1) In section 201 (dissolution: voluntary winding up) of the Act, subsection (2) applies without the words from "and on the expiration" to the end of the subsection and, in subsection (3), the word "However" shall be omitted.
(2) Sections 202 to 204 (early dissolution) of the Act do not apply.
29. In section 205 (dissolution: winding up by the court) of the Act, subsection (2) applies with the omission of the words from "and, subject" to the end of the subsection; and in subsections (3) and (4) references to the Secretary of State shall have effect as references to the Commission.
Penal provisions
30. Sections 216 and 217 of the Act (restriction on re-use of name) do not apply.
31.—(1) Sections 218 and 219 (prosecution of delinquent officers) of the Act do not apply in relation to offences committed by members of a building society acting in that capacity.
(2) Section 218(5) of the Act and subsections (1) and (2) of section 219 of the Act do not apply.
(3) The references in subsections (3) and (4) of section 219 of the Act to the Secretary of State shall have effect as references to the Commission; and the reference in subsection (3) to section 218 of the Act shall have effect as a reference to that section as supplemented by paragraph 32 below.
32.—(1) Where a report is made to the prosecuting authority (within the meaning of section 218) under section 218(4) of the Act, in relation to an officer of a building society, he may, if he thinks fit, refer the matter to the Commission for further enquiry.
(2) On such a reference to it the Commission shall exercise its power under section 55(1) of this Act to appoint one or more investigators to investigate and report on the matter.
(3) An answer given by a person to a question put to him in exercise of the powers conferred by section 55 on a person so appointed may be used in evidence against the person giving it.
Preferential debts
33. Section 387 (meaning in Schedule 6 of "the relevant date") of the Act applies with the omission of subections (2) and (4) to (6).

PART III
MODIFIED APPLICATION OF THE COMPANIES (NORTHERN IRELAND) ORDER 1986, PART XX
Preliminary
34. In this Part of this Schedule, Part XX of the Companies (Northern Ireland) Order 1986 is referred to as "Part XX", that Order is referred to as "the Order" and references to "Articles" are references to Articles of that Order.
Members of building society as contributories in winding up
35.—(1) Article 468 (liability of members) is modified as follows.
(2) In paragraph (1), the references to any past member shall be omitted.
(3) Sub-paragraphs (a) to (d) of paragraph (2) shall be omitted; and so shall paragraph (3).
(4) The extent of the liability of a member of a building society in a winding up shall not exceed the extent of his liability under paragraph 6 of Schedule 2 to this Act.
36. Articles 469 to 472 and 477 in Chapter I of Part XX (miscellaneous provisions not relevant to building societies) do not apply.
37.—(1) Article 473 (meaning of "contributory") does not apply.
(2) In the enactments as applied to a building society, "contributory"—

(a) means every person liable to contribute to the assets of the society in the event of its being wound up. And

(b) for the purposes of all proceedings for determining, and all proceedings prior to the determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory, and

(c) includes persons who are liable to pay or contribute to the payment of—

(i) any debt or liability of the building society being wound up, or

(ii) any sum for the adjustment of rights of members among themselves, or

(iii) the expenses of the winding up;

but does not include persons liable to contribute by virtue of a declaration by the court under Article 583 (imputed responsibility for fraudulent trading).

Voluntary winding up
38.—(1) Article 529 does not apply.
(2) In the enactments as applied to a building society, the expression "resolution for voluntary winding up" means a resolution passed under section 88(1) of this Act.
39. Articles 539, 540 and 551 (liquidator accepting shares, etc, as consideration for sale for company property) do not apply.
40. In the application of Article 548 (committees of inspection) to building societies, a committee of inspection shall exercise only those functions conferred by or under the Order as so applied.
41.(1) Article 555 (distribution of property) does not apply; and the following applies in its place.
(2) Subject to the provisions of Part XX relating to preferential payments, a building society's property in a voluntary winding up shall be applied in satisfaction of the society's liabilities to creditors (including any liability resulting from the variation to the liquidator's duty effected by section 28 or 31 of this Act) pari passu and, subject to that application, in accordance with the rules of the society.
42. Article 562 (saving for certain rights) shall also apply in relation to the dissolution by consent of a building society as it applies in relation to its voluntary winding up.
Winding up by the court
43. Article 479 (circumstances in which company may be wound up by the court) does not apply.
44. Article 481 (application for winding up) does not apply.
45.—(1) Article 482 (powers of court on hearing of petition) applies with the omission of the words from "but the court" to the end of the Article.
(2) The conditions which the court may impose under Article 482 include conditions for securing—

(a) that the building society be dissolved by consent of its members under section 87, or

(b) that the society amalgamates with, or transfers its engagements to, another building society under section 91 or 92, or

(c) that the society transfers its business to a company under section 95,

and may also include conditions for securing that any default which occasioned the petition be made good and that the costs of the proceedings on that petition be defrayed by the person or persons responsible for the default.

46. Article 483 (power of court, between petition and winding- up order, to stay or restrain proceedings against company) has effect with the omission of paragraph (2).
47. If, before the presentation of a petition for the winding up by the court of a building society, an instrument of dissolution under section 87 is placed in the society's public file, Article 486(1) commencement of winding up by the court) shall also apply in relation to the date on which the instrument is so placed and to any proceedings in the course of the dissolution as it applies to the commencement date for, and proceedings in, a voluntary winding up.
48.—(1) Article 487 (consequences of winding-up order) shall have effect with the following modifications.
(2) Paragraphs (1) and (3) shall be omitted.
(3) A building society shall within 15 days of a winding-up order being made in respect of it, give notice of the order to the central office, and the central office shall keep the notice in the public file of the society.
(4) If a building society fails to comply with subparagraph (3) above, it shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale; and so shall any officer who is also guilty of the offence.
49. In the application of Article 507 (committees of inspection) to building societies, a commitment of inspection shall exercise only those functions conferred by or under the Order as so applied.
50. The conditions which the court may impose under Article 510 (power to stay winding up) shall include those specified in paragraph 45(2) above.
51. Article 519 (adjustment of rights of contributories) shall have effect with the modification that any surplus is to be distributed in accordance with the rules of the society.
52. In Article 556(1) (liquidator's powers), the reference to an extraordinary resolution shall have effect as a reference to a special resolution.
Winding up: general
53.—(1) Article 610 (power to make over assets to employees) does not apply.
(2) Article 543(5) and Article 553(6) (final meeting and dissolution: voluntary winding up) shall apply without the words from "and on the expiration" to "dissolved; but".
Penal provisions
54.—(1) Articles 585 and 586 (prosecution of delinquent officers) do not apply in relation to offences committed by members of a building society acting in that capacity.
(2) Article 585(3) and paragraphs (1) and (2) of Article 586 do not apply.
(3) The references in paragraph (3) and (4) of Article 586 to the Department of Economic Development shall have effect as references to the Commission; and the reference in paragraph (3) to Article 585 shall have effect as a reference to that Article as supplemented by paragraph 5 5 below.
55.—(1) Where a report is made to the prosecuting authority (within the meaning of Article 585) under Article 585(2) in relation to an officer of a building society, he may, if he thinks fit, refer the matter to the Commission for further enquiry.
(2) On such a reference to it the Commission shall exercise its power under section 55(1) of this Act to appoint one or more investigators to investigate and report on the matter.
(3) An answer given by a person to a question put to him in exercise of the powers conferred by section 55 on a person so appointed may be used in evidence against the person giving it.

PART IV
DISSOLUTION OF BUILDING SOCIETY WOUND UP (ENGLAND AND WALES, SCOTLAND AND NORTHERN IRELAND)
56.—(1) Where a building society has been wound up voluntarily, it is dissolved as from 3 months from the date of the placing in the public file of the society of the return of the final meetings of the society and its creditors made by the liquidator under—

(a) section 94 or (as the case may be) 106 of the Insolvency Act 1986 (as applied to building societies), or on such other date as is determined in accordance with section 201 of t hat Act, or

(b) Article 543 or (as the case may be) 553 of the Companies (Northern Ireland) Order 1986 (as so applied), or on such other date as is determined in accordance with that Article.,

as the case may be.

(2) Where a building society has been wound up by the Court, it is dissolved as from 3 months from the date of the placing in the public file of the society of—

(a) the liquidator's notice under section 172(8) of the Insolvency Act 1986 (as applied to building societies), or

(b) the notice of the completion of the winding up from the official receiver or the Official Assignee for company liquidations, or on such other date as is determined in accordance with section 205 of that Act, as the case may be.

57.—(1) Section 654 to 658 of the Companies Act 1985 or Articles 605 to 609 of the Companies (Northern Ireland) Order 1986 (provisions as to corporate property as bona vacantia) shall have the same effect in relation to the property of a dissolved building society (whether dissolved under section 87 or following its winding up) as they have in relation to the property of a dissolved company, but with the following modifications.
(2) Paragraph 3(1) above shall apply to those sections for the purpose of their application to building societies.
(3) Subsection (2) of section 654 and subsections (1) and (3) of section 655 apply without the words "or 653"; and the references in those subsections to section 651 shall have effect as references to section (Power to court to declare dissolution of building society void) of this Act.
(4) Paragraph (2) of Article 605 and paragraph (1) of Article 606 apply without the words "or 604".
Insolvency rules and fees: England and Wales and Scotland
58.—(1) Rules may be made under section 411 of the Insolvency Act for the purpose of giving effect, in relation to building societies, to the provisions of the applicable winding up legislation.
(2) An order made by the competent authority under section 414 of the Insolvency Act 1986 may make provision for fees to be payable under that section in respect of proceedings under the applicable winding up legislation and the performance by the official receiver or the Secretary of State of functions under it.
Insolvency rules and fees: Northern Ireland
59.—(1) Rules may be made under Article 615 of the Companies (Northern Ireland) Order 1986 for the purpose of giving effect, in relation to building societies, to the provisions of the applicable winding up legislation.
(2) Rules made by the Department of Economic Development under paragraph (6) of Article 613 may make provision for fees to be payable under that paragraph in respect of proceedings under the applicable winding up legislation and the performance by the Official Assignee for company liquidations or that Department of functions under it.").
The noble Lord said: Again, I spoke to this amendment with Amendment No. 72. I beg to move.
Lord Morris: Before we move from this amendment, I would point out to my noble friend that there is a star against this amendment, which, as he well knows, means that it is either a new amendment or it has been altered. I wonder whether he can tell me the nature of the alteration, if there is an alteration, and whether he can help in that direction when we come to Amendments Nos. 236 and 243, which are likewise starred? Although they have been debated, I think that is important.
Lord Skelmersdale: I am very grateful for the intervention of my noble friend. The change in Schedule 15 is in paragraph 57 concerning provisions as to corporate property as bona vacantia. Noble Lords will appreciate that the words added to sub-paragraph (4) merely mirror for Northern Ireland the provisions already made for Great Britain in sub-paragraph (3), concerning the application of the new clause, Power of court to declare dissolution of building society void, which we have just agreed with Amendment No. 200.
On Question, amendment agreed to.
Clause 91 [Amalgamations]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 203:
Page 139, line 6, after ("date") insert ("("the specified date")").
The noble Lord said: I beg to move Amendment No. 203, and I shall speak also, with the Committee's permission, to Amendments Nos. 204, 205, 206 and 225. The substantive amendment in this group is No. 206, which provides for the society resulting from a merger between two authorised societies to be deemed to be authorised from the date of incorporation.
The automatic initial authorisation of a society formed as a result of a merger between authorised societies is clearly a sensible provision. It would be wrong if a society formed by the union of two large and perfectly sound societies financially had to go through the authorisation procedures afresh. That is not to say, however, that mergers will automatically produce new societies which are completely sound. That is why the
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commission is given a role in approving mergers under Clause 93 and in vetting the information sent to members before they vote on the proposal under Schedule 6.
If the commission has doubts about the capacity of the combined society to refrain from authorisation, it is clearly material information that the members will need to know in considering the merger proposal. In practice, of course, it is most unlikely that the members will be prepared to approve a merger about which the commission had expressed disquiet. The other amendments in this group are purely drafting and consequential. I beg to move.
On Question, amendment agreed to.
6.45 p.m.
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 204 to 206:
Page 139, line 15, leave out from first ("the") to ("all") and insert ("specified date,").
Page 139, line 21, leave out from first ("the") to ("succeeds") in line 22 and insert ("specified date, each of the societies to which the successor").
Page 139, line 25, at end insert—
("(6) If, on the specified date, the societies, whose amalgamation was confirmed by the Commission are all authorised, their successor shall be treated as authorised for the purposes of this Act, whether or not the requirements of section 9(4) would be fulfilled in its case, as from that date.
(7) The central office shall record in the public file of the successor the fact that, by virtue of subsection (6) above, the society is to be treated as authorised for the purposes of this Act.".
The noble Lord said: I beg to move Amendments Nos. 204 to 206 en bloc. I have just spoken to these amendments with Amendment No. 203. I beg to move.
On Question, amendments agreed to.
Clause 91, as amended, agreed to,
Clause 92 agreed to.
Clause 93 [Mergers: provisions supplementing ss. 91 and 92]:
[Amendment No. 207 not moved.]Clause 93 agreed to. Schedule 16 agreed to. Clause 94 agreed to.
Clause 95 [Transfer of business to commercial company]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 208:
Page 146, line 33, leave out ("Act (Northern Ireland) 1960") and insert ("(Northern Ireland) Order 1986").
The noble Lord said: I spoke to this amendment with Amendment No. 73. I beg to move.
On Question, amendment agreed to.
On Question, Whether Clause 95, as amended, shall stand part of the Bill?
Lord Barnett: We now come to a rather important clause in the Bill on the question as to whether building societies should be allowed to convert to public limited companies. I want to say at the outset of my brief remarks that the Government have done a

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great deal to put safeguards into the Bill to make it difficult—indeed, some would say extremely difficult—for such a conversion to take place. They are requiring 20 per cent. of qualifying shareholders to vote on any conversion to company status, and, where a society wishes to transfer its engagements to another company, then 50 per cent. of qualifying shareholders, or the holders of 90 per cent. of share capital, will be required to vote in favour. As the Building Societies Association said in its recent brief:
"These figures are, in practice, almost impossible to attain".
In another place when this was debated, one of the Minister's honourable friends pointed out the inconsistency in the Government's position here. For example, if this fundamental change is desirable but it is defended by saying that it has been made extremely difficult to convert, why should the Minister not make it easier? If he is making it so difficult, one is bound to ask: why introduce it at all? I know that it is a little like the old question, "When did you stop beating your wife?" But it is that kind of thing that the Government are seeking to do and it is not my fault; it is what is in the Bill.
The Minister's defence, it seems to me—and the Minister in another place said it—is not that the change itself is desirable but that the option to be able to make the change is desirable. My case is that there is no evidence that the option is desirable. We do not need it. If we are to allow change from the mutual basis which everyone values so much, it seems to me that the case has to be made very strongly by those who are in favour of it.
The only case I have read was in col. 936 of the Official Report of another place for 4th June when it was said:
"It may be that as financial markets develop, some societies might want to develop more rapidly than the Bill allows."
But it is already quite clear that under mutual status building societies have no difficulty in raising all the funds that they are likely to need. Indeed, as we know (and we have discussed it during this Committee stage) they can also go to the wholesale market for funds. There is no difficulty in raising funds. So it seems to me that there is no overwhelming case for this fundamental change.
When we discussed this at Second Reading I think most noble Lords agreed that the status of building societies, with what they have been able to do under the mutual status they have had for so long, has been, to say the least, extremely valuable. It is only when an overwhelming case is made that this should be allowed. That case has not been made.
The dangers of allowing such a change to plc status are substantial. I know that a take-over can take place without conversion; it is sometimes called a merger. But, as we all know, in practice there is no such thing as a merger. Indeed, there was one recent case of a proposed take-over of a smaller building society—it did not happen. I shall not go into the details of that case, but I recognise that take-overs can take place without conversion. But a change to plc status will undoubtedly make it easier and, indeed, very tempting because these large building societies with plc status would have huge funds. It would be very tempting for major multinationals to make such a take-over. I say
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that without in any way being prejudiced about multinationals, whether they be British or foreign. They very often do an excellent job. But should they be doing the job that we want to see building societies doing in the housing field in this country? I should have thought the answer is, no, we do not want them to do that.
From all our discussions both at Second Reading and throughout this Committee stage the role of the building society movement in the housing field has been recognised as so important that there has to be an extremely powerful case to make it easier to change in such a way as to weaken the building society movement and to divert it from its true purposes. That I know is generally supported by noble Lords. I therefore hope that they will not support the Motion that Clause 95 stand part of the Bill, because in that way they will be able to prevent building societies from moving to plc status on any occasion. I beg to oppose the Motion that the clause stand part of the Bill.
Lord Brabazon of Tara: There was a good debate on this subject at Second Reading, and now the noble Lord, Lord Barnett, has given us his views on the subject. This is a new feature of building society legislation and it was the subject of most careful and extensive consultation before it reached this Chamber. The issue was thoroughly aired in the Green Paper of July 1984 which preceded this Bill, but it was also the subject of a detailed consultation paper in December of last year. So the Government have taken great care to canvass views as widely as possible.
The basic proposition is very simple and sensible. It is that the members should have the right to determine the future corporate structure of their society. The present legislation gives them no such right. What the Government are doing is to give them full control over the future direction their society should take. The Government have no particular view on whether building societies should convert. This is a matter for the members. In practice we doubt whether many will wish to do so, at least in the early years, but we think it would be wrong to continue to deny members that option.
The noble Lord, Lord Barnett, suggested that the hurdles we had set were in any case too high for them to turn themselves into plcs. I agree that the thresholds are difficult. We make no apology for that. Conversion to company status is a fundamental step and it should require evidence of widespread membership approval. It is not only because such a step should not be taken lightly; it also serves a prudential purpose in that if a stubstantial proportion of members have indicated their approval, the society can feel more confident that it will retain its deposit base after conversion.
I do not believe that the hurdles are impossibly high. If in the event they turn out to be unreasonably difficult, there exists provision in the Bill to adjust them. As I have said on previous occasions, this is a fundamental step for building societies to take. At an earlier stage my noble friend Lord Campbell of Croy suggested that it would be very difficult to reach the 20 per cent. level. He cited the experience of the building society with which he is associated whose merger proposals had been able to get only a 10 per cent. response from the members. There are reasons why

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members should wish to respond to a proposal to convert put forward by the building society. The building society will probably be able to offer certain attractions to the members under fairly tightly controlled terms. These could indeed ensure that more people cast their votes.
I say to the noble Lord, Lord Barnett, that we very strongly believe that this is a matter for the members to decide. It is right now that we should go forward and allow them to take their own decision whether they wish to become plcs. As has been said often, the building society movement has served the country extremely well, and will continue to do so, but there is no doubt that certain societies—the larger ones—would like to try to persuade their members to become plcs. We believe the time has come to give them that opportunity.
Lord Morris: Why, in my noble friend's view, would they wish to become plcs?
Lord Houghton of Sowerby: I went over this ground at great length earlier in the Committee stage and I do not propose to repeat that. What my noble friend has done is to expose the difference of opinion on this matter which engaged quite a lot of time in another place where some were uneasy about the option to be given to convert into a public company and others thought that the hurdle was too high. I proposed earlier on that the hurdle should be lowered and that one part of it should be removed all together, but I did not get very much support from my noble friends on the Front Bench. Now my noble friend is suggesting that we ought to object to any option at all. I cannot support him on that.
I understand that, with some reluctance in some quarters, building societies are reconciled to the option being as difficult as it is. They get comfort from the fact that the commission would have power to vary the conditions of the hurdle in certain circumstances, though what those circumstances might be I shall not dwell upon. Whether the commission would wish to do it before anybody was toppled over the hurdle or whether it would wait for somebody to come a cropper and do it afterwards, I do not think we need discuss because the commission has the power to do it. I believe that the option should be there. I believe that some of the societies—and we know which they are—are now so large and so powerful that they would probably feel more at home under company law than under the intricate restrictions and prohibitions which are included in the Bill to safeguard the principle of building societies of more moderate size. That is how it has to be.
I am awfully sorry that I have to differ from my noble friend. We have been in very close partnership for so long in different places, but we just happen not to be of the same opinion on this matter.
Lord Campbell of Croy: As my noble friend has referred to my remarks on Second Reading, perhaps I may add a word or two. I understand what the Government are aiming for in this Bill. However, the experience I had recently, in the autumn of last year, of proxy voting by post by about 2 million people,
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which I think is the first time anything like that has ever happened in a company, building society, or any other body, indicated that a 20 per cent. threshold is a fairly high threshold. I understand what the Government are aiming to do, and also that there is a provision for changing the thresholds later. I know what the noble Lord, Lord Barnett, is aiming for. I know that there has been suspicion and that there are many who believe, in contrast to the noble Lord, Lord Houghton, that building societies should remain mutual institutions.
I must add one point. The noble Lord said that all mergers were takeovers, but the merger in which I was involved was not. It was a union between two societies of about the same size that did not involve the transfer of assets from one to the other. So far, it has been going very happily.
Lord Brabazon of Tara: Before the noble Lord, Lord Barnett, decides what to do, I may say that I am grateful to the noble Lord, Lord Houghton, and to my noble friend Lord Campbell of Croy. I will respond to the point raised by my noble friend Lord Morris, which was in one respect answered by the noble Lord, Lord Houghton, when he stated that building societies might be happier under company law than under the proposals in the Bill.
There are all kinds of things that the building societies might want to do and reasons why they might want to become a plc. They might want to do more unsecured lending than they are allowed to do under the provisions of the Bill. They might want to do more Class 2 lending than they are now allowed under the Bill, and perhaps provide other services. Those are only some of the reasons.
Lord Morris: In other words, they would want to become a bank and not a building society.
7.2 p.m.,
On Question, Whether Clause 95, as amended, shall stand part of the Bill?
Their Lordships divided: Contents, 75; Not-Contents, 37.

DIVISION NO.3

CONTENTS

Airey of Abingdon, B.

Elton, L.

Alexander of Tunis, E.

Enniskillen, E.

Ashbourne, L.

Feversham, L.

Beloff, L.

Glanusk, L.

Belstead, L.

Gray, L.

Boyd-Carpenter, L.

Hailsham of Saint

Brabazon of Tara, L.

Marylebone, L.

Brougham and Vaux, L.

Hardinge of Penshurst, L.

Broxbourne, L.

Hayter, L.

Caithness, E.

Henderson of Brompton, L.

Campbell of Alloway, L.

Hives, L.

Campbell of Croy, L.

Hooper, B.

Carnock, L.

Kimball, L.

Coleraine, L.

Lane-Fox, B.

Colville of Culross, V.

Lauderdale, E.

Craigavon, V.

Lawrence, L.

Craigmyle, L.

Layton, L.

Davidson, V.

Lindsey and Abingdon, E.

Denham, L. [Teller.]

Long, V.

Dilhorne, V.

Lucas of Chilworth, L.

Elliot of Harwood, B.

Lyell, L.

Elliott of Morpeth, L.

Mancroft, L.

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Massereene and Ferrard, V.

Russell of Liverpool, L.

Maude of Stratford-upon-

St. Aldwyn, E.

Avon, L.

Selkirk, E.

Mersey, V.

Shannon, E.

Morris, L.

Skelmersdale, L.

Mottistone, L.

Swinfen, L.

Mountevans, L.

Swinton, E. [Teller.]

Mowbray and Stourton, L.

Thomas of Swynnerton, L.

Munster, E.

Thorneycroft, L.

Murton of Lindisfarne, L.

Trefgarne, L.

Pender, L.

Trumpington, B.

Plummer of St. Marylebone,

Ullswater, V.

L.

Vaux of Harrowden, L.

Portland, D.

Vickers, B.

Renton, L.

Vivian, L.

Renwick, L.

Wise. L.

Rodney, L.

Wynford, L.

NOT-CONTENTS

Barnett, L.

Kilbracken, L.

Birk, B.

Llewelyn-Davies of Hastoe, B.

Boston of Faversham, L.

McGregor of Durris, L.

Bottomley, L.

McIntosh of Haringey, L.

Briginshaw, L.

Morton of Shuna, L.

Brockway, L.

Nicol, B.

Caradon, L.

Oram, L.

Carmichael of Kelvingrove, L.

Pitt of Hampstead, L.

Cledwyn of Penrhos, L.

Ponsonby of Shulbrede, L.

Dean of Beswick, L.

[Teller.]

Ennals, L.

Serota, B.

Gallacher, L.

Shepherd, L.

Graham of Edmonton, L.

Stoddart of Swindon, L.

Hatch of Lusby, L.

[Teller.]

Howie of Troon, L.

Strabolgi, L.

Irving of Dartford, L.

Underhill, L.

Jacques, L.

Wells-Pestell, L.

Jeger, B.

White, B.

Jenkins of Putney, L.

Williams of Elvel, L.

Kaldor, L.

Moved accordingly, and, on Question, Motion agreed to.

Resolved in the affirmative, and Clause 95, as amended, agreed to accordingly.
7.10 p.m.
Clause 96 agreed to. Schedule 17 agreed to. Clause 97 agreed to.
Lord Skelmersdale: In begging to move that the House do now resume I suggest that we do not return to this business until ten minutes past eight o'clock.
House resumed.

Dockyard Services Bill
7.11 p.m.
Read a third time.
Clause 1 [Transfer of persons engaged in dockyard services]:
Lord Denning Lord Denning moved Amendment No. 1:
Page 2, line 32, at end insert—
"(4A) Before any employee in a Royal Dockyard is transferred compulsorily without his consent from the service of the Crown to the service of any other employer the following provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981 shall be fulfilled.
(4B) Long enough before the transfer to enable consultations to take place between the Secretary of State and the representatives
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of the trade unions, the Secretary of State shall inform those representatives of—

(a) the fact that the transfer is to take place, when approxi- mately it is to take place, and the reason for it;

(b) the legal, economic and social implications of the transfer for the affected employees;

(c) the measures which he envisages he (the Secretary of State) will, in connection with the transfer, take in relation to those employees; and

(d) the measures which the transferee envisages he (the transferee) will, in connection with the transfer, take in relation to such of those employees as become employees of the transferee after the transfer.

(4C) The Secretary of State shall enter into consultations with the representatives of the trade unions and in the course of those consultations shall—

(a) consider any representations made by the trade union representatives, and

(b) reply to those representations, and, if he rejects am of those representations, give his reasons."

The noble and learned Lord said: My Lords, on the Second Reading of this Bill I complained of its obscurity. At the Committee stage I complained of its illegality. The Government recognised my complaint and made their own amendments accordingly which cured that illegality. At Report stage I put forward amendments designed to get the co-operation of the workforce and I pressed the matter to a Division, but the Government outvoted us. Now we come to the Third Reading and I have a long but simple amendment. It is designed to make the Bill clear in its most important provisions.
I remind your Lordships of the situation. The Government have decided to privatise, in part, the Royal Dockyards at Devonport and Rosyth. They have decided to privatise the services of the workforce at those two dockyards. The Government cannot do that without the consent of the workforce unless they have an Act of Parliament to authorise them to overrule the wishes of the workforce and compel them to be compulsorily transferred to a new commercial company which is to be formed by a consortium of great industrialists who will take over, against the workers' consent, the services of that workforce.
On a matter of such importance to so many thousands of workers I should have thought this was a piece of primary legislation which should appear on the face of the Bill. But what do we find? Your Lordships will find that there is nothing compelling the transfer of those men except in this obscure clause which states that the Transfer of Undertakings (Protection of Employment) Regulations 1981 shall apply to the transfer of the dockyard undertaking. What does that tell anyone? What does that tell anyone in this House or the other place? It is legislation, if you please, by reference.
Have any of your Lordships looked at these 1981 regulations? I fancy that I am the only Member of your Lordships' House who has. How did I get them? I went to the Printed Paper Office. They had to dig down in the vaults to get the regulations and when I got them I saw that they were to implement a directive of the European Council. So I asked for that. It took a long time to find because it is further down in the vaults. I then had to read the directive and try to make some sense of this delegated legislation.
Time after time judges and commentators have criticised this method of legislation by reference. They have also criticised even more the delegation of

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legislation by means of regulations made by a Minister. It is all very well for Ministers to make regulations on subsidiary matters which never come before this House for discussion, but it is another matter to make a piece of primary legislation by regulations of this kind. Therefore, I object to the legislation that is being brought forward to your Lordships' House. It is for that very reason I have put forward these amendments today. It is, in effect, only one amendment because I have taken the words of that regulation and I have spelled them out, letter by letter and word by word, throughout my amendment so as to make it clear to the Government and, may I add, to the trade unions, what steps have to be gone through before the Government can compulsorily transfer these employees from the service of the Crown into the service of a new commercial company.
I have studied the provisions and I have set them out. If I may, I shall tell your Lordships the main provisions. They show how important it is that the Government should keep the workforce fully informed. They should consult the workforce and have regard to all the objections and consider them with a view to getting the workforce to come by agreement into the new situation. In studying those provisions I can well see that the lawyers are going to have a good hand at this, if I may say so. Let me tell your Lordships what has to be done. In the first place the Government have to give full information to the trade unions on what they are going to do. At the outset (if I may read these regulations properly) they have to decide who is to be the transferee—the new commercial company to take over the men. They cannot fulfil the regulations unless they make that decision at the outset. There will be no other option open to them. At the outset they may make that very decision about who is to be the transferee; and then, having made that decision, they will have to act. I am sure that they will take the advice of lawyers and they will have to inform the trade unions of:
"the legal, economic and social implications of the transfer".
The legal implications are considerable, involving the holding company, the subsidiary company, the shareholders, the control of the company and the contracts which are to be made that will affect those employed. It will be a mammoth task for the lawyers to sort out those legal implications. What about the economic implications? Will there be workers' shares? Then there are the social implications. How many of these men are to be made redundant? At the outset of the consultations they are entitled to be informed of their future position when the transfer takes place.
Indeed, the regulations state that the Government must go to the transferee, to the new company, and obtain information from them as to the measures that will be taken. Surely some of those measures will raise questions such as: "How many men will be made redundant? How many men will be turned off? Will work be obtained for them?" The Government have to tell the trade unions of the measures that this new company will take. I shall not go into the details but I see this situation as almost turning into fun and games and great fees for the lawyers.
The Government will have to have that statement of information for the trade unions. Will it be sufficient?
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If the trade unions are well advised they will do what the lawyers do and ask for "further and better particulars". They will say, "We want to know more about your proposals". All that will take some time. Then after the information has been fully given, there will be consultations and the trade unions can and will make their own representations. They will be able to say, "You have chosen the wrong option. This company to which you propose to transfer is not entirely British-owned. There is quite a lot of foreign influence involved. We can show you how many shareholders there are in that consortium who come from America". Or they can say, "Well, you ought to transfer to that one; that other company does not have enough financial backing". The trade unions can put their representations and no doubt they will have their lawyers advising them. It is really a pleading such as we are used to in the courts of law.
Finally, the Government have to reply, giving, as the regulations say, their reasons. There have been dozens of cases in our courts to show that when one is required to give reasons they must be adequate reasons. The trade unions will be able to challenge them. As I read the regulations, I am sure that they can be challenged in the courts of law and certainly challenged before the industrial tribunal. Under our new procedure of judicial review I think that they can be challenged in the High Court of Justice. The unions can take the Government to the High Court and say, "You have failed in your obligations under the regulations" or, as I should like to say, "You have failed in your obligations under the statute". They can take the Government to court.
That is my summary of the regulations as they already appear and as I should like them to appear on the face of the statute. So I ask: what is the forecast for the future? I can well see that the Government will be running their heads into a hornets' nest. The trade unions are the hornets. They will swarm out and, keeping within the law, they will sting hard. As I forecast, the Government will have to beat a retreat and return to the fall-back option which, from the beginning, they have admitted is their fall-back option. Let me tell your Lordships what it is. As far as I can see, it is the one option which will hold water and indeed to which the trade unions cannot reasonably object. If there is to be a transfer of these men from the service of the Crown to a new company, then that company should be a truly British company. It should not be embarrassed with outsiders at all. It should be a government-owned company and also have workers' shares. That company should run the dockyard on a commercial basis, ridding it of all the old Civil Service red tape. It should run the dockyard on a commercial basis and reinforce the efficiency that it has always had. That fall-back option was commended on Second Reading by the noble Lord, Lord Hill-Norton, who is a great authority on the Royal Navy and on the dockyards. Unfortunately he cannot be here this evening, but he has authorised me to say that he would be in favour of this fall-back option; namely, a government-owned company with workers' shares.
I have been to Devonport and seen the men and the employers. I think that this last option—a government-owned company with workers' shares —is the one option which will stand up to

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examination. When all the consultations have been undertaken, it is the one option to which the trade unions cannot reasonably object. So in that way the Government can be rid of all the harassment, all the stings and all the embarrassment, and they can go forward with the excellent project of putting the dockyard on a sound commercial basis.
Is it not right that the Government should treat this workforce fairly and reasonably? They have served this country loyally for over 300 years and they are ready to do so still. Surely their views should be taken seriously into account. They should not be forced against their will to transfer to an outside company. Their loyalty and service should be recognised. I appeal to your Lordships to support the workforce, and the trade unions which represent them, by passing this amendment this evening, and to show that we are devoted to the workforce in the Royal Dockyards. I beg to move.
7.30 p.m.
Lord Graham of Edmonton: My Lords, I rise to be of assistance to the Minister and to the Government. They have the option which the noble and learned Lord set out. Failure to accept the amendment will not only land them in trouble and embarrass them, but the situation will continue to be a running sore, which is highly likely to end up in the courts. What the noble and learned Lord is asking the Government to accept is simple. People want to see on the face of the Bill what the Minister has said is part of the deal—the arrangements under TUPE '81. That is reasonable, and a reasonable government should accept it.
We do not have to look into a crystal ball to see what might happen with the dockyards; we can read the book. The Ordnance factories have been privatised. A great deal of the unease that the trade unions and their members feel about the future stems from what has happened following that privatisation. They are very uneasy indeed. I am not talking about promises, but simply about realities. Those workers rested their hopes on the provisions of TUPE '81 and the assurances of the Minister about, among other things, redundancy. Amendments at previous stages of the Bill have sought to put in writing what the Minister has said is the situation.
The noble and learned Lord has done a marvellous job in the House for the dockyards and the workers. Not only should he be listened to with the deep respect that he is always accorded, but his advice should be taken. The Government will be giving nothing if they accept the amendment. We want to see on the face of the Bill something that is already substantially enshrined in TUPE '81. The noble and learned Lord says that, even with his experience, the Bill is obscure and needs clarity. The amendment seeks to make it clear.
Leaving aside the philosophy of the Bill, we want to see the co-operation of the workforce in whatever the legislation is to be. Whatever the philosophy behind the Bill, the amendment would go some way to achieve the willing collaboration of the workforce to make it into a reality, and the Minister does not have that at the moment. He has this opportunity.
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I was in Plymouth last Saturday and I spoke to the Lord Mayor, Councillor Glenville. He did no speak in any grandiose way or on behalf of his council, but he went out of his way to tell me about the deep offence in that city over the manner in which a non-party attempt by its people and by the dockyards to persuade the Government that there are better ways to do things has been ignored. Many people spoke to me at the function about the dockyards, which demonstrated that they are an integral part of the city and its environs. We want a demonstration from the Minister tonight that the Government are prepared to listen. Unless they do so, I believe they will learn the hard way.
Lord Crawshaw of Aintree: My Lords, in rising to support the amendment on behalf of my noble friends, let me first pay tribute to the noble and learned Lord for the work that he has done. I am certain that the Bill will finish up very much better for his assistance.
We have had various arguments across the Chamber during the course of the Bill about the dockyards, but I am certain that both sides have in common the wish to have a highly efficient dockyard service for our naval forces. I am not certain whether the Government realise fully that, while efficient management is one pillar of the service, an equally vital one is to take the workmen with you. For too long they have not known their future.
That is due to a half-baked idea that was put forward when the Bill first came to this House, that men can be shipped around as a commodity. The Minister has not said so in so many words, but he has indicated that that idea has gone out of the back door. The men have had all this uncertainty. The workforce is as vital, if not more vital, than the management. Without it we shall not have an efficient dockyard service.
Any good management should want to include the provisions in the amendment in its contract. 7 here is not the slightest reason why the suggestions made should not be included in the Bill, so that the dockyard servicemen know that the assurances given during the passage of the Bill will be carried out. Without that, we shall start off on the wrong foot. I urge the Minister to consider carefully whether the amendment can be accepted. It will not cost the Government anything and will be very important in determining whether the dockyard gets off on the right foot.
Lord Ross of Marnock: My Lords, as this late stage of the Bill I hope that exception will not be taken if a Scottish voice is raised. I apologise that for health reasons I was not able to be present at the earlier stages of the Bill, as I should have had plenty to say. The other dockyard is Rosyth. It does not have the traditions of Plymouth. It is probably three-quarters of a century since the Government took over the land around Rosyth from, I think it was, Lord Linlithgow.
I have just been reading what Tom Johnstone, a former Secretary of State for Scotland, wrote about how they took it over. It was owned by a well-known Scottish family. In those days, with land there went rights to provide men in time of war for the King. But when land was needed for the defence of the nation in

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the 20th century, a sum of money was handed over to the noble Earl.
There has been a loyal tradition in Rosyth for three-quarters of a century—an efficiency and an ability to which the Minister of recent days paid tribute when the Ministry of Defence was under attack in respect of conditions affecting nuclear safety round Rosyth. I was delighted to hear the Minister who is dealing with this Bill pay tribute to the workers for an attention to safety which could not be questioned. The Bill is important to the workers and it is also important to the nation in some of the higher aspects of national security. When we are handing over a concern to a private company, we cannot have the same guarantees about safety measures; and we may possibly be discarding the qualified, efficient and loyal workers of Rosyth. The Government are taking an awful chance. I am not surprised that people deeply concerned about the future of the navy have taken up the position that they have.
Let us not question the loyalty and efficiency of the dock workers. They have been tried and tested in great wars and in smaller wars, most recently in the Falklands. Tribute has been paid to them. Can we have a guarantee from a contractor that the same effort will be made in a time of crisis and emergency? I can understand the Government taking chances on many things, but not on something like this, which is supposed to be dear to their hearts. It is ironic that the workers in Rosyth this week have had a letter asking them to donate towards a wedding present for the Prince who is to be married soon. That is the kind of relationship that exists in the Royal dockyards at present. They are part of a virtual royal family of loyal servants.
I understand what the noble and learned Lord, Lord Denning, is doing. He is not changing the law. He is taking the mumbo-jumbo of a regulation that no one knows about, that no one understands and that lawyers will argue about, and putting it into substantial primary legislation. Is that anything to be frightened of? It is, I believe, much to be desired. I have complained time and time again that we are passing legislation that no one can understand. Certainly, noble Lords cannot understand it. I have always felt that part of my preparation for understanding Acts of Parliament was the fact that during the war I was given the task, under Lord Louis Mountbatten, at his headquarters, of looking at codes and cyphers of the Chinese and deciding how long it would take the enemy to break them down, and doing the same with ours. They were easier to break down than some of the legislation we have before us.
It has to be remembered that Rosyth dockyard, itself employing 6,000 people, extends its influence over a good part of Scotland, including Edinburgh, the Lothians and the central area, with probably about 23,000 jobs directly or indirectly affected. The legal, economic and social implications of the transfer and the effect on employees are terribly important. These are matters that should be contained in the primary legislation. They are not matters to be teased out. If the Government really mean what they have said about future conditions and how they will consult and make efforts to achieve collaboration, let them nail these matters to the mast. This is far too important to be
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hidden away. They should accept the amendment. In that way the House will be much more satisfied than it is with the arrangements at present proposed.
Lord Murray of Epping Forest: My Lords, I share the indebtedness of the House to the noble and learned Lord who moved the amendment, not only for the manner in which he moved it but also for giving the House the opportunity to express clearly and fully the debt that we owe—so elegantly put, already—to the men and women affected by this Bill. We are not talking about so many head of cattle to be bought and sold, some to be put down because they are no longer necessary. I am sure that this is not a case that I, together with my noble friends and those who support the amendment, need to argue with the Government or those on their Front Bench. I am sure that they share this view and that they share the purpose of the amendment.
I spent last weekend near Rosyth. I know how deeply the men and women there are concerned and worried about the uncertainty surrounding what is to happen to them. This amendment is the least, the very least, that we can do to give them that little reassurance to which they are entitled. They are entitled to be told what is to happen to them. They are entitled to be consulted about what is to happen to them. This will be acknowledged and respected not by some generalised form of words, but by enshrining it within the very legislation itself. As already stated, this goes so little further than what I am sure is the intention of the Government that it should be only a small matter to them—a matter of no moment—to enshrine it formally within the Bill. I urge the House to support the amendment moved by the noble and learned Lord. I commend it to the House.
Viscount Massereene and Ferrard: My Lords, noble Lords who have spoken, especially the noble and learned Lord, Lord Denning, worry me. I know very little about this subject. My knowledge is limited to what I have learnt from noble Lords who have spoken. I have yet to hear what the Government have to say, so I keep my options open. But providing that everything that noble Lords have said is correct—in politics, one takes everything with a grain of salt—I have to say that if the Government do not satisfy me—I shall not sit down just yet—I would be inclined very reluctantly to vote against the Government.
7.45 p.m.
The Minister of State for Defence Procurement (Lord Trefgarne): My Lords, having listened to the noble and learned Lord, Lord Denning, on a number of occasions, and again today, and having had the opportunity to talk to him, I know that his approach to this Bill has been motivated by a desire to ensure that the efficiency of the dockyards should be increased, that the workforce should be freed from Civil Service constraints—the noble and learned Lord said that again today—that the security interests of this country should be safeguarded and that, in seeking to achieve these goals, we should treat the workforce fairly.
I hope that the noble and learned Lord and other noble Lords who have spoken will accept that those

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are my goals too, and in seeking to achieve them we have no intention of treating other than fairly the dockyard employees who have served this country well for many years. I have taken the opportunity to say that on a number of occasions. The noble Lord, Lord Ross of Marnock, was good enough to acknowledge the fact. I have, however, to say to the noble and learned Lord that I do not believe that this amendment would enhance security or improve the conditions of service of the workforce.
For the most part, as the noble and learned Lord has said, his amendment is couched in the words of selected parts of the Transfer of Undertakings (Protection of Employment) Regulations 1981. We have already debated in Committee and on Report the applicability of these regulations, and the amendments which were agreed by your Lordships have ensured that Clause 1(4) of the Bill removes any doubt which might otherwise have existed as to the application of the regulations in this case. The noble and learned Lord, Lord Denning, was good enough to acknowledge that when I moved the relevant amendments at an earlier stage. That being so, it is, I submit, quite unnecessary for the Bill to be further amended to provide that individual provisions of the regulations will apply. Under Clause 1(4) the regulations will apply in full.
Your Lordships will have listened carefully to what the noble and learned Lord, Lord Denning, had to say about the difficulties of "legislation by reference". I do not need to remind your Lordships that there are very few, if any, Bills which do not require reference to other statutes. The noble and learned Lord has suggested that particular provisions of the 1981 regulations should be reproduced. Those provisions refer to collective rights, but the regulations refer to much else, and even under this amendment reference would still have to be made to the regulations themselves to discover the effect of the transfer on the rights of the individual. The noble and learned Lord's wish to avoid legislation by reference would not be achieved by his amendment even as regards the 1981 regulations, let alone the other statutes to which this Bill necessarily refers.
Since the amendment concerns in part the question of consultation, I should make it plain that from the very outset we have gone out of our way to make as much information available to the unions and the workforce as possible. We have issued a considerable number of informative leaflets and brochures; we have sent to the unions a number of detailed consultative documents on many aspects concerning the workforce; we have even set up—in addition to the formal Whitley machinery—a consultation group in which all manner of matters related to the Government's plans could be discussed with the representatives of the workforce.
The trade unions have commented on very few of the papers we have sent to them, and the number of meetings we have had has been disappointingly small. We have done all that could reasonably be expected of us in consulting the trade unions, and we shall continue to try, but it takes two sides to have a meaningful dialogue, and the unions have been
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generally unwilling to discuss commercial management with us.
My noble friend Lady Vickers will know from her recent valiant attempts to persuade the trade unions locally to attend discussions how intransigent they can be.
The 1981 regulations are designed to protect the rights of employees by putting their new employer into the shoes of the previous one. I accept, of course, that the dockyards are important, but the rights of the employees are no less important to those who work in a small business than they are to those working in a Royal Dockyard. The protection afforded by the 1981 regulations does not distinguish—rightly in my view—between important and less important businesses. As regards complaints, the regulations provide that in certain circumstances a trade union may have access to an industrial tribunal. I see no reason why the dockyard employees alone should have recourse to the High Court.
The noble and learned Lord, Lord Denning, has also referred to the possibility of substantial detrimental change in the conditions of service of the workforce. This will not arise. The Government intend to comply with the 1981 regulations and, under them, as my noble friend Lord Glenarthur explained at length in Committee, the terms and conditions of service, with the exception of some activities which are specific to Crown service, will transfer with the workforce.
In short, since the Bill makes it clear that the 1981 regulations will apply to the transfer of the dockyard employees out of the Civil Service it is in my view quite unnecessary to select bits of those regulations and refer to them in this Bill. I cannot support the amendment proposed by the noble and learned Lord.
Viscount Massereene and Ferrard: My Lords, before the noble Lord sits down, can he tell me whether it would be possible under this Bill for a foreign company to take over all these services?
Lord Trefgarne: My Lords, I think that my noble friend may be referring to the propositions contained in the next amendment. I am not yet certain whether the noble and learned Lord intends to move that amendment.
Lord Jacques: My Lords, is the noble Lord's objection to this amendment simply that it is unnecessary?
Lord Trefgarne: My Lords, if I have your Lordships' permission to speak again, as I think I made clear during my earlier remarks, the effect of the regulations is very clearly embodied into the legislation.
Lord Denning: My Lords, I am afraid that I cannot agree with what the noble Lord the Minister has said. He has indicated that in the 1981 regulations there are other provisions which may modify, or may have to be read in relation to, those which I have set out. I do not like modifications read into those provisions which I have clearly stated. Those provisions should be made clear on the face of the statute.
With regard to the 1981 regulations, on the face of them, if one reads them, they do not apply to a transfer

531
of servants of the Crown at the dockyards to another company. As they stand, those regulations apply only to transfers of commercial undertakings from one to the other. That is on the very wording of the regulations. My noble friend has had to put in a special amendment in order to make them apply to servants of the Crown not in a commercial venture but in the service of the Royal Navy. He has done that and I see no possible reason why he should not accept this amendment.
It would make the position clear, not only for those who can find those regulations buried away somewhere but for the Houses of Parliament themselves, for your Lordships, for the Government and for the trade unions. It ought to be made clear on the face of the statute. I therefore propose to test the opinion of the House and I hope that noble Lords will agree with me in support of our loyal workforce at Devonport.
Noble Lords: And Rosyth.
Lord Denning: And Rosyth, my Lords.
7.55p.m.
On Question, Whether the said amendment (No. 1) shall be agreed to?
Their Lordships divided: Contents, 71; Not-Contents, 53.

DIVISION NO.4

CONTENTS

Addington, L.

Crawshaw of Aintree, L.

Airedale, L.

[Teller.]

Allenby of Megiddo, V.

David, B.

Amherst, E.

Davies, L.

Auckland, L.

Dean of Beswick, L.

Birk, B.

Denning, L.

Boston of Faversham, L.

Dormer, L.

Bottomley, L.

Elwyn-Jones, L.

Briginshaw, L.

Ennals, L.

Brockway, L.

Feversham, L.

Carmichael of Kelvingrove, L.

Foot, L.

Cledwyn of Penrhos, L.

Graham of Edmonton, L.

Craigavon, V.

[Teller.]

532

Grey, E.

Mulley, L.

Hanworth, V.

Munster, E.

Harris of Greenwich, L.

Murray of Epping Forest, L.

Hatch of Lusby, L.

Nicol, B.

Hayter, L.

O'Neill of the Maine, L.

Henderson of Brompton, L.

Oram, L.

Houghton of Sowerby, L.

Pitt of Hampstead, L.

Hylton-Foster, B.

Ponsonby of Shulbrede, L.

Irving of Dartford, L.

Ritchie of Dundee, L.

Jacques, L.

Rochester, L.

Jeger, B.

Ross of Marnock, L.

John-Mackie, L.

Seear, B.

Kaldor, L.

Shannon, E.

Kilmarnock, L.

Shepherd, L.

McIntosh of Haringey, L.

Simon, V.

McNair, L.

Stoddart of Swindon, L.

Masham of Ilton, B.

Strabolgi, L.

Massereene and Ferrard, V.

Tordoff, L.

Mayhew, L.

Underhill, L.

Meston, L.

Vickers, B.

Monson, L.

Whaddon, L.

Morris of Kenwood, L.

White, B.

Morton of Shuna, L.

Williams of Elvel, L.

Mountevans, L.

NOT-CONTENTS

Alexander of Tunis, E.

Lucas of Chilworth, L.

Belstead, L.

Lyell, L.

Boyd-Carpenter, L.

Maude of Stratford-upon-

Brabazon of Tara, L.

Avon, L.

Brougham and Vaux, L.

Merrivale, L.

Broxbourne, L.

Mersey, V.

Caithness, E.

Morris, L.

Cameron of Lochbroom, L.

Murton of Lindisfarne, L.

Coleraine, L.

Pender, L.

Craigmyle, L.

Plummer of St. Marylebone,

Davidson, V.

L.

Denham, L. [Teller.]

Renton, L.

Dilhorne, V.

Rodney, L.

Drumalbyn, L.

St. Aldwyn, E.

Elliot of Harwood, B.

Skelmersdale, L.

Elton, L.

Swinfen, L.

Enniskillen, E.

Swinton, E. [Teller.]

Glenarthur, L.

Thomas of Swynnerton, L.

Gray, L.

Thorneycroft, L.

Hailsham of Saint

Trefgarne, L.

Marylebone, L.

Trumpington, B.

Harvington, L.

Ullswater, V.

Hives, L.

Vaux of Harrowden, L.

Hooper, B.

Whitelaw, V.

Kimball, L.

Windlesham, L.

Layton, L.

Wynford, L.

Lindsey and Abingdon, E.

Young, B.

Long, V.

Zouche of Haryngworth, L.

On Question, amendments agreed to.

Resolved in the affirmative, and amendment agreed to accordingly.
[Amendment No. 2 not moved.]
Lord Trefgarne: My Lords, I beg to move that the Bill do now pass.
Moved, That the Bill do now pass.—(Lord Trefgarne.)
Baroness Vickers: My Lords, it is a sad day in the history of this country that the Royal Dockyards, which have served the nation so well, should have the Bill go through the House after consideration on two Fridays and a dinner hour only. It is unfortunate that we have had so little discussion of the Bill. I am not blaming the Secretary of State or the Minister, as neither of them have held their posts for long. Unfortunately, the right honourable Michael Heseltine, when he was Secretary of State, and a number of officials who visited the dockyards aroused many unsettling rumours about the future.
The Mallabar Report of 1970, paragraph 143, stated:
"We appreciate that it will be a major task to implement all our recommendations within the reasonable period. In our view the programme for implementation should be drawn up by MoD. This is our final recommendation, it is designed to draw together the different subjects we have covered so that they can be tackled as a whole. If this is done we are convinced that the management of the Royal Dockyards will prove itself to be as competent as we believe it could be.".
Can the Minister comment on any action that has been taken with regard to those recommendations or those of later reviews?
I regret that so few noble Lords took any interest in the Bill, especially as many of them gave excellent service in the Royal Navy and in the ships serviced in the dockyards. I was also astonished to receive brochures from A and P Appledore with the compliments of the noble Lord, Lord Hill-Norton, when Appledore has now joined Foster Wheeler in making an application, having previously made an application with Trafalgar House and subsequently pulled out. As we all know, the work it did in Gibraltar was unsuccessful.
Will the Minister state when he will let us know how many applications have been made for Rosyth and Devonport?
The trade unions have stated in a letter to me from the secretary of the Shipbuilding Trades Joint Council:
"We have repeatedly stressed the need for change in particular in the management and financial structures of the Yards. But we remain convinced that those changes can be made without the Civil Service status of the Yards being altered. We would not therefore support the Yards being taken out of the Civil Service and run as a Government-owned PLC, but the major difficulty for us is that we simply do not know what the Government is talking about when it refers to a Government-owned PLC. Such a PLC could be run in a number of ways ranging from what happened in Gibraltar which proved to be a disaster, to the kind of Government-owned PLC that we find in British Nuclear Fuels and Rolls-Royce. If the Government wants to discuss this matter with us we are prepared to respond at any time. It is now for Government to get its act together and invite us to a meeting.".
I hope that the Minister will do that.
The Government's calculations of the savings to be made by the introduction of the agency management scheme have varied throughout the passage of the Bill. Will the Minister, although perhaps not tonight, tell us what the savings will be? How many further job losses will be necessary over the next two years? We have heard that there will be 2,000 in Devonport which
534
have already been agreed. Are any more likely in the future? As the dockyards now seem to be completing most of their refits ahead of schedule, can the Minister explain why the Government's plans are necessary?
Finally, the economic and commercial viability of the City of Plymouth and the surrounding area can be assessed by the activity through the naval base gates. The dockyard is the major employer in the base, with 13,000 employees. However, including naval base and service personnel, some 22,000 people enter and leave the naval base daily. Within the Plymouth area, it is assessed that one household in every five has within it at least one individual directly connected with the naval base.
Plymouth has one of the best natural harbours in the world, with port facilities which, had they been developed along industry lines, would have had immense potential. But history decreed that Plymouth's role was to be cast by Government and armed forces diktat as Great Britain's premier naval base, with any potential industrial development second to that requirement. Development which would compete with either harbour utilisation or the monopoly use of available qualified labour was resisted or indeed obstructed. Entry and egress of naval vessels have first priority and must predominate at all times.
As I mentioned on Second Reading, the naval base's related identity has brought upon Plymouth ravages of death and destruction almost beyond comprehension in these modern times. All have been borne loyally and with fortitude. There is a debt of obligation owed to this city, which I hope the noble Minister will remember when he makes his final selection.
There is one other point I should like to ask about. This Bill is called the Dockyard Services Bill. There is never a mention of "Royal". Are they going to lose the title "Royal", or are they going to retain it? If so, surely that should be put into this Bill. I hope that the Minister can give me some answers, if not tonight then in the near future.
Lord Mayhew: My Lords, the interventions of the noble Baroness throughout the long proceedings on the Bill will have won widespread admiration in all quarters. She has shown throughout the depth of her loyalty and affection for her old constituency. I imagine that she must be particularly pleased that the Bill was amended at this last moment in the way that it was. She will hope, as we all hope, that this amendment will reach the statute book in due course, and that it will help to ensure the right spirit in the dockyards, which is essential to the success of any scheme for the dockyards and essential for the interests and the welfare of the navy itself, which is, or ought to be, the prime consideration behind this Bill.
As has often been said, the Bill was extremely obscure. On the Opposition Benches, I think that the only noble Lord who understood it, at least at the beginning, was the noble and learned Lord, Lord Denning. He has confessed that he only understood it after making a protracted and special study of the Bill with the help of the cellars of the Printed Paper Office. For ourselves, we have struggled as best we could to understand the Bill, to understand the Government's

535
intentions, and we all agree—certainly noble Lords on these Benches—that it gives the Government statutory powers without sufficient statutory strings.
We have heard a lot from the Minister about the intentions of the Government. Again tonight the noble Lord, Lord Trefgarne, said, "My goals are the same goals". But over and over again we have asked him: in that case, why not spell out in the Bill the intentions of the Government? As it is, it is purely an enabling Act. It leaves the Government options in every possible direction. Whether or not to have a Government-owned company is a matter of profound importance on which Parliament should have a view, but the Government have maintained the option and rejected the concept of an affirmative resolution, which would at least bring it before Parliament again.
Who are the contractors? We do not know. Are they foreign controlled? We do not know. What proportion of foreign control are the Government going to allow? Again, we do not know. What are the costs to the Exchequer, or the supposed gain to the Exchequer? We have heard no estimates from the Minister throughout the proceedings on the Bill. He has spoken with his normal courtesy and normal persistence and charm, but he has told us nothing at all that we could not guess before.
Therefore, although the Bill was improved by two amendments—both amendments due to the persistence and brilliant legal experience of the noble and learned Lord, Lord Denning—and although we hope it succeeds in the interests of the navy, the workforce, and of Plymouth, we on these Benches have serious doubts about it.
8.15 p.m.
Lord Denning: My Lords, I would say only one word more. I would thank the Minister, Lord Trefgarne, for meeting many of my complaints and objections so far as he could. He was quite right in saying that the objectives are common objectives. We really want to do away with the Civil Service red tape at the dockyards, but equally we want an efficient dockyard.
Above all, we want a contented workforce, or at least an acquiescing workforce; otherwise, this project will never succeed. I would hope, perhaps as a result of the amendment this evening, that there will be consultations, that the views of the workforce will be taken into account, and, if all goes well, that there might be agreement in the end.
Lord Graham of Edmonton: My Lords, I wish to say a few words before the Bill passes. Without the pleasure of the vote ten minutes ago I would have been extremely angry. I would certainly not have said that I wished the Bill well. But in the context of the task in which we are engaged and the role of this House as a revising Chamber, I believe that on the margin, and late in the day, we have modestly improved the Bill.
If there is no difference between the Minister and those of us who have shown an interest in this matter, then we would say that what we have sought to do is to ensure that those, outside the House accept what this House is doing by putting words on the face of the Bill that the Minister does not feel are necessary. I echo the words of the noble Lord, Lord Mayhew, that we would
536
hope that the amendment is accepted in the spirit in which it was moved and supported, which was for greater clarity, equity and justice to those outside. The Minister has sought to have, as the noble Lord, Lord Mayhew, said, flexibility in an enabling Bill. We hope that he will go forward in that spirit.
I have to say to the Minister, however, that some bridges need to be built. As the noble Baroness, Lady Vickers, pointed out, the trade union side in this argument is not on all fours with the Minister as to the endeavours that have been made to secure the maximum understanding. The trade unions are right to say that they do not wish to have anything to do with the Bill. They do not believe in the philosophy of the Bill.
The noble Baroness, Lady Vickers, has allowed me to see a copy of a letter that she has received from the trade unions and which she herself quoted. The Minister ought to understand that the trade unions have said as recently as this week:
"First, we remain surprised that Lord Trefgarne should have suggested that we have refused to meet with him.".
That was a point the noble Lord made earlier tonight.
"At no stage in recent weeks have either Lord Trefgarne or the Secretary of State made any approach to us for a meeting on the future of the Royal Naval Dockyards.".
There is room there for at least some clarification, as to what either the Minister said or what this letter has said, because that is a direct quote from the letter.
Lord Trefgarne: My Lords, I wonder whether the noble Lord is aware that my noble friend Lady Vickers asked me whether she could bring a delegation of trade unionists to see me. I readily agreed to that. The trade unions then said that they would not come.
Baroness Vickers: My Lords, may I give an explanation for that? They said that they would go with me, but only if they had an invitation from the Minister, which is the way they put it.
Lord Graham of Edmonton: My Lords, I understand that, too. In the same letter the trade unions point out, of course:
"if the Government wants to discuss this matter with us, we are prepared to respond at any time. It is now for the Government, therefore, to get its act together and to invite us to a meeting. We would suggest that such a meeting would more appropriately be in the first instance with the Secretary of State for Defence and he would no doubt wish Lord Trefgarne to be present."
I believe that there is a bit of fencing going on. But at the end of the day, when this Bill passes from here and in some form—I hope unamended—it then becomes the law of the land, I hope that the Minister will treat seriously with the trade unions on the next steps. The idea of consultation in this matter by the Government hitherto has earned the censure of the House of Commons Defence Committee on this Bill. That committee said that the consultation was inept and insensitive, and took place in too short a period. The Minister referred to the briefing papers. What the report said was that those papers had been hastily prepared and that they raised more questions than answers.

537
The Bill will leave this House with some success for those who have sought to achieve change. I do not want to leave this Bill without echoing the words of the noble Lord, Lord Mayhew, and say how indebted we in this House and all concerned in the city of Plymouth and in the environs of Rosyth are to the noble and learned Lord, Lord Denning. On many occasions he will irritate those of us on the other side of the argument. On this occasion—I say this sincerely—he has not only been a tower of strength to our argument, but I believe has acted in the finest traditions of those who are not prepared at face value to believe what the Government say are their intentions. He has earned the undying respect and gratitude of many outside the House.
I look across the House to the noble Baroness, Lady Vickers, whom I first met on committees more than 30 years ago. The people of Plymouth are indeed proud of and grateful for the service that she has rendered to them. When I was in Plymouth last Saturday her name was mentioned a number of times. What she has tried to do for the people of Plymouth is well understood and deeply appreciated. I have been grateful indeed for the realism which she has been able to inject into this debate from her intimate knowledge of not merely the dockyards (which is unsurpassed in this place) but also the feelings of the people of Plymouth. In that context I wish the Bill well, having been amended.
The Minister has always been courteous and kind and has immediately wanted to put in writing anything that needed to be clarified. That has had to happen more than once not because of his fault but because of my persistence in wanting to be precise. I certainly have appreciated the spirit in which he has sought to do his job for the government tonight.
Lord Lloyd of Kilgerran: My Lords, the noble Lord, Lord Graham of Edmonton, with his customary tolerance and kindness has referred to many noble Lords who have taken part in this debate. He referred very kindly to my noble friend Lord Mayhew. He referred to and praised the noble and learned Lord, Lord Denning, and he praised the great contribution made by the noble Baroness, Lady Vickers. Of course he referred to the charm and tolerance of the Minister. But I do not think I shall disclose any secret if say that I was a member of a small group who used to meet occasionally to discuss these matters on dockyards with helpful members of trade unions and other experts, but the initiative in this matter lay almost wholly with the noble Lord, Lord Graham of Edmonton. Therefore I make this brief intervention to disclose—I am sure I am embarrassing him—that the initiative on so much of the work on this dockyards Bill emanated from the noble Lord, Lord Graham of Edmonton. I am sure many of us are grateful to him.
Lord Trefgarne: My Lords, I am grateful for the observations that your Lordships have made on this matter. In reply to the number of points made by noble friend Lady Vickers I hope she will not mind my saying that almost all the points she raised were covered at one point or another during the discussions we have had on this Bill. If I am wrong about that and there is something she has raised that I have overlooked, I shall happily write to my noble friend. I am afraid that with more firmness I must say the same
538
thing to the noble Lord, Lord Mayhew. I answered those points more than once during the passage of this Bill. If he wishes to refresh his memory, I am sure he will want to confirm that. In the meantime I beg to move that the Bill do now pass.
On Question, Bill passed, and returned to the Commons with amendments.

Building Societies Bill
8.25 p.m.
House again in Committee.
Clause 98 [Regulated terms: distributions and share rights]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 209:
Page 150, line 37, leave out from ("society's") to end if line 38 and insert ("reserves bear to its total liability to its numbers in respect of shares.").
The noble Lord said: This is an amendment to specify more precisely the rights of members eligible to vote on a proposal to convert to plc status. I beg to move.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 210:
Page 151, line 7, leave out ("1985") and insert ("1986 or Article 570 of the Companies (Northern Ireland) Order 1986")
The noble Lord said: This amendment was spoken to with Amendment No. 63. I beg to move.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 211:
Page 151, line 18, at end insert—
Where, in connection with any transfer, rights are to be conferred on members of the society to acquire shares in priority to other subscribers, the right shall be restricted to those of its members who held shares in the society throughout the period of two years which expired with the qualifying day; and it is unlawful for any right in relation to shares to be conferred in contravention of this subsection.
(7B) Where the successor is an existing company, am distribution of funds to members of the society, except for the distribution required by subsection (2)(b) above, shall only be made to those members who held shares in the society throughout the period of two years which expired with the qualifying day; and it is unlawful for any distribution to be made in contravention of the provisions of this subsection.").
The noble Lord said: In moving Amendment No. 211 I shall speak also to Amendments Nos. 212 to 215. These amendments are to add one additional limitation on cash distributions in a conversion to what is already included in the Bill and to make consequential changes. The additional limitation applies in the case of transfers to existing companies. In such cases cash distributions, except those required under subsection (2)(b), must be limited to members who have held shares throughout the two-year period ending in the qualifying day. I beg to move.
Lord Williams of Elvel: I am grateful to the noble Lord for explaining what these amendments are about. However, I cannot quite see the purpose. Can he explain to us why these amendments need to be put down and what is the reason for them?
Lord Brabazon of Tara: I can go a little further than I did in moving the amendment. The Government are concerned that adequate safeguards should exist to secure that conversions happen for reasons for commercial development and are not decided by the prospect of possible short-term financial gains. As the Government have also made clear ever since they published their consultative document on building society conversion in December last year, it is important that the conversion provisions work to prevent speculative flows between societies on rumours of an impending conversion. I gather that is what happened in America in certain situations, and that is what we seek to avoid happening in this sort of situation.
Clause 98 already contains a number of limitations on cash distributions and other benefits to members on conversions. However, at present it provides insufficient safeguards in one area. It puts no limit on who may be paid a cash distribution in the event of a transfer of business to an already existing society. It is clearly important that it should. Otherwise, for example, a society could tempt investors into it in order to vote in favour of a conversion with the promise of an immediate cash bonus; or just such speculative flows as I just mentioned might be started if it seemed a society might transfer to an existing company. This matter is pretty well covered elsewhere in the Bill. This is just an oversight on this aspect of it. These amendments correct the oversight.
Lord Lloyd of Kilgerran: Like the noble Lord, Lord Williams of Elvel, I was surprised to find that this amendment was necessary. I have tried to understand what the Minister has said on this matter. Is he really saying that the ordinary law does not cover this situation in protecting investors and that the amendment is necessary, or is it merely an oversight in the Bill? Is it the inadequacy of the present law that has triggered off the necessity to have this amendment? I still do not understand the Minister's explanation, but that is entirely my fault, I am sure.
Lord Brabazon of Tara: This is part of a larger aspect of how building societies might become plcs. There are certain safeguards attached to the conversion in so far as, if the building society wishes to offer its members incentives to convert to a plc, in order to avoid a flow of funds out of one building society into another because a rumour might have started that a building society was about to turn itself into a plc and offer its members cash bonuses, members must have been members for two years, before they can benefit from this. This is covered elsewhere in the Bill; but this is an oversight in one particular aspect of it.
Lord Lloyd of Kilgerran: I am grateful to the noble Lord. That helps to clarify the position.
Lord Williams of Elvel: It does help to clarify the position, I think. However, it raises all sorts of other questions. We have had our debate on the whole question of whether building societies should be allowed to convert to plcs. If the noble Lord is now saying that there are a number of oversights in the Bill as originally drafted which would tend to encourage a speculative flow of funds if there is (to use his words) a rumour that a building society might convert into a plc, presumably there will be a much greater speculative flow when a building society decides that it is going to turn itself into a plc. As we all know, the waiting period of two years before you can get your cash distribution is a relatively short time. I wonder whether this oversight in the Bill is now corrected. I wonder—not that I am encouraging further government amendments—whether there should not be further government study on exactly how this transition is going to take place. I think that this is an extremely difficult problem.
Lord Brabazon of Tara: As far as I know from the Bill, this completes the whole series. There was a technical oversight on this particular aspect, and this should close all the gaps.
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendments Nos. 212 to 215:
Page 151, line 26, leave out from beginning to ("where") in line 33 and insert (", and (b)")
Page 151, line 39, leave out from ("made") to second ("in") in line 40.
Page 152, line 2, after ("(2)") insert (", (7A), (7B),").
Page 152, line 4, leave out ("and (8)") and insert (", (7A), and (7B)").
Clause 98, as amended, agreed to.
Clause 99 [Protective provisions for specially formed successors]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 216:
Page 153, line 10, leave out ("Act (Northern Ireland) 1960") and insert ("(Northern Ireland) Order 1986").
The noble Lord said: This amendment was spoken to with Amendment No. 63. I beg to move.
Clause 99, as amended, agreed to.
Clause 100 [Transfer regulations]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 217:
Page 153, line 18, after ("1985") insert ("or, as regards Northern Ireland, the Companies (Northern Ireland) Order 1986").
The noble Lord said: This amendment was also spoken to with Amendment No. 63. I beg to move.
Clause 100, as amended, agreed to.
Clause 101 [Cancellation of registration]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 218:
Page 153, line 38, leave out ("company insolvency laws") and insert ("applicable winding up legislation").
The noble Lord said: My Lords, I spoke to this with Amendment No. 72. I beg to move.
Clause 101, as amended, agreed to.
Clauses 102 to 104 agreed to.
Clause 105 [Restriction of use of certain names and descriptions]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 219:
Page 159, line 29, leave out ("Act (Northern Ireland) 1960") and insert ("(Northern Ireland) Order 1986").
The noble Lord said: My noble friend spoke to Amendments Nos. 219 and 220 with Amendment No. 63. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 220:
Page 159, line 36, leave out from ("Article") to end of line 37 and insert ("4 of the Business Names (Northern Ireland) Order 1986").
Clause 105, as amended, agreed to.
Clauses 106 and 107 agreed to.
Clause 108 [Officers and auditors not to be exempted from liability]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 221:
Page 161, line 33, leave out from ("be") to ("(which") in line 34 and insert ("Article 675 of the Companies (Northern Ireland) Order 1986").
The noble Lord said: This was also spoken to with Amendment No. 63. I beg to move.
Clause 108, as amended, agreed to.
Clauses 109 to 116 agreed to.
Clause 117 [Interpretation]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 222:
Page 166, line 24, at end insert—
(" "the applicable winding up legislation" and "the companies winding up legislation" have the meanings given by section 90;"),
The noble Lord said: I spoke to this with Amendment No. 72. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 223 and 224:
Page 166, line 25, after (" "associated" ") insert ("and "linked by resolution" "),
Page 166, line 27, leave out ("18(17)") and insert ("18(9) and (17) respectively;").
The noble Lord said: My noble friend spoke to Amendments Nos. 223 and 224 with Amendment No. 166. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 225:
Page 166, line 30, after ("44") insert ("or authorisation by virtue of section 91(6) or paragraph 6(1) of Schedule 20 to this Act").
The noble Lord said: I spoke to this amendment with Amendment No. 203. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 226 and 227:
Page 167, leave out lines 1 and 2.
Page 167, line 15 leave out ("company insolvency laws") and insert ("applicable winding up legislation").
The noble Lord said: I beg to move Amendments Nos. 226 and 227. They were spoken to with Amendment No. 72.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 228:
Page 168, line 33, leave out ("the central office" and insert (", in the case of functions of the central office, to the Chief Registrar;").
The noble Lord said: The purpose of this amendment, which is technical, is to achieve consistency with subsection (2) of Clause 114. Fees in respect of central office functions are to be paid to the chief registrar as provided for in Clause 114(2) and not to the central office. I beg to move.
Lord Williams of Elvel: I do not wish to quarrel with the substance of the amendment but I find it rather extraordinary that we have got to the Committee stage in your Lordships' House, having gone through the whole procedure in another place, and we have an inconsistency in this Bill which has to be rectified by a technical amendment at this stage. I will not oppose the amendment.
Lord Skelmersdale: I should have thought that clarification was valuable whenever it should occur. I should have thought the noble Lord would be delighted with it.
Lord Williams of Elvel: I am always delighted with the noble Lord's clarifications. I only wish that they had come a little earlier in the stages of the Bill.
Lord Skelmersdale Lord Skelmersdale moved Amendment No 229:
Page 169, line 16, at end insert—
("() For the purposes of any provision of this Act referring to the value of a person's shareholding in a building society—

(a) the value of a person's shares shall be taken as the amount standing to his credit in respect of payments made by him on the shares and interest credited to him by way of capitalisation; and

(b) shares held by a person to whom, as the holder of the share, the society has made an advance, shall be disregarded.").

The noble Lord said: I beg to move Amendment No. 229, which the noble Lord will not be pleased to

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hear is a technical amendment to provide a definition of the value of a person's shareholding where it appears in the Bill. This happens at a number of places and the Bill refers to the value of investors' shareholdings—for example, on a member's entitlement to vote on resolutions. It is obviously important that the Bill should be clear on what precisely this means. The Building Societies' Association has attached particular importance to this point. This amendment does it.
Lord Williams of Elvel: I understand that this is in the notes with which we have been provided and is regarded as a technical amendment. Indeed, the noble Lord repeated that it was a technical amendment. I am not sure that it is entirely as technical as the noble Lord and, indeed, the notes make out. Here we are talking about the value to be placed on an investor's shareholding—for example, on a member's entitlement to vote on resolutions. The Building Societies' Association, I understand, reading from the notes with which the noble Lord kindly provided me, is broadly content with this definition, but the fact that it is broadly content may give rise to some controversy. If it is a question of the Building Societies' Association being broadly content, this is clearly not a technical amendment but an amendment of some substance. Am I right or wrong?
Lord Skelmersdale: I think the noble Lord actually is wrong. The Building Societies' Association gives advice to the noble Lord, to others of your Lordships and—
Lord Williams of Elvel: Not to me.
Lord Skelmersdale: Then I apologise to the noble Lord. Certainly it gives advice to others in the Committee and from time to time it lets me in on its thinking. The Building Societies' Association has had an opportunity to comment on this amendment and understands that the Government have aimed at providing a practical definition and one which should allow the value of a member's shareholding to be readily calculable by and available to his or her society. This is only the Committee stage, but if the association has any further worries I have absolutely no doubt at all that they will be communicated to the Committee and then to myself, in which case I hope to be able to satisfy the association when that occasion arises.
Clause 117, as amended, agreed to.
Clause 118 [Amendments, repeals, revocations and transitional and saving provisions]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 230:
Page 169, line 27, after ("Schedule 20") insert ("and of any order under section (Power to make transitional and saving provisions)").
The noble Lord said: This is a drafting amendment. I beg to move.
Lord Williams of Elvel: I understood that the noble Lord might be speaking also to Amendments Nos.
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231, 265 and 266. If he is not doing so, perhaps he will be kind enough to tell us.
Lord Skelmersdale: I am grateful to the noble Lord, Lord Williams of Elvel, for that short breathing space. The noble Lord is absolutely right. The first amendment adds a new clause after Clause 118— Power to make transitional and saving provisions—as well as Clause 122—Short title—and Clause 123 itself to the conveyancing provisions excluded from the Treasury commencement order power under Clause 123(3), since the three clauses added by the amendment will come into effect on Royal Assent. The reason for the continuing exclusion of Section 121 and Schedule 21(3) is that they will be brought in by a commencement order from my noble and learned friend the Lord Chancellor under subsection (4), and not from the Treasury.
The second amendment is technical and ensures that the Treasury will have power to bring into effect power to make a statutory instrument under a particular clause before the commencement of the rest of that clause.
Lord Williams of Elvel: I wonder whether the noble Lord would like to reconsider what he has said in the light of what I have put down in Amendments Nos. 230, 231, 265 and 266. It seems to me that these refer to Treasury powers to make transitional and saving provisions under the Act. Is that what the noble Lord was speaking to? I did not quite understand.
Lord Skelmersdale: I was speaking to the block, as the noble Lord originally invited me to do. I have now explained to the best of my ability exactly what they seek to do, and why. If the noble Lord has any further questions, of course I shall be delighted to try and answer them.
Lord Williams of Elvel: I am very glad that the noble Lord, Lord Skelmersdale, has had his thoughts so concentrated on these points. It seems to me that in Amendment No. 231, if I may speak to it, there are some very substantial powers being given to the Treasury on the provisional arrangements. Although at this late stage I do not want to oppose these amendments, I think we must recognise that these are not inconsiderable powers, and I think the Committee should be aware of that.
Lord Skelmersdale: They are temporary powers. As the side note to the new clause makes clear, it is power to make transitional and saving provisions, and the effect of the new clause is to enable the Treasury to make orders by statutory instrument to provide for an orderly transition from the present to the new building society legislation, as I sought to explain earlier. I cannot think of anything in a government provision that could possibly be more reasonable than that.
Lord Morris: I must support the noble Lord, Lord Williams of Elvel. In his opening remarks, my noble, friend Lord Skelmersdale made clear that he felt that these.are drafting amendments. It is quite clear that Amendment No. 231 is far from being a drafting amendment.
Lord Skelmersdale: I was wrong, and I apologise. I have now corrected the error, I believe. I beg to move.
Clause 118, as amended, agreed to.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 231:
After Clause 118, insert the following new clause:
("Power to make transitional and saving provisions.

—(1) The Treasury may, by order made by statutory instrument, make such provision as appears to them to be necessary or expedient for the purposes of the transition to the provisions of this Act from the existing enactments applicable in England and Wales. Scotland or Northern Ireland to building societies.

(2) An order under this section may—

(a) modify any of the existing enactments or provisions of this Act, in particular in their application to proceedings pending before the Chief Registrar or the Commission;

(b) create criminal offences or otherwise provide for the enforcement of obligations imposed by or under the order,

(c) provide for the charging of fees but not of any charge in the nature of taxation.

(3) An order under this section which contains any provision authorised by subsection (2)(b) or (c) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(4) In this section "the existing enactments" means the enactments in force at the passing of this Act. including any enactment amended by Schedule 18 to this Act.").

The noble Lord said: I spoke to this amendment at rather more length than I intended with Amendment No. 230. I beg to move.
Schedule 18 [Amendments of enactments]:
8.45 p.m.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 232:
Page 252, line 39, at end insert—
('"( ) For section 450 (modifications of building society law) there shall be substituted the following section—
"Modifications of building society law.
450. So much of an advance by a building society which is partly financed under section 445 (assistance for first-time buyers) or the corresponding Scottish or Northern Ireland provisions as is so financed shall be treated as not forming part of the advance for the purpose of determining—

(a) whether the advance, or any further advance made within two years of the date of purchase, is beyond the powers of the society, and

(b) the classification of the advance, or any such further advance, for the purposes of Part III of the Building Societies Act 1986.").

The noble Lord said: I beg to move Amendment No. 232, and I shall speak also to Amendments Nos. 233, 236, 238, 239 and 241,
The purpose of these amendments is to add a reference to the Housing Association Act 1985 in the schedules listing amendments and repeals to other Acts. These amendments achieve a number of drafting amendments and repeals to the Housing Association Act needed as a result of the provisions of this Bill. Amendment No. 232 makes a necessary change to Section 450 of the Housing Association Act to align
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that legislation with the new asset classification in this Bill.
Amendment No. 238 repeals the definition of "designated building society" in Section 459. The Bill renders that term obsolete. Schedule 19 already repeals a reference to it in Section 458 of the Housing Act, and this amendment completes the job. ! beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 233:
Page 252. line 43, at end insert—
("Housing Associations Act 1985 (c. 69).

.—(1) This paragraph amends the Housing Associations Act 1985 as follows.

(2) Sections 63 to 66 (building society advances) and in section 72 (minor definitions) the definitions of, and in section '; (index of definitions) the entries relating to. "building society" "Chief Registrar" and "officer" shall be omitted.

(3) In section 84(5) and 86(4) (consultation by Secretary of Slate regarding building society indemnities) for "Chief Registrar of Friendly Societies" there shall be substituted "Building ' Societies Commission".

(4) In section 101 (minor definitions), for the del lion of "building society" there shall be substituted—

" "building society" means a building society within the meaning of the Building Societies Act 1986;".).

The noble Lord said: I have just spoken to this amendment. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 234 and 235:
Page 253, line 3, leave out from beginning to end at line 8.
Page 253, line 37, leave out from beginning to end of line 42.
The noble Lord said: Amendments Nos. 234 and 235 were spoken to with Amendment No. 63. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendment No 236:
Page 254, line 15, at end insert—
("( ) For Article 155 (building society law) there shall be substituted the following Article:
Modifications of building society law.
155. So much of an advance by a building society vm'eh is partly financed under this Part or sections 445 to 449 of the Housing Act 1985 or the Home Purchase Assistance and Housing Corporation Guarantee Act 1978 as is so finance shall be treated as not forming part of the advance for the purpose of determining—

(a) whether the advance, or any further advance made within two years of the date of purchase, is beyond the powers of the society, and

(b) the classification of the advance, or any such further advance, for the purposes of Part III of the Building Societies Act 1986."

() In Article 155A (exclusion of Restrictive Trade Practices Act 1976) after "Scottish Provisions" there shall be inserted "(namely, sections 445 to 447 of the Housing Act 1985 or the Home Purchase Assistance and Housing Corporation Guarantee Act 1978)").
The noble Lord said: The purpose of this amendment is to add two further amendments and repeals in Northern Ireland legislation to Schedules 18 and 19. They are comparable with the earlier amendments we moved to put Northern Ireland into the Bill. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 237:
Page 254, line 34, at end insert—
("Companies (Northern Ireland) Order 1986.

.—(1) This paragraph amends the Companies (Northern Ireland) Order 1986 as follows.

(2) In Article 303(3) (disqualification orders against directors of companies; meaning of "company"), after "Part XXI" there shall be inserted "and a building society (within the meaning of the Building Societies Act 1986).".

(3) In Article 310(3) (provision against undischarged bankrupt acting as director, etc.; meaning of "company"), after "unregistered company" there shall be inserted ", a building society (within the meaning of the Building Societies Act 1986".").

The noble Lord said: This amendment was spoken to with Amendment No. 63. I beg to move.
Schedule 18, as amended, agreed to.
Schedule 19 [Repeals and revocations]:
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 238 and 239:
Page 256, line 9, column 3, at end insert—

("In section 459, the entry relating to "designated building society".").

Page 256, line 9 at end insert—

("1985 c.69.

The Housing Associations Act 1985.

Sections 63 to 66. In section 72, the definitions of "building society" "Chief Registrar" and "officer".

In section 73, the entries relating to "building society", "Chief Registrar" and "officer".").

The noble Lord said: With your Lordships' permission, I should like to move Amendments Nos. 238 and 239 together. They were spoken to with Amendment No. 232. I beg to move.
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 240 to 242:
Page 257, leave out lines 10 to 13.
Page 257, line 36, column 3, leave out ("paragraph 13") and insert ("paragraphs, 13, 51(2) and 51(5)(a)").
Page 257, line 38, at end insert—

("S.I. 1986/000 (N.I.00)

The Companies Consolidation (Consequential Provisions) (Northern Ireland) Order 1986.

In Part I of Schedule I the entry relating to the Building Societies Act (Northern Ireland) 1967.").

The noble Lord said: I hope it will be for the convenience of the Committee if I move these three amendments en bloc. They were spoken to with Amendments Nos. 63 and 232. I beg to move.
Schedule 19, as amended, agreed to.
Schedule 20 [Transitional and saving provisions]:
Lord Brabazon of Tara Lord Brabazon of Tara moved Amendment No. 243:
Page 264, line 34, at end insert—
("Permissible securities for advances.

.—(1) Until provision is made by an order under section 10(6) prescribing the descriptions of equitable interests in land
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which may be taken as security for advances secured on land building societies may advance money on the security of an equitable interest in land in England and Wales or Northern Ireland in addition to a mortgage of the freehold or leasehold estate where the lease or a related instrument includes provision entitling the leaseholder to acquire a beneficial interest of any extent in the freehold or a greater leasehold interest and the right to acquire that interest is assigned as additional security.

(2) Until such provision is made, section 17(10) shall have effect with the substitution of a reference to an equitable interest of the description specified in subparagraph (1) above for the reference to an equitable interest specified in an order under section 10(6).

(3) On the making of the first order under section 10(6) this paragraph shall cease to have effect.
Until provision is made by an order under section 12(3) prescribing indemnities given by a local authority as a description of additional security for the purposes of section 1 l(4)(c), an indemnity given under section 442 of the Housing Act 1985, under section 31 of the Tenants' Rights, Etc. (Scotland) Act 1980 or under Article 156 of the Housing (Northern Ireland) Order 1981 shall be such a security; and on the making of the first order under section 12(3) this paragraph shall cease to have effect.").

The noble Lord said: This amendment was spoken to with Amendment No. 44. I beg to move.
Lord Morris: I am again concerned about the star at the beginning of this amendment. Could my noble friend be kind enough to tell me what the alteration is to this amendment?
Lord Brabazon of Tara: Certainly. I think a gremlin crept into the printing of the first Marshalled List. If the noble Lord will turn his attention to subsection (3), he will find that the last word of the first line was originally printed as "the", when it should have been "this".
Lord Morris: I am much obliged to my noble friend.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 244:
Page 266, line 6, at end insert—
("Qualifying assets.
. For the purposes of the application of section 116 by reference to the annual accounts of a building society prepared before the first financial year for which accounts under Part VIII of this Act are prepared, the reference to the total commercial assets of a society shall have effect as a reference to the amount in the last balance sheet prepared under the Building Societies Act 1962 which represents the total assets constituted by mortgage debts outstanding to the society.").
The noble Lord said: This is another transitional provision to provide for outstanding loans under the 1962 Act to count as commercial assets for the purposes of the qualifying asset holding. Total commercial assets, denned in Clause 117 as the sum of Classes 1, 2 and 3 assets, will not formally be calculated until the first accounts prepared under the new accounting arrangements. There is an obvious need for a transitional provision to allow for the old system to be used when the annual accounts for the building society were prepared before the first financial year under which accounts under Part VII of this Bill came into being. This amendment achieves that, and I beg to move.
Lord Williams of Elvel: I should like to study in Hansard what the noble Lord has just said, and perhaps, if we need to revert to it, we will come back at Report stage.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 245:
Page 267. line 5, leave out ("sub-paragraph (7) below") and insert ("those sub-paragraphs").
The noble Lord said: This is a consequential and drafting amendment referring to the last amendment. I beg to move.
Schedule 20, as amended, agreed to.
Clause 119 [Northern Ireland]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 246:
Page 169, line 37. after ("section") insert ("15, section").
The noble Lord said: This amendment was spoken to with Amendment No. 154. I beg to move.
Clause 119, as amended, agreed to.
Clause 120 agreed to.
Clause 121 [Recognition of building societies, other institutions and individuals as suitable to provide conveyancing services]:
On Question, Whether Clause 121 shall stand part of the Bill?
Lord Morris: In the course of the Administration of Justice Bill on 14th March my noble and learned friend the Lord Chancellor said with his customary robustness the following words:
"At any rate, what 1 promised your Lordships at the end of January was that 1 would not use this Bill as a subterfuge for inserting the Government policy in relation to in-house solicitors by a backdoor route; that this Bill was not the instrument by which it would be done, and, if it were done, it would be done openly and above-board by a piece of primary legislation." [Official Report; 14/3/86, col. 301].
As I see it, this is precisely what this clause in this Bill is attempting to do. However, looking at the clause itself, you will see there fairly clumsy tautology, in that the clause states:
"this Act shall have effect with respect to the provision by building societies, other institutions and individuals in England".
In fact the definition of "other institutions" by virtue of Schedule 21 includes building societies. In other words, as I see it, in an attempt to try to bring this provision within the scope of this Bill, that term has been used again.
This of course is de minimis. But the important point about this clause is that it releases, so to speak, Schedule 21, which contains the rules and regulations for building societies as regards providing conveyancing services. I have a major concern with regard to this. That concern is very much backed up by what my noble and learned friend the Lord Chancellor said, again during the course of the Administration of Justice Bill (now, of course, an Act). That Bill, your Lordships will recall, set up the scheme for licensed conveyancing. I should like to quote from col. 815 of 31st January, 1985. These words are extremely important and I am sure that my noble and learned friend has not moved away from these thoughts. He said:
"I am very much concerned, and I am glad to say that my colleagues are also concerned, to see that the danger of conflict of interest is avoided.".
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Your Lordships will recall that in Schedule 21 there is an attempt to handle this but, in my view, it is wishful thinking. It cannot possibly work. The reason is quite clear from experience. I think it is fair that we should learn and profit from the conveyancing experience of the United States of America.
The two countries share many fundamental problems in dealing with the question of how houses should be bought and sold and how purchasers can receive proper protection at an acceptable cost. Of course, this is precisely what this Part of the Bill is concerned with. In England we have a conventionally used system which is far from perfect but which has been extraordinarily successful in providing adequate protection at reasonable cost, which certainly nowadays is a great deal less than in the United States.
Some years ago the United States turned over most of the conveyancing to the mortgage lenders—in other words, to the savings and loans institutions, which, as your Lordships will know, are the equivalent of our building societies. In my view—and I am not alone in taking this view—the result has been a disaster for everyone except the lenders. In any discussion of conveyancing practice the transcendent issues are adequate protection for the house buyer, the need for proper representation and the inherent conflict of interests where the mortgagee dominates the transaction. We have heard in previous discussions on this Bill that the Government themselves are quite clear about the dominant position in the marketplace of the lenders. I do not think they can get away from that.
In England, each of the parties involved—that is to say, the buyer, the seller and the mortgagee—has been advised and assisted by his own qualified solicitor, and now licensed conveyancer, who ensures that no one can take advantage of the other. Yet the proponents of this new legislation insist that law and custom have thereby created a monopoly in the solicitors' profession, with the result that it is unfair, costly and so complicated that the public would be better served by permitting a single representative for the mortgagee to carry out the entire transaction.
I suggest that such a premise raises four questions of the most paramount importance. The first is: does the present reformed form of practice constitute a monopoly? Secondly, if banks and building societies are given the power to engage in conveyancing, will they create a new and dangerous monopoly? Thirdly, if such a monopoly is created, will the housebuyer receive the services and protection he needs? Fourthly, will conveyancing services provided by banks and building societies be cheaper than those provided by solicitors and licensed conveyancers?
A house buyer is free to select any one of these he chooses, and each solicitor or licensed conveyancer is in direct competition with every other. Because several parties must come together on common ground, it is necessary for the practice to have a great degree of outward uniformity—but this no more involves a monopoly than does a clearing house arrangement among banks.
It is certainly true that some years ago solicitors adopted the monopolistic practice of setting uniform scale fees. Without defending this practice—and I do

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not approve of it—this was long ago swept aside, leaving solicitors free to set their own costs and to establish a market based on supply and demand. We have seen this practice working very well indeed, and, in real terms, the cost of conveyancing between solicitors has come down considerably. In my view, the term "solicitors' monopoly" has no meaning whatsoever.
What does exist is a conventional licensing system designed to protect the public. The rules say simply that unqualified persons shall not be permitted to hold themselves out to others as having a particular expertise. The same applies in the case of chartered accountants, chartered surveyors, doctors and others in hundreds of occupations requiring special skill.
Turning to the second question of whether lending institutions should be given a chance and should be expected to establish a new monopoly, logic and the entire experience in the United States of America clearly show that such an outcome is almost inevitable. The Government contend that abuse by the dominant person, the lender, will not occur, because buyers can shop around for the best possible terms and can thereby create a market. The real fact is very simply that the vast majority of housebuyers lack an understanding of bargaining powers to deal on equal terms with the large institutional lender, and I think that the Committee's experience of life generally will lead it to accept that point.
As to the third question of whether lending institutions can be expected to provide mortgagees with the needed protection and services, I believe that the answer is a resounding, "No". Because of timing and lack of incentive, lenders simply cannot properly represent the borrower. This is inevitable, because the lender has no interest in the terms of the contract of sale. All it is concerned with is that the buyer ultimately gets good title, not the terms by which the title was acquired, nor many other matters of great concern to the buyer but of none to the lender. This is a difficulty which cannot be avoided if the lender acts as the conveyancer.
Without reference to the time elements, the interests of the buyer and the lender are not the same. In some cases, these interests have deceptive similarity. In others, the mortgagee has no concern with matters that are of vital importance to the mortgagor; and in still others the interests are in direct conflict.
As to the interests which are similar but not identical, the best illustration is that as to title requirements. The buyer wants undisturbed possession of the property, and the right to use it as he pleases. The lender, on the other hand, wants only enough title to ensure repayment of the loan. It is not concerned with defects in title, which do not decrease the value of the house and which do not exceed the amount of the buyer's equity. Illustrations would be certain kinds of restrictive covenants and liens. The lender can ignore such defects, either because the title is still sufficient for its purposes or because it can afford as a large institution to take a businessman's risk. By contrast, the buyer must pay the cost of such title defects and has no redress against the lender.
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It is not true, as is commonly believed, that title good enough for the building society is good enough for the buyer. This point I raised at an earlier stage of the Bill with the noble Lord, Lord Barnett, when he sugggested that many solicitors acted on behalf of the purchaser and the mortgage company, because I said that the mortgage company were agreeing to use the purchaser's solicitior. It was not a question of the purchaser agreeing to use the mortagor's solicitor, which is a very different situation. Where the lender does the conveyancing, the protection afforded to the borrower is necessarily residual and incomplete. It is argued that cases of direct conflict of interests are rare and inconsequential. Any such assertion is proof of the merit of the existing system of representation by the parties' own solicitors or licensed conveyancers.
Stated baldly, the lender wants to make as much out of the borrower as possible and. at the same time, to assume as little responsibility as possible. This can be curbed only if the buyer has his own solicitor or licensed conveyancer; or, to put put it in another way, if you make the lender the conveyancer, you put the fox in charge of the hen house. I am very concerned about this.
As to costs, experience in the United States of Amercia presently is very serious indeed. To put this baldly as well, instead of the lawyers ripping off their customers, it is now the savings and lending institu-tions doing it, which is to a considerable degree worse than past experience. I am not in any way suggesting bad faith, but there is this danger and we can learn a great deal from experience in the United States of America.
Lord Hacking: I put my name down in support of the Motion of the noble Lord, Lord Morris, that this clause should not stand part of the Bill, out of no sense of wishing to wreck the provisions which are proposed in this Bill. I should disclose that, unlike the noble Lord, Lord Morris, I am a solicitor of the Supreme Court, and I acknowledge that a number of members of my profession are very concerned about the effect on the conveyancing services they provide which is proposed to be implemented within the terms of this Bill.
However, I do not rise to my feet to support the noble Lord, Lord Morris, on the narrow position of wishing to reject altogether the proposed provisions of Clause 121 in this Bill. Nor do I do so out of any sense, as I repeat, of wishing to wreck the contents of the Bill. Clause 121 is quite separate from the rest of the provisions of this large Bill. It is curious; indeed, it is more than curious, it is revealing to look at the preamble to the Bill. This states this is:
"An Act to make fresh provision with respect to building societies".
Then the second part of the preamble states,
"and [to make] further provision with respect to conveyancing services".
Noble Lords have then to travel all the way through 170 pages of this long and detailed Bill until they come to Clause 121. That is the first clause, which is only two from the end of the Bill and on the same page as the end of the Bill (before one gets to the schedules) which gives effect to the second half of the preamble to the Bill.

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The truth is that for good reasons or bad—and I do not challenge the good faith of the Government any more than did the noble Lord, Lord Morris—there has been tacked on to this Bill a clause which is quite separate from the rest of the Bill and which seeks to deal with conveyancing services—conveyancing services no longer to be within the monopoly of members of my own profession.
The Committee should come to this position, should it not? Having considered the proposal of the Government to remove the monopoly of solicitors, the Committee should consider whether the provisions as set out in Schedule 21 to the Bill are ones which thereafter will properly protect the consumer. Whatever else may be said against my noble profession —and there are critics of my noble profession—it is a profession that has been well-regimented for a number of years; it is also a profession that has a strict code of conduct; and is a profession that deals most severely with any members who fail to follow strictly its rules of conduct. Therefore, the conveyancing services, administered by members of my profession, are at least administered by a profession that is subject to wide and strict discipline.
Therefore when the Government seek to remove the monopoly from my profession and seek thereby to open the right to enter into the business of conveyancing to a number of other bodies, it is not surprising in Schedule 21 that safeguards are set out— safeguards that stand to be within the aegis of the noble and learned Lord, and rules which he may make consequentially under Schedule 21. A number of matters have, therefore, to be raised as to whether there are in Schedule 21 proper protections for the consumer and safeguards to ensure that employed solicitors and conveyancers are not subject to improper commercial pressures by their employers, and whether there are sufficient protections against conflict of interest. The noble Lord, Lord Morris, dealt with that in some detail. If one refers to paragraph 2 of Schedule 2 and the recognition rules that are here set out, one finds that there are no effective measures proposed by the Government to deal with this very fundamental problem of the conflict of interest. It is a fundamental problem because when there is a conflict of interest, members of the public, the consumers, are in peril.
There are other matters—and one has only to look at the number of detailed amendments that have been proposed by the noble Lord, Lord Foot—that require detailed consideration: to safeguard clients' money; to provide protection against secret commissions which should be disclosed; and to ensure in all its ramifications, and in this proposed extension of conveyancing services, that members of the public are properly protected.
The situation is this, is it not? At a late hour in the evening during a time when this Chamber is having to deal with an immense number of Bills and having to sit very long hours and consider a number of important aspects, noble Lords are now being invited, as the noble Lord, Lord Foot, is compelled to invite us, to consider a number of important matters which directly concern the interests of the public. In those circumstances what I am suggesting to the Government—and this is the reason I am supporting
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the noble Lord, Lord Morris—is that the proper thing to do is not to try to tack on Clause 212 to this Bill—
The Lord Chancellor (Lord Halisham of Saint Marylebone): Clause 121.
Lord Hacking:I thank the noble and learned Lord very much indeed. I hope Hansard will record the clause accurately. The proper thing to do is not to attempt to tack on Clause 121 to this Bill, but so lay it aside to when noble Lords have proper time to consider it in the months of October and November—in November because the State Opening of Parliament normally does not take place until the beginning of November. Noble Lords will then have plenty of time to give proper consideration to such measures in, as I suggest, the months of November, December and January, before the deluge from the other place has again reached this Chamber. There may be a critical time factor in respect of this Bill, but there is no critical time factor in respect of Clause 121. For that sensible reason 1 invite the Committee not to take Clause 121 now but to leave it aside for mother time. Let us give it proper consideration in the next Session of Parliament. That is the reason why I support the noble Lord, Lord Morris.
Lord Lloyd of Kilgerran: Before the noble Lord sits down perhaps I may ask him a simple question, I am aware that the noble Lord has considerable experience of American practice in these matters. The noble Lord, Lord Morris, in his speech, made great play with the situation in America which he used to enforce his arguments. Does the noble Lord. Lord Slacking, support those arguments of the noble Lord, Lord Morris? He made no reference to the practice in the United States of America, of which he has great experience.
9.15 p.m.
Lord Hacking: I was very relieved that when the noble Lord interrupted it was not because he was unable to hear me. Every other interruption I have had from the noble Lord in recent times has beer for that reason.
It is true that I am a member of the Bar of the State of New York. Indeed, I believe that I am the only member of the Committee who is also a member of the Bar of the State of New York. I have no detailed knowledge of the point raised by the noble Lord, Lord Morris, but certainly the disciplines in the legal profession in the United States of America are nothing like so well regulated as they are in this country. Therefore I was not at all surprised to hear the noble Lord, Lord Morris, speak about the circumstances in which the consumer in the United States of America is not properly protected in respect of convevancing matters.
This adds to the concern in this Bill. There is not in the United States of America an exclusive monopoly reserved to lawyers for conveyancing services. It is open, therefore, to a number of persons at large to indulge in the practice of conveyancing. In this Bill the Government are proposing to do the same; to release conveyancing to a number of persons who will not be subject to the same disciplines as is my own profession here in England.
Lord Lloyd of Kilgerran: I thank the noble Lord very much.
Lord Houghton of Sowerby: I support the noble Lord, Lord Hacking, on this matter. What is more remarkable is that Clause 121 is not exclusive to building societies. It is not really a part of this Bill. It has been tacked on to this Bill We know that there is a history to this matter, which I believe should be the subject of a separate Bill that can be discussed, as the noble Lord said, in more propitious circumstances. Not only does this provision come at the end of a very complex Bill that is full of problems, as well as opportunities, for the building societies themselves, but we are discussing it at a late hour, and at a time when so many late hours have probably made Members of the Committee rather weary of the process of legislation.
I do not consider that it is being fair to the subject or to the Committee to be dealing with this matter in such conditions. Moreover, I suggest that in this connection building societies have quite enough on their plates under the Bill already. We do not know how it is going to work out. We do not know who will want to take advantage of the opportunities that the Bill offers. We do not know how the building societies will conduct their affairs under the new regime that is ahead of them.
I plead for leaving Clause 121 out of the Bill altogether. We should let the building societies get on with their job for the time being. Let us consider this matter as a separate issue; that is, the devaluation of what has been regarded as legal work in the hands of a profession, which is important to all citizens who buy houses however they come by them and fromwhatever source they obtain help.
If we were dealing with a trade union instead of with the legal profession, we should be hearing something from that quarter. One is apt to overlook the consequences for a very large number of independent practices. They are well-established, employ staff, have good connections, and do their work well. Some of them are almost an annex of the building societies because they handle a huge volume of work, probably under conditions that give satisfaction all round. I do not like the clause at all.
The conditions that the noble and learned Lord the Lord Chancellor may lay down need to be very carefully examined. It is obvious that this measure is one that should be under strict control, strictly regulated, and fully safeguarded. Those are all in the paragraphs of the schedule, and each one requiring more attention than we can give tonight.
The Government and the building societies—more the building societies than the Government—want this Bill. In the circumstances I think they have to be satisfied with what it is possible for your Lordships' House to do. I agree that there is no real urgency on this. My other plea is that if we leave the clause in the Bill, we should at least put a timetable to it and let it lie fallow for consideration in two or three years' time. The effective date could be inserted in the Bill accordingly. That would give considerable notice to many people who could get ready for it. The noble and learned Lord the Lord Chancellor would have an
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ample opportunity to look at the rules, and everyone could become accustomed to the idea.
I say this without any interest in the matter. I also say it as one who, as chairman of a housing association, had the novelty years ago of a composite fee which embraced the survey and the legal charges. That composite arrangement was convenient for borrowers because they knew what their costs were before they started. Of course, the Law Society stepped in and stopped it. However, that is a long time ago. That kind of service might be available in the future, but a few barriers would have to come down before then.
I feel that we cannot be asked to go on with this discussion tonight on the assumption that we are going to pass this clause and that the Bill is to go forward. That is asking too much and I should not be willing to co-operate in doing it.
Lord Foot: Since the next items of business when we finish this Motion are the 18 amendments standing in my name I would be very unpopular if I inflicted any speech on the Committee at this stage. However, I should not like it to be thought that I do not have a great deal of sympathy with what has been said by the noble Lords, Lord Morris and Lord Hacking, and particularly by the noble Lord, Lord Houghton, whose support and assistance I very much welcome.
The amendments I shall be moving a little later, assuming that this Motion is not carried, are an alternative approach to the proposition that we should strike out Clause 121 altogether. I hope to put that alternative approach to the Committee, in particular in order to hear what comments the noble and learned Lord the Lord Chancellor might make.
In conclusion, may I say that we are all extremely grateful to the noble and learned Lord that he has come here to deal with this matter. It is particularly his province, since the whole structure of Clause 121 and Schedule 21 turns upon decisions which are to be made by the noble and learned Lord.
Lord Coleraine: I have not spoken on these conveyancing matters on this Bill before and so I declare my interest in that I am a practising solicitor. I can go a stage further than did the noble Lord, Lord Hacking, and say that I am basically a general practitioner and a conveyancer as such. I am not a specialist conveyancer, but I am a conveyancer, and so I am very much interested in what happens to this clause and the schedule.
Clause 121 and the schedule as drafted appear to me to be unsatisfactory because they deal with the question of recognition and not with the conduct and misconduct of corporations which are allowed to provide conveyancing services. That this is so is made clear in my mind by the complete absence of provision in the recognition rules of penalties which could in any realistic way be said to be appropriate to the rough and tumble of conduct and misconduct.
Apparently, by these provisions the legal profession is to be subjected to unfair competition in two ways. First, there are the anti-competitive practices, such as the offering of loss-leading packages, loss-leading services and all-in packages. It appears from our debates on Clause 35 that in general the Government

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approve of these practices. My noble friend Lord Brabazon was only able to offer the Competition Act 1980 as a remedy for abuse if it arose, and I can thank him no more warmly for that offer than did the noble Lord, Lord Foot, at the time.
The second point concerns the fact that solicitors do, and licensed conveyancers will have to, abide by rules of professional conduct, which is a shackle, if you like, that Schedule 21 does not appear to provide for big business. I recognise that there are what I would call the anomalous provisions of paragraph 2(2)(a) of Schedule 21, which relate to conflict of interest. However, one swallow does not make a summer and it seems to me that if business conveyancers are not to be subject to proper rules of conduct the inevitable and logical result will be a demand for the profession to abandon its professional standards when they are not shared by the competition.
Lord Morris: I am puzzled by my noble friend's reference to Schedule 21 when he says that it does not contain penalties. It is littered with penalties—for example, for someone pretending to be a recognised practitioner, and for an institution pretending to be a recognised institution there is a penalty at paragraph 10(2) and elsewhere. 1 should be interested to know why my noble friend felt as he did.
Lord Coleraine: I am grateful to my noble friend for raising that point. I said that there seemed to be no penalties to deal with the peccadilloes of recognised practitioners. I think 1 am right in saying that the penalties to which my noble friend has drawn attention are those which apply to people who pretend to be recognised and who are not actually recognised.
The Lord Chancellor: At this hour I do not think we should wholly neglect the fact that what we are discussing is whether Clause 121 shall stand part of the Bill, and nothing else. Of course it is clear that from the start the Bill has contained provisions of importance to solicitors and other institutions, which include building societies and other corporate entities such as banks and possibly estate agents. The provisions raise questions of principle but the policy of the Bill has always been to allow such institutions to provide conveyancing services as defined, but subject to conditions. What is at issue here is the balance between "competition"—though I hate to use the word, and in this context I would rather use a phrase such as "facilities available to the public" than "competition", which is so agreeable to others—and the protection of consumers. It seems to me that what we have to defend is the protection of consumers in relation to the policy of the Bill.
Let no one pretend that this clause is not part of the essential policy of the Bill. It is basically a Second Reading point if it is to be viewed in the light of the speeches which we have so far considered. But it is, as a matter of fact and in the context in which it is, simply an enabling clause. It enables the Lord Chancellor, subject to the agreement of Parliament, to pass regulations on the negative procedure, and those powers are set out in Schedule 21. It is therefore purely an enabling clause.
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Unless one is going to go back on the main policy of the Bill, one could not accept the removal from the Bill of Clause 121 without crippling and wrecking the Bill. It is no good saying that that is not the intention. That would be the effect. It has always been part of the policy of the Bill.
No one would suggest for a moment that we could have recognised institutions, as provided in the Bill, without a power of regulation either by the Lord Chancellor or, as I should personally greatly prefer, some other Minister. But the lot happens to have fallen on Jacob, and that is why I am here. Therefore this is a wrecking amendment so far as that part of the Bill is concerned, and it has no other purpose. I am sure that my noble friends, when they consider that, would not consider it in any other light.
It is correct that I should view this in relation to the policy of the Government as a whole. I think that it was my noble friend Lord Morris who said that it was the Law Society that had removed scale fees from conveyancing practices. I wish that I had time to tell him what the real truth is. In a word, it was me. I thought that it was a good thing to do, and I did it. The Law Society agreed it and in the end was induced to propose it. Since that time and since this Government took office conveyancing charges have been reduced by 30 per cent.
But two other features are essential to government policy in the matter. One is the establishment of the new profession (if that is the right word) of licensed conveyancers, which was passed last year so far as I remember. It was clearly controversial. I remember at that time the noble and learned Lord, Lord Denning, criticising it from the Cross-Benches. The other is the provision in this Bill to allow "recognised institu-tions", which is the phrase used, to offer conveyancing services.
The question which we have to consider on Clause 121 is simply whether that can be done or has been done with sufficient regard to consumer protection. I wish that both sides in the argument would realise that that is the only point. This is not a question as to whether great institutions such as building societies and banks are respectable institutions to deliver those services. It is not a question as to whether solicitors in this country also provide services in that connection which are suitable services.
I note with pleasure and agreement what my noble friend Lord Morris has said in relation to the comparison that can be rightly drawn between the United States and this country. There is an inherent difficulty about the relationship between lender and borrower. I should feel less confidence in presenting this argument had the matter not already been discussed less than a week ago, when the party opposite and certain others voted against the monopoly of solicitors altogether.
This is an unfair contrast. The question that we have to consider is whether the inherent possible conflict of interest between lender and borrower can be reconciled by means of regulations and by means of compromise. The policy of the Government has been based on the belief that it can. The building societies, broadly and largely, want to do it by means of a series of guidelines or codes of conduct which I discussed last

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time. The solicitors say that it cannot be done. What is clear is that if it is to be done, it has to be done by an enabling clause—that is, Clause 121—giving the Lord Chancellor of the day power to make regulations subject to control by Parliament as to whether it should be done or not and in what conditions.
Such a Lord Chancellor—I do not suppose for a moment that it would be me, but if it were, I think I can speak for him—would wish to have a certain flexibility and would welcome the fact that when he had exercised his discretion he would be subject to parliamentary criticism and control. No one wants less than a Lord Chancellor, actual or putative, to operate in vacuo with absolute powers. These powers must be flexible, and they must be capable of meeting all eventualities. The Government do not at present intend to allow lending institutions to offer conveyancing services to their borrowers. But if our worries over conflict of interest can be allayed, it will be possible for the then Lord Chancellor to bring forward the necessary amendment to the rules. The aim of those rules will be to ensure that the consumer is properly protected, but not to such an extent that unnecessary restrictions are imposed on those wishing to enter the conveyancing market.
As has been said many times before, the Government's commitment is to increase the field of competition—the phrase is one that I am compelled to use—while maintaining proper consumer protection. I would respectfully say to my noble friend and to those who have supported him that we have struck the right balance on the assumption that the Second Reading points have been adequately made. I would therefore ask him to let this clause go through. We have in front of us a large number of thoughtful amendments put down by the noble Lord, Lord Foot, largely, I believe, inspired by the Law Society. I hope that we can now get on to them.
This is essential Government policy. This clause which is only an enabling clause, giving the Lord Chancellor power to regulate subject to parliamentary control, is an essential cog in that policy. I do not see myself, given the Second Reading points, and given the fact that parliamentary control is available both on the amendments of the noble Lord, Lord Foot, if they come to be discussed, and when any regulations are put down, that this is an unreasonable clause to stand part of the Bill. For that reason I would ask my noble friend not to press the matter to a Division.
Lord Morris: Not for the first time I am very grateful to my noble and learned friend for the help he has given the Committee with regard to this matter. I do not intend pressing this matter to a Division, but I need further help. He will no doubt recall with affection the Administration of Justice Act 1985, whereby under Section 32 there is provision for the council to make rules with regard to the provision of conveyancing services by recognised bodies. I accept the fact that these recognised bodies are bodies corporate.
We now have a Bill that is using a completely different procedure and putting more work on to the Lord Chancellor's department. I have no doubt about his capacity for hard work. But this is a completely
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different Bill with a completely different system for setting up building societies and other institutions, which include bodies corporate. Then one has the council for licensed conveyancers under the Administration of Justice Act overseen again by the Lord Chancellor's department.
I am certainly in a muddle. I rather suspect that the public will be in a muddle as well. If the noble and learned Lord can clarify that I shall be very much obliged.
Lord Hacking: It is with some reluctance that I have reached a decision that I do not wish to press to a Division the Motion that has been tabled in the names of the noble Lord, Lord Morris, and myself. I, too, am very grateful to the noble and learned Lord for giving time to the Committee and for being prepared now to consider in detail the amendments that have been tabled by the noble Lord, Lord Foot.
I should like to approach this matter in this way. I should like to see how the noble and learned Lord and the Government respond to the various "thoughtful" amendments—as described by the noble and learned Lord—of the noble Lord, Lord Foot, and to see whether true justice is done to those amendments in the detail of their consideration and in the response that the Government give them.
If, as I fear at this time of night, there is not time to consider them in detail, and that by the time we get to the end of Committee—whether on this evening or another occasion—those amendments have not been given the consideration that I believe Members of the Committee should give them, then the proper moment for again considering whether Clause 121 shall stand part of the Bill would be at Report stage.
I therefore withdraw from suggesting that noble Lords should divide at this moment in this Committee on Clause 121. However, I very much reserve my position and may very much seek to be heard again by Members of the Committee on Report if, as I fear, the Government are unable—not because of any lack of willingness by the noble and learned Lord but because of lack of time—to consider properly the effects of bringing both Clause 121 and Schedule 21 onto the statute book. On that basis, unless any other Lord is bolder than myself and wishes to divide the House, it is not my wish to do so.
The Lord Chancellor: Perhaps I may respond to what my noble friend Lord Morris has said, without seeking in any way to anticipate what we shall be saying on the amendments of the noble Lord, Lord Foot. I think my noble friend made a false comparison when he compared the new profession—which was stage two of the Government's policy, the licensed conveyancers—with this kind of provision. The licensed conveyancers are necessarily small bodies of individual people, rather comparable, and perhaps in competition, with the solicitors' practices. It is an essential part of the architecture of the licensed conveyancers' apparatus, as recommended by the Farrand Committee, that, as the council of the Law Society is in charge of solicitors, the council in charge of licensed conveyancers should lay down the guide rules for their performance and qualifications.

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Here we are dealing with bodies of a very different order; and differences of scale are very often differences of kind. We are dealing with banks and perhaps other types of institution which I shall not particularise at this time of night. That is a different kind of animal. I say positively and with some conviction that the Government cannot avoid making regulations in relation to institutions of the size of the Halifax, Barclays Bank or whatever. I should like to avoid it because my whole political philosophy is against the involvement of government where possible.
I do not see how we can do what I have tried to describe in the way of drawing a balance between competition and consumer protection other than by putting the burden on some Minister, and whether that Minister should be the Lord Chancellor is another matter. He is the Minister nominated in Clause 121. Whatever else has emerged during the debate, it is not that some other Minister is more appropriate than he.
Lord Houghton of Sowerby: I do not know where we are now. I was supporting the noble Lord, Lord Hacking. He is now wilting. To be honest, I am a little confused as to what the noble and learned Lord the Lord Chancellor is putting to us. I know that Clause 121 is only an enabling clause. But one does not pass enabling clauses without some hope or prospect of doing something with them. Surely we do not pass an enabling clause just to put it in a pidgeon hole to be brought out in the distant future. It is a current item of policy.
Although we are discussing the enabling clause, the moment we accept it we will be asked to go on to Schedule 21. Presumably the noble Lord, Lord Foot, will then say. "What about my amendments?" If we do not take his amendments tonight, the schedule will go through unamended. We shall not know where we are until the Lord Chancellor—I refer to the office, not so much to the noble and learned Lord—produces his scheme. It can then become a matter of parliamentary business.
This is a subtle way along the Rake's Progress. If we are not ready to go on, we should not go on. I know that the Government have had a choppy time with this proposal. I sympathise with them. I do not think they can get off their hook by slinging this proposal into a Bill which deals exclusively with building societies except with regard to this one clause.
We have gone through all the problems of the building societies. The earlier debate was only a curtain raiser. We now return to this clause, which is not exclusively a building societies matter. The banks are in the mortgage business. Other finance houses can go into the mortgage business. The same considerations will arise if they are accredited, approved institutions.
If we are going on, we must, in view of the importance of the business, spend time on it. The House sat until 2.13 this morning. I did not leave until 11.30 p.m. We have been late each night. Each night we are warned that we will be late or very late. Protest has been made on the Floor of the House by the Leader of the Opposition, but here we are, on the rack all the time.
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If we are to deal amply and properly with this matter, it should be deferred until the day of the Report stage, which is tomorrow week. Let us deal with the final stages in Committee and go on to the Report stage under the provisions which allow for two stages of a Bill to be dealt with on the same day. Let us do anything other than go on tonight with a Committee which is obviously not ready. I cannot see that it can be ready, with the present amendments, to deal with this important matter.
I hope that someone on behalf of the Government will state clearly whether we are to be pushed on tonight or whether we can deal with the matter more satisfactorily by alternative means.
Clause 121 agreed to.
Schedule 21 [Provision of conveyancing service by recognised institutions and practitioners]:
Lord Foot Lord Foot moved Amendment No. 247:
Page 267, line 14, leave out ("may") and insert ("shall").
The noble Lord said: I have of course been carefully considering, during the last 10 minutes or so, in the light of the observations that have been made by the noble and learned Lord and by the noble Lord, Lord Houghton, as to what course I should now take. I am under some obligation to indicate to the Committee how I propose to deal with the matter. I do not think it would be satisfactory to try to push this off to the Report stage. It is a very late hour, but the noble and learned Lord has come down here specially to deal with this matter, and it would be only polite to him to allow at any rate a short debate on these amendments.
My intention is to move the first amendment and, in the course of my remarks, to speak to all the subsequent 17 amendments in my name. I thought it right to explain that, because I do not want any Member of the Committee to be misled as to what is going to happen. I think it very likely that when I have dealt with the matter in that way, after hearing the response of the noble and learned Lord I shall see fit not to move any of the remaining amendments.
My primary object tonight in putting forward these amendments is to try to see what reassurances we may be able to obtain from the noble and learned Lord, and what further indication we may be able to get as to what structure of recognised institutions he foresees as emerging from Schedule 21 when it is eventually ordained to be put into effect.
I had intended tonight to go through these 18 amendments as briefly as I could and to indicate, where necessary, their significance. As a matter of fact quite a number of these amendments are almost self-explanatory. I had intended in the case of some of them only to read the amendments to the Committee, and in the case of others to add just a few words. But even that would take quite a long time, and I should like to reserve the right, even after we have had this debate, if needs be to return to this matter when we get to the Report stage in order that we could consider it at, I would hope, a more convenient hour and at an hour when we can give it better and proper consideration.
May I make a few general observations upon these amendments and upon Clause 121 and Schedule 21?

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On any showing—and of course there are deep divisions about this matter in the Committee—everybody would agree that this clause and schedule together are matters of great importance on various counts. One of them is that the clause and the schedule foreshadow a revolutionary change in the historic way in which we have gone about the conveyance of land. As has been pointed out by the noble Lord, Lord Morris, this follows upon the Administration of Justice Act when we set up the system of licensed conveyancers.
This is a further enlargement of the right of different institutions to take part in conveyancing practice. At the same time (I have to say this) it seems to me that this clause and schedule are the least informative part of the whole Bill. What sort of structure will eventually emerge when the noble and learned Lord the Lord Chancellor (or possibly some successor) implements the provisions of the clause and the schedule? What sort of structure of recognised institutions will emerge, how will they work, under what sort of conditions will they work and subject to what rules will they be recognised? All these matters are in complete doubt as they stand today.
The last thing I should like to say in general terms is that this is inevitable and probably it would be agreed on all sides of the House. This whole matter is of most urgent concern to the legal profession generally and to the Law Society in particular, on whose behalf I have the honour to speak tonight. The objectives which perhaps I may best be able to achieve tonight are twofold: one is to identify and to reflect those matters which are of such deep concern to the members of my profession. The other is, as I think I said just now, to see what reassurances we may be able to get from the Lord Chancellor and what further and better particulars we may be able to get from him as to what he sees this new structure will be like.
I now revert from what I was intending to do and address myself to the proposition that the noble and learned Lord advanced just now, that the main test of what we are doing here in the clause and the schedule must be whether it is for the protection of the consumer. I fully accept that that is the overriding purpose. I shall not go through all my amendments in detail or recite them to the Committee, as you have them in front of you, but if the Committee will look at Amendments Nos. 250 to 260 Members will see that I have produced a whole series of amendments. I think I can probably say that none of them is designed for the protection of my profession, but every single one is designed for the protection of the consumer. If that is the test that the noble and learned Lord applies then I am happy that my amendment will receive sympathetic consideration.
The amendments fall into three groups. The first three, Amendments Nos. 247 to 249, are concerned with a procedural matter. The schedule at the beginning of the first paragraph provides that,
"The Lord Chancellor may, in accordance with the provisions of this Schedule, make rules with respect to the recognition by him of institutions as being suitable to undertake the provision of conveyancing services."
The Law Society is a little bewildered that that should be permissible rather than obligatory.
The first of my amendments seeks to make it "shall" instead of "may", obligatory instead of permissive; because, surely, if we are going to have institutions recognised as being suitable to carry out conveyancing services it is essential that those rules should be laid down before any body is admitted as a recognised institution so that everybody will know what are the rules by which one can gain such recognition. No harm would be done that I can see and things will be made very much clearer if the word "shall" were substituted for the word "may". The argument is the same when you look at the beginning of paragraph 2, where it says:
"Recognition rules may prescribe",
this, that and the other. Why should it not be "shall" prescribe?
Then, finally, at Paragraph 2(2) we find again:
"Without prejudice to the generality of sub-paragraph (1)(b) above, rules made by virtue of that provision may prescribe such condition as appear to the Lord Chancellor to be appropriate for the purpose of … protecting persons"
and so on. I will come to that in a minute.
I hope that that is acceptable, but it does not go to the root of my amendments. If I turn now to the subsequent amendments, which are the body of the matter, I am not even going to read them all through because I think it will be tedious to do it at this time of night and I do not think that any useful purpose would be served. But perhaps I may draw the Committee's attention to one of these amendments, which I hope goes a long way to meeting the problem of conflict of interests.
In the schedule as it is now drawn the problem of conflict of interests is dealt with in this rather indirect way. It is dealt with under paragraph 2(2), and perhaps I may read that.
"Without prejudice to the generality of sub-paragraph (1)(b) above, rules made by virtue of that provision may prescribe such conditions as appear to the Lord Chancellor to be appropriate for the purpose of (a) protecting persons for whom conveyancing services are provided by recognised institutions from conflicts of interests that might otherwise arise in connection with the provisions of such services.".
There we are told that it is contemplated that a condition will be prescribed which will deal with the matter of conflict of interest; but it does not tell us how it will deal with it. My amendment is designed to put that into clear language. What has been proposed is that there should be an addition at the appropriate point in the schedule saying this:
"Recognition rules shall prohibit a recognised institution from providing or offering to provide conveyancing services for any person to whom that institution or any associated body has made or offered to make or contemplates making a loan secured on the property in respect of which the conveyancing services are provided".
That cannot be less than acceptable to the Government because it reproduces almost exactly the announcement which the Government made in December of last year, after the consultation process had taken place, and I have no need to remind the noble and learned Lord what that said. This is the passage:
"Following that consultation, the Government have concluded that there is no difficulty in principle in such institutions providing conveyancing to persons to whom they are not also offering a loan. However, the Government are not satisfied that lending institutions could safely be permitted to offer both conveyancing and loan in the

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same transaction. It is therefore proposed to prohibit lending institutions from providing conveyancing, either directly or through a subsidiary company in which they hold a majority stake, to those who are also borrowing from them".
Nothing could be clearer than that. The Government are wholly committed to that principle. I am merely asking in my amendment why it should not be written into the schedule.
I do not think that I need refer to any other of my amendments, but if noble Lords will be good enough, when they have the time, to look through them, I do not think they will have any difficulty in understanding what is intended. I also hope that they will come to the conclusion that everyone of them has been designed and put forward for the primary purpose of protecting the public against abuse.
The last three amendments to which I should like to make a short reference are Nos. 261, 262 and 263. I think all I need to say about them is this. Under the terms of the schedule, it is provided that where the Lord Chancellor is satisfied that the conditions under which a recognised institution has been operating have been in any way abused, he can withdraw their recognition.
The object of my amendments is to allow the Lord Chancellor in a suitable case, where he thinks that to withdraw the recognition altogether would be too draconian a penalty, the discretion of imposing further conditions on the institution which is at fault, which of course would be a lesser penalty than the withdrawal of recognition, bearing in mind that the withdrawal of recognition might mean a complete wrecking of the undertaking in which the individual or the institution is engaged.
I hope that that will do. I am afraid I have given a very inadequate presentation of the matter. But I should like to finish, if I may, by asserting what I said at the beginning: that while my profession of solicitor is of course deeply involved in this business, we are at considerable risk if we find ourselves in competition with the banks, the insurance companies and the building societies and indeed other institutions in the business of conveying property. We stand at very considerable risk, but I think we are prepared to accept that situation so long as we are given a fair run, and so long as the terms of competition with the big institutions are as fair as they can be made.
I have never had any worries about the setting up of the system of licensed conveyancers. When we were debating that in the Administration of Justice Act, I said at that time that I did not myself believe that that scheme would ever really mature, because I did not think that people would have sufficient confidence in the limited licensed conveyancer, as compared with the fully qualified solicitor. I conclude as I began, by saying that all these amendments are designed primarily for the protection of the consumer. I beg to move.
Lord Broxbourne: As this is the first occasion on which I have made any oral contribution to these proceedings, I should start by making a declaration. It will, however, be a negative declaration—a declaration of non-interest. In making such a declaration, I appreciate that I am, in the context of these proceedings, a rara avis—possibly even a rarissima
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avis, if that is not too extravagant and improbable a concept to apply to myself.
The Second Reading proceedings on this Bill contained a prolonged sequence of declarations of interest by noble Lords addressing the House on that occasion. I have no interest in the financial or technical sense. I am not a director of a building society. I am not a depositor, I am not a mortgagor. In a general sense, I wish the building societies well, both because of my long interest—indeed, my hereditary interest—in housing, and because I am an honorary associate of the Royal Institution of Chartered Surveyors.
Again, on the other hand, I have no interest in a technical sense to declare in respect of solicitors, though again I wish them well. I have had an agreeable relationship with them over the years in my professional practice. Indeed, I do not have far to look in this Chamber for pleasant reminders of that relationship, but not in the context of conveyancing. I am not sure which would be the more improbable —that solicitors should have wished to instruct me in conveyancing, or that I would have wished to accept their instructions in that regard. It is a question on both counts of scaling the heights of improbability, or perhaps in the context I should say, of plumbing the depths.
But it means that I am in the enviable situation— unlike so many noble Lords who have addressed the Committee on the matters concerning this Bill—of a position of objectivity. I am able to test the provisions of the Bill regarding conveyancing by reference to the basic relevant criteria. I identify those relevant criteria as being five in number: first, consumer protection; secondly, avoidance of the conflict of interests; thirdly, professional independence and competent supervision; fourthly, separate accounting with appropriate checking thereof and information in regard thereto; and, lastly, disclosure of commissions and requirement of the client's consent thereto.
Those matters are fundamental and they are sought to be achieved in the fasciculus of amendments to Schedule 21, which were moved with characteristic persuasive eloquence by the noble Lord, Lord Foot. They are proper safeguards, to which he seeks to give effect in this series of amendments. They are clear and cogent provisions and they are not oppressive provisions. The amendments of the noble Lord would not impose on building societies or other recognised institutions safeguards or restrictions not accepted by solicitors in their own professional practices regarding conveyances. So I think it is fair to apply the old principle of what is sauce for the goose should be sauce for the gander.
So I conclude by saying this. As a well-wisher, I would ask the building societies to view the noble Lord's amendments in this light and, having so done, to inform Ministers that they accept and indeed welcome the spirit and substance of these amendments. For myself, I think that the drafting is unexceptionable, as perhaps we would expect from the Law Society. But if improvements of drafting are required, there is time for parliamentary counsel to bring their efforts to bear between now and the Report stage. Subject to that, I welcome the pith and purpose

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of these amendments and hope that, on reflection, they will commend themselves to building societies and Ministers alike.
Lord Hacking: As the noble Lord, Lord Foot, did not wish by his silence, when I was moving that Clause 121 should not stand part of the Bill, to indicate that he was not supportive of the argument that was presented to the Committee, nor do I wish by my silence not to record my support of the amendments that have been moved by the noble Lord, Lord Foot. Although the noble and learned Lord took a different view when he made his comments on Clause 121, I was not seeking to wreck this Bill. I was seeking to be constructive. I am sorry that I wilted and did not press the matter to a Division, but I did not think it was the appropriate time to do so. I certainly will not wilt at Report, if I have the same fears and worries about Clause 121 and Schedule 21 at that stage of the progress of this Bill.
I believe that the amendments that have been tabled by the noble Lord, Lord Foot, are fully worthy of consideration. I hope to hear from the noble and learned Lord the Lord Chancellor that, if he is not able to accept the amendments as moved by the noble Lord, he will give them proper consideration.
There is a need to make a number of these provisions mandatory in the rules, for the reasons explained by the noble Lord, Lord Foot, and there is a need for these other clauses to go within Schedule 21. There is a particular need, which I do not believe can be over-emphasised, to deal with the serious problem of conflict of interest and a need therefore—and I would ask noble Lords to think of other amendments and to be supportive of them—at least to pass into that schedule the amendment which stands as Amendment No. 255 in the name of the noble Lord, Lord Foot, which he addressed in more detail to the Committee. I now wait to hear, as do other noble Lords, what the noble and learned Lord's responses are. I have heard his asides. I have been in the unusual position of hearing them, because I do not usually hear his asides. I now look forward with anticipation to hearing him at the Dispatch Box.
10.15 p.m.
Lord Coleraine: It will come as no surprise to the Committee to learn that I also wish to support the group of amendments inspired by the Law Society and moved by the noble Lord, Lord Foot. The amendments are designed to deal with the protection of consumers, and if they also have the effect of protecting the profession then, in this case, what protects the profession protects the consumers and vice versa. As the noble Lord has made clear, these amendments, especially those from Nos. 250 to 260, are intended to ensure that conveyancing corporations are subject to just those disciplines and standards which long and sometimes bitter experience has taught the Law Society are absolutely essential for the protection of solicitors' clients embarking on what are the most financially important transactions of their lives. I do not propose at this late hour to go into any detail on the terms of the amendments, but I should like to instance something which has come to my attention very recently which throws some light on the sort of problems which arise in conveyancing.
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Very recently I have been speaking with a solicitor in Nottingham. He feels that he and his clients have reason to fear unfair and unprofessional practices from the big corporations. A longstanding client of the firm, a Mr. H., went to obtain a mortgage from the Nationwide Building Society, not one of the small ones. The society offered the advance and recommended to Mr. H. that it should be in the form of a pension-linked mortgage with the Norwich Union Insurance Company. Mr. H. was worried about this advice and he turned to his solicitors for financial advice. Here I pause for a moment to recall the discussions on Amendment No. 7, when it was suggested that if a conflict of interest arose it could be solved by a simple code of practice and the suggestion was made that one should go to a solicitor for financial advice.
This gentleman went to his solicitors and saw a managing clerk. Mr. H. took the initiative in telling the managing clerk that he was a bit worried about the way in which the policy had been "sold" (I use the word "sold" in quotation marks) by the building society, and he asked the clerk for a second opinion. The clerk acted in accordance with the practice of the firm and an introduction was arranged with an independent firm of insurance brokers which the firm considered to be experienced and able to be relied upon. The result was that the client chose a policy with another company altogether. I should mention that I was told that it is in fact the particular policy of the firm of solicitors in question not to have arrangements to share commission with insurance brokers; but nothing turns on that point.
The senior partner of the firm of solicitors received a letter dated 17th June—last month—from the branch manager of the building society. I have seen a copy of that letter. In fact, I have a copy. The firm was so incensed that it sent a copy to the Law Society. Every bit of that letter is informative, and if the Committee will bear with me I will read it, or most of it, substituting only Mr. H. for the name of the client and "your firm" for the name of the solicitors' firm.
The letter says:
"For many years this Society has enjoyed very good relationships with your Company … and although it is an unpleasant task to write this letter, I cannot let the matter pass without comment.
"I recently instructed your … office to act for the Society in the preparation of a mortgage for the above named";
that is Mr. H.
"The borrower, a long established client, was counselled by a member of my staff and eventually it was agreed that a Pension-Linked mortgage in conjunction with the Norwich Union would best suit.
"Your Mr. MacKerracher has today admitted to me on the telephone that he, 'recommended the client see a broker contact of his … to get a second opinion'.
"The result of this unethical approach which I would not expect from any firm of solicitors, is that Mr. H. is still proceeding with a Pension-Linked mortgage but with the Sun Alliance as sold to him by the broker, and Nationwide has lost commission earnings of £834.27.
"I ask, therefore, that the partners of [your firm] reimburse the society for this loss".
I do not for a moment suggest that this letter is in any way representative of the building societies. In fact, I am certain that it is not. Nor do I suggest that is how building societies would behave in future if they were given the powers that we are discussing tonight.

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Nevertheless, the fact remains that the letter was sent, and it exemplifies many of the problems that conveyancing by big business will bring with it. Of those, I would mention conflict of interest, the power of the strong to lean on the weak, and the pressure of commissions—whether they are retained or accounted for to clients. All I would say tonight is that I hope my noble and learned friend will consider carefully the views that have been expressed. The recognition rules that are to be made under Schedule 21 will not be adequate to deal with the problems that will arise. I hope that we shall hear from my noble and learned friend that those are matters with which he is concerned.
The Lord Chancellor: I am very grateful to the noble Lord, Lord Foot, for the way in which he has moved this long series of detailed amendments. I may say at once that I am perfectly sure that the course he has taken, which is in a sense paradoxical, is absolutely the right course; that is, to speak to all the amendments together. That obviously places me in a difficult position, but it is a position in which the noble Lord was perfectly justified in putting me; I make no complaint about that.
The amendments fall, as the noble Lord rightly said, into three groups, and I shall deal with them so far as is possible within those three groups. If I may say so, I absolutely accept not only the bona fides but also the correctness of the way in which the noble Lord put the issue that I, and any successor of mine, will have to face in making the regulations. The question is how one reconciles the necessary degree of consumer protection, which last week's debate showed many members of the public are not sufficiently aware of at the present time, with the fullest possible availability of services to the public.
I believe that I am right in saying that as a result of their own efforts, and encouraged by the Government, solicitors' conveyancing fees have gone down by 30 per cent. in the past seven years. I have seen figures, although at the moment I am not in a position to quote them, that show how much lower is the cost of conveyancing in this country—by which I mean England and Wales—than it is in very many other countries outside our jurisdiction. The charge that is made against the Law Society that it is keeping up fees by the protection of a monopoly is wholly unjustified, and I should like to go on record as saying so.
That point brings me to the way in which we deal with Schedule 21. The first group of amendments would compel me, or any successor of mine, to make amendments that the schedule already provides that 1 or he (or she, for that matter) would have power to make in any event. I fully concede, and I start by conceding, that they are all amendments which, if we went down the path that is indicated that we might go down in Clause 121, would raise very important questions for us to consider.
Of course, we are not compelled or committed to go down that path, except to the extent that consumer protection demands that we do so and except to the extent that the availability of services demands that we ought to do so in order to make available as wide a provision for the public as possible. That means, I submit, that it must be wrong to compel any future
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Lord Chancellor to make regulations which relate only to a step on the road which he may not wish to take at all after consulting his colleagues. The right course is surely to give him a wide and flexible power to protect the public against misuse and to encourage the public to make use of facilities which are and ought to be available given proper supervision and an adequate level of service.
For example, the sort of matters which the recognition rules may need to cover will of course be the subject of long and detailed consultations over the next few months. They clearly must make provision for the proper supervision of conveyancing work. They clearly must ensure an adequate level of service. There will be a number of purely mechanical matters such as the form of application for recognition and the fee, if any, which will have to be paid. Any Lord Chancellor will be concerned to ensure the proper protection of the client's money. Obviously he will also have to be very careful as to how that is done.
Building societies and other institutions are already in the business of looking after other people's money. I would in particular say, referring to one—and I am not able to point to it at this moment—that I do not see any need for a provision requiring accountants to furnish the Lord Chancellor with a report. Those institutions concerned will have shareholders and annual meetings and other obligations which will make such a condition superfluous. The general principle is to encourage the availability of services while ensuring the protection of consumers. I should have thought that the powers in the Bill were sufficient for this purpose.
The third group of amendments gives the Lord Chancellor power to impose further conditions on recognised institutions. I do not think that is necessary. The powers contained in Schedule 21 I believe enable any Lord Chancellor to take account of the kind of approach envisaged in the amendments. It is worth pointing out that the Law Society—for which I have the greatest respect and with which I either have, or hope to resume, the closest and friendliest relations, because I have spent my life working with solicitors and largely derive my livelihood from their confidence —is hardly entitled to expect matters to be enshrined in primary legislation beyond the point at which they are enshrined as regards solicitors in the Solicitors Act 1974.
We must remember—I made this point earlier but I shall make it again in this context—that there are three separate stages in this argument. The first is the removal of unnecessary restrictions on competition. The second is the creation, which was done under the previous legislation, of the new profession of licensed conveyancers. The third is the enabling provisions of this Act, which enable building societies in the first place, but also—potentially at any rate—banks and possibly other institutions to provide conveyancing services of one sort or another; and I should have thought that they vary a good deal and the differences between them are probably relevant to the kind of point that we are discussing this evening.
We do not want to impose on the licensed conveyancers every kind of restriction or provision that is imposed on solicitors—as was done by the council under the previous legislation—and we cannot

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treat the building societies and the banks as quite the same sort of animal as a firm of solicitors that has four or five partners and a number of clerks. Constraints that we impose on the one are not necessarily appropriate to the other. This also applies to some of the powers to which the noble Lord, Lord Foot, referred in his speech. He spoke as if I or some successor of mine required something more than a lack of recognition or a withdrawal of recognition as a sanction. I rather doubt it. It might well be so in relation to a small firm, but I doubt whether it is so in relation to a big organisation such as the Halifax.
A word in time and a warning given at the appropri-ate moment would probably be more effective. Of course, the ultimate sanction is the withdrawal of recognition, but I do not see why I or any successor of mine would need any intermediate power there, though an intermediate power might be very appropriate indeed in relation to some smaller entity. In any event, my advice at the moment is that the kind of intermediate power which the noble Lord, Lord Foot, has in mind is probably available to the Lord Chancellor under Schedule 21, anyway.
I am willing to take further advice about this matter. I am very undogmatic about it, if I may say so. But I would say two or three things in conclusion. The first is that all the matters which are referred to in the first set of amendments as being imposed on the Lord Chancellor are matters which any Lord Chancellor would take into account if he goes along that road, and so far along that road as he chooses to go—as to which I can give no undertaking because I cannot bind my successors. I shall go extremely cautiously, if I am allowed to do so.
The seond point is that so far as regards additional powers, I do not think that they are necessary under Schedule 21. The third point is that I must be and any successor of mine ought to be allowed to apply to the larger institutions which are envisaged in this Bill the sanctions, constraints and rules which are appropriate to that sort of animal, and not necessarily those which are appropriate to the rather small solicitors' organisation which has hitherto been providing these services.
I hope that I have not given an unsympathetic account of these amendments. I shall certainly reflect upon what the noble Lord, Lord Foot, has said, and ask for further advice, because what he says always carries a very great deal of weight with me, even if it does not come with the imprimatur of the society to which he belongs. But as at present advised, I do not believe that the amendments are necessary. I believe that any Lord Chancellor would give effect to their spirit.
Lord Foot: I thank every noble Lord who has taken part in this little debate. There are only two things that I need say before I withdraw the amendment. First, I very much appreciated the comments made by the noble Lord, Lord Broxbourne. I think that it is the kindest thing he has said to me in 60 years, from the days when we used to engage together in the Oxford Union. The noble Lord rightly said that the limitations that we seek to impose are not in any way impressive and that many of them are an exact reproduction of
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the limitations and restrictions under which solicitors have worked for generations.
That brings me to the point of the noble and learned Lord the Lord Chancellor. He said at the end that it was not appropriate to try to impose upon the institutions restrictions and limitations which may be recognised under the schedule of the kind that are imposed by rules of practice and legislation upon solicitors. I should have thought that, because those institutions will have a double or treble interest—quite apart from the interests of the consumer that they are serving—there was a good argument for imposing more rigid restrictions on such organisations. In the case of solicitors, there is the whole apparatus of the disciplinary committee to oversee the operation of all solicitors on a regular basis. When we have organisations which in the nature of things will be from time to time confronted with a conflict of interests there is an even stronger argument for imposing regulations on them. But my amendments do not do that. They certainly go no further than the limitations and restrictions under which we have lived for so long.
It would have been unreasonable for me to have expected that the noble and learned Lord could have gone very much further than he did. I am grateful to him for having given this consideration to the amendments. I hope that it might be possible for there to be some discussion between the Law Society and his department in the interval between now and the Report stage with a view to seeing whether there is anything in the amendments which he thinks, on reflection, would be appropriate to be included in the schedule. If that could happen, we should have made substantial progress. In any case, I am grateful to the noble and learned Lord for the way that he has received the amendments. Having said that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments No. 248 to 264 not moved. ]
Schedule 21 agreed to.
Clause 122 agreed to.
Clause 123 [Commencement]:
Lord Skelmersdale Lord Skelmersdale moved Amendments Nos. 265 and 266:
Page 170, line 27, leave out ("section 121") and insert ("sections (Power to make transitional and saving provisions), 121, 122, this section").
Page 170, line 30, at end insert ("or different purposes".).
The noble Lord said: I spoke to both these with Amendment No. 230. I beg to move.
Lord Williams of Elvel: May I thank the noble Lord, Lord Brabazon, for the way in which he has handled the Committee on behalf of the Government, and also the noble Lord, Lord Skelmersdale, for the courtesy that he has extended to us? I wish also to thank the noble and learned Lord the Lord Chancellor for spending so much time on what was a most interesting debate. I hope that the noble and learned Lord did not think that we on the Opposition Front Bench had taken trappist vows. We did not wish to intervene on a subject that was the concern of expertise other than our own.
Lord Brabazon of Tara: I am grateful to the noble Lord, Lord Williams of Elvel, particularly for his toleration of the huge number of Government amendments. I am glad that we were able to produce notes on the amendments for his use. I undertake that there will be far, far fewer amendments from the Government at Report stage. Nevertheless, we shall still produce notes on them for noble Lords.
Lord Foot: The noble Lord rose too quickly to allow me to associate myself with what the noble Lord, Lord Williams, had said.
Clause 123, as amended, agreed to.
House resumed: Bill reported with amendments.

Mid Glamorgan County Council Bill [H.L.]
Committed to an Unopposed Bill Committee.
Great Yarmouth Outer Harbour Bill [H.L.]
Reported from the Select Committee without amendment, and recommitted to an Unoppposed Bill Committee.
Aberystwyth Harbour Bill
Brought from the Commons; read a first time, and referred to the Examiners.

London Docklands Railway (City Extension) Bill
Brought from the Commons; read a first time, and referred to the Examiners.
House adjourned at fourteen minutes before eleven o'clock.