HL Deb 15 March 1995 vol 562 cc914-22

7.22 p.m.

Lord Hayhoe

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Hayhoe.)

On Question, Motion agreed to.

House in Committee accordingly.

[The DEPUTY CHAIRMAN OF COMMITTEES (Lord Ampthill) in the Chair.]

Clause 1 [Joint Account holders]:

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley) moved Amendment No. 1:

Leave out Clause 1 and insert the following new clause:

Rights of second-named joint shareholders

(".—(1) After section 102 of the Building Societies Act 1986 there shall be inserted the following section—

"Rights of second-named joint shareholders

102A.—(1) This section applies where the terms of a transfer of business by a building society to the company which is to be its successor include such provision as is mentioned in section 100(1).

(2) If—

  1. (a) a person ('A') held shares in the society throughout the requisite period;
  2. (b) any shares in the society held by A were jointly held for any period ('the joint ownership period') constituting the whole or part of the requisite period;
  3. (c) A was the second-named holder of the jointly held shares for the whole or part of the joint ownership period; and
  4. (d) no person who has priority over A for the purposes of this section held shares in the society throughout the requisite period,

the jointly held shares shall be treated for the purposes of subsections (8) and (9) of section 100 as having been held by A alone.

(3) The following persons shall have priority over A for the purposes of this section, namely—

  1. (a) where A was not the first-named holder of the jointly held shares for any part of the joint ownership period—
    1. (i) any person who was the first-named holder of those shares for the whole or part of that period; and
    2. (ii) where A was the second-named holder of those shares for part only of that period, any person who was the second-named holder of those shares for a later part of that period; and
  2. (b) where A was the first-named holder of the jointly held shares for part of the joint ownership period, any person who was the first-named holder of those shares for a later part of that period.

(4) In this section—

'the first-named holder', in relation to any shares jointly held, means that one of the joint holders who is named first in the records of the society, that is to say, the person by whom alone, apart from this section, those shares would, by virtue of paragraph 7(5) of Schedule 2, be treated as held for the purposes of section 100; 'qualifying day' has the same meaning as in subsections (8) and (9) of section 100; 'the requisite period' means the period beginning two years before the end of the qualifying day and ending immediately before the vesting date; 'the second-named holder', in relation to any shares jointly held, means that one of the joint holders who is named second in the records of the society; 'the vesting date' has the same meaning as in section 100"

(2) In paragraph 7 (joint shareholders) of Schedule 2 to that Act (establishment, incorporation and constitution of building societies), after sub-paragraph (5) there shall be inserted the following sub-paragraph—

"(5A) In its application to section (00, sub-paragraph (5) above shall have effect subject to the provisions of section 102A." ").

The noble Lord said: In moving Amendment No. 1, I should like to speak also to Amendment No. 2—in fact, to all the amendments! As my noble friend Lord Hayhoe explained on Second Reading, this measure has a limited purpose. It is to deal with a number of specific inequities in the Building Societies Act 1986 which affect the eligibility to receive a payment of second-named account holders—such as widows and newly married couples—when their society converts to a plc or is taken over by a company from outside the sector. It could not be, and is not intended to be, a comprehensive measure dealing with every possible problem, nor does it seek to address any matters affecting voting rights.

I should advise the Committee that any attempt to widen the scope of the Bill could put its survival at risk when it returns to another place for consideration of your Lordships' amendments. The Government support the Bill but we also accept the bounds within which it is set. In the time available it is much better to achieve a limited degree of success than to strive for much more and end up with nothing.

I appreciate that the two amendments, which stand in the names of my noble friend and myself, appear somewhat draconian, in that they strike out some 90 per cent. of the Bill only to replace it with a new version. If I may, I shall explain—possibly at some length—that the amendments are, in effect, mere drafting amendments. They are designed to ensure that the Bill achieves the stated aims of my noble friend.

I believe that all sides of the Committee would agree that the Bill should permit second-named (or former second-named) holders to participate in distributions following the death of the first-named holder (the so-called "widow's problem"); on the creation of a joint account (for example, on marriage); on the division of a joint account (for example, on divorce or separation); or when there has been a change in the order of names within an account. But it is not the intention of the measure to enable individuals to claim two distributions by manipulating their accounts, for example by splitting them up.

I should like briefly to give an outline of the amendments which stand in my name and that of my noble friend and which are spelt out in full in the wording laid before your Lordships. In brief, we propose to insert a new Section 102A into the Building Societies Act 1986, which will replace Clause I of the Bill as it came to the House.

Subsection (1) of the new section explains that the measures apply where a transfer or conversion involves a distribution of cash or share rights.

Subsection (2) then looks at someone—called "A" in the text—who is presently disqualified from receiving a distribution by the two-year rule in the current Act. Four conditions have to be satisfied before A can benefit in future. First, A must have held shares for what is called the "requisite period" which must always exceed two years; secondly, the shares must have been held jointly; thirdly, A must have been second-named holder; and, finally, no one who, in the words of the section, "has priority over A", may have held shares for the requisite period. I shall come back to that last requirement, from subsection (2) (d), in a moment.

If all those conditions are satisfied, then A will be able to qualify for a distribution. So those widows and others who are excluded by the existing legislation from receiving a distribution will, in future, be eligible for one.

In subsection (3), the wording may be complex but the effect is clear. First-named account holders take priority over second-named holders, and a later holder of the same degree takes priority over an earlier one. Let us take the example of a widow. As her husband will not have held shares for the requisite period, the test in subsection (2) (d) will be satisfied, and the widow will be able to benefit.

Let me give some other illustrations. Paragraph (a) of subsection (3) deals with situations where A has never been first-named holder of the jointly held shares. An example —case 1—is where A marries. She closes her sole account and opens a joint one with her husband, "H". If H is the first-named holder, he will be, a person who has priority over A".

If he holds shares throughout the requisite period, then he will get any distribution. But if he does not, then A will.

Let us take a different example. If another couple divorce and split their joint account, A will benefit if H takes his money away from the society, but if H retains a share account with the society for the requisite period, he will benefit from any distribution, not A. So a couple who split their account during the requisite period will not be able to obtain a double benefit. Both those examples are likely to be frequent occurrences.

The second case deals with a much rarer situation, but one example is where a husband, wife and son, named in that order, have a joint account. When the son reaches 18, the order of names is changed and he becomes second-named holder, with his mother becoming third-named. If the father dies and the account is split, the mother and the son will each have been second-named holder for part of the time. The rule then is that the son, as the later second-named holder, will be entitled to any distribution.

Paragraph (b) deals with the situation where A has been the first-named holder for part of the period. That could occur where a husband and wife change round the names on their account. Both will at some stage have been second-named holder, but under paragraph (b) the one who is first-named for the later part has priority.

Subsection (4) defines expressions used in the new section. A key definition here is "the requisite period". This runs from two years before the "qualifying day" to immediately before the "vesting date".

Finally, subsection (2) of the new clause amends paragraph 7 of Schedule 2 to the Act to make sub-paragraph (5), which limits rights under Section 100 to representative joint account holders, subject to the new section.

Amendment No. 2 simply adds a provision to Clause 2 stating that the Bill applies in cases where the vesting date falls after it is passed. It will come into force on receiving Royal Assent.

I apologise for that somewhat lengthy explanation of the Bill and for the fact that it might seem somewhat complicated. I commend to noble Lords the opportunity to read it in some detail tomorrow as that might add a certain degree of sense to my explanation and make life somewhat simpler. With that, I beg to move.

7.30 p.m.

Lord Eatwell

I was somewhat taken aback when I saw the amendments, because they effectively rewrite a substantial part of the Bill. I was wondering whether, like the first cuckoo in spring, that was perhaps a record—not that I was referring to the Minister as a cuckoo in spring or any other time.

As was said on Second Reading, we on these Benches support the Bill enthusiastically. We supported the measure introduced by my noble friend Lord Dubs, which the Bill has in many way superseded. I have a number of questions about the amendments which I should like to ask the Minister. He will be aware that on Second Reading a number of other anomalies were identified. We understand that to consider some of those anomalies in the context of this Bill would damage its progress, so it would be inappropriate to do so.

My first general question is to ask the Minister whether, if subsequent short Bills were brought forward to deal with some of the most obvious anomalies which were discussed on Second Reading and are not contained in the Bill, the Government would look favourably upon them or at least co-operate in their drafting and in bringing them before this place and another place.

I shall deal now with some of the complications. The Minister identified a number of specific cases. I wish to ask him about some other cases—this is always a difficult exercise—which seem to create some slight difficulties. First, we must remember that the notion of joint holding does not necessarily mean that there are just two people holding an account. As the Minister said, there could be more. He mentioned the case of a mother, father and son. Under the legislation as currently drafted, what would happen where a mother, father and son hold an account over the two-year period and the mother and father die leaving the son? As he is not the second-named, as mentioned in subsection (2) (c), would the son, who had previously been the third-named, qualify under the terms of the Bill?

Using the term "second" to define a particular ordering is unfortunate. It should be "was a later-named holder" or should convey some notion of ordering which does not necessarily apply to the number two.

My second detailed question relates to subsection (3) (a) (i) and issues of priority. That part of the amendment states that, any person who was the first-named holder of those shares for the whole or part of that period",

would have priority. That seems to create a complication in the following case. Let us suppose that Mr. and Mrs. Smith have held the shares for two years. During the period they become divorced, and Mrs. Smith immediately remarries Mr. Brown, and registers the shares in the names of Mr. Brown and herself—Mr. Brown and Mr. Smith in both cases being the first-named holders. If Mr. Smith continues to hold other shares in the company, that seems to me to clash with any divorce settlement which assigned the shares to Mrs. Smith (now Mrs. Brown), and she would be unable to benefit. Her former husband who had happily handed over the shares in the divorce settlement, would benefit instead of her. The problem is the words "any person".

I realise that the questions I have asked may be solved adequately by the drafting, but, after studying the Bill for a few moments on the train coming down from Cambridge, those two cases suggested themselves to me as anomalies which might remain in the current drafting.

Lord Hayhoe

On Second Reading of the Bill, I said that considerable redrafting would be required. That might well be considered as something of an understatement, although I do not believe that it is unprecedented for such redrafting to have to occur when laymen, or even distinguished lawyers—I think they contributed towards the drafting of the Bill's original wording—are involved. I am grateful to my noble friend the Minister and to his advisers, particularly parliamentary counsel, who drafted the amendments to give legal clarity to the simple provisions and objectives of the Bill. I am grateful also to Geoffrey Fitchew, who is the chairman of the Building Societies Commission, for his helpful advice and support.

I readily endorse the amendments. Both the amendments and the original drafting—the noble Lord, Lord Eatwell, and I made the point about the extensive redrafting that has been required—illustrate clearly the drafting problems that arise when preparing legislation, or amendments to complex legislation. Perhaps I may express my feelings, as I did in the debate we had some months ago about the clarity of legislation and its drafting: what a pity it is that the drafting of legislation has become so esoteric. I am not sure whether it is an art or a science, but at least it is beyond the capabilities of ordinary mortals. But enough of the wishful thinking that we would be able to achieve simplicity in the drafting of legislation!

I commend the amendment to the Committee. I entirely agree with the points made by the noble Lord, Lord Eatwell, and my noble friend the Minister. I reaffirm what I said on Second Reading: that attempts to widen the Bill's scope could lead to difficulties in another place, and we might lose the essence of the Bill, which is a valuable and helpful reform of the law.

I wonder whether the very fact of saying we should not widen the Bill's scope provides the answer to at least the first question asked by the noble Lord, Lord Eatwell. He talked about the case of a husband, wife and son, with the son being the third named on the joint account. If the husband and wife were to die, he asked whether the son would benefit. Again, as a layman, I notice that the Bill's Long Title states: to secure the rights of second-named account holders". So it is difficult to see how someone who is a third-named or fourth-named holder could benefit. Again, that might be a layman's interpretation of the Bill. One relies upon my noble friend, who I hope will have received some expert advice on such questions, to be able to give an authoritative view to the Committee.

I am grateful to my noble friend and to his advisers for giving legislative precision to what the Bill's sponsor in another place, my honourable friend Douglas French, and the noble Lord, Lord Dubs, were seeking to do, although this Bill goes a little further than did the Bill introduced by the noble Lord. At any rate, it is something we all agree should be done, and done quickly. I hope that it will be achieved.

Lord Dubs

I listened with interest to the Minister's explanation. In fact, I listened with a great deal of relief because he clarified the complicated amendments—so much so, that I am tempted to suggest that we might include his speech as a schedule to the Bill by way of explanation, because I suspect that in years to come people will look at the complexity of the amendments and wonder how we ever reached such drafting difficulties.

I support the amendment; it is most welcome. I have only the reservation that as a piece of drafting it appears to be most inelegant. However, I fully understand the difficulties of the parliamentary draftsmen in producing the amendment, I suspect that the difficulty lies in the original wording of the Building Societies Act. Perhaps, to coin an old phrase, if we want to go where we want to be we would not have started where we were forced to start. We face the present difficulties because of the complicated drafting of the original Act and I am delighted that we are making progress.

I have received many letters from people all over the country expressing the fervent wish that these proposals should become law as soon as possible. I am delighted that we are helping the legislation on its way.

Lord Henley

My Lords, I thank the noble Lord, Lord Dubs, for his praise of my speech, implying that it might become a schedule to the Bill and that it had a degree of elegance that some legislative drafting lacks. I am advised that the rule in Pepper v. Hart deals with that matter and that one can take note of considered statements of Ministers from the Dispatch Box. I hope that what I now say will also be considered as the considered statement of a Minister from the Dispatch Box.

I said on Second Reading that I should require considerable help from parliamentary counsel in order to get these clauses right. My noble friend Lord Hayhoe referred to that. I hope that all Members of the Committee will agree that I have received that considerable help. Certainly, I should not have been able to draft the clauses myself. I hope that all Members will accept that we have considered, and provided for, a reasonable range of possible situations within the scope of the Bill and that the position of key groups—such as widows and the newly married—will be safeguarded. But, as I emphasised earlier, while the amendments cannot deal with every possible anomaly, they will cure the great majority of the inequities that have been identified.

Perhaps I may deal with the two points dreamt up by the noble Lord, Lord Eatwell. The first related to joint accounts of more than three people—that is, mother, father and son, but the mother and father then died. I am advised that we cannot extend to them in this case simply because the Long Title of the Bill deals only with second-named account holders. Dealing with third and subsequent account holders would lie outside that and would add complications which, for the reasons I gave earlier, would not be welcome in this small Bill.

The same is true in the case of the divorce settlement described by the noble Lord. The Bill does not address a series of different joint accounts and it would make it even more complex. Therefore, I hope that the noble Lord will accept that we cannot deal with that matter on this occasion.

Perhaps I may deal generally with the question of further anomalies raised by the noble Lords, Lord Eatwell and Lord Dubs, on Second Reading and today. On Second Reading the noble Lord, Lord Dubs, dealt with the difficulties faced by those who switch funds between, for example, share and deposit accounts. As I explained on Second Reading and today, that cannot be covered in this Bill because the Long Title deals only with the rights of second-named joint shareholders. Widening the Bill's scope would jeopardise its passage. I can tell both noble Lords that, as part of his wider review of the 1986 Act, my honourable friend the Minister of State at the Treasury has now proposed that in future all retail investors in building societies should be shareholding members. Legislation to bring this change about will be introduced as soon as an opportunity arises. Obviously, I can go no further than that. As regards other short Bills that may be introduced by noble Lords or Members of another place, I can say only that I am sure that my right honourable and honourable friends in Her Majesty's Treasury will give them the appropriate consideration.

I hope that, having given the assurance about the review to be carried out by my honourable friend the Minister of State at the Treasury and that legislation will be brought forward to bring about the change to which I have referred, some of the problems described by the noble Lord, Lord Dubs, will have been dealt with.

7.45 p.m.

Lord Eatwell

I am grateful to the Minister for his explanations. I understand that one can always produce extraordinary and exceptional cases, which is why drafting becomes so difficult. Will the Minister ask his advisers and colleagues to consider between now and Report whether the reference to "second named" in the Long Title of the Bill is a slip? There is a confusion with respect to the notion of joint account holders. When something is jointly held, we tend to think of two people, but I understand that in the Building Societies Act the term "joint" applies to multiple holdings. Perhaps account can be taken of multiple holdings and we can refer to that on Report. It may be the case that one has naturally gone on to "second" because of the use of the word "joint".

Lord Henley

Perhaps I may refer that matter to those who advise me. I shall write to the noble Lord before the Report stage. If something can be done without jeopardising the Bill, I am prepared to consider that. At the moment, I am prepared to take advice and I hope that, with that assurance, Members of the Committee will agree to the amendment.

On Question, amendment agreed to.

Clause 1, as amended, agreed to.

Clause 2 [Citation]:

Lord Henley moved Amendment No. 2:

Page 2, line 10, at end insert:

("() This Act shall apply in any case where the vesting date (within the meaning of section 100 of the Building Societies Act 1986) falls after the passing of this Act.").

The noble Lord said: I spoke to this amendment with Amendment No. 1. I beg to move.

On Question, amendment agreed to.

Clause 2, as amended, agreed to.

House resumed: Bill reported with amendments.

House adjourned at thirteen minutes before eight o'clock.