HL Deb 19 February 1998 vol 586 cc382-9

7.54 p.m.

Report received.

Clause 1 [Statutory interest]:

Lord Clinton-Davis moved Amendment No. 1: Page 1, line 8, leave out from ("interest") to ("in") in line 9.

The noble Lord said: My Lords, in moving Amendment No. 1, it may be for the convenience of the House if we consider also Amendments Nos. 2, 3, 7, 11 and 17.

Our policy has been that interest due under the proposed legislation should be treated for all purposes in the same way as interest due under a term of a contract. It was for that reason that it was decided that the statutory right to interest should have effect as an implied term in contracts. Since there has been some question of whether the Bill as presently drafted ensures identical treatment in all cases, we decided to reflect further on the matter. In moving this amendment, I want to make it quite clear that no distinction is to be drawn between contractual and statutory interest. I hope that noble Lords will find that helpful.

The courts have regarded some statutory interventions in contract law as statutory rather than contractual even where the means adopted by the statute is contractual. That is a good reason for proceeding as we have. I hope that the House will feel that the Government have reacted prudently to the advice that we have received, for which I am most grateful. I beg to move.

Lord Fraser of Carmyllie

My Lords, in responding briefly to the noble Lord, first we on this side of the House extend our warm thanks for the way in which he has so positively responded to a number of the concerns expressed in Committee. I hope that his department, and other departments, will recognise that the use of the Moses Room for such Committee stages can yield some real advantages in that we get through the business quickly. If constructive proposals are advanced, the Government then have the opportunity to reflect on them and to bring forward their own amendments. That is a particular advantage with Bills such as this.

As I intend to intervene on only this amendment, I also thank the noble Lord for his letter responding to a number of the points that I raised in relation to Scotland. The noble Lord has been good enough to let me know that a copy of that letter has been placed in the Library. I know that there is a copy in the Library, but it has always been a mystery to me how other noble Lords are meant to discover that—that is, unless one goes along to the Library from time to time and asks, "Has Lord Clinton-Davis written any letters to anybody, and has he placed copies here in the Library?". As I regard the noble Lord's response as extremely helpful, I take this opportunity to put on a rather more public record the fact that he has given me a full reply to my points. Those in Scotland and elsewhere who are concerned about this matter now have due notice of where they can secure a copy of that response. I thank the noble Lord for that.

Perhaps I may now place on the record one point of concern. I accept what the noble Lord says both in relation to this Bill and to that on Scotland, but I have some unease. If a transaction across the Border were to go to court, there might in accordance with principles of legal and commercial certainty—theoretically at least—be three different rates of interest. That is undesirable but, regrettably, it is a necessary consequence both of the constitutional changes proposed and of this Bill. With only that observation, I repeat my gratitude to the noble Lord for the positive and constructive way in which he has responded to my concerns.

Lord Ezra

My Lords, I reiterate the comments of the noble and learned Lord, Lord Fraser. I thank the noble Lord, Lord Clinton-Davis, for the way in which the more relaxed atmosphere of the Moses Room was used to such good advantage. I entirely support the amendment that he has just moved. I am also grateful for the individual meetings organised by the noble Lord in which matters could be gone into further. We seem to be thanking the noble Lord before the Bill is passed. Normally, we do that right at the end. Nevertheless, this has been a very successful operation. In saying that I hope that the few amendments which the noble Earl, Lord Home, and I shall move later will he sympathetically considered.

8 p.m.

Lord Clinton-Davis

My Lords, I am most grateful for the very courteous and pleasant remarks that have been made about the way in which I have sought to respond to the debates that have taken place in this Chamber. I have also learnt a great deal. I was always under the impression that all those Peers who could be seen in the Library were looking for letters from me. I am equally puzzled. I have been the subject of such response before. I have never found anything in the Library that is remotely relevant to my concerns in relation to such Bills. Nevertheless, I appreciate what has been said. Noble Lords may perhaps begin to feel that flattery will get them anywhere.

As to the Moses Room procedure, this was the first such Bill in which I was involved as a Minister. I have done it before when in Opposition. I believe that it has a purpose. Perhaps one of its disadvantages is that only those who are vitally interested in the Bill will attend, whereas when the House sits like this the Benches are crowded. I believe that it has a positive advantage, and I am glad that both noble Lords have spoken as they have.

On Question, amendment agreed to.

Lord Clinton-Davis moved Amendments Nos. 2 and 3: Page 1, line 9, at end insert—

("(1A) Interest carried under that implied term (in this Act referred to as "statutory interest") shall be treated, for the purposes of any rule of law or enactment (other than this Act) relating to interest on debts, in the same way as interest carried under an express contract term.").

Page 1, line 11, at end insert ("that would otherwise be conferred by virtue of the term implied by subsection (1)").

On Question, amendments agreed to.

Clause 2 [Contracts to which Act applies]:

Lord Clinton-Davis moved Amendment No. 4: Page 1, line 21, leave out from first ("agreement") to end of line 22.

The noble Lord said: My Lords, I beg to move Amendment No. 4. It will be for the convenience of the House if I speak also to Amendment No. 16. During Committee stage I said that I would consider further whether it was necessary to exclude conditional sale and hire purchase agreements from the Bill. The purpose of the Bill is to prevent or deter late payment because it is wrong that a customer should use its suppliers as a source of unauthorised credit. It was never our intention to give a right to claim interest on authorised credit. For that reason conditional sale and hire purchase agreements were excluded, they being essentially a form of authorised credit. It was not therefore appropriate to include them in the Bill.

I reflected further on the matter and was persuaded by the argument that some such agreements might not include provision for a remedy in the event of late payment of an instalment and repossession of the goods might not be a practical or appropriate remedy in many instances. We accepted that such agreements should in principle be subject to the legislation. Where the agreement includes a remedy for late payment Part II will apply, thereby ensuring that statutory interest cannot be claimed on top of that contractual remedy.

I believe that my noble friend Lord Borrie and the noble Earl, Lord Home, referred in Committee to the question of conditional sale agreements which consisted of ROMALPA or retention of title clauses. It was argued that these agreements should not be excluded from the Bill. We looked again at the definition of conditional sale agreements in the Bill which came from the Consumer Credit Act 1974 rather than the Sale of Goods Act 1979. I am advised that such ROMALPA agreements were never excluded from the legislation, but this amendment now clarifies the position beyond doubt. I am glad to respond positively again to the points made by noble Lords. I also thank them for the representations that they made to me before Report stage tonight.

On Question, amendment agreed to.

Clause 4 [Period for which statutory interest runs]:

Lord Clinton-Davis moved Amendment No. 5: Page 2, line 32, after ("debt") insert ("(that is, the day on which the debt is to be created by the contract)").

The noble Lord said: My Lords, I beg to move Amendment No. 5. It will be for the convenience of the House if I speak also to Amendments Nos. 6, 12, 13, 14, 15 and 19. I seek to honour a commitment that gave at Committee stage to review the excessive credit periods and how the Bill deals with them. The Bill as originally drafted provided a remedy for the circumstance where a debtor insisted upon an unreasonably long period of credit so as to avoid potential claims for interest. I do not intend to reiterate how the Bill achieves that end because that is already on the record. However, I understood the concern that was expressed that legislation should be as clear as possible. I recognised that that reflected the concerns of the wider business community.

This group of amendments seeks to clarify the position. I draw your Lordships' particular attention to Amendment No. 14. The new clause extends the operation of the Unfair Contract Terms Act 1977 for the purposes of this legislation to contract terms that are not contained in the standard written terms of the purchase. The response to the Government's consultation on these amendments has been positive. I believed that it was right to consult upon them, although I concluded that there was a great deal in what had been said. We believe that this group of amendments meets the concerns expressed at Committee stage. I hope that the amendments go a long way towards clarifying how the Bill will combat the setting of excessive credit periods.

The Earl of Home

My Lords, I am grateful to the Minister for looking again at the wording of this clause. As he rightly says, he seeks to address a point that has been of concern to industry. I know that it is not the intention of the Government to disturb any existing tried and tested methods of trade, and I believe that these amendments go a long way towards proving that. They also reduce the opportunities whereby late payers can escape liability and therefore we support them. In Committee I attempted to link this Bill with the Unfair Contract Terms Act. However, I am the first to admit that the wording of the Minister is considerably more elegant than mine. Therefore, we on these Benches support the amendment.

Lord Meston

My Lords, likewise we on these Benches believe that the amendments meet the concerns expressed at Committee stage.

On Question, amendment agreed to.

Lord Haskel moved Amendments Nos. 6 and 7:

Page 2, line 32, at end insert ("unless the debt relates to an obligation to make an advance payment").

Page 3, line 5, leave out ("contractual provision") and insert ("contract term").

On Question, amendments agreed to.

Clause 5 [Rate of statutory interest]:

Lord Ezra moved Amendment No. 8: Page 3, line 9, leave out ("may") and insert ("shall").

The noble Lord said: My Lords, this amendment has been grouped with Amendment No. 9 in the name of the noble Earl, Lord Home. It is a small but important amendment which I moved in Committee. It received a sympathetic response from the noble Lord, Lord Haskel. It replaces the word "may" with the word "shall" in line 9 on page 3. The simple reason for it is that if it were not an obligation on the Secretary of State, the whole purpose of the Bill would fall. I am glad that the logic of that argument was accepted. I beg to move.

The Earl of Home

My Lords, we support the amendment moved by the noble Lord, Lord Ezra. As my amendment is grouped with it, I say merely that I am concerned that the way in which the formula by which the rate of interest is arrived at should be seen to be agreed by that part of government mostly involved with finance; namely, the Treasury. It would make it much easier for suppliers to explain to potential purchasers, particularly overseas purchasers, that it is a formula worked out within government rather than one set by an individual.

The additional words in paragraph (b) of the amendment will also add credibility. I remain unhappy about paragraph (b) because I still do not see how the Secretary of State will publicise changes in the rate at the time of high volatility of interest rates in a form which will enable suppliers to pick up those changes easily. I suspect that my colleagues in another place will continue to press for an answer on that point in due course.

Lord Clinton-Davis

My Lords, the fact is that the Bill, as the noble Lord, Lord Ezra, said, could not possibly operate if the Secretary of State did not set the rate of interest. Knowing the Treasury, I just cannot imagine circumstances in which she would do so without its agreement. I cannot remember whether I said this in Committee, but, if I did, it is an old Minister repeating stale jokes—it was Winston Churchill who said that the Treasury was like an inverted Micawber waiting for something to turn down. One has to be careful when dealing with it. I did not say that, did I?

Lord McIntosh of Haringey

I hope not!

Lord Clinton-Davis

My Lords, my noble friend who speaks for the Treasury in this House says that he hopes not. I am pleased that both noble Lords have retabled the amendments to Clause 5(1), and, of course, we are happy to accept them.

On Question, amendment agreed to.

The Earl of Home moved Amendment No. 9: Page 3, line 9, after ("order") insert ("made with the consent of the Treasury").

On Question, amendment agreed to.

Lord Clinton-Davis moved Amendment No. 10: Page 3, line 13, leave out subsection (2) and insert—

("(2) Before making such an order the Secretary of State shall, among other things, consider the extent to which it may be desirable to set the rate so as to—

  1. (a) protect suppliers whose financial position makes them particularly vulnerable if their qualifying debts are paid late; and
  2. (b)deter generally the late payment of qualifying debts.").

The noble Lord said: My Lords, again, in moving the amendment I am seeking to address the concerns raised by the noble Lords, Lord Ezra and Lord Meston, and the noble Earl, Lord Home, in connection with the powers of the Secretary of State to prescribe a rate of statutory interest and the factors which she should be obliged to consider in taking that action.

Amendment No. 7 obliges the Secretary of State to consider both factors in Clause 5(2) in reaching any decision to alter the rate of statutory interest. The words "among other things" and "inter alia" amount to the same thing. Apparently the use of a foreign language makes the whole thing illicit and would no doubt cause the whole Bill to collapse. The amendment makes it clear, as we agreed in Committee, that the Secretary of State will be free to consider other factors while deliberating upon changes to the interest rates. I beg to move.

8.15 p.m.

Lord Meston

My Lords, again, I am grateful to the Minister. The wording proposed in Amendment No. 10 seems to be a great improvement on the Bill in its original form.

The Earl of Home

My Lords, I echo the words of the noble Lord, Lord Meston. I am also grateful to the Minister for agreeing to the amendment that I proposed in Committee, albeit in the wrong language. At least he was not insulted. Obviously it is important to look after those who are most likely to be embarrassed financially by late payers, and we support the amendment.

Lord Borrie

My Lords, I was intrigued when on an earlier amendment the noble and learned Lord, Lord Fraser, who has now left the Chamber, referred to receiving correspondence from my noble friend the Minister in response to matters he had raised in Committee. I, too, received a letter from my noble friend in relation to this clause. Like the noble and learned Lord, Lord Fraser, I was somewhat concerned over the formula which goes: A copy of the letter has been put in the Library of the House". I wondered how it worked. I went along to the Library today and asked to see a copy of this letter and whether any other letters had been sent by my noble friend in relation to the Bill on other subjects.

I am afraid that after a little search nothing could be found. Unfortunately, because of involvement with the Competition Bill this afternoon, I was unable to go back and make further inquiries. I wished to make a point similar to that made by the noble and learned Lord, Lord Fraser, and the more specific point that I had a little difficulty in understanding the letter from my noble friend which was concerned with whether the word "deterring" in the clause, which provides: deterring the late payment of qualifying debts". could be interpreted as including the possibility of a penal rate of interest. I was not sure what the response indicated. The Minister's response stated: The wording also covers the possibility that the forthcoming Directive might require the rate to he set at a deterrent level". There my noble friend uses the word "deterrent", but in the consultative document put out earlier by the department, Annex B in relation to Europe states: A penal rate of interest may be levied by the Directive". Page 19 of the consultative document asks the question: Should a penal rate of interest apply in order to deter late payment?". In other words, at various stages in the consideration of this Bill the department seems to have been using the words "deterring" and "penal" as being more or less the same. I am left a little unclear. I am sure that many businesses would like to have the matter cleared up and not just through a letter which may or may not be available in the Library. Of course no one knows that there is a letter in the Library unless they have been so informed. A number of businesses and Members of this House might be interested to clear up the point as to what is permissible under the clause and what are the Government's intentions.

Lord Clinton-Davis

My Lords, the reason that the letters are missing might be that we described them as "billets doux" and consequently everyone was misled. I do not know. I shall look into the matter, because I was under the impression that the letters had been sent to the Library. Perhaps it was second-class mail, I do not know.

There is, of course, as my noble friend will realise, a view that we have taken that rates of interest should not be penal. because that is offensive to the law, or can be construed as offensive to the law.

If there is some inconsistency in the letters that I have written, I shall look into the matter. However, in this context they amount to one and the same thing. In order to deter, the word "deter" is used in the Bill and that is the essential point.

The Green Paper referred to the approach contained in a possible draft directive emerging from the European Commission. We have not yet examined the detail of that. It is still open for a draft directive to be changed and for the word "deter", if there is a conflict, to be used instead. It is our preferred term. I hope that that is helpful to the noble Lord. Provided that no offence is caused in the interpretation of the court, no trouble will be caused.

I am advised that a deterrent level may be required by the director. There is distinction in that a very high rate of interest may be a penalty. A deterrent rate may apply where the rate is greater than that needed to recompense weak businesses. The point is that it is not necessarily punitive.

Lord Meston

My Lords, we have been round the course previously. Is not the fact that needs to be grasped that the word "penal" has a peculiar meaning in English civil law? Conceptually, one must accept that while all penalties are deterrents not all deterrents are penal. The Government are correct in saying that they should be looking at the deterrent rates of interest rather than the penal rates of interest.

Lord Clinton-Davis

My Lords, I am much obliged to the noble Lord. He is a distinguished Silk and I believe he knows what he is talking about.

On Question, amendment agreed to.

Clause 7 [Purpose of Part II]:

Lord Haskel moved Amendments Nos. 11 and 12: Page 3, line 37, leave out ("under this Act") and insert ("that would otherwise apply"). Page 3. line 42, leave out from ("term") to end of line 2 on page 4.

On Question, amendments agreed to.

Clause 10 [Interpretation of Part II]:

Lord Haskel moved Amendments Nos. 13 and 14:

Page 4, line 42, leave out from first ("interest") to end of line and insert ("or any contractual remedy other than interest").

Page 5, leave out lines 10 to 12 and insert ("vary the right to statutory interest is a reference to terms altering in any way the effect of Part I in relation to a qualifying debt (for example by postponing the time at which interest starts to run or by imposing conditions on the right to interest).").

On Question, amendments agreed to.

Lord Haskel moved Amendment No. 15: After Clause 13, insert the following new clause—