HL Deb 02 February 1999 vol 596 cc1423-35

3.15 p.m.

The Lord Chancellor (Lord Irvine of Lairg)

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.—(The Lord Chancellor.)

On Question, Motion agreed to.

House in Committee accordingly.

[The CHAIRMAN OF COMMITTEES in the Chair.]

Clause 1 [Right of third party to enforce contractual term]:

Lord Howie of Troon moved Amendment No. 1:

Page 1, line 8, leave out from ("may") to end of line 10.

The noble Lord said: I begin by apologising to my noble and learned friend the Lord Chancellor for tabling my four amendments rather late last evening. This did not give him the opportunity to study these amendments closely, and perhaps put his own name to them, as I am sure he would have been quite willing to do.

The amendments arise from a long-standing connection that I have had with the construction industry, as older Members of the House will know. I have a lifelong and continuing interest in the industry, and I declare it now. These amendments have been inspired by the Construction Industry Council. I shall begin by making a few general remarks and, in due course, deal with each amendment as briefly as I possibly can.

First, let me say that I have a feeling of having been here before. Perhaps Glen Hoddle can help me. I recall that in the 1980s, under a previous Lord Chancellor—the last but three or so, I think—we debated a Latent Damage Bill. Like this Bill, that was a law reform Bill, and is now an Act. It was a law reform Bill which impinged very heavily on the construction industry. But it did not deal with the 90 per cent. of latent damage cases connected with the construction industry as carefully as it did with the 10 per cent. of cases which were not. I feel there is something similar about this Bill.

It seems to me that the Bill ignores the nature of contracts in the construction industry. The Law Commission's proposals incorporated in the Bill take account mainly of arrangements involving one promisee and one promisor with roughly equal strength—contracts between equals, in other words—and a reasonably well-defined pattern of third parties.

The construction industry is not like that. Let us consider for a moment the building of a power station or, even more dramatic, the construction of the Channel Tunnel. Projects of that nature involve a great network of contracts. The project is never given as a whole. It is given as a series of parts. It may well be that the main contractor on one part of the work has a subcontractor and on another part of the work that subcontractor is a main contractor and the first main contractor is himself a subcontractor. Then there is the whole body of specialist subcontractors on which the construction industry depends. All of those people can be main contractors, subcontractors or indeed third parties. The position is far more complex than the Bill, if I have understood it properly, makes out.

The contractors are not equal and that goes against the grain of the Bill. A multitude of contracts is involved. Very often a main contractor is able to impose on a subcontractor fairly onerous terms, especially if he is a specialist subcontractor. Each contract will have an amalgam of third parties, which might include the general public. By its nature a piece of construction is imprecise. We all know that the Jubilee Line may or may not be finished in time for the millennium. It will probably not be finished. That is commonplace in construction contracts because unforeseen circumstances arise. There are factors such as inclement weather, the fact that foundation conditions might be different or floods might occur. There might be union strikes, as was the case in the old days. There are all kinds of factors which impinge on a contract and make the contract liable to change during its period. That change impinges on the third parties.

Let us put the position at its most simple and assume that a construction contract is expected to last for nine months. The general public will have to put up with nuisance, bother, noise and all kinds of inconveniences for nine months. However, due to unforeseen circumstances, the contract lasts for 12 months. So the public's inconvenience is extended. People are hurt far beyond their expectations. That is a totally different situation from the generalised one-to-one contracts which the Bill envisages.

All I have to say—it is a fairly draconian so I shall say it as quietly as I can—is that these complications mean that Clause 1(1)(b) is unworkable in the construction industry. My amendment seeks to remove it. I should say for the ease of mind of my noble and learned friend that I do not intend to press any of my amendments to a Division. They are probing amendments. I beg to move.

Lord Meston

I am sure the Committee is grateful to the noble Lord, Lord Howie of Troon, for bringing forward these amendments which, as he said, are prompted by the Construction Industry Council, whose very interesting observations some of us, including, I suspect, the noble Lord, saw only yesterday. All of us would have preferred to have seen them at an earlier stage, perhaps before Second Reading. However, the noble Lord raises the important question of the impact of this Bill on construction contracts.

It should be said that the Bill before the Committee, as was made clear at Second Reading, is hardly rushed legislation. It has been some 50 years in the offing and comes to Parliament via the Law Commission, to which, as I understand it, the construction industry, among many others, made representations. As I read and reread the Law Commission's report in the light of the observations of the Construction Industry Council, it clearly acknowledged the impact of the proposed law reform on the complex network of contracts which typically arise in the construction situations to which the noble Lord referred.

For the most part, I think the answer will be that the construction industry, among others in the future, will have to depend on well drafted and sometimes better drafted contracts. Having said that, although I do not accept that there is particular force in the proposal to amend Clause 1 beyond the suggestion I have already made that better drafted contracts may well be required, there is some force in the proposal in Amendment No. 2 to amend Clause 2. However, as far as concerns Clause 1, I do not believe that the solution will be found in leaving out subsection (1)(b), which has to be read with Clause 1(2), which I notice the noble Lord's amendment does not seek to delete.

The Lord Chancellor

The noble Lord, Lord Howie of Troon, has not really moved Amendment No. 1 in the sense that, if accepted, it would be of wholly general effect. He has claimed that the Government have not sufficiently attended to the special nature of contracts in the construction industry. I do not accept that. The noble Lord's Amendments Nos. 1 and 2 are of wholly general effect and go much further than to protect the supposed interests of the construction industry.

Amendment No. 1 seeks to leave out Clause 1(1)(b). The Bill certainly could have been more restrictive if it had provided for third party rights only when the contracting parties had provided in express terms that they should be entitled to enforce the terms in question. However, the Bill desires third party enforceability to cover cases where, properly construed, the contract intended a term to confer a benefit on the third party. Thus Clause 1(1)(b) provides: subject to subsection (2), the term purports to confer a benefit on him". The Bill did not, however, stop there because Clause 1(2) was added which, as the noble Lord, Lord Meston, pointed out, the noble Lord's amendment fails to elide. Clause 1(2) provides that, Sub-section (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party". So essentially the combined effect of sub-paragraph (b) and subsection (2) is a rebuttable presumption in favour of there being an enforceable third party right where a contractual term purports to confer a benefit on a third party, but the presumption is rebutted where on a proper construction of the contract the parties did not intend to confer a right of enforcement on the third party.

Perhaps I may give a simple illustration of how the Bill, if amended in the way the noble Lord proposes, would work an injustice. An uncle transfers his business to his nephew who promises in return that, after the uncle's death, he will pay an annuity to an expressly named aunt. In such a situation, the uncle and nephew may not have included an express provision that the aunt's rights would be enforceable. But I agree with the Law Commission's view that the nephew would be unable to satisfy a burden of persuading that those were not intended to be enforceable. It would be unfortunate if the third party right should be unenforceable in cases of this description—and there could be many—just because the parties had not thought to refer expressly to enforceability. On that basis I invite the noble Lord to withdraw his amendment.

Lord Howie of Troon

I thank my noble and learned friend for his comments, and I especially thank the noble Lord, Lord Meston, for his.

I did not suggest removing subsection (2) as it seemed to me fairly obvious that if subsection (1)(b) were removed, subsection (2) would also be removed. I did not want to hammer the provisions too hard into the ground.

I was interested in the comments about uncles, aunts and nephews. They illustrate my point. They are a long way from the complications of the construction industry and relate merely to the complications within a family.

However, I understand the weaknesses of the amendment. I tabled it in order to place this debate at the beginning of our deliberations. I am happy to withdraw it, although we may soon need to return to a provision that is not too dissimilar. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Clause 2 [Variation and cancellation of contract]:

Lord Howie of Troon moved Amendment No. 2:

Page 2, line 32, at end insert (", or >(c) that his consent is being unreasonably withheld.").>

The noble Lord said: This amendment relates to the kind of situation in the construction industry where a contract has to be varied due to unforseen circumstances such as I described earlier. A third party might intervene in such a way as to prevent the work being carried on and cause it to be held up for an undue length of time. All I suggest is that we should add the words, that his consent is being unreasonably withheld". I beg to move.

The Lord Chancellor

We cannot accept this amendment. The essence of the Bill is that it should give effect to the parties' intentions to confer on third parties such enforceable rights as they choose. They may choose to confer none at all. If they do choose to confer enforceable rights, they may specify by their contract the point at which the third party rights cannot be varied without the third party's consent. The Bill, however, sets out in Clauses 2(1)(a), (b) and (c) the crystallisation points which will apply if they are not specified in the contract. It also provides assistance where there is no practicable way in which they can obtain the consent of the third party to a variation to their contract which they desire to make, either because they cannot find the third party (Clause 2(4)(a)), or because he is mentally incapable of giving his consent (Clause 2(4)(b)).

What the proposed amendment would achieve would be to give the court in all circumstances a power to hold that, despite crystallisation, the third party was unreasonably withholding his consent to a variation. It is not the policy of the Bill, absent an express provision in the contract, to dictate that the intended beneficiary will not be entitled to withhold his consent if that were held to be unreasonable by a court. Such a provision would in effect be conferred if the discretionary power now proposed were conferred on the court. It is Clause 2(3) which provides protection for the primary contracting parties, under which express terms of the contract can specify either the circumstances in which the contract can be cancelled or varied without the consent of the third party, or that the contract can vary the crystallisation circumstances which would otherwise apply under Clause 2(1)(a) to (c).

A provision of the kind the noble Lord proposes could lead to endless litigation as the reasonableness of a third party's refusal to agree to literally any variation of the contract affecting his entitlement. I therefore invite the noble Lord to withdraw his amendment.

Lord Williams of Elvel

For those of us who are not lawyers, will my noble and learned friend give the Committee a definition of the word "crystallisation" that he has used on a number of occasions?

The Lord Chancellor

I used the expression "crystallisation circumstances" in an attempt to assist the Committee. Plainly, I have not done so. If the noble Lord examines Clause 2(1) of the Bill he will see that, Subject to the provisions of this section, where a third party has a right under section 1 to enforce a term of the contract, the parties to the contract may not without his consent cancel the contract, or vary it in such a way as to extinguish, or alter his entitlement under, that right, if", the circumstances set out in either sub-paragraph (a), (b) or (c) exist. Any of those three sets of circumstances are the crystallisation circumstances to which I refer.

Lord Howie of Troon

I thank my noble and learned friend for that lengthy, detailed and crystal clear explanation of the position.

I was greatly attracted by one of his remarks when he explained that my amendment, inoffensive as it appears to me, might lead to endless litigation. This is the first time that I have ever heard a lawyer complaining about the possibilities of endless litigation. It gives me a certain amount of delight.

I shall study my noble and learned friend's reply carefully tomorrow, and possibly for two or three days thereafter. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Clause 3 [Defences etc. available to promisor]:

Lord Howie of Troon moved Amendment No. 3:

Page 3, line 21, at end insert—

("( ) When a third party is conferred rights by more than one promisor, each promisor's liability shall he proportionate to, and limited by, that promisor's undertaking.").

The noble Lord said: This amendment relates to the complex nature of the construction industry and the fact that there is a network of contracts between people, who might often be the same people though in different guises. It seeks merely to ensure that, when a third party is the third party to two or three different first and second parties, any damages that he might accrue should be shared out equally and in proportion to the other parties. I feel that this will not be to my noble and learned friend's taste, however, I hope he will consider it. I beg to move.

The Lord Chancellor

I assure my noble friend that although, as he observed, his amendments were tabled rather late in the day, I certainly have considered them carefully.

The purpose of the Bill is to enable the contracting parties to confer enforceable rights on third parties to the extent that they themselves choose to do so and no more. They will therefore be free to place limitations on their liability as they choose under the contract to the third party. As the noble Lord, Lord Meston, said on an earlier occasion, it may be that the construction industry needs to look with great care at the many contracts that apply to interlocking transactions. It may do no harm to that industry if it looks with greater care at the precise obligations that it creates.

Where there is more than one promissor the parties may specify what their individual liabilities are to be, including the proportions in which they are to share any liability. The amendment, however, may convey the impression that where there is more than one promissor in order for the contract to be effective it must specify the quantum of the obligation assumed by each promissor. That is not the intention. In the ordinary way the court will construe any contractual provision to be either joint or several or joint and several according to whatever interpretation it concludes is the correct one. It is however entirely plain that if the contract quantifies the obligation of each promissor separately, that will limit the obligation of each to the third party beneficiary. The moral therefore is that there should be clear contracts. On that basis I invite the noble Lord to withdraw his amendment.

Lord Howie of Troon

I thought for one moment that my noble and learned friend had accepted my amendment but once again I turned out to be mistaken. I shall read carefully what my noble and learned friend said and attempt to understand it within the next few days. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

3.45 p.m.

Clause 3 agreed to.

Clauses 4 and 5 agreed to.

Clause 6 [Exceptions]:

The Lord Chancellor moved Amendment No. 4:

Page 3, line 39, leave out ("contained in") and insert ("on").

The noble and learned Lord said: Amendment No. 4 is a drafting amendment to make clearer exactly which contracts will be excluded from the operation of the Bill by Clause 6(1). A single document may contain provisions that set up more than one contract. It may contain a contract on a negotiable instrument in addition to what is effectively another contract that has no negotiable element. By this amendment we modify the wording slightly to make it plain that it is only the former—a contract on a negotiable instrument—that is outside the provisions of the Bill.

I understand from the Financial Law Panel that the distinction has particular significance for practices in the euro securities markets. Thus, for example, a company may issue a global note which is negotiable and deposit it with a depository institution, perhaps a bank. The parties to the negotiable instrument will be the issuer and the bank and the investor's right will be against the bank. But it may be intended that in certain events, for example, the insolvency of the depository institution, the investor should have rights against the issuer. We believe that at present this is achieved by the rather cumbersome method of the issuer executing a deed poll that confers on the investor rights against the issuer. I understand that the wish is to use this Bill to obviate the need for deed polls to confer rights on the investor against the issuer. The Government are content to respond to the Financial Law Panel on the basis that this amendment will allow the Bill to provide a useful additional facility for the London market. I beg to move.

Lord Donaldson of Lymington

I begin by declaring an interest as chairman of the Financial Law Panel. I thank the noble and learned Lord the Lord Chancellor for moving this amendment and for the explanation he gave. The panel very much welcomes the Bill as giving rise to new rights to enforce third party obligations. Its particular concentration is the operation of the bond market. The amendment makes even clearer the fact that provided the obligation to a third party is not a contract on the bill of exchange, or whatever it may be, there is no problem.

At one point in the panel's deliberations some members took the view—no doubt they still do—that the use of deed polls to confer rights on third parties was a cumbersome procedure, as the noble and learned Lord said. There are many practising solicitors in this field who have become so used to it that they do not regard it as cumbersome in the least, although London is different from any other financial market. As far as I am aware no one has been able to point to a defect in the system apart from the fact that it is unusual. In that situation I believe that the use of deed polls remains an alternative. However, I very much welcome the fact that the Bill will provide those who have inhibitions about deed polls with the ability to proceed by a different route. That will also be available in any specialised transactions where plainly a deed poll is inappropriate, however unusual those transactions may be. I welcome the amendment and thank the noble and learned Lord the Lord Chancellor for the way in which he moved it.

The Lord Chancellor

Before departing from the amendment, I should make plain that by my choice of language in moving the amendment I did not seek to cast any doubt whatever on the legal effectiveness of the use of deed polls.

On Question, amendment agreed to.

Lord Howie of Troon moved Amendment No. 5:

Page 3, line 43, at end insert ("or under any contract falling within section 104 of the Housing Grants, Construction and Regeneration Act 1996.").

The noble Lord said: I am very pleased that my noble and learned friend has just made another exemption from the Bill. This amendment proposes an exemption from the Bill for the construction industry as a whole. Were the amendment to be accepted, as I believe should happen, my earlier amendments would be otiose and need not have been considered. I believe that I have already laid the ground for this argument and I shall not go over it again. To my mind—it is not a legal mind—the Bill assumes that there are two contractors of equal weight, a promissor and a promisee, who reach an agreement and all goes well. This is not so in the complicated arrangements of the construction industry. The special nature of the construction industry can be seen from the fact that in 1986 we had a lengthy debate on the Housing Grants, Construction and Regeneration Bill, now an Act. Part II of the Act was devoted entirely to construction contracts because of their special nature.

The special nature of construction contracts, as already recognised in the Housing Grants, Construction and Regeneration Act, should be recognised. I suggest to my noble and learned friend—I hope that he will pay some heed to the suggestion—that the best way to do that is to exempt the construction industry from this Bill and amend the Housing Grants, Construction and Regeneration Act in order to include the protection for third parties which he thinks necessary as a generality of the law so that they then become protections as regards the complex nature of the construction industry. I beg to move.

Lord Meston

The noble Lord suggests that the amendment is justified because construction contracts are special. They are certainly complex: we all agree that. He also said in effect that the Bill suggests, inaccurately, an assumption of an equal bargaining position in construction contract situations. Surely the noble Lord's amendment substitutes a sweeping assumption the other way: that there is presumed to be inequality in construction contracts. I suggest that that is equally invalid and too generalised an assumption for the purposes of the law.

The Lord Chancellor

The noble Lord, Lord Meston, is right. The construction industry is not the only area of commercial activity in which there are contracts in sets or sequence. Complex sets of related contracts often call for consideration together—for example, in shipping or the export trade. I accept that the noble Lord, Lord Howie, has much experience of the construction industry and his views are always worthy of careful consideration. On this occasion, however, I have no doubt that the Committee should not accede to what he proposes. My experience of the construction industry is that it is rarely united in its views and I do not believe that there is unanimity on this occasion either. My understanding is that the Bill is a welcome reform for many clients.

The theme of the Bill is to enable the parties to give effect to their contractual intentions. It is up to them to decide whether or not a third party should be able to enforce a contractual term in his favour. To my mind, it would be far better to do what the Bill does—to give parties to construction contracts the opportunity to make such an agreement, but not to require them to do so—than to exclude a construction contract altogether and thus make it impossible for them to confer enforceable rights on third parties. That would be the effect of the noble Lord's amendment.

I should also draw the Committee's attention to the fact that in this Bill we are bringing our law into line with that of other Commonwealth countries which have made the same changes in recent years. None of them has made particular provision excluding construction contracts and I see no reason why the United Kingdom should do so. On that basis I invite the noble Lord to withdraw the amendment.

Lord Howie of Troon

I am not having a very successful afternoon, am I? However, I am grateful for the courtesy with which my noble and learned friend dealt with my humble proposition. I do not agree with him, and I dare to say that in public; I hope that no one is listening! The noble Lord, Lord Meston, is right. I made the assumptions about which he hinted. I did so because I know the business well. That is why I suggest the amendment.

I did more than merely move the amendment. I suggested that reference to the construction industry should be taken out of the Bill and dealt with in another way. I do not believe that the Bill deals with the construction industry with any greater certainty than does the Latent Damage Act to which I referred earlier. In the name of certainty for a small part of the legal world, the Latent Damage Act left a considerable body of uncertainty in the construction industry.

In the same way I fear—for the reputation of my noble and learned friend I hope that I am mistaken—that the Bill will leave similar uncertainties in the construction industry. We shall have to return at some stage to a revision of the Housing Grants, Construction and Regeneration Act to which I referred. In the meantime, I beg leave to withdraw the amendment and will take further advice for future occasions.

Amendment, by leave, withdrawn.

Clause 6, as amended, agreed to.

Clause 7 [Supplementary provisions relating to third party]:

Lord Borrie moved Amendment No. 6:

Page 5, line 8, leave out subsection (2).

The noble Lord said: I do not have an interest to declare, but some 25 years ago I was a member of the Council of the Consumers' Association, and I am indebted to that body for a certain amount of advice on the problems that would be left by Clause 7 unamended.

In the Second Reading debate, I ventured to comment on the considerable value of the Bill in a number of typical transactions. I cited an example from the 1996 report of the Law Commission where one contracts with a builder to do work on the house of one's daughter. The work is done defectively. At present, even though the daughter may be expressly identified in the contract, she cannot sue for breach of contract because she is not a party to it. That situation would be changed for the better by this Bill. When the Bill is enacted, she could sue for damages.

However, let us suppose that the contract contains, usually in small print, some exemptions clause excluding liability for personal injury or for other damage or financial loss. As regards personal injury, the clause is void by reason of Section 2(1) the Unfair Contract Terms Act 1977. The daughter could claim compensation for an injury arising from the defect. But somewhat inconsistently, as the Law Commission admitted, and now by reason of Clause 7(2) of this Bill, the exclusion clause would be effective against any claim for compensation by the daughter in respect of any other kind of damage arising from the defect. That is the case even though a court may consider that the clause fails to satisfy the test of reasonableness that would apply under the Unfair Contract Terms Act if the claimant was the contracting party.

At Second Reading my noble and learned friend the Lord Chancellor very fairly admitted that this was "A very difficult question". He felt that the balance lay in favour of preserving the rights of the parties who have chosen to bind themselves by the terms of their contract rather than enlarging the rights which they have chosen to confer on third parties. In that sentence I believe that my noble and learned friend seems to be equating the deliberate identification of the daughter in the Law Commission's example with the small print exclusion clause which is very unlikely to have been chosen by both parties or to have arisen from any clear consensus of the contracting parties.

The basic purpose of the Unfair Contract Terms Act 1977 was to qualify the sanctity of the terms of the contract because in the real world so many contracts are made not between parties of equal strength but between a stronger and a weaker party, with the stronger one having drafted the terms and presented them to the other party on a take-it-or-leave-it basis. It is for that reason that contractual exclusions of liability for personal injury are now void and that exclusions for other kinds of damage are subject to a reasonableness test. I believe that the policy of the law should be against allowing reliance on unreasonable contract clauses whether against the contractual party or the third party such as that defined in this Bill.

I apologise for going a little further, but since Second Reading I have looked at a consultation paper entitled The Key To Easier Home Buying and Selling. It is in the name of the Department of the Environment, Transport and the Regions, the Department of Trade and Industry, the Welsh Office and the Lord Chancellor's Department. The consultation paper was published last December. It is designed to bring proposals to assist the easier sale and purchase of houses. It includes a proposal, which many noble Lords may have seen in the press; namely, a proposal where the vendor of a house commissions a surveyor's report, which will be made available to potential buyers. The idea, as stated in paragraph 66 of the consultation paper, is that this report should, be something the buyer (as well as the seller) can enforce". Mr. Geoffrey Hoon, the Minister of State in my noble and learned friend's department, in launching this consultation paper referred to the last point as something that can be achieved by the Bill which is before the Committee today. The statements and effect of what is in the surveyors' report commissioned by the seller may not be enforceable by the buyer if Clause 7 remains as it stands. That is because Clause 7(2) of the Bill as it stands disapplies Section 2(2) of the Unfair Contract Terms Act. Clause 7(4)—I am speaking now to the next amendment in my name—disapplies the Unfair Terms in Contract Regulations 1994. So the buyer, relying on the surveyor's report supplied to him by the seller, would not be able to contest the validity of a contract term which, for example, excluded liability for claims arising from a surveyor's report that failed to mention defective foundations or something of that kind.

The proposals of the four departments responsible for the consultation paper on making it easier for the buying and selling of houses, and the efficacy of their particular recommendations, including the value of the surveyor's report commissioned by the vendor, would be seriously undermined—as would the buyer's confidence in such reports if the Bill is not amended in the way that I have suggested. I beg to move.

4 p.m.

The Lord Chancellor

I shall speak to both Amendments Nos. 6 and 7 in the name of the noble Lord, Lord Borrie. He has argued, as he did at Second Reading, that the parties to a contract should not be able to exclude liability for certain types of damage to the third party and that the provisions of the Unfair Contract Terms Act should be extended to restrict the parties' powers. I accept again that this is a very narrow and difficult issue. It is one that can be argued strongly in the sense so well expressed by my noble friend Lord Borrie. It is an issue that I have thought about carefully, as did the Law Commission.

However, my conclusion remains as it was at Second Reading. The Bill is not taking away any existing consumer rights. Third parties are not being deprived of any existing statutory protection. They are being given rights to enforce contractual terms, if the parties so choose, which third parties did not have before. So it is a matter for the parties to decide whether or not to confer rights on third parties. It is a matter for them to decide whether such rights should be limited; for example, by providing that liability for negligence causing a third party loss is to be excluded.

It is important to remember that although there may be linkages between this Bill and the Unfair Contract Terms Act, the two do not really occupy the same ground. The Unfair Contract Terms Act is not primarily about third party rights. Even if it were desirable to reform the Unfair Contract Terms Act to protect third party consumers, I do not believe that it would be possible simply to accept these amendments as achieving that aim. Perhaps I may give one example. The Unfair Contract Terms Act contains a reasonableness test. We would have to decide whether that test was to be applied as between the promisor and the promisee or as between the promisor and the third party.

That having been said, I accept and recognise that there are cogent arguments on the side of the noble Lord. I hope that he will find it helpful when I say that I am certainly not seeking to rule out further consideration of the effect of the Bill on consumer protection, if the Bill becomes law. But I believe that it would be preferable for what is a relatively straightforward Bill to be enacted and to operate for some time before considering whether to tackle rather more complex issues as regards the ambit of consumer protection. On that basis I invite the noble Lord to withdraw his amendment.

Lord Borrie

I am most grateful to the noble and learned Lord the Lord Chancellor. His sentiments are extremely helpful and encouraging. My only anxiety is that he speaks of making some further proposals in the future. But one might have to wait another 10 or 12 years before there is another opportunity and a suitable Bill in order to make the changes that I have suggested. I shall read carefully and take further advice on what my noble friend said. In the meantime I am happy to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendment No. 7 not moved.]

Clause 7 agreed to.

Clause 8 [Short title, commencement and extent]:

Lord Kingsland moved Amendment No. 8:

Page 5, line 25, at end insert (", including conditional contracts which may or will be performed after the end of that period").

The noble Lord said: Clause 8(2) provides that the Bill does not apply in relation to contracts entered into before the end of six months from the day it is passed. Difficulties may arise where an option has been granted before the Act takes effect and is later exercised when the Act applies. In particular, is an option to buy something a contract to sell it conditional on the exercise of the option, or an irrevocable offer which does not become a contract until accepted by a notice which exercises the option?

That difficulty has been resolved by the courts, at least at first instance, with respect to options for the sale of land and by statute with respect to covenants between landlord and tenant. However, there are other situations in which difficulties may arise; for example, in a contract for the supply of up to a specified quantity of some bulk commodity under which the buyer is entitled to call for delivery during the contract period.

In those circumstances, and in the interests of certainty, and because the terms of the option would have been negotiated between the parties without regard to the Bill, I beg to move.

The Lord Chancellor

The noble Lord indicated that what he specifically has in mind, although not exclusively, by the expression "conditional contracts" is the grant of an irrevocable option, say, to buy land. That option might be granted before the end of the statutory six-month period referred to in Clause 8(2) and only exercised thereafter. If that option were to be characterised as a contract for the sale of land conditional on the purchaser's unilateral exercise of the option, it would qualify as a contract made before the end of the statutory period: whereas, if it were categorised as an irrevocable offer by the vendor requiring an act of acceptance by the purchaser after the statutory six-month period, the Act would apply to the contract constituted by that acceptance because the contract would have come into being after that six-month period.

The noble Lord indicated that the categorisation of such an arrangement had been addressed at first instance in the courts. It was addressed by Mr. Justice Hoffmann, now the noble and learned Lord, Lord Hoffmann, in Spiro v. Glencow Properties Limited in 1991 Chancery Division Reports, page 537. He held that the former was the correct categorisation and that the arrangement constituted a contract for sale conditional on the exercise of the option. I believe, but express no view myself, that this is generally regarded as the correct categorisation. But it might be open to a higher court to hold otherwise and that the option was no more than an irrevocable offer which fructified into a contract only upon acceptance.

We have no intention in the Bill of seeking to resolve unsettled and disputed questions of contract law by a side wind. If a court holds that a contract was made prior to the expiry of the statutory six months, the Act does not apply to that contract. If the court holds that the contract was made after the period, the Act does apply. Beguiling as the invitation is, we decline to take the opportunity of the Bill to seek to resolve any other issues of controversy in contract law. On that basis, I invite the noble Lord to withdraw his amendment.

Lord Kingsland

The steeliness of the noble and learned Lord's reply deters me from pressing the point any further. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 agreed to.

House resumed: Bill reported with an amendment.

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