Clause 22. — (Prohibition of Transfer of Iron and Steel Works.)

– in the House of Commons at 12:00 am on 2nd May 1949.

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Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East 12:00 am, 2nd May 1949

I beg to move, in page 26, line 45, to leave out from the beginning, to the second "any," and to insert: enter into any transaction transferring or granting to any person. This is an Amendment designed to meet an argument propounded by the hon. and learned Member for Daventry (Mr. Manningham-Buller). He was concerned that the wording at present in subsection (1, a) of this Clause might be sufficiently wide to include a number of operations which were not intended to be included. He instanced the case of the termination of a lease by operation of law. He thought that the words as they appear in the Clause might include a case of that sort and render the consequent transfer void. That, of course, is not intended, and, accordingly, we have now selected, and seek to insert by this Amendment, wording which will make it perfectly clear beyond peradventure that what is struck out is a transaction which is actually entered into by some particular person, or, in this case, a company. The wording we have chosen would exclude any such automatic transfer effected by operation of law, such as that instanced by the hon. and learned Gentleman. This Amendment goes with the next on the Order Paper, in page 27, line 11, by which the same wording is sought to be introduced into that part of the Clause as is here sought to be introduced in this part of the Clause.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

I should like to thank the Solicitor-General for the way in which he has met the point I raised in Committee. I agree with him that this alteration of the wording will improve the Bill and will avoid the consequences which, in my opinion, would have flowed from the original draft.

Amendment agreed to.

Further Amendments made: In page 27, line 11, leave out "transfer or grant." and insert: enter into any transaction transferring or granting to any person."—[The Solicitor-General.] In page 25, In line 15, leave out from beginning, to "or," in line 16, and insert: general date of transfer or within the period of three months beginning with that date."—[Mr. G. R. Strauss.]

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

I beg to move in page 27, line 30, to leave out from "to," to end of line, and to insert: require the transfer, surrender or grant of rights in respect of the works or part of the works in question to a publicly-owned company. This is slightly more than a drafting Amendment but not much more. It enables the approval which is referred to in the proviso to subsection (1) of the Clause to be in rather different terms from that in which it appears in the Clause as drafted. Approval can be given, as the Clause stands, subject to conditions, enabling the Corporation to get back the rights transferred or granted. The conditions which it is desirable to include in the approval may be less extensive, and it may be required simply to preserve some particular interest in the rights transferred or granted. The words which we seek to introduce enable the less stringent condition to be imposed, instead of making it necessary to impose the drastic condition referring to the full rights granted or transferred.

Amendment agreed to.

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

I beg to move in page 27 line 33, after "transaction," to insert: and the parties to any subsequent transaction relating to the same works. It was pointed out by the hon. and learned Member for Daventry (Mr. Manningham-Buller) that in cases where transactions were void under Clause 22, it may be that third parties had already acquired rights. The property which was transferred may have been the subject of a further transfer to some third party. In those circumstances, it was the hon. and learned Gentleman's argument that the third parties should also be concerned in the subsequent arbitration proceedings. The Amendment provides that the parties to any subsequent transaction relating to the same work, that is to say, some third party, as instanced by the hon. and learned Gentleman, could be regarded as concerned in the transaction and subsequently made parties to the arbitration.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

The learned Solicitor-General says that they will be made parties to the arbitration. Does that carry with it the possibility that they may be made liable to pay compensation to the Corporation by order of the tribunal if action is taken under subsection (3)?

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

That is answered by reference to the wording at the bottom of page 27, that the persons who could be made liable are all parties to the transaction, but does not include parties to a subsequent transaction. It refers to the transaction whereby the property is transferred which is voided in the present circumstances.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

I do not think that covers the point. The Solicitor-General has said that the effect of the Amendment is to bring within the area of this Clause transactions subsequent to the original ones entered into with third parties, and he said that these parties would be served with the notice of the arbitration and brought before the tribunal. I am asking the right hon. and learned Gentleman for information. I am not sure what the answer is, but I think that this is a matter which requires to be answered. Are these third parties then brought within the scope of subsection (3) and rendered liable to have orders made against them for the payment of penalties to the Corporation under subsection (3)? I must ask him for a specific answer to that question. As I understood what he said when moving the Amendment, it would appear that the third parties to which he has referred are now brought within the scope of subsection (3), but the matter ought not to be left in doubt, and we ought to know where we stand with regard to it before we consider, as we shall do shortly, the effect of subsection (3).

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

I think that reference to subsection (3) shows that technically such third parties, if they were parties to the application, could be brought within the ambit of an order requiring damages to be paid. In point of fact, in subsection (3) there is a very considerable safeguard, because all that can be done is that an order can be made against any of the parties to the application as the tribunal thinks just, having regard to the extent to which those parties were respectively responsible for the transaction or benefited by it. Although technically the third parties can be said to be within the purview of that subsection it is not easy to imagine a case in which a third party was responsible for the original transaction or benefited by the original transaction; but if we can imagine such a case—and I suppose it is possible—where there is some sort of collusion between the third parties and the transferee, then, in a case like that, where there was some sort of col- lusion or, indeed, in the case where the third party had benefited by the original transaction before the transfer, an order could be made against the third party.

There is always the safeguard that an order could only be made that the arbitration tribunal, bearing these circumstances in mind, thinks is just. I cannot conceive that an arbitration tribunal, faced with the question of whether it should award damages against an innocent third party which had not been in any way a collusive agent in the original transaction and had not benefited by it, would consider it just to make an order against such a third party. On the other hand, I think that the hon. and learned Gentleman would agree it not inappropriate, if it could be shown that there was something in the nature of collusion which had resulted in advantage to a third party—it depends on the circumstances—that an order should be made against the third party.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

I should like to pursue this matter a little further. The Amendment raises a question of some importance so far as third parties are concerned. The right hon. and learned Gentleman says that the matter can be safely left to the tribunal to determine. That leaves the possibility of liability being in effect cast upon third parties. The effect of the Amendment is, therefore, considerably to widen the provision of subsection (3). The right hon. and learned Gentleman has made many references to collusion between the third parties and the parties of the original transaction. Of course he is aware that subsection (3) does not have any reference in it whatsoever to collusion, and the sole test which the tribunal will have to apply in determining who shall be responsible for making payments to the Corporation is the test of responsibility for a transaction or benefit from the transaction.

It may well be, I should have thought, that a third party might be shown to be a party which benefited from the transaction. Surely we are entitled to know from the Government whether it is their intention that third parties should be liable, as a result of this Amendment, to have the penalties imposed upon them under subsection (3), or whether it is not their intention that that consequence should flow from it. Should that not be their intention, then I suggest that some further words will be necessary to make that quite clear. I ask the right hon. and learned Gentleman to say what is the Government's intention in this matter.

4.0 p.m.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

As I understand it, these arbitration proceedings may begin when a notice of acquisition has been served and there is some dispute as to whether a transaction purporting to effect such a transfer should be brought in. The Clause is now widened to include these third parties, and I should like a quite definite assurance that these third parties have the right to initiate proceedings before the arbitration tribunal if they think fit.

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

I should say that the third parties have a right to initiate arbitration proceedings under this Amendment.

Amendment agreed to.

Further Amendments made: In page 27, line 34, after "Act," insert, "between the Corporation and those parties."

In page 27, In line 39, after "shall" insert, "subject to any such agreement as aforesaid."—[The Solicitor-General.]

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

I beg to move, in page 28, line 16, at the end to insert: Provided also that no order shall be made under this section against any director of the company in respect of whom the tribunal is satisfied that the transaction was entered into without his knowledge or without his consent. We have already had a few words to say about subsection (3), and this afternoon the degree of suspicion, and entirely unjustified suspicion, that the Government hold in relation to the companies to be affected by this Bill has already been made perfectly apparent. Under subsection (3) we find further provision for the imposing of penalties upon persons affected by this Measure. It is provided that if one of the transactions made illegal by Clause 22 is entered into and the Corporation suffers damage by reason of that transaction, then all parties to the transaction and all persons who were directors of the company at the time can be brought before the tribunal and may be ordered to make such payment as the tribunal thinks just. The material words are: having regard to the extent to which those parties were respectively responsible for the transaction or benefited from it and to all the circumstances of the case. I ask the House to consider first the position of a director of a company who at a board meeting voted against entering into one of the transactions made illegal by this Clause. It could clearly not be said that he was responsible for that transaction, because he would have taken the only step that lay within his power to prevent that transaction being entered into. Nevertheless, in consequence of that transaction he might indirectly have benefited. If that be so he would be brought within the scope of this subsection and be liable to have an order made against him for the payment of a penalty to the Corporation, although in no moral sense could any blame be attached to him.

That is one case with which our Amendment seeks to deal by making it quite clear that a director who opposes entering into a prohibited transaction shall be under no liability to pay any penalty to the Corporation because of that transaction. The Government may say that all this can be safely left to the tribunal, that the tribunal will only do what is right having regard to the extent to which the parties were respectively responsible for or benefited from the transaction, and that we can safely rely upon them. That is the sort of argument we have just had from the right hon. and learned Gentleman, but it is not satisfactory or sufficient.

What is the intention of the Government in this matter? Do they or do they not intend directors who oppose the entering into a transaction of this sort to run the risk of the tribunal making an award against them? If they do not intend such directors to be under any such liability they can have no objection to that part of this Amendment. On the other hand, if they oppose this Amendment, it follows that they want directors of these companies to have to run the risk of having orders made against them, even though they have voted against the particular transaction being entered into. This Amendment would make it quite clear that there shall be no liability whatsoever upon a director in respect of a transaction entered into without his consent. I can see no reason why any liability or risk of liability should be placed upon the shoulders of a director who voted against entering into the transaction, although he may perhaps have received some indirect benefit because he was out-voted. I can see no ground for placing him at the mercy of this tribunal and exposing him to the risk of having to pay a substantial penalty to the Corporation. So far I have confined my observations to the last part of this Amendment.

The Amendment also seeks to exclude from the risk of having to pay this penalty directors who satisfy the tribunal that the transaction was entered into without their knowledge, Do the Government really wish a director to be held responsible if it be clearly established that the transaction was entered into without his knowledge? I should have thought there was no ground for saying that, and that all the Government wanted was to ensure that the directors responsible for the making of these transactions were liable to have these penalties imposed. If that be all the Government want I can see no argument for their refusal—if they do refuse—to accept this Amendment.

If the Minister says that he is not prepared to accept it, it must follow that he thinks it right, just, and equitable that directors who have no knowledge of the transaction and directors who have opposed the transaction being made should be liable to have penalties inflicted upon them by the tribunal. As I see it, that is an entirely wrong thing. On this matter the Government must come down on one side or other of the fence. It is not sufficient to say that it can all be left to the tribunal to do what they think is just. The right hon. Gentleman should have a mind of his own upon this matter, and he should make the Government's intention quite clear.

As far as I can see, acceptance of the Amendment would in no way weaken or wreck the provisions of this extremely bad Bill; but it would at least try to create some small degree of equity so far as directors are concerned.

Photo of Mr Douglas Clifton Brown Mr Douglas Clifton Brown , Hexham

I had better inform the hon. and learned Member that I did not intend calling the Amendment in page 28, line 16, at end, insert: Provided also that no order shall be made under this section against any director of the company in respect of whom the tribunal is satisfied that in relation to the transaction he acted in good faith and with the intention of duly performing his duties under the company's memorandum and articles of association or charter and any relevant enactments including this Act. because I think that it covers the same point, although the circumstances are slightly- different. I do not know whether the hon. and learned Member would also like to address himself to that Amendment.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

With great respect, Mr. Speaker, the point is somewhat different: although, having moved this Amendment, I could speak also to the other. I hope, however, that you will be able to call the second Amendment, because it raises the difficult question of the duties of a director under the Companies Acts as affected by this Bill. I think it might be more convenient to deal with the Amendments in separate compartments.

Photo of Mr Douglas Clifton Brown Mr Douglas Clifton Brown , Hexham

I am quite happy if it is clearer to deal with the Amendments separately, although I thought it would he easier to deal with them together.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

I beg to second the Amendment.

I wish to make three points. First, although the Clause has in the margin the impressive title, Prohibition of transfer of iron and steel works, when we look at the earlier part we see that it also deals with much lesser affairs. I quite agree that if a company were disposing of an iron and steel works it is difficult to imagine that a member of the board would not know anything about it, but this Clause also deals with any rights of ownership in, or any rights in respect of the user of, any works or part of any works…sed for the carrying on of any of the said activities. Therefore, it brings within its purview a whole mass of contracts into which a board might conceivably enter, such as the granting of licences for people to use part of the works, arrangements for leasing part of the works and a hundred and one other contracts entered into by the board which are in no way exceptional but which at a later stage may be brought under review.

What we say is that in regard to a great many contracts of this sort it would be quite inequitable to bring in any director who did not know of, or did not consent to, a particular contract. I expect the answer that will be made to that submission is, "Oh, but the tribunal need only order such a person to contribute such sum as they think just towards the loss." In my submission, that is putting an intolerable burden upon the tribunal. The tribunal is given no guidance at all as to how it shall operate. The words which appear are that the tribunal shall make such orders against any of the parties to the application as they think just, having regard to the extent to which those parties were respectively responsible for the transaction or benefited from it and to all the circumstances of the case, for the payment by them to the Corporation of sums sufficient to enable the loss, or such part thereof as the tribunal think just, to be made good. How is the tribunal to carry out that responsibility? Suppose that there is a loss of £10,000 about which some director did not know but the tribunal thinks he should have found out in time to take action. What order is to be made against him? Will it be £9,999, £999 or £99? What guidance has the tribunal got in assessing this responsibility?

4.15 p.m.

I see the hon. Member for Reading (Mr. Mikardo) sitting in his place. He is always very helpful in these matters, and perhaps he will be able to intervene to suggest how the tribunal should carry out this very difficult jurisdiction. I should have thought it very much easier to deal with the question of costs, because that is a matter where tribunals are usually given discretion. I say that because the matter is decided to some extent by legal precedent, and it is a matter upon which it is much easier to exercise discretion. But here, where we are dealing with anything from £1 to £1 million, how is the tribunal to discharge its jurisdiction under these very vague terms? The right hon. Gentleman has never given us any indication as to how the tribunal is to deal with this matter. It seems to me it is putting far too much upon them.

The third point I wish to make in regard to the Amendment is that the burden of proof is upon the director. It is not a case in which the Corporation have to come along and prove that the director knew or consented. It is a case in which the director who seeks to escape any responsibility will have to prove to the tribunal that he did not know and did not consent. That is a safeguard which should be there, having regard to all the circumstances.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I find it very difficult to resist the charming invitation of the hon. and learned Member to intervene in this Debate. We debated this point in Committee, though not in quite these terms, at not inconsiderable length, and the reply that was given to the representations of Members opposite was the one which they have already anticipated this afternoon. It was that the Clause as drafted gives a directive to the tribunal to the effect that in assessing penalties put upon individuals, including directors, they shall take into account the extent to which these parties were respectively responsible for the transaction.

As I read the Amendment, it is superfluous in the light of the passage I have just quoted, because all it seeks to tell the tribunal, as a directive, is firstly, "You have been told that in assessing penalties you shall take into account, in fixing the amount, the degree of responsibility" and, secondly, "If you find that the responsibility is nil, then will you please say that the penalty is nil?" I should have thought that the second of these two things followed automatically from the first. I should have thought that if we say to the tribunal, "Will you please make the punishment fit the crime," we are automatically saying, "If there is no crime, please inflict no punishment." That seems to me to be a reason why the additional wording suggested by Members opposite does not add anything to the Clause.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

Will the hon. Member say exactly where in the Clause the crime is defined?

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

We had an argument about this in Committee when my hon. and learned Friend the Member for Kettering (Mr. Mitchison) got involved. I was using the words "punishment" and "crime" in a general sense to illustrate my point. It is not a question of crime at all.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

Perhaps I did not make myself clear. Using the word "crime" in its colloquial sense, will the hon. Member say where the offence is defined in the Clause?

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I should have thought that almost the whole of the earlier part of the Clause laid down a long list of potential offences or crimes.

The Opposition's Amendment does raise one fresh point, that is, that it exonerates from the "crime" altogether any director who did not know about the transaction. The Solicitor-General for Scotland, when speaking on this matter upstairs, pointed out that there were conditions in which lack of knowledge could itself constitute an offence. We know that with the great majority this would not happen, that we are legislating for only a fraction of 1 per cent.—for the people who act abnormally—but a director might say, "You have circulated a paper on a transaction which might violate the provisions of the Iron and Steel Act. I do not propose to read this paper, so that if there is any question about it afterwards I can plead ignorance of it." Such an attitude itself constitutes an offence.

The hon. and learned Member for Daventry (Mr. Manningham-Buller) drew attention to the case of a director who had voted against action being taken which was afterwards found to have constituted an offence. It is possible for a director to say—and one has seen it happen at all sorts of meetings—"I know this resolution will be carried even if I vote against it and, therefore, I will vote against it to clear myself of any responsibility for it, although I know that it will be carried and that I shall participate in any benefits arising from its being carried." So far as the great majority of honest people are concerned, the Amendment adds nothing to the Clause and in any case we do not want to add to the Clause for the dishonest minority. After all, we are not a society for the protection of guinea-pig directors. If they accept remuneration for some nominal duties, they should see that they take proper responsibility for those duties.

Photo of Mr James Hutchison Mr James Hutchison , Glasgow Central

I should like to portray yet a third aspect of what I consider might be the evil effect of this Clause without the Amendment. Apart altogether from my agreement with my right hon. and hon. Friends about the undesirability of imposing on a person the obligation and responsibility to prove his innocence except in the most exceptional circumstances, I should like to refer to the kind of situation which the hon. Member for Reading (Mr. Mikardo) has tried to picture. If we look at the definition of "part of any works," under the definition Clause, we see that it not only goes as wide as my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) said, but a good deal further. It embraces any machinery or equipment installed in any works. That might include such things as a small shed, a Lister tractor or a piece of welding plant. Directors' duties are varied and manifold and quite often the officers of a company, the managing director, secretaries and so on, carry through sales of that type of equipment without bringing it to the notice of the board. Under the Clause as drafted, the fact that such action can take place without the knowledge of a director does not in any way exonerate him from responsibility if it can be held afterwards that that has done any damage to the Corporation.

I believe that the instance quoted by the hon. Member for Reading (Mr. Mikardo) will not stand examination, because a director who behaves in that way would be failing in his duty as a director in the interests of the shareholders and, probably, under the Companies Act. In any case, he could be held to have had knowledge of the matter under consideration, even if he had said, "I do not want not to have knowledge of it." That does not preclude him from having had knowledge. What are directors likely to do to protect themselves during the long time which will elapse before they are out of the wood? They will say to the officers of the company, "You must sell nothing which comes under the definition of this Act without consulting us."

Directors are sometimes whole-time and sometimes part-time, and if a company has to bring forward and then hold up every kind of minor transaction of that kind, the flexibility which the Minister said was so desirable will be absent. The general effect will be a slowing-down of the successful working of the industry at a time when it is essentially important to the country. This is a classic example of day-to-day interference with the running of a company. We know how much the Government dislike any day-to-day interference, by means of Parliamentary Questions, with the running of any of the nationalised industries, yet here they are imposing for quite a long time almost an obligation on directors to interfere with the day-to-day running of their company. In addition to the points made from this side, I should like the Minister to consider the Amendment favourably from the point of view which I have just put forward.

Photo of Mr George Strauss Mr George Strauss , Lambeth North

The hon. and learned Member for Daventry (Mr. Manningham-Buller) asked me to express clearly the Government's attitude to this Amendment, and to the penalties which may fall on directors as a consequence of the provisions of the Clause. I have no doubt at all as to what should happen, and I think it is clearly expressed in the Clause. Like my hon. Friend the Member for Reading (Mr. Mikardo), I believe that the Amendment would not only be unnecessary but would be damaging to the interests of the Corporation, and certainly would be contrary to the views which I hold and which I hope the House will accept.

The Clause says, first of all, that it shall not be lawful, after the passage of the Bill, for the companies concerned to part with iron and steel works or parts of an iron and steel works. It goes on to say that if, nevertheless, in spite of that declaration of illegality, a steel works is sold, or part of a steel works is sold, and the Corporation suffers damage as a result, then those responsible for that illegal act and for the damage shall be held responsible financially according to their responsibility and to the amount by which they themselves have benefited from it.

That is a perfectly reasonable proposition. If, in spite of what is said in the Clause, a board of directors takes such action, I think it is only reasonable that they should be personally responsible. It has been argued for the Amendment that a director may not know about the proposed transaction, or may have opposed it, and that he should not therefore be responsible for any damages which may occur. My answer is that if a director has benefited, as a result of an illegal transaction—even if he was ill when it took place, or opposed it at a board meeting—to the tune of, say, £100,000—

Photo of Mr Harold Macmillan Mr Harold Macmillan , Bromley

Not as a director, as a shareholder.

4.30 p.m.

Photo of Mr George Strauss Mr George Strauss , Lambeth North

They may be shareholders as well. They would not benefit if they were purely salaried directors. Nevertheless they might by virtue of the ownership or part ownership of the works benefit by substantial sums of money. If they have benefited by these illegal transactions why should they not be asked to repay the amount of money they have got away with either in whole or in part? Is that unreasonable? If they have not benefited then the arbitration tribunal would take all matters into account and only ask them to repay such money having regard to the extent to which those parties were respectively responsible for the transaction. If they were not responsible in any way for the transaction and if they have not benefited in any way they will not be asked to indemnify the Corporation for any of the damages which the Corporation has suffered.

I suggest that the Clause as it stands is completely fair. It protects the Corporation in a proper way. It only asks for repayment to the Corporation of monies which the Corporation has lost as a result of actions either deliberately carried out by people with their eyes open and knowing what the result is going to be, or by people who have not been aware of these transactions but have, in fact, benefited by them. I suggest that the Clause is reasonable and that the Amendment, if accepted, would prevent the Corporation from obtaining damages from people who in equity should pay those damages, because they have either been responsible for inflicting damage on the Corporation or they have benefited personally by that illegal transaction, or both. In view of that I suggest that the House should reject this Amendment.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

Clause 24 deals with the dissipation of assets and is very similar to this Clause. At the end of that clause there is this proviso: In the case of a company other than a company specified in the Third Schedule to this Act, the tribunal shall not make an order under this subsection against any director of the company or other person who satisfies the tribunal that he did not know and could not reasonably have expected that the company would come into public ownership under this Part of this Act If that formula is good enough in one case why is a similar formula not used in this Clause?

Photo of Mr George Strauss Mr George Strauss , Lambeth North

In those circumstances the individual must not have benefited.

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , Dorset Southern

I do not think the reply from the Minister is satisfactory and we ought to exact a further statement from him, otherwise it may be necessary to divide upon this Amendment, as we sought to do in Standing Committee. It seems to me that there are two separate issues here. On is the benefit by the directors from the transaction and the other is the way in which they are responsible. The words in all the circumstances of the case go with the responsibility rather than the benefit.

Photo of Viscount  Hinchingbrooke Viscount Hinchingbrooke , Dorset Southern

It may be both, but I should not have thought so. I cannot make up my mind how a director can benefit from a transaction of this kind. It is the question of the dissipation of the assets, like the selling of a steel works or part of a steel works or, as my hon. and gallant Friend the Member for Central Glasgow (Colonel Hutchison) said, a shed or a piece of machinery, thereby depriving the Corporation of the chance it might otherwise have had of getting a steel works intact. Is it suggested that the directors receiving money from the dissipation of the assets are benefiting by the transaction, because that could be dealt with under the ordinary Company Law and I do not understand why the right hon. Gentleman should now proceed to legislate for it anew? On the other hand, is it suggested that they should pay a dividend which they have no right to pay in view of impending legislation, and then as shareholders benefit from that dividend to which they are not entitled? I do not understand in what precise way the directors would benefit from the transaction part of this Clause. I hope we may get an explanation about that from the Solicitor-General.

With regard to the transaction as such, if the assets are dissipated and sold and the directors benefit from an illegal act, the right hon. Gentleman rightly says redress should be had against them. In our Amendment we put forward an additional viewpoint. If these things go on without the knowledge and consent of any one of the directors we say that that particular director should be freed from all consequences of the adverse decision by the tribunal. That surely is absolutely right. Anyone of the directors might be ill or abroad. He would not be present at the board meeting at which one of these transactions was decided upon. He would never know about it. When the arbitration tribunal investigated the circumstances, it would be pointed out that a particular director was abroad or ill at the time.

Then the arbitration tribunal might say that the circumstances of the case, which ought to be taken into account, are such that this director is not liable for the transaction. It might say that, but it is not clear from the Bill. It might take the view that there is a kind of collective responsibility of the Board, and a director, even if abroad or ill, should have been informed or should have asked the Secretary what had taken place. We want to make it specific and clear that if a transaction takes place without his knowledge and consent a director shall not be liable. The Amendment may be superfluous, but it is only superfluous if the arbitration tribunal interpret the words: all the circumstances of the case precisely as we want them interpreted. They may not do that. If they do not, this is not a superfluous Amendment and I do not see how the hon. Gentleman the Member for Reading (Mr. Mikardo) can maintain it is.

Photo of Mr Oliver Lyttelton Mr Oliver Lyttelton , Aldershot

There is one question which I wish to put to the Minister, and it arises out of the answer he gave to my hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd). He said that the difference between these two Clauses was that in the second case the provision was put in because there was no question of benefit. He has not read subsection (4). I suggest that the same benefits arise under the two Clauses, and yet the Government permit these words in one Clause and seek to reject them in another. I am only using this as an illustration. On page 31 in Clause 4 it says: …having regard to the extent to which those parties were respectfully responsible for the transaction or benefited from it… The circumstances are exactly the same, and I should like to hear from the Government why what is logical in one case is illogical in the other.

Photo of Mr George Strauss Mr George Strauss , Lambeth North

I agree that I did not give the full answer. I had not time. I wanted to answer the hon. and learned Member for Wirral (Mr. Selwyn Lloyd). One difference is that Clause 24 deals with dissipation of assets any time after the introduction of the Bill. The Clause with which we are dealing talks about disposing of steel works or parts of steel works after the passing of the Act, when it will have become illegal to do so. There is a considerable difference.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

The distinction that the right hon. Gentleman has sought to draw between Clause 22 and Clause 24 is purely one of time, and has no relevance whatever to the question under consideration. It can make no difference to the principles which have to be applied, so far as directors are concerned, whether it is done before the passing of the Act or after the passing of the Act. What we have asked the right hon. Gentleman to explain is the difference in treatment meted out to directors under these two Clauses.

I must say that I think the defence given by the right hon. Gentleman of the Clause is most unsatisfactory. He really has not sought to meet the point that we on this side of the House have attempted to raise. The hon. Member for Reading (Mr. Mikardo) seemed to think that the Amendment was unnecessary because, as I understood his speech, he thought that, as the Clause now stands, a director who had no knowledge of the transaction or who opposed the transaction, would not be liable under this subsection.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I did not say that. I said that I thought that the Clause would no be necessary in the case of honest ignorance or opposition. There clearly would be no penalty if the tribunal were satisfied that there was no responsibility.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

The hon. Gentleman limited his observation to the honest directors, but the honest directors —if I may use his phrase—are certainly the vast majority. The hon. Gentleman's argument was that the Amendment would make no difference. The right hon. Gentleman made it clear that he wanted the honest director to be liable under the Clause even though the transaction was entered into without his knowledge and without his consent. The right hon. Gentleman made that point absolutely clear. In my opinion, that contention is indefensible. The right hon. Gentleman said that under the Clause certain transactions are rendered illegal, and therefore it was right that the Corporation should be entitled to receive compensation for damage sustained by them as a result of such transactions.

Let us accept for the moment, for the purposes of argument, that that could be done under the Clause. The tribunal has the right under the subsection to order repayment by the parties that benefit. Those parties include companies; so that if a company has transferred some valuable asset in breach of this Clause, compensation may be made to the Corporation by that company, as a result of an application to the tribunal. One has to bear that fact in mind in considering the obligations that are cast upon directors under the subsection.

4.45 p.m.

The right hon. Gentleman sought to contend that the entirely innocent director should be liable under the subsection if he benefited as a shareholder. He cannot suggest any other way in which an honest director, acting properly, could benefit, except as a shareholder. Why then should the honest director be singled out for this treatment where he has no knowledge of the transaction or where he voted against it? Why should he be treated differently from all other shareholders?

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

Because it makes him dishonest.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

It does not make him dishonest. The director who is abroad on duties for the company may have no knowledge of the transaction that is entered into. A director at home may have voted against it. It does not make either of them dishonest.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

The hon. and learned Member has omitted my second point. A director who voted against a transaction because he believed it to be illegal and a breach of this Clause, but who nevertheless takes into his pocket the benefit of it, ceases to be an honest man.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

I should be able to follow the hon. Member's point much more clearly if he would indicate how the director takes into his pocket the benefit. The right hon. Gentleman talks about directors getting away with it; how does he suggest that an honest director gets away with it? Surely only by dividends as a shareholder. By what other method?

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

There are all sorts of possibilities of which I am sure the hon. and learned Member has experience that I have not got, as, for example, the renting of a part of a company's premises to a director below the economic rent, and all sorts of combinations of that sort of thing.

Photo of Mr Reginald Manningham-Buller Mr Reginald Manningham-Buller , Daventry

Really I think the hon. Member is getting into very deep water. I shall not follow him into it. I want to get back to the point, which is: Why should a director who has no knowledge, an honest director who

has not consented, be placed under this liability because, as a shareholder, he receives or might receive a benefit like all other shareholders? The other shareholders will be penalised only if an order is made against the company. There is power to make an order against the company, but I see no reason at all why the Government should insist upon retaining power under this subsection or penalising the perfectly innocent director. The Government have given no indication or justification for the different treatment under Clause 24 to the treatment under Clause 22. In those circumstances, all we can do further to indicate our view on the matter is to vote in favour of our Amendment.

Question put, "That those words be there inserted in the Bill."

The House divided: Ayes, 115; Noes, 241.

Division No. 115]AYES[4.50 p.m.
Amory, D. HeathcoatHead, Brig. A. H.Morrison, Rt. Hn. W. S. Cirencester)
Astor, Hon. M.Henderson, John (Cathcart)Nicholson, G.
Beamish, Maj. T. V. HHinchingbrooke, ViscountNoble, Comdr. A. H. P.
Birch, NigelHogg, Hon. Q.Odey, G. W.
Bower, N.Hollis, M. C.O'Neill, Rt. Hon. Sir H
Boyd-Carpenter, J. A.Holmes, Sir J. Stanley (Harwich)Orr-Ewing, I. L.
Braithwaite, Lt.-Comdr. J. GHudson, Rt. Hon. R. S. (Southport)Peak, Rt. Hon. O.
Buchan-Hepburn, P. G. T.Hulbert, Wing-Cdr. N. J.Peto, Brig. C. H. M
Bullock, Capt. M.Hurd, A.Ponsonby, Col. C. E
Butcher, H. W.Hutchison, Lt.-Cm. Clark (E'b'rgh W.)Poole, O. B. S (Oswestry)
Butler, Rt. R A (S'ffr'n W'ld'n)Hutchison, Col. J. R. (Glasgow, C.)Prior-Palmer, Brig. O.
Byers, FrankJeffreys, General Sir G.Roberts, H. (Handsworth)
Carson, EKeeling, E. H.Roberts, W. (Cumberland, N.)
Conant, Maj. R. J. E.Lambert, Hon. G.Ropner, Col. L.
Cooper-Key, E. M.Langford-Holt, J.Ross, Sir R. D. (Londonderry)
Crosthwaite-Eyre, Col. O. ELegge-Bourke, Maj. E. A. H.Savory, Prof D. L.
Crowder, Capt. John E.Lennox-Boyd, A. T.Spearman, A. C. M
Cuthbert, W. N.Lindsay, M. (Solihuff)Stanley, Rt. Hon. O.
Darling, Sir W. Y.Linstead, H. N.Strauss, Henry (English Universities)
Davies, Rt. Hn. Clement (Montgomery)Lloyd, Selwyn (Wirral)Studholme, H. G.
De la Bere, R.Low, A. R. W.Sutcliffe, H.
Digby, Simon WingfieldLucas, Major Sir J.Taylor, C. S. (Eastbourne)
Dodds-Parker, A. D.Lucas-Tooth, S. H.Taylor, Vice-Adm. E. A. (P'dd't'n, S.)
Donner, P. W.Lyttelton, Rt. Hon. OTeeling, William
Dower, Col. A. V. G (Penrith)MacAndrew, Col. Sir C.Thorneycroft, G. E. P. (Monmouth)
Drayson, G. BMcCorquodate, Rt. Hon. M. S.Thorp, Brigadier R. A. F
Drewe, C.McFarlane, C. STouche, G. C.
Dugdale, Maj. Sir T. (Richmond)McKie, J. H. (Galloway)Turton, R. H.
Eccles, D. M.Maclay, Hon. J. S.Tweedsmuir, Lady
Eden, Rt. Hon. A.Macmillan, Rt. Hon. Harold (Bromley)Wakefield, Sir W. W.
Fletcher, W. (Bury)Macpherson, N. (Dumfries)Walker-Smith, D.
Fraser, H. C. P. (Stone)Manningham-Buller, R. E.Ward, Hon. G. R.
Fraser, Sir I. (Lonsdale)Marlowe, A. A. H.Wheatley, Colonel M. J. (Dorset, E.)
Gage, C.Marples, A. E.Williams, Gerald (Tonbridge)
Galbraith, Cmdr. T. D. (Pollok)Marsden, Capt. A.Young, Sir A. S. L. (Partick)
Gates, Maj. E. E.Marshall, D. (Bodmin)
Gomme-Duncan, Col. AMarshall, S. H. (Sutton)TELLERS FOR THE AYES:
Grimston, R. V.Molson, A. H. E.Commander Agnew and
Hannon, Sir P. (Moseley)Morris, Hopkin (Carmarthen)Brigadier Mackeson.
Harvey, Air-Comdre. A. VMorrison, Maj. J. G. (Salisbury)
NOES
Albu, A. H.Awbery, S. S.Barton, C.
Allen, A. C. (Bosworth)Ayles, W. H.Battley, J. R.
Alpass, J. H.Bacon, Miss ABechervaise, A. E.
Anderson, A. (Motherwell)Balfour, A.Benson, G.
Attewell, H. C.Barnes, Rt. Hon. A.Beswick, F.
Austin, H. LewisBarstow, P. G.Bing, G. H. C.
Blackburn, A. R.Irvine, A. J. (Liverpool)Robinson, K. (St. Pancras)
Blyton, W. R.Irving, W. J. (Tottenham, N.)Rogers, G. H. R
Bowden, Flg. Offr. H. W.Janner, B.Royle, C.
Braddock, Mrs. E. M. (L'pl. Exch'ge)Jay, D. P. T.Sargood, R.
Braddock, T. (Mitcham)Jager, C. (Winchester)Scollan, T.
Bramall, E. A.Jeger, Dr. S. W. (St. Pancras, S.E.)Segal, Dr. S.
Brook, D. (Halifax)Jenkins, R. H.Shackleton, E. A. A
Brooks, T. J. (Rothwell)Jones, D. T. (Hartlepool)Sharp, Granville
Broughton, Dr. A. D. D.Jones, Jack (Bolton)Shinwell, Rt. Hon. E.
Brown, T. J. (Ince)Keenan, W.Shurmer, P.
Bruce, Maj. D. W. T.King, E. M.Silverman, J. (Erdington)
Burden, T. W.Kinghorn, Sqn.-Ldr. E.Silverman, S. S. (Nelson)
Burke, W. A.Kinley, J.Simmons, C. J.
Castle, Mrs. B. A.Kirby, B VSkeffington, A. M.
Chetwynd, G. R.Lang, G.Skeffington-Lodge, T. C.
Cluse, W. SLee, Miss J. (Cannock)Skinnard, F. W.
Cocks, F. S.Levy, B. W.Smith, Ellis (Stoke)
Collins, V. J.Lewis, A. W. J. (Upton)Smith, H. N. (Nottingham, S.)
Colman, Miss G. MLipton, Lt.-Col. MSmith, S. H. (Hull, S.W.)
Cooper, G.Lyne, A. W.)Snow, J. W.
Corbet, Mrs. F. K. (Camb'well, N.W.)McAdam, W.Solley, L. J.
Corlett, Dr. JMcEntee, V. La T.Sorensen, R. W.
Cove, W. G.McGhee, H. G.Soskice, Rt. Hon. Sir Frank
Crawley, A.Mack, J. D.Sparks. J. A
Crossman, R. H SMcKay., J. (Wallsend)Steele, [...].
Daggar, G.Mackay, R. W. G. (Hull, N.W.)Stewart, Michael (Fulham, E.)
Davies, Edward (Burslem)Maclean, N. (Govan)Strauss, Rt. Hon. G. R. (Lambeth)
Davies, Harold (Leek)McLeavy, F.Stross, Dr. B.
Davies, Haydn (St. Pancras, S.W.)Mainwaring, W. HStubbs, A. E.
Davies, S. O. (Merthyr)Mallalieu, E. L. (Brigg)Summerskill, Rt. Hon. Edith
Deer, G.Mailalieu, J. P. W. (Huddersfield)Swingler, S.
Diamond, J.Manning, C. (Camberwell, N.)Sylvester, G. O
Dodds, N. N.Manning, Mrs. L. (Epping)Symonds, A. L.
Donovan, T.Marquand, Rt. Hon. H. ATaylor, H. B. (Mansfield)
Driberg, T E. N.Mathers, Rt. Hon. GeorgeTaylor, R. J. (Morpeth)
Dugdale, J. (W. Bromwich)Mellish. R. J.Taylor, Dr. S. (Barnet)
Dumpleton, C. W.Messer, F.Thomas, D. E. (Aberdare)
Ede, Rt. Hon. J. C.Middleton, Mrs. LThomas, George (Cardiff)
Edwards, John (Blackburn)Mikardo, IanThomas, I. O. (Wrekin)
Edwards, W. J. (Whitechapel)Millington, Wing-Comdr. E. R.Thurtle, Ernest
Evans, Albert (Islington, W.)Mitchison, G. R.Timmons, J.
Evans, E. (Lowestoft)Monslow, W.Tolley, L.
Evans, John (Ogmore)Moody, A. S.Tomlinson, Rt. Hon. G
Ewart, R.Morley, R.Turner-Samuels, M.
Farthing, W. JMorris, Lt.-Col. H. (Sheffield, C.)Usborne, Henry
Field, Capt. W. JMorris, P. (Swansea, W.)Vernon, Maj. W F
Follick, M.Marrison, Rt. Hn. H. (Lewisham. E.)Viant, S. P.
Foot, M. M.Mort, D. L.Wallace, G. D (Chislehurst)
Forman, J. C.Moyle, A.Warbey, W. N.
Ganley, Mrs. C SMurray, J. D.Watkins, T. E.
Gibbins, J.Naylor, T. E.Webb, M. (Bradford, C.)
Gibson, C. W.Neal, H. (Claycross)Weitzman, D.
Glanville, J. E. (Consett)Nichol, Mrs. M. E. (Bradford, N.)Wells, P. L. (Faversham)
Greenwood, A. W. J. (Heywood)Nicholls, H. R. (Stratford)West, D. G.
Granfell, D. RNoel-Baker, Capt. F. E. (Brantford)White, H. (Derbyshire, N.E.)
Grey, C. F.Oliver, G. H.Whiteley, Rt. Hon. W
Griffiths, D. (Rother Valley)Orbach, M.Wigg, George
Guest, Dr. L. HadenPalmer, A. M. F.Wilcock, Group-Capt. C A. B
Gunter, R. J.Parkin, B. T.Wilkins, W. A.
Gay, W. H.Paton, Mrs. F. (Rushcliffe)Willey, F. T. (Sunderland)
Hale, LesliePaton, J. (Norwich)Willey, O. G. (Cleveland)
Hall, Rt. Hon. GlenvilPearson, A.Williams, D. J. (Neath)
Hamilton, Lieut.-Col. R.Peart, T. F.Williams, Ronald (Wigan)
Hardman, D. R.Popplewell, E.Williams, W. R. (Heston)
Hardy, E. A.Porter, E. (Warrington)Willis, E.
Haworth, J.Porter, G. (Leeds)Wilson, Rt. Hon. J. H.
Henderson, Rt. Hon. A. (Kingswinford)Proctor, W. T.Wise, Major F. J.
Hicks, G.Pryde, D. J.Woodburn, Rt. Hon. A
Holman, P.Pursey, Comdr. H.Wyatt, W.
Holmes, H. E. (Hemsworth)Randall, H. E.Young, Sir R. (Newton)
Horabin, T. L.Ranger, J.Younger, Hon. Kenneth
Houghton, A. L. N. D.Rees-Williams, D. R.
Hoy, J.Reeves, J.TELLERS FOR THE NOES:
Hudson, J. H. (Ealing, W.)Reid, T. (Swindon)Mr. Collindridge and
Hughes, Emrys (S. Ayr)Rhodes, H.Mr. Richard Adams.
Hynd, H. (Hackney, C.)Ridealgh, Mrs. M.

Photo of Mr Oliver Lyttelton Mr Oliver Lyttelton , Aldershot

I beg to move, in page 28, line 16, at the end, to insert: Provided also that no order shall be made under this section against any director of the company in respect of whom the tribunal is satisfied that in relation to the transaction he acted in good faith and with the intention of duly performing his duties under the company's memorandum and articles of association or charter and any relevant enactments including this Act. The arguments for this Amendment are in many respects similar to those which we advanced on the Amendment which has just been negatived, but they are not all the same. This is a parallel rather than a complementary Amendment. The Government have not yet done full justice to the fact that the Amendment covers the transactions set out in subsection (1): It shall not be lawful…at any time before the date of transfer, to transfer or grant to any person any rights of ownership in, or rights in respect of the user of, any works or part of any works used for the carrying on of any of the activities. This covers a very wide field. The Amendment seeks to protect a director who in good faith does what he considers to be his duty in disposing of part of the works as described in subsection (1) to a third party at a price which appears to him to be high and beneficial to the shareholders only to learn afterwards that the Corporation considers that it has been damaged by the action he has taken. We seek to establish that if he has entered into that transaction in good faith he shall be free of damage afterwards.

I imagine that the answer which the Minister will seek to give is that in the circumstances which I am setting out, the company ought to come to the Minister for his approval. That is the only conceivable answer the Minister can give in reply to the Amendment. I want to ask in what way the Clause is damaged and in what way the Clause is not improved by the inclusion of the Amendment, which I regard as adding to the safeguards of the directors. I cannot see any disadvantage to the Ministry or the Government in including the words, but I can see in certain circumstances very great protection for the directors.

5.0 p.m.

The only argument which can be adduced against the Amendment is that it is open to the companies to seek the approval of the Minister. That, however, is not a sufficient answer because, when dealing with the small part of the transactions covered in the beginning of the Clause, one may be dealing with an opportunity which is fleeting enough to make it impossible to get the assent of the Minister. Those who have had correspondence with the Ministry of Supply or, indeed, with any Government Depart- ment, know that the usual course of things is that after two or three days there is an acknowledgment saying that the matter will be looked into and, then, after a couple of "chasers" one may get the matter dealt with.

These transactions may not be able to wait as long as that, and it is not a sufficient answer for the Minister to say that his approval can be sought unless he at the same time can establish that the Clause is worsened in some way which he thinks vital to his purposes by the inclusion of the words which we seek to include. If he confesses, as I think he must if he looks at it, that the Clause is not badly affected from the Government point of view in any way, why not include the words and give the individual the extra protection which he would like?

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

It is difficult to imagine any case in which a director could find himself in the situation described by the right hon. Gentleman. One has to bear in mind what this Clause does. To start off with, it applies to Third Schedule companies and to works which they use for their Second Schedule purposes, and it applies only as from the date that the Act comes into force. Any director of a Third Schedule company after the Act comes into force, when dealing, with the works as defined later on in the Bill—and hon. Gentlemen will see that the definition of "works" means something substantial, not every small trifle—

Photo of Mr Oliver Lyttelton Mr Oliver Lyttelton , Aldershot

If I may interrupt the right hon. and learned Gentleman, is he suggesting that the words: or grant to any person any rights of ownership in, or rights in respect of the user… are overruled by the words later in the Act? That is not how I read the Clause.

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

No. What I am suggesting is that after the passing of the Act a director knows perfectly well that he is within the danger period and is dealing with the period between the time of the passing of the Act and the general transfer, so he must bear in mind that he cannot transfer or grant rights of ownership or rights of user in respect of works or part of works used for Second Schedule purposes. "Works" are defined as a factory, a mine, a quarry or something of the sort.

Therefore he knows, or should know if he exercises his judgment upon the matter, when he is in that period that he must not lease out the works which the Third Schedule company requires for the purpose of the production of steel or Second Schedule activities. He cannot be left in any doubt. He knows that the Act is passed, he is clear as to his obligation, and he cannot be in the least doubt, I respectfully submit to the House, that if he proposes to sell a factory which the Third Schedule company uses for the purpose of its scheduled activities, he is doing something which the Act says is unlawful.

What the Amendment seeks to do is to say that he should not be penalised if the Act, as it were, conflicts with his duties under the Companies Act. I do not see how he can be. He could be proceeded against under the Companies Act if it can be shown that in winding up he was guilty of misfeasance. How can he be guilty of that if he simply refrains from doing something which an Act of Parliament says is unlawful? No court would listen to a complaint against a director, even if one could conceive of his being proceeded against for misfeasance in winding up, to the effect that he was guilty of misfeasance because he had not done something which a subsequent Act of Parliament told him in terms he was not to do. I submit respectfully that this Amendment is completely unnecessary; and not only unnecessary but meaningless, because it could not apply to circumstances of which one could conceive.

When discussing the last Amendment hon. Members called attention to the contrast in the wording of Clause 24 and asked why we should not adopt wording of that kind. I suppose those arguments are somewhat relevant but that Clause deals with an entirely different set of circumstances. To start with, Clause 24 applies to the time which elapses before the Act is passed, it relates to the period after October, 1948, onwards. That is the crucial contrast between that Clause and this Clause, and in consequence, under Clause 24, the following circumstance might arise.

There might be a subsidiary or a sub-subsidiary of a Third Schedule company, and a director of the subsidiary might genuinely take some step in ignorance of the fact that the subsidiary was the subsidiary of a Third Schedule company and, in consequence, might become subsequently a publicly owned company.

There one really would have the case of a director who, having every reason to be completely ignorant of the possibility that the company might become publicly owned, did something which he could not be expected to know would infringe the provisions of the Act. That is why, when one looks at the proviso to subsection (4) of Clause 24 one finds special protection for that class of director.

Hon. Members will see that that proviso begins: Provided that, in the case of a company other than a company specified in the Third Schedule… Those words are designed to limit the application of the Proviso to subsidiaries of Third Schedule companies. That is why in that Clause there is special protection for directors, but that is not by any stretch of the imagination required for the protection of directors when one is considering what Clause 22 is dealing with, that is to say, post-Act operations—operations after the Act comes into force, operations by a director who is a director of a company specified in the Third Schedule, or a company to whom such a Third Schedule company makes a transfer, and he is dealing not with plant that the company uses for some purpose other than Second Schedule purposes but with plant which is used for Second Schedule purposes.

That director really does not require any more protection than he is given. He is given really two sorts of protection. If he can genuinely show that he feels some doubt, he applies to the Minister to resolve his doubt and the Minister under the proviso to subsection (1) can licence or approve of a transaction either before or after it is carried out. In the alternative, supposing he has done something and the transaction in question is not one that has been approved by the Minister, then he has the protection given him under subsection (3)—the tribunal only makes orders when it is just to do so. It considers all the circumstances and it makes an order having regard to the degree of responsibility of the individual director.

I do not want to repeat arguments relevant to the previous Amendment but only to refer to them so far as they are relevant to this Amendment. To start with, the director requires much less protection, he requires scarcely any protection because no duty of his to his shareholders can require him to commit an illegality.

It is inconceivable on the face of it. However he has the protection that an order can only be made against him if the tribunal thinks it just to do so having regard to his individual responsibility, and he cannot be under a responsibility for not doing an illegal act; he could be under responsibility for doing an illegal act, but he cannot be under a responsibility for failing to do something which the Act in terms says is unlawful, or if it can be shown that he has benefited in some way. Undoubtedly, therefore, there can be no case for the Amendment.

It is impossible to conceive of a director who is faced with any conflicting duty of that sort. He must realise that the prohibition imposed upon him by the Bill when it becomes an Act must override any other duty which he may have as a director. Therefore, he really cannot be in any position of doubt, but if he were in a position of doubt he can have it resolved by making application for approval. If he does not do any of these things he has the additional protection of the general wording of subsection (3), the words of which afford guidance to the tribunal about how it is to act in adjudicating upon a particular case where damage has been caused to the Corporation.

Photo of Mr Oliver Lyttelton Mr Oliver Lyttelton , Aldershot

If I follow the Solicitor-General in the course of his arguments, he agrees that the words in Clause 24—and, consequently, our Amendments to Clause 24, if we reach them—have very considerable force. We do not concede the point that the present Amendment is any less important, and we shall certainly adduce the same arguments on Clause 24 when, I understand, the right hon. and learned Gentleman will then be prepared to accept our Amendments.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

The right hon. and learned Gentleman, as always, put forward a very reasonable argument. He said, "Here you have a director of a Third Schedule company. After the passing of the Act he knows what his position is and, of course, if he enters in any such bargain or contract he ought to be very careful to get approval before he does so." If the Clause covered only such people as these, there might be considerable force in the right hon. and learned Gentleman's argument, but as I understand it there is power under the Clause for the tribunal to make orders against all sorts of other people.

Leaving aside for one moment the vague terms of subsection (3) about what the tribunal may or may not do, and the weakness or the strength of the Clause, let us consider the persons against whom they can make an order. They can make an order against persons on the board of a disposing company, a receiving company, and a company which has received from a receiving company.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

The right hon. and learned Gentleman shakes his head, but I thought that in our earlier argument that point was agreed to.

Photo of Sir Frank Soskice Sir Frank Soskice , Birkenhead East

I referred to a company which was acting in collusion with the receiving company. I do not think I made clear what I meant to convey. Subsection (3), as hon. Members will see, envisages a fresh application by the Corporation. If the Corporation suffers damage by reason of any transaction which is unlawful by virtue of subsection (1), then arise the rights to make an order to pay damages against the persons involved in the transaction. That transaction—I refer now to the last two lines on page 27—must be the transaction between the transferor and the transferee company.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

Then it appears to be quite definite that the transaction, in that sense, cannot relate to a transaction between the transferee company and some third party. If the discussion has produced nothing else, it is useful to have that made quite clear.

Having dealt with the board of the disposing company and the board of the receiving company, then, as I understand it, another category of persons is brought into the Clause by virtue of the fact that it covers notices of acquisition served under Clause 20. We have gone through these very complicated Clauses at such speed, both in Committee and here, that I should be the last person to suggest that I understood them, but I think I am right in saying that Clause 22 covers notices of acquisition which are served under Clause 20. A notice of acquisition which is served under Clause 20 can, surely, bring within the ambit of the tribunal all sorts of other persons who may be made subject to these orders. I suggest, therefore, that the very pleasant dismissal of the Amendment by saying that the only people to be affected are directors of Third Schedule companies, who must know their position, is not good enough. For that reason I commend the Amendment to the House.

Amendment negatived.

5.15 p.m.

Photo of Mr Osbert Peake Mr Osbert Peake , Leeds North

I beg to move, in page 28, line 16, at the end, to insert: (4) The costs of any person who is made a party to an application under this section and against whom no order is made shall be paid by the Corporation unless the arbitration tribunal for some special reason otherwise order. The Government have just refused to accept Amendments designed to protect the director who acts in good faith and the director who has no knowledge of a specific proposal which falls within the mischief of the Clause. What we seek to do by this Amendment is to provide that there shall be an onus upon the tribunal to discharge from liability in costs any person against whom no order is made by them unless there is some specially good reason for mulcting such a person in costs. It seems to us that the only wise thing that any director of any of the Third Schedule companies can do from now onwards is to attend every board meeting so that it can be said that nothing has taken place without his knowledge; and, when he gets there, to negative every proposal brought forward for any positive action of any kind. In that way he will achieve personal security—and also complete stagnation for the industry.

It would be all wrong that the Corporation, having initiated proceedings against directors, many of whom will have acted with no knowledge of the proceedings, and many of whom will have acted in good faith, and the tribunal having decided to make no order, if such a man could be mulcted in costs, unless even in such an exceptional case, the tribunal can find some special reason for deciding that he ought to be so liable.

Photo of Mr George Strauss Mr George Strauss , Lambeth North

I must again ask the House, I fear, to reject the Amendment. This is an issue which we discussed very many times in Committee. The principle, which was always the same, was this. Hon. Members opposite suggested that when the arbitration tribunal came to decide who should pay the costs the bias should always be in favour of the director or the third party and against the Corporation, so that there would be, in fact, a sort of direction to the tribunal that the Corporation were to pay the costs unless there were some very special circumstances which justified them in saying that the other party should pay them.

It was argued over and over again by the Opposition that that was fair and reasonable. We always gave the answer—and I stick by it—that when an arbitration tribunal is set up as we propose here—a very formal affair, properly appointed by the Lord Chancellor, and so on—we must, as a matter of principle, leave it to that tribunal to decide in the light of all the circumstances that come before it where the costs should lie and who should bear them. It is entirely wrong to give any direction at all to that tribunal as to where its bias should lie or which side it should ask to bear the costs. One cannot accept that principle. We think it should be left solely to the discretion of the tribunal to decide and, therefore, the Government cannot accept this Amendment, or similar Amendments, which seek to give a bias to the discretion of the arbitration tribunal in this matter.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

It seems to me that right hon. and hon. Gentlemen opposite always look on directors, if not as criminals, at any rate as potential criminals and the hon. Member for Reading (Mr. Mikardo) puts that forward particularly. We have the picture of these directors in their last days behaving rather like Scunthorpe Council and Lord Quibell.

Photo of Mr Ian Mikardo Mr Ian Mikardo , Reading

I do not know whether the hon. Member's misquotation of me was deliberate, but I was at pains to point out that we were here legislating for an insignificant minority and that the sort of behaviour we were talking about was that of less than a fraction of 1 per cent. of the people concerned. How the hon. Member can represent that as my saying that all directors are potential criminals, he can explain only out of the distortions of his own mind.

Photo of Mr Nigel Birch Mr Nigel Birch , Flintshire

I do not know why the hon. Member should pay such a glowing tribute now, but that is not the general line taken by hon. Members opposite in regard to directors when discussing nationalisation Measures in this House or in the country, although they may be watering it down a little today.

The Minister said it would be wrong to give directions to the arbitration tribunal, but, if he reads our Amendment, he will see that we do not seek to do that. What we say is that no costs should be awarded against anyone against whom no order is made. Prima facie that is right, because if no order is made, presumably the person has done nothing wrong. We go on to say that the tribunal can make an order if there is some special reason for it. That seems perfectly fair. If a person is called before a tribunal and there is no reason why he should be taken there and he incurs costs there is no reason why he should be liable. I do not know why the tribunal should be left free to inflict this injustice. It does not seem to

us to make sense, but shows that bias which, whatever the hon. Member for Reading may say, exists among hon. Members opposite. It is something which affects the lives and liberties of the subjects and I hope that, the public will notice that the Liberals, who say they protect the rights of the subject, have not attended or spoken once on this Report stage. I hope the Press will notice these things. They never do any work here at all.

It seems perfectly clear that if there is a tribunal before whom someone is hauled and it is proved that he has done nothing wrong, it is an injustice that he should pay largely out of his pocket. That may well discourage people taking matters to the tribunal when they ought to be taken there and I hope we shall stand by this Amendment.

Question put, "That those words be there inserted in the Bill."

The House divided: Ayes, 122; Noes, 262.

Division No. 116]AYES[5.26 p.m.
Agnew, Cmdr. P. G.Henderson, John (Cathcart)Noble, Comdr. A. H. P
Amory, D. HeathcoatHinchingbrooke, ViscountOdey, G. W.
Astor, Hon. M.Hogg, Hon. Q.O'Neill, Rt. Hon. Sir H.
Baldwin, A. E.Hollis, M. C.Orr-Ewing, I. L.
Beamish, Maj. T. V. HHolmes, Sir J. Stanley (Harwich)Peake, Rt. Hon. O.
Birch, NigelHoward, Hon. A.Peto, Brig. C. H. M.
Bower, N.Hudson, Rt. Hon. R. S. (Southport)Ponsonby, Col. C. E.
Boyd-Carpenter, J. A.Hulbert, Wing-Cdr. N. J.Poole, O. B. S. (Oswestry)
Braithwaite, Lt.-Comdr. J. GHurd, A.Prior-Palmer, Brig. O.
Buchan-Hepburn, P. G. T.Hutchison, Lt.-Cm. Clark (E'b'rgh W.)Rayner, Brig. R.
Bullock, Capt. M.Hutchison, Col. J. R. (Glasgow, C.)Roberts, Emrys (Merioneth)
Butoher, H. W.Jeffreys, General Sir G.Roberts, H. (Handsworth)
Butler, Rt. Hn. R A. (S'ffr'n W'td'n)Joynson-Hicks, Hon. L. W.Roberts, W. (Cumberland, N.)
Byers, FrankKeeling, E. H.Ropner, Col. L.
Carson, E.Lambert, Hon. G.Ross, Sir R. D. (Londonderry)
Clarke, Col. R. S.Langford-Holt, J.Sanderson, Sir F.
Cooper-Key, E. M.Legge-Bourke, Maj. E. A. H.Savory, Prof. D. L.
Crosthwaite-Eyre, Col. OLennox-Boyd, A. T.Smithers, Sir W
Crowder, Capt. John E.Lindsay, M. (Solihull)Spearman, A. C. M
Cuthbert, W. N.Linstead, H. N.Stanley, Rt. Hon O.
Darling, Sir W Y.Lloyd, Selwyn (Wirral)Strauss, Henry (English Universities)
Davies, Rt. Hn. Clement (Montgomery)Lucas, Major Sir J.Studholme, H. G.
De la Bere, R.Lucas-Tooth, S. H.Sutcliffe, H.
Digby, Simon WingfieldLyttelton, Rt. Hon. O.Taylor, C. S. (Eastbourne)
Dodds-Parker, A. D.MacAndrew, Col. Sir C.Taylor, Vice-Adm. E. A. (P'dd't'n, S.)
Donner, P. WMcCorquodale, Rt. Hon. M. S.Teeling, William
Dower, Col. A. V. G. (Penrith)McFarlane, C. S.Thorneycroft, G. E. P. (Monmouth)
Drayson, G. BMackeson, Brig. H. R.Thorp, Brigadier R. A. F.
Drewe, C.McKie, J. H. (Galloway)Touche, G. C.
Dugdale, Maj. Sir T. (Richmond)Maclay, Hon. J. S.Turban, R. H.
Eccles, D. M.Macmillan, Rt. Hon. Harold (Bromley)Tweedsmuir, Lady
Eden, Rt. Hon. A.Macpherson, N. (Dumfries)Wakefield, Sir W. W.
Fletcher, W. (Bury)Marlowe, A. A. H.Walker-Smith, D
Fraser, H. C. P. (Stone)Marsden, Capt. A.Ward, Hon. G. R.
Fraser, Sir I. (Lonsdale)Marshall, D. (Bodmin)White, J. B. (Canterbury)
Gage, C.Marshall. S. H. (Sutton)Williams, Gerald (Tonbridge)
Galbraith, Cmdr. T. D. (Pollok)Mellor, Sir J.Wiriterton Rt. Hon. Earn
Gates, Maj. E. E.Molson, A. H. E.Young, Sir A S. L. (Partick)
Gomme-Duncan, Col. A.Morris, Hopkin (Carmarthen)
Grimston, R. V.Morrison, Maj. J. G. (Salisbury)TELLERS FOR THE AYES:
Harvey, Air-Comdre. A. V.Morrison, Rt. Hn. W. S. (Cirencester)Major Conant and
Head, Brig. A. H.Nicholson, G.Colonel Wheatley
Albu, A. H.Granfell, D. R.Nicholls, H. R. (Stratford)
Allen, A. C. (Bosworth)Grey, C. F.Noel-Baker, Capt. F. E. (Brantford)
Alpass, J. H.Grierson, E.Oliver, G. H.
Anderson, A. (Motherwell)Griffiths, D. (Rother Valley)Orbach, M.
Attewell, H. C.Guest, Dr. L. HadenPalmer, A. M. F.
Austin, H. LewisGunter, R. J.Pargiter, G A.
Awbery, S. S.Hale, LeslieParker, J.
Ayles, W. H.Hall, Rt. Hon. GlenvilParkin, B. T.
Ayrton Gould, Mrs. BHamilton, Lieut.-Col. R.Paton, Mrs. F. (Rushcliffe)
Bacon, Miss A.Hardman, D. R.Paton, J. (Norwich)
Balfour, A.Hardy, E. A.Pearson, A.
Barnes, Rt. Hon. A. JHaworth, J.Pearl, T. F.
Barstow, P. G.Henderson, Rt. Hon. A. (Kingswinford)Popplewell, E.
Barton, C.Hicks, G.Porter, E. (Warrington)
Battley, J. R.Holman, P.Porter, G. (Leeds)
Bechervaise, A. EHolmes, H. E. (Hemsworth)Price, M. Philips
Benson, G.Horabin, T. L.Proctor, W. T.
Beswick, F.Houghton, A. L N. DPryde, D. J.
Bing, G. H. C.Hoy, J.Pursey, Comdr. H
Blackburn, A. RHudson, J. H. (Ealing, W.)Randall, H. E.
Blyton, W. R.Hughes, Emrys (S. Ayr)Ranger, J.
Bossom, A. C.Hughes, H. D. (W'Iverh'pton, W.)Rees-Williams, D. R
Bowden, Flg. Offr. H. W.Hynd, H. (Hackney, C.)Reeves, J.
Braddock, Mrs. E. M. (L'pl. Exch'ge)Irvine, A. J. (Liverpool)Reid, T. (Swindon)
Braddock, T. (Mitcham)Irving, W. J. (Tottenham, N.)Rhodes, H.
Bramall, E. A.Isaacs, Rt. Hon. G. A.Ridealgh, Mrs. M.
Brook, D. (Halifax)Janner., B.Robinson, K. (St. Pancras)
Brooks, T. J. (Rothwell)Jay, D. P. T.Rogers, G. H. R.
Broughton, Dr. A. D. D.Jeger, G. (Winchester)Royle, C.
Brown, George (Belper)Jeget, Dr. S. W. (St. Pancras, S.E.)Sargood, R.
Brown, T. J. (Ince)Jenkins, R. H.Scollan, T.
Bruce, Maj. D. W. T.Johnston, DouglasScott-Elliot, W
Burden, T. W.Jones, D. T. (Hartlepool)Segal, Dr. S.
Burke, W. A.Jones, Jack (Bolton)Shackleton, E. A. A
Castle, Mrs. B. A.Jones, P. Asterley (Hitchin)Sharp, Granville
Chetwynd, G. R.Keenan, W.Shinwell, Rt. Hon, E.
Cluse, W. S.Key, Rt. Hon. C. W.Shurmer, P.
Cocks, F. S.King, E. M.Silverman, J. (Erdington)
Collick, PKinghorn, Sqn.-Ldr E.Silverman, S. S. (Nelson)
Collindridge, FKinley, J.Simmons, C. J
Collins, V. J.Kirby, B. V.Skeffington, A. M.
Colman, Miss G. M.Lang, G.Skeffington-Lodge, T. C.
Cooper, G.Lee, Miss J. (Cannock)Skinnard, F. W.
Corbet, Mrs. F. K. (Camb'well, N.W.)Levy, B. W.Smith, Ellis (Stoke)
Corlett, Dr. J.Lewis, A. W. J. (Upton)Smith, H. N. (Nottingham, S.)
Cove, W. G.Lindgren, G. S.Smith, S. H. (Hull, S. W.)
Crawley, A.Lipton, Lt.-Col. MSnow, J. W.
Crossman, R. H.Lyne, A. W.Solley, L. J.
Daggar, C.McAdam, W.Sorensen, R. W
Dalton, Rt. Hon. H.McEnlee, V. La T.Soskice, Rt. Hon Sir Frank
Davies, Edward (Burslem)McGhee, H. G.Sparks, J. A.
Davies, Harold (Leek)Mack, J. D.Steele, T.
Davies, Haydn, (St. Pancras, S.W.)McKay, J. (Wallsend)Stewart, Michael (Fulham, E.)
Davies, S. O. (Merthyr)Mackay, R. W. C. (Hull, N.W.)Strauss, Rt Hon. G. R. (Lambeth)
Deer, G.Maclean, N. (Govan)Stress, Dr. B.
Diamond, J.McLeavy, F.Stubbs, A. E.
Dodds, N. NMacpherson, T. (Romford)Summerskill, Rt. Hon. Edith
Donovan, T.Mainwaring, W. H.Swingler, S.
Driberg, T. E. N.Mallalieu, E. L. (Brigg)Sylvester, G. O
Dugdale, J. (W. Bromwich)Mallalieu, J. P. W. (Huddersfield)Symonds, A. L
Dumpleton, C. W.Manning, C. (Camberwell, N.)Taylor, H. B. (Mansfield)
Ede, Rt. Hon. J. C.Manning, Mrs. L. (Epping)Taylor, R. J. (Morpeth)
Edwards, John (Blackburn)Marquand, Rt. Hon. H. A.Taylor, Dr. S. (Barnet)
Edwards, Rt. Hen. N. (CaerphillyMidland, H. M.Thomas, D. E. (Aberdare)
Evans, Albert (Islington, W.)Mellish, R. J.Thomas, George (Cardiff)
Evans, E. (Lowestoft)Messer, F.Thomas, I. O. (Wrekin)
Evans, John (Ogmore)Middleton, Mrs. L.Thurtle, Ernest
Evans, S. N. (Wednesbury)Mikardo, IanTimmons, J.
Ewart, RMillington, Wing-Comdr. E. R.Tolley, L.
Fairhurst, F.Mitchison, G. R.Tomlinson, Rt. Hon. G
Farthing, W. J.Monslow, W.Turner-Samuels, M.
Field, Capt. W. JMoody, A. S.Usborne, Henry
Fletcher, E. G. M. (Islington, E.)Morgan, Dr. H. B.Vernon, Maj. W. F
Follick, M.Morley, R.Viant, S. P.
Foot, M. M.Morris, Lt.-Col. H. (Sheffield, C.)Wallace, G. D. (Chislehurst)
Forman, J. C.Morris, P. (Swansea, W.)Warbey, W. N.
Freeman, J (Watford)Morrison, Rt. Hn. H. (Lewisham, E.)Watkins, T. E.
Ganley, Mrs. C. SMort, D. L.Webb, M. (Bradford, C)
Gibbins, J.Moyle, A.Weitzman, D.
Gibson, C. W.Murray, J. D.Wells, P. L. (Faversham)
Glanville, J. E. (Consett)Naylor, T. E.West, D. G
Gooch, E. G.Neal, H. (Claycross)While, H. (Derbyshire, N.E.)
Greenwood, A. W J. (Heywood)Nichol, Mrs. M. E. (Bradford, N.)Whiteley, Rt. Hon. W.
Wilcock, Group-Capt. C. A. B.Williams, Rt. Hon. T. (Don Valley)Wyatt, W.
Wilkins, W. A.Williams, W. R. (Heston)Young, Sir R (Newton)
Willey, F. T. (Sunderland)Willis, E.Younger, Hon. Kenneth
Willey, O. G. (Cleveland)Wilson, Rt. Hon. J. H.
Williams, D. J. (Neath)Wise, Major F. J.TELLERS FOR THE NOES
Williams, Ronald (Wigan)Woodburn, Rt. Hon. A.Mr. Joseph Henderson and
Mr. Richard Adams.

It being after Half-past Five o'Clock, Mr. DEPUTY-SPEAKER proceeded, pursuant to Order, successively to put forthwith the Questions on the Amendments moved by the Government of which notice had been given to that part of the Bill to be concluded at Half-past Five o'Clock at this day's Sitting.