Clause 827

Company Law Reform Bill [Lords] – in a Public Bill Committee at 8:30 pm on 4th July 2006.

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Name giving misleading indication of activities

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I beg to move amendmentNo. 406, in clause 827, page 401, line 2, leave out sections (1) and (2) and insert—

‘(1) If in the opinion of the Secretary of State a person is carrying on business in The United Kingdom under a name that gives so misleading an indication of the nature of its activities as to be likely to cause harm to the public, the Secretary of State may direct the person carrying on such activites to change the name used by such a person in connection with such activities.

(2) The direction must be complied with within a period of six weeks from the date of the direction or such longer period as the Secretary of State may think fit to allow, unless an application is duly made to the court under the following provisions.

(3) The person in receipt of the direction may within the period of three weeks from the date of the direction, apply to the court to set the direction aside.

(4) The court may set the direction aside or confirm it.

(5) If the direction is confirmed, the court shall specify the period within which the direction is to be complied with.

(6) If a person fails to comply with a direction under this section an offence is committed.’.

We come to the point when I argue back to the Minister what she has argued back to me. Clause 827 covers similar ground to that of clause 76, in so far as it covers names likely to give a misleading impression of the activities of the company or, in this case, the business. However, clause 827 is not structured in the same way as clause 76 in that it simply makes it an offence for a business to carry on activities with a name that is so misleading that it is likely to cause harm to the public.

That is a very different approach from the company name equivalent, as the sanction must be triggered by a notice from the Secretary of State within a six-week period to enable the company to change its name. An offence is committed in that case only if the company  does not change its name within the specified period. The company is also afforded a right of challenge to the court, which may set the direction aside or confirm it.

From the point of view of consistency, it seems odd that the regime under clause 827 is much more draconian, given that it appears to cover a very similar situation. I should be interested to hear why the Government believe that a business in that case is so fundamentally different from a company.

Amendment No. 406 would delete subsections (1) and (2) and replace them with provisions that are substantially the same as those in clause 76. That might mean that the power under clause 827 was used more effectively, as complaint would lie with the Secretary of State, who could make an order if he or she was of the opinion that a misleading impression had been created. However, in clause 827, complaint appears to lie with the police and the prosecuting authorities, which means that it would need to be shown beyond all reasonable doubt that the name was so misleading that it was likely to cause harm to the public.

My fear is that it may be much more difficult to demonstrate that that evidential burden had been met. The amendment would therefore adopt a more workable and consistent regime, reflecting that in clause 76 in part 5.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs 8:45 pm, 4th July 2006

I take the point about the burden of proof—or the standard of proof, as I suppose it is, really—which is sensible, but the hon. Gentleman is really probing why there is a difference between the regimes in clauses 76 and 827.

Under clause 76, we considered a company registered under a name that gives so misleading an indication of the activities of the business as to be likely to cause harm to the public, but of course there is greater risk of harm to the public from such a name being used in the course of business—that is what this clause deals with—than from it being a company’s registered name. That is why we have introduced what is perhaps, on the face of it, a more draconian provision.

A person trading under a name that is likely to cause harm to the public should be stopped as soon as practicable. That trading should be an offence in itself, but under the amendment the offence would be failure to comply with a direction to change the name.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

Will the clause apply to a political party?

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

The clause says:

“A person must not carry on business in the United Kingdom under a name that gives” a misleading impression. My view is that a rather large chunk of trade unionists might think that the Labour party is not carrying on as it should, these days. I merely use that as a light-hearted illustration of the point that a political party might be named in a way that is wholly misleading.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

The answer is that if the party were trading, the clause might apply to it, but political parties are basically not businesses, are they? We are talking about risk of harm to the public from a name being used in the course of business. That is not going to happen with a political party.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

Just one further point on that: as I understand it, the regime that we debated under clause 76 provides the mechanism that I have sought to reflect in the amendment. I note that the Minister has, in essence, acknowledged that the regime in clause 827 is somewhat more draconian in effect. As she says, if the name is being used as a trading name, the matter needs to be dealt with more quickly.

On the interrelationship between clauses 76 and 827, it seems that a limited liability company trading under its own name might be caught under both provisions and might find that it is caught on one side but not on the other. That seems slightly strange.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

I do not follow that. I think the hon. Gentleman said that a company might be caught under both provisions, which is probably right, in which case it would have to endure, as it were, the two different regimes to rectify its position.

The real point is to be quick, which is perhaps a better way to describe the proposal than more draconian, although I concede that it is more draconian, because cases will go straight to prosecution. Under the regime that the hon. Gentleman described, the direction would have to be challenged within three weeks. The direction has to be complied with within six weeks, but if it is challenged that has to happen within three weeks. So, the direction is issued and three weeks may pass, on the last day of which the perpetrator of a scam can put in a notice.

Theoretically, if the court dealt with the matter straight away and confirmed the direction, there would be a further six weeks, which means a total of nine weeks, during which the scam could subsist. However, that is not what happens, because the three weeks’ notice is notice only to the court—heaven knows when the case would get to court to be either confirmed or rejected—so the time for which the company may subsist, using a name for a scam, is sizeable. That is the problem.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

The point is that the test under clauses 76 and 827 must be whether harm is being caused to the public. Even under clause 76, therefore, harm will be caused to the public in both situations. That is the basis on which I question the need for a different regime under both. The test might be harder to prove under clause 827, but if the case is more urgent, which the Minister seems to be suggesting, there might be a need for greater flexibility and an ability to move more quickly, which might lie more with the Secretary of State.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

Self-evidently it would not, because there would be so much time in the process under the hon. Gentleman’s proposal. Bringing a prosecution of course increases the standard of proof from, one imagines, the balance of probability in the situation to beyond reasonable doubt. I do not know, however, because if, under the hon. Gentleman’s regime, the court was determining the  question, “Is this, in effect, unlawful trading?”, it might feel that it had to adopt the higher standard of proof anyway.

The hon. Gentleman’s experience in the law will tell him that where proof of a crime is required to satisfy a civil claim, the civil court will adopt the higher standard of proof.

I do not want to digress too much, but that is a terrible mischief in domestic violence cases. One applies for an injunction that should be taken on the civil burden, but because, if there is violence, the case will be taken as a crime, there is a risk of the judge taking it upon himself to impose the higher standard of proof, making the case harder to prove. I wonder whether the same is true for the cases that we are discussing.

If the judge would find as he is required to find under our clause 827, as it were, such a finding would be likely to have to be proved to the same standard, as it would involve a criminal offence. The hon. Gentleman would not make such cases easier by having the lower standard of proof, but he would substantially extend the period over which a scam could subsist, in the way that I have described.

So, the greater, or more pernicious and immediate, mischief to the public that is represented by breaches of the clause, rather than that represented by breaches of clause 76, requires our approach, not that suggested by the hon. Gentleman. On that basis, I hope he is persuaded to withdraw the amendment.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I am grateful to the Minister for that response, although I am not entirely persuaded. I hear what she says about the burden of proof in the context of clause 76, but the structure and framing of that clause are clear, inasmuch as the criminal liability applies only if the order is not complied with within the given period. Therefore, carrying on the business name up to that point is not a criminal issue; only the failure to comply with the notice is criminal.

The situation is arguable. Under clause 76, it is

“in the opinion of the Secretary of State” that harm is caused to the public. Although I hear what the Minister says, I do not accept that there is the same criminal standard.

I also hear what the Minister says about whether my amendment might make it harder to use the relevant power quickly in this context because of the specific periods involved and the court challenge, but clauses 76 and 827 address the same evils of harm being caused to the public. There should be consistency.

I fear that the involvement of the police and the prosecuting authorities, as well as the burden of proof needed in terms of harm caused to the public—not a reasoned opinion, but actual harm—might make it more difficult to enforce clause 827. I would not like to see the Secretary of State issuing an order requiring a company to change its name and being successful in that, but not succeeding in stopping it continuing to trade under its trading name, even though it had changed its company name, if those names were one and the same. In other words, if X Ltd. were trading as X, the provision should be able to bite in both circumstances. I seek to address that structural issue with my amendments.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

That is an interesting point for an anorak, which the hon. Gentleman and both I are. The question is not whether the provision sets out a criminal offence of using a name that is so misleading an indication of the nature of the activities that it is likely to cause harm; it does not matter that the clause does not make that a crime. The question for the court in considering what standard of proof to adopt is whether such activity is criminal behaviour. It almost certainly will be, because it will clearly have been done deliberately.

If criminal behaviour is involved, irrespective of whether it is not expressed as an offence in the Bill, I am afraid that the court will adopt the higher standard of proof. Similarly, domestic violence does not need to be expressed to be an offence in the application for an injunction—it just happens to be criminal.

By pushing the amendment forward, we would achieve only a lot of delay when we ought to have a quick, summary way to get rid of people who are deliberately causing harm to the public. I apologise for the long intervention.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I am grateful for the Minister’s helpful remarks. We probably differ in our interpretation of clause 76 and how it will apply in contrast with clause 827. I want to ensure that the power under clause 827 is used efficiently and effectively. I am concerned that, because of the different structure and the agencies that will be engaged in the process, it might be much more difficult to enforce clause 827, compared with clause 76. My view is still that the most appropriate means of addressing this problem is to adopt the same approach to similar clauses.

Although the Minister is not minded to accept the amendment at the moment, I ask her to consider it carefully. Given the nature of the amendments we are discussing, it would not be useful to press them to a vote, but there is something to be considered in terms of the structure.

On clause stand part, I shall raise another issue in relation to criminal liability that might provide even more context. However, in response to the Minister’s comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part ofthe Bill.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

There are a few more aspects of clause 827 that I want to mention and which touch on wider points that do not lend themselves directly to straightforward amendment. I am grateful for the input of David Rose, an intellectual property partner at the law firm, SJ Berwin.

As debated on the previous amendment, the primary purpose of the clause is to protect the public from a business that misleads them, by its trading name, as to the services or goods it provides. For example, the clause would appear to prohibit an entity from carrying on business under the name “All Organic”.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs 9:00 pm, 4th July 2006

Given the origin of the support for this particular amendment, I wondered whether it could be considered a party political contribution under the terms of the Bill.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

When the Minister hears the point, I think she will realise that that is not the case. We are trying to address a fairly serious issue of law and to gain some understanding of the ambit of the clause. As drafted, the clause would appear to prohibit an entity from carrying on business under the name “All Organic” in relation to food products that are not organic.

There is, however, a question as to whether the clause provides protection between businesses inter se. It is arguable that the clause may be understood as providing a statutory basis for the rule that companies may not use a name so similar to the name used by an existing business if that is likely to mislead the public into confusing the two concerns. If that argument is correct and if a court could ascribe such a meaning to the clause, the provision if enacted would effectively mean that passing off became a criminal offence. That would amount to a major reshaping of a third party’s liability for passing off, a tort that has traditionally required the putative claimant to prove that it owns goodwill in and to a distinctive trade name, logo, get-up or similar, and that a third party’s use of the same or a similar name would cause confusion between the two businesses among members of the public.

The clause also creates a strict liability offence, because it is irrelevant whether the business owner uses the name with the intention of giving a misleading indication as to the nature of the activities or not. Its application may therefore have unjust consequences, especially when a third party passes itself off as a competitor without knowledge of that competitor’s rights. In passing off, there is no requirement that the alleged wrongdoer knew of the earlier, common law rights.

The clause is also troubling on the question of how the test of misleading will be applied. In a passing off case, it is necessary to consider all the circumstances to assess whether there is liability. Classically, disclaimers that are sufficiently prominent can successfully deflect an allegation that a third party’s use causes confusion. The clause, however, speaks of a name that

“gives so misleading an indication”.

Is an offence therefore committed if the name itself is misleading even if, in all the circumstances, the context of its use means that the public would never be misled? Moreover, criminal liability already exists under the Trade Descriptions Act 1968 in relation to goods or services that are provided under a business name that misleads the public as to the nature of those goods or services. I should be grateful for any clarification that the Minister can provide.

Photo of Crispin Blunt Crispin Blunt Opposition Whip (Commons)

I want to pursue the point about political parties. I thought that there was an element of doubt in the Minister’s mind in the last debate as to whether the clause applies to political parties. I think that political parties are a business, though they are obviously not companies. There are senses in which they raise money and carry on activities, though their objective is to win  votes. I have looked for a definition of business in the Bill and I cannot find one, so will the Minister make it clear on the record that the clause definitively cannot apply to political parties? I want a sense of how confident she is that the clause might not catch any of us.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

I do not know whether the Conservative party is a business, but I doubt whether the Labour party is. The clause requires there to be a business, so the answer is that if the hon. Gentleman thinks that his party is covered by it and that the cap fits, fine. He can worry himself to death if he thinks that “Conservative” is a misleading name.

The hon. Member for Hornchurch talked about a business with the name “All Organic” and the fact that food sold might not be organic. The question is whether that criminality applies to passing off. I think that that was the essence of the question. The answer is no, because the offence in clause 827 relates to

“the nature of the activities of the business”.

Passing off is pretending to be somebody else. So there is a distinction there.

Does that make me as clever as the chap fromSJ Berwin, or possibly someone else as clever as an individual from SJ Berwin? That is what we say to those arguments, although on the face of it they were impressive ones. Frankly, the purpose of the clause is just to stop the use of a business name

“that gives so misleading an indication of the nature of the activities of the business as to be likely to cause harm to the public.”

It is perfectly evident from the argument that the hon. Member for Hornchurch agrees that that should be stopped.

Photo of David Howarth David Howarth Shadow Minister (Energy), Trade & Industry

The hon. Gentleman asked a question and it might be helpful if the Minister could answer it. Is the clause intended to create a strict liability crime? I do not read it that way. I read the words “must not carry on” as importing some sort of mental element into the offence. That was a serious point.

Photo of Vera Baird Vera Baird Parliamentary Under-Secretary, Department for Constitutional Affairs

I might be corrected, but I suspect that we go back full circle to the person in default and the liability of the officer concerned. I think that that would be somebody who

“authorises or permits, participates in, or fails to take all reasonable steps to prevent” the offence. However one might determine criminal intent, those elements would have to be present. That is how clause 827(3) works. So I invite the Committee to think that the clause should stand part of the Bill.

Photo of James Brokenshire James Brokenshire Conservative, Hornchurch

I am grateful for the legal guidance and clarification that the Minister has given about why it is felt that passing off is not caught by the wording in the clause. I think that the interpretation and clarification given has been helpful. Clearly there was some thought among legal circles that passing off could have been captured.

I think that strict liability is a separate issue. The Minister said that officers would need to satisfy the relevant tests that she set out succinctly. However, the clause is wide enough to cover not just companies. Clause 827(3) refers to offences

“committed by a body corporate”.

Obviously, a sole trader, partnership or some other organisation could be caught within the ambit of the clause, but fall outside the test applied to officers in default, which is explained clearly and set out in the Bill.

I do not want push the Minister unduly, but it might be helpful for the outside world and for when we come to rely on and interpret the clause, if she could give further clarification on the concept of strict liability, and the meaning of the clause in that regard. Further guidance would be extremely helpful.

Question put and agreed to.

Clause 827 ordered to stand part of the Bill.

Clauses 828 to 830 ordered to stand part of the Bill.