Mr.
Djanogly: I appreciate the Minister giving way. May I just
point out that my points were directly related to section 44(7) of the
Act?
Margaret
Hodge: I understand that. The hon. Gentleman attempted to
link his points to section 44(7), but they apply to a different batch
of law on the powers and duties of attorneys. Therefore it is
inappropriate for us—I look to other eminent people in the
room—it appears to be inappropriate to comment on that today. I
am open to receiving representations on matters from the members of the
public or Members of Parliament. If the hon. Gentleman wishes to
approach us in that way, we will see what help we can give.
The purpose of the clause is
that it provides the means by which a company can execute a document
itself. It is needed as a company, although a legal person can only act
through human hands. The amendments to the clause, which we have
already discussed and agreed, provide that, for all companies, the
alternative to the affixing of its common seal is a signature by two
authorised signatories or by one in the presence of
witnesses. It is a
matter of everyday practical importance that the way in which a company
executes a binding document should be clear, simple, rational and
well-known. The clause provides a straightforward alternative to the
use of a common seal in all circumstances for all companies under the
law of England, Wales and Northern Ireland.
Question put and agreed
to. Clause 44,
as amended, ordered to stand part of the
Bill.
Clause
45Common
seal 6.15
pm
Margaret
Hodge: I beg to move amendment No. 97, in clause 45, page
19, line 25, at end
insert— ‘(6) This section
does not form part of the law of
Scotland.'.
The
Chairman: With this it will be convenient to discuss
Government amendments Nos. 98 and
99.
Margaret
Hodge: This group of amendments relates to the formalities
of companies doing business. Clause 45 provides that a company may, if
it wishes, have a company seal. The amendment to the clause makes it
clear that that does not apply to the law in Scotland, because the
comparable provision for the law of Scotland is found in a further
clause, clause 49. That is our first
amendment. Clause 46
provides for the manner in which companies are to execute documents
that are to be deeds. Although a deed is now only necessary for certain
transactions, they are important; for example, the conveyance of land
or the granting of a power of attorney. One party to such a transaction
may insist on a deed. It is therefore essential that every company is
able formally to execute the deed. The clause replicates section 36AA,
which was inserted into the 1985 Act by the Regulatory Reform
(Execution of Deeds and Documents) Order 2005. The order implemented
the recommendations of the Law Commission, making clear that there are
two separate steps in the execution of a deed. The first is the
execution of a document, creating the deed, and the second is the
delivery of that deed. The steps may or may not be simultaneous. The
clause provides that the document is presumed to be delivered upon
execution, unless a contrary contention is proven. I am told that the
delivery is thus a rebuttal presumption, which means that it has
occurred unless it is proven that it has not. The amendment simply
ensures that the clause also applies to the law in Northern
Ireland. The amendment
to clause 47 is needed so that under the law of England and Wales and
of Northern Ireland a company may appoint an attorney whether or not it
has a common seal. All the amendments are technical, and are needed to
assure the appropriateness and efficacy of the Bill.
Amendment agreed
to. Clause 45,
as amended, ordered to stand part of the
Bill.
Clause
46Execution
of
deeds Amendment
made: No. 98, in clause 46, page 19, line 29, before first
‘if’
insert ‘and for
the purposes of the law of Northern Ireland'.—[Margaret
Hodge.] Clause
46, as amended, ordered to stand part of the
Bill.
Clause
47Execution
of deeds or other documents by
attorney Amendment
made: No. 99, in clause 47, page 19, line 36, leave
out ‘writing under its common
seal' and insert
‘instrument in writing'.—[Margaret
Hodge.] Clause
47, as amended, ordered to stand part of the
Bill.
Clause
48Authentication
of
documents Amendment
made: No. 100, in clause 48, page 20, line 5, leave out paragraph
(a).—[Margaret
Hodge.] Clause
48, as amended, ordered to stand part of the
Bill. Clauses
49 to 51 ordered to stand part of the
Bill.
Clause
52Pre-incorporation
contracts, deeds and
obligations
David
Howarth: I beg to move amendment No. 183, in clause 52,
page 21, line 17, at end
insert ‘but he may not enforce the
contract against any person who did not know, and who had reasonable
grounds for not knowing, that the company had not yet been formed and
for whom the identity or characteristics of the other party to the
contract would have been a relevant consideration in entering into the
contract'. The
amendment is mainly a probing one, but it raises a problem that has the
potential to be the Hickman of the 21st century. The problem is what
happens when someone purports to deal on behalf of a company that has
not yet been formed. The situation does not arise often, but it is
likely to arise in fast-moving business situations in which people are
forming new companies and new
businesses. Originally,
the problem was that, since the company did not exist at the time,
since no one can be an agent for something that does not exist, and
since agents have, in normal circumstances, no liability for the
contracts that they make—it is their principals who are
banned—someone who made a contract with a person purporting to
act on behalf of a non-existent company had no rights at all. A
legislative change was brought in to alter that situation. It gave rise
to wording similar to that in the Bill. That wording has the effect of
saying that, in such a situation, the person who purported to act on
behalf of the non-existent company becomes banned by the contract.
Therefore, the person on the other side has some
recourse. The problem
is that the clause does not say what happens if the situation is
reversed. It does not say whether the person who purported to act on
behalf of the non-existent company gets rights in contract against the
other party to the deal. The clause is silent on that point, which can
be commercially important. There was a case in the Court of Appeal
called Braymist Ltd v. Wise Finance Co. Ltd. It occurred in
2002. The Court of Appeal decided that in such a
situation the person who purported to act on behalf of the company not
yet in existence did get rights against the other party. Unfortunately,
the Court was divided as to why. A majority of members thought that the
meaning of the existing section meant that rights in contract were
created, subject to common law restrictions if there were any. The
other members thought, on the contrary, that the existing section had
no effect on the situation but that contractual rights could be created
by common law doctrines. Why is that a problem? It
sounds like the same thing. On one side, people say that the section
creates rights subject to common law and on the other, people say that
the section creates no rights but the common law can create a contract.
The problem is that the area of contract law with which we are dealing
is the most notoriously difficult and unclear area of contract
law—namely, the area to do with mistake and, especially, with
mistake of identity. The difference between the two sides of the Court
will be of significance because on one side there is a presumption in
favour of the creation of rights and on the other there is a
presumption that may work in the opposite
direction. The
amendment seeks to put into words the view of one side of the Court of
Appeal and to invite the Government to think about whether they want to
put into statutory form a solution to the problem, which may in years
to come become a difficult and significant
one.
Margaret
Hodge: I bow to the hon. Gentleman’s greater
knowledge and his long experience of teaching and researching in the
area. My attention was also drawn to the case that he mentioned. One
part of the judgment that he did not bring up was how liabilities and
rights should be dealt with and whether their treatment should be
enshrined in law or a matter for courts to decide. The judgment
stated: “Parliament
intended to preserve the process of common law adjudication in this
respect and to leave it to the courts to complete the exercise of
defining the relevant
circumstances.” The
matter that the hon. Gentleman wishes us to set out in the Bill is one
that we have decided is best defined through common-law adjudication.
The questions about liabilities and rights should be determined by the
courts. The court made it clear that someone who is personally liable
may be able to enforce the contract. I hope that that gives some
comfort to the hon. Gentleman.
The amendment would define the
circumstances in which an agent can enforce a contract, but the company
law review examined the issue and did not recommend any change. I do
not know whether the hon. Gentleman has a view on that, but what the
courts have said and the process of the company law review mean that
the clause covers the matter in the best way that it can. We should
leave the courts to decide the rights and duties of all parties to
contracts entered into before a company is
formed.
David
Howarth: I am perfectly happy with the Minister’s
reply. It is a rational response for the Government to say that this is
a difficult area and they will leave it to the courts to work out, but
it is important that lawyers and those relying on the Act
will know that that is the intention of the Government and Parliament.
There may be further confusion; we are considering a Court of Appeal
judgment and in the future there could be further developments in a
higher court. At that point, we might have to return to the
matter. 6.30
pm Paul
Farrelly (Newcastle-under-Lyme) (Lab): Does the hon.
Gentleman agree that if the amendment were to be accepted, apart from
creating perhaps the longest and clumsiest sentence in a long Bill it
would introduce a dangerous element of subjectivity by using the words
“know” and “knowledge”? Those words could
be prejudicial to future contracts, as people could have great scope to
claim that they did not know something and therefore withdraw. The
matter is best left to the courts on a case-by-case
basis.
David
Howarth: I do not wish to go into the details of the law
of contractual mistake, but the hon. Gentleman will find that that area
has some relevance when it comes to dealing with the subjective
knowledge of parties. If the matter is left to the courts, it will at
some point be set out in rules of the kind to which he objects. It
might be better to put into statute a solution that is workable all
round. Given the Minister’s reply, however, and the
Government’s intention that the matter will be left to develop
in the courts, I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
52 ordered to stand part of the Bill.
Clauses 53 to 55 ordered to
stand part of the
Bill.
Clause
56Other
sensitive words or
expressions James
Brokenshire (Hornchurch) (Con): I beg to move amendment
No. 116, in clause 56, page 22, line 24, leave out
‘registered’ and insert
‘incorporated’.
The
Chairman: With this it will be convenient to discuss the
following amendments: No. 117, in clause 56, page 22, line 24, after
‘includes’, insert ‘,
or change its name to a name that
includes,’. No.
121, in clause 58, page 23, line 18, leave out
‘registered’ and insert
‘incorporated’. No.
122, in clause 58, page 23, line 18, leave out ‘by’ and
insert
‘with’. No.
123, in clause 58, page 23, line 19, after ‘includes’,
insert ‘, or change its name to a
name that consists of or
includes’. No.
57, in clause 58, page 23, line 21, at end
insert— ‘( ) Regulations
under this section shall not require a company to change its
name.’. No.
128, in clause 66, page 27, line 32, at end
insert— ‘(6) Nothing
contained in this section shall prevent a company continuing to use its
name if such name was registered with the registrar of companies prior
to the date of any regulations made under this
section.’.
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