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Deregulation (Resolutions of Private Companies) Order 1996

3.21 p.m.

Baroness Miller of Hendon rose to move, That the draft order laid before the House on 25th March be approved [17th Report from the Delegated Powers Scrutiny Committee].

The noble Baroness said: My Lords, the draft order under the Deregulation and Contracting Out Act 1994 will make some minor but important changes to company law. The changes affect the procedures which private companies must follow in respect of written and elective resolutions and can be summarised as follows. First, the present requirement for a minimum of 21 days' notice to be given of a meeting at which an elective resolution is to be proposed would be removed. That would allow such meetings to be held at short notice. But the dispensation would apply only where all members entitled to attend and vote at the meeting were agreeable to the short notice.

The second change relates to the passing of written resolutions under the Companies Act. At present, copies of proposed written resolutions must be sent to a company's auditors. If the resolution concerns the auditors as auditors they may, within seven days, give notice to the company that it should be considered in a general meeting of the shareholders. The resolution will not be effective unless the auditors inform the company that the resolution does not concern them as auditors, or that it does but need not be considered at a general meeting. If the auditors do not contact the company it must wait the full seven days before the resolution can come into effect.

That requirement has proved burdensome and time consuming. It has also been questioned whether the procedures apply to those companies which do not have auditors; for example, because they are dormant. As a result, the written resolution procedure is seldom used by private companies. They often resort to calling meetings instead and accept the additional expense incurred.

The draft order will, if accepted by your Lordships, reduce those burdens. The only requirement would be to send a copy of a proposed resolution to the auditors or to notify them in some other way of its contents at or before the time it is given to a member for signature. A breach of that requirement would be a criminal offence but would not affect the validity of the resolution. The order also provides certain defences for those responsible for complying with that requirement; namely, the directors and secretary of the company. The present requirement for auditors to be given seven days' notice of proposed written resolutions and for them to be able effectively to insist on a meeting being held would be repealed.

Finally, the draft order would amend the Companies Act to make clear that the statutory written resolution procedure may be used in addition to any provision for written resolutions in a company's articles. The company has a choice of which procedure it wishes to use.

In accordance with the usual scrutiny procedures under the Deregulation and Contracting Out Act there has been full public consultation on the draft order. It has also been considered by your Lordships' Select Committee on the scrutiny of delegated powers and the Deregulation Committee of another place. Under the original proposal for a draft order, which was laid before Parliament on 23rd October last year, the requirement to inform auditors of proposed written resolutions would have been revoked completely. A new requirement to send to outgoing auditors copies of agreed written resolutions which replace them with the new auditors would have been introduced.

The Deregulation Committee of another place expressed concern in its report that the proposal would remove some necessary protection from members of private companies. It therefore recommended, first, that auditors be sent copies of proposed written resolutions at the same time as members, or that they be informed of the contents of such resolutions no later than when they are first made available to members; secondly, that in order to enable auditors to provide advice to shareholders if requested to do so the proposed written resolution should not be adopted before notification of it has reached the auditors; and thirdly, that the requirement to notify auditors of proposed written resolutions should not apply to the category of companies which are not required to appoint auditors.

The Government considered carefully those proposed amendments and the draft order now before the House reflects the committee's recommendation with one exception. The draft order does not require notification of proposed resolutions to reach the auditors prior to their adoption. The Government consider that to include such a requirement in the written resolution procedure would add little in terms of shareholder protection and would reintroduce uncertainty and delay. Companies would continue to be discouraged from using the procedure and would continue to call meetings instead. In short, the opportunity for deregulation would be lost.

I should also mention that the requirement in the original proposal for a draft order to send to outgoing auditors copies of agreed written resolutions which replace them with new auditors has not been carried forward. That was considered unnecessary since the auditors would be informed of all proposed written resolutions.

The Deregulation Committee has considered the amended draft order and has recommended unanimously that it should be approved. When your Lordships' Select Committee on the scrutiny of delegated powers considered the original draft order it stated that it saw no objections to the Deregulation Committee's proposed amendments. The committee considered that no necessary protection would be lost if the draft order were made and it considered it an appropriate order to be made under the Deregulation and Contracting Out Act. In its second report, your Lordships' committee reported that the draft order now before your Lordships' House was in a form satisfactory to be submitted to the House for affirmative resolution. Finally, the committee reported that there was nothing in the draft order which the Joint Committee on Statutory Instruments would have needed to draw to the special attention of each House. I commend the draft order to the House.

Moved, That the draft order laid before the House on 25th March be approved [17th Report from the Delegated Powers Scrutiny Committee].--(Baroness Miller of Hendon.)

On Question, Motion agreed to.

Defamation Bill [H.L.]

3.27 p.m.

Read a third time.

Clause 2 [Offer to make amends]:

The Lord Chancellor (

Lord Mackay of Clashfern) moved Amendment No. 1:

Page 2, line 43, leave out from beginning to ("and") in line 6 on page 3 and insert--
("(a) to make a suitable correction of the statement complained of and a sufficient apology to the aggrieved party,
(b) to publish the correction and apology in a manner that is reasonable and practicable in the circumstances,").

The noble and learned Lord said: My Lords, in moving Amendment No. 1 I shall speak also to the other amendments standing in my name. Although to some extent they deal with other subject matters they are linked in that they are responses to points raised by your Lordships during earlier proceedings and to which I undertook to give attention. The first set of amendments is concerned with the offer of amends; I shall deal with that first. Amendments Nos. 1 to 3 deal with problems which were raised by various sections of the media in relation to the offer of amends.

I should like to mention that my noble and learned friend Lord Denning, who as your Lordships know has not been able to attend this House for some time due to his physical disability, has asked me to tell your Lordships of his enthusiastic support for this Bill, although he is bodily at a distance.

As I said, the amendments which I am moving today result from helpful suggestions made at various stages of the Bill by your Lordships. As I hope your Lordships would expect, I have given very careful consideration to all the suggestions which have been made to me, and those which I will move today relate to two of the reforms made by the Bill.

First, I propose to make an important modification to the new procedure of the offer to make amends machinery, and some further modifications relating to the statutory privileges afforded to reports and other materials of the proceedings of particular courts, and of legislatures and specified other public proceedings.

Your Lordships will recall that the statutory privileges, originally contained in Section 3 of the Law of Libel Amendment Act 1888 and Sections 7 and 9 of the Defamation Act 1952, were urgently in need of being brought up to date, not least to reflect the changes which have been made in our relationships with other countries, both in Europe and internationally. In particular, as Lord Justice Neill's working group said:

We have applied the same principles to the updating of Section 3 of the Law of Libel Amendment Act 1888, including a reference to the European Court of Justice in the Bill as introduced (following consultation on the draft Bill published last July), and your Lordships accepted my amendment at Committee to include also the European Court of Human Rights.

Noble Lords will recall that Clause 14 was amended while the Bill was in Committee, to provide a free-standing list, in subsection (3), of the courts to which the section applies, so that contemporaneous reports of their proceedings will be absolutely privileged. The noble Lord, Lord Williams of Mostyn, had tabled an amendment which partly coincided in effect with my own amendment, but would also have included international war crimes tribunals. I have concluded that it would be right to include such tribunals, and that is the purpose of Amendments Nos. 6 and 7.

The terms of the amendment will ensure that those international criminal tribunals which are recognised by the United Kingdom--including any such tribunals which may be set up in the future--will be covered. Hitherto, such tribunals have been set up by the Security Council of the United Nations, but we have provided for the possibility that we and other nations may in the future wish to make use of other international agreements. This is a precaution which it is right for us to take, although our earnest wish must be that there will be no further events making it necessary to set up such tribunals and have such trials.

Your Lordships may consider that the timing of this amendment is particularly opportune, as I understand that the hearing of the first case before the tribunal dealing with alleged war crimes committed in the former Yugoslavia is to begin today, and that this is the first war crimes trial since Nuremberg.

Amendment No. 12 is to similar effect, putting these international tribunals on the same basis as the other international courts already referred to in Part I of the first schedule, for the purpose of the qualified privilege conferred by Clause 15.

I turn now to the matters dealt with in the earlier amendments. I considered most carefully the concerns expressed by the noble Lord, Lord Lester of Herne Hill, and other noble Lords when the clauses introducing the new offer to make amends machinery and defence were previously considered by your Lordships. As your Lordships will be aware, those concerns were reflected in various sections of the media.

Those replace an existing defence which does not now fulfil the purpose for which it was created. Section 4 of the Defamation Act 1952 introduced a new statutory defence of unintentional defamation. It allowed a defendant who could prove his own lack of intention to forestall the plaintiff's claim provided he could act extremely quickly once he became aware that he had defamed the plaintiff.

The provision was intended to provide a speedy and relatively cheap way out of trouble in cases of "innocent" defamation. In practice, the formal requirements were found to be very cumbersome, and the stringent formal and other conditions were such that the defence was very little used. In the evidence before the Neill Committee, one of the most popular recommendations was for a more user-friendly defence in substitution for the old Section 4 defence. Such a defence could be loosely based on the best features of the old unintentional defamation defence, but without those features which had made the old defence so unattractive and unworkable in practice. It would avoid the need for a trial when the defendant was prepared to admit liability and to make amends, even though he could not meet all the conditions imposed by Section 4.

The Neill Committee recognised that it was impossible to produce a perfect solution, but its recommendation was that there should be a new, more streamlined defence, introducing certain changes which would remove some of the hurdles presently confronting defendants. The onus should not be on the defendant to prove lack of intention, and the defendant should have a more realistic time in which to decide whether or not to make an offer. On the other hand, it was not satisfactory for defendants to have a defence available, based on their reasonable behaviour after publication, which would leave the plaintiff with no compensation at all in respect of hurt feelings or injury to reputation caused by an admitted defamation.

During last year's consultation on the draft Bill we identified a further need. Many publishers welcomed the streamlining of the defence and the opportunity to make amends when they found that they had made a mistake. But they explained that it would still have to be limited when there was the possibility of a dispute as to the exact meaning of the statement. In those circumstances, a defendant might not be willing to make an open offer to make amends in case the court found that the meaning was more seriously defamatory than he was willing to concede. Nevertheless, a full trial could still be avoided if the provisions allowed the defendant to make an offer limited to the defamatory meaning which he was prepared to concede. Clause 2 is therefore an improvement on the published draft, allowing the defendant to make a qualified offer to make amends, specifying that meaning or meanings; that is, the meaning or meanings which the defendant is prepared to accept that the statement could bear.

I believe that those modifications were welcomed as meeting a real need; to overcome reluctance to make an offer because of the possibility of significant differences between the ways in which the parties would contend that the defamatory statement should be read. But it is another hurdle which has been stressed during the passage of the Bill. It was represented to me most forcefully that the media in particular would be disabled from using this procedure because they would not be willing to start up a mechanism which could end up as invoking a judge's power to dictate the terms of their apologies, and to compel them to publish those words in a particular way. Your Lordships may recollect a leader in which an important national event was signalled in the 10 o'clock news as following an intimation of some apology which, although no doubt very important for the person to whom the apology was made, it would not be seen as of shattering national importance.

As I said at Report, it seems to me that the dramatic examples which have been given to illustrate why the media would be reluctant to offer amends under these provisions do not reflect the likely reality of their operation. Nevertheless, we are all anxious to see that the new procedure will achieve the desired result, that where a person has been defamed, and the mistake is acknowledged, a system of speedy and voluntary amends should become the recognised conventional path to choose to resolve differences which might otherwise involve the parties in protracted and expensive litigation. This is something which may not happen if there is a general reluctance to come forward and make offers, even if that reluctance is attributable to what we would consider to be an unnecessarily cautious approach. As I said, I wish to reach the best possible solution to this problem. We want to encourage maximum use of the offer machinery, provided, of course, that its use will lead to effective amends being made to those who have suffered defamation.

Effective amends is the whole purpose and centre of the provisions. It involves not merely acknowledgement of the wrong but an attempt to undo the wrong which has been done. It is essential that the person who has done the wrong should be willing to, and should, take steps which will achieve that aim. It is in both parties' interests that the wrong should be righted as quickly as possible and as inexpensively as possible. In most cases, therefore, there is likely to be agreement as to the amends which will be appropriate.

But inevitably there will be some cases in which, although the parties are agreed in principle, they are unable to agree the exact steps to be taken. That may be because the offeror is not willing to apologise in terms which would be acceptable to the wronged party and which the court would consider reasonable or he is not prepared to give his withdrawal a prominence which the wronged party considers proportionate to the prominence of the original published wrong; or it may be that the wronged party is making unreasonable demands. Only the court can judge in a particular circumstance which is the case. This is where I have modified the provisions. I believe that it would be wholly appropriate for the court to judge those matters and to make an order accordingly, so that the package awarded to the person who accepted the offer will reflect the full amends that he is entitled to expect when he accepts the offer--no more and no less.

It may be that a very limited publication is apt. It may be that the money element in the package, if any, would be very small. Nevertheless, it has been represented to me that there is a very real fear among the media that, if they made offers, orders might occasionally be made against them in terms which differed very radically from what they had contemplated when making the offer. It is suggested that while there was any such risk offers would not be forthcoming. Of course, the media do not have the exclusive privilege of being at the receiving end of libel claims, and this procedure is not designed for their exclusive use. But it is important that those who are defamed by the media should not be deprived of the benefit of it because of the reasons which I have outlined. I have, therefore, sought an accommodation to vary the provisions which will apply when the parties cannot agree the details in such a way as to preserve the core of the amends package while removing that element which was seen as a serious disincentive to offering amends; namely, that offers might rarely, if ever, be made.

The amendments now proposed to Clauses 2 and 3 maintain the emphasis on the need for appropriate publicity being given to the correction and apology. But if the parties fail to agree those details, the defendant must take his chances on the basis of his best offer. The details of his best offer--as to wording and manner of publication--will be scrutinised by the court. If the court thinks that the plaintiff's demands for more were unreasonable, the position will be much the same as if the court had made an order coinciding with the best offer. If, however, it falls short of what the court considers to be adequate, that will be reflected in the money compensation.

One possibility which did concern me was that an offer of amends might be made as something of a tactical ploy by a person who had no intention whatever of righting the wrong in the manner contemplated by the provisions and whose "best offer" might even exacerbate rather than amend the original wrong. It is an established principle of defamation law that conduct after the original publication may be taken into account in the assessment of damages, whether that conduct shows a will to make good or determination not to do so. I have taken great care, therefore, to ensure that that principle is clearly manifested in the provisions. If it appears that an offer has been made hypocritically, that may indeed sound in the compensation. That, I think, will discourage any attempt to abuse the new machinery. For the convenience of your Lordships, I have sought to explain all of the amendments tabled in my name at the same time. I beg to move Amendment No. 1.

3.45 p.m.

Lord Williams of Mostyn: My Lords, perhaps I may respond in the same way as the noble and learned Lord the Lord Chancellor on the matter of the scheme. I am most grateful for the noble and learned Lord's proposed Amendments Nos. 6, 7 and 12 which, as he indicated, give a necessary and appropriate protection to contemporaneous, fair reports of the proceedings of international criminal tribunals. I am certainly conscious that a good deal of thought has been given to the concerns raised by the noble Lord, Lord Lester of Herne Hill, and myself, as well as others, relating to directed corrections or apologies which editors of newspapers and television programmes strongly resisted.

However, I have one question regarding Amendment No. 2. Paragraph (a) refers to,

    "the correction and apology by a statement in open court".
Under the present scheme of the rules of court, it seems to me that that would mean that the offer of amends could be put into effect only after the issue and service of the writ. I wonder whether the noble and learned Lord would confirm that interpretation.

The noble and learned Lord indicated that he wished maximum use of the offer of amends machinery to be made. Therefore, it is a pity that Clause 2(5) still contains the prohibition on the ability to make amends after the service of a defence. Generally speaking, it seems to me that a reasonable balance is now capable of being struck between the utility of the procedure--that is, the offer of amends procedure, which ought to be reasonably quick and cheap and, therefore, reasonably acceptable to the parties--and the legitimate concerns, as foreseen by at least two of us, of editors of publications and television programmes. As a matter of principle, I welcome the improvements to the offer of amends machinery.

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