Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Bowness: I have, on other occasions and in similar debates, envied those who have been able to stand at the Dispatch Box on one side or the other and say: "Well, of course, I'm not a lawyer". I am not allowed that excuse. Therefore, the best thing I can do is to thank the Minister for her explanation and say that I shall read carefully what she and other Members of the Committee have said. Having read it, I hope that I shall be as satisfied and certain as the Minister is that such circumstances cannot arise.

In justification of having brought the amendment to the Committee to be discussed, I have to say that, as the noble and learned Lord, Lord Donaldson, said, there have been a number of cases where local authorities have sought to do precisely what I feared this clause might allow them to do. However, I will take the amendment away and read the Official Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5, as amended, agreed to.

Clause 6 agreed to.

4 p.m.

Clause 7 [Absence of relevant discharge terms):

Baroness Hayman moved Amendment No. 14:

Page 5, line 16, leave out from ("section") to ("do") in line 21 and insert ("the circumstances in which there are no relevant discharge terms having effect between the local authority and a

21 Oct 1997 : Column 627

person who is a party to the contract include (as well as circumstances in which no such terms have been agreed) circumstances in which the result of a determination or order of a court, made (despite section 6(4)) on an application for judicial review or an audit review, is that such terms").

The noble Baroness said: This amendment responds to a point raised by the noble Lord, Lord Bowness, during the Second Reading debate about the relationship between Clauses 6(4) and 7(3) of the Bill, a matter which I agreed at the time to consider further.

I have explained how, where a certified contract is challenged in judicial review or audit review, the court will have a discretion to determine that the contract may continue notwithstanding that it was outside the authority's powers or was improperly entered into, that is, ultra vires--the point with which we have been dealing. Where the court determines that a contract should be set aside, it is important that there should be some enforceable provision in place to which the parties can appeal to determine the consequences of the court's decision.

Accordingly, Clause 6 of the Bill safeguards any provisions which the parties to a certified contract may agree to regulate the consequences of a court order setting the contract aside. The court order will not affect the enforceability of such provisions if they provide solely for the payment of compensation to the contractor or financier or the ownership or possession of any assets provided under the contract, or both of these things.

Where such "discharge terms" have been agreed, it is important that they should themselves be protected by a safe-harbour provision so that the contractor or financier can be assured that they will not be treated as being outside the authority's powers or improperly entered into. That is achieved by Clause 6(4) of the Bill, which, like Clause 2(1) for the main contract, provides that the authority shall be taken to have had power to enter into the discharge terms and to have exercised that power properly.

Of course, it may be that no discharge terms are agreed for a certified contract. To meet that contingency, Clause 7 provides as an ultimate fall-back that the contractor or financier should receive damages as if the contract had been repudiated by the authority. That is, the contract is treated as if it were brought to an end by the authority's repudiation of its obligations under it, and the contractor is then entitled to be paid damages designed to put him into the position in which he would have been if the contract had been properly fulfilled. He would, for example, be entitled to something for actual and anticipated loss of profit.

It is possible that the court could be persuaded to consider the lawfulness of discharge terms notwithstanding the safe harbour and might conclude that they were not proper discharge terms at all. The court might conclude, for example, that they made some outrageous provision (for example, that the authority should pay a penalty) or were agreed by the authority with an improper motive, or even that there was reasonable suspicion of some collusion or fraud. Unlikely though that may be, the Government are determined that the Bill should provide authorities,

21 Oct 1997 : Column 628

contractors and financiers with the certainty of knowing what consequences would flow from it. Accordingly, the amendment to Clause 7(3) makes clear that that too would be a situation in which there were no discharge terms, so that the contractor or financier would be entitled to repudiatory damages.

Amendment No. 14 clarifies the circumstances under which there are no discharge terms having effect. Clearly, there will be no discharge terms where none has been agreed by the parties to the certified contract. But it is also possible that, despite Clause 6(4) of the Bill, a court might conclude in an extreme case in public law proceedings that terms agreed as discharge terms are not to have effect. The amendment would deal with that very unusual but possible circumstance. I beg to move.

Lord Bowness: I thank the Minister for bringing forward the amendment in response to the requests that were made at Second Reading. I shall reserve my remarks as to how I believe that the provision ought to be extended until I move the amendment standing in my name.

On Question, amendment agreed to.

Lord Bowness moved Amendment No. 15:

Page 5, line 21, at end insert--
("(4) A court shall only make a determination or order under subsection (3)(b) if the discharge terms--
(a) contain some provision which is grossly unreasonable or which discloses some improper purpose; or
(b) provide for some unlawful consequence.").

The noble Lord said: At Second Reading I asked whether there was a conflict between Clauses 6 and 7 of the Bill. Clause 6 and its various subsections seem to me very clear. There is reference to:

    "No determination or order made in relation to a certified contract on ... judicial review or ... audit review, shall affect the enforceability of any relevant discharge terms relating to the contract".
Later, there is reference to,

    "the relevant discharge terms shall have effect (and be deemed always to have had effect) as if the local authority had had power to agree them (and had exercised that power properly".
That appears to envisage no circumstances in which, in regard to a certified contract, the discharge terms can be challenged. However, as I submitted at Second Reading and do so again, that is contrary to Clause 7, which contemplates:

    "a determination or order made by a court ... that ... such terms ... agreed do not have effect".

The Government's amendment and the Minister's explanation seem to accept that there are particular circumstances in which the discharge terms can be challenged. Therefore, it seems to me that it would be helpful if we could be rather more precise as to the circumstances in which that finding was to be made. For that reason, I have suggested that the court should only make such a determination,

    "if the discharge terms contain some provision which is grossly unreasonable or which discloses some improper purpose; or provide for some unlawful consequence".

21 Oct 1997 : Column 629

I am not absolutely happy about the words "grossly unreasonable" but my advice was that the word "outrageous", which was my choice, would cause other problems. Members of the Committee may give me some advice on the appropriate word to use. I hope that the Minister will be able to say that there is some merit in being able to narrow the circumstances in which such a determination can be made, even if she has to take the matter away and seek from government advisers substitute wording for "grossly unreasonable". I beg to move.

Lord Donaldson of Lymington: When I spoke earlier I should perhaps have declared an interest in that I am chairman of the Financial Law Panel which has played quite a part in the preparation of the Bill.

The amendment produces an interesting point, which it does not really address but raises by a side wind; namely, whether the court could set aside the discharge terms without setting aside the contract. Quite clearly, if it set aside the contract, it would set aside the discharge terms and the whole lot would go. The contractor would be left with his fall-back position, his damages or compensation on the basis of a deemed repudiation.

I just do not know whether a court could set aside discharge terms. I say "I do not know" because I venture to think that no one knows. I had considerable experience as Master of the Rolls in dealing with judicial review cases and at no time regarded myself in that field as bound by precedent. I and my colleagues looked at the situation as it was developing in a public law context and decided on the right course to take. Perhaps the most outstanding example was the Datafin case, which people will know about. It was a classic example, if I may say so, of what could be described as "judicial engineering". I do not doubt that a court would consider setting aside discharge terms if they were sufficiently obnoxious, notwithstanding the fact that it might want the contract to continue.

Let me say one general word about the special discharge terms. The secretariat of the Financial Law Panel and I have looked carefully at that matter. For what it may be worth, our view is that neither local authorities nor contractors should spend much time on special terms. Local authorities can hardly be heard to say that the basis of repudiation is unreasonable and dangerous since they may well have had no power to enter into the contract. Nor can the contractor say, "I want something better than the standard fall-back repudiation", which provides full compensation for any loss that he suffered.

It may well make more sense economically therefore, certainly in terms of managerial time, to forget about special terms and either simply provide in the contract that the discharge terms shall be on the statutory basis--which I could look up and quote but I will not--or leave it with no discharge terms, in which case the statutory discharge terms will apply. They survive everything, judicially engineered or not. They are the sheet anchor of the contractor's protection.

Next Section Back to Table of Contents Lords Hansard Home Page