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Lord Howie of Troon moved Amendment No. 3:

Page 3, line 21, at end insert--
("( ) When a third party is conferred rights by more than one promisor, each promisor's liability shall be proportionate to, and limited by, that promisor's undertaking.").

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The noble Lord said: This amendment relates to the complex nature of the construction industry and the fact that there is a network of contracts between people, who might often be the same people though in different guises. It seeks merely to ensure that, when a third party is the third party to two or three different first and second parties, any damages that he might accrue should be shared out equally and in proportion to the other parties. I feel that this will not be to my noble and learned friend's taste, however, I hope he will consider it. I beg to move.

The Lord Chancellor: I assure my noble friend that although, as he observed, his amendments were tabled rather late in the day, I certainly have considered them carefully.

The purpose of the Bill is to enable the contracting parties to confer enforceable rights on third parties to the extent that they themselves choose to do so and no more. They will therefore be free to place limitations on their liability as they choose under the contract to the third party. As the noble Lord, Lord Meston, said on an earlier occasion, it may be that the construction industry needs to look with great care at the many contracts that apply to interlocking transactions. It may do no harm to that industry if it looks with greater care at the precise obligations that it creates.

Where there is more than one promissor the parties may specify what their individual liabilities are to be, including the proportions in which they are to share any liability. The amendment, however, may convey the impression that where there is more than one promissor in order for the contract to be effective it must specify the quantum of the obligation assumed by each promissor. That is not the intention. In the ordinary way the court will construe any contractual provision to be either joint or several or joint and several according to whatever interpretation it concludes is the correct one. It is however entirely plain that if the contract quantifies the obligation of each promissor separately, that will limit the obligation of each to the third party beneficiary. The moral therefore is that there should be clear contracts. On that basis I invite the noble Lord to withdraw his amendment.

Lord Howie of Troon: I thought for one moment that my noble and learned friend had accepted my amendment but once again I turned out to be mistaken. I shall read carefully what my noble and learned friend said and attempt to understand it within the next few days. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

3.45 p.m.

Clause 3 agreed to.

Clauses 4 and 5 agreed to.

Clause 6 [Exceptions]:

The Lord Chancellor moved Amendment No. 4:

Page 3, line 39, leave out ("contained in") and insert ("on").

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The noble and learned Lord said: Amendment No. 4 is a drafting amendment to make clearer exactly which contracts will be excluded from the operation of the Bill by Clause 6(1). A single document may contain provisions that set up more than one contract. It may contain a contract on a negotiable instrument in addition to what is effectively another contract that has no negotiable element. By this amendment we modify the wording slightly to make it plain that it is only the former--a contract on a negotiable instrument--that is outside the provisions of the Bill.

I understand from the Financial Law Panel that the distinction has particular significance for practices in the euro securities markets. Thus, for example, a company may issue a global note which is negotiable and deposit it with a depository institution, perhaps a bank. The parties to the negotiable instrument will be the issuer and the bank and the investor's right will be against the bank. But it may be intended that in certain events, for example, the insolvency of the depository institution, the investor should have rights against the issuer. We believe that at present this is achieved by the rather cumbersome method of the issuer executing a deed poll that confers on the investor rights against the issuer. I understand that the wish is to use this Bill to obviate the need for deed polls to confer rights on the investor against the issuer. The Government are content to respond to the Financial Law Panel on the basis that this amendment will allow the Bill to provide a useful additional facility for the London market. I beg to move.

Lord Donaldson of Lymington: I begin by declaring an interest as chairman of the Financial Law Panel. I thank the noble and learned Lord the Lord Chancellor for moving this amendment and for the explanation he gave. The panel very much welcomes the Bill as giving rise to new rights to enforce third party obligations. Its particular concentration is the operation of the bond market. The amendment makes even clearer the fact that provided the obligation to a third party is not a contract on the bill of exchange, or whatever it may be, there is no problem.

At one point in the panel's deliberations some members took the view--no doubt they still do--that the use of deed polls to confer rights on third parties was a cumbersome procedure, as the noble and learned Lord said. There are many practising solicitors in this field who have become so used to it that they do not regard it as cumbersome in the least, although London is different from any other financial market. As far as I am aware no one has been able to point to a defect in the system apart from the fact that it is unusual. In that situation I believe that the use of deed polls remains an alternative. However, I very much welcome the fact that the Bill will provide those who have inhibitions about deed polls with the ability to proceed by a different route. That will also be available in any specialised transactions where plainly a deed poll is inappropriate,

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however unusual those transactions may be. I welcome the amendment and thank the noble and learned Lord the Lord Chancellor for the way in which he moved it.

The Lord Chancellor: Before departing from the amendment, I should make plain that by my choice of language in moving the amendment I did not seek to cast any doubt whatever on the legal effectiveness of the use of deed polls.

On Question, amendment agreed to.

Lord Howie of Troon moved Amendment No. 5:

Page 3, line 43, at end insert ("or under any contract falling within section 104 of the Housing Grants, Construction and Regeneration Act 1996.").

The noble Lord said: I am very pleased that my noble and learned friend has just made another exemption from the Bill. This amendment proposes an exemption from the Bill for the construction industry as a whole. Were the amendment to be accepted, as I believe should happen, my earlier amendments would be otiose and need not have been considered. I believe that I have already laid the ground for this argument and I shall not go over it again. To my mind--it is not a legal mind--the Bill assumes that there are two contractors of equal weight, a promissor and a promisee, who reach an agreement and all goes well. This is not so in the complicated arrangements of the construction industry. The special nature of the construction industry can be seen from the fact that in 1986 we had a lengthy debate on the Housing Grants, Construction and Regeneration Bill, now an Act. Part II of the Act was devoted entirely to construction contracts because of their special nature.

The special nature of construction contracts, as already recognised in the Housing Grants, Construction and Regeneration Act, should be recognised. I suggest to my noble and learned friend--I hope that he will pay some heed to the suggestion--that the best way to do that is to exempt the construction industry from this Bill and amend the Housing Grants, Construction and Regeneration Act in order to include the protection for third parties which he thinks necessary as a generality of the law so that they then become protections as regards the complex nature of the construction industry. I beg to move.

Lord Meston: The noble Lord suggests that the amendment is justified because construction contracts are special. They are certainly complex; we all agree that. He also said in effect that the Bill suggests, inaccurately, an assumption of an equal bargaining position in construction contract situations. Surely the noble Lord's amendment substitutes a sweeping assumption the other way: that there is presumed to be inequality in construction contracts. I suggest that that is equally invalid and too generalised an assumption for the purposes of the law.

The Lord Chancellor: The noble Lord, Lord Meston, is right. The construction industry is not the only area of commercial activity in which there are

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contracts in sets or sequence. Complex sets of related contracts often call for consideration together--for example, in shipping or the export trade. I accept that the noble Lord, Lord Howie, has much experience of the construction industry and his views are always worthy of careful consideration. On this occasion, however, I have no doubt that the Committee should not accede to what he proposes. My experience of the construction industry is that it is rarely united in its views and I do not believe that there is unanimity on this occasion either. My understanding is that the Bill is a welcome reform for many clients.

The theme of the Bill is to enable the parties to give effect to their contractual intentions. It is up to them to decide whether or not a third party should be able to enforce a contractual term in his favour. To my mind, it would be far better to do what the Bill does--to give parties to construction contracts the opportunity to make such an agreement, but not to require them to do so--than to exclude a construction contract altogether and thus make it impossible for them to confer enforceable rights on third parties. That would be the effect of the noble Lord's amendment.

I should also draw the Committee's attention to the fact that in this Bill we are bringing our law into line with that of other Commonwealth countries which have made the same changes in recent years. None of them has made particular provision excluding construction contracts and I see no reason why the United Kingdom should do so. On that basis I invite the noble Lord to withdraw the amendment.

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