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Lord McIntosh of Haringey moved Amendment No. 18:

(a) the").

The noble Lord said: In moving Amendment No. 18, I should like to speak also to Amendments Nos. 19 to 24. These are amendments to Clause 6 to which I referred in discussing earlier amendments. They seem complicated on the Marshalled List, but I hope that the marked copy of the Bill which I supplied makes it possible for me to say that these are largely technical or drafting amendments. However, there is an issue of substance here which I want to set out.

Concerns were expressed, particularly by the professional consultees, that the effect of the drafting of Clause 6(2) goes further than was intended by removing the agency of the member in the circumstances described at Clause 6(2)(a) and (b). Paragraph (a) refers to where the member has no authority to act and paragraph (b) refers to where the person with whom he is dealing believes that he has no authority to act or does not know or believe him to be a member of a limited liability partnership. The amendments respond to those concerns and ensure that the Bill meets the agreed intention. It is important that the member should continue to be an agent of the limited liability partnership for all purposes, even if his acts do not, in certain circumstances, bind the LLP. The agent--the member--owes fiduciary duties to the principal--the LLP. Those should apply even if, in a particular case, his acts do not bind the firm.

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Amendment No. 20 provides that third parties--the outsiders, if one likes--who have knowledge which bears on a member's status cannot rely on the member being an agent of the LLP. The circumstances in which that would apply would be where, first, the third party knew or believed that the individual with whom he was dealing was not a member of the LLP; and, secondly, the third party knew or believed that the member with whom he was dealing had no authority.

We have gone further in the second provision than was originally the case in the Bill by saying that a third party cannot rely on the member being an agent where he believed that the member had no authority. The specific change is intended to cover the situation where a member of an LLP does something wholly unconnected with the LLP; for example, a member of an LLP of solicitors who goes into the business of selling second-hand cars. It would not require absolute knowledge; belief would be a sufficient test.

I believe that Clause 6, as amended by Amendments Nos. 18 to 24, is not only clearer than it was originally but also more precisely reflects our intentions. I beg to move.

6.15 p.m.

Baroness Buscombe: I rise to speak in support of this group of amendments. For my part, the amendments help to clarify the meaning of Clause 6. Having cast aspersions on previous amendments in relation to the drafting of the Bill, it is only fair that I say that the drafting in this instance has helped to clarify the parameters of the agent. The Minister is already aware that, in relation to Clause 6 as a whole, we regret the dropping of subsection(1)(c), as it appears in the earlier draft of the Bill. That made specific reference to the law relating to partnerships. Following all that has been said today, it is clear that since the earlier drafting of the Bill the Government have very much moved on in terms of the accent on company law as opposed to partnership law.

Lord Goldsmith: I agree that the wording of the clause is much improved, but I want to raise one issue in relation to it. It relates to the particular words to which my noble friend the Minister referred--that the person knows or believes that the member has no authority. It is right to contrast that with Section 5 of the 1890 Act, which uses the expression,

    "and the person with whom he is dealing either knows that he has no authority or does not know or believe him to be a partner".

The concept of belief in relation to "partner" makes a good deal of sense. If one does not believe someone to be a partner, one has no business believing that he has authority to act on behalf of anyone else. But the more I look at it, the more I am troubled by the watering down of knowledge in relation to paragraph (a)--in relation to the question of whether the person who otherwise ought to be able to assume that the member has authority is to be deprived of the benefit of that; that is to say, not to be able to hold the limited liability partnership to account.

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If he knows that the person does not have authority, I have no difficulty with the provision at all. That is what the Partnership Act 1890 provided. My question concerns belief. What is it that would justify saying that someone cannot rely on the member binding the firm because he does not know that he does not have authority--yet he believes that to be so? I am worried that that expression should not be taken in any way as amounting to, for example, simply suspicion. I wonder whether it is worth further considering precisely what the expression adds to the wording which otherwise I entirely endorse.

Lord Lucas: I should be grateful if the Minister could help me by clarifying one or two points on this revised wording. First, under Clause 6(1)(b), the important thing for a partnership to do if a partnership has such a member--for instance, my accountancy partnership has a member who is not entitled to sign audit reports--is to ensure that third parties dealing with that partner know that he does not have that authority; otherwise, it will be caught by this revised wording. The revised wording takes agency to the point where, if one is dealing with an accountancy firm, one can presume that any individual party with whom one is dealing is omnipotent; that there are no restrictions on his ability. One has every reason to believe that he has the power. He is a partner of the firm and therefore he can do it. However, in order for the revised wording to bite, one must know that he does not have the power.

How does the Minister envisage that a large accountancy firm will bring to the attention of its myriad of clients the restrictions on the ability to act which affect its partners? Will it be sufficient to have a general notice at the bottom of the note paper saying that people ought to consult the partnership about what powers individual partners have? How does he envisage this happening in practice so that a limitation on the partner's ability to act may be made manifest to third parties with whom the person is dealing?

Under Clause 6(3), where a person has been dealing habitually with a partner of a firm and that person then ceases to be a member of the firm, what duties does the limited liability partnership have to inform the client that the person with whom he was dealing is no longer a member? If it neglects to do that, is it still free of all liability just by sending a notice to the registrar? That would seem to be a little unfair.

Lord Phillips of Sudbury: I absolutely agree with the last point made by the noble Lord, Lord Lucas. I believe that it will be a much more common occurrence than the Committee may think--namely, the active attempt by people to avoid liability under this legislation by chopping and changing registrations of members. If the Committee thinks that I am unduly cynical, I can only say that it is a cynicism born of long experience. I am afraid that in certain sectors of the economy there is a great deal of jiggery-pokery and every advantage will be taken.

I should also like to speak in support of remarks made by the noble Lord, Lord Goldsmith. He is correct in drawing a distinction between knowing and

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believing. I merely point out that these days solicitors do a multiplicity of things. I refer to them as one example of the professional bodies that will take advantage of the LLP. They sell property; they act as attorneys; they are very often partners and non-executive directors of companies of which their firm is also the solicitor. I suggest that it is extremely difficult to know what someone believes, or believed, given that a court will have to construe that.

A large firm of solicitors or accountants is in an extremely powerful position over and against an individual member of the public in sidelining or derailing a perfectly proper claim brought by an individual by pretending--I use the word advisedly--that they did not believe that the partner concerned did not have authority. In considering the Bill, we need to be extremely careful to give no help at all to those who will, I fear, be unscrupulous in seeking to take undue advantage of what is the extension of an immense public privilege via limited liability.

Lord McIntosh of Haringey: I have certainly got the big guns raising questions about the new drafting. I acknowledge that. My understanding as we went through the amendments last week was that what we were doing was providing a failsafe on the side of the client--in other words, the provision would make it more difficult for a limited liability partnership to evade any responsibilities. But several noble Lords, including my noble friend Lord Goldsmith, have suggested that the failsafe might be in the other direction. It was certainly not in my mind that that should be the case. However, if the introduction of the words, "or believes", in the part of subsection (2)(b) which refers to authority does go in the other direction and weakens the rights of the third parties, those with whom the LLP is doing business, that is not what is intended.

This is a genuinely difficult issue. I recognise that we have sprung the new wording on the Committee at relatively short notice. I should like to include the wording because I believe it is clearer to do it that way. However, I should like to write to all noble Lords and, if that is their wish, meet with noble Lords before Report stage to make sure that we are of one mind about this matter. I believe that we are all here on the side of the customers rather than on the side of the professionals. I hope that on that basis noble Lords will not resist the amendments which have been agreed to be an improvement in terms of clarity, if not entirely in effect.

On Question, amendment agreed to.

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