Partnerships (Prosecution) (Scotland) Bill [Lords]
The Committee consisted of the following Members:
† Bain, Mr William (Glasgow North East) (Lab)
† Clark, Katy (North Ayrshire and Arran) (Lab)
† Colvile, Oliver (Plymouth, Sutton and Devonport) (Con)
† Crabb, Stephen (Lord Commissioner of Her Majesty's Treasury)
† Hollingbery, George (Meon Valley) (Con)
† Hood, Mr Jim (Lanark and Hamilton East) (Lab)
† Jones, Graham (Hyndburn) (Lab)
† Lefroy, Jeremy (Stafford) (Con)
† McCann, Mr Michael (East Kilbride, Strathaven and Lesmahagow) (Lab)
† McKechin, Ann (Glasgow North) (Lab)
† Mundell, David (Parliamentary Under-Secretary of State for Scotland)
Reid, Mr Alan (Argyll and Bute) (LD)
† Stevenson, John (Carlisle) (Con)
† Stewart, Rory (Penrith and The Border) (Con)
Kate Emms, Committee Clerk
† attended the Committee
Second Reading Committee
Monday 11 March 2013
[Mr James Gray in the Chair]
Partnerships (Prosecution) (Scotland) Bill [Lords]
The Chair: Before we begin, it might be helpful to the Committee if I remind Members that this is effectively the Second Reading debate of the Bill. It is in Committee rather than in the Chamber, because it is a Scottish Law Commission Bill. Under Standing Order No. 59, Law Commission Bills automatically stand referred to a Second Reading Committee, as opposed to having their Second Reading on the Floor of the House. As this is a Second Reading debate, no Member may speak more than once, except by leave of the Committee, which will be rare. Conventionally, however, leave is granted to the Minister, who both opens and winds up the debate.
The Parliamentary Under-Secretary of State for Scotland (David Mundell): I beg to move,
That the Committee recommends that the Partnerships (Prosecution) (Scotland) Bill [Lords] ought to be read a Second time.
It is a pleasure to serve under your chairmanship, Mr Gray, as I know you take a close interest in Scottish matters. I should put on the record that I am a member of the Law Society of Scotland, which continues to take a close interest in the Bill; many of its members are in partnerships.
Members will be aware of the tragic circumstances of the night of 31 January 2004, when 14 people lost their lives in a fire at the Rosepark nursing home in Uddingston in Lanarkshire. Following the tragedy, the Lord Advocate brought a prosecution of serious criminal charges under health and safety legislation in Scotland, but because of a legal technicality—the dissolution of the partnership that ran the nursing home—nobody could be prosecuted. The Partnerships (Prosecution) (Scotland) Bill takes forward the proposals of the Scottish Law Commission to address the loophole that at present makes it impossible to prosecute partnerships that have been dissolved.
Rosepark nursing home was run by three individuals who had come together to form a business partnership. Following the fire, the partnership was dissolved. The Crown Office attempted three times to prosecute offences under the Health and Safety at Work etc. Act 1974. Those offences could be committed only by an employer. The first attempt to prosecute the former partners of the nursing home failed because they were charged as having been the employer at the time of the fire. The partners successfully argued that it was the partnership, which by then was no longer in existence, that had been the employer. A second charge was brought against the dissolved partnership. The partners successfully argued that the partnership no longer had any legal existence, so could not be prosecuted. A third charge was brought against the three individuals as whole surviving partners
In summary, despite the loss of 14 lives and the serious nature of the charges, prosecutors were unable to find a legal basis on which to pursue, in the Scottish courts, the partnership that ran Rosepark nursing home at the time of the fire. The Rosepark tragedy created the impetus for a Scottish Law Commission project to investigate why the prosecutions had failed and how the anomaly in the law could be addressed. In May 2011, the commission published a discussion paper on the issue and, following consultation with the legal profession, it reported with a draft Bill. Since then, the commission has worked tirelessly, alongside the Advocate-General for Scotland and the Scotland Office, to produce a Bill that provides a sound yet simple solution, ensuring that partnerships and culpable partners cannot evade prosecution by dissolving.
The Bill has completed its passage through the other place, and I am delighted to lead it through its Commons stages. It has the support of the Lord Advocate and the Scottish Government. In evidence to the Special Public Bill Committee in the other place, the Faculty of Advocates, the Law Society of Scotland and the Scottish Law Commission all broadly welcomed it. It is clear that the weight of evidence from witnesses in the other place was in support of the Bill. I hope that it will receive a positive response in this House.
The Bill responds to a feature of the general law of partnerships. In Scotland, a partnership is a legal person in its own right, and is distinct from its partners. The essential reason why the Rosepark prosecutions could not proceed was that the offence being prosecuted was one that could be committed only by an employer. As the employer in that case was a Scottish partnership, when it ceased to exist in law, there ceased to be a legal person to prosecute.
The aim of the Bill is to ensure that the dissolution of a partnership, or a change in its membership, will not prevent the prosecution in Scotland of a partnership, or, where the conditions for individual criminal liability exist, responsible partners. The Bill is therefore deliberately limited in scope. It will reverse the current position, which is that in Scots law dissolved partnerships cannot be prosecuted. It does not attempt to reform the law of partnerships more generally. In particular, it does not criminalise acts that are not presently criminalised. In other words, there is no expansion of criminal liability, either for partnerships or individual partners. The Bill merely closes down a technical bar to prosecution. Nor is it an attempt to clarify points of partnership law that do not relate directly to the competency of prosecution. The principle underpinning the Bill is that it should reflect, so far as is feasible, what would happen if a live partnership were prosecuted. In short, the principal effect of the Bill is to ensure, as far as possible, that if it would have been possible to prosecute a partnership had it been extant, it will be possible to do so if it has been dissolved, or has changed its legal personality through the assumption or resignation of partners.
Essentially, the Bill allows the prosecution of a dissolved partnership. There are two notable aspects of the measure. First, there is a time limit. A prosecution will have to
Secondly, the Bill applies only to offences that are capable of being committed by the partnership in its own right. As those are the only offences where the mischief arises—that is, where the dissolution or change of membership would prevent prosecution—the Bill is drafted to catch only them.
The Bill provides that a fine for an offence committed by a dissolved partnership can be enforced in the same way as a fine for an offence committed by a live partnership. Under existing law, where a criminal fine is imposed on a live partnership, it is enforceable in the same way as a civil debt of the partnership. The liability to pay a fine arises at the time when it is imposed. If partnership assets are insufficient to meet such debts, individual partners are liable to pay the fine from their personal assets. In Scotland, partners are jointly and severally liable for such fines. Therefore the net effect of the Bill is that persons who were partners immediately prior to dissolution are jointly and severally liable to pay the fine. It is relatively common for statutory offences to provide that an individual partner is also liable for an offence committed by the partnership where the offence is committed with that partner’s consent or connivance. Where the conditions for such individual liability exist, the Bill makes it clear that the prosecution of the individual will not be prevented by the dissolution of the partnership, or a change in its membership.
Sometimes, where a statute creates an offence that may be committed by a partnership, it goes on to provide that any fine must be paid from the partnership assets. In such a case, no fine could be enforced against a partnership that had dissolved, since there would no longer be any partnership left to own assets. In order to allow such offences to be prosecuted effectively, the Bill provides that any such restriction will not apply where a partnership has been dissolved. When a fine imposed on a partnership is enforced against the assets of a partner, that partner will have, in terms of the Partnership Act 1890, a right of relief against his or her fellow partners. That partner may also, depending on the terms of the contracts agreed between incoming and outgoing partners, have further claims against those former partners who were members of the firm at the time when the offence was committed.
The Bill also ensures that the prosecution of a partnership can proceed in the event of a change in membership. As the Law Commission and the Scottish Law Commission noted in their report on partnership law, in Scots law there is
“uncertainty as to whether a change in membership terminates the personality of the ‘old’ partnership and brings into being a ‘new’ partnership entity.”
One cannot say with certainty whether a partnership is the same legal entity before and after a change in membership. Given that the present law may be that a change in membership establishes a new legal entity, distinct from the one that existed before the change in membership, the Bill has been drafted to ensure that the continuing partnership can still be prosecuted. Otherwise, there is a risk that the assumption of a new partner, or the resignation of a partner, might make it legally impossible for the partnership to be prosecuted for offences it had already committed.
It might be suggested that a potential consequence of including the assumption of new partners in clause 4 is that a new partner could find him or herself criminally liable for an offence committed before he or she joined the partnership. That, however, is not the effect of the Bill. Clause 4 is solely about liability of the partnership entity to prosecution. It clearly would be wrong to impose criminal liability on any person who had not been involved in the commission of the offence, and the Bill does not do so.
The Bill extends to Scotland only. The Advocate-General has worked closely with the Lord Advocate in taking forward the Bill, as he does on many other issues. The Lord Advocate and his ministerial colleagues in the Scottish Government in Edinburgh accept that this is a matter that only Westminster can remedy. Since we came into government in 2010, we have introduced important new legislative measures for Scotland, not least of which was the further devolution of powers to the Scottish Parliament through the Scotland Act 2012. The Partnerships (Prosecution) (Scotland) Bill demonstrates the continuing and important role of the UK Government in taking forward Scottish legislation at Westminster, and our commitment to doing so.
The Rosepark tragedy revealed a serious failing in the legal capacity for prosecutors to pursue responsible partnerships for serious offences in Scotland. New legislation will not dispel the anger, frustration and grief felt by the families of the Rosepark victims, but for their sake and the sake of other potential victims, it is right that we change the law to ensure that such a tragedy never happens again. I look forward to a constructive debate, and I commend the Bill to the Committee.
Mr William Bain (Glasgow North East) (Lab): It is a pleasure to serve under your chairmanship once again, Mr Gray. The Opposition welcome this important Bill, which deals with a loophole uncovered in partnership law in the wake of the tragedy at Rosepark nursing home in Uddingston in 2004. As the Minister said, our thoughts must go first to the families of the 14 people who lost their life in the devastating fire there, which was directly caused by an earth fault at the back of an electrical distribution box in a storage cupboard.
A fatal accident inquiry in 2011, chaired by Sheriff Principal Brian Lockhart, established that some or all of the lives lost could have been saved if a risk assessment had been conducted and had led to the taking of reasonable precautions, which could have avoided or minimised the loss of life. The inquiry found fault with the maintenance of the electrical installation at the care
The laws we make in this House can never repair the feelings that arise from the loss of loved ones, but they can ensure that others never suffer a lack of closure as a result of processes in the criminal law, simply because of deficiencies in the law of partnerships in Scotland. We therefore welcome the work of the Scottish Law Commission. In particular, we welcome the work predating the Bill that was done on the consultation process by the commission’s chair, Lady Clark, who is the former Member for Edinburgh Pentlands and the former Advocate-General for Scotland; its previous chair, Lord Drummond Young; and Mr Patrick Layden, QC.
We welcome the fact that the Bill shows this Parliament’s continued importance to the reform of private law in Scotland under those areas reserved to the UK Parliament under the Scotland Act 1998. Scotland has two Parliaments that make laws on behalf of its people and institutions, and the Bill offers a perhaps too rare reminder of that important fact of constitutional and political life.
The tragedy at Rosepark nursing home in 2004 claimed the lives of 14 residents. However, because the partnership that owned and managed the home was dissolved after the fire but before the Crown Office in Scotland could initiate any proceedings for prosecution, the partnership could not be prosecuted. That came to light as a result of the case of Balmer v. Her Majesty’s Advocate in 2008. Following the decision in that case, the Scottish Law Commission published a discussion paper and consulted on possible options for reforming the law of partnerships in Scotland in this area. That consultation led directly to the Bill.
It is an important principle of commercial law that the legal personality of a company or partnership differs from that of the directors or partners. It is possible to prosecute the partnership quite separately from the individual partners under Scots criminal law. Indeed, it is vital that we uphold the concept that legal persons, as well as the individual partners in their own right, can be subject to liability for actions deemed to be breaches of the criminal law.
Another core principle of the law of partnerships in Scotland is that of joint and several liability for the civil and criminal obligations incurred by the partnership. Should a partnership be convicted of an offence, following prosecution, and be subject to a fine, any or all of the partners may be held liable for payment of any such fine imposed by the courts. That has been seen as critical in ensuring that the law can attach responsibility for payment to at least one member of the partnership. That partner then has the right to seek recompense for the outstanding share of the financial liability thereby incurred from the other partners through a civil action under the partnership agreement and the Partnership Act 1890.
The Bill attempts to close the loophole exposed by the Rosepark tragedy, by ensuring that partnerships that have been dissolved can be treated as being in existence for a further five years for the purposes of the law of criminal proceedings. That permits a prosecution to be brought against a dissolved partnership up to five
The general purpose of the Bill is therefore sensible in closing a loophole but not eliminating the distinctive character of the Scots law on partnerships. The Bill would also apply to partnerships in England, which, although they do not have separate legal personality as their Scottish counterparts do, could have evaded prosecution in circumstances similar to the Balmer case if the Bill was not extended to them.
An element of contention arises from clause 4, under which it is possible for someone to have joined a partnership after the commission of a potentially prosecutable offence and then face liability for some or all of any penalty applied by the court following a finding of guilt, despite the fact that that person was not involved at the partnership at the time of commission of the offence. That remains a significant concern for the Law Society and others in Scotland, as many businesses—not least a major part of the Scottish legal profession—are organised through partnerships.
It is interesting that one of the options canvassed by the Law Commission in its consultation paper was to adopt the burden of proof contained in the Copyright, Designs and Patents Act 1988, in particular section 285(4), where the onus is on a partner to show that they were ignorant of an offence, or attempted to prevent its commission, should prosecution be proceeded with. Although that approach had the approval of the Law Society, the Crown Office and the Procurator Fiscal Service, it was opposed by the Faculty of Advocates, the Senators of the College of Justice and the Glasgow Bar Association.
I know that the clause was thoroughly debated and the Government’s position tested in the proceedings in another place. We will seek to explore those points further in proceedings in Committee and on Report to determine whether a solution can be reached that strengthens the obligations on pre-existing members of a partnership to disclose any prejudicial conduct to incoming partners and, if possible, to extract the sting of several liability from those who were not members of the partnership at the time of commission of the offence. The Opposition’s view is that issue can be dealt with, even in the absence of a timetable from the Scottish Law Commission for a more general review of partnership law, as a possible component of its future work stream where that might address the issue of several obligations for fines arising as a result of delictual or other forms of liability in a partnership, and how that might impact an incoming partner.
For the reason that it closes loopholes in the Partnership Act 1890 and elements of Scots common law to make prosecution of dissolved partnerships possible, the Opposition strongly support the Bill. We will highlight certain issues in Committee and potentially seek to
Mr Mike Weir (Angus) (SNP): I am pleased to be able to make a short contribution. Perhaps I should declare an interest both as a former member of a partnership, although that was more than five years ago—I am probably out of the frame for this one—and as a non-practising solicitor, although I am no longer a member of the Law Society of Scotland.
As the hon. Member for Glasgow North East said, everybody will remember the Rosepark tragedy and the findings of the fatal accident inquiry. I associate myself with his comments; our thoughts are with the families in that case. I fully support the Bill, which is designed to tackle a loophole, and so do the Scottish Government, but I would like to ask a couple of questions for clarification.
In the House of Lords, Lord Wallace made the point that, effectively, a partnership could be subject only to a financial penalty; there could not be, for example, community service or imprisonment of individual partners. I think I already know the answer, but I would like to have clarification on the record. Will the Minister confirm what the position will be in respect of criminal convictions? Will a criminal conviction be purely against the partnership as a separate legal entity, or will any of the partners accrue a criminal conviction as a result of the partnership’s conviction that, for example, they would need to disclose in future years if they applied for another job or for one of the various positions for which disclosure is necessary?
I have a couple of points regarding clause 4, which, again, the hon. Member for Glasgow North East raised. I have spoken to the Law Society and there are concerns about how the provision will operate. I note that in the House of Lords, Lord Cameron of Lochbroom raised the point that, in circumstances where there might be a prosecution under the clause, one way to get round the problem would be simply to declare that a change of partner could be treated as dissolving an existing partnership and creating a new one. It seems to me that that would remove much of the concern. Lord Wallace said that the Government would consider that as a possibility—his exact words were,
“Why didn’t we think of that?”—[Official Report, House of Lords, 4 December 2012; Vol. 741, c. GC190.]
Has the Minister given any greater thought to that proposal as a way of dealing with the real concerns?
Although the Minister said that there will be no criminal liability on a partner who comes into the partnership, as a member of a partnership with a criminal conviction, something will attach to that person. If we adopted Lord Cameron’s suggestion, it seems to me that we could get round that problem, so that if the partnership was prosecuted, only those people who were partners at the time that the act was committed would be liable in any way. That would seem a relatively fair way of dealing with that problem, although I appreciate that one difficulty might be that there have been substantial changes in the partnership and the partnership asset. However, I am interested to find out whether or not the Government have considered that suggestion.
Subject to those questions, I too fully support the Bill and will support its Second Reading.
Mr Jim Hood (Lanark and Hamilton East) (Lab): It is a great pleasure to serve under your chairmanship, Mr Gray. Today is the first time I have been on this side of the Chair's desk since 1997. It is a sad occasion on which to be so, as I am now the local Member of Parliament for the area that the Rosepark home was in. In 2004, the local Member of Parliament was John Reid, now Lord Reid, who, along with the local Member of the Scottish Parliament, Michael McMahon, dealt with that disaster.
I come from a mining background—I was a miner for 23 years before I came here—so I am not a lawyer, but I learned at a very early age that disaster makes laws. The Mines and Quarries Act 1954 was entirely made up of legal measures to prevent disasters from occurring, and a lot of my study as a mining engineer involved legislation relating to that Act. The great tragedy is, although that disasters can always be prevented with the benefit of hindsight, the hindsight that is proposed by the Bill is to give power to pursue and prosecute people who have been responsible, through neglect or other means, for disasters.
As we know, 14 lives were lost at Rosepark—a great tragedy—and many were affected by injury, so, taking the families into account, the number of people affected may run into the hundreds. Whether or not lives were lost, certainly lives were destroyed. It is a terrible indictment of our law that such neglect is allowed to go unpunished. In the future, the Bill will perhaps deter those who are in partnerships, certainly in nursing homes, from allowing what the partners and owners of the Rosepark nursing home allowed to happen. Hopefully, that will prevent similar disasters from happening, but if they do happen, in the future the courts will have the power to prosecute. For that reason, I welcome this Bill.
Walking away from the responsibility of that great injustice at Rosepark was a disgrace and a tragedy, and hopefully the passage of the Bill will give some comfort— although I doubt it will be of much comfort for the victims and their families—that by our actions, by giving this Bill a Second Reading and putting it into law, we will prevent such a disaster from happening again. I am pleased to support the Second Reading of the Bill.
David Mundell: I thank all the hon. Members for their contributions to this debate. I particularly want to join the hon. Member for Glasgow North East in congratulating the Scottish Law Commission on its work in this area, particularly Patrick Layden QC, who has done so much to bring the Bill to the stage that we have reached today.
Although the Bill might come across as a technical measure, I think that the hon. Member for Lanark and Hamilton East brought back to the Committee’s attention the reason why such a Bill is required. It is needed to deal with injustice. The Rosepark incident was deeply regrettable, and it will never leave those who were caught up in it that no one has taken responsibility for those events and that our system of law was unable to bring anyone to account.
I am pleased to find that the Committee broadly welcomes the Bill and wishes it to proceed. I am sure that there will be matters to debate further at the
Hon. Members have made a number of points in the debate, and I will respond specifically to them. It follows from what I have said about the specific and narrow focus of the Bill that it is not our intention to undertake general reform of the law of partnership at this time. However, it remains open to others to propose that that be done at some stage.
Some of the issues raised by hon. Members, particularly on the liability of partners to pay a share of partnership debts, mostly arise from the present state of the law of partnerships and its interaction with the criminal law, rather than because of anything in the Bill itself.
The hon. Member for Angus asked a specific question about the conviction of a partnership and the implications for individual members. I can confirm that no individual would get a criminal record for the conviction of the partnership, although, as I think that I pointed out in my opening remarks, there are some legislative provisions that allow for partners and the partnership to be prosecuted.
The hon. Gentleman referred to the points made by Lord Cameron of Lochbroom on Second Reading in the other place. We looked at Lord Cameron’s suggestion that a change of membership would be deemed to be a dissolution. However, the effect would be that the fine would cease to be recoverable from partnership assets, because a ghost partnership, composed of persons who were partners at the time of the offence, would be deemed to exist. The difficulty with pursuing a ghost partnership is that any fines would not be recoverable from current partnership assets, but from a legal fiction, which no longer exists. The conviction of the partnership would be as previously constituted. That was set out in detail in a written response that the Advocate-General gave to Lord Cameron.
Mr Weir: I thank the Minister for that explanation, but I want to push him further. I am not quite sure why what he says differs from clause 1, where a dissolved partnership is being prosecuted. Surely, the position would be the same. If the partnership has been dissolved and is prosecuted within the five-year period, to take a fine against that partnership, in most cases, the individuals who were the partners at that time will have to be pursued, because there will be no partnership assets—certainly if that happens anywhere near the end of that period.
David Mundell: In clause 1, the partners who could be traced would be jointly and severally liable under those provisions. The second point, which relates to my earlier remarks, is that there is an issue in Scotland in
Mr Weir: I do not want to extend the debate on this point, but the Minister did mention that a letter setting out the situation had been written to Lord Cameron. It might be helpful were that letter circulated to members of the Committee before the next sitting, so that we might have a fuller understanding of the reasoning behind rejecting the suggestion.
David Mundell: I do not see why that should not happen, and I will speak to the Advocate-General.
The hon. Member for Glasgow North East made some specific points from the Law Society of Scotland, and I am pleased that I had the opportunity to have a direct discussion with the organisation about its concerns. I am sure that he will accept that there is always some risk that a partner who enters a partnership will find that there are liabilities of which he or she was not aware and that due diligence, making the checks that the partnership is as they understand it and that there are no issues of which they are unaware, is important when a new partner joins a partnership.
Where there is deception, however, the general law of partnerships provides that the innocent partner can have a remedy. Partnership is a fiduciary relationship. Each partner is bound to act in the interests of the firm and of his or her fellow partners. Where a person is therefore induced to join a partnership by misrepresentations from other partners, that partner has a right, under both common law and section 41 of the Partnership Act 1890, to rescind the partnership and claim restitution with the other partners.
I heard what the hon. Gentleman said about debating the issue further, but the Government do not consider that anything more specific is required or would be practical in the present Bill. There is a need to make known the Bill’s provisions, so that they are understood by bodies responsible for entities that are commonly partnerships, such as the Law Society, many accountancy firms and the Federation of Small Businesses. The Government are committed to working with such organisations to ensure that there is widespread understanding of what the Bill means for them.
I remain of the view that the Bill introduces an important provision to resolve an anomaly in Scottish partnership law. On that basis, I commend the Bill to the Committee.
That the Committee recommends that the Partnerships (Prosecution) (Scotland) Bill [Lords] ought to be read a Second time.