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Griffiths, Win (Bridgend)

Hardy, Peter

Hattersley, Rt Hon Roy

Haynes, Frank

Hogg, N. (C'nauld & Kilsyth)

Home Robertson, John

Hood, Jimmy

Howells, Geraint

Hughes, John (Coventry NE)

Hughes, Simon (Southwark)

Janner, Greville

Johnston, Sir Russell

Jones, Barry (Alyn & Deeside)

Lambie, David

Leighton, Ron

Lestor, Joan (Eccles)

Lewis, Terry

Litherland, Robert

Livingstone, Ken

Livsey, Richard

Lofthouse, Geoffrey

Loyden, Eddie

McAvoy, Thomas

McCartney, Ian

McKay, Allen (Barnsley West)

Maclennan, Robert

McWilliam, John

Madden, Max

Mahon, Mrs Alice

Marek, Dr John

Marshall, David (Shettleston)

Martin, Michael J. (Springburn)

Martlew, Eric

Maxton, John

Meale, Alan

Michael, Alun

Michie, Mrs Ray (Arg'l & Bute)

Molyneaux, Rt Hon James

Morley, Elliot

Orme, Rt Hon Stanley

Patchett, Terry

Pike, Peter L.

Powell, Ray (Ogmore)

Primarolo, Dawn

Quin, Ms Joyce

Redmond, Martin

Ross, William (Londonderry E)

Rowlands, Ted

Salmond, Alex

Skinner, Dennis

Smith, Andrew (Oxford E)

Smyth, Rev Martin (Belfast S)

Soley, Clive

Steel, Rt Hon Sir David

Steinberg, Gerry

Strang, Gavin

Taylor, Matthew (Truro)

Thomas, Dr Dafydd Elis

Wallace, James

Walley, Joan

Wareing, Robert N.

Watson, Mike (Glasgow, C)

Wigley, Dafydd

Winnick, David

Wise, Mrs Audrey

Young, David (Bolton SE)

Tellers for the Noes :

Mrs. Margaret Ewing and

Mr. Andrew Welsh.

Question accordingly agreed to.

Mr. Deputy Speaker forthwith declared the main Question, as amended, to be agreed to.

Resolved,

That this House welcomes the publication of the Consultation Paper on The Structure of Local Government in Wales ; considers that it provides a sound basis for further public debate on local government structure in Wales ; approves of the continuing development of the partnership between Wales and regions of Europe under the present constitutional arrangements of the United Kingdom ; reaffirms the position of Wales as an integral part of the United Kingdom ; and therefore rejects arguments for an elected Welsh Assembly, the creation of which would undermine the present arrangements for the direct representation of Wales in the Government of the United Kingdom.

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Foreign Corporation Bill [Lords]

Order for Second Reading read.

7.22 pm

The Solicitor-General (Sir Nicholas Lyell) : I beg to move, That the Bill be now read a Second time.

This is a short but important Bill. Its object is to ensure that corporations incorporated under the laws of territories that the United Kingdom does not recognise as states can be treated here as having legal personality. A decision by the Court of Appeal last year on the legal personality of an international organisation, since reversed by the House of Lords, led to consideration being given to other questions of legal personality. It was agreed that the law relating to the status of corporations from non-states should be clarified by legislation.

If the Government do not recognise the territory of another part of the world as a state, it has been argued that our courts should not recognise its laws either, including those on the incorporation of companies. The result is that a company, although perhaps doing business here and well accepted as doing so, might not be able to sue or be sued in our courts. On the other hand, there are signs that the court will seek to avoid such a strict approach and will look at the commercial realities of such a case rather than at the political relations between the territory and this country from time to time. That is, of course, the view that the Government prefer.

In the Government's view, such basic legal questions as, "Is this body a corporation?" and, "What does its constitution permit?" should not depend on questions of foreign policy. All that the Bill seeks to do is to say that companies are not to be denied legal personality here simply because the territories in which they are incorporated are not recognised as states.

I should make it clear that the Bill does not change our policy or practice on the recognition of states in any way. The internationally accepted criteria according to which the Government do or do not recognise territories as states remain the same. The Bill will reassure not only foreign corporations that already operate in this country or which may wish to do so, but companies and individuals who do business with them. It will not be possible for either party to try to avoid its obligations, as happened in a recent case, by claiming that the corporation has no legal personality here because it comes from a non-state.

Clause 1(1) provides that, if the laws of the territory are applied by a settled court system at the time when the question arises, the question whether a corporation has been incorporated or dissolved is to be determined as if the territory were a recognised state. Courts and legal advisers here will be able to look at and take account of the territory's laws in the same way that they would do if the corporation came from a recognised state.

I should draw attention to clause 1(3), as it validates Acts, including Acts relating to registration which would have been valid when done if the Bill had then been in force. That retrospective element is justified and does not go further than is necessary. The provision relates in particular to obligations that have been entered into in good faith by a foreign corporation and another party on the basis that the corporation has legal personality under our law. Clause 1(3) means that it will not be possible for

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either party to dishonour its obligations on the ground that the corporation had no legal personality when it entered into them. As those who have followed its legal history will understand, the Bill is needed. It is needed to remove doubts and uncertainties in the commercial and financial world. Without it, there would be a possibility that bona fide companies that operate here would be held not to have legal personality in the eyes of our law, leaving their clients, customers and creditors at risk. Those doubts may also dissuade foreign corporations from setting up business here. Such doubts, once raised, must be resolved rapidly.

Dr. Norman A. Godman (Greenock and Port Glasgow) : Will the right hon. and learned Gentleman confirm that the concept of legal personality has equal validity for the Scottish legal system as well? It is an important question with regard to the number of foreign corporations setting up satellite subsidiaries in Scotland.

The Solicitor-General : Yes. The concept is important wherever commercial activity is carried out : I can so confirm.

Legislation in this area has been called for by City firms of solicitors, and the content of the Bill has been discussed with them. Similar legislation has recently been introduced in Australia. The Bill does not accord any recognition of any territory as a state, and should not be interpreted as doing so. It clarifies, in accordance with commercial reality, the law on the legal personality of corporations from non-states which come to this country. I commend it to the House.

7.28 pm

Mr. John Fraser (Norwood) : As the Solicitor-General has pointed out, the Bill has retrospective effect. It is relatively rare that Parliament passes retrospective legislation. I must not be critical, because I did the same when I was a Minister. When City solicitors and City of London bankers tell the Government that something is wrong, that they have found a legal technicality that might deprive them of the right to recover their money, legislation goes through the House in double quick time. Today the Bill will have its Second Reading, Committee stage, Report stage and Third Reading, all within a few minutes. That is all right for City bankers, but if there is a technicality affecting a tenant, or somebody's pension or social security claim, legislation does not go through quite so quickly--certainly not retrospective legislation such as the Bill before us.

It is right, however, that the Bill should be retrospective, because it does no more than put the parties in the position in which they thought they were when they concluded their bargains. Both parties would have thought that they had the legal capacity to enter into a contract or other legal relationship, so we are doing no more than the parties intended should happen. I draw attention to the retrospective nature of the Bill but in this case it is right. The Bill is concerned with companies incorporated under the laws of states that we do not recognise. For example, we do not recognise Palestine or Taiwan as separate states. Another example is the Turkish Independent Republic of Northern Cyprus, with which my constituents in south London often deal. In the near

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future, Eritrea, or part of Kurdistan, for instance, may assume the qualities of states that are not recognised by Her Majesty's Government.

There is a list of territories which, although not recognised by the Government, may have settled systems of law and court systems that work on proper civilised lines. The Bill provides that a company incorporated in such a territory not recognised by the United Kingdom Government will nevertheless be accorded legal corporate personality when it comes to trade in the United Kingdom.

Provided that the foreign territory has a settled legal and judicial system, and laws by which a corporation can be created, it would be wrong to deny customers and contracting parties the right to sue simply because the state under which incorporation took place is not recognised by the United Kingdom Government. Commercial laws should recognise the realities of trade, and should be as free as possible from technical traps.

A company incorporated in northern Cyprus may supply fruit. There has been some discussion about Azil Nadir operating in Cyprus ; this is not a theoretical matter. It is right that those who contract with a company incorporated in northern Cyprus should have rights against it, and the fruit traders of northern Cyprus should have rights against their customers here. The same is true of companies supplying clothes, materials or toys from Taiwan.

The Bill is right to deal with those issues, but it leaves many unanswered questions and creates huge anomalies, which I shall talk about in a moment. I suggest that, as a condition of the Bill being given a rapid passage today, the Solicitor-General, on behalf of the Lord Chancellor, should give an undertaking to the House that the Lord Chancellor will ask the Law Commission to examine and report on the recognition of foreign and domestic independent legal personalities, including the question of corporate personality. I shall ask some of the questions that the Bill leaves unanswered. How is a customer to know how to determine the vires of an overseas corporation? Will it be treated as having the same general powers as a United Kingdom company, or the sort of limited freedom of contract possessed by Hammersmith and Fulham council? As the Solicitor-General knows, that council was found to have a corporate personality but not the ability to enter into certain contracts with banks. We are not sure whether the vires law will apply to the overseas corporations. How can a creditor wind up an overseas corporation, or extract a contribution or payment from the contributors? Will the concept of wrongful trading introduced in the most recent Companies Act apply to officers and directors of overseas corporations as it applies to officers and directors of United Kingdom companies? That is a question of some importance when an overseas company continues to trade knowing that it is insolvent, and there ought to be a personal liability on those who know that the company is conducting its affairs in that way. Those are several questions which should be answered.

The Bill creates huge anomalies. That is not an argument against the Bill, but it is as well to recognise the anomalies. For instance, by virtue of the Bill, a partnership under the civil law system of a non-recognised foreign state will have a legal corporate personality in the United

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Kingdom. For instance, in France--I know that the Bill does not apply to France, as we already recognise French domestic corporations--an organisation such as a partnership has a separate corporate individual personality.

If a non-recognised state has a civil law system like that of France, whereby a partnership has a separate legal personality, by virtue of the Bill such an organisation will have a separate legal personality in this country, too. But a partnership set up inside this country--for instance, a large firm of solicitors employing, say, 2,500 people, with several hundred partners--is not recognised as having a separate, independent legal personality. It is ridiculous that, technically, one has to sue hundreds of people.

It is not possible to sue a club ; one has to sue the trustees because the club has no separate legal personality. Sometimes, difficulties have arisen concerning trade unions, and I have come across problems concerning Members of Parliament who say that they have been libelled by the Society for the Protection of Unborn Children. SPUC does not have a separate legal personality under British law. If SPUC libels somebody at the next general election--it is alleged to have done so in past elections--no proceedings can be taken against the organisation because it does not possess a separate, independent legal personality in Britain.

By virtue of the Bill, however, if a similar organisation had been incorporated under the laws of Taiwan, and had a recognised, separate, independent legal personality there, it would have an advantage--or possibly a disadvantage--in this country compared with British clubs, trusts and other non-company organisations. That seems ridiculous. I shall illustrate what I regard as one of the most dangerous anomalies. I believe that the Solicitor-General referred to the case of the Arab Monetary Fund, which was decided earlier this year by the Judicial Committee of the House of Lords. The AMF was formed in 1976 by 20 rich, powerful, recognised Arab states together with Palestine, which is not recognised as a separate state by the United Kingdom. The AMF established an international banking organisation for those Arab states. It was formed by international treaty and recognised by public international law. But the AMF had not been accorded the status of a corporation by Order in Council under the International Organisations Act, 1968.

It then alleged that a Dr. Hashim had stolen $50 million from it. It decided to sue in the British courts for the recovery of that money from Dr. Hashim. The Court of Appeal under Lord Donaldson--a man who does not always commend himself to some of my hon.

Friends--decided that the AMF had no legal personality at all. If we had been left with the Court of Appeal decision, a two-person balloon manufacturing operation from Taiwan or a melon grower from northern Cyprus would be recognised in the United Kingdom as a corporate institution, notwithstanding the fact that the states concerned were not recognised by the British Government, but a joint organisation, set up under international treaty by 20 rich, powerful, prestigious Arab states enjoying friendly commercial relations with Britain, would not be recognised, even if it was alleged that $50 million has been stolen from it. If it had been left to Lord Donaldson and the Court of Appeal, that would have been the position.

Luckily, as a result of a good deal of ingenuity on the part of the House of Lords, it was decided that, because

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