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4 Apr 2003 : Column 1173—continued
Ruth Kelly: As my hon. Friend knows, because he has raised these issues on many occasions with me and with the Treasury in various contexts, we are aware of the nature of that disadvantage and will give it due consideration when we consider our priority areas for reform. Of course, my hon. Friend will have to wait for a little while yet until we make those priorities clear, but I am sure he has the necessary patience.
The point made by my hon. Friend the Member for Edmonton (Mr. Love) about a level playing field for charities is indeed outside the scope of the Bill, which is purely about the differences between companies and industrial and provident societies. However, he makes a good point, and there will be a separate strategy and review of charities, which will consider changes to charity law in due course. I am sure that that review will consider the issue that my hon. Friend highlights.
Having fully considered the amendment proposed by my hon. Friend the Member for South Derbyshire (Mr. Todd), the promoter of the Bill, I am content that the amendment makes the necessary provisions. The Channel Islands authorities support the amendment and I can, therefore, recommend it to the House.
Amendment made: No. 6, in page 4, line 7, at end insert—
'(8) In this section "conveyance" means any document for the creation, transfer, variation or extinction of an interest in land.
(9) In subsection (5)(c) of this section the references to execution include—
(a) purported execution; and
(b) the doing of any act which (though not by itself execution) combined with other acts constitutes execution or purported execution.'.—[Mr. Todd.]
Mr. Todd: I beg to move amendment No. 7, in page 4, line 36, after 'which' insert—
'not less than 21 days'.
The amendment is perhaps of slightly more substance than the previous ones, although I have been interested in the interventions made and interest shown with regard to the first two groups. I think that this amendment merits a little more thought.
Mr. Levitt: Thank you very much.
Mr. Todd: I shall be interested to hear my hon. Friend's contributions on this matter as well.
10 am
The amendment deals with the protection of a contract or business deal between a society and a third party and the need to ensure that the actions of that society where it exceeds its constitutional objects do not prevent the contract from being legal and of substance. It relates to what should be done with regard to the consequences of such an event. If a society proves to be trading outside its rules, the object of the provisions is to protect the partner or customer in the contract. However, there is also a consequence for the society, which has to work out what to do about the fact that the objects set down in its constitution have been exceeded by the actions of its officers or a committee. The steps set out in the clause represent the belief that it should be possible for a society retrospectively to agree that those acting on its behalf have done so correctly.
The amendment sets out a notice period for a meeting at which such a decision might be made. The clause already gives a statement of the majority that must be achieved at such a meeting to secure that decision, but I think that it is perfectly legitimate that proper notice should be given for such a meeting, which will involve what may obviously be a very substantial decision for a society, as it is perfectly possible that the breach of objects is substantial and relates not only to a technical matter.
Mr. Adrian Bailey (West Bromwich, West): I thank my hon. Friend for giving way. I am interested to know what deliberations he had with regard to the 21-day period. I can see the logic of having no fewer than 21 days' notice, but the amendment does not seem to contain a further requirement to hold the meeting within a given period. On what basis did he deal with only half the timing equation?
Mr. Todd: That is a very reasonable intervention. The answer is that the 21-day requirement is based on
equivalent company law. However, that may not be an entirely adequate answer, as societies are obviously rather different institutions from companies, and simply saying that we want to proceed on the same basis as that which applies to companies might be seen as inadequate. I think that 21 days' notice gives those who are concerned about the breach of an object of a society the opportunity to gather their arguments and inform members. As I said, the matter at stake may be of some substance in the society, so some individuals might wish to lobby people to vote against the resolution.Perhaps it is worth setting out the consequences of not passing such a resolution. In those circumstances, a liability will remain among those who have made the contract—and rightly so. We should not permit circumstances in which the servants or a committee of the society can make a business deal that is clearly outwith the objects of the society, regardless of the democratic intent of its members. The provision is therefore a serious restraint.
Mr. Love: The argument that, because company law provides for a 21-day period, it is appropriate in respect of industrial and provident society law is not a strong one, considering that one or two shareholders will often own 75 per cent. of the voting rights in a company. In industrial and provident societies, a much wider group of people would be involved. My question relates to the provisions in a special resolution. There are protections, including the 75 per cent. vote, so one has to question whether it is necessary to specify 21 days as a special length of time and whether seven or 14 days would be more appropriate, especially where it may be necessary to pass a resolution to preclude legal action.
Mr. Deputy Speaker: Order. I think that, even on a Friday, I would like to observe the distinction between an intervention and a speech.
Mr. Todd: Thank you, Mr. Deputy Speaker. Nevertheless, I thank my hon. Friend for his contribution on the amendment, whether it was an intervention or a speech.
First, the wording ensures that the period should be at least 21 days. I recognise that my hon. Friends's examples involved shorter periods, but there is no reason why a society should not say that it will hold the meeting in 28 days' time or after a longer period, bearing in mind the initial point that he made, which was extremely sound. Indeed, that is why I said that my reference to mirroring company law was perhaps an inadequate answer. The institutions are very different and there are strong arguments for giving a decent interval. Before he intervened, I was setting out the sort of interval in which a genuine debate could take place about the implications of the decision. It is perfectly possible that substantial numbers of society members will profoundly disagree with a decision and wish to hold their officers and the committee instructing them answerable for that decision. This should not be some token paper process.
It is important to reflect on whether the proposed approach is the right one. My hon. Friend referred to an example that, I would argue, set aside some of the democratic constraints under which a society should operate. If there were a requirement that the meeting
should be held within seven days, those who would be concerned about the decision might well have very little opportunity to gather their arguments and inform their colleagues about the implications. The point is that the provision happens to be the same as that which applies in company law, but I certainly believe that any society should take the view that at least 21 days means just that. There may be circumstances in which a matter is of such substance that longer notice and greater information flow is required among members to ensure that they are properly informed about the implications of the decision that has been taken.
Mr. Bailey: I understand the logic of my hon. Friend's argument, but I am not sure whether he has addressed my concern. A society with a very long-standing membership could, for example, use the validation of that membership as an excuse for delaying a vote for a very long time. That would mean that the society had been operating outside its original terms of reference. What are his thoughts on that particular issue?
Mr. Todd: I thank my hon. Friend for his intervention. Such a lengthy delay would have two important implications. The first is a positive one that relates to the content of the Bill: the third party that engaged innocently in a contract with the society is protected, whatever the delay. That is an important issue to grasp. Where a contract has been struck with a third party by a society acting outside its objects, that individual or business will be protected because they acted unknowingly of the breach of the objects. As was mentioned on Second Reading, no such protection previously existed and such parties simply had to consult the constitution of the society themselves to be sure that the contract lay within the bounds of its objects.
The implications of lengthy delay within the society take me back to one of the Bill's foundations. Societies are democratic bodies, which is one of the reasons why they interest me, and presumably one of the reasons why hon. Members have been concerned and interested during the Bill's passage. They are interested in the fact that societies are the means of carrying out activities based on democratic will. A society might take the view that lengthy delay was required while the membership database was cleaned up to ensure that the correct people were notified of a meeting, although I cannot recall a circumstance in which such a decision was taken in my experience of societies. Most societies of which I know readily concede the inadequacy of their membership databases and recognise that it is inadequate to rely entirely on postal notices to inform people of a meeting of such substance. Members regularly do not notify societies of their changes of address, so the membership database would not be a full tool with which to notify people of a meeting. A retail society would achieve proper notification by placing notices in shops and places connected with the society's trading activities and by publicising the meeting in the relevant local media. I do not anticipate that my hon. Friend's argument about the quality of membership databases would be used to delay the process.
Most societies' constitutions—or at least those of all the societies that I have encountered—allow members who are worried about a matter to call a meeting about
it. If there were evidence that a retail society's board had prevaricated about the process and delayed calling a meeting to discuss such an important matter, its members could, and should, take the opportunity to call a meeting.
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