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Mr. Todd: It may be best to refresh hon. Members' memory about the purpose of the original clause 2(1), which was to protect those who trade with societies
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from an ultra vires ruling that a society has acted outside its powers. It tried to mirror similar company legislation, and the new clauses—at greater length, I must admit—aim to do the same with some additional provisions for societies that are charities.
I explained on Second Reading that in theory the only certain protection to someone dealing with a society is to obtain a copy of its rules and to satisfy themselves that the society is acting within them. That is clearly a barrier to normal business transactions. It is worth remembering that the clause relates to co-operative societies as well as community benefit societies and that many co-operative societies are very substantial economic enterprises that trade in the same markets as plcs and other corporate institutions. The proposed changes do not relieve a society of its duty to operate within its rules. They simply ensure that any responsibility for that lies squarely in the society and is not transferred to its customers, business partners or others who trade with it.
The provisions allow members to act to restrain their society from actions outside the rules. They address the particular circumstances of internal transactions where a society trades, for example, with some of its own members. In that case, the assumption has been made that such actions may not be in good faith. It should be stressed that the first element of the provisions relating to ordinary transactions with third parties assumes that a good faith transaction has taken place in which both the society and the person trading with it believed that they were trading within the rules. Where a transaction takes place within the society, that assumption is not made in law, and it should be possible to void that transaction, with the parties being liable. Similar provisions apply in company law relating to transactions with directors of companies.
A further special provision relates to societies that are charities, and is additional to the Bill that was presented on Second Reading. In that situation, the priority is the protection of the society's assets as a charity, rather than the contract that has been agreed with a third party. Dealing outside the rules would thus be voidable in such instances.
New section 5A of the 1965 Act ensures that the fact that the society is a charity is declared to anyone doing business with it. The provisions modernise the law relating to co-operatives and community benefit societies and I commend them to the Committee.
Mr. Simon Thomas: I would like to speak briefly on these provisions because they are the most Welsh part of the Bill, including as they do the two Welsh words ''elusen'' and ''elusennol. '' This is perhaps the opportunity to ensure that the Bill is right for Wales. In its new form, I believe that to be the case, and I support both the new clause and the Bill.
New clause 2 is a very welcome clearing up of the law in relation to charitable trading bodies. It will make it clearer for those who are doing business that they are dealing with a charitable body. It was not until I saw the new clauses that I realised the problem that the hon. Member for South Derbyshire was attempting to address. I welcome the fact that he has
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taken the opportunity, no doubt with advice from the right quarters, to ensure that in Wales that can be done bilingually.
It took a long time for co-operatives to be able to be registered as charities in the Welsh language in Wales. It was quite a long struggle to get the Charity Commission to recognise registration of charities in the Welsh language, which was rather strange, considering that Robert Owen started the whole business in Newtown. Nevertheless, that has been done, and the Welsh Language Act 1993 strengthened that position.
The question that I would like to ask the Minister arises from the 1993 Act, because that Act covers the Charity Commission, and will cover any new body that may arise from the review mentioned by the hon. Member for Eddisbury. We are aware that there might be a review of the laws on friendly societies in that regard. Can the Minister tell us how the Bill and system of registration will come within the ambit—within Wales, of course—of the 1993 Act?
Several charities and community bodies use the Welsh language—indeed, some of them exist to promote it. I want to assure them that they are completely in order in continuing to conduct their business in the medium of Welsh and that there will be nothing in this or any forthcoming Bill to stop them doing that. I welcome the new clauses, which clarify matters for the charities and those who trade with them, and I hope that they will be supported.
Mr. O'Brien: In response to the hon. Gentleman's remarks, I cannot help noting that the genesis of the co-operative movement came from the very English-sounding Newtown. I welcome new clauses 2 and 3. As the hon. Member for South Derbyshire rightly pointed out, they are longer than the clauses that they replace.
I am completely satisfied that it is appropriate to set out what is, in effect, the public proclamation on documents and other instruments on which people can rely. A charity should make a declaration. I am reminded of our discussions on the Trustee Bill. I do not remember whether the Minister piloted it—I do not believe that she did—but similar issues were raised. It may be constructive, albeit not key, for those who are advising and working on the Bill to glance back at some of those discussions.
Subsection (6) of new clause 2 is the most important, as it relates to the potential for personal liability where there is any contravention. That must tie in with new section 7C in new clause 3, which rightly sets out what we all, as practitioners of company law and business, know as ostensible authority. I do not believe that any of us would have any difficulty with that. However, that must be set beside the personal liability in new clause 2(6) and new section 7E in new clause 3, in which
''The transaction is voidable at the instance of the society''
in certain circumstances.
I do not wish to delve into the hypothetical intricacies, but as we are taking the two new clauses together, this is the moment to recognise that they provide anyone with the mal-intent to try to find a
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loophole with the opportunity to do so. The proposed legislation is as I would expect, as it seems to resonate with the case law that arose in relation to companies, which is equivalent to what the Bill proposes, especially for charities, and with the special resolution procedure and the Companies Acts. As I said, I do not want to go too far into the detail, but it is important to flag up that this is where the issues may lie.
I look forward to the Minister's comments.
Ruth Kelly: I agree that, in some respects, new clauses 2 and 3 are longer than the clauses that they replace. That is all in the aid of transparency, and should make it easier to interpret and use the provisions. Again, I do not intend to repeat the comments made so ably by my hon. Friend the Member for South Derbyshire (Mr. Todd)—the promoter of the Bill—who clearly said why the changes were needed and why they should facilitate the powers and capacities of societies to enter into business transactions.
The new clauses are highly desirable, and the Government support them. I accept that the provisions for personal liability are interesting and serious. If the hon. Member for Eddisbury wants to put anything in particular to me, we will of course look at it in greater detail.
3.15 pm
On the point about the Welsh language, I point out to the hon. Member for Ceredigion (Mr. Thomas) that we took the Welsh Language Act 1993 into account in the proposals. We will consider that further as we go forward. Again, if he wants to make representations on that issue, I will of course be happy to consider them, but I assure him that we are aware of his concern. On that note, I commend the new clauses to the Committee.
Question put and negatived.
Clause 3
Formalities of Carrying on Societies' Business
and Pre-incorporation Contracts
Question proposed, That the clause stand part of the Bill.
The Chairman: With this it will be convenient to discuss new clause 4—Purported contracts, deeds and obligations—
'(1) After section 29 of the 1965 Act insert—
''29A Purported contracts, deeds and obligations
(1) A contract which purports to be made by or on behalf of a registered society at a time when the society has not been registered under this Act has effect, subject to any agreement to the contrary, as one made with the person purporting to act for the society or as agent for it.
(2) Accordingly, the contract is to be treated—
(a) as imposing on that person all the obligations it purports to impose on the society; and
(b) as conferring on him all the rights it purports to confer on the society.
(3) Subsections (1) and (2) of this section apply—
(a) to the making of a deed under the law of England and Wales, and
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(b) to the undertaking of an obligation under the law of Scotland,
as they apply to the making of a contract.''
(2) In section 76 of the 1965 Act, after subsection (2) insert—
''(2A) In section 29A(1) of this Act—
(a) the reference to a registered society includes a reference to a society registered under the law for the time being in force in Northern Ireland for purposes corresponding to those of this Act; and
(b) the reference to this Act includes a reference to that law.'' '.
New clause 5—Execution of deeds and other documents—
'(1) After section 29A of the 1965 Act (which is inserted by section [Purported contracts, deeds and obligations]) insert—
''29B Common seal
(1) Notwithstanding any enactment or rule of law, a registered society need not have a common seal.
(2) If a registered society has a common seal, the society shall have its registered name engraved on the seal in legible characters.
(3) If, after the coming into force of subsection (1) of this section, a registered society decides to have a common seal, it shall not cause such a seal to be made unless the registered rules of the society contain provision for the custody and use of that seal.
(4) Section 62 of this Act does not apply in respect of an offence committed by a registered society under section 61 of this Act where the offence consists of a failure to comply with subsection (2) or (3) of this section.
(5) Any officer of a registered society, or any other person acting on such a society's behalf, who uses or authorises the use of any seal purporting to be the common seal of the society which does not have the society's registered name engraved on it in legible characters shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale.
(6) In this section ''enactment'' includes an enactment comprised in—
(a) an Act of the Scottish Parliament;
(b) subordinate legislation, whether made under an Act or an Act of the Scottish Parliament.
29C Methods for execution of documents: England and Wales
(1) The following provisions have effect with respect to the execution of documents by a registered society under the law of England and Wales.
(2) A registered society may, if it has a common seal, execute a document by affixing that seal to it.
(3) A document—
(a) signed by a member of the committee of a registered society and the secretary of the society, or by two members of that committee, and
(b) expressed (in whatever form of words) to be executed by the society,
has the same effect as if it were executed under the common seal of the society.
(4) A document executed by a registered society which makes it clear on its face that it is intended by the person or persons making it to be a deed has effect, upon delivery, as a deed; and it shall be presumed, unless a contrary intention is proved, to be delivered upon its being so executed.
(5) In favour of a purchaser a document shall be deemed to have been duly executed by a registered society if it purports to be signed by a member of the committee of the society and the secretary of the society, or by two members of the committee, and, where it makes it clear on its face that it is intended by the person or persons making it to be a deed, to have been delivered upon its being executed.
(6) Subsections (3) to (5) of this section apply whether or not the society has a common seal; and, in subsection (5) of this section,
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''purchaser'' means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property.
29D Execution of documents: Scotland
(1) Under the law of Scotland, for the purposes of any enactment—
(a) providing for a document to be executed by a registered society by affixing its common seal, or
(b) referring (in whatever terms) to a document so executed,
a document signed or subscribed by or on behalf of the society in accordance with the provisions of the Requirements of Writing (Scotland) Act 1995 shall have effect as if so executed.
(2) In this section ''enactment'' includes an enactment comprised in—
(a) an Act of the Scottish Parliament;
(b) subordinate legislation, whether made under an Act or an Act of the Scottish Parliament.
29E Power of society to have official seal for use abroad
(1) This section applies to a registered society if—
(a) it has a common seal; and
(b) its objects require or comprise the transaction of business in foreign countries.
(2) The society may, if authorised by its registered rules, have an official seal for use in any territory, district, or place elsewhere than in the United Kingdom.
(3) An ''official seal'' is a facsimile of the society's common seal with the addition on its face of the name of every territory, district or place where it is to be used.
29F Effect of use of official seal
The official seal of a registered society when duly affixed to a document has the same effect as the society's common seal.
29G Authorisation of use of official seal
(1) If a registered society has an official seal, it may authorise any person appointed for the purpose as respects any territory, district or place appearing on the face of that seal to affix it to any deed or other document to which the society is party there.
(2) An authorisation for the purposes of subsection (1) of this section must be given—
(a) in the case of a society with its registered office in Scotland, by writing subscribed in accordance with the Requirements of Writing (Scotland) Act 1995; and
(b) in any other case, by writing under the society's common seal.
(3) As between the society and a person dealing with such an agent, the agent's authority continues—
(a) if a period is mentioned in the authorisation, during that period; or
(b) if no period is there mentioned, until notice of the revocation or determination of the agent's authority has been given to the person dealing with him.
(4) The person affixing the official seal shall certify in writing on the deed or other instrument to which the seal is affixed the date on which and the place at which it is affixed.''
(2) In section 3 of the 1965 Act (registration to effect incorporation of society), omit ''a common seal and with''.
(3) In subsection (6) of section 5 of the 1965 Act (registered name of society) omit ''engraven in legible characters on its seal and''.
(4) In subsection (7) of that section—
(a) omit paragraph (a); and
(b) in paragraph (b) for ''that name'' substitute ''the society's registered name''.
(5) Omit section 36 of the 1965 Act (provision about the execution of documents by societies in Scotland which has been superseded and repealed there but which remains in force elsewhere).
(6) In section 76(2) of the 1965 Act (provisions which apply to Northern Ireland societies that have recorded their rules with the
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Financial Services Authority), for ''26 to'' substitute ''26 to 29, 29B to 29D,''.
(7) For paragraph 13 of Schedule 1 to the 1965 Act substitute—
''13. If the society is to have a common seal, provision for its custody and use.''
(8) In section 91 of the Land Registration Act 2002 (c.9) (formalities in relation to electronic dispositions) after subsection (9) insert—
''(9A) If subsection (3) of section 29C of the Industrial and Provident Societies Act 1965 (execution of documents) applies to a document because of subsection (4) above, subsection (5) of that section (presumption of due execution) shall have effect in relation to the document with the substitution of ''authenticated'' for ''signed''.''
(9) The Schedule to this Act (which contains repeals made as a result of this section) shall have effect.'.
New schedule 1—'Repeals—
Short title
and chapter
Extent of repeal
Industrial and Provident
Societies Act 1965 (c. 12)
In section 3, the words ''a common seal and with''.
In section 5, in subsection (6) the words ''engraven in legible characters on its seal and'', and subsection (7)(a).
Section 36.'.
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