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I think that there is room for something similar to what my hon. Friend the Member for Rutland and Melton has suggested in the new clauses, but I cannot support him all the way. I agree with the hon. Member for Great Grimsby (Mr. Mitchell) about the desirability of transparency and openness, and I well understand what was said by the hon. Member for Newcastle-under-Lyme (Paul Farrelly) about investigative journalism. Those points are well founded.
I suggest something along these lines. First, along with the test of riskand I have no particular objection to the Secretary of State exercising that powerthere should be a test of proportionality and of public interest, which should apply in the first-instance test, the application to the Secretary of State. Secondly, there should be some mechanism, over and above judicial review, whereby the Secretary of States decision could be reviewed in a court.
Let me make two points about that. First, the test of proportionality and public interest should be a test to which the appellate tribunal should be specifically directed. Secondly, the right to make an application to the appellate court should be open to third parties who feel aggrieved by it, such as the press. There is a precedent of a kind. As you will doubtless know, Madam Deputy Speaker, judges in criminal courts can make orders restricting the publicity given to parties to the proceedings. In those circumstances, third parties have a right to apply to the court for a change in the order. I have something rather similar in mind. If a third party felt that the order was unduly restrictive, that third partyalthough not party to the application to the Secretary of Statewould have the right to lodge an appeal.
Finally, I would enlarge the subsection dealing with prescribed circumstances to include classes of person and organisation. Circumstances is a fairly narrowly defined word. I should like the definition to be widened so that the information could be given to persons and organisations specified by the Secretary of State and/or the court on appeal.
I think that there is a great deal of force in what my hon. Friend the Member for Huntingdon has said, but I am unhappy with the new clause as currently drafted. If my hon. Friend puts it to the vote I shall support it, but I shall do so on the basis that it will be amended in the other place along the lines that I have taken the liberty of describing.
I see the point of clause 117, and I see a great deal of merit in what the Government have done. I also commend what was said by the hon. Member for Great Grimsby (Mr. Mitchell). There is a balance to be struck. On the one hand, there is the legitimate right of the public to know who the registered shareholders are. That relates to the veil of corporate liability that forms part of the history of company law. All that is fine and rightly understood, and we are all in favour of making everything as translucent and transparent as possible. The other side of the balance, as the Government recognise, is that we live in dangerous times. There are legitimate companies carrying out their business, yet their people are being threatened for no good reason.
I fully acknowledge what the hon. Member for Newcastle-under-Lyme (Paul Farrelly) and the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) said about investigative journalism. What they said is very important.
Paul Farrelly: I do not want to be thought of only as an old hack speaking up for my old trade, as the same points that can be made about investigative journalism apply to investigations more generally, including law enforcement and regulation. Another important point is that in these circumstances, speed is often of the essence, as any blocks can be used in the sense of buying time in either rectifying or forging the real situation.
One of my concerns about clause 117 is that it provides an open-ended invitation for applications to be made. As was observed earlier, a person making an application may have a friend who makes a slightly different one and so forth. Are we putting something of a legal treadmill in place? I do not know; time will tell. What I do know is that the provision represents an effort in a very difficult area to meet the genuine concerns of people who are desperately worried about terrorism from animal rights protesters, for example. I share that concern, but no doubt the Solicitor-General will advise us in due course that there will be some form of review of the courts decision along the usual lines. [Interruption.] I believe that he confirms that.
Speaking rather like a Lib Dem, I have reflected on both sides of the argument and I also have considerable sympathy with new clause 16, but I am not sure that leaving the matter for a judicial review is the right way forward. It is an imperfect appellate procedure. I defer to the right hon. and learned Member for Sleaford and North Hykeham on the points that he made, but the judicial review procedure would look into the reasonableness of how the decision was reachedthe Wednesbury principles and so forthrather than the quality of the judgment. That is essence the of the matter. That is why I say that it is an imperfect appellate procedure and why I do not feel able to support the new clause.
The Solicitor-General: I agree with the hon. Gentleman that we have had a very good and high-level debate. All the contributions have showed the great deal of seriousness with which the issues have been considered. I particularly thank my hon. Friends the Members for Newcastle-under-Lyme (Paul Farrelly) and for Great Grimsby (Mr. Mitchell) for setting out their strong objections to the Opposition new clauses. Both my hon. Friends are ex-journalists who are greatly concerned about the impact of the Conservative proposals on investigative journalists seeking to expose scandals in big companies, for examplea point that everyone will want to take account of.
The hon. Member for Huntingdon (Mr. Djanogly) also made some important points about the dangers resulting from animal rights terrorists and others who seek to damage not just individuals, but the biotech industry itself. I share his concerns about Huntingdon Life Sciences, when individual employees of the company as well as other organisations that supply it have been subjected to attacks by animal rights terrorists. I have talked to employees of Huntingdon Life Sciences who have been the victims of having their cars blown up outside their homes with fire bombs.
The Government recognise the dangers of such activity and we have passed legislation in recent years to tackle the intimidation, harassment and other criminal acts that have been a feature of animal rights terrorism. The issues have been addressed to a considerable extent by the criminal law and the Government take them enormously seriously. Company law has a role, but it is a limited role. Clause 117 provides safeguards for those who may feel threatened, and it will enable the courts to intervene and provide some security for individuals who feel at risk. I shall return to that point in due course.
There must be a balance and proportionality between access to a register and security for those on it. [ Official Report, Standing Committee D; 22 June 2006; c. 183.]
I agree with that. The issue we need to consider is where that balance is struck. I fear that to deal with the real problem of animal rights terrorism his proposal is to change public access to the register of membersan issue deeply embedded in our company lawin a way that could well have adverse consequences.
Ever since it has been possible to set up a company with a separate legal identity, the law has required the names and addresses of both those who own the company and its directors to be on the public record. As long ago as the 1840s, when Gladstones committee on joint stock companies reported, the lack of transparency about company shareholdings was seen as a major problem. By instituting a system of registered membership, Gladstones committee wanted to suppress such practices as
concealing the names or preventing the meeting of the Shareholders...falsifying the books containing transfers of shares
the creation of fictitious votes, so as to secure the means of outvoting the bonafide Shareholders.
Of course, Mr. Gladstone and his colleagues did not have to contend with animal rights terrorists or boiler room investment scams, but the basic reasons for giving public access to the register, beyond those of investigative journalism, still hold good today.
It is fundamental to shareholder democracy that members can hold the management of their company to account. To do that, they need to be able to contact each other and, sometimes, to be contacted by the general public. Company law must ensure that shareholders can be contacted without any risk of interference or hindrance from the directors. The impact of the changes proposed by the Conservatives would run counter to that basic view of shareholder
democracy. Indeed, some of the other amendments that they have put forward could have a profound effect on our company law.
New clause 16 would remove the essential underpinning of shareholder democracy. If a company were to have a confidentiality order under the new clause, all external communications to its members would be required to be passed on only by the company. How, and how quickly, is not specified, but speed is crucial if support is being sought, for example, for a resolution opposing one already tabled. How is someone seeking to convey a lawful message ever to know whether the company has complied with the request to pass the message to its members if he does not have the means to contact them? The enforcement mechanisms in subsections (9) to (12), and therefore the underlying obligation to pass on lawful messages, are worth nothing if a companys failure to pass on those messages is undetectable, and there is nothing in the new clause to show how it could be. However, under clause 117, courts could deal with that problem.
The new clauses do not substantially add to protection that can be achieved under clause 117 and that can be done be much more effectively by using the courts. The clause provides that, when a court directs a company not to comply with a request for access to its register of members, it may direct the company not to comply with similar requests. In other words, if it becomes clear that a companys register of members has become the target of animal rights extremists or fraudsters, it should be possible for the court to make an order in terms that permit it to refuse requests for access that appear to emanate from similar sources. That makes unnecessary the provision in new clause 16 for company confidentiality orders, unless there is some fundamental view that that has to be done via the Secretary of State in a particular way, rather than in the courts.
The Solicitor-General: What I am saying is that, under clause 117, the court can enableorder, in facta company not to provide information requested. So the company will be in a position to make such order as it believes is appropriate when an application is made. The court would then be able to deal with concerns about shareholder democracy and other issues, which might properly be raised by shareholders. But there is nothing in new clauses 16 and 17 that would enable that to occur.
New clause 16 would also have unwarranted side-effects. Entry in the register of members is evidence of a members entitlement. That would be lost for any company with a confidentiality order. The loss of the ability to check the register would create a risk that registers of private companies with confidentiality orders would not be properly maintained.
May I make a suggestion to the Solicitor-General that might meet his concernand also, perhaps, that of my hon. Friend the Member for
Huntingdon (Mr. Djanogly)? One could enlarge the test in clause 117(3) so that the court could make an order where the
copy is not sought for a proper purpose,
or wherewe could use a phrase such as disclosureit would expose individuals to unreasonable risk. So one could build into clause 117 some of the concepts put forward by my hon. Friend, but have the policing done by the courts.
If the court makes such a direction and it appears to the court that the company is or may be subject to other requests made for a similar purpose...it may direct that the company is not to comply with any such request.
Mr. Hogg: Let me explain the point that I am trying to put to the Solicitor-General. There is a difference, and no necessary overlap, between not having a proper motivethat covers motiveand consequences. I think that one could get evil consequences in terms of risk, even if the application was made for a proper motive. So I think that the two tests should perhaps be incorporated into clause 117.
The Solicitor-General: Let me consider for another time the idea put forward by the right hon. and leaned Gentleman. I do not dismiss it; it is a sensible suggestion. If we were currently in Committee, we might have had the opportunity to look into it in more detail.
New clause 17 provides that an individual member may apply for a confidentiality order so that particulars of his name and usual or business address are not publicly available. Everything that I have said about new clause 16 applies to new clause 17 as well. Transparency about membership is one of the conditions that a company and its members must observe in return for the privileges that come with incorporation. It would be fundamentally wrong for it to be possible for any individual to hide the extent of his control of a company. That said, we intend to use the power in clause 861 to reduce the information about members that companies with share capital have to send to Companies House each year as part of their annual return.
Subject to consultation, our intention in respect of public companiesthe hon. Member for Huntingdon asked me to make a point of thisis to exempt them from the obligation to supply any details of those who hold less than 5 per cent. of any class of the companys shares, and for private companies not to require the addresses of their members. That is a practical way of ensuring that the protection provided to registers of members by clause 117 is not subverted by the availability of this information from Companies House. By way of contrast, new clause 17 is in our view wholly incompatible with the concept of a public record.
Mr. Djanogly: I thank the Solicitor-General for clarifying that point; he has cleared up certain inconsistencies and his comments will be very well received by the business community. When are those regulations likely to be introduced?
Paul Farrelly: Given what my hon. and learned Friend has just said, could he make it clear to me, as a former frequent user of Companies House, that what he has said would not preclude me or journalists from writing to a company asking for a shareholder register, as we currently can, if that information is not available from Companies House?
The Solicitor-General: Yes, my hon. Friend could still write to a company requesting that information. It would then be a matter for the company to decide whether there was a good reason not to disclose it, and to make any court application that it might wish to make, should that be necessary.
On clause 117 and the question of motive, although I take the argument of the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) against that clause very seriously, it is important that a court be able to examine whether the purpose of a person making such an application is proper. That is not a vague concept; it gives some discretion to the courts, but it is not so vague that a court will be unable to identify that an improper purpose relates to, for example, animal rights terrorism or to an attempt somehow to damage the company in question. We need a provision that allows us to look at motive rather than mere risk, which was the distinction that the right hon. and learned Gentleman made. In my view, clause 117 gets the balance right.
Paul Farrelly: Does my hon. and learned Friend not recognise that the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) has raised some fundamental objections to the provisions as drafted, which are additional to the basic objections raised by me, and by my hon. Friend the Member for Great Grimsby (Mr. Mitchell)? The right hon. and learned Gentleman has said in an incisive contribution that, after six or seven weeks considering the Bill in Committee, these provisions are seriously flawed.
The Solicitor-General: The right hon. and learned Member for Sleaford and North Hykeham damned with faint praise the new clauses proposed by the Conservatives, but some of the points that he made about the lack of an appeal process were damaged beyond all recovery by the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd), who made it very clear that if judicial review had to be relied on, we would be looking at Wednesbury unreasonableness and a whole series of other problems arising from the inadequacies of that form of appeal. To be fair, the right hon. and learned Gentleman suggested that the appeal issue would have to be dealt with in another place, and he identified the problems with the new clause very well.
Mr. Hogg: In fact, the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) and I were in total agreement. Both of us said that judicial review was not an adequate mechanism and that we needed a specific appeal mechanism with stated criteria.
Amendment No. 383 would give every shareholder of a quoted or publicly traded company the right for their home address not be publicly available either through the company or Companies House. That is simply not necessary. There is no requirement for the home address of any member of any company to be publicly available anywhere. All that clause 113 requires is
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