PARTNERSHIPS (PROSECUTION) (SCOTLAND) BILL [LORDS]


The Committee consisted of the following Members:

Chairs: Mr David Crausby  , †Mr James Gray 

Bain, Mr William (Glasgow North East) (Lab) 

Bruce, Fiona (Congleton) (Con) 

Clark, Katy (North Ayrshire and Arran) (Lab) 

Colvile, Oliver (Plymouth, Sutton and Devonport) (Con) 

Crabb, Stephen (Parliamentary Under-Secretary of State for Wales)  

Hamilton, Mr David (Midlothian) (Lab) 

Hollingbery, George (Meon Valley) (Con) 

Hood, Mr Jim (Lanark and Hamilton East) (Lab) 

McCann, Mr Michael (East Kilbride, Strathaven and Lesmahagow) (Lab) 

McKechin, Ann (Glasgow North) (Lab) 

Menzies, Mark (Fylde) (Con) 

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) 

Weir, Mr Mike (Angus) (SNP) 

Kate Emms, Committee Clerk

† attended the Committee

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Public Bill Committee 

Tuesday 19 March 2013  

[Mr James Gray in the Chair] 

Partnerships (Prosecution) (Scotland) Bill [Lords]

8.55 am 

The Chair:  I welcome Members to the Committee considering the Partnerships (Prosecution) (Scotland) Bill. I tend to follow tradition on the matters of dress and mobile phones being switched off. Mr Hood has already agreed that it is right to be traditional and proper about such matters. We come first to the sittings motion. 

Resolved,  

That the Partnerships (Prosecution) (Scotland) Bill [Lords] Committee do meet on Tuesdays when the House is sitting at 8.55 am and 2.00 pm.—(David Mundell.)  

The Chair:  I have agreed with the two Front-Bench teams that we should have a brief substantive debate on clause 1 stand part, and take clauses 2 and 3 stand parts together. I hope that that is agreeable to the Committee. 

Clause 1 

Prosecution of dissolved partnership 

Question proposed, That the clause stand part of the Bill. 

The Parliamentary Under-Secretary of State for Scotland (David Mundell):  The purpose of clause 1 is to enable the prosecution of a partnership despite it having been dissolved. It reverses the decision of the High Court in the case that followed the Rosepark fire, which was extensively discussed when the Bill was last considered. Clause 1 contains the main proposition in the Bill, which is to prevent dissolution of a partnership from being a technical bar to prosecution. That principal purpose of the Bill is supported by the Lord Advocate, the Faculty of Advocates and the Law Society of Scotland. The provisions apply only to prosecution for an offence that a partnership is, by virtue of an enactment or rule of law, capable of committing separately from its partners. 

Subsection (3) requires prosecutions by virtue of subsection (2) to be brought within five years of the date of dissolution. The period of five years matches the period of negative prescription applying to the majority of civil liabilities to which a partnership might be subject. Subsection (5) makes it clear that the time limit is without prejudice to the six-month time limit for the prosecution of summary-only offences, which is imposed by section 136 of the Criminal Procedure (Scotland) Act 1995. 

Subsection (6) makes provision for the enforcement of any fine that might be imposed on a partnership following its conviction by virtue of subsection (2). The existing law is that a fine imposed on a partnership is enforced as if it were an extract registered decree for

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payment of a debt. As such, it may be enforced against the assets of the individual partners as well as against the partnership assets. Subsection (6) applies the same rules to the liability of partners of a dissolved partnership convicted by virtue of subsection (2) as would have applied had the partnership not been dissolved. 

As we discussed, Mr Gray, I will make some remarks about clauses 2 and 3. In relation to clause 2, statutory offences quite commonly provide that individual partners are criminally liable as individuals where they are personally involved in the commission of an offence. Clause 2 makes it clear that the prosecution of such crimes will not be prevented by the dissolution of the partnership. Such prosecution would be competent under the present law, but the Scottish Law Commission’s report suggested that it would be appropriate to make provision in statute for the avoidance of doubt. 

Clause 2 applies only where existing laws provide that an individual partner may be prosecuted for a partnership offence. Importantly, it does not criminalise any acts that are not currently criminalised under existing law. Just as clause 1 closes off a technical bar to prosecution of the partnership, clause 2 closes down any technical objection arising from dissolution of the partnership to prosecution of a partner who is in some way culpable of a partnership offence. Clause 2 is qualified, however, so that if a partnership is acquitted of the offence, the partner may not then be prosecuted. It is thought that it would be inappropriate to do that, a court having found the partnership not guilty. 

Clause 3 is essentially consequential on clause 1. Given that a dissolved partnership cannot own assets, any existing offence provision that requires fines to be met from the partnership assets would have the effect of frustrating enforcement of a fine. The effect of clause 3 is to disapply provisions that require fines to be met from the partnership assets in relation to partnerships that have been dissolved. As a result of clause 8(4), it applies only to offences committed after the Bill comes into force. 

That concludes my comments on clauses 1, 2 and 3. 

Mr William Bain (Glasgow North East) (Lab):  It is a pleasure to serve under your chairmanship once again this morning, Mr Gray, for the third Scotland-only Bill to be considered in a Public Bill Committee since the establishment of the Scottish Parliament in 1999. I am sure that most Members present know that it will not be the last. 

Clause 1 deals with the main purpose of the Bill, which is to permit the prosecution of a partnership, as a distinct legal entity in Scots law, up to five years after its dissolution. Subsection (2) treats the partnership as if it had not been dissolved for the limited purposes of commencing or continuing proceedings pursuant to prosecution in Scotland, subject to the proviso under subsection (3) that a maximum of five years have passed following dissolution of the partnership. 

The clause deals with the distressing aftermath for the friends and families of the 14 persons who lost their lives in the Rosepark nursing home fire in Uddingston in 2004. The partnership that ran the home could not be prosecuted as a legal entity under Scots law, given the finding in the case of Balmer v. Her Majesty’s Advocate in 2008 by the High Court of Justiciary that a partnership

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ceases to exist on its dissolution by its members and therefore cannot be prosecuted in respect of any suspected offences committed. In the absence of guilt on the part of one or more of a partnership’s former members, the situation could be that no legal or natural person can be held accountable under the criminal law for potentially prosecutable offences. Although the Scottish Law Commission consulted widely on whether it should attempt to deal with the problem by virtue of a comprehensive reform of partnership law, in the end, pending consideration of wider reforms, it settled on this more targeted solution of permitting partnerships to have a degree of continuing legal personality for a limited period in terms of criminal proceedings and prosecutions. 

Furthermore, under subsection (6), should a partnership be convicted of an offence, any legal rule, whether in statute or common law, relating to the liability of the partners applies as if the partnership had not been dissolved, so permitting joint and several liability for any fine imposed by the courts following a successful prosecution, in line with sections 4 and 9 of the Partnership Act 1890 and sections 70 and 143 of the Criminal Procedure (Scotland) Act 1995, and subject to the provisions in clause 3 of the Bill. Any fine imposed following a conviction may be recovered against the assets of the partnership, or any or all of the individual partners, each of whom would have a right to claim a remedy for the other shares from any assets of the partnership, or from the other partners. In some statutes, such as section 77 of the Health Act 2006, the law restricts the payment of fines to the partnership assets only, but for a dissolved partnership under the clause, that rule will not apply, because if a partnership is dissolved there will be no partnership assets, and any fine might otherwise prove to be unenforceable. 

Subject to what I have to say about clause 4 later in Committee, the Opposition supports clause 1 standing part of the Bill. I will now speak briefly to clauses 2 and 3. 

Clause 2 of the Bill permits the prosecution in Scotland of individual former members of a partnership, notwithstanding the dissolution of the partnership, or whether or not the partnership, as a legal entity, has been subject to prosecution, but not in circumstances where the partnership has been acquitted of the commission of the same offence. 

Circumstances that could give rise to prosecutions under the clause include: potential breaches of section 36 of the Health and Safety at Work etc. Act 1974; cases where an individual’s acts or omissions have been a cause of the offence; cases where an individual is held guilty, art and part, of a common-law or statutory offence; cases where an individual has aided, abetted, counselled or procured the commission of an offence under statute law; or cases where an individual has committed an offence with their consent or connivance, or through neglect. 

The range of offences potentially liable for commission by individual members of a partnership was significantly widened by the Scottish Parliament through section 53 of the Criminal Justice and Licensing (Scotland) Act 2010. Subsection (3) makes clear that evidence in relation to any proceedings against the partnership that results in its conviction may also be used in proceedings against any of its former members individually. 

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Clause 3 provides that any enactment that may restrict the payment of any fines imposed by the courts from the assets of a partnership, following its conviction of a criminal offence, does not apply in relation to a dissolved partnership. The Scottish Law Commission, in its report that gave rise to this legislation, was of the view that some statutes expressly provided that any fines imposed on a partnership in the event of conviction had to be paid out of partnership assets, rather than against the personal assets of the partners. Its conclusion was that such provisions had been enacted with the law of England and Wales in mind, where partnerships lack separate legal personality, of course, and therefore any effect in Scots law had been ancillary rather than intentional. 

There was a divergence of views in the consultation responses sent to the Scottish Law Commission, but overall it found in favour of the argument that these provisions in pre-existing law ought not to apply in cases where fines were being levied on a dissolved partnership. The clause resolves any such remaining ambiguity by ensuring that those rules will not apply in the event of a successful prosecution of a dissolved partnership under the terms of clause 1. 

Subject to what I shall say later on the amendment to clause 4 and the new clause, the Opposition support clauses 1, 2 and 3 standing part of the Bill. 

Fiona Bruce (Congleton) (Con):  I have a question for the Minister. Will the legislation apply to limited liability partnerships that have been wound up? That is assuming they exist in Scotland; no doubt he will correct me if they do not. 

David Mundell:  I thank the hon. Member for Glasgow North East for his comments. I certainly agree with him that we would wish this Parliament to continue to legislate for Scotland for all time coming. He summarised in detail the practical consequences of the provisions in clauses 1 to 3. I do not disagree with anything he said. 

In response to my hon. Friend the Member for Congleton, the Bill does not apply to limited liability partnerships. It is, as I have said on a number of occasions, a specific measure relating to an anomaly in the laws of Scotland that did not allow the prosecution of partnerships post-dissolution. It followed, as the hon. Member for Glasgow North East said, the fire at the Rosepark nursing home. 

Question put and agreed to.  

Clause 1 accordingly ordered to stand part of the Bill.  

Clauses 2 and 3 ordered to stand part of the Bill.  

Clause 4 

Prosecution of partnership after change in membership 

Mr Bain:  I beg to move amendment 1, in clause 4, page 2, line 31, at end add— 

‘(5) Where a partnership is convicted of an offence under section 4, any person admitted as a partner after the date of the commission of the offence who can prove that he or she was ignorant of that offence and had no knowledge of its commission, shall not be liable to pay any fine or proportion of a fine imposed on the partnership.’.

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The Chair:  With this it will be convenient to discuss new clause 1—Duty of disclosure  

‘Prior to the admission of a person as a partner into the partnership, the partnership must disclose to that person—

(a) any circumstances of which the partnership is aware which might give rise to a prosecution of the partnership for a criminal offence; and

(b) all convictions of the partnership which have occurred in the previous three years.’.

Mr Bain:  The effect of amendment 1 would be to protect a newly assumed partner in a partnership where proceedings to prosecute the partnership are, or will be, brought in respect of conduct that is being prosecuted as a potential offence committed prior to the member’s admission to the partnership, and the partnership is convicted of an offence in such circumstances. Where such a newly admitted partner could establish that they were ignorant of that offence or conduct, they would not be jointly or severally liable to pay any fine imposed by the courts from personal assets following such conviction, or any part thereof. 

The amendment is intended to produce a compromise between two important principles that underpin partnership law. The first is that individuals should not face potential financial liability for conduct that they were not aware of and did not condone in any way prior to joining the partnership. The second is the important concept at the heart of partnership law, which is joint and several liability. Opposition Members believe that there should be an exception from several liability in this one particular case. A new partner should not be severally liable to meet the entirety or any portion of a fine imposed following a conviction of the partnership from his or her own personal assets, in addition to his or her share of the partnership assets. 

Fiona Bruce:  Is the hon. Gentleman distinguishing between criminal and civil liability? For example, if there was a civil debt, would that be assumed by the new member? 

Mr Bain:  I am grateful for that intervention. In partnership law, any fine imposed by the courts following a prosecution would be dealt with as a civil debt. In a sense, that is what we are looking at here. It would be pursued as a civil debt by the court. 

Mr Jim Hood (Lanark and Hamilton East) (Lab):  I appreciate what my hon. Friend is saying, but, unlike him, I am not a lawyer. We know what happened at Rosepark, and what he proposes in his amendment worries me because if a family owned a business, as in the case of Rosepark, they could transfer the partnership to their grandkids, their cousins, their brothers and their sisters. A strict interpretation, unless my hon. Friend can persuade me differently, would allow them to get away from liability. That might be a loophole. Responsibility might be transferred to somebody else who is part of the family, and therefore keeping the wealth of the business inside the family, through the creation of a new partnership. 

Mr Bain:  I believe that the amendment and the new clause would deal with that issue. They require that the innocent partner, as it were, must prove his or her lack of knowledge of any offences that have been committed.

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Where there was the assumption of a new member of a partnership who already had knowledge of the potential criminal liability, the amendment would not apply to such a person. It is intended to apply to people who are inadvertently brought within the scope of having to meet from personal assets a civil debt resulting from a prosecution in respect of events or offences that they had no idea of and certainly would not have condoned or connived in. 

Mr Alan Reid (Argyll and Bute) (LD):  That raises the difficult issue of trying to prove a negative. In the circumstances described by the hon. Member for Lanark and Hamilton East, if I were the grandson, how could I prove that my grandparents did not tell me? It seems an impossible thing to prove. 

Mr Bain:  The amendment is intended to deal with such situations. As the hon. Gentleman will know, having been involved in the law himself, a good many legal practices in Scotland are run as partnerships. There could be a situation under this otherwise very laudable Bill whereby someone is assumed as a member of a partnership that is then convicted of an offence of which the new member had no knowledge, and which they certainly would not have condoned. The partnership is then prosecuted, but the partnership assets to deal with any fine are insufficient or non-existent, so through joint and several liability, the new, innocent partner is held liable for the entirety of the civil debt. That is what our amendment is intended to deal with. 

9.15 am 

Ann McKechin (Glasgow North) (Lab):  I should declare that I am a member of the Law Society of Scotland and a former partner in a legal firm. With respect, I can understand why my hon. Friend is testing this notion, but if a new partner joins a firm and is not made aware by the fellow existing partners of a civil contractual liability and a debt, that person is still liable, because a partnership is, in effect, a relationship of trust. Normally, a new partner entering a firm would seek an indemnity from the existing partners in which they guaranteed that the debts of the firm had been revealed in full to that partner. So why would there be a difference between a fine and a potential civil liability that would arise out of a firm’s contractual obligation? 

Mr Bain:  I accept a good deal of what my hon. Friend says. The difference that has been put to me, partly by other members of the Law Society who have raised concerns about clause 4, is that there is a distinction between an existing civil debt and potential criminal liability for which the partnership could be convicted, which could give rise to a future civil debt. In that situation, it seems that if a partner is assumed into a partnership but has no knowledge of any activities that could give rise to a conviction, they could face difficulties meeting from their own personal assets a fine imposed following such a conviction. An injustice could be done if we do not test this point in Committee and explore the Government’s argument as to why clause 4, as currently drafted, should stand part of the Bill. 

Mr Mike Weir (Angus) (SNP):  I should perhaps declare an interest as well, as a non-practising solicitor and former member of a partnership. The hon. Gentleman’s argument seems to break down slightly, because if the matter is being pursued as a civil debt and there are no

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assets, or the assets of the partnership are insufficient to meet the debt, why should the individual partners not meet that jointly and severally as is normally the case in a partnership? 

Mr Bain:  The hon. Gentleman is precisely right. In the case of the partners who were involved in the partnership at the time when the offence was committed, no one could disagree with his point. Indeed, that is part of the heart of partnership law in Scotland. However, as has been suggested by many who have observed the Bill, the Law Society and other interested participants and observers in legal and other professions in Scotland, there is a potential injustice if someone has no knowledge whatever of any criminal activity and joins a partnership that is then prosecuted and convicted. If the partnership assets are insufficient and the other partners have insufficient assets, the new partner is liable for a part of, or indeed all, the civil debt that accrues from that conviction, despite having no knowledge of the offence that gave rise to it. That is the slight difficulty that has been put to us by many people after seeing clause 4, and the amendment would seek to cure it. 

Fiona Bruce:  Perhaps I had better join the chorus and declare that I too am a partner in a law firm and a member of the Law Society of England and Wales. First, I presume that the hon. Gentleman has fully covered the fact that an indemnity should be given for any criminal liability that has occurred within the partnership for which liability may found after the new partner enters. Secondly, if that indemnity was not given, or there was not full disclosure of any information that the existing partners knew could give rise to a criminal action, there must surely be a claim of breach of the duty of good faith against the other partners. Will he comment on those points? 

Mr Bain:  Indeed. That is a fair point, and a partner can have a claim against the assets of the other partners for any share of a fine. The situation I have put to the Committee, however, is one in which the assets of the other partners are exhausted. An innocent partner who joins that partnership may then have to meet, out of his or her own personal assets, all or a significant share of a fine imposed following a conviction. They could not then claim back a share of the proceeds paid out in that fine from the other partners, because of their lack of assets. That is the injustice that, as the Law Society of Scotland and others have pointed out, could result from clause 4 as it presently stands. 

I will make some progress now, but will take more interventions a little later. The law has always been adaptable, as the Committee will know, to deal with potential injustices caused by changes in statute elsewhere. I would therefore consider it right that, in the limited circumstances that I have described, a departure from the principle of several liability is justified, to avoid a partner assumed into the partnership after the commission of an offence by the firm, of which he or she had no knowledge whatever, being liable from their personal assets for any fine or part thereof incurred in relation to such an offence. 

The amendment would not prevent the prosecution of the partnership, even up to five years following its dissolution. Nor would it prevent the prosecution of any

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of the other partners, the partnership itself being liable to pay the fine from partnership assets, or any of the other partners being liable to pay the fine from their personal assets, as in the terms of section 9 of the Partnership Act 1890 and section 70(6) of the Criminal Procedure (Scotland) Act 1995. It would simply protect an innocent partner’s personal assets in that eventuality. In conjunction with new clause 1, it would provide for a new set of obligations in law for the other partners to disclose to an incoming partner on his or her admission to the partnership any conduct that could give rise to potential prosecution. It would provide a means of securing a small exemption from several liability in the exceptional circumstances that I have outlined. 

New clause 1 would create a new statutory obligation to provide that, prior to the admission of any new partner into a partnership, the partnership must disclose to that person 

“any circumstances of which the partnership is aware which might give rise to a prosecution of the partnership for a criminal offence” 

and all convictions of the partnership that had occurred within the previous few years. That would ensure that members joining a partnership would not be subject, as far as is conceivable, to any liability derived from the conduct of the pre-existing or former members of the partnership that they were joining, without being provided with such information on assuming membership as a statutory right. Strengthening that obligation on existing partnerships by putting it in the Bill is important given the provisions of clauses 4 and 5, and the potential exposure of personal assets to liability should the partnership be prosecuted in respects of events committed prior to the new partner assuming their responsibilities of membership. 

I note that, in its 2011 discussion paper on criminal prosecution of partnerships, the Scottish Law Commission considered the option of fines being levied only on the assets of the partnership. The commission described that option as being akin to the adoption of the practice of limited liability companies into the general law of other partnerships and unincorporated associations. However, that would not be the effect of the amendment. The courts could still proceed to enforce fines against the other partners through joint and several liability, so there would not be a situation in which the partnership could become insolvent as an entity without financial consequence for the other partners beyond the loss of any share of partnership assets. The approach that I recommend that the Committee adopts would avoid that effect while producing a more just outcome for new partners who are innocent of any offence previously committed by the partnership, who may otherwise be held liable through personal assets for any or all of a fine. 

Furthermore, a proper reading of section 9 of the Partnership Act 1890 reveals that the intention behind that provision was not to attach criminal liability to individual partners, but simply to attach liability for civil debts, so the new clause does not involve extracting any criminal liability from any individual; it simply secures fairness in the limited case where an innocent partner could be held liable to meet all or part of the civil debts imposed upon a partnership from his or her personal funds. 

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Clause 4, amended by amendment 1 and with new clause 1 adopted, when read in conjunction with clause 5 would still permit the prosecution of a partnership, or the continuation of such a prosecution after a change in membership of the firm, in relation to conduct committed prior to the change in membership. The amendment and the new clause deal with the issue of criminal liability without having to unpick the more fundamental question in partnership law: the moment when a partnership expires or is reborn in some new composition, whether in part or entirely. The amendment would remove an inadvertent potential injustice caused by the enactment of clause 4 as drafted. It would not prejudice any more fundamental consideration of partnership law that the Scottish Law Commission may undertake in the future. The amendment could be accepted now as a free-standing but modest change, in advance of any other suggestions on law reform that the Commission may produce in the future. I tabled the amendment to test the Government’s position. 

David Mundell:  I welcome the opportunity to debate these issues this morning because, as the hon. Member for Glasgow North East pointed out, the Law Society and others raised them. I am, however, unable to support the amendment and the new clause. 

I will first deal with the proposed amendment to clause 4. A number of technical points may be made regarding the amendment as drafted, but rather than detain the Committee with such points, I will focus on the reasons why the amendment appears to be neither necessary nor workable. I will also remind the Committee of the substantive grounds for agreeing to clause 4 as it stands. 

The hon. Member for Glasgow North East suggests that the effect of the amendment would be to protect newly assumed partners where prosecution proceedings have been, or are to be, brought for an offence committed by the partnership before the new partners joined the partnership. The intention appears to be to provide prospective partners with knowledge of past offending and to exempt from liability those who do not know. The amendment and new clause are therefore specifically about knowledge and disclosure. They do not seek to overturn the Bill’s underlying general principle that it is appropriate that all partners should continue to be jointly and severally liable for the partnership debts and obligations, including those arising from a fine; rather, they seek to deal with a particular case where a prospective partner did not know of a potential liability. 

I will deal first with why the amendment is not necessary. As the Advocate-General explained in the other place, and as I stated in response to a question from the hon. Member for Angus on Second Reading, clause 4 deals with the prosecution of the partnership, not the individual partners. No individual will gain a criminal record as a result of a prosecution by virtue of clause 4. Any fine imposed will be imposed on the partnership, and existing law provides for any such fine to be recoverable as though it were a decree for payment of a debt by the partnership, which is a point that my hon. Friend the Member for Congleton asked about. 

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9.30 am 

As the hon. Member for Glasgow North East rightly observed on Second Reading, it is a core principle of the law of partnership in Scotland that partners have joint and several liability for the debts and other obligations of the partnership, but that is not joint and several criminal liability. Rather, the fine, once imposed, is enforceable in the same way as any other civil debt owed by the partnership. It is that civil debt that the individual partners may be obliged to meet from their own assets, if the fine cannot be collected from the partnership assets. That is a straightforward application of the general rule of joint and several liability, which the hon. Gentleman rightly recognises is a core principle of partnership law. The amendment would infringe that core principle and the Bill is not intended to interfere with the principles of partnership law. 

Mr Hood:  I am trying to understand what the Minister is saying about my hon. Friend’s amendment. Is the Minister repeating the old saying that when one door shuts, another opens? The Bill is there to close a loophole; does the amendment threaten to create another loophole and cause as many problems as it is designed to solve? 

David Mundell:  I agree with what the hon. Gentleman said in his earlier intervention. He might not be aware of this, but he echoed the concerns that the dean of the Faculty of Advocates expressed when he gave evidence in the other place. The dean said that if a provision similar to the one proposed in the amendment was introduced, partnerships would do exactly what the hon. Gentleman has suggested and distribute assets to family members or others to avoid paying the fine. I do not know how often the hon. Gentleman is in agreement with the dean of the Faculty of Advocates, but on this occasion they both make the same point. 

As I have said, the potential liability of an individual is not criminal liability. For a prospective partner, the risk would be of a contingent civil liability. As the hon. Member for Glasgow North suggested, such a risk is inherent in joining a partnership in which the partners accept unlimited liability, unless other arrangements are put in place. If a prospective partner is concerned about the risk, he or she may mitigate it by undertaking due diligence before joining the firm and, if necessary, by securing appropriate indemnities from the other members prior to joining. Of course, if a prospective partner is not satisfied with the undertakings that the existing partners have given, he or she is under no overriding obligation to join the partnership. 

The exemption from liability proposed by amendment 1 would require a new partner to have no knowledge of a potential offence. As the hon. Member for Argyll and Bute said, proving a negative is, as we all know, extremely difficult and contentious. The amendment suggests that the hon. Member for Glasgow North East accepts the principle that underpins the Bill, that it is generally appropriate for new partners to bear liability for a fine. If he did not accept that principle, the exemption would not be restricted as it is to those who are ignorant of the offence. 

Another point I want to make about necessity concerns the extent of the risk to an incoming partner. The Lord Advocate, who is the head of the system of criminal

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prosecution in Scotland, told the other place that as far as he could tell, the Rosepark case was the first time that a prosecution of a partnership had ever been brought in the High Court. Since then, there has been one other prosecution, which means that there have been two cases in almost 100 years. The evidence suggests that cases of serious offending by partnerships are, thankfully, infrequent. That in itself suggests that the case at which the amendment is aimed will seldom arise. 

Another element of the Lord Advocate’s evidence to the other place suggests that the amendment addresses a case that is more theoretical than real. According to the Lord Advocate, fines imposed on partnerships are invariably enforced against the partnership assets; his officials had been unable to identify any case in which a fine had been enforced against the assets of individual partners. The evidence is that a fine imposed on a continuing partnership is overwhelmingly likely to be enforced against the partnership assets and not against the assets of the individual partners. The joint and several liability of the partners will, in practice, become relevant only in the case of the insolvency of the partnership. 

Finally, the new partner is not without remedy. That point was raised by other hon. Members in the debate, and I will say more about it in relation to the new clause. The prospective partner has existing remedies under common law and legislation. 

This brings me to the workability of the amendment. The other place heard evidence from the dean of the Faculty of Advocates, the most senior member of the Scottish Bar. The dean’s evidence, which was not countered by any other witness, was that it would not be practicable, in the event of the insolvency of a partnership, to treat the partners’ liability for a debt arising from a fine imposed upon the partnership any differently from the other debts of the partnership. The amendment tabled by the hon. Member for Glasgow North East would do precisely that—it would seldom have effect, but when it did the effect would be to cause significant difficulties in the insolvency of the partnership. 

I remind hon. Members that the clause as drafted does not place any criminal liability on individual partners. Newly assumed partners bear the risk of a liability to meet a share of the fine from their personal assets, but the evidence suggests that the risk is small and readily mitigated by due diligence and, if necessary, by contractual indemnities from existing and former partners. I therefore invite the hon. Gentleman to withdraw his amendment. 

The purpose of the new clause, as explained by the hon. Member for Glasgow North East, is to require a partnership to disclose pending prosecutions and recent convictions to prospective partners before they decide to join the partnership. I suggest to the Committee that the new clause is unnecessary. The existing law already protects persons from being induced to join a partnership by misrepresentation. Indeed, there is a sense in which the duty that the current law imposes goes beyond that which would be imposed by the new clause, and so as a technical matter of law there is a risk that the new clause would narrow the duty of disclosure rather than broaden it. The existing law also gives a number of remedies to the partner who is induced to join the partnership by fraud or misrepresentation. 

What does the current law provide? As I observed to the Second Reading Committee, it is an established feature of common law that partnership is a relationship

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of good faith in which each of the partners owes a fiduciary duty to the firm and to his or her fellow partners—a point made by the hon. Member for Glasgow North. It applies just as much to the formation as to the continuance of a partnership. In other words, a partnership is already required, by virtue of the existing law, to act in good faith with regard to both existing and prospective partners. If a prospective partner were simply to ask the existing partners whether there were any circumstances that might give rise to prosecution of the partnership, the present law clearly obliges them to answer in good faith. Even if the question is not asked by a prospective partner, it may well be that a failure by existing partners to disclose the fact that the partnership faced the risk of prosecution for a serious offence would amount to misrepresentation, but it is clear that if the question were asked—I am speaking here of not exhaustive due diligence, but of a simple inquiry—the existing partners would be obliged to give a honest answer. 

The present law also provides civil remedies for the breach of that obligation. Where a person is induced to join a partnership by misrepresentation, the general principles of the law of contract entitle him to rescind—that is to bring to an end—the partnership contract and claim back his capital contribution. Section 41(c) of the Partnership Act 1890 gives the partner who rescinds the contract on the ground of fraud or misrepresentation a right 

“to be indemnified by the person guilty of the fraud or making the representation against all the debts and liabilities of the firm.” 

As we have seen, a fine imposed on a partnership is treated as a partnership debt, so a person who was duped into joining a partnership that had an outstanding liability to prosecution is entitled under the section to seek indemnification by the partners who duped him into bearing any share of a loss attributable to a fine. 

The current law goes further than the new clause by allowing the deceived partner a claim for damages where he suffers a loss through reliance on a misrepresentation, whether fraudulent or negligent. The common law has long allowed a claim in delict on the basis of fraudulent—in other words, intentional—misrepresentation, while statute, through section 10 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, extends that to negligent misrepresentations. 

Although the new clause would impose a duty to inform a prospective partner of circumstances of which the partnership is aware, the existing law affords a remedy where the partnership misrepresents something of which it should be aware. In that sense, there is a risk that the new clause, which is aimed at strengthening the position of an incoming partner, might paradoxically weaken it. 

This morning’s debate has helped us to look at the issues raised by the Law Society and others. I am particularly grateful to the Law Society for its continuing engagement with the Bill. I am also grateful for the thought that the hon. Member for Glasgow North East has given in tabling the amendment and new clause. Although I am unable to support them, I am grateful to have been given an opportunity to set out the existing protections available to a person joining a partnership and the rationale for clause 4. I trust that the hon. Gentleman will feel able to withdraw his amendment. 

Mr Weir:  I am pleased to serve under your chairmanship, Mr Gray. 

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The provisions of clause 4 seem to present the prospect of creating an injustice in respect of a new partner who had no knowledge of a criminal act committed by the partnership before their assumption as a partner, but I am not entirely convinced that the amendment would rectify the problem without undermining the whole object of the Bill. 

It seems that in future there will be less of a problem, as I imagine that up and down Scotland solicitors are busy dusting down their styles for partnership agreement and inserting a new clause that will cover the situation. It should therefore be the case that prospective partners in all future partnerships will be made aware of the potential difficulties and either enter into appropriate arrangements or elect to take the risk, as the Minister said. 

The Minister helpfully circulated the letter from the Advocate-General to members of the other place following the debates there, which I found useful to clarify certain aspects, but I am somewhat puzzled by his assertion that 

“Clause 4 applies only prospectively, to changes in membership taking place after it has become law. It does not alter the legal effect of earlier changes in membership.” 

I do not think that that is the case. It seems that every current member of a partnership will fall under the effect of the clause, so that whether or not they knew anything about the acts of previous partners, they would find themselves liable for a fine if imposed. That might not alter the current law, which seems to be uncertain, but it certainly does not mean that the change is only prospective. 

I asked previously about the suggestion of dissolving a partnership, but I accept the Advocate-General’s valid point that that may mean that it would be impossible to prosecute the partnership as currently constituted, which would undermine the whole object of the Bill. That is the point made by the hon. Member for Lanark and Hamilton East. 

That brings me on to the amendment, which seems to run the same risk. In a large partnership where one or two partners had changed, there would be no difficulty, in that the remaining partners would still be liable. The difficulty would arise if only one, or perhaps none, of the partners who had been in partnership at the time the offence was committed still remained partners at the time of conviction. We have to ask who the fine would be imposed on, because no one would be there to impose it on. It may be taken from the assets of the partnership, which may be available, but what if there are none or they are insufficient? It would not be possible to go for the individual assets of the partners in such a case. 

9.45 am 

That is not a hypothetical situation. In my time in practice, I dealt with many partnerships. In a number of those cases, the heritable property of the business was not held by the partnership, but by an individual who started off the business. That property would not be a partnership asset under the Bill. If that had been the situation in the Rosepark case and it had been successfully sued, there may not have been any assets of the partnership. The only assets of the partnership may be the current

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liquid assets, which may not amount to much at any given time, or the tools of the trade, which if attached could bring the business down. 

If the main asset of the partnership had been sold prior to conviction, there may not be any assets, and a fine would be imposed on a shell partnership, which would again defeat the object of the Bill. There is not an easy solution to this conundrum, because if we tackle a possible injustice against a new partner, as the hon. Member for Glasgow North East said, we may create an injustice against persons who have a criminal claim against the partnership. That would undermine the object of the Bill, so I am not inclined to support his amendment. 

I understand exactly what the Minister is saying about new clause 1. As I said at the outset, I suspect that this issue will not be so serious in future, because it will be covered in partnership agreements, but it is worth while considering including a general provision. If someone does not look into this issue prior to entering the partnership, they could find themselves in difficulty. There is a slight difficulty, because the existing partners may not be aware of a possible criminal prosecution against the partnership—especially if it was a large partnership with many people working in the business—due to something someone has done in running the partnership business. A general provision is not a clear-cut way of dealing with it, but it is worth consideration. 

David Mundell:  I want to respond to a question that the hon. Member for Angus asked. Clause 4 is entirely prospective. The clarification it makes applies only to changes made after the Bill has come into force. 

Mr Weir:  I am a bit confused by that. Does that not defeat the object to some extent? If someone is in a partnership and was assumed after the act was committed, is the Minister now saying that they will not be liable, but that someone who will be assumed in the future will be? It does not make a lot of sense to me. He is allowing those assumed since the act was committed but before the Bill comes in to be free of any liability. New partners, however, will not be free of liability. 

David Mundell:  No, I think the hon. Gentleman misunderstands what I am saying. We are not bringing forward a retrospective measure. Once the Bill is enacted, the partnership as it then is will be the entity to which the provisions apply. It will not be possible to dissolve that partnership to defeat prosecution. New members who join subsequent to the Bill being enacted will be subject to the provisions. 

Mr Bain:  This has been a useful debate that has allowed us to explore some of the issues around clause 4. I am sure that interested observers in the legal profession, and other professions and businesses in Scotland that are conducted by partnership, will be interested to hear about some of the issues around the Bill. I am content to allow the Scottish Law Commission, with its continuing remit to make recommendations on the current state of Scots law, to consider this issue in more depth as it sees fit. It might be useful if the Minister asked it to examine the issue, with regard to the early enforcement of the Bill. 

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I agree with a great many points that the Minister raised. He is right that there are remedies, under the law of contract or delict, allowing partners to recover some or all of the other share of any fines or civil debts, but neither the amendment nor the new clause would prejudice those rights or remedies, whether they are provided in common law or statute law. 

On the point made by the hon. Member for Angus, it is true that the new clause would not deal with every conceivable circumstance where a new partner is assumed into a partnership and does not know of all potential criminal liability that could befall the partnership. However, it would have dealt with the vast majority of such cases. I would also say to the Minister that in the past, partnership law has taken different approaches. Section 285(4) of the Copyright, Designs and Patents Act 1988 deals with partnerships; I know that provision is on the tip of everyone’s tongue at this time on a Tuesday morning. Under that section, a partner who is proved to have been ignorant of, or to have attempted to prevent the commission of, an offence is exempt from liability.

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The law has treated partnerships and partners in different ways. That is what the amendment and new clause would have attempted to do. 

I am content to leave this in the hands of the Scottish Law Commission. It would be helpful if the Minister could ask it to keep the Bill under review and to deal with some of the concerns raised by the Law Society of Scotland and others about the potential scope of liability under clause 4. This has been a useful debate. I am happy with some of the reassurances I have received from the Minister. I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Clause 4 ordered to stand part of the Bill.  

Clauses 5 to 8 ordered to stand part of the Bill.  

Bill to be reported, without amendment.  

9.52 am 

Committee rose.  

Prepared 21st March 2013