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The Earl of Home: First, I thank the noble Lord, Lord Clinton-Davis, for welcoming me. I am sure we will have much to talk about in the future.
Certainly I take comfort from the assurance of the Minister that interest and principal can be separated under the Bill as drafted. I do not pretend to have elegance of drafting, not having the legal training which he has at his command. Sometimes I think that the simpler things are kept the better. I am grateful to the noble Lord for saying that he will look at our concerns on this point, and for his assurance that the intention which I have attempted to put forward in this amendment is covered in the Bill. I therefore beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 [Contracts to which Act applies]:
The Earl of Home moved Amendment No. 2:
The noble Earl said: This amendment is simply an attempt to come up with a more concise provision. The words "sale, transfer, hire or service" which it is suggested should be removed are, I believe, unnecessary and do not add any additional meaning, while the word "supply" covers all four words in the Bill; indeed it covers others, such as, inter alia, leasing, which I intend to raise in relation to a later amendment. I beg to move.
Lord Clinton-Davis: In drafting this Bill we have tried to secure the greatest possible amount of transparency. I understand what the noble Earl is suggesting, but I think that the word "supply" instead of the five words that are used here would render the drafting less transparent. Of course, if the Committee feels I am wrong about that I will look at it again, but I really do not think this amendment adds to the comprehension of the Bill that is required. It is important that we ensure that small and medium-sized enterprises in particular understand what the Bill is about, and for that reason being more specific is more helpful. In those circumstances I hope the noble Earl will withdraw the amendment.
The Earl of Home: In trying to be clear, one makes it more difficult the more one tries to define what the Bill does and does not cover. I accept that the words in it are there for clarity but by specifically using those words we run the risk of having other types of supply or types of things which fall within the overall umbrella word "supply", such as leasing. I believe it would be clearer to leave this as an overall umbrella word. Nevertheless, I hear what the noble Lord has to say. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Earl of Home moved Amendment No. 3:
The noble Earl said: This is something of a probing amendment, for it seems to me that some people will be unable to take advantage of the statutory right to interest while others in virtually the same line of business will be in a position so to do.
One obvious example of this is that, under this clause, hire purchase agreements are deemed to be accepted contracts whereas leasing agreements are not. I am aware that there are legal differences between a lease and a hire purchase agreement, but in many lease agreements the lessee has the ability to purchase the subject of a lease for a nominal sum, say £1. In both leasing and hire purchase agreements, the amount of the instalment or rental is a combination of principal and interest usually with a larger proportion being principal in the early days. In both cases, there are usually established formulae so that it is possible to calculate in relation to any one rental or instalment what the proportion of principal is to interest. Then the provisions of Clause 3(4) will come into force. To add to the confusion, it is now possible to have lease purchase agreements.
At Second Reading the Minister said that conditional sales in hire purchase agreements are accepted because, inter alia, they,
By the use of the words "usually" and "normally", the noble Lord presumably accepts that, in the minority of cases, the situation is reversed. As the Government have been keen to promote the underdog in this Bill, by retaining this clause are they not discriminating against the smaller hire purchase companies or those who are forced to enter into a conditional sales agreement? The noble Lord's own words accept that sellers with clout will use their muscle to get interest, yet this clause seems to be preventing sellers without clout from using the Bill, which seems rather strange to me.
I shall not delay the Committee at this stage by quoting other examples of sales where there may be an element of interest, whether covert or overt, and there are the so-called ROMALPA contracts where conditional sales are the norm. However, I believe that there is an inconsistency in this clause and I ask the Government to look at it again. I beg to move.
Lord Borrie: I welcome the amendment proposed by the noble Earl, Lord Home. It was in fact a question that was not only in my mind but I raised it in my speech at Second Reading. It was to a query of mine on why these kinds of agreements were excluded that the Minister was responding when he used the words quoted by the noble Earl. I was going to quote them myself but I do not need to.
The word "normally" immediately makes one think about the cases where the supplier is not a big chap but is a smaller hire purchase company or smaller supplier--technically a "supplier" even if he is only financing the deal. Since the Government's overriding objective in the Bill is to encourage the prompt payment of commercial debts and, in particular, to encourage prompt payment to the small businessman, it seemed to me that the reply of the Minister was not entirely satisfactory. He may or may not be right--he has had good advice upon it--as to the way in which companies usually put in a clause requiring interest, but it did not seem that his answer, most carefully worded with the phrases "usually" and "normally", covered every situation. He accepted that, and I wonder whether he would think again about the reasons for leaving out these kinds of agreements for the supply of goods.
Lord Clinton-Davis: I am always grateful if any of your Lordships should quote me because that helps to ensure that my words will go down to posterity. Second Reading is not everything, after all. Repetition of that fact doubly ensures that purpose which I fully support.
All the amendments are probing amendments, even the Government's amendments, because we cannot divide. I am grateful to the noble Earl for putting the amendment down because I hope I may be able to clarify the position. What the noble Earl is seeking to do essentially is to bring into the scope of the Bill conditional sale and hire purchase agreements on the ground that they should be treated in the same way as leasing agreements.
We have excluded conditional sale and HP agreements because they are used to grant authorised credit. They usually provide for interest payments if the periodic payments are not made in a timely way. They do not fall within the mischief which this Bill seeks to address; that is, the use of one's suppliers as a source of unauthorised trade credit by the debtor. Therefore, I would ask both noble Lords to reconsider whether it is necessary to include such contracts in the Bill.
It is reasonable, where the supplier expects that he will be paid on a given date or within a given time, that he should be recompensed if that expectation is falsified by events. Lease agreements do not necessarily have a remedy for late payment. The lease term ends and money may still be owed. The Government believe that, generally, leases should fall within the legislation. If it proves that some forms of contracts should be exempt from the legislation, this can be provided by the power under subsection (4), to which I refer the two noble Lords who have spoken.
I do not believe that there is an inconsistency. I do not see the case where this represents any form of discrimination, as was asserted by the noble Earl, Lord Home, and by my noble friend Lord Borrie. I hope that I have answered his point as well. I therefore think that the omission of these words would produce the right result, and so I would ask the noble Lords to reconsider
The Earl of Home: I thank the Minister for that response. I have to say though that I do not entirely accept what he has said because in practice the difference between a hire purchase and a lease is extremely small. As I have said, one can even have lease purchase agreements. That is not an entirely satisfactory response. I will, however, read carefully what the noble Lord has said in Hansard but I reserve the right to come back to this at Report stage if the Government are not prepared to consider it further. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Page 1, line 19, leave out ("sale, transfer, hire or service") and insert ("supply").3.45 p.m.
Page 1, line 21, leave out ("a conditional sale agreement or a hire-purchase agreement").
"usually provide for interest payments on default".
"The supplier is normally more powerful than the customer and can insist on interest".--[Official Report, 12/1/98; col 884.]
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