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Lord Clinton-Davis: I propose to speak a little longer on this issue because it is pertinent to the whole question of the effect of the Bill on excessive credit periods, which, after all, is a very important aspect. I am grateful also to the noble Lord, Lord Meston, for proposing the amendment to enable this discussion to take place.
I want at the outset to observe that the setting of a precise number of days to cap credit periods could well have an effect the very opposite of that which is intended. The 90-day term might well be viewed as an industry standard of something that is legitimate practice and consequently result in a lengthening generally of credit periods to 90 days, which would not be desirable.
The Government's policy in framing this legislation has been to minimise as far as possible the extent to which we interfere with the principle of freedom of contract. However, we are very much aware of the potential abuses that could be perpetrated, particularly where the creditor business is small and the debtor
business is large and powerful. That is a point which was made frequently during the course of the Second Reading debate. Excessive credit terms imposed on the supplier by the dominant purchaser to avoid or contract out of the terms of the legislation will simply not be permitted. The Bill has the effect of allowing the courts to strike down contractual terms which confer excessive credit periods.Perhaps I might now set out the issue of excessive credit periods in rather more detail because, as I say, it is a very important issue not only for Members of this Committee but for others outside who may seek to take advantage of the Bill. One of the main objections to the proposed late payment legislation that we have heard in the extensive consultations that we have undertaken is that it will lead dominant customers to insist on contractual terms which effectively extend unreasonably the credit period available to them so as to avoid having to pay interest. Whereas at present small suppliers may be paid late (say within 45 days instead of the agreed 30 days), the Bill could lead to credit periods of 120 days. This would leave small businesses in a very much worse position than at present.
Credit periods can be contractually extended in two ways: first, the date on which the debt is created (that is, when it legally falls due) may be deferred; and, secondly, a period of grace may be introduced following the date on which the debt is created, during which the creditor agrees not to sue for payment, charge interest and so on. In practice, there is very little distinction between the two, but they are legally distinct and are handled in different ways in the Bill as a result.
I turn now to the way in which excessive credit periods are handled in the Bill as it has been introduced. First of all, there is deferring the date on which the debt is created. The Unfair Contract Terms Act 1977 prevents parties agreeing contractual terms which unreasonably postpone the obligation to pay the contract price. As it stands at present, the 1977 Act applies only where the term is a standard written term of one of the parties. We will consider whether to amend its effect with regard to oral payment provisions. That is something we can consider between now and the next stage of the Bill.
The second element is introducing an excessive period of grace. Clause 4(2) says that the date on which the debt is created is "the relevant day". The effect of agreeing a period of grace is to vary the right to statutory interest. Instead of statutory interest accruing on the day after the debt is created, it will not accrue until the day after the period of grace has expired. Clause 8 provides that variations of the right to interest are valid only if the right, as varied, or the overall remedy for late payment is substantial. Clause 10(2), in addressing terms imposing conditions or limitations on the exercise of the remedy, includes terms conferring a period of grace.
To return to the specific amendment, the courts, in judging whether excessive terms have been used to attempt to contract out of the provisions of the Bill, must be free to view the terms of a contract in the context of the industry to which it relates, and so take into account trade custom and practice when they reach their
decision. The imposition of a 90-day term as a measure of what is, or is not, an excessive credit period would fetter the discretion of the judge to reach a decision based on a range of relevant factors. For example, in the greetings card industry, because of the seasonal nature of the business, with cards being printed and packaged long before they are sold, the credit period is longer than 90 days.I hope what I have said helps with the consideration of these amendments. This is an extremely important part of the Bill. I, like the noble Lord, want to ensure that dominant purchasers are not allowed to escape their responsibilities by insisting upon excessive credit periods. Consequently, I will look again at the text to see whether there is any way to make the Bill clearer on the point, although I am not convinced that that is required. However, I undertake to look again at that point in the light of what has been said in support of these amendments.
4.15 p.m.
Lord Meston: I am, of course, grateful to the Minister for that undertaking to look again and, indeed, for the consideration he has clearly already given the matter in view of his detailed response to my amendment. It is evident that he and his department recognise the importance of the point raised by this amendment.
It certainly was not my intention in any way, directly or indirectly, to extend periods for payment, as was suggested might result from an amendment along the lines I proposed. Indeed, I would question whether an amendment of this sort would have that effect. Be that as it may, the Government have indicated that they are aware of the problem. They have also indicated (as I understand from the response of the noble Lord, Lord Clinton-Davis, which will of course repay further study in Hansard), that the intention is that Clause 4(2) is without prejudice to the wider powers of the court to strike down unfair terms under Clause 8 or otherwise under statute. With that indication, I am very happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 5 [Rate of statutory interest]:
Lord Fraser of Carmyllie moved Amendment No. 9:
The noble and learned Lord said: This is a point I have already raised on the Competition Bill and the National Lottery Bill, and I make no apology for indicating to your Lordships that on almost every other Bill which comes through the House I shall be returning broadly to the same point. I do so for this reason. When the Government introduced proposals for constitutional change in Scotland in the Queen's Speech, they repeatedly described those changes as the most important constitutional changes of this century. That contrasted sharply with the introduction of the Scottish parliament Bill in the Commons just a fortnight ago.
I am sure that the noble Lord, Lord Clinton-Davis, well recalls that when the Scotland Bill was introduced during the Labour Party's last period of government, at the time it was introduced at Second Reading not only was the Prime Minister in his seat virtually for the duration but so was every other Cabinet Minister. On this occasion, apart from a brief visit from the Leader of the House of Commons, no other Minister or Cabinet Minister was present as this most important constitutional change this century was introduced into the House of Commons. My concern, therefore, is that, although Mr. Donald Dewar may regard this as the most important constitutional matter, it would appear that other departments in Whitehall have not appreciated or understood that fact or, possibly more worryingly, they have understood it all too well. Realising how poorly thought out some of the detail has been, they have little option but to close their minds to some of the absurdities likely to result from the artificial line of devolving some matters and reserving others.
My purpose in putting down this amendment is to explore exactly what the Government intend here and also to ask a broader policy question. First, may I ask the noble Lord, Lord Clinton-Davis, whether, as far as he is aware, the matter of the late payment of commercial debts interest is a matter that would fall within the legislative competence of the Scottish parliament? It would certainly appear to me that it does, because in looking to Schedule 5 to the Scotland Bill, it states at the foot of page 60:
If the interest payable on taxes or excise duties is quite specifically reserved to this Parliament, it follows that matters of interest fall within the devolved matters to be given to the Scottish parliament. If that is correct, I have a serious question to which I hope that someone from the Department of Trade and Industry will at long last give me an answer. If the Bill proceeds through the House and another place with no difficulty--and I see no reason why it should not--it is likely to get a commencement date some time towards the end of this year. We are told that the progress of the Scotland Bill is such that the parliament will be up and running in the year 2000. There is a very real issue here as to whether this Parliament should be legislating in respect of matters to be devolved to the Scottish parliament so close to the point of that parliament being established.
I would suggest to the Government that the correct approach would be that they should not so legislate unless they can put forward to this Parliament a clear and compelling case for the desirability of legislating immediately. It troubles me that if we legislate so close to the establishment of that parliament, first, it will be seen by it as condescending and interfering. Secondly, while I was not particularly keen that such a parliament should be established, if it is to be established I would prefer there to be as few points for conflict between the parliaments as possible.
What rather surprises me about the inclusion of Scotland within the Bill is that, as I understand it, it is the Government's view that they should not be
If that is truly a compelling serious major issue for Scotland, why on earth has it not been introduced in this Parliament? There are two Scottish Standing Committees in the House of Commons which have remained totally under-utilised--indeed, not utilised at all--since 1st May.
From what Mr. Donald Dewar was saying, I took as an indication of policy the fact that if there was something within the reserve matter they would leave it aside. However, as we go through the National Lottery Bill and the Competition Bill, and as we now come to this Bill, we find that there are reserve matters on which there is to be legislation in this Parliament. I regard that as undesirable and I hope that the Minister can offer some explanation about why it is considered important to legislate now for Scotland.
I can in a sense see a powerful argument for him wishing to have legislation for Scotland in this Parliament, for the simple reason that there must be countless contracts that are concluded every day, week, month and year, between those in Scotland and their suppliers in England. I can understand that, and it might be considered desirable that there should be a single law applying to contracts, whether they take place exclusively in Scotland, exclusively in England, or are cross-Border. If that is the Government's position it would seem to be desirable to exclude the right to legislate on such contracts from the powers of the Scottish parliament. What troubles me about what is proposed at the present time is that there is a very real prospect of confusion and, far from there being a smooth transition to the system of devolution, we shall find, on the contrary, that there are opportunities for conflict.
My final question to the Minister is, if I am correct in my understanding that this is a matter which would fall within the devolved powers, why is that the case? It would seem to be more desirable to leave it wholly within the reserved powers of this Parliament. I beg to move.
Page 3, line 15, after ("State") insert (", other than in Scotland,").
"In spite of section 28(4), interest on sums due in respect of taxes or excise duties and refunds of such taxes or duties is not within the legislative competence of the Parliament".
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