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The Earl of Home moved Amendment No. 17:

Page 4, line 7, leave out subsection (2).

28 Jan 1998 : Column CWH25

The noble Earl said: Subsection (2) precludes a supplier from taking advantage of the Bill after a debt is created, saying that the parties are free to agree terms. Later the Bill goes on to say that parties may agree a remedy that is substantial. Obviously, if that happens, there is no problem. But what does "substantial" mean in this context, and what will happen if the parties do not agree? Would it not be easier to omit this subsection altogether so that the Bill can be used by anyone at any time?

As the amendment is also grouped with Amendment No. 18, perhaps I may speak to that as well. Although I prefer the amendment to which I have just spoken, because I believe it is simpler, if the Government insist on the first part of the subsection I should like the noble Lord the Minister to consider removing the second part. As drafted this provision would result in the dominant party to a contract being able to adjust the terms of that contract to its own advantage. Indeed the very fact that it is included at all might encourage an unscrupulous party so to do. Equally the removal of this line will prevent parties from creating and then rearranging the terms of the contract. I beg to move.

The Deputy Chairman of Committees (Lord Brougham and Vaux): I have to advise the Committee that if this amendment is agreed to I cannot call Amendment No. 18.

Lord Haskel: I can understand the concerns raised by the noble Earl, Lord Home, but perhaps I can persuade him that the Bill should stand as it is on this point. If, after the creation of a debt, the parties had an argument and could not agree terms on dealing with the debt, then they would lose a valuable means of resolving disputes without the need to go to court; that is if they came to any agreement over the interest. Clause 7(2) means that parties will be able to agree to waive all or part of the interest due where, for example, the creditor chooses to do so as part of a package of measures to resolve the dispute.

I would ask the noble Earl to consider the amendment in that light. Otherwise, if this amendment were to stand we might find ourselves in the absurd position of parties having to go to court for the remission of interest which both parties accepted should not be paid as part of the settlement of the dispute.

I turn to Amendment No. 18. I should like to note that the Government have tried to make the Bill as transparent as possible to avoid both legal and commercial uncertainty. The subsection may appear tautologous but it has been drafted to aid clarity and to avoid legal confusion. That is especially important where any confusion may result in small businesses having to go to court to resolve uncertainties. The noble Earl's amendment may lead to some legal uncertainty about the position of terms agreed after the debt has been created. For that reason, I hope the noble Earl will agree to the current wording.

5.15 p.m.

Lord Borrie: Before the Minister sits down, will he just confirm that, after the debt is created, the parties are

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free to agree terms dealing with the debt, even though the terms involve no "substantial remedy" for the supplier?

Lord Haskel: I am advised that they would be dealing with the terms that had already been agreed.

The Earl of Home: This is a complicated topic and I am not sure that I followed totally the logic of the noble Lord, Lord Haskel. I shall look very carefully in Hansard at what he has said and return to the matter at Report stage. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 18 not moved.]

Clause 7 agreed to.

Clause 8 agreed to.

Clause 9 [Meaning of "substantial remedy"]:

The Earl of Home moved Amendment No. 19:

Page 5, line 5, at end insert--
("( ) The onus of proving that it was fair and reasonable to incorporate a term in a contract shall lie on the party so contending.").

The noble Earl said: I am aware that the Government are already considering how best to link the Bill in with the provisions of the Unfair Contract Terms Act 1977. I believe that this amendment does precisely that. I beg to move.

Lord Clinton-Davis: The noble Earl's amendment would in fact move the burden of proof on to the debtor to show that a contractual term should be upheld. I fail to see why this reversal of the burden of proof is desirable, although I shall come in a moment to the question of the effect of the Unfair Contract Terms Act.

I should like to start by referring to the reasoning behind our position on this matter. Both parties have in fact agreed a contract. That is evidence that they both felt it to be a reasonable and fair contract. The test which we seek to apply in the Bill is whether the remedy for late payment is inadequate for the purpose of compensating the supplier for late payment or for deterring late payment and that it would not be fair and reasonable to allow the remedy to be relied upon to oust or vary the right to statutory interest. In effect, therefore, it would be for the plaintiff to argue that the contract agreed--it is important to emphasise the word "agreed" in this context--failed to meet the test set by the Bill. That is a logical position, because only the plaintiff would be able to demonstrate that the contract term was unreasonable or unfair to the plaintiff. It would be extremely difficult for a defendant to be able to demonstrate that the contract was fair and reasonable for the plaintiff. How on earth would the defendant go about discharging that burden?

The noble Earl, Lord Home, alluded to the Unfair Contract Terms Act 1977 where the burden of proof is, as the noble Earl has sought to interpose in this Bill. But there really are substantial differences between this Bill and the 1977 Act. That Act deals with exclusion clauses in contracts, and Part II of this Bill deals with contractual terms to provide a remedy for late payment.

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These remedies may not satisfy the definition of "substantial remedy", but they do not provide an exclusion to a remedy. That is the substantive difference between the approaches in this Bill and the Unfair Contract Terms Act. I simply do not see how the defendant could discharge the burden of proof that the remedy in the Bill was fair and reasonable to the plaintiff--clearly, it is the other way round when it comes to the plaintiff being able to show that the remedy was unfair or not reasonable. With great respect, the amendment does not really stand up, and I hope that the noble Lord will not, in due course, persist with it.

The Earl of Home: I have to confess that this amendment did not originally carry my name and therefore I may be accused of introducing a proposal when I am not totally aware of all its arguments. My intention in agreeing to it, however, was that it is important to create a link between this Bill and the Unfair Contract Terms Act in order to ensure that they dovetail together. This amendment is an attempt so to do. If it has failed to do so, then I will withdraw it and look forward to the Government's proposals as to how they might link this in. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 agreed to.

Clauses 10 and 11 agreed to.

Clause 12 [Conflict of laws]:

[Amendment No. 20 not moved.]

Clause 12 agreed to.

Clause 13 [Assignments, etc.]:

[Amendments Nos. 21 and 22 not moved.]

Clause 13 agreed to.

Lord Haskel moved Amendment No. 23:

After Clause 13, insert the following new clause--

Orders and regulations
(" .--(1) Any power to make an order or regulations under this Act is exercisable by statutory instrument.
(2) Any statutory instrument containing an order or regulations under this Act, other than an order under section 15(2), shall be subject to annulment in pursuance of a resolution of either House of Parliament.").

The noble Lord said: I have already spoken to this. I beg to move.

On Question, amendment agreed to.

Clause 14 [Interpretation]:

[Amendment No. 24 not moved.]

Clause 14 agreed to.

Clause 15 [Short title, commencement and extent]:

Lord Ezra moved Amendment No. 25:

Page 7, line 24, after ("force") insert ("not later than two years after the day on which it is passed").

The noble Lord said: I beg to move Amendment No. 25, which is grouped with Amendments Nos. 26, 27 and 28 in the name of the noble Earl, Lord Home. The purpose of the amendment is to raise the whole question of phasing. The Government's proposal, as it

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emerged at Second Reading, was to have two preliminary phases of two years each before the Act came into force as a whole. The concern which my noble friend and I have about this is that it is not only too long a period but that it could lead small firms which alone would have the right in the first phase to claim interest to be too worried to do so. There could be very little use of that facility during the period for reasons which were well pointed out at Second Reading. The whole purpose of the Bill might fall into disrepute as a result. We therefore feel that either there should be a preliminary phase of only two years, or that during the first phase large firms should be able to make claims against other large firms. A wider use could then be made of the facility and the legislation could gain greater credibility.

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