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The Earl of Home: My Lords, I echo the words of the noble Lord, Lord Meston. I am also grateful to the Minister for agreeing to the amendment that I proposed in Committee, albeit in the wrong language. At least he

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was not insulted. Obviously it is important to look after those who are most likely to be embarrassed financially by late payers, and we support the amendment.

Lord Borrie: My Lords, I was intrigued when on an earlier amendment the noble and learned Lord, Lord Fraser, who has now left the Chamber, referred to receiving correspondence from my noble friend the Minister in response to matters he had raised in Committee. I, too, received a letter from my noble friend in relation to this clause. Like the noble and learned Lord, Lord Fraser, I was somewhat concerned over the formula which goes:

    "A copy of the letter has been put in the Library of the House".

I wondered how it worked. I went along to the Library today and asked to see a copy of this letter and whether any other letters had been sent by my noble friend in relation to the Bill on other subjects.

I am afraid that after a little search nothing could be found. Unfortunately, because of involvement with the Competition Bill this afternoon, I was unable to go back and make further inquiries. I wished to make a point similar to that made by the noble and learned Lord, Lord Fraser, and the more specific point that I had a little difficulty in understanding the letter from my noble friend which was concerned with whether the word "deterring" in the clause, which provides:

    "deterring the late payment of qualifying debts",

could be interpreted as including the possibility of a penal rate of interest. I was not sure what the response indicated. The Minister's response stated:

    "The wording also covers the possibility that the forthcoming Directive might require the rate to be set at a deterrent level".

There my noble friend uses the word "deterrent", but in the consultative document put out earlier by the department, Annex B in relation to Europe states:

    "A penal rate of interest may be levied by the Directive".

Page 19 of the consultative document asks the question:

    "Should a penal rate of interest apply in order to deter late payment?".

In other words, at various stages in the consideration of this Bill the department seems to have been using the words "deterring" and "penal" as being more or less the same. I am left a little unclear. I am sure that many businesses would like to have the matter cleared up and not just through a letter which may or may not be available in the Library. Of course no one knows that there is a letter in the Library unless they have been so informed. A number of businesses and Members of this House might be interested to clear up the point as to what is permissible under the clause and what are the Government's intentions.

Lord Clinton-Davis: My Lords, the reason that the letters are missing might be that we described them as "billets doux" and consequently everyone was misled. I do not know. I shall look into the matter, because I was under the impression that the letters had been sent to the Library. Perhaps it was second-class mail, I do not know.

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There is, of course, as my noble friend will realise, a view that we have taken that rates of interest should not be penal, because that is offensive to the law, or can be construed as offensive to the law.

If there is some inconsistency in the letters that I have written, I shall look into the matter. However, in this context they amount to one and the same thing. In order to deter, the word "deter" is used in the Bill and that is the essential point.

The Green Paper referred to the approach contained in a possible draft directive emerging from the European Commission. We have not yet examined the detail of that. It is still open for a draft directive to be changed and for the word "deter", if there is a conflict, to be used instead. It is our preferred term. I hope that that is helpful to the noble Lord. Provided that no offence is caused in the interpretation of the court, no trouble will be caused.

I am advised that a deterrent level may be required by the director. There is distinction in that a very high rate of interest may be a penalty. A deterrent rate may apply where the rate is greater than that needed to recompense weak businesses. The point is that it is not necessarily punitive.

Lord Meston: My Lords, we have been round the course previously. Is not the fact that needs to be grasped that the word "penal" has a peculiar meaning in English civil law? Conceptually, one must accept that while all penalties are deterrents not all deterrents are penal. The Government are correct in saying that they should be looking at the deterrent rates of interest rather than the penal rates of interest.

Lord Clinton-Davis: My Lords, I am much obliged to the noble Lord. He is a distinguished Silk and I believe he knows what he is talking about.

On Question, amendment agreed to.

Clause 7 [Purpose of Part II]:

Lord Haskel moved Amendments Nos. 11 and 12:

Page 3, line 37, leave out ("under this Act") and insert ("that would otherwise apply").
Page 3, line 42, leave out from ("term") to end of line 2 on page 4.

On Question, amendments agreed to.

Clause 10 [Interpretation of Part II]:

Lord Haskel moved Amendments Nos. 13 and 14:

Page 4, line 42, leave out from first ("interest") to end of line and insert ("or any contractual remedy other than interest").
Page 5, leave out lines 10 to 12 and insert ("vary the right to statutory interest is a reference to terms altering in any way the effect of Part I in relation to a qualifying debt (for example by postponing the time at which interest starts to run or by imposing conditions on the right to interest).").

On Question, amendments agreed to.

Lord Haskel moved Amendment No. 15:

After Clause 13, insert the following new clause--

Contract terms relating to the date for payment of the contract price

(" .--(1) This section applies to any contract term which purports to have the effect of postponing the time at which a qualifying debt would otherwise be created by a contract to which this Act applies.

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(2) Sections 3(2)(b) and 17(1)(b) of the Unfair Contract Terms Act 1977 (no reliance to be placed on certain contract terms in England and Wales and in Scotland) shall apply in cases where such a contract term is not contained in written standard terms of the purchaser as well as in cases where the term is contained in such standard terms.
(3) In this section "contract term" has the same meaning as in section 10(1).").

On Question, amendment agreed to.

Clause 15 [Interpretation]:

Lord Haskel moved Amendments Nos. 16 and 17:

Page 6, line 39, leave out from first ("agreement") to ("as") in line 40 and insert ("has the same meaning").
Page 7, line 10, after ("of") insert ("the term implied by").

On Question, amendments agreed to.

Clause 16 [Short title, commencement and extent]:

The Earl of Home moved Amendment No. 18:

Page 7, line 21, after ("force") insert--
("( ) as respects contracts where the purchaser is a public sector body and the supplier employs more than 50 persons, at the end of the period of three months beginning with the day on which this Act is passed;
( ) as respects any other contract,").

The noble Earl said: My Lords, the Bill envisages that, as part of the phasing arrangements, companies employing fewer than 50 people may sue other companies of any size or public sector bodies from day one. However, companies employing more than 50 people may not sue public bodies from day one. That seems rather strange to me.

I tabled a probing amendment in Committee asking that large companies should be able to make claims on other large companies. The Minister kindly said that he assumed that I included the public sector. Indeed, I did. He further said that large businesses are well able to look after their own contractual arrangements. But the public sector is the biggest business of all. Why cannot it look after itself? Why should the public sector need more time to get its act together compared with private sector big business? I do not understand the reasoning behind the noble Lord's submission, unless, for instance, he knows that the public sector owes so much money to so many large companies and is so late with its payments that the Government would be embarrassed if the figures became public knowledge.

Are the Government from day one not prepared to tell their own people to pay up or to stand up in public to be counted? I believe that the Government should set an example through the public sector and thus demonstrate their own commitment to the Bill. If the Government want reciprocity on this, I can see no reason why we should not support a proposal whereby the public sector can make claims on big business from day one. Indeed, the Government have time to introduce an amendment to that effect in the Bill in another place.

However, I am not so much concerned on behalf of very large companies, for it is unlikely that their business with the public sector will be so great that late payment will seriously jeopardise their existence. But the Government's method of dividing companies into big and small means that many companies are deemed under the definition in the Bill to be big but are at best

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medium sized. Some of those may well rely on public sector contracts for most--in some cases, perhaps, all--of their business and it is invidious that these people should be precluded at the beginning.

I am sure that the Government do not wish the public sector to be able to hide behind the provisions of the Bill or to discriminate against the type of medium sized company that I have described. Furthermore, many such medium sized companies may have contracts with local authorities, which, we must say, do not have a brilliant reputation for prompt payment. I beg to move.

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