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Lord Howie of Troon: I am not having a very successful afternoon, am I? However, I am grateful for the courtesy with which my noble and learned friend dealt with my humble proposition. I do not agree with him, and I dare to say that in public; I hope that no one is listening! The noble Lord, Lord Meston, is right. I made the assumptions about which he hinted. I did so because I know the business well. That is why I suggest the amendment.

I did more than merely move the amendment. I suggested that reference to the construction industry should be taken out of the Bill and dealt with in another way. I do not believe that the Bill deals with the construction industry with any greater certainty than does the Latent Damage Act to which I referred earlier. In the name of certainty for a small part of the legal world, the Latent Damage Act left a considerable body of uncertainty in the construction industry.

In the same way I fear--for the reputation of my noble and learned friend I hope that I am mistaken--that the Bill will leave similar uncertainties in the construction industry. We shall have to return at some stage to a revision of the Housing Grants, Construction and Regeneration Act to which I referred. In the meantime, I beg leave to withdraw the amendment and will take further advice for future occasions.

Amendment, by leave, withdrawn.

Clause 6, as amended, agreed to.

2 Feb 1999 : Column 1432

Clause 7 [Supplementary provisions relating to third party]:

Lord Borrie moved Amendment No. 6:

Page 5, line 8, leave out subsection (2).

The noble Lord said: I do not have an interest to declare, but some 25 years ago I was a member of the Council of the Consumers' Association, and I am indebted to that body for a certain amount of advice on the problems that would be left by Clause 7 unamended.

In the Second Reading debate, I ventured to comment on the considerable value of the Bill in a number of typical transactions. I cited an example from the 1996 report of the Law Commission where one contracts with a builder to do work on the house of one's daughter. The work is done defectively. At present, even though the daughter may be expressly identified in the contract, she cannot sue for breach of contract because she is not a party to it. That situation would be changed for the better by this Bill. When the Bill is enacted, she could sue for damages.

However, let us suppose that the contract contains, usually in small print, some exemptions clause excluding liability for personal injury or for other damage or financial loss. As regards personal injury, the clause is void by reason of Section 2(1) the Unfair Contract Terms Act 1977. The daughter could claim compensation for an injury arising from the defect. But somewhat inconsistently, as the Law Commission admitted, and now by reason of Clause 7(2) of this Bill, the exclusion clause would be effective against any claim for compensation by the daughter in respect of any other kind of damage arising from the defect. That is the case even though a court may consider that the clause fails to satisfy the test of reasonableness that would apply under the Unfair Contract Terms Act if the claimant was the contracting party.

At Second Reading my noble and learned friend the Lord Chancellor very fairly admitted that this was "A very difficult question". He felt that the balance lay in favour of preserving the rights of the parties who have chosen to bind themselves by the terms of their contract rather than enlarging the rights which they have chosen to confer on third parties. In that sentence I believe that my noble and learned friend seems to be equating the deliberate identification of the daughter in the Law Commission's example with the small print exclusion clause which is very unlikely to have been chosen by both parties or to have arisen from any clear consensus of the contracting parties.

The basic purpose of the Unfair Contract Terms Act 1977 was to qualify the sanctity of the terms of the contract because in the real world so many contracts are made not between parties of equal strength but between a stronger and a weaker party, with the stronger one having drafted the terms and presented them to the other party on a take-it-or-leave-it basis. It is for that reason that contractual exclusions of liability for personal injury are now void and that exclusions for other kinds of damage are subject to a reasonableness test. I believe that the policy of the law should be against allowing reliance on unreasonable contract clauses whether against the contractual party or the third party such as that defined in this Bill.

2 Feb 1999 : Column 1433

I apologise for going a little further, but since Second Reading I have looked at a consultation paper entitled The Key To Easier Home Buying and Selling. It is in the name of the Department of the Environment, Transport and the Regions, the Department of Trade and Industry, the Welsh Office and the Lord Chancellor's Department. The consultation paper was published last December. It is designed to bring proposals to assist the easier sale and purchase of houses. It includes a proposal, which many noble Lords may have seen in the press; namely, a proposal where the vendor of a house commissions a surveyor's report, which will be made available to potential buyers. The idea, as stated in paragraph 66 of the consultation paper, is that this report should,

    "be something the buyer (as well as the seller) can enforce".
Mr. Geoffrey Hoon, the Minister of State in my noble and learned friend's department, in launching this consultation paper referred to the last point as something that can be achieved by the Bill which is before the Committee today. The statements and effect of what is in the surveyors' report commissioned by the seller may not be enforceable by the buyer if Clause 7 remains as it stands. That is because Clause 7(2) of the Bill as it stands disapplies Section 2(2) of the Unfair Contract Terms Act. Clause 7(4)--I am speaking now to the next amendment in my name--disapplies the Unfair Terms in Contract Regulations 1994. So the buyer, relying on the surveyor's report supplied to him by the seller, would not be able to contest the validity of a contract term which, for example, excluded liability for claims arising from a surveyor's report that failed to mention defective foundations or something of that kind.

The proposals of the four departments responsible for the consultation paper on making it easier for the buying and selling of houses, and the efficacy of their particular recommendations, including the value of the surveyor's report commissioned by the vendor, would be seriously undermined--as would the buyer's confidence in such reports if the Bill is not amended in the way that I have suggested. I beg to move.

4 p.m.

The Lord Chancellor: I shall speak to both Amendments Nos. 6 and 7 in the name of the noble Lord, Lord Borrie. He has argued, as he did at Second Reading, that the parties to a contract should not be able to exclude liability for certain types of damage to the third party and that the provisions of the Unfair Contract Terms Act should be extended to restrict the parties' powers. I accept again that this is a very narrow and difficult issue. It is one that can be argued strongly in the sense so well expressed by my noble friend Lord Borrie. It is an issue that I have thought about carefully, as did the Law Commission.

However, my conclusion remains as it was at Second Reading. The Bill is not taking away any existing consumer rights. Third parties are not being deprived of any existing statutory protection. They are being given rights to enforce contractual terms, if the parties so choose, which third parties did not have before. So it is

2 Feb 1999 : Column 1434

a matter for the parties to decide whether or not to confer rights on third parties. It is a matter for them to decide whether such rights should be limited; for example, by providing that liability for negligence causing a third party loss is to be excluded.

It is important to remember that although there may be linkages between this Bill and the Unfair Contract Terms Act, the two do not really occupy the same ground. The Unfair Contract Terms Act is not primarily about third party rights. Even if it were desirable to reform the Unfair Contract Terms Act to protect third party consumers, I do not believe that it would be possible simply to accept these amendments as achieving that aim. Perhaps I may give one example. The Unfair Contract Terms Act contains a reasonableness test. We would have to decide whether that test was to be applied as between the promisor and the promisee or as between the promisor and the third party.

That having been said, I accept and recognise that there are cogent arguments on the side of the noble Lord. I hope that he will find it helpful when I say that I am certainly not seeking to rule out further consideration of the effect of the Bill on consumer protection, if the Bill becomes law. But I believe that it would be preferable for what is a relatively straightforward Bill to be enacted and to operate for some time before considering whether to tackle rather more complex issues as regards the ambit of consumer protection. On that basis I invite the noble Lord to withdraw his amendment.

Lord Borrie: I am most grateful to the noble and learned Lord the Lord Chancellor. His sentiments are extremely helpful and encouraging. My only anxiety is that he speaks of making some further proposals in the future. But one might have to wait another 10 or 12 years before there is another opportunity and a suitable Bill in order to make the changes that I have suggested. I shall read carefully and take further advice on what my noble friend said. In the meantime I am happy to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendment No. 7 not moved.]

Clause 7 agreed to.

Clause 8 [Short title, commencement and extent]:

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