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Lord McIntosh of Haringey moved Amendments Nos. 19 to 24:

    Page 3, line 10, leave out ("with whom he is dealing in that matter either knows") and insert ("knows or believes").

    Page 3, line 13, leave out ("person deals with a limited liability partnership after a").

    Page 3, line 14, leave out ("the") and insert ("a").

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    Page 3, line 14, leave out ("he is entitled to treat the former member") and insert ("the former member is to be regarded (in relation to any person dealing with the limited liability partnership)").

    Page 3, line 17, leave out ("he") and insert ("the person").

On Question, amendments agreed to.

[Amendment No. 25 not moved.]

Lord McIntosh of Haringey moved Amendment No. 26:

    Page 3, line 20, at end insert--

("( ) Where a member of a limited liability partnership is liable to any person (other than another member of the limited liability partnership) as a result of a wrongful act or omission of his in the course of the business of the limited liability partnership or with its authority, the limited liability partnership is liable to the same extent as the member.").

On Question, amendment agreed to.

Clause 6, as amended, agreed to.

Baroness Buscombe moved Amendment No. 27:

    After Clause 6, insert the following new clause--


(" . Unless otherwise agreed between members and the limited liability partnership, a member is not an agent for another member, is not liable for debts of the limited partnership and is not an employee of the limited liability partnership").

The noble Baroness said: This is a probing amendment designed to ensure clarity with regard to the relationship between members and the limited liability partnership. Based on present English legal authorities, the fact that the LLP is incorporated with limited liability, has a separate legal personality and no mutual agency of members should be sufficient to protect non-negligent members where the LLP is the contracting party. In essence, the amendment seeks to reinforce limited liability. I beg to move.

Lord McIntosh of Haringey: I had assumed that other noble Lords with more expertise than I would wish to intervene. There are three elements in the amendment. I am duty bound to deal with all three. The first provides that, subject to the agreement between members, the member is not an agent for another member. We do not believe that the provision is necessary. There is nothing in the Bill to provide that one member is an agent of another. The member is only an agent of the LLP.

The second provision is that, subject to the agreement between members, a member is not liable for the debts of the limited liability partnership. Again, we believe the provision to be unnecessary. The LLP is a body corporate and a separate legal person from its members. Under the common law as it applies to corporations, the members of a corporation are not in general liable for its debts. That is subject, of course, to the caveat that our intentions are to ensure, by regulation, that if an LLP becomes insolvent, a member may be required to repay withdrawals made from the LLP in the two years prior to winding up if it is proved that at the time of the withdrawal he knew or had reasonable grounds for believing that the LLP was at the time of the withdrawal unable to pay its debts.

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I refer to the proposed new Section 214A of the Insolvency Act which we published twice in draft for consultation, most recently in July last year, and which is the subject of a subsequent amendment by the noble Lord, Lord Goodhart.

The third part of the amendment provides that, unless otherwise agreed, a member is not an employee of the limited liability partnership. We dealt with that point in government Amendment No. 12, which has been agreed, by providing that a member of an LLP shall not be considered an employee simply by virtue of being a member. I hope that at that time I explained why it was that we did not believe that this matter should be subject to an agreement of the LLP; it should, in contrast, be part of normal employment law, however opaque that may sometimes be.

For those three reasons, I am afraid that the Government cannot accept the amendment.

Baroness Buscombe: I thank the Minister for responding to what I made clear was a probing amendment. I thank him for addressing each of the three areas in detail. I am content to withdraw the amendment.

Amendment, by leave, withdrawn.

6.30 p.m.

Lord Goldsmith moved Amendment No. 28:

    After Clause 6, insert the following new clause--


(" . Any member of a limited liability partnership shall be personally liable in tort (or in Scotland in delict) to any person for his own acts or omissions (but not for the acts or omissions of any other member of the limited liability partnership or for the acts or omissions of any employee of the limited liability partnership except such as are under his supervision or control) to the same extent as he would have been liable if the limited liability partnership had been a partnership subject to the provisions of the Partnership Act 1890 and of which that member was a partner.").

The noble Lord said: I raise this amendment to air an issue about the effect of the Bill if enacted. Paragraph 10 of the Explanatory Notes states that,

    "The LLP and not its members will be liable to third parties. However, a negligent member's personal assets will still be at risk. By way of example, under the general law, a professional person owes a duty of care to his client. Negligent advice given in breach of that duty by a member of an LLP will, in general, give rise to a potential liability on the part of that member as well as the LLP".

As I have understood the Explanatory Notes and remarks made in this place, it has been regarded as an important part of the Bill that, although partners will not be liable for their partners' acts, they will remain liable for their own acts or omissions. I have a concern, however, as to whether it can be said with the degree of confidence which the Explanatory Notes imply that that is what the common law will provide.

At the moment the liability of a partner may arise either in contract or in tort. The liability in contract arises where the partner is one of those persons with whom an individual has contracted to provide services. That liability will plainly not arise in future where a limited liability partnership is involved. The whole point is that it will be a separate body corporate

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that makes the contract, not the individual partners. The position in relation to tort is that an individual may owe a duty in certain circumstances. In relation to acts which cause personal injury or loss of property there is no real difficulty. Someone who drives down the road is liable for his acts whether he is conducting his own business or that of his employer. Where economic loss is caused, over the past 10 to 15 years the courts have devoted much time to considering the precise circumstances in which a duty of care may arise. The case of Caparo to which reference has already been made is one such example, but not all of these cases are at first sight always easy to reconcile.

The present position can be stated as follows: a person's liability to another for economic loss, for example by reliance on the spoken or written word, will depend on the court determining in all the circumstances of the case whether such a duty is found to exist. That may sound somewhat circular, and to an extent it is. The court looks at all the facts. The present test most often used, although not always, is whether the person assumed a personal responsibility for the particular act.

A special difficulty arises when a legal entity is interposed between the third party and the act of the individual. That matter has been most recently considered in the decision of this House in Williams v Natural Life Ltd. It is important to emphasise that that case concerned an ordinary company. Putting it at its shortest, the test appears in the speech of the noble and learned Lord, Lord Steyn:

    "The inquiry must be whether the director, or anybody on his behalf, conveyed directly or indirectly to the prospective franchisees that the director assumed personal responsibility towards the prospective franchisees".

In that case there was discussion about the circumstances in which the director of a one-man company might be liable. In its judicial capacity this House took the view that it did not necessarily follow that, because a company was a one-man business, that individual owed a personal duty; it would depend on whether on the facts he had assumed a personal responsibility. The extent to which this is a difficult area can be shown by the fact that in that case the Court of Appeal and this House differed as to the result: the Court of Appeal held that there was a duty of care; this House held that there was not.

My concern, therefore, is that the statement in the Explanatory Notes may give the impression that undoubtedly the common law will give rise to a personal liability on the individual person who has done the act or omission when I am not confident that that is the effect. It will depend on the circumstances. I can think of cases where it is likely that the courts will find such a duty and cases where that is much less likely. By way of example, in the simple case of a solicitor who sees a client and directly gives particular advice on which the latter relies, it may very well be that the court will find that the client relied on that particular solicitor and that he had assumed a personal duty.

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But what of the case where it is not a question of spoken advice being given but a failure to act? What if one's solicitor fails to file one's claim on time? Does the individual partner one sees first assume a personal responsibility to file the writ or does one rely on the firm to do it, in which case that partner may not have a personal duty? Of greater complexity and perhaps importance in the context of accountants is the team job. What about a case where the job is done by a team of partners, managers and assistants who together negligently, regrettably, make an error which causes substantial loss? Which of those members owes the personal duty, or does any of them? In those circumstances, does one rely on the individual partner or the well known firm? What of the case where the letterhead says that no individual partner assumes any personal responsibility for any act and one must look to the LLP alone?

The reason for moving the amendment is to raise this issue in the sense of asking whether, if this matter is fundamental to the Bill, words can be found that give effect to that intention, or whether it is something with which one is prepared to live and in certain circumstances the common law may not provide the remedy which the Explanatory Notes seem to suggest. The wording of the amendment is not perfect. I confess that it is not easy to formulate an amendment which gives that effect. I suggest that it is inappropriate to table an amendment which changes the general law. This is a difficult area. The amendment seeks to put the individual partner in the same position as he would have been in had it been an ordinary partnership. I have tabled the amendment to explore that issue and the basis of the Explanatory Notes. I beg to move.

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