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The Earl of Caithness: I rise to support the noble Lord, Lord Goodhart, because the amendment makes the Bill clearer and the running of an association clearer. Perhaps I may ask the Minister--a well-known lawyer--what his opinion would be if there were a conflict of interest for the directors between establishing and maintaining harmonious relationships between the unit-holders and the interests of the community association. There could well be situations where that arises.
Lord Kingsland: Clause 34 imposes on the commonhold association a duty to manage. Subsection (3) allows the directors of the association to decide not to act against the failure by a unit-holder to do something if they think it would maintain harmonious relationships between unit- holders.
These amendments--I refer to the amendment of the noble Lord, Lord Brennan, in the previous group as well as to all the amendments in this group--provide variations on that theme. The amendment tabled by the noble Lord, Lord Goodhart, and the noble Baroness, Lady Hamwee, would permit no action if it would be in the best interests of the commonhold association. My Amendment No. 54 has a similar effect. The amendment of the noble Lord, Lord Brennan, would allow inaction only where there would be no financial disadvantage to the others as a result. My Amendment No. 53 would disqualify a director from taking part in the decision if he or she were a defaulter.
I have now to choose between my two amendments. I believe that Amendment No. 54 is preferable to the other. Its effect is broader than that of Amendment No. 51, in that it requires the directors to exercise their whole duty to manage in the best interests of the association, rather than just give them discretion not to act. It continues to allow the directors not to act against every trivial infringement if that would maintain harmony in the community. The requirement to exercise discretion in the best interests of the community offers protection against directors not enforcing against their friends when it would be to the benefit of the whole community if they did act.
Lord McIntosh of Haringey: I am sorry that the noble Earl, Lord Caithness, is not to receive a response to the amendment from a well known lawyer. The response comes from a less well known market researcher, but that is all that he is entitled to. I deal
I turn to the amendments in this group. Amendment No. 51 removes the felicitous phrase "harmonious relationships". I would also be sad to see that go. The amendment would tend to blur the distinction between the commonhold association and its members in their capacity as unit-holders. As it stands the subsection is intended to allow the commonhold association to choose not to take formal action against a unit-holder if it seems best not to do so, without forfeiting its right to take action later against the same unit-holder, or any other unit-holder, for that or some other infraction.
We expect there to be two broad types of complaint within commonholds, in the same way as there are now in leasehold blocks or other circumstances in which people live together cheek by jowl. One will be the more formal type in which the association itself considers taking steps to deal with some failure, or compel some action by a unit-holder. The other will be a complaint about one unit-holder that is brought to the notice of the association by another with more or less justification. The association by its directors is already bound to permit or facilitate the exercise by unit-holders of their right to, and enjoyment of, their freehold estate in their units by virtue of Clause 34(1). By virtue of Clause 34(2) it is directed to use the powers created by Clause 36 to deal with infractions or failures by unit-holders.
Clause 34(3) is designed to be a safety valve. If the directors of the association, acting with the best interests of the association in mind--as they are bound to do by virtue of their office--genuinely believe that inaction in the face of a complaint is more likely than not to establish or maintain good relations between the unit-holders, that permits them to exercise some discretion. They may legitimately refuse to take formal action against a unit-holder who hangs out the washing on a Sunday afternoon in contravention of the CCS, thinking instead that a quiet informal word with the unit-holder, perhaps when meeting in the lift or over coffee, would be more conducive to good relations than the legalistic step of issuing the notice that they would be entitled to serve. Therefore, nothing is taken away but something is added. In answer to the noble Earl, Lord Caithness, that does sit with the directors' normal fiduciary duties; it will operate side by side. It will not be possible to decline to take action where inaction will damage the company or unfairly prejudice its members, or any class of them. Amendment No. 51, therefore, misses the point that there is an opportunity on the face of the Bill for directors of the association, who must always have the best interests of the association in mind, to use some discretion in order to help promote good relations between the unit-holders; in other words, to exercise people rather than business skills. After all, without good relations and goodwill no amount of efficient running of the association and serving of notices will make the commonhold a good place in which to live,
In the case of Amendment No. 54, the duty of directors comes under the Companies Act. A director's duty is always to act in the best interests of the company. There is nothing to be gained and there is potential for confusion if that duty appears expressed differently in a multiplicity of places in the statute book. Our decision to opt for a Companies Act vehicle for the commonhold association was not capricious. It was taken in the knowledge that we import with it many useful concepts which fit well with our policy intentions.
Amendment No. 75 imposes explicitly on the directors of the commonhold association a duty which is implicit but perfectly clear from Clause 32 read together with Clauses 11 and 24. The purchase of a part of a commonhold by a compulsory purchaser will give rise to a change in the physical confirmation of the commonhold. Clause 11 provides a definition of a commonhold unit by reference, inter alia, to plans. Clause 24 defines the common parts as all that land within the commonhold which is not for the time being a unit. In both cases, the definition is made by means of the CCS. It follows that a change brought about by compulsory purchase, or indeed any other sale or purchase, must be recorded in the CCS.
Lord Kingsland: The Minister said that the duties under the Companies Act must be implied into the Bill. However, I wonder how he feels about circumstances in which the duty under the Companies Act would conflict with the contents of Clause 24(3)(a).
Lord McIntosh of Haringey: I said in respect of Amendment No. 51 that if there were to be a conflict, or if an action would result in damage to the company, the directors would have to intervene. This gives them an additional discretion only to do or not do something without going through the full formality. Nothing takes away either from their rights as directors or from their duties as directors under the Companies Act.
Lord Selsdon: As a former market researcher, perhaps I may help a little. We are talking here about the definition of the phrase "duties of care". There is a mixture of duties of care as a director, but there is a duty of care to everybody as a unit-holder and to take into account their personal circumstances which may vary from one to the other. Perhaps if the phrase "duties of care" could be used, it would be easier for some of us to understand.
Lord McIntosh of Haringey: I, too, am a former market researcher. Clearly, I would not be standing here if I still were. My answer would be that the Companies Act applies. I do not have the full volume of the Companies Act in front of me, nor indeed the
Lord Goodhart: I am grateful to the Minister but I am not entirely convinced by his argument. It seems to me that the maintenance of harmonious relationships may very well be in the interests of the commonhold association as a body; frequently it will be. If so, there is no need for a specific reference. If it is not in the interests of the commonhold association, it would be wrong to refuse to take action simply to maintain harmonious relationships.
Lord McIntosh of Haringey: The failsafe is the other way. They can always take action in the interests, and indeed they are obliged to take action in the interests of the commonhold association. If there is any question of damage to the interests of commonhold associations, they are obliged to take action. This is a let out where there is no issue of damage.
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