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Lord Goldsmith: Given what the noble Lord said about the drafting of previous amendments, I venture to suggest with some trepidation that the provisions are clear. The noble Lord is right to say that the difficulty is that codification of the remedies proved to be a very difficult exercise. Indeed, it was too difficult to pursue, although, as he rightly says, the attempt was made. The alternative approach has been taken of directing attention to the existing rules, principles and remedies that are available for the corresponding
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common law and equitable duties which the new duties are replacing. I respectfully suggest that it is absolutely clear that that is what is intended.
Amendment No. 179—the second of the amendments to which the noble Lord has spoken—would create a problem. It would take out the words in brackets in Clause 162(2), which except the reasonable care duty from the provision. The clause otherwise says that these duties are,
is not a fiduciary duty. It may be owed by someone who is a fiduciary, but that is not the same thing. Therefore, it is necessary to keep that explicit exception in Clause 162(2).
Amendment No. 180 would change the wording from,
Something is missed in that transposition. It is important to keep to the principle that these are enforceable in the same way as any other fiduciary duty owed to the company by its directors. I resist that amendment on the basis that it does not assist in clarifying the purpose of the clause. I say nothing about Amendment No. 181, as the noble Lord does not intend to move it.
Lord Freeman: I found that explanation satisfactory. It was a probing amendment and it has been clarified. I do not intend to return to it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 179 to 181 not moved.]
Clause 164 [Consent, approval or authorisation by members]:
On Question, Whether Clause 164 shall stand part of the Bill?
Lord Freeman: I want to probe on Clause 164. We have now moved on to consent, approval or authorisation by members—the shareholders. Given that the statutory statement is intended to replace the existing common law rules and equitable principles, it is important for the Government to explain what the rules and principles referred to in Clause 164(1) are. I shall read the words on which I should be grateful for clarification. Clause 164(1) states that,
"the transaction or arrangement is not liable to be set aside by virtue of any common law rule or equitable principle requiring the consent or approval of the members of the company".
The Attorney-General has dealt with how reference is made to the common law and equity, but the Committee would be grateful for any general comments.
Lord Goldsmith: This is an area where the statutory statement of the general duties of directors will have made changes—I do not shrink from saying that they are significant changes—to the common law rules and equitable principles concerning conflicts of interest. Clause 159 permitted director authorisation of what would otherwise be impermissible conflicts of interest. Clause 161 required declarations of interest in proposed company transactions. In both those cases, the general duty no longer requires the consent of members. The common law rules or principles that refer to the failure to have had a conflict of interest approved by the members of a company under certain circumstances need to be set aside. If they are not, although the Act provided that it was all right for there to be an authorisation, it might be suggested that the director should still be capable of being impeached by reference to this common law rule or principle. However, subsection (1) goes on to say:
"This is without prejudice to any enactment, or provision of the company's constitution, requiring such consent or approval".
Certainly, the company's constitution can reverse the change and can insist on certain steps being taken requiring the consent of the members in certain circumstances. In that event, that provision would have to be given effect to. That is the consequence of the change of approach—and therefore a change of approach to the appropriate consequence of there not being members' approval in particular cases because it would no longer be required.
Lord Freeman: I am grateful. I am sure that the Law Society will find that explanation helpful.
Clause 165 [Declaration of interest in existing transaction or arrangement]:
[Amendment No. 182 not moved.]
On Question, Whether Clause 165 shall stand part of the Bill?
Lord Freeman: I shall speak to Clauses 165 and 166, which I wish to probe. Section 317 of the Companies Act 1985 is based on the current common law rule which restricts a director's freedom to act when his interests are in conflict with his company. This principle is now encapsulated in the form of a duty in Clause 161, which we have dealt with.
It would be helpful if the Minister could explain why it was thought necessary to preserve two distinct requirements—one, in Clause 165, based on Section 317, relating to existing transactions with the company, and one, in Clause 161, applying to proposed transactions. It is also unclear why breach of Clause 165 attracts criminal penalties while breach of Clause 161 does not. I believe that the Attorney-General has already addressed the earlier point. I shall not burden him with providing a further explanation;
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the record will serve that purpose. However, we need to address why breach of Clause 165 attracts criminal penalties while Clause 161 does not.
Lord Goldsmith: I am grateful to the noble Lord. As he said, I have already dealt with the distinction between existing and proposed transactions, which leads to a different scheme in the Bill. As regards why the remedies are different, in particular as regards breach of Clause 165, that is the only consequence of breach of Clause 165—because one is here concerned with an existing transaction or arrangement, the failure to declare cannot affect the validity of the transaction or give rise to any other civil consequences. That is to be contrasted with the position where there is a failure to disclose an interest in relation to a proposed transaction where the law can say that as a result of the failure to disclose that interest—and the company then enters into the transaction in ignorance of that—consequences can follow. The transaction may be voidable, to be set aside. The company may wish to claim financial redress in one form or another as a result of what has taken place. But, as I say, that is different from a failure to declare an interest in an existing transaction where those considerations probably cannot arise. That is why a criminal offence is created.
Lord Freeman: I am grateful for that explanation. My next point may be of interest to some Members of the Committee, who have far more experience of the matter than I have. I realised only during the proceedings on a Bill and the subsequent events that what is reported in Hansard is used by judges in court to determine what was in the mind of the relevant Minister and the Government. Ever since then I have chosen my words very carefully. The Attorney-General chooses his words even more carefully.
Lord Grabiner: The noble Lord's remarks ought to be qualified by the following rather important point—not all noble Lords' words are admissible in court on such an occasion, only the words of the relevant Minister; otherwise, no court case would ever be concluded.
Clause 167 [Declaration made by notice in writing]:
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