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Clause 12—(Offences By Bodies Corporate)

Volume 437: debated on Thursday 22 May 1947

The text on this page has been created from Hansard archive content, it may contain typographical errors.

I beg to move, in page 7, line 34, to leave out Subsection (2).

If it meets the convenience of the House, while discussing this Amendment I should also like to discuss the following Amendment in page 7, line 40, to leave out "and," and to insert "or." The question that arises for consideration here is whether one ought, in this Bill, to insert a provision which is very similar to provisions in many other Acts of Parliament nowadays. In fact, it is the growing practice to impose liabilities on officers of companies in addition to the body corporate, and then to cast the onus upon the officer of the company to prove his innocence. I do not think there is any justification, in this Measure, for casting that onus upon, for instance, directors of a company. I ask the House to consider exactly what a director will have to satisfy the court about in the case when his company is charged with failure to comply with a request made by any one of 21 Government Departments under Clause 1, or with regard to the census of production or distribution.

Under Clause 12 (2) he would have to prove
" … that the offence was committed with-out his consent or connivance…"
Even though it may have been committed without his consent or connivance, he will still be found guilty of an offence unless he also proves
"…that he exercised all such diligence to prevent the commission of the offence as he ought to have exercised having regard to the nature of his functions in that capacity and to all the circumstances."
I think that is putting an almost impossible burden upon officers of a company. I am not seeking to secure an Amendment to this Bill which would enable any person who is seeking to evade any of its provisions, 'thereby committing a criminal offence, and to get off scot-free. On the other hand, proper collaboration will not be obtained under this Measure if it is made so punitive with regard to people in business that directors and other officials of a company have put upon them an extremely heavy onus which they cannot discharge, and which, through their failure to discharge, may result in directors and other officials who are really innocent being convicted of serious offences. In the normal case the persons who will get the forms to fill in will be the secretaries of companies. It may be brought to the notice of the managing director, but in the normal practice, the receipt of the form requiring information under this Measure will rarely come to the notice or attention of the directors at a board meeting.

11.0 p.m.

Therefore, I suggest that it is nonsense to say that where a company secretary negligently or deliberately fails to make a return, the directors of the company, who may know nothing about it and within whose province this sort of thing does not come, shall be guilty of an offence, unless they prove certain things. When this Bill was before the House for Second Reading it provided that to establish his innocence, a director had to prove one of two things—either the offence was committed without his knowledge or connivance, or that he exercised diligence and care. If he could prove either one or the other he was entitled to an acquittal. In the Committee stage, however, the word "or" as it stood in line 40 was taken out, and the word "and" inserted. The Parliamentary Secretary, in moving this Amendment in the Standing Committee, said that it was a drafting Amendment. At least that is my recollection of the matter.

I am speaking entirely from recollection, but I believe he said that the Amendment was a drafting one. If so I have never known of a drafting Amendment with such serious and substantial consequences. I suggest in all seriousness, to the right hon. and learned Gentleman that the original word should be restored. My attention has just been drawn to the passage in the Standing Committee report, and it shows that my recollection was at fault. The hon. Gentleman the Parliamentary Secretary said that the word "or" was there in error. It may have been a printer's error. If so I wish the printer would make another error. It is wrong, I suggest, to go on putting more and more onus on the accused person to prove his innocence. Each time this House does so, it is an infringement of the ordinary principle of English law that a man should not be found guilty until he has been proved guilty. Time and time again, we have violated that great principle. I think the time has come when in a Measure of this sort we should be careful about putting in a provision of this sort unless it is absolutely required. If the right hon. and learned Gentleman desires to proceed with this, he should take out the word "and" and insert the word "or" again.

I beg to second the Amendment.

It is not part of the desire of hon. Members on this side of the House that directors of companies who lend their names should escape reasonable responsibility for the actions of those companies. We do not move this Amendment in order that directors shall escape these reasonable responsibilities. But we feel that the requirements under this Subsection are unnecessarily harsh and impose an unreasonable burden on directors. We believe that our suggestion would serve the interests of justice and law, and at the same time make the position of directors more reasonable.

The hon. and learned Member for Daventry (Mr. Manningham-Buller), in moving the Amendment, said that this was no new provision. A close approximation to this Subsection has found its way into Acts of Parliament for many years past. In some cases, the onus has been upon the directors, in some cases upon the prosecution. There are examples of each. If I may cite to the House some of the examples in which the director is made liable and the onus is put upon him to establish his innocence I would refer to the Representation of the People Act, 1918, as amended by the Act of 1922, which was a very important Act. That Act, of course, placed substantial responsibility upon persons who might be charged under it. There is a whole row of others, including the Dentists Act of 1925, the Treaties of Washington Act, and the Theatrical Employees Registration Act of 1925. These are all cases in which the onus is placed on the director to establish his innocence.

What we feel about this is, that in regard to this class of offence, in which information is required from a company, it would be wrong if those accepting responsibility for the management of the affairs of the company, should be able to evade liability when an offence has been committed virtually by putting that responsibility on to the company; that is, by shifting their responsibility on to the company. If it is right that the directors and officers of a company, as the persons responsible for running the company, should come within the purview of possible criminal proceedings in the case of an offence being committed, we think it equally right that the onus in this case, should be put upon them. They must of necessity possess knowledge as to the way in which the affairs of the company are run, so, that they, and no one else, will be able to say who really was at fault in respect of the fact that that information was not supplied. The prosecution, in a case of that sort, do not have an insight into the running of the affairs which the directors and officers of the company necessarily must have. Therefore we felt that in this case, once it is an accepted precedent that the directors are made responsible, and once it is approved that in the circumstance of that particular case they should be—that they are in control and are actually responsible for the running of the daily affairs of the company— we think it equally right that the onus should be on them to establish their innocence.

As to what they have to do to establish their innocence, the terms of the S section are extremely generous to the directors and officers of a company. There is no rigid rule about it. They have to show that not only were they not consenting parties to the commission of the offence but, that, taking a common-sense view of the situation as a whole, and bearing in mind the way the company's affairs were run and the persons who actually took part in the management, that it was not reasonable to expect that they should have taken steps to prevent the commission of the offence. They are not liable if they can show, in the first place, that they did not consent, for obviously that is the first prerequisite; and also that they took all reasonable steps to see that an offence was not committed. We feel that the Subsection is worded in such a way as to be generous to directors. We think that it offers them all reasonable opportunities to escape. We say that the Subsection is so worded that a director can come to court and say that he did not agree to this being done, and that, having regard to the way the affairs of the company were conducted, he did all he reasonably could to prevent an offence being committed. The director then escapes liability.

I ask the House to say that that is a reasonable and proper balance. That is putting the director in the sort of position he should occupy in relation to the company, having regard to his responsibility for its conduct. The same applies to the other officers of the company who come within the purview of Subsection (2). The hon. and learned Gentleman says that in any case we should substitute "or" for "and." But if I am right in the first part of the argument I have put to the House, I think that to accept this change would destroy the value of the Subsection. It would bring about this result, that the director could evade liability by establishing one of two things, that he was not a consenting party, or took all reasonable care. He would not have to establish both.

The hon. and learned Gentleman is not putting the case quite accurately. One thing for the director to establish would be, that he was not a consenting party, and did not connive. Suppose there is a case in which the director says, "I did not consent," and does nothing. Suppose the information has been asked for by the Board of Trade, and he does nothing further about it. It may be then held that he connived. The hon. and learned Gentleman is not meeting the argument fairly if, in stating the proposition, he omits reference to the word "connivance."

I am sorry, but I cannot accede to that view at all. If the word "or" is substituted for the word "and" the director could escape liability, for he could then say "I did not know, and so, a priori, I did not consent or connive. I know nothing about it." He might have been careless and deliberately shut his eyes, and walked the other way, when anything suspicious was being done. It would follow that he could not have connived or consented. He would get out of a number of acts for which morally he was responsible. If we keep the word "and" the director cannot get away by simply saying "I knew nothing about it." He would have to go on to say that he not only did not know or connive, but that, having regard to the circumstances of his company, he took all reasonable steps that could fairly have been expected of him. He would have to show these things. If the word "or" were put in, it would simply afford a loophole that could be used by any director who wanted to be unscrupulous about it. He would only have to close his eyes and say he did not consent or connive. Therefore, I ask the House to say that, once the Subsection is accepted as being desirable in principle, it would but emasculate it and make it easy to evade by an unscrupulous director if we were to put in the word "or" instead of the word "and." I ask the House to say, that there is a good case for putting responsibility on directors.

May I, as a matter of interest and to obtain information, ask the hon. and learned Gentleman whether it would be a defence for the director to say what, in fact, are the words in an Amendment that has not been called— that he had reasonable ground to believe that a competent person, namely, the secretary, or someone like that, was engaged in seeing that the provisions of the Bill were being carried out?

If I may with permission reply to the question, I would say that, undoubtedly, in a case like that, the director would have a perfectly good defence. He would say that the circumstances were such, and that a reasonable and responsible person was charged with this job. He could say, "We had confidence in him, and believed he was taking all reasonable precautions. As far as I was concerned, I did not consent or connive." In those circumstances, I would say he had a defence.

On a point of Order. You were good enough, Mr. Deputy-Speaker, to explain earlier why the Amendment to which I have referred was not selected— because, in Mr. Speaker's judgment, it would be inconsistent with Subsection (2). As Subsection (2) is, presumably, going to be kept in, because the Government do not propose to accept our Amendment to leave it out, and as, from what the learned Solicitor-General has just said, it does not appear that the Amendment is inconsistent with Subsection (2), I wonder whether you, Mr. Deputy Speaker, would reconsider that decision and whether the Government would not be prepared to accept it.

11.15 p.m.

I hesitate to intervene at this stage as I have not been following the various stages of the Bill. I would not do so now but for the fact that it seems to me two matters arise here which are matters of principle rather than of technical importance. The first is that the onus in this case is placed on the accused person. If this is so I do not think it would be hard to persuade the House that we ought not to accept such a proposal without a very full, detailed and satisfactory explanation. The hon. and learned Gentleman did not make a sufficient case to enable us to accept this without giving it further consideration. The results of the Measure will depend to a great extent, as has been shown throughout the deliberations tonight, on the good will and co-operation of the people making these returns and compiling these statistics. If that is the case, it seems quite wrong that the onus should be placed on the accused person, instead of the other way round. On that principle I support the Amendment and I am not prepared to accept the case put by the Government unless something further is added.

The second matter of principle is very important. The Bill singles out the director as an individual and makes him, or an officer of the company, responsible instead of the company as a whole and its employees. This is very important because there is a tendency in all parts of business, commerce and industry today to give employees a greater part in saying how the business is conducted. It was the aim of many of us before the war, and long before this Government came into power.

The hon. Member has no right to say "Nonsense." One can produce many cases where this has been done for years, and if he will see me at an- other time I will give him a personal account of my actions in this respect. There is no difficulty in getting people to give advice on how to run your business, but there is great difficulty in getting people to accept a measure of responsibility. The Solicitor-General talked about directors who were careless and slovenly and made mistakes. But if these statistics are to be compiled regularly they mist become a routine matter; members of the staff must be detailed to make out these returns and if that is the case, it is quite wrong to place the director in a different position from that of the person who makes the return. If it could be proved that a director made a false return on purpose or directed that a false return should be made or ordered his staff not to disclose some aspect of his business, it would be quite right that he should be prosecuted and no hon. Member would wish anything different. But surely it is absolutely wrong, when it is a routine part of business, that the director should be singled out and made responsible for actions of the staff, when in fact it is the action of the company as a whole. I urge that, if we are to pay more than lip service to this ideal that all should share in the management, then, surely, all must share in the responsibility, and I strongly support the Amendment moved by my hon. and learned Friend.

May I ask if it is your intention, Mr. Deputy-Speaker, in view of remarks which have been made by the learned Solicitor-General, to call the Amendment standing in my name in page 7, line 44?

I will call it if the hon. Member wishes, but for the purpose of a Division only.

I should not have intervened in this discussion had it not been for the extraordinary remarks of the hon. Member for Oswestry (Mr. O. Poole). He implied that, in any kind of relationship in industry, a director does not direct or accept the responsibility which are the dues of a director. It appears to me that, no matter what one calls the person responsible, somebody must assume responsibility for the acts and affairs of the business, and the particular set-up is not our concern. Whether the business is run completely by a works council—as is a business with which I am connected—or not, does not alter the fact that an individual or a group of individuals is conducting the affairs of the business, and must be responsible. If those in charge are so inept, or are such "guinea pigs" that they cannot accept responsibility for ensuring that the documents which they sign are accurate, in so far as it is reasonable to expect them to be so, then they should not occupy the office or be responsible for signing. those documents. It is absurd to assume that in any kind of properly-run business persons who have the name of director, and the function of director, are not completely responsible for their actions in matters of this kind. It would destroy a great deal of the value of this Bill if the request which has been made was acceded.

The speech of the hon. Member for Taunton (Mr. Collins) has been characteristic of the difference in view between hon. Members on that side of the House and hon. Members on this side. It is an unfortunate fact that hon. Members opposite always start with the assumption that all directors of all businesses are unscrupulous, whereas we do not think that. They believe that a director should be called on to prove that he is not unscrupulous. I might say that I am not a director of anything.

I was making the point, not that directors were unscrupulous, but that it is fallacious to suggest that they should not be responsible.

The hon. Member is taking the view shared by his hon. Friends. Before it is established that a director is dishonest, it is for the prosecution to prove it. The learned Solicitor-General says that the converse is the case, and the director must prove that he is not dishonest.

I was not impressed by the argument of the Solicitor-General on the question of precedent. It is perfectly true that this is a common form of provision in some Bills but it is no argument when dealing with this Bill, say that because it appears in some other Bills it is appropriate here. We are dealing with a different type of Bill here. I thought the hon. Member for Oswestry (Mr. Poole) made a good point that in this Bill you are trying to get the co-operation of those who will be affected by it and that the less penal you make the Clauses, the more co-operation you get. I would like the right hon. Gentleman to reconsider the point made by my right hon. Friend the Member for Southport (Mr. Hudson), that where a deputy had been appointed to deal with the matter that would exculpate the director. I think the Solicitor-General was wrong on that, because the mere belief that someone else had fulfilled the task would not exculpate the director. On the proposed wording he would have to prove that he had been diligent in ensuring that someone had done the task on his behalf. It would not be enough for the director to say, "I thought someone else had done it;" he would have to see that someone else had done it.

I hope that the Amendment in the name of my hon. Friend the member for Buck-low (Mr. W. Shepherd), on this point will be called. The Solicitor-General accepts the view that the director is exculpated if he believes the task has been done. If the Solicitor-General accepts that as what he is aiming at I think that he should accept the Amendment of my hon. Friend which is exactly in accordance with what the Solicitor-General declares to be the object of the Clause. If he wants to achieve that object he can do so by accepting the subsequent Amendment. Such a restriction as is applied here should be applied only in particular cases. The onus is on those who are putting forward a proposal of this kind to establish that it is an appropriate case. No case has been made out for including this provision in this Bill, and it should therefore be deleted.

I support the Amendment. Thirty years ago when I knew nothing about this matter, I might have been almost persuaded by the arguments of the Solicitor-General. But the persuasiveness of his argument runs counter to experience. I do not know if he realises what happens in a business, whether small or large. What is called for under the Bill is the willing co-operation of a large number of persons in supplying statistics. The basis is effective co-operation among all concerned. In a business I have under consideration the general manager is responsible for the stocks of raw material. He collects the stocks and transfers the particulars to a female secretary who is responsible for signing on behalf of the company a certificate of the stocks which the company has in hand. Now, the female secretary is a timorous creature well past the fifties and not likely to challenge the figures of tons, cwts. and lbs. of stocks of copper and other metals which are affected. But if she reads this Subsection she will be exceedingly apprehensive. She will learn that she may be joined in a prosecution with the manager, of whom she has a wholesome fear, and the directors, for conspiracy. While the plausible Solicitor-General would put her immediately at her ease if he were explaining the Subsection to her in the private office of the company, he will not be available for that purpose. He tells us the onus of proof will lie with this unfortunate spinster. She would be so overcome at the mere levelling of the charge that she would literally die of shame.

11.30 p.m.

The only way to deal with the matter satisfactorily is for the Government to dismiss from their minds this inquisitorial, penal attitude to those engaged in the conduct of industry. We who are engaged in industry are not criminals although the criminal character seems to be provided against in this Bill. We are business persons who have, not unsuccessfully, built up not inconsiderable industries. The businessmen of this country, taken by and large, are men of honour and repute in spite of the very ignorant sneers of hon. Gentlemen opposite. They have fought for their industries for many years and have been well disposed towards their employees and have given them their friendship. That is the whole history of the industry. This Subsection is going to drive a wedge between the directors, secretaries and other similar officers. What impression will it leave on any small or large business?

I ask the hon. Member for Taunton (Mr. Collins) to take this Bill into his office behind the glass door, ask the staff to read it, and then ask them what they think and see what are the repercussions. I think he will find that all the returns for his business will have to be signed by him. No-one else will take the responsibility. They will say; "Here is the responsibility and you alone will have to accept it." You may get a firm with several directors, assistant directors, managers, secretaries, assistant-secretaries, and departmental managers. Everyone will decline to sign the documents because of the penal results which may follow. This is not one return to be signed once in five years. These are weekly, monthly, or quarterly returns which will have to be made throughout the whole conduct of business this year or for ever after, I believe. Have the President of the Board of Trade and his colleagues— I know they have done a good job— allowed their imaginations to dwell on this? Take the case of an insurance company. The directors are usually between seven and fifteen in number. They have put in front of them the returns of the fire insurance taken out during that particular week not only in Great Britain but in the United States, Australia, South Africa, South America, all over the world in fact. Will these directors be subject to a penal offence unless they have been diligent in preventing the commission of offences? How can they in the case of returns arising from Brazil, South Africa, arid Ceylon, do other than be in a position to take the word of the responsible officer of the company?

Would the hon. Member say whether there is any less likelihood of a director not knowing what he is signing in this case than in the case of signing a balance sheet? Would the hon. Member regard a balance sheet as of less importance than a document of this kind?

The hon. Member asks me if I would regard a balance sheet as of less importance than a statistical weekly return. He surely knows that balance sheets are signed only once a year. Such returns as the President of the Board of Trade will demand from business will have to be signed daily, weekly, monthly or quarterly. This is very different from the completion of a balance sheet the evidence of which has been before one's eyes and which has had the consideration of the accountants and bankers. There is every difference between the signature of such a document and the signature of a routine statement of stock in hand. Despite the important and valued practical advice which the Government have had at their disposal— from the hon. Member for Taunton, who, as far as I can see, is the only hon. Member opposite engaged successfully in business on his own account—it is regrettable to see how deficient hon. Members opposite are in this important matter. The intention of the Clause is to throw responsibility on every individual who is a director, or an officer of a corporate body. That is a very dangerous principle for the President of the Board of Trade to set up. Will he allow me to ask him this question? Is he prepared to accept the English proverb that what is sauce for the goose is sauce for the gander? Is the President of the Board of Trade, or are any of his colleagues, such as the Minister of Fuel and Power, individually and collectively, prepared to accept the terms of the Clause? If the right hon. and learned Gentleman or any of his colleagues make an error, are they prepared to share the penalties and pains of that error? The right hon. and learned Gentleman is a corporate body. Is he prepared to be a corporate body in the sense that he intends to make me a corporate body? This collective responsibility can be carried too far. Perhaps I am carrying it too far, but if I am doing so, it is because I have learned from the examples and the suggestions of the President of the Board of Trade.

We have heard from the hon. Member for Taunton (Mr. Collins) and my hon. Friend the Member for South Edinburgh (Sir W. Darling) arguments in respect of certain traders and businessmen. I have the pleasure of representing a great many thousands of other traders, and they would undoubtedly have to collect the same statistics and be liable to the same penalties, at any rate, as far as their general managers, secretaries or other similar officers are concerned. My objection to this provision is not only from the point of view of big and little businesses, but also because great pains and penalties will be laid upon a body of individuals in my Division for whom I have a great admiration. A body of people who will certainly be liable to the penalties under this provision are the co-operative societies. I must warn hon. Members that if this Subsection is left in the Bill, undoubtedly their officials will be liable to these indecent pains and penalties which we regard as out of all proportion to the magnitude of the offences.

Amendment negatived.

Amendment proposed: In page 7, line 44, at the end, to insert:

"Provided that no such person shall be liable to fine or imprisonment if he shows that he had reasonable ground to believe and did believe that a competent and reliable person was charged with the duty of seeing that the provisions were complied with and was in a position to discharge that duty:"— [Mr. William Shepherd.]

Question, "That those words be there inserted in the Bill," put, and negatived.

I beg to move, "That further consideration of the Bill, as amended, be now adjourned."

I would like to ask the Government how far they propose to go. We have sat a long time, and it was not our fault that the early part of the day should have been occupied by business other than which was originally intended. The original intention was to have the whole day for the Third Reading of this Bill. I feel that hon. Members on all sides of the House, including officers and servants of the House, would be grateful if we could finish now.

We are practically at the end of the Report stage, and the Third Reading should not take very long. I am sure it would be for the convenience of everybody to finish the Bill now, and not leave it till some other date. We have already spent considerable time on the Bill, and had a full and useful discussion. We should finish the Bill before midnight, if not we can sit a little after. It is our proposal to proceed and finish the Bill tonight.

Question put, and negatived.