—Took the Oath.

My Lords, with the leave of the House I should like to make a brief personal Statement to dispel any confusion caused by an Answer given to the Starred Question of the noble Lord, Lord Campbell of Croy, on special advisers on 16th October.

My answer to the noble Lord, Lord Boardman, was unclear, and for that I apologise. The noble Lord asked for the cost of special advisers over the last 12 months compared to the cost under the previous Conservative administration. The term "administration" has a specific meaning for special advisers, as under the terms of their model contract all appointments are terminated at the end of an administration. Therefore, in this context, "administration" is synonymous with "Parliament".

I gave a cost of £4.4 million for the current figure of 81 special advisers, as compared with 79 under the last administration. My intention in offering those numbers was to counter any suggestion of a large increase in the total number of special advisers between this current administration and the last administration—both Labour, of course.

I then told the House that I had no figures for costs under the previous administration, as was requested by the noble Lord, Lord Boardman; namely, the Conservative administration of 1992–97, as I should have said explicitly. But, in an attempt to be helpful, I recalled the cost of£1.1 million for 1991. In fact, the cost for the last year of the previous Conservative administration was £1.8 million. That paid for 38 special advisers, as I now readily make clear.

Using the words "last administration" and "previous administration", while not making a clear distinction between Labour and Conservative administrations, meant that the confusion was entirely of my making. The Hansard editor and the civil servant who routinely checks the speeches of Cabinet Office Ministers sought to clarify matters by changing "previous administration" to "previous Parliament" in the final record.

For the avoidance of doubt, let me say that there was certainly no pressure brought to bear on Hansard to make such a change. However, in my view the confusion remains and, in order to dispel it, I have made this personal Statement at the earliest opportunity.

asked Her Majesty's Government:

My Lords, the noble Lord's Question seems to be based on a misconception—there is no single "burden of proof" in a libel case. Generally in English law, the party who asserts a fact—either in his claim or in his defence—has to demonstrate the truth of what he says. The other party does not have to prove that it is false.

Our law strikes a fair balance between the interests of the claimant and those of the defendant, and the allocation of the burden of proof is part of that.

My Lords, why is it then that the American courts refuse to enforce English libel awards? Is it not true that that is because of the present state of affairs—that the misdeeds of Robert Maxwell and Jeffrey Archer, to name but two, were not exposed before they were?

My Lords, of course the American position is different from ours. Perhaps I should amplify my Answer. I assure noble Lords that this country's law is in robust good order. I appreciate the strength of the noble Lord's concern.

As I said earlier, in any civil action the primary burden of proof rests on the claimant to make out his case. If he fails to do that, the defendant is not required to prove anything. In a defamation case, therefore, the primary burden of proof rests on the claimant. He must prove four things: that there was a defamatory statement; that it referred to him; that it was published; and that the defendant was responsible. Only then does the defendant have to prove any element of his defence. It is of course true that if the defendant pleads justification—that is, truth—as his defence, he must prove the truth of what is said. That is simply an application of the rule that I outlined in my Answer.

I should also make it clear that, first, the defendant does not need to prove the truth of every detail and every nuance of what he has said. It is sufficient that what he said was substantially true. Secondly, he does not need to prove conclusively and beyond all reasonable doubt that what he said was true; he needs to prove it only on the balance of probabilities. Similarly, the defendant may plead the defence of fair comment.

Much has happened to extend the position through the Defamation Act 1996. I assure noble Lords that the balance between defendant and claimant is well understood and maintained in all of the courts in England and Wales.

My Lords, while anyone who makes a derogatory statement about another should be prepared to prove it—otherwise the victim would be in the position of having to prove a negative—does my noble friend agree that the Human Rights Act may impinge on certain aspects of our libel law; for example, the right of free expression? Have the Government considered the implications?

My Lords, the Government have considered the implications of the Human Rights Act. The relevant articles are Article 6, the right to a fair trial, and Article 10, the right to freedom of expression. It is for the courts to apply and to develop the law of libel in a manner consistent with the convention rights. The courts are also under a duty to act compatibly with those rights as public authorities under the Human Rights Act 1998, which was introduced by this Government. Additionally, under Section 12 of the Act, they are under a duty to have particular regard to the importance of the convention right of freedom of expression when considering whether to grant any relief that would affect the exercise of that right.

My Lords, does the Minister agree that our libel laws are still too prone to what may be called speculative litigation? Should not part of a defence be that a statement was made in reasonable good faith with a proper attempt to try to check the facts? Surely we should remove from our system such a tendency to litigation. Does the Minister agree that that could best be accomplished by a proper Press Complaints Commission that had teeth and was respected?

My Lords, I hear what the noble Lord says in relation to the Press Complaints Commission's procedure. That matter has been debated long and hard and no doubt will continue to be debated. We must see whether the present system, which in recent years has changed, has teeth. The law in relation to defamation is difficult. There is a balance between the claimant and the defendant and striking the right balance is always problematic. We believe that at the moment the balance is right but, as noble Lords know, this matter will continue to be scrutinised from time to time.

My Lords, does my noble friend agree that the real problem with our current libel laws and the absence of legal aid is that they prevent newspapers from telling the truth about the rich, while enabling them to tell whatever lies they like about the poor with total impunity?

My Lords, attractive as it may be to agree with the noble Lord, I cannot, not least because that is not true. Of course, legal aid has not been extended to defamation and it never has since its inception in 1949. However, conditional fee agreements are now available and have been used successfully. The Government have also taken steps to enable successful litigants to reclaim the cost of any insurance premiums from their opponent, which should scotch the widely-held perception that defamation laws benefit only the rich and powerful. If noble Lords cast their eyes over recent decisions in which applicants have been successful, they will see that a number used conditional fee agreements.

My Lords, while I am aware that the Minster has no responsibility for American law, is she able to answer the query in the supplementary question asked by the noble Lord, Lord Beaumont of Whitley, as to why American courts will not enforce British judgment in this respect?

My Lords, I cannot give the noble Lord a specific answer. We are not able to dictate what the American courts should or should not enforce and, as a sovereign nation, they cannot dictate to us. I know that many noble Lords labour under the misapprehension that America and ourselves are the same; in fact, we are two sovereign states subject to our own rules.

My Lords, can my noble friend advise the House whether the Government have given any consideration to the role of juries in libel trials?

My Lords, we have considered the matter of juries, which I know concerns a number of noble Lords. In 1999 the Law Commission recommended that juries in libel trials retain both the task of determining liability and the task of setting damages. I can reassure your Lordships that Her Majesty's Government are not considering any change to that role.

asked Her Majesty's Government:

My Lords, the Government have made no decisions about financial support for UK airlines, apart from underwriting on a temporary basis third party war risk insurance. Control of state aid falls to the European Commission, which would determine the compatibility with the treaty of any assistance offered. The Commission set out guidelines on emergency aid in its 16th October communication to the Transport Council on the repercussions of atrocities in the United States on the air transport industry.

My Lords, I am grateful to my noble and learned friend for that full Answer. Does he agree that market forces caused British Airways to cancel its Belfast flights when it was charging £162 per person compared with the low cost airlines which charge about £27? Does he further agree that that should be replicated throughout Europe and that he should therefore encourage a rationalisation of the airlines in Europe and possibly the removal of ownership restrictions both in Europe and in the United States?

My Lords, I cannot comment on the reason for the cancellation of a particular flight. There is plainly scope for a rationalisation of airlines throughout Europe and that should be done on a sensible market basis. At the Transport Council meeting on 16th October, to which I referred in my Answer, my right honourable friend the Secretary of State put before it a paper about rationalisation. It is a proposal which we support, but on a sensible basis.

My Lords, will the noble and learned Lord accept that even if direct financial subsidy to our UK airlines proves not to be possible, other actions might be appropriate? Does he agree that it has long been a scandal that UK planes run by British Airways, Virgin and the other carriers cannot land in one American city and pick up passengers to take them to another? Does he accept that if we are making the SAS available to fly to Afghanistan via Pakistan, Uzbekistan or other places, now is the moment for the Government to press President Bush to allow British Airways to land at New York and take passengers on to Chicago?

My Lords, we are actively pursuing bilateral negotiations with the United States. A balanced liberal agreement with the US would be good for passengers in the UK and in the European Union more widely.

My Lords, I begin by declaring my interest as president of BALPA. Will the noble and learned Lord tell the House why a clear advantage is enjoyed by the United States' airlines which none of the European airlines can emulate? Is not the matter being taken before the European Commission and how are the British Government assisting in that?

My Lords, the British Government are engaged in bilateral discussions with the United States in relation to these airline issues. There are issues which also have a European dimension but at the present time the right course is for Britain to continue those discussions with the US.

My Lords, is it true that as reported in the press the European Commission is breaking its own rules and is in the process of allowing national subsidies for other national airlines within Europe?

My Lords, I am not sure to what the question was directed. It is for the European Union, in particular the Commission, to state the provisions in relation to state aid in the current situation. That is what it has done. They apply to all EU countries and I understand that they are being applied in all EU countries.

My Lords, does the Minister agree that the UK airlines have not asked for any state handouts? Does he also agree that it is important to negotiate a bilateral air services agreement with the United States because next year the UK will lose its mandate for bilateral air service agreements to the European Commission?

My Lords, it is right that we continue the negotiations with the United States because we need to sort out many of the problems which have been mentioned. As regards the UK airlines' approach to handouts, there have been constructive and sensible discussions between them and the Government.

My Lords, the noble and learned Lord did not answer the final part of my noble friend's question, which relates to the right to bilateral negotiations. Will he address that?

My Lords, they are presently with the UK and the US. At the end of the year a decision must be made about how they are proceeded with.

My Lords, does the noble and learned Lord agree that the reason it has been so easy for the United States to pick off and cherry-pick European nation states is because we have not yet been able to negotiate on a European basis?

My Lords, in some respects, we have in our hand particular cards which make our position strong in those negotiations.

asked Her Majesty's Government:

My Lords, this Government are taking both short and long-term measures to secure UK energy supplies. We and our energy companies are working with the security services to ensure that the risk of terrorist attack is properly assessed and that appropriate measures are in place to reduce the risk of disruption.

For the long term, the Department of Trade and Industry and Ofgem have established a joint working group to monitor security of supply and assess any risks, looking at least seven years ahead. In addition, the current Performance and Innovation Unit review of energy policy will identify longer-term strategic objectives of UK energy policy and will consider security issues.

My Lords, I thank the noble Lord for that informative Answer. As regards the short term, will he indicate the Government's policy on the level of stocks, particularly oil and gas? In the case of oil, there are IEA regulations and, in the case of gas, stocks are fairly low.

As regards the long term, will he assure us that the PIU energy review study will put increased emphasis on reducing import dependence and in particular pay regard to the contribution of the coal industry and the part which clean-coal technologies could play; to renewables, in respect of which there are still some obstacles; and to a greater drive for energy efficiency and new technologies?

My Lords, in accordance with the EC oil stocking directive and the International Energy Agency emergency plans, the UK holds strategic oil stocks to guard against the disruption of international oil flows. During the past 25 years, including during the Iran/Iraq war and the Gulf war, world oil supplies have not fallen by more than 6 per cent. The UK has sufficient stocks such that if the supply of crude oil should decline by, say, 10 per cent, we could cover that shortfall for almost two years. In that regard, therefore, we are well positioned.

Furthermore, the new gas trading arrangements have provided market-related incentives to construct new storage. The issue of gas storage will be a matter for the PIU report and the DTI/Ofgem working group.

As regards the long-term future, we are taking a range of measures, including most of those mentioned by the noble Lord. In particular, we are promoting properly functioning and competitive energy markets, maximising existing energy resources, encouraging energy renewables and combined heat and power, also promoting and rewarding energy efficiency.

My Lords, given the present threat of terrorism, are the Government satisfied with the precautions being taken against possible sabotage in the UK of installations and of our network of pipes and powerlines?

My Lords, as the Prime Minister said on 4th October, we have ensured as far as possible that every reasonable measure of internal security is being undertaken. The Civil Contingencies Committee, which is chaired by the Home Secretary, is working to ensure the protection of key facilities and utilities, not only high-profile targets but also essential services. However, as I am sure your Lordships will appreciate, we do not want to comment on operational security matters in detail.

My Lords, does the noble Lord agree that the best way to ensure the security of our long-term energy supplies is rapidly to expand the development of renewable energy which can, at the same time, provide thousands of extra jobs and technology to help us earn a living around the world?

My Lords, I believe that the best way to ensure security of energy supplies is to take the whole of the measures that I have set out. It is important to ensure that we have competitive markets, encourage renewables and CHP and take action on energy efficiency. All these measures should be taken and we should not rely on just one, important as renewables are.

My Lords, in view of the very long-term nature of the terrorist threat, is there not a case for reviewing the potentialities of nuclear energy?

My Lords, I believe that the most critical factor is not the possibility of terrorist attack, important though that is, but that around 2005 the UK will again become a net importer of natural gas. Further, around 2006 the UK is again likely to become a net importer of energy for the first time since 1981 and North Sea oil. In view of that I believe that it is a very good moment to review the whole question of energy security over the whole breadth of the technologies involved. For that reason, I very much welcome the inquiry by the House of Commons Select Committee on Trade and Industry into the security of energy supply and the inquiry by a Select Committee of the House of Lords into the European Commission's Green Paper on the security of energy supplies.

My Lords, while one is concerned about the UK's energy security, can the Minister confirm that there are approximately 1 billion people in the world who have no access to energy sources of any kind and that perhaps our long-term security would best be achieved by also addressing that issue?

My Lords, as far as concerns terrorism, clearly the sense of injustice felt by the poor of the world is a long-term matter which must also be addressed, but I do not believe that that should distract us from the short-term issue of security against terrorism or the medium-term issue of security of supply.

My Lords, following on from the previous question, can the Minister say what support the Government are providing to oil extractors who are working with the Government of Angola to ensure that Britain benefits from the immense reserves of oil in that country, which, as the noble Lord will be aware, has very few Muslims in its population?

My Lords, the noble Earl asks an extremely interesting question which, if I may, I shall answer in writing.

asked Her Majesty's Government:

My Lords, Her Majesty's Government have no current plans to require any of the Northern Ireland parties to disclose sources of foreign funding or prohibit it. The sections of the Political Parties, Elections and Referendums Act 2000, which gave effect to these provisions in the rest of the United Kingdom, were disapplied in Northern Ireland because of the particular circumstances there. This is not intended to be a permanent measure, and the Government have given a commitment to review it after two years.

My Lords, I thank the noble and learned Lord for his reply. It is a source of comfort on all sides of your Lordships' House that the noble and learned Lord has taken responsibility for Northern Ireland matters in this House. Does the noble and learned Lord recall that during Question Time last week his noble friend the Home Office Minister was somewhat agitated by the line of questioning on this matter of my noble friend Lady Park? Would the noble and learned Lord be too cross with me if I persisted on the same lines? Will the Leader of the House remind noble Lords how much of the £63 million that the Government have frozen in the bank accounts of suspected terrorists is related to Irish terrorism and what plans they have to identify and freeze the finances of Irish terrorist organisations?

My Lords, I do not believe that in the breakdown of the £63 million that I provided there was any sub-division in respect of Irish terrorism. Speaking from recollection, I believe that in answer to the noble Lord, Lord Strathclyde, I referred to six banks, none of which appeared to me (if I may put it this way) to be obviously Irish but were more likely to be Arab institutions. Plainly, this is a continuing struggle. Funding is enormously important to terrorist organisations. The Provisional IRA remains a proscribed organisation. By virtue of United States law it is an offence to raise funds for foreign organisations without having registered under the appropriate legislation.

My Lords, is the noble and learned Lord aware that when I retired from the Diplomatic Service 10 years ago a great deal of effort was being made by consulates and consulates-general in the United States to discourage American financial assistance to Noraid? Does that effort continue?

My Lords, I cannot say that it continues visà vis a particular organisation, but I can assure the House, as it would expect, that the United States Government and Her Majesty's Government, particularly at the present time, are working very closely together. These are very delicate times. I do not feel—and I hope that I do not show—any irritation because I have never known the noble Lord, Lord Saatchi, to ask an inappropriate question. I can tell the House that recently Gerry Adams announced that he is to make a statement this afternoon. I do not know what will be in that statement. I simply give the House that news because we are in extremely difficult times.

My Lords, does the noble and learned Lord agree that the exemption of Northern Ireland from the Political Parties, Elections and Referendums Act was done on the advice of the Neill committee? Does he also agree that, in view of the fact that we are at the 11th hour where efforts are being made to salvage the Belfast agreement, it would be quite inappropriate to review it at this particular time?

My Lords, I believe that, as the noble Lord implies, a proper balance was struck. The order which came into force in, I believe, February of this year runs for four years but with a specific commitment to review it in February 2003. These are extremely delicate areas that are not capable of a perfect intellectually justifiable response; they are matters of judgment. I hope the House agrees that the Government are doing their best to come to a proportionate judgment.

My Lords, is not the difficulty at the heart of the Question as put that, as my noble and learned friend said, the Provisional IRA is a proscribed organisation, with all the implications that that has for the raising of money, but Sinn Fein is not? Indeed, a number of members of Sinn Fein have been elected to the other place, and a large number are Members of the Northern Ireland Assembly. There is all the difference on earth. If it can be proved otherwise then act. But does my noble and learned friend agree that it is much better to deal with the breakaway organisation—the Real IRA—which was involved in the massacre at Omagh and to concentrate on what matters, not on a flight of fancy and properly elected organisations?

My Lords, my noble friend is right and speaks from vast, honourable experience of these apparently intractable problems. Sinn Fein is a political party which offered itself for election in Northern Ireland and the Republic. It is not the same in legal terms as the Provisional IRA, which remains a proscribed organisation. As to my noble friend's point about the Real IRA—one reverts to the earlier question put by the noble Lord, Lord Wright—the Government, together with the Irish Government, approached the United States administration for the designation of the Real IRA under the provisions of the anti-terrorism legislation in that country, and the US acted against that organisation in May of this year.

My Lords, the noble and learned Lord must have some degree of confusion. Does he agree that either Sinn Fein is a democratic party in the United Kingdom like the rest of our parties, in which case it should be subject to the same rules and prohibited from overseas funding, or it is, as so many Ministers of both this Government and previous ones have said, a part of the IRA/Sinn Fein organisation and it is playing with words to distinguish between the two, particularly when we know that leaders of Sinn Fein are also members of the Army Council?

No, my Lords, it is the noble Lord who has surprisingly fallen into confusion. Sinn Fein is a political party which offered itself to the democratic mandate in Northern Ireland and was successful in part. It offers itself for election in the Republic of Ireland. The United Kingdom consists of, among other areas, Northern Ireland. Everyone recognises that over many years there have been distinct problems in Northern Ireland. Our legislation has frequently rightly met those. It is not simply Sinn Fein which is the subject of this application; it applies just as powerfully to the SDLP.

My Lords, has not more than enough already been said this afternoon about this matter? Would it not be best now to enable the United Kingdom and the United States Governments in cooperation to get on with it?

My Lords, not for the first time, I am grateful for that statesman-like approach. It is right to say that, although these are early days, there have been far-reaching consequences after the crimes of 11th September. We should take maximum advantage—I say that deliberately—of this opportunity which offers itself at this time.

My Lords, at a convenient moment after 3.30 this afternoon, my noble friend Lord Whitty will, with the leave of the House, repeat a Statement which is being made in another place on research into BSE in sheep.

My Lords, I beg leave not to move the Motion relating to Standing Order 40 standing in my name on the Order Paper. An error has been made. The wrong Motion was printed on tomorrow's Order Paper, as your Lordships will undoubtedly have noticed. If my positive Motion were therefore to have been upheld it would have been compounded by a further error tomorrow. The error having been made, for which of course I take total responsibility, looking only to my right at the Chief Whip, we shall make sure, with great apologies, that the Order Paper tomorrow is in proper order. I shall then move my Motion, which I hope will be carried unanimously. We shall then proceed to the substantive Motion of the noble Lord, Lord Kingsland, which is incorrectly described at present.

My Lords, I beg to move the Motion standing in my name on the Order Paper.

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

moved Amendment No. 123:

Page 40, line 12, at end insert ", or

(c) claiming that there are special reasons why the RTM company should not acquire the right to manage,"

I rise to speak to Amendment No. 140A in the group. I should perhaps explain to Members of the Committee that we have tabled a number of additional amendments since the first day of the Committee stage. All our amendments have been proposed and drafted by the Law Society as a result of its consideration of the terms of the Bill. Many of them are matters of drafting rather than of substance. Those which are of substance are not of fundamental substance. Nevertheless, I believe that they are useful.

The amendments reached me only at a late stage. A number of them relate to the parts of the Bill considered by the Committee last Tuesday. We were not able to table them at that stage because we had not received them. They will therefore have to be tabled for the Report stage.

I am grateful to the noble Lord for giving way. Why was the Law Society so slow in considering the Bill that it produced these amendments at a late stage—indeed between the interval of the two days in Committee?

I cannot speak for the speed of operations of the Law Society. I agree that it would have been better if the amendments had been produced at an earlier stage. Of course this is a highly technical Bill. No doubt it took some time to establish a committee to consider it. At any rate, I have received the amendments at a late, but perhaps not too late, stage from the Law Society.

Amendment No. 140A gives partial but not complete support to the amendment moved by the noble Lord, Lord Kingsland. In particular, it covers the last of his proposals; that is, new subsection (5A)(c) where it states,

"that in all the circumstances it is just and convenient that the RTM company should not acquire the right to manage".

Perhaps it goes rather wider than that because the amendment tabled by the noble Lord, Lord Kingsland, would mean that all three of those conditions would have to be satisfied, whereas under the amendment proposed by the Law Society the right arises only if there are substantial breaches of obligation on the part of the RTM company and thus the tribunal considers it just and convenient to make the order.

In the circumstances, I believe that a strong case can be made for accepting art amendment in one or other of these forms. I submit that probably the more appropriate form would be that put forward by the Law Society. Otherwise, what is intended to be a cure in favour of RTM companies where landlords have abused their powers could be turned around, creating the possibility of abuse of landlords by RTM companies.

I negligently failed to spot that Amendment No. 127 has been included in the first grouping. Perhaps I may crave the Minister's indulgence to say a few words in support of it. I am much obliged.

When this matter was last raised in Committee, I described as astonishing the omission from the Bill of any means of getting rid of an RTM company, once it had taken over the task of management. With any form of human activity, there is a risk that things can go wrong. There is a risk that something may go wrong with an RTM company. Perhaps the lessees fall out among themselves; perhaps the managing agent appointed by the company proves not equal to the task, but the tenants, for whatever reason, do not replace him. Still worse, lessees may deliberately decide not to carry out critical structural work. A number of reasons may explain why an RTM company might not carry out its primary function of managing a block of flats in a proper manner.

Equally, the lessees may decide that they simply do not want to carry on exercising their right to manage and would prefer to hand back the management function to the landlord. After all, nowadays property management is a professional activity which requires a great deal of skill and care. Tenants who, as amateurs, try their hand at property management may decide that they have made a mistake and that leaving the management to a professional would be preferable.

The Bill makes no provision for the right to manage to go back to the landlord. We feel that this is an error. Cases may be rare, but in appropriate instances some provision is necessary to bring to an end the right of RTM companies to manage. Where an RTM company ceases to have the support of the qualifying tenants or is manifestly mismanaging the block, I believe that it is right that the interested parties should be able to apply to have the right to manage taken away from the RTM company. Amendment No. 127 seeks to achieve that purpose.

I have little sympathy for the first amendment moved by the noble Lord, Lord Kingsland, but a fair amount of sympathy for the Law Society amendment proposed by the noble Lord, Lord Goodhart. However, I have a great deal of sympathy for Amendment No. 127, just spoken to by the noble Lord, Lord Kingsland. I believe that it is extremely important to ensure that a form of exit strategy—to use military terms—is put in place in case everything goes wrong. As sure as eggs is eggs, sooner or later things will go wrong. I hope that my noble friend will agree that a case has been made by the noble Lord, Lord Kingsland, for Amendment No. 127.

Perhaps I may first respond to what the noble Lord, Lord Goodhart, said before introducing his amendment in this grouping. We find the amendments proposed by the Law Society and included, at least in part, on today's Marshalled List quite helpful. Perhaps I may suggest to the noble Lord that, in order not to distort the Report stage of the Bill by swelling the list of amendments with proposals which were not considered in Committee, he should consider asking representatives of the Law Society to come in to speak to officials and Ministers. If he so wishes, the noble Lord could accompany them. The society should send in a note covering the proposed amendments so that, if possible, we can by agreement deal with those matters as expeditiously as possible. Taking them "offline'', as it were, would avoid the risk of swelling the Marshalled List on Report with matters that rightly should have been considered in Committee.

Two different themes are pursued within this group of amendments. I should like to deal with them separately. The first is covered by Amendments Nos. 123, 124 and 125. I am afraid it is clear that the noble Lord, Lord Kingsland, has a different view of the right to manage from our own. The amendments introduce the idea that the acquisition of the right to manage could be resisted if it would seriously prejudice the interests of any recipient of a claim notice; that is, a landlord or a manager. No indication is given of what is meant by "serious prejudice". This means that it would be entirely open to a landlord to make all kinds of spurious claims and thus force the RTM company to seek a determination from the leasehold valuation tribunal on whether the prejudice was serious enough.

Our view is that the right to manage is necessary to redress the existing imbalances in the leasehold system. Where a block of flats is predominantly leasehold, the leaseholders will hold the majority stake in the block. The landlord, with his minority stake, will often control the management and, too often, will do so without adequate regard to the interests of the leaseholders. We do not think that that is right. We intend that leaseholders holding the majority stake in a block should be able to take over its management. The qualifying rules in the Bill will reflect this, setting a number of simple, factual criteria and thresholds which must be met.

The amendment would move significantly away from the philosophy which underlines the right to manage. Once again, the noble Lord, Lord Kingsland, is seeking to give the minority interests of the landlord unfair and unmerited protection at the expense of the majority interests of the leaseholders by introducing subjective criteria which would necessarily lead to delay, dispute and uncertainty within the acquisition process. I am afraid that we cannot support the amendments.

Our attitude towards Amendments Nos. 127 and 140A is rather different. I believe that both seek to achieve the same end. Each wishes to ensure that the right-to-manage company can be removed if it fails to do its job properly. This would be done by making an application to the leasehold valuation tribunal for an order that the right to manage should cease.

Given that the amendments do not say anything to the contrary, I assume that if the leasehold valuation tribunal agreed to cessation, it would be on the basis that the management reverted to where it was before the acquisition of the right to manage. We entirely agree that it should be possible for the right to manage to be taken away where the right to manage company persistently fails to do its job properly. However, the Bill already provides for that. By virtue of paragraph 8 of Schedule 7, any affected party, including a landlord, can apply to the leasehold valuation tribunal for replacement of the RTM company under Part II of the Landlord and Tenant Act 1987. Replacement under Part II of that Act can take place on a number of grounds. The first is a failure properly to carry out management obligations. In that respect, the approach taken in this legislation duplicates that proposed in the amendments. Part II goes further and also allows replacement on the basis of unreasonable service charges and on the basis of failure to comply with standards set down in the approved codes of practice. I should add that Part 2 of Schedule 11 to this Bill would add the further ground of the levying of unreasonable administration charges.

The grounds on which replacement of the RTM company can take place under the Bill as it stands are broader than those proposed in the amendments. We think that that is right. It will ensure that the RTM company, as manager, is treated in the same way as landlords who will be outside of the right to manage.

The noble Lord, Lord Kingsland, referred to the voluntary handback of management. That is already provided for in Clause 103(2). Handback will be made in accordance with the terms of the agreement made under that provision.

However, we see some merit in a procedure which would incorporate some aspects of what is proposed. If we understand the amendments correctly, it is suggested that it should be possible for the leasehold valuation tribunal to order that the right to manage ceases. Management arrangements would then automatically revert to the arrangements provided for under the leases. Under the Bill as it stands, on the other hand, the leasehold valuation tribunal can order that management reverts to the landlord but only on the basis of an order made under Part II of the 1987 Act and not on the basis of the normal lease arrangements.

I should like to reflect on the possibility of some kind of synthesis of the two approaches. It will still need to be possible for the LVT to be able to appoint a new manager to replace a deficient RTM company, and we believe that this is best done on the broader grounds provided in the 1987 Act. But there is some merit in the leasehold valuation tribunal having the option to order that the right to manage should cease and that management should revert to the landlord if that is the best option in the circumstances of the case. This could lead to a shorter and simpler order.

I cannot commit the Government to the outcome, but we are prepared to consider that possibility seriously and to bring forward an appropriate amendment at a later stage if possible.

My noble friend has not committed the Government—he said "if possible"—to bringing forward an amendment at a later stage. Does my noble friend accept the principle of the amendment of the noble Lord, Lord Kingsland? If he does accept the principle, then clearly an amendment will be forthcoming.

I said that the Bill already provides for what the amendments of the noble Lords, Lord Kingsland and Lord Goodhart, seek to achieve. I have acknowledged that there may be a way of providing a synthesis between what the Bill achieves—and the Bill will work as it is, let me make that clear—and what the amendments seek to achieve, which could cut some corners and provide for a shorter and simpler procedure. That is what we are willing to explore. There is no concession in saying that we agree with what the amendments seek to achieve because the Bill already provides very largely for that.

The Minister appears to be in an uncharacteristically emollient mood, from which I am delighted to be the beneficiary. I look forward with keen anticipation to the Report stage, when I expect the Minister will table his compromise.

I hope that we will be discussing matters before that.

Even better. So far as concerns Amendments Nos. 123, 124 and so on, I was sad to hear what the Minister said, but not at all surprised. This issue is a re-run of what was quite fully discussed in the Grand Committee and at the Report stage of the previous Bill. I shall reflect on the need to bring the matter back at the Report stage of this Bill and on whether to divide the House. In the meantime, I beg leave to withdraw the amendment.

moved Amendment No. 126A:

Page 42, line 16, leave out "claim notice is deemed to be withdrawn" and insert "tribunal may, on the application of any person specified in section 84(2)(a) above, make an order declaring the application to have ceased to have effect on such dates as may be specified by the tribunal"

I am grateful to the noble Lord for giving way. As I understand it, my noble friend Lord McIntosh made an offer to the noble Lord, Lord Goodhart, and to the Law Society to have a meeting between now and Report stage to discuss many valuable amendments. No doubt, the amendments may or may not be accepted, but at least there could be discussion other than in Committee, which is rather difficult. I hope that the noble Lord, Lord Goodhart, has taken the offer of my noble friend Lord McIntosh in good heart—I mean no pun—and will accept that amendments which are tabled late are best discussed off the floor of the Committee.

I am grateful to the noble Lord. My understanding was that the noble Lord, Lord McIntosh, was suggesting that the discussion should apply to the amendments to the parts of the Bill that were discussed last week in order to avoid bringing them back at Report stage. I did not realise that he was suggesting that these amendments tabled for the Committee stage should not be dealt with. I hope that it will be possible to deal with them very shortly. It would be helpful, among other matters, to get the reaction of the Minister.

The effect of Clause 85 as it now stands is that if no application is made within two months of receiving the counter-notice, or if an application is made but withdrawn, then the claim notice is deemed to be withdrawn. The view expressed by the Law Society—which, in my experience, is correct—is that "deemed withdrawal" provisions of this kind are counter productive because they do not protect tenants. In effect, they tend simply to frustrate otherwise valid claims, which can lead to a proliferation of what might be called "satellite" litigation. RTM companies may come forward and say, "We should not have been struck out" or "There is some defect in this clause".

The Law Society compares these provisions particularly to the automatic strike out provisions which were a part of the old county court rules. Those provisions had to be abolished because of the hardships they caused to claimants. I beg to move.

I am grateful for that explanation. I confess that we did not fully understand what the amendments were about until we heard what the noble Lord, Lord Goodhart, said.

I should perhaps outline why we have the provisions in Clause 85 and why we consider them to be necessary. Clearly the noble Lord, Lord Goodhart, is doubtful about the benefits of deemed withdrawal provisions.

Clause 85 sets out the circumstances in which a claim notice to acquire the right to manage is deemed to have been withdrawn. The first circumstance is that the landlord has alleged that the RTM company is not entitled to acquire the right to manage, but the RTM company then either fails to apply to a leasehold valuation tribunal for a determination on the matter within two months, or makes such an application and then withdraws it. The other circumstance is that the company ceases to function—for example, where it is wound up.

We believe that it is important to have deemed withdrawal provisions. If they were not there, a claim notice could continue in force indefinitely. Let us say, for example, that the RTM company receives a counter-notice which rightly states that it is not entitled to acquire the right to manage. The RTM company then decides, as it knows it will lose, that there is no point going to the leasehold valuation tribunal for a determination and just walks away, but without withdrawing the claim notice. Alternatively, let us say that the right-to-manage company is wound up. In that circumstance, there is no company left to pursue the claim and there is no company left to withdraw the claim.

Let us now assume that, following either scenario, a new group of leaseholders, a few years down the line, wish to acquire the right to manage. They serve a claim notice on the landlord but are told that there is already an existing claim notice in force and therefore, by virtue of Clause 80(3), their new notice is not valid. If we understand the amendments correctly, leaseholders would have to go through the bureaucracy and delay of applying to a leasehold valuation tribunal to have the old notice cancelled. The deemed withdrawal provisions are complemented by Clause 84, which provides for voluntary withdrawal. I believe that both provisions are necessary.

We recognise the good intentions behind the amendments, but in practice they would complicate matters. We should prefer to retain Clause 85 as it stands. However, we shall reflect on the comments made by the noble Lord, Lord Goodhart, and consider whether there is a better balance to be struck. I hope that on that basis the noble Lord will feel able to withdraw his amendment.

On that basis, no doubt the Law Society, if it discusses these matters with the Minister, can use its persuasive powers if it believes that the matter should be taken further. In that case I am happy and beg leave to withdraw the amendment.

I beg to move that the House do now resume.

My Lords, with the leave of the House, I shall now repeat a Statement made by my right honourable friend the Secretary of State for Environment, Food and Rural Affairs in another place. The Statement is as follows:

"I am grateful to have been given the opportunity to put Members in the picture about research into scrapie and the theoretical possibility that scrapie might mask BSE in sheep. This work is being undertaken through a variety of different research projects at different institutes of excellence. I would also like to address the significance of the experiment undertaken at the Institute of Animal Health (IAH) on the so-called 1990 scrapie brain pool, which was due to be reported to the Spongiform Encephalopathy Advisory Committee (SEAC) last Friday.

"The UK and my department are in the forefront of European research to understand the incidence of scrapie in the national sheep flock, and whether the theoretical risk of BSE in sheep is a real one. The IAH research is merely one of a number of projects. Those on more recent brains are more important, and so far BSE has not been found. But more work needs to be done, and that is why a couple of weeks ago we took steps to ensure that more brains are offered for testing. We need to keep this issue in its proper perspective.

"We have known since the experiments began that there were some doubts about whether the brains—which were collected a long time ago for a completely different experiment—were cross-contaminated with bovine BSE material. As results began to emerge from the experiments, it became critical that we resolved the issue of cross-contamination with as much clarity as possible. That is why DEFRA—in consultation with SEAC and others—commissioned the DNA testing work at the Laboratory of the Government Chemist (LGC).

"The DNA results were presented to DEFRA by the LGC last Wednesday afternoon. The finding that there was no sheep material in the sample sent to the DNA lab was a totally unforeseen development. Government's responsibility in these circumstances is two-fold: first, to establish the facts as quickly as possible. The most obvious question which sprang to mind was whether the material analysed by the LGC was actually the same as that used in the experiment. To put it somewhat brutally, would the sample which should have been sent to the LGC be discovered at the back of the fridge in some dark corner of the Institute for Animal Health? We needed to establish the facts.

"I immediately asked for an independent risk assessment company to perform a detailed audit of the IAH experiment including how these homogenised samples were stored and handled. As the company is already familiar with the IAH project, it is aiming to report its findings within a week or so. We have also asked the UK Accreditation Service (UKAS) to undertake to a longer time-scale a vigorous assessment of the chain of custody arrangements for the IAH experiment. Only at around 6 p.m. on the Wednesday evening did we receive information suggesting that the sample sent to the DNA lab was indeed representative of that brain pool. But we still do not know this for certain. We will not know the full facts until the audit team has reported.

"Second, to share these emerging findings with the public, let me emphasise that at that stage the only question was not whether we should make this public, but how and when. It was already clear that the SEAC meeting planned for Friday could not now take place, since this was the only item on the agenda. Accordingly, the chairman took the decision to cancel it.

"I took the decision, against the advice of my press office, that rather than wait to have a properly staged press briefing the following morning, we should make a statement as soon as possible about what we knew for certain. I will tell the House bluntly that I was convinced the information would leak, and I did not want the slightest hint of a cover-up. In fact, I looked unsuccessfully for the chair of the EFRA Select Committee that evening in order to update him and correct information I had given him, in good faith, earlier that day.

"A press notice was duly sent to PA after we had observed the ordinary courtesies of consulting those involved and who might be asked to comment on it, including SEAC and the Food Standards Agency. In other words, a statement was made the same day and within a few hours of Ministers being t old what was thought to have occurred.

"Let me say one other thing about the suggestion that we were seeking to suppress this information. We are all mature politicians. I invite the House to consider what in fact I had to suppress. This research was commissioned by MAFF. It was not carried out by the department. The cross-check which revealed these problems was also commissioned by my department as a 'belt and braces' measure. Of course there was embarrassment and delay among those involved with this work, but there was no embarrassment or dismay for the Government—only a very real concern as to where we would go from here, and a real anxiety to treat carefully and seriously an issue which is of great sensitivity.

"I understand the phraseology of one part of the press release—which I wrote—is thought to have been obscure. But of course, at the time it was drafted we knew the results of the cross-contamination check and we had been told it was thought that this came from the same material as that used in the experiment; but I could not feel confident of what weight I should give to each piece of advice given the very short time for checks to be made. This entire issue rests on the handling of samples and the keeping of records. In consequence, it seemed to me right to say, as we did, simply that the validity of the sample had been called into question. There was absolutely no intention to conceal or to mislead. There was little press interest or follow-up afterwards, but then being told that an experiment may be inconclusive does not always excite the media.

"What is important is what this experiment could mean or have meant. It is not going to give us a definite answer as to whether or not BSE is in sheep today. Indeed, there are other scientists who are not yet convinced that it would have told us even whether BSE was present in sheep in the early 1990s. All that this work could have done was to reduce some of the uncertainties and add to the little we currently know.

"On scrapie generally, my department is working closely with the FSA to introduce, early next year, an abattoir survey to test for scrapie approximately 20,000 sheep annually aged over 18 months. This will cost the UK around £5 million and be part of an EU-wide programme designed to give information on the incidence of scrapie in the EU. This week's Agriculture Council in Brussels will be reviewing this programme which, for both cattle and sheep testing, will cost the UK over £50 million next year.

"Although useful, I must warn this House that the results of the sheep abattoir survey may not prove conclusive. A similar survey commissioned by the Government two to three years ago on nearly 3,000 abattoir sheep brains identified no scrapie cases at all. I would certainly be prepared to examine carefully the case for doing an even larger survey. However, my department's BSE in Sheep Contingency Plan, published on 28th September, estimated that testing all 20 million or so lambs entering the food chain could cost £400 million annually, and questioned whether even such a huge survey would detect scrapie in lambs even if it was there. Testing all older cull sheep would also cost a huge amount. I do urge Members to study that contingency plan document if they have not already done so. We would welcome comments.

"Around 500 to 600 scrapie cases are reported in Great Britain each year. My department is funding a great deal of work to look for BSE in these cases. It is difficult work, at the forefront of science, and scientists do not always agree on particular aspects. The two methods for distinguishing BSE from scrapie are, however, through passage of sheep brain into genetically selected mice, and through molecular means.

"I must emphasise that all of this work is at the very forefront of science. We are talking about research being conducted at the leading edge of scientific experimentation. We are not talking about research that gives simple 'yes' and 'no' answers. I have asked for the most thorough review of the range of scientific studies presently being undertaken into this complex and difficult area, and I will make this available to the House.

"I would also like to inform the House that, for several months, we have been working on proposals to take the necessary powers to introduce compulsory genotyping of sheep. Although the current voluntary scheme has made a positive start, it would take 15 years or more to achieve a scrapie-resistant breeding flock, and we cannot wait that long. We have always envisaged that we would eventually need to make the scheme compulsory. So I can today inform the House that we will shortly be introducing legislation to enable us to ensure that all sheep are genotyped and that we have powers to slaughter or castrate those found not to have an acceptable genotype. We would of course fully consult with industry and other interested parties before introducing detailed arrangements for compulsory genotyping.

"The legislation will go even further than this. As well as enabling us to accelerate the programme of breeding resistance, it will give us the powers we need if it were ever to be established that there was BSE in sheep, in particular slaughter powers to deal with disposal in an orderly way. Of course the House will want to give this proper scrutiny. I hope it will have an opportunity to do so in the very near future.

"We have been open and transparent in all our research into BSE, overseen by the independent Food Standards Agency and our advisory committee, SEAC. FSA advice remains unchanged. There is no reason why consumers should not eat sheepmeat. We will continue actively to promote research to reduce risk, theoretical or not, and to put all our research in the public domain."

My Lords, I thank the noble Lord for repeating the Statement made in another place a few minutes ago. I would first ask the Minister why the Statement was not made last week. There was an opportunity to make the Statement on Thursday but it was not made then. Indeed, we had a mini Statement, which was made in response to the report of the noble Lord, Lord Haskins. That in itself is important, but this is obviously of major importance. Why was the Statement not made at the first opportunity, which would have been last Thursday?

Secondly, I understand that the press release announcing this problem was made at 10.30 on Wednesday evening. How could the Secretary of State, as I understand she did, have written to my honourable friend Peter Ainsworth days before, if in fact the news was not known until just before she announced it at 10.30 on Wednesday evening? Can the noble Lord also explain what difference the Government consider there to be between a Statement and a mini Statement? Last Thursday a mini Statement was made on the report of the noble Lord, Lord Haskins, to which we did not have a chance to respond in this House. There is a matter of protocol in relation to our knowing what will happen in the future regarding Statements and mini Statements. It is something that we should clarify today if possible.

I turn to the Statement itself. It has been said that we have known for some time that there was doubt as to whether the right brains were being used. If there was some doubt that there might be cross-contamination, when did the Government know about that? What action was taken? Why did DEFRA, in consultation with SEAC, not go to the core of the matter and find out exactly when the problem arose?

I gather that it was at about six o'clock on Wednesday evening that information was received suggesting that that which had been sent to the DNA laboratory was a representative sample of the brain pool, but DEFRA still did not know for certain when that was. 'When will it report? I understand that the matter is to be the subject of audit. When will that take place?

I understand from the Statement that it was decided that the announcement would be left and that there was not a cover-up. Many of us are very concerned that, by not making a Statement, a cover-up has in fact happened. The Statement itself goes on to say that there was little press interest following the announcement by Margaret Beckett. We are then told that the experiment may not be conclusive and that it does not always excite the media. Do the Government read the news? Certainly in the past few days the press reports have highlighted this problem, and it does indeed look as though there has been a cover-up.

We acknowledge the fact and are pleased that many of the 3,000 abattoir sheep brains have indicated no scrapie cases at all. Contingency plans published on 28th September estimate that the testing of the some 20 million lambs or so entering the food chain might cost £400 million annually and question whether that would be feasible. The date of 28th September brought to mind the fact that Elliot Morley made an announcement that day, saying that in all matters relating to BSE and animal health the Government's handling had been open and transparent. I question that. On the same day Mr Morley also announced that it was a possibility that all the sheep in the country might have to be culled. Does it not seem very strange that various announcements and suggestions have been made, and yet there has been no open statement until today?

I accept that it is too early for us to have firm conclusions from the experiments that are going on. However, does the noble Lord agree that Professor Bostock said almost a year ago that he was concerned that there might be a mix-up between the brains being tested? If there was concern, why did nothing happen until just recently? Either there was concern and the Government took action, or the Government were not aware of the need for action; in which case it begs the question as to how MAFF was running its department.

Another statement was made that British baby food did not contain British lamb. I should be grateful if the Minister would offer clarification on that point. My understanding is that on one day it was said that baby food did not contain any British lamb and the next day the manufacturers said that it did. Can the noble Lord clarify for us whether it is safe for British babies to eat British lamb?

The noble Lord missed out part of the Statement. It may have been an oversight, but paragraph 12 reads:

"Mouse passage was of course the method being used by the IAH. The mouse passage method has also been used on individual scrapie brains selected over the last 2–3 years. In about 180 cases, the experiments have reached the first point at which, if any of these scrapie cases was BSE, this might have become evident. It has not done so. However, it is too soon to draw firm conclusions from these ongoing experiments that can last several years".

Can the Minister offer clarification? Was it an oversight that he did not raise the matter with us? The plans in hand for breeding gene-resistant flocks are very important. Next year, as we have heard today, there will also be work on extending the scheme to rams of all flocks.

We are grateful for this Statement today. However, it raises many questions and we shall need to look at those questions more carefully later. The most important point to establish is that when costly tests are carried out, they are carried out on the right material. There has been a suggestion that the labelling of the material was at fault, not the tests themselves. Can the Minister elaborate on who is responsible; and how does it work? Is it true that the material being tested by the Institute of Animal Health was supplied by MAFF as the body controlling the handling of all BSE material and the scientific infected material? If the Minister could respond to those points, it would be enormously helpful.

As I say, it was a shame that the Statement was not made last Thursday. I again press the Minister to explain to the House the whole question of Statements, mini-Statements and PNQs as we on these Benches are concerned that announcements are being made outside Parliament rather than to the House.

My Lords, I also thank the Minister for repeating the Statement. He said that we are talking about research being conducted at the leading edge of scientific experimentation. That must be true but it is also at the leading edge of public concern about health in this country. Does he not realise that the Statement discloses a case of monumental negligence if not on the part of an individual, on the part of a group? The Statement states that the Government had doubts whether the brains in question had been cross-contaminated with bovine material. When did those thoughts occur, who had them and why?

The Minister said that finding no sheep material whatsoever in the sample was a totally unforeseen development. How long a period transpired between the Government's doubts and the discovery that there was no sheep material whatsoever in the sample? The public are rightly concerned about this whole sorry episode as it undermines our belief and our confidence in the agricultural scientific establishment on the one hand and/or it undermines our confidence in the civil servants who dealt with these matters. This is a serious episode in recent history. At one stage I farmed and I had responsibility for agriculture within my party. I think I am right in saying that at no stage has there ever been a case of BSE found in sheep. That is an important point. Although there is some similarity with the old established disease of scrapie which is found in certain parts of the country, in particular in Scotland, no sign of BSE has ever been associated with it.

As I say, that is an important point. But, had this mistake not been discovered, does not the Minister realise that we might have been faced with getting rid of the whole of our sheep population? That could have constituted an enormous loss to agriculture and done enormous damage to the British economy and to the hopes of the Chancellor of the Exchequer, to put it mildly. A bland Statement of this kind—I do not blame the Minister for the nature of the Statement—does not begin to get to the root of the problem, the public concern and the scientific and agricultural concern about this whole episode.

My Lords, as regards the final comment of the noble Lord, Lord Hooson, this was not intended to be, and I hope did not come across as, a bland Statement. It was an attempt to move the discussion away from one of tittle tattle about cover-ups to explaining the full scientific facts. I agree with what the noble Lord and the noble Baroness, Lady Byford, said; namely, that this is not a happy episode as regards the accuracy of some aspects of the recording of the scientific information. However, it also indicates my department's concern that we investigate the possibility of BSE occurring in sheep which, as the noble Lord, Lord Hooson, said, is still a theoretical possibility. There has not been a case of BSE naturally occurring in sheep. Nevertheless, we should investigate that thoroughly. It also shows that if information indicating either outcome comes to light, we should put it in the public arena as rapidly as possible.

The noble Baroness asked why the Statement was not made last week. The timing of the information reaching us has been explained. A SEAC meeting was due to take place on Friday and a Food Standards Agency meeting today before we were in full possession of what the changed advice might be were the experiment to indicate what at one time it looked as if it was going to indicate. The SEAC meeting was cancelled but the FSA meeting was not; it took place this morning. We believed that it was helpful for the House to be given the views of the FSA on the matter—I mentioned that at the end of the Statement—before we went much further. It was therefore important that we completed that process before a formal report was made to the House. My colleague, Elliot Morley, was asked a supplementary oral Question on this issue during Question Time on Thursday. It did not comprise a mini Statement. As far as I am concerned, there is no such thing as a mini Statement; there is either a Statement or a reply to a Question.

My Lords, I may have misled the Minister. I refer to the mini Statement made on the report of the noble Lord, Lord Haskins. That was the mini Statement to which I referred, not the comments of Elliot Morley.

My Lords, coincidentally, the report of the noble Lord, Lord Haskins, on rural recovery was announced that morning and the journalists present at the press conference were given the opportunity to ask questions on the matter we are discussing as by that time it was in the public arena. However, no mini Statement was made either to the House or to the press; it was a clarification of the implications of the Statement that had been made the previous night. We make today's Statement with the full benefit—if "benefit" is the appropriate word—both of having considered what happened and of having had the FSA's opinion on that.

I was unclear about the noble Baroness's comments with regard to the letter to Peter Ainsworth as that was sent on Saturday after the events that I described took place. Therefore, I do not think there is any contradiction there. The noble Baroness also asked when the concern about cross-contamination became apparent to the Government. Clearly, we have always been concerned that the research should have a proper basis. We expected the IAH to check that throughout the experiment. When it became clear that the outcome of the research could have profound effects on our sheep industry and that of the whole of Europe, we wanted to be absolutely sure about that and we therefore commissioned the DNA research in July that was reported on last week.

The noble Baroness also asked how long it would take before the full audit was completed. As I indicated, we hope that it will occur within a week or two but it is a complicated matter that goes back to the beginning of the research and includes labelling and how samples were dealt with right up until last week. However, knowing the capabilities of the firms involved, we hope that the audit will be completed by the date I have indicated.

The noble Baroness also referred to Professor Bostock's comments. At some earlier point during the experiment he sought to check the potential contamination of the sample. The story that emerged this morning is more complicated than it appeared. We shall have to await the results of the full audit to discover the nature of the testing that the Veterinary Laboratories Agency undertook on samples at that point.

As regards baby food, the Food Standards Agency corrected the error made on the "Today" programme by Sir John Krebs; in fact, he corrected himself. The original statement indicated that all British baby food was sourced from outside the United Kingdom. In fact, much of it but not all, is sourced from outside, but some baby food is sourced in the UK and comes from scrapie free flocks.

I should underline that these facts are reassuring to consumers who wish to exercise choice, but as the FSA has said consistently it is not a safety requirement that baby food should be sourced from outside the UK. Nothing that the experiment has thrown up changes that advice or any other advice from the FSA, which reiterated at this morning's meeting that there is no need to change it. No advice has been given to consumers to avoid eating sheepmeat.

For the record and for clarification to the House—and with apologies to the two Front Benches—the Statement, which was provided in advance, included two or three paragraphs which the Secretary of State did not use in the final version. The information in those paragraphs is accurate. On the point raised by the noble Baroness, Lady Byford, about the 180 samples of sheep brains that have been analysed using the molecular method, there has been no sign of scrapie at this time. She is therefore correct that the previous draft of the statement is accurate.

My Lords, before the Minister sits down, will he say what period of time elapsed between the fears that there had been cross-contamination and the discovery that there were no sheep brains in the sample?

My Lords, I said earlier that the department had tried to check the scientists' views, as indicated by Professor Bostock's statement this morning. The department commissioned the research in July, which was reported last week. It is in that period when the testing of our doubts as to whether there was contamination ran.

My Lords, is it not a fact that concentrating on when and how the announcement was made is trivial compared with the enormity of the grotesque incompetence of at least one, if not two, research establishments? How could a research establishment continue for four years without even knowing what material it was testing? It is absolutely disgraceful. After the Audit Commission report, I hope that we shall not see some poor secretary who did the labelling being reprimanded. I hope that people in the most senior positions in these establishments will be dealt with. There has been enormous damage to our belief in the scientific competence of such research establishments in the food industry. Confidence has been totally destroyed and we can no longer believe them.

Does the Minister not realise the damage done by the scaremongers who now say that we must go through all that process again and that there are still grave doubts about BSE in sheep? Words fail me. There are no decent words in the English language to describe how the matter has been dealt with by the researchers. What are the Government doing to get their money back from these establishments? Or shall we he giving them even more money to repeat their incompetence? I hope that the Minister will understand that the public are thoroughly fed up with the 'way in which these matters have been handled. Firm action needs to be taken by the department against those institutions who are responsible.

My Lords, I accept that the credibility of research in general is a major concern, but it is unwarranted. The establishments are centres of excellence in animal research and it is deeply unfortunate that these mistakes have been made. It is also important that the Government try to find out as rapidly and in as much detail as possible how such mistakes were made, why they were made, by whom and who was responsible for them. When we have received the audit report, I assure the House that the Government will take the appropriate action.

It is important to note that had the checking not taken place and the experiment had proceeded, with the apparent result being accepted by the FS.A and ourselves, the position of the sheep industry in the UK and Europe would have been catastrophic. By conducting that check, the Government have at least saved us from that disaster. It is now important that we take measures to ensure that such mistakes do not happen again.

My Lords, on a slightly happier note, may I assure the noble Lord, Lord Whitty, that as a pedigree sheep fanner, I, like many others, will very much welcome compulsory testing of the national flock for the scrapie gene. I wonder whether the noble Lord can say what kind of time scale is envisaged for the completion of the testing of the national flock, and at what cost. Will compulsory compensation be made available for the genetically at risk sheep that will have to be culled under such rules?

My Lords, the plans for the national scrapie scheme were announced in July. It was our intention to move as rapidly as possible, but it takes many years to breed the scrapie propensity out of a sheep flock. There will be compensation for compulsory destruction of animals, which is a necessary part of the plan. Otherwise, the situation that is already partly the case will continue, where there is under-reporting of scrapie. The genotyping of all sheep is beginning. The ultimate means of getting away from the suspicion that scrapie hides susceptibility to BSE is to create a national flock that is completely free of scrapie.

My Lords, should we not concentrate our minds on the question of confidence and the national market for meat within the United Kingdom? In so far as the introduction of a traceability scheme for beef had a major effect on confidence in the beef market, will my noble friend say what developments have taken place in that respect for sheep and sheep flocks?

My Lords, in advance of the national scrapie plan, and in response to both this situation and that arising from the need to control movements as a result of foot and mouth, we shall be introducing a traceability scheme for sheep within the UK flock. We shall do that in stages, which the technology dictates. It is our intention to ensure confidence that the animal is what it is said to be, and that the susceptibility to disease can be traced back. We need to re-establish the pre-eminence of British sheep and British meat in general throughout the world.

The time-scale on that is much faster than the introduction of the full national scrapie plan, which obviously depends on the pace of breeding.

My Lords, the House will be grateful to the noble Lord for giving his Statement today. We all admit that the mistake represents a waste of effort and time, but every cloud has a silver lining. It came to light before horrendous decisions had to be taken as to whether to cull the whole of the sheep flock of this nation.

The other silver lining is that no doubt the study has contributed to the epidemiology by surveillance of prion disease in cattle, even though we thought that it was for sheep. Are Her Majesty's Government intent on repeating the study with greater safeguards to ensure the correct source of brains? I concur with the Minister that it is not the technology of detecting prions that is faulty. We are world leaders in our ability to detect prions in brain material. The problem is the adequacy of records of the material.

On a wider basis, the Veterinary Laboratories Agency is under one authority and the Institute for Animal Health is under another. Reports and studies in the past have recommended that the two bodies be brought together under a single authority so that such problems do not arise. Is it time for the Government to reconsider whether bodies doing work of such national importance should work under a common authority?

My Lords, on the first part of the noble Lord's question, my department and the chief scientists are urgently looking at what further research is needed in addition to the ongoing research that has already been commissioned, which, as I said, has shown no scrapie in the 180 brains tested in the more recent period. It is true that we are at the forefront of developing testing techniques, but the testing needs to be fully validated by independent external means, so we cannot totally rely on molecular testing. All avenues of research need to be considered.

As to the institutional point, the VLA is an agency of my department, whereas the IAH is an independent institute. I do not immediately draw the conclusion that they should be merged or brought under the same authority. Some form of arm's length relationship is normally quite helpful. Unfortunately, in this case it appears not totally to have worked, but I am not sure that that undermines the general view that we have to have different sources of expertise, not necessarily under the same managerial or political control. However, the Government will have to examine that issue and many others as a result of this unfortunate case.

My Lords, how many examinations of sheeps' brains have taken place using molecular methods?

My Lords, since November last year, the VLA has screened a total of 465 scrapie-infected brains and none has given results indicative of BSE. As I have just said, that needs to be validated externally, but it is an encouraging result.

My Lords, one of the points that the House is concerned about is why farmers were very nearly subjected to a cataclysmic culling of all sheep on false grounds. The third paragraph of the Statement says:

"We have known since the experiments began that there were some doubts about whether the brains—which were collected a long time ago for a completely different experiment—were cross-contaminated with bovine BSE material".

As the noble Lord, Lord Hooson, asked, at what point did the Government become aware of that fact and why did they not stop the experiments at that time? If there was any bovine material in the brain, the experiments were clearly pointless. Did the Government know from the beginning but still tolerate those clearly pointless experiments?

My Lords, because those samples of brain—had they been the ones they were thought to be—were collected for an entirely different purpose, it was never absolutely clear that they would be 100 per cent uncontaminated. Nevertheless, the assumption must be that were they to show a serious increase in the probability of BSE, some change in the risk assessment of the BSE position would have to be made. As it became clear earlier this year that the likely outcome of those experiments would be that there was some increased probability—that was in part put in the public arena back in August—the Government were very insistent that we needed to be absolutely clear that that contamination was not significant enough to change those results. That is why back in July we commissioned the cross-checking to which I referred.

My Lords, on the procedures involved, can my noble friend say something more, even at this early stage, about the steps being taken to make sure that such a mix-up cannot happen again?

My Lords, there are two aspects. First, there will be a thorough and rigorous audit. It needs to be absolutely clear how samples are checked when they come in, how they are labelled, how they are handled, who handles them and what is the record process of any institute that deals with them. If that is shown to be wanting and the main problem is administrative, procedures will have to be put in place in every laboratory used by the Government, or anybody else, for such experiments.

However, it may also become apparent that the nature of the experiments is not the most appropriate to establish whether there are TSEs in sheep or other species and that another scientific base is needed. My department, the Chief Scientist and people across Whitehall are addressing what other experiments will be needed to establish the facts in this case.

My Lords, will the Minister give the House a rough idea of when we might expect the audit report?

My Lords, I have said that the first stage of the audit report, which should indicate the main administrative issues, should be with us in a couple of weeks. The more detailed report will take somewhat longer.

My Lords, I wonder whether the Minister can tell me whether I have correctly understood the time-scale and sequence that he has described. As I understand it, there was some doubt from the outset as to whether the samples might have some contamination, but only in July was it decided that some cross-checks were necessary. They were then commissioned and the results given last week. If that is right, why did Mr Elliot Morley from the department make an announcement in September, putting forward the possibility of the slaughter of the whole national flock? Given the state of livestock farming at the moment, the lack of confidence in the industry and among farmers and the widespread belief that it is the Government's unstated intention to bring about a drastic reduction in the national flock and given that that Minister must have known that there was a doubt underlying the whole experiment, that seems to have been an unwise course. Have I correctly understood the sequence?

My Lords, my noble friend has understood the dates but not the channels whereby we came to these issues. The announcement on 28th September related to our response to the Phillips inquiry on BSE. One of the inquiry's main recommendations for the future was that the Government should prepare a contingency plan should BSE emerge in sheep or other species as it did in cattle. We therefore included in our response to the Phillips inquiry the details of our contingency plan to cover such an eventuality. Various gradations were included in the contingency plan, as they would have been in response to any authenticated evidence that emerged from the experiment. It would not necessarily have meant the slaughter of the whole flock. That is the extreme example covered by the contingency plan. Clearly, the kind of contingency plan that Phillips envisaged would need to cover all such contingencies. That is what it did.

The Government have no hidden plan to destroy the UK sheep flock. In the wake of foot and mouth and market developments, an assessment clearly needs to be made of the future viability of the sheep flock by commercial decisions and by Government and EU policy. No doubt those will have an influence. However, that has nothing to do with the contingency plan to deal with what would be the horrendous impact of BSE being found in sheep. As the House required when we discussed the outcome of the Phillips report, such a contingency plan forms part of the fulfilment of our commitment to that report.

My Lords, perhaps I may ask further questions about the audit that has been commissioned. A moment ago we heard about the time-scale within which it is being reported. Cart the noble Lord confirm the terms of reference of the report? Will it be confined simply to administrative matters or to the scientific basis on which the organisations were operating? Can he say precisely which organisations are to be covered by the audit? And can he confirm that the reports—both the short-term and the long-term ones to which he referred a few moments ago—by the auditors will be made public immediately they are available?

My Lords, the risk assessment audit will look immediately at what we can say about the sequence of events and the administrative procedures. In addition, we have asked the United Kingdom Accreditation Service to look, over a longer time-scale, at the issues which lie behind those events and procedures. In both cases, the audit trail will cover all institutions involved in the sequence.

As to whether the reports will be made public, as I said in answer to my noble friend Lord Hughes, clearly, the Government may need to take action following receipt of the reports, and that will be reported to the House.

My Lords, is my noble friend aware that the term "audit" is a very wide one and covers a variety of matters? Will he give the House an assurance that the precise details of the matters to be covered by the audit will be made available? In that way, its scope may be perceived as being particular and accurate and not as containing, as some audit reports do, a lot of wild generalities under which a number of people can shelter.

My Lords, I cannot imagine to which audit reports my noble friend refers. However, the institutions which report to the UK Government are very thorough and are clearly described in remit. Discussions with the two organisations which are conducting these audits have yet to be completed and, therefore, the precise terms of reference have yet to be finalised. They will address the issues to which I have referred. Should my noble friend be interested, I can write to him and to other noble Lords about the final terms of reference.

My Lords—

My Lords, the 20 minutes for questions are now complete.

moved Amendment No. 128:

Page 46, line 8, at end insert—

"(8) Unless the contractor party and the RTM otherwise agree in writing within a period of 28 days after service of a contract notice, the management contract shall continue in full force and effect from the acquisition date as if it had been made between the contractor party and the RTM and not with the manager party, save that the RTM shall have no liability under it for breaches on the part of the manager party occurring prior to the acquisition date."

I apologise for interrupting the noble Lord, Lord Kingsland. Is he also speaking to the other amendments in the group, including his opposition to the Question whether Clause 90 stand part, or is he degrouping the amendments?

At the moment, I am speaking to Amendment No. 128.

The group includes Amendments Nos. 128,129 and 130 and the Questions whether Clauses 89 and 90 stand part. I assume that that is the area that we shall now debate.

Is the noble and learned Lord suggesting that I am not addressing myself to Amendment No. 128?

No, I was simply indicating the contents of the grouping. The noble Lord appears to be saying that he is addressing only Amendment No. 128. If he will indicate what group he believes that he is addressing, that will clarify the issue.

The grouping starts with the Question whether Clause 89 stand part.

I continue. I say again that the contractor may well suffer serious losses. He would seek to recoup those losses by suing the landlord management company, which is bound by the contract but has been statutorily deprived of the means to perform.

The other side of the coin concerns the contractor who takes the opportunity of the appearance of an RTM to break a contract which may have been entered into following approval by the LVT on the application of the tenant on the basis that, as the RTM is not a party to the contract, it cannot enforce it. The Contracts (Rights of Third Parties) Act 1999 is unlikely to be of any assistance as the RTM did not exist at the date that the contract was entered into. Such a contractor would hike his prices accordingly. Clearly there must be an opportunity to agree a parting of the ways or suitable variations while enabling and compelling the RTM to step into the shoes of the previous manager if no agreement can be reached.

Members of the Committee will recall that this and connected matters were debated at great length in the Grand Committee and, I believe, to a lesser extent on Report. The noble Lord, Lord Whitty, who spoke for the Government at the time, freely and honestly admitted perplexity in the face of the problem. If my memory serves me correctly, he said that he would reflect on the matter and perhaps return with some further thoughts on it. I do not know to what extent the Government have had such thoughts over the summer break. However, I hope that at least they will accept that there is a real problem here which requires more specific confrontation than exists on the face of the Bill. I beg to move.

We and the noble Lord, Lord Kingsland, take very broadly the same view on this matter. It became apparent in earlier debates that there was a good deal of uncertainty about the effect on management contracts of the takeover of management by an RTM company. It appears that the Government assume that all management contracts will be terminated by frustration. It will of course then be open to an RTM company to enter into a new contract with the same supplier of services, but the RTM company may have to renegotiate the terms and the supplier may wish to discontinue the supply.

We believe that such an outcome is neither necessary nor desirable and that the correct principle to apply is that management contracts should be novated. That means that the RTM company should step into the shoes of the landlord. It is entitled to the services of the contractor party under the contract and it is bound by the obligations of the landlord under the management contract. Under the law, contracts cannot be novated without either the consent of the parties on the one hand or a special statutory provision on the other.

Our amendment and that of the noble Lord, Lord Kingsland, propose that there should be such a statutory novation. We see no reason why a contract to, for example, service a boiler in a block of flats, clean the common parts or maintain a garden, should be terminated by the switch in management from the landlord to the RTM company. That is potentially unfair to both sides. A porter or gardener who provided perfectly proper services, whether as an employee or an independent contractor, should not have his contract discharged by frustration. Equally, the RTM company should not lose the right to the benefit of the contract for services if the provider of those services thinks that it could get better terms by renegotiating the contract. We therefore suggest that the RTM company should become the successor to the landlord.

However, we recognise—in this respect, our amendment may be preferable to that of the noble Lord, Lord Kingsland—that the landlord may have entered into what Americans describe as a "sweetheart contract", pending the transfer of management. For that reason, we believe that a limited right for the RTM company to cancel the contract is needed. We propose that that should be capable of being exercised where the contractual charges under the contract are excessive, where the services that are provided are not required or where the provider is not a fit person to provide those services, either because he lacks qualifications or perhaps because he may be too close an associate of the landlord.

I shall speak to Amendment No. 130, which is, so far as I am aware, part of the group that is before us. It touches on the same subject that the noble Lords, Lord Kingsland and Lord Goodhart, raised. We are concerned that the Bill's current wording does not make it entirely clear what would happen to existing contracts at the handover of management. The amendment is designed to state, to be frank, what I believe are the Bill's intentions.

Further clarification is also necessary in the case of frustrated contracts. We assume that the law of contract will enable contractors to recover frustrated commitments against capital expenditure. When the unexpired term of the contract includes recovery of the capital already expended, they will be able to do the same. I hope that my noble and learned friend will be able to respond positively.

This is an important issue, in relation to which three points of view are possible. The first, which is in the Bill, is that the normal law should take its course. The second view is espoused by the noble Lords, Lord Kingsland and Lord Goodhart, who, in slightly different ways, want to force the old contract on to the RTM. The third view is that of my noble friend Lord Williams of Elvel, who states that the arrangement should be null and void in every case once RTM has been passed or accepted as the way forward. I shall set out what I submit is the current position under the Bill and then deal with the conflicting propositions.

There was some confusion about this issue when it was discussed during the Committee stage of the previous Bill. Where a party to a contract is placed by events that are outside his control in the position of no longer being able to fulfil his obligations or role under that contract, the normal effect of contract law will be that that contract falls as frustrated. That is effectively what the noble Lord, Lord Goodhart, said. One such case is that in which the operation of law intervenes to prevent someone from being able to fulfil his part of a contract. Whether that will happen with RTM companies will depend on the facts of each case.

Leaseholders have the right to take over management, subject to having met the qualifying rules. A landlord will not be able to prevent a qualifying group from doing so. Acquisition of RTM is therefore a compulsory, not a voluntary, transaction. Furthermore, Clause 95(2) provides that, following the acquisition of the right, the landlord cannot continue to exercise any of the duties that have become "management functions" of the RTM company. Operation of law will therefore mean, for example, that the landlord will no longer be responsible for the maintenance of the property. Frustration may be the outcome. I do not of course suggest that that would necessarily be the position in each and every case. The application of the law of frustration and the law of contract generally will of course depend on the circumstances of the case.

Where a contract is frustrated in the circumstances that I have described, each party to that contract will have the right to recover moneys due to them under it for what has been done up to the point of frustration. The contractor will be able to recover from the other party all sums due for the work that has been done up to the point of frustration. The other party will in turn be able to recover from the contractor any sums advanced prior to that point for works that will not now be carried out. Neither party will have any right to seek compensation for any profits foregone or other such matters as a result of the frustration of the contract. We think that that is both right and fair.

The noble Lord, Lord Goodhart, suggested, during this Bill's Committee stage and during the previous Bill's proceedings, that there would be circumstances in which the employment of a particular contractor, such as a gardener, would transfer to the R.TM company. We agree that that will be the result of employment law, and particularly of the rules that relate to the protection of employment following the transfer of an undertaking—TUPE—rather than of general contract law. As my noble friend Lord Whiny said during the Committee stage of the previous Bill, nothing in the Bill overrides such employment rights; nor would we wish it to do so.

Whether a particular employee or contractor would pass to the RTM company depends on whether the acquisition of the right to manage constitutes a transfer of undertaking for those purposes. As noble Lords know, this is a complex area and the application or otherwise of TUPE will depend on the individual circumstances of the case. However, we are perfectly content that, when it does apply, the employment of the individual in question should be part of the right to manage the company.

The noble Lord, Lord Kingsland, asked today and during our debate on Tuesday what would happen to contractors, such as builders, who repair the property. Clause 94(5) makes it clear that repairs will be one of the management functions of the RTM company where the right to manage is acquired. That will be another function that the landlord will be debarred from continuing to carry out by virtue of Clause 95(2). As for maintenance, contracts by which the landlord delegated his responsibilities for repairs would normally be frustrated. I also make it clear to the noble Lord that because repairs will be a matter for the RTM company once the right to manage is acquired, a repair contract of the kind that he described would be a management contract, as defined by Clause 89(2).

I have set out at some length what the Bill's current effect would be—it is important to do so. In effect, its current effect is that the normal law will apply to determine what happens to the contracts after the RTM company takes over.

I now turn to the individual amendments and shall begin with Amendment No. 129, which was spoken to by the noble Lord, Lord Goodhart. He took the view that all contracts should be novated, but without necessarily having the consent of all parties. Such an approach would, on the face of it, have some merits. It would ensure that the RTM company was supported from day one by a network of existing contractors, such as cleaners, gardeners, lift maintenance companies and so forth. At the same time, it would give existing contractors certainty that their services will continue to be required, at least, initially after the management of the block changes hands.

We also recognise that the RTM company will sometimes be perfectly happy to work with the landlord's contractor, and vice versa. Where that is the case, our Bill provides an opportunity for that to happen. Clauses 89 and 90 together make provision for notices to be served to ensure that contractors know that the right to manage is to be acquired and that the RTM company knows who those contractors are. Either side will then be able to initiate negotiations for the RTM company to take over the responsibilities and obligations of the landlord under the contract, thereby allowing it to carry on after the acquisition of the right.

However, this is where we part company with the noble Lord. We do not want to force the RTM company and the contractors into a contractual relationship against their will, and that is the effect of the amendment. Amendment No. 128 in the name of the noble Lord, Lord Kingsland, similarly would require a contractor to carry on a contract if the RTM company will not agree to release him from it, as well as tying in an RTM company if the contractor will not release it. Again, we do not believe that that is the right approach.

There has been some discussion of what is right for the RTM company. We also have to consider what is right for the contractor. He will have contracted with the landlord, and may not want to carry that on, or at least not on the same terms, with the RTM company. We have to allow for that possibility, and to recognise that contractors also need to have rights in this situation to decide what is in their own best interests.

We believe that our approach strikes a fair balance in this respect. The machinery set up by Clauses 89 and 90 allows the contractors and the company to decide in advance of the RTM being acquired whether they want to continue a particular contract. It is only where they cannot come to an agreement that contracts may be frustrated by default. We have given careful thought to this, and are satisfied that that is the right approach.

I should also add that to our minds the approach proposed by the noble Lords, Lord Goodhart and Lord Kingsland, would have one further disadvantage in practice. Under the right to manage, a third party appointed manager by the lease would lose the management responsibilities to the RTM company. As noble Lords will appreciate, that is essential in order for the right to manage to work. A third party may also, however, be appointed manager outside the lease as an agent of the landlord. The amendment would automatically preserve the contract of that manager, but not one appointed under the lease. That does not appear to us to be right. Therefore, we do not support Amendment No. 129 in the name of the noble Lord, Lord Goodhart, or Amendment No. 128 in the name of the noble Lord, Lord Kingsland. We also do not support any notion that Clauses 89 or 90 should not stand part of the Bill.

I turn to the amendment tabled by the noble Lord, Lord Williams.

Unless my noble and learned friend has resigned from the Labour Party, I am his noble friend and he is my noble friend, as the Companion states.

I thought I said that the noble Lord, Lord Williams, was my noble friend. If I did not, I profoundly regret not saying so because he certainly is my noble friend.

I turn to the amendment that is tabled not only by my noble friend but also by the noble Earl, Lord Caithness, who is sadly, and surprisingly, not with us. He has shown such commitment to this Bill over many months.

I understand that the noble Earl is in the United States and, therefore, unable to be with us. His absence is not due to any act of forgetfulness on his part.

I was genuinely expressing regret because the noble Earl has made significant contributions to the debates on this Bill and the fact that he is not present is our loss.

Amendment No. 130 broadly supports our intentions but the noble Lord and the noble Earl want to see them set out on the face of the Bill. The amendment is fairly stark in that it says that every single contract would be null and void. I am not sure whether that would be correct, although the amendment has clarity on its side. Our policy is that normal contract law will apply. Because it does not say otherwise, the effect of the Bill will be just that. It is not necessary for the Bill to say any more. Indeed, to say any more the Bill would need to say a great deal more. Contract law is complex and its effect will depend on the circumstances of the individual case. We cannot say, as the noble Lord and the noble Earl would like, that,

"the rules relating to frustrated contacts shall apply".

We would need to replicate the whole corpus of contract law on the face of the Bill and even my noble friend would consider that to be a problem. Therefore there is no half-way house.

Although we understand and sympathise with the spirit of the amendment, we do not believe that it would be sensible to agree to it. Therefore, I invite the noble Lord, Lord Kingsland, to withdraw his amendment and other noble Lords not to move theirs.

As the Minister has indicated, Clauses 89 and 90 deal with the service of notices relating to management contracts, but do not make it clear what happens to those contracts once a notice has been served. As the Minister knows well from his distinguished practice at the commercial Bar, contracts are about the allocation of risk between the contracting parties. Particularly in the case of long-term contracts, careful consideration has to be given by the contractors to binding themselves over a considerable period of time. If a long-term contract is made with a landlord or with a managing agent and in its early stages is frustrated as a result of the RTM refusing to take it on, that could have severe consequences for the contractor through no fault of his own.

I hear what the Minister says about the normal course of the law, but in this area the normal course of the law of contract is highly unpredictable and often not favourable to the contractor party. Perhaps between this stage and the next the Minister may want to reflect on introducing a longer period of notice than that suggested in the Bill so that at least parties will have an opportunity to consider a whole range of options in the knowledge that the RTM company may not be prepared to take on the obligations of the landlord or the landlord through the managing agent.

A final reflection is that, given that this is now to be the law, it may have an adverse effect on the willingness of contractors to enter into long-term contracts with existing blocks of flats that are not yet managed by an RTM company. Because contractors are faced with the possibility of an RTM company replacing a management agent, they may be chary of entering into long-term arrangements.

In using my right to respond, I have dilated on the subject, but I know that the Minister will continue to cerebrate on the issue between now and Report stage. Meanwhile, I beg leave to withdraw the amendment.

moved Amendment No. 130A:

Page 46, line 17, after "him" insert "in writing"

We can cut short the debate. Perhaps the noble Lord will let us bring back an amendment at Report stage that makes it consistent with the other provisions relating to "in writing"?

I am pleased to hear what the Minister has said. Amendment No. 134A deals with the extension of the provisions in Clause 92, the payment of uncommitted service charges to similar payments in relation to collective enfranchise provisions contained in the relevant parts of the 1987 and 1993 Acts. Certainly, we welcome Clause 92 strongly. It is such a good clause that we think it ought to be extended to other fields of operations where it does not yet apply. I beg to move.

Did I understand my noble and learned friend to say that he would be bringing forward amendments at Report stage on the substance of what the noble Lord, Lord Goodhart, has indicated about RTM companies and information they are given'? If that is so, I would spare the time of the Committee.

I did. Basically, I conceded the point. The only reason that I am not conceding the amendment is to make the form of the amendment consistent with other parts of the Bill. When reference is made to "information in writing", that is about whether it should say an information notice rather than a request in writing, which is a matter of no substance.

I am grateful. I shall not move the amendments in the group.

Amendment No. 134A seeks to apply the provisions on handover of moneys upon acquisition of the right to manage to provisions in other statutes. If accepted, this amendment would cause Clause 92 in our Bill to govern the replacement of a manager under the Landlord and Tenant Act 1987 and the acquisition of the freehold under the Leasehold Reform, Housing and Urban Development Act 1993. We see the logic behind the proposed amendment. We are wary of cross-applications.

We are not aware of problems, in practice, with the handover of moneys under these two statutes. Under the 1987 Act the transfer of management responsibilities will take place in accordance with the order made by the Leasehold Valuation Tribunal. Those orders would specify arrangements for the handover of moneys. As to the 1993 Act, we understand that commonsense arrangements for the hand over of moneys have developed without the need for any statutory provisions.

On the basis of those two points, we are not persuaded that there is a need for a change to those two statutes. We are happy to look further into the current situation and to consider whether, in the light of our investigations, there might be a need for specific provisions and the change suggested. We will inform the noble Lord what our conclusions might be as soon as possible.

I am grateful to the noble and learned Lord, Lord Falconer, for his acceptance of the principle in Amendment No. 130A and his undertaking to look again at the reasoning behind Amendment No. 134A. I beg leave to withdraw Amendment No. 130A.

moved Amendment No. 136:

After Clause 95, insert the following new clause—

"MANAGEMENT FUNCTIONS: INSURANCE

(1) Notwithstanding the specific terms of any lease of the whole or part of the building, any person responsible for management functions in relation to the premises shall ensure that the entire building is insured under a single insurance policy.

(2) Any person responsible for arranging an insurance policy under subsection (1) shall be under a duty to obtain best value for the service charge payers in procuring a suitable policy.

(3) If, in the opinion of any party to a lease, the insurance policy arranged in accordance with subsection (1) does not represent best value for the service charge payers, they may refer the matter to the leasehold valuation tribunal for determination.

(4) Any reference of an insurance policy to a leasehold valuation tribunal under this section shall be supported by an alternative quotation for insurance cover from a recognised and reputable supplier to support the case; and the leasehold valuation tribunal shall not consider any such reference unless it is supported by such an alternative quotation.

(5) The duty to arrange insurance under subsection (1) applies notwithstanding the existence of a dispute which has been referred to the leasehold valuation tribunal.

(6) In determining any dispute referred to it under subsection (3), the leasehold valuation tribunal shall take into account—

(a) the extent of cover procured, and

(b) the level of premium payable by individual service charge payers."

Perhaps someone could clarify for me whether this position would apply in a case where part of the premises were commercial. In Australia the significant difference occurs in the rates of insurance for a commercial part and a noncommercial part. If the insurance cover was for one complete building would it affect those in the residential part? Would residents have to pay more? Is this a case where the right to manage would not cover any property that included a commercial part?

The question asked by the noble Baroness, Lady Gardner, is one for the noble Lord, Lord Kingsland. I suggest an answer, and I will be corrected. The amendment reads:

"(1) Notwithstanding the specific terms of any lease of the whole or part of the building, any person responsible for management functions in relation to the premises shall ensure that the entire building is insured under a single insurance policy".

If, under the provisions of this Bill, there is a 25 per cent or less commercial element then, as I understand the amendment by the noble Lord, Lord Kingsland, the insurance policy that would apply would have to cover the whole building including the 25 per cent commercial part. Inevitably, that would have a financial consequence depending on the nature of the commercial activity. I stand to be corrected by the noble Lord, Lord Kingsland, but he is nodding enthusiastically.

I was sorry not to be involved in the Bill on the previous occasion, thereby missing what has become the legendary speech of the noble Lord, Lord Kingsland, on the single insurance policy issue. However, I agree that the points are clearly set out and that people know what the issues are. As the noble Lord, Lord Kingsland, will recall from Grand Committee, the Government wholeheartedly agree with the principle which lies behind the amendment, subject to the point raised by the noble Baroness, Lady Gardner, but we continue to differ on how to achieve it.

The amendment is in part concerned with ensuring that a block of flats is subject to a single insurance policy. We agree that that is normally desirable. As we said during the earlier Committee proceedings, a single policy will prevent unnecessary difficulties arising where the leaseholders need to call upon the insurance for reinstatement or repair. It is for that reason that we have brought forward our own provision to make the absence of such a policy a clear ground for application to vary a lease. That appears in the Bill at Clause 156(2).

The amendment is also concerned with ensuring proper value for money. Again, the noble Lord, Lord Kingsland, will know that we entirely support that objective. However, we believe that the right to challenge unreasonable service charges is the right way to deal with the matter. Furthermore, right-to-manage will make the leaseholders responsible for taking out the insurance policy which they then pay for. That in itself should create an incentive for value for money.

Finally, and most importantly, this amendment would impose a requirement on the right-to-manage company which it would not impose on any other manager. So far, nothing has been said to persuade us that such discrimination would be justified. Why, for example, is it appropriate for a "best value" requirement to be imposed on the RTM company but not upon the landlord? As has already been said, we believe that leaseholders should have the right to manage their block and we are firmly opposed to the imposition of requirements which make that right more onerous than normal leasehold management would be outside of that right.

Therefore, although we share in common much that underlies the amendment, we continue to oppose the amendment and I invite the noble Lord to withdraw it.

I am sorry to have disappointed the noble and learned Lord the Minister by not repeating the speech I made on the topic in Grand Committee. If he would prefer me to repeat all the speeches I made on these topics in Grand Committee, I should be delighted to do so. However, I fear that that was not the invitation he intended to extend.

I thank the noble and learned Lord for his response. As he well knows from having carefully analysed my speech in Grand Committee—

The noble Lord, Lord Kingsland, should pay credit to the seamless nature of the Government Front Bench. I of course remember everything that he said in Grand Committee and I have communicated it at length to my noble and learned friend.

That is why I was so regretful not to have been involved in the previous Bill. The noble Lord's speech is legendary.

I am grateful to the noble Lord, Lord McIntosh of Haringey, but I am somewhat incredulous after hearing what he said. Because I am so disappointed by the Minister's response to my amendment, I should like to test the opinion of the Committee.

moved Amendment No. 137:

Page 48, line 39, at end insert—

"( )The RTM company must not grant an approval in relation to the making of alterations, improvements or change of use."

Amendment No. 139A is part of this group. That amendment merely seeks to make what appears to us to be a drafting correction. Clause 96(4)(a) provides for 30 days' notice,

"in the case of an approval relating to assignment, underletting, charging, parting with possession, the making of improvements or alterations of use".

"Alterations of use" is a very odd expression. We believe that what it really means is the making of improvements or alterations or changes of use. "Change of use" is the normal term used here. We believe that notice should be required both in the case of the making of alterations and proposals for changes of use.

I refer first to Amendments Nos. 137, 138 and 139 in the name of the noble Lord, Lord Kingsland. Amendments Nos. 137 and 138 are intended to take away responsibility from the right-to-manage company for granting consents for improvements or alterations of use. Our view is that the RTM company should take on responsibility for all the consents under the leases. The provisions of the Bill already allow the landlord to take action to protect his interest. We consider that those safeguards are sufficient and see no need to change the provisions.

As to Amendment No. 139 to which the noble Lord referred, it is suggested that we prohibit an LVT from overriding the terms of a lease when adjudicating on whether an approval should or should not be granted. As the noble Lord is aware, that is unnecessary. The LVT obviously has no power to disregard the terms of the lease; it is merely asked to adjudicate on whether an approval should be granted in accordance with the terms of the lease. Therefore, that having been made clear, I hope that the noble Lord appreciates that Amendment No. 139 is not appropriate.

The amendment of the noble Lord, Lord Goodhart, changes the classes of amendment for which the landlord is entitled to a longer 30-day notice period where the RTM company proposes to grant approval. The wording and the classes of approval listed in Clause 96(4) are modelled closely, as the noble Lord will no doubt have guessed, on the provisions of Section 19 of the Landlord and Tenant Act 1927, and the related provisions of the Landlord and Tenant Act 1988. Both provide that a landlord may not unreasonably withhold consent where it is required for certain matters under the lease.

We have not adopted consistency for consistency's sake. The 1927 and 1988 Acts already helpfully demarcate what is and what is not a key approval. Our view is that it is only key approvals for which the landlord should enjoy the longer period.

That said, we are grateful to the noble Lord for raising the matter. The matters he raises already fall within the ambit of Clause 96(4)(a). An alteration of use and a change of use are one and the same thing, albeit said differently. Furthermore, our view is that the making of alterations is simply a sub-category of the making of improvements. Therefore, the noble Lord's proposed changes are not needed. In the light of that, I hope that the noble Lord will not move his amendment.

Before the noble and learned Lord sits down, this is a Law Society amendment. I think that it has a good point. Alterations of use may mean changes of use, but alterations of the building as well as improvements to it are matters that should be covered by the 30-day notice period. It is by no means clear that alterations and improvements necessarily cover the same ground.

I take the noble Lord's point. It could usefully be discussed at the meeting between the noble Lord, representatives of the Law Society, officials and Ministers. Perhaps we can come back to that on Report. It may well be that the last point made was an important one.

Perhaps at that meeting officials can assist us as to where else the term "alteration of use" is used because the term "change of use" is certainly one with which most of us are more familiar.

Officials will have heard the request. We can deal with that when we meet.

In those circumstances, it is clearly appropriate for me to beg leave to withdraw the amendment.

moved Amendment No. 139.A:

Page 98, line 41, at end insert "but this takes effect without prejudice to the operation of section 101 of this Act"

The point needs consideration. It had not occurred to us that it had that effect. It is not intended to have that effect. Perhaps we may take the matter away, consider it and come back on Report with a response.

I ask leave to withdraw the amendment.

moved Amendment No. 141A:

After Clause 114, insert the following new clause—

"QUALIFYING TENANTS SATISFYING RESIDENCE CONDITION

(1) Section 6 of the 1993 Act (qualifying tenants satisfying residence condition) is amended as follows.

(2) In subsections (2) and (5) for "his only or principal home" substitute "a residence".

(3) In paragraph (b) of subsection (2) and in paragraph (b) of subsection (5), for "three years" substitute "twelve months".

(4) After subsection (6) insert—

"(7) Subsection (1) shall not apply where the lease is vested in a company which does not carry on, and has not at any time since the lease became vested in it carried on, any or any substantial business (other than in relation to its ownership of the lease), and in that case a qualifying tenant of a flat shall for the purposes of this Chapter be treated as satisfying the residence condition at any time when the conditions in subsection (8) are satisfied with respect to an individual.

(8) Those conditions are that the individual is a person who has had control of the company and has occupied the flat as his residence for the last twelve months or for periods amounting to twelve months in the last ten years.

(9) For the purposes of subsection (8), a person is to be taken as having control of a company if—

(a) the directors of the company or of another company which has control of it (or any of them) are accustomed to act in accordance with his directions and instructions, and

(b) he is entitled to exercise or control the exercise of more than 50 per cent. of the voting power at any general meeting of the company or of another company which has control of it.

(10) For the purposes of subsections (7) to (9), "company" includes any body corporate (whether incorporated in Great Britain or elsewhere) and references to directors of a company and to voting power at any general meeting of a company have effect with any necessary modifications.""

Let me say straightaway that this is a praiseworthy attempt to reform the residence condition rather than to abolish it. I appreciate the care that has gone into the drafting of the amendment. However, we have already debated the residence condition on a number of occasions and I have to confirm that our views have not changed. We discussed the matter most recently last Tuesday in relation to the right to manage. We then explained that our view was governed by two principles.

First, we cannot agree that different eligibility rules should apply to different people. We think that there should be one governing criterion; namely, whether a person has a significant stake in the property in question. The Bill is based on that principle. Secondly, we are generally of the view that any form of residence test is undesirable. Experience has shown that tests of this nature are open to abuse and confusion.

We believe that these principles are equally valid for the right of collective enfranchisement. The residence test has proved to be the greatest barrier to groups of leaseholders who wish to enfranchise. Because enfranchisement of a block of flats is a collective right, the ability of leaseholders to acquire the freehold of their homes is dependent both on their own eligibility and on the eligibility of other leaseholders in the block. They can be prevented from acquiring the freehold if they are unable to secure the support of a sufficient number of qualifying leaseholders. If a significant number of flats happen to be sub-let, or have recently changed hands, leaseholders' legitimate aspirations can be frustrated. The noble Lord's amendment, however carefully thought out, would not overcome that.

The question of what constitutes residence is invariably contentious and liable to give rise to disputes. We believe that tinkering with the residence test in such a manner is not the way forward. We would prefer to stick with the principles which I have outlined. We are giving rights to leaseholders who hold the greatest—in many cases, by far the greatest—stake in their own properties. I am sorry that I am not able to give a more friendly response to the noble Lord's amendment.

I am reluctant to speak on this matter because I would benefit from it. I believe that I have explained on a previous occasion that I have purchased a house for my old age, which I do not live in at the present time.

Can the Minister comment on the remark made by my noble friend Lord Kingsland when he stated that, after the 1993 Act, freeholders have the right to insist that a lease may be assigned only to a company? I have read briefing material stating that that is common practice. Is it correct? If so, will the proposal to abolish the residence test mean that people are no longer able to use that as a loophole to prevent those who would have been able to enfranchise under the residential category from doing so?

Since the question of whether the lease is held by a company is no longer an issue, unless I am much mistaken, the answer to the question put by the noble Baroness, Lady Garder, is yes. The Bill as drafted will remove that loophole.

I was curious to note that the noble Lord, Lord Goodhart, did not intervene in this exchange. Perhaps that is because his view as regards residency under the provisions of leasehold enfranchisement is the same as his view as regards the residency test under the provisions of the RTM. I take his silence to be a confirmation that that is the case.

The noble Lord, Lord McIntosh of Haringey, knows that. I feel strongly about this matter. I have tried various schemes in order to move the Minister to some form of pity, if not to intellectual conviction of the strength of my case. But I have also come to recognise that the vast majority of those who represent leasehold interests disagree with me and agree with the Government. I know that the Liberal Democrat Party has thought hard about this. It has also come round to the view of the Government.

I shall reflect long and hard before returning with any further amendment at a later stage of the Bill. In the meantime, I beg leave to withdraw the amendment.

moved Amendment No. 143:

Page 59, line 14, at end insert—

"(4) A company which is a RTM company may not become a RTE company except by a resolution passed with the affirmative vote or written consent of all its members.

(5) In this Part, "RTM company" has the same meaning as in Chapter I of Part 3 of the Commonhold and Leasehold Reform Act 2001."

Similar amendments to Amendment No. 143 and Amendment No. 146, which is included in the grouping, were debated during the Committee stage of the previous Bill. We appreciate the concern about members of an RIM company who do not participate in a subsequent enfranchisement. However, the Bill provides that any such leaseholders will cease to be members of the company on completion of the enfranchisement. The reason for this is that, after enfranchisement, conflicts of interest might well arise between those leaseholders who, respectively, did and did not participate in the enfranchisement. For example, there might be differences of view between them as to how the proceeds of sales of leases should be used or distributed. If the non-participants were still members of the company, the company directors would then find themselves in a difficult position as a result of their accountability to the entire membership.

However, since the original Bill was introduced, Members of the Committee will note that we have removed the bar on there being separate RTM and RTE companies for the same premises. That will mean that where RTM has been exercised and a proportion of the members wish to proceed to enfranchisement, they would now be able to set up a separate RTE company for the purpose, and non-participants would be able to continue to participate in the management of the building.

Although I understand that Amendment No. 147 will not be moved, it is perhaps worth saying that that amendment seeks to increase from 28 to 56 days the period during which assignees of participating members before enfranchisement takes place may give notice that they wish to become participating members. Following concerns raised during previous debates by the noble Lord, Lord Kingsland, and others that the originally proposed period of 14 days was too short, we took careful account of the arguments and decided to increase this period to 28 days. We feel that this is more than enough time for assignees to make up their minds. A longer period is likely to risk delays to the enfranchisement process. We do not believe that that is desirable.

Having heard the arguments in relation to the amendment moved by the noble Lord, Lord Goodhart, and the points I have made in regard to the amendment of the noble Lord, Lord Kingsland, which will not be moved in its current form, I hope that the noble Lord will feel able to withdraw his amendment.

I welcome the fact that it is now possible to have separate RTM and RTE companies for the same premises. However, it would be appropriate to say that the RTM company should not be capable of conversion without the consent of all its members. If even one member objects, the RTM company should remain in place and the other leaseholders should be required to form an RTE company. Without such a provision, the situation could arise whereby the other shareholders and the RTM company decide to go ahead with the conversion of the RTM company and squeeze out the non-consenting member from management, rather than proceeding by the better course of setting up a separate RTE company. However, in the circumstances, I beg leave to withdraw the amendment.

moved Amendment No. 148:

Page 60, line 17, at end insert—

"4BA Relevant conveyance to RTE companies

(1) In this section—

(a) "relevant tenancy" means the tenancy of a flat contained in premises which were the subject of a relevant conveyance (as defined in section 4B) to a RTE company: and

(b) "relevant tenant" means a person who at the time of the relevant conveyance was a participating member by virtue of holding a relevant tenancy and includes any successor in title of that person.

(2) After the executions of the relevant conveyance to the RTE company, on the assignment of a relevant tenancy by a relevant tenant—

(a) the assignor (unless he is also a relevant tenant under a relevant tenancy of another flat in the same premises) ceases to be a member of the RTE company: and

(b) the assignee (unless he is already a member of the RTE company) shall become a member of the RTE company."

Amendment No. 148 seeks to provide that where a lease was assigned by a member of an RTE company the assignee would automatically become a member of the company. We appreciate the concerns expressed by the noble Lord, Lord Goodhart, during our earlier discussions in Committee about the ability of assignees to become members of an RTE company. New Section 4B of the 1993 Act is intended to apply only during the enfranchisement process. Company law does not provide for automatic transfer of membership of a company limited by guarantee.

We are not seeking to regulate membership of an RTE company after completion of the enfranchisement process. We consider that that should be a matter for the enfranchised leaseholders to agree among themselves. We do, however, agree that the RTE company should be able to admit new members after completion. That would include assignees of participating members or leaseholders who did not participate in the original enfranchisement. We accept that the draft of the memorandum and articles which we provided to your Lordships did not provide for this. I can advise the Committee that we will now be including appropriate changes in revised drafts, which we expect to produce during the consideration of the Bill—I hope, before Report stage.

In practice, where a participating member assigns his lease, the premium would reflect the benefits of membership. It is unlikely that the prospective assignee would agree to the purchase without being satisfied that membership of the RTE company was an integral part of the package. This happens now with the existing nominee purchaser arrangements and we are not aware of any particular problems. Having heard that explanation, I hope that the noble Lord will feel able to withdraw his amendment.

I am unhappy with the noble Lord's response on this point. Although company law does not provide for an express obligation to transfer membership of a company limited by guarantee, nevertheless I can see no reason why the form of memorandum and articles should not—as clearly it can—provide for this, and the standard form of memorandum and articles for an RTE company should be required to do so. It is, of course, true that in the great majority of cases membership of the RTE company will be assigned with the lease because it increases the value of the lease. However, if anything, the strongest argument for making it obligatory is that it may be overlooked in cases where it is clearly desirable and where the parties would have agreed that it should be the case but did not understand the position. There is every reason for making this provision one of the terms on which one can collectively enfranchise. Once one has enfranchised, the lease and the membership of the RTE company should be umbilically linked with each other.

I am not happy with the position. Even if this is not the most important amendment to have been proposed to the Bill, it is an amendment of some importance. We shall consider whether to bring it back at a later stage. In the meantime, I beg leave to withdraw the amendment.

moved Amendment No. 148A:

Page 61 line 43, after "given" insert ", and if given will be of no effect, until and"

I have listened carefully to the noble Lord's comments. However, we are not convinced that the first amendment is necessary or desirable. The Bill already provides that an initial notice under Section 13 of the 1993 Act cannot be given unless the required notice of invitation to participate has been given to all appropriate persons at least 14 days beforehand. If an initial notice is given in contravention of this provision it would be of no effect. This seems to be a straightforward principle that everyone can understand.

The amendment appears to provide that if an initial notice is given before the requirements relating to the notice of invitation to participate have been met, but those requirements are subsequently met, the initial notice would then become valid. This seems to be a recipe for confusion. We are concerned that all leaseholders should be given the opportunity to participate in the enfranchisement bid. The simplest way of ensuring this is to require that notices of invitation to participate are served on all eligible leaseholders before the initial notice is issued.

I am grateful to the noble Lord for explaining his second amendment. We cannot give a firm answer today, but we are quite interested in it. We shall consider the noble Lord's suggestion carefully before Report stage.