Company Law Reform Bill [HL]

moved Amendment No. 334I:"Page 247, line 16, after ““that”” insert ““limits or””" The noble Baroness said: We now come to Chapter 6 of Part 16 of the Bill. The chapter contains a small group of clauses which are of immense significance to the auditing profession. Under Clause 518, auditors and companies will, for the first time, be able to agree liability limitation agreements whereby the amount that an auditor must pay in respect of negligence, default, breach of duty or breach of trust in connection with the audit may be limited. The auditors have campaigned for a very long time for some relief from the way in which the current law works, which, in effect, makes the defendant with the deepest pockets—usually the auditors and their insurers—pay. But the devil, as usual, is in the detail, and so the amendments in this group, led by Amendment No. 334I, which I shall move, are designed to ensure that the Bill reflects a workable solution to the liability issues. In particular, we want to ensure that the Bill reflects the agreement that was reached between most of the interested parties—the Government, investors, companies and auditors—and that agreement was that the law should provide for agreements on proportionate liability. I turn to the amendments in the group which bear my name. The first, Amendment No. 334I, is a small amendment so that a liability limitation agreement is defined as an agreement which limits or purports to limit liability. The current wording is that the agreement must only ““purport to limit””. ““Purport”” is an odd verb. The dictionaries have several meanings. It can mean ““intend”” or ““profess””, which is probably what it means here, but it can also have a meaning which is associated with false pretences, as in ““appear to do something, especially falsely or in a way that is not easy to believe””. Let us assume that the word means ““intend””. The clause would define a liability limitation agreement as an agreement which intended to limit the liability. But I believe that, whatever the intent of the parties or whatever they overtly profess in their agreement, if the agreement in fact limits liability, that agreement should be within the ambit of Chapter 6 and the restrictions that apply on limitation of liability agreements. That is the purport of Amendment No. 334I. The other amendments in this group which I have tabled or to which I have added my name are directed in one way or another to ensure that Clauses 518 to 520 will allow proportionate liability agreements. The references to ““amount”” of liability throughout these clauses has caused significant doubts, based on legal advice, not only among the accounting firms and the Institute of Chartered Accountants but also at the CBI, as to whether proportionate agreements would be allowed. And so there is a call to get the drafting absolutely clear. I am aware that the DTI believes that its wording of the ““amount of a liability”” would allow a limitation agreement to be expressed in proportionate terms. I hope that it has now accepted that there is so much doubt among the communities that are actually affected by the clauses that some change is necessary to the Bill. Amendment No. 335 adds the words ““by whatever mechanism”” after ““purports”” in the first line of Clause 518, in the expectation that this would allow a proportionate formulation or mechanism. Amendments Nos. 336, 338, 341 and 343 replace the word ““amount”” with ““extent”” so that a liability limitation agreement is one which limits the extent of liability rather than its amount. Several of the other amendments are largely consequential on those amendments. Other amendments in this group have been tabled by other noble Lords. Amendment No. 339A, tabled by the noble Lord, Lord Sharman, and Amendment No. 340B, tabled by the noble Baroness, Lady Goudie, would both confine the judgment of ““fair and reasonable”” to the time of the agreement. For the avoidance of doubt, we also support those amendments. I hope the Minister will confirm that the DTI has listened to the many arguments that have been put to it on these clauses. Chapter 6 will contain its own uncertainties going forward; for example, in relation to what the courts will determine to be fair and reasonable. All of the parties accept that. But to leave a basic uncertainty in the Bill about whether proportionate liability agreements will be allowed would be more than unfortunate—and it can be easily avoided, as these amendments show. I beg to move.