Company Law Reform Bill [HL]

I have two amendments in this group but begin by saying how much I support the noble Baroness’s comments on this part of the Bill. I will not rehearse all of the reasons for including a limitation of liability provision in the Bill. The need for some level of protection for auditors from excessive and, in some cases, catastrophic claims has been clear and is widely supported. I think it is generally accepted that all parties agree that any mechanism to permit limitation of liability should as a minimum agree to the right of proportionality by contract. I should say that I have had more lobbying from the middle-sized firms of accountants than I have from the big four on this issue. All the advice that I have seen—including the opinions of several eminent QCs—has been consistent: it is that what we have here, as it stands, would work as a capping mechanism. I should say to the noble and learned Lord the Attorney-General and his colleagues that, in my experience—and I chair the audit committee of two FTSE 100 companies—were we to have to work with a capping mechanism, the amount of the cap that we would have to put to our shareholders, with which we would feel comfortable and with which they would feel comfortable, would be so large as to take out almost everyone. In all circumstances it would probably act as no real cap at all because it would be sufficiently large to be way above any insurable limits and what most firms could stand. I see two issues remaining with this part of the Bill. The first issue is that of enforceability. Amendment No. 337B seeks to add words to Clause 519(4) so that it reads:"““The ‘principal terms’ of an agreement are terms specifying, or providing for the determination of””." I am told by my advisers that that simple amendment will ensure that proportionality by contract could be achieved. I may be wrong, but I rely totally on the eminent legal brains that I have consulted. I see that as a simple alternative, as it were, to replacing ““amount”” with ““extent””. I support replacing ““amount”” with ““extent””—I think it is very clear—but, if you want to keep ““extent””, that simple amendment gives the same result. My second amendment in the group deals with the way in which the courts should assess the reasonableness of any limitation agreement. In order to ensure that that is achievable in practice, the court should at the date of trial take into account only those circumstances known at the time the contract was entered into. It specifically excludes from consideration later developments such as the insolvency of other wrongdoers and the like. The danger is otherwise that you will have a situation where hindsight arises and in many cases involving significant claims the auditor probably will be the only man—or woman, for that matter—left standing and the circumstances will have changed. I have tabled Amendment No. 339A to deal with this point. Clause 520 would read:"““A liability limitation agreement is not effective . . . as it would have been fair and reasonable to specify at the time the agreement was entered into in all the circumstances of the case including—””." I think that the DTI has previously indicated that the intention of the Bill is that the court should at the date of trial take into account only those circumstances which were or ought to have been known at the date the contract was breached. Specifically, officials accept that the subsequent insolvency of other parties should be ignored when determining the reasonableness of the liability arrangements. The amendment would provide a welcome clarification of that amount.