Company Law Reform Bill [HL]

My Lords, let me first try to deal with the question raised by the noble Viscount, Lord Bledisloe. In the example that he gave, which I heard for the first time only a few seconds ago, the auditor will never have completed the task because he is unhappy that the company has not signed off on the agreement that he had. If he has not completed the task, any claim against him for negligence will be quite difficult to bring in any event, because the auditor will be able to say, ““Well, you’re complaining that I didn’t do this or do that, but I never got to the end of the audit, so it isn’t really fair to criticise me at all””. The court would have to sort that out in those circumstances. The counsel for the auditor is to say in those circumstances that, if the auditor is not prepared to do the work without that limitation agreement, he should not do it until it has been approved by the company. It does not have to wait for an annual general meeting; there are other ways of doing it. If the company’s directors are so concerned to get the auditor on board, they will have to take steps to ensure that the auditor has the protection which the noble Viscount described in his example as the only basis on which he is prepared to work. I turn to the points made by the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharman. I appreciate their welcome for the Government’s amendments. I am pleased that we have reached that position. I turn to Amendment No. 391A. We make a deliberate choice of timing. We pick the moment when the loss or damage has been incurred rather than the cause of action. Sometimes, those will occur at the same moment; sometimes, they will not. They might occur at the same moment if the cause of action is put not in contract but in tort. In tort, until the damage is suffered, the cause of action is not complete. In that event, the cause of action and the incurring or suffering of the loss would be coterminous. In contract, it may not be. In proposing the amendment, the Government were seeking to recognise the fundamental concern raised in Grand Committee. It was, as I recall it, that if you allow all circumstances to be taken into account, the risk is that by the time you get to court, it will be apparent that the only person who has got any money to meet the judgment is the auditor; all the rest will have gone off wherever they have gone or be out of any money. The risk is that the court would say that it is reasonable, having regard to the fact that the only pocket left is that of the auditor, that the auditor should pay for everything and the liability agreement should be set aside. That is the concern with which we were seeking principally to deal by stating that one can have regard to matters up to the time that the loss is suffered. However, it is right to be able to take account of circumstances arising in between breach of contract and the loss being incurred. I give one example. The auditor might break his contract one year, but nothing is discovered until the following year. As noble Lords will know, it is not unusual for a problem to become apparent in the course of the following audit. It may be reasonable to take into account, when deciding whether the agreement should stand, that it was the auditor himself who discovered the error the following year, who brought it to the attention of the company and who perhaps took steps to deal with the consequences. If, on the other hand, the auditor spotted the problem but did not deal with it and allowed the problem to get worse, it might be reasonable for the court to take that into account in deciding whether the limitation agreement was right. No solution is absolutely perfect in this respect—I acknowledge one or two of the examples that were given by the noble Baroness, Lady Noakes, and the noble Lord, Lord Sharman—but putting the time bar where we propose meets the thrust of the concerns that were previously expressed about the clause. On that basis, I hope that the noble Baroness will be content with the amendment as it stands. I do not think that there are any other points which I need to address. I commend the amendment to the House. On Question, amendment agreed to.