Partnerships (Prosecution) (Scotland) Bill [HL]

Lord Cameron of Lochbroom Excerpts

Tuesday 4th December 2012 Grand Committee

[Lord Cameron of Lochbroom]

My Lords, in its report on the criminal liability of partnerships, the Scottish Law Commission pointed out that the effect of Balmer was that once a partnership had been dissolved, and in the absence of evidence showing the guilt of one or more individual partners, there remained no person who could be held criminally accountable for offences committed by the partnership. The Bill seeks to provide a solution to this dilemma by amending the law with a targeted solution whereby a partnership may be prosecuted after dissolution for the limited purposes of establishing criminal liability for an offence committed by the partnership prior to dissolution. Clauses 2 and 5 also make clear that the competency of criminal proceedings against an individual partner is not affected by dissolution of the partnership. I offer it a general welcome and commend the clear terms of the Law Commission’s report which gave rise to the Bill.

I note the Law Commission’s recommendation that the amendment of the law presently proposed should only have effect pending the introduction of more comprehensive reform of the law of partnership. The joint report of the Scottish Law Commission and the Law Commission for England and Wales, issued in 2003, made a range of recommendations which, if implemented, would clarify and modernise the present law of partnership. To these should be added the point made in paragraph 2.7 of the present report that any such reform should make specific provision in relation to the criminal liability of Scottish partnerships. It would be helpful if the Advocate-General could say when such reform is likely to be embarked upon.

As regards the provision of Clauses 1 to 3, I have some reservations. The first relates to the period of five years for commencement of proceedings against a dissolved partnership in terms of Clause 1(3). This provision does not apply where there are time limits for commencement of a prosecution, as subsection (7) makes clear. Where an offence has been committed of a character that would give rise to criminal liability of a partnership, such as the fire in Balmer, or a work accident under health and safety legislation, the incident is likely to be investigated within a relatively short time of its happening. With that, there would be the knowledge that a partnership was a possible offender and, of course, the identity of the individuals who were partners at the time of any alleged offence.

Subsection (3) does not relate to the date of the alleged offence but to the date of dissolution of the partnership, a necessarily indeterminate length of time after the incident. I suggest that the period of five years from the date of dissolution is perhaps unduly long to enable a prosecution to be commenced, even if the dissolution were to occur very shortly after the incident giving rise to the alleged offence by the partnership. There has been reference to the five years as being the period of negative prescription, but that period applies only in relation to the question that would arise when a fine was imposed. Under those circumstances, one would imagine that it would take less than five years to operate the principle that is implicit in civil diligence once the fine has been imposed.

As I understand the provisions of Clause 1(5), (6) and (7), they operate to render a fine imposed on a dissolved partnership following a prosecution by virtue of subsection (2), enforceable against the former partners jointly and severally, with each partner having a right of relief against fellow partners. Each partner on conviction of the dissolved partnership would thus become subject to payment of any fine by way of recovery by civil diligence whether or not as individuals they bear any personal criminal liability with the incident. In fairness, they are entitled to have such a matter resolved as quickly as is reasonable. This comment is equally pertinent to the provision of Clause 4(3).

My second reservation concerns the principles to be applied in sentencing where the court is dealing with the prosecution of a dissolved partnership. It is the dissolved partnership which is to be named in the proceedings and not the individual partners. In the indictment in Balmer both the dissolved partners and the partners were named but the Crown specifically accepted that the partners were not parties to the proceedings. Hence, only the dissolved firm was indicted. Clause 3 provides that any enactment that restricts payment of a fine imposed upon a partnership to payment out of partnership assets does not apply. However, the provisions which enact that fines imposed upon organisations such as partnerships are recoverable by civil diligence can come into operation only after the fine has been imposed by the court. Upon what material is the sentencing judge to determine what can only be a fine? I think that the noble Baroness, Lady Liddell, suggested that perhaps we should look again at the issue of what a dissolved partnership, and indeed a partnership in the context of Clause 4, should be subject to by way of sentence.

In the ordinary case where a partnership is continuing, there will be information about partnership assets and the extent of the profitability of the business of the partnership that could be placed before the court. Information about the state of business up to and upon dissolution could be made available to the court as relevant material for sentence, even where there were restrictions of the kind imposed by present legislation. In chapter 3 of the report, the Law Commission noted that the Senators of the College of Justice considered that the case for disapplying the statutory limitations in relation to Scottish partnerships have not been made out. It expressed the view that it was appropriate to presume that Parliament was well aware of the separate personality of partnerships in Scotland and that, whatever the reasoning behind the provisions limiting the payment of fines to partnership assets, Parliament must have intended them to take effect. That is a strong expression of view.

The Law Commission said that it certainly recognised the possibility that the imposition of such limitations represented a conscious choice on the part of those responsible for preparing the legislation in which they appear, but, on the face of the report, the commission does not appear to have made any detailed examination of what was said at the time when the legislation was passed, which could bear on the matter. I ask the Minister to what extent the legislative background to such statutory limitations was examined by the Law Commission in advance of its recommendation giving rise to Clause 3.

In the case of summary proceedings against an organisation such as a partnership, Section 143(3)(a) of the Criminal Procedures (Scotland) Act 1995 provides that proceedings may be taken against an individual representative of a partnership, who may be dealt with as if he was the person offending and the offence should be deemed to be the offence of the partnership. Case law emphasises that the prosecution of such an individual is as a representative of the partnership and not in a personal capacity. It would appear that in the event of conviction, the personal circumstances of the partner would not then be relevant to sentence. While a similar provision does not apply to proceedings against a partnership by way of indictment in that Act, the principle that the personal circumstances of individual partners should not be relevant to sentence would seem to apply. This is even more the case if, in the circumstances specified in Clauses 2 or 5, an individual partner can be prosecuted for an offence alleged to have been committed by the partnership as well as by the partnership itself.

Before I turn to Clause 4, there is a matter that I wish to raise out of interest: in Balmer, the Crown argued that where criminal liability had been incurred prior to the dissolution of the partnership, that liability ought to continue so that, in terms of Section 38 of the Partnership Act 1890, the partners continued to be responsible for that criminal liability, notwithstanding that no indictment had been served or criminal liability established prior to dissolution. Against that background, it was explained by the Crown that the indictment in Balmer had been framed to avoid the transfer of criminal liability to the partners as individuals, and that an appropriate way to convene the former firm was to convene the former partners in the indictment. That seems to be at least a way in which, in a dissolved partnership, the individual partners who were partners at the time of the offence could be named. That would be important for two reasons: first, as a public notice to those who were controlling the partnership at the time and, secondly, it would have some relevance to the effect of the subsequent civil diligence that would follow upon the imposition of a fine.

Clause 4 makes it competent to prosecute a partnership in respect of an offence alleged to have been committed by the partnership prior to a change in membership of the partnership, notwithstanding the change in membership. Clause 4(4), in its reference to “the partnership”, appears to provide that, despite the change in membership, the partnership remains in existence as one and the same legal person before and after the change. I noted that in the Minister’s introduction he referred to this as a change of legal personality. The provision sets out to address the uncertainty in the present law as to whether the legal personality of a partnership necessarily comes to an end on a change in membership.

I have difficulty with the proposition that it is just to address this uncertainty by proceeding on the assumption that the partners involved at the time of the change intended that there was to be a continuing partnership when that was not in fact the intention. I consider that it is more consistent with justice to proceed on the assumption that for the purposes of fixing criminal liability, the change should be treated as though it were the dissolution of the partnership as constituted before the change, whether or not that was the intention of those who were partners before and after the change. The clause would then fix criminal liability on the partnership that was in existence at the time of the offence and its members at that time. It would also, upon conviction, fix liability arising from current partnership law for payment of any fine imposed on the partnership on those who were partners at the time of the offence.

Clause 5 would, in certain circumstances, permit prosecution of an individual partner who was a member of that partnership as being criminally liable for an offence alleged to have been committed by them, whether or not the partnership was prosecuted for the offence. If the assumption was that, in relation to criminal liability, a change in membership operated as a dissolution of the partnership at the date of the offence, partners in that partnership would become liable to have any fine imposed on the dissolved partnership enforced by civil diligence against any one or more of them. Any rights of indemnity and relief against the new partners would be governed by any agreements entered into at the time of the change of membership— a matter with which the Crown should not be concerned.

However, if the partnership is to be regarded as continuing whatever had been the intention of the partners at the time of the change of membership, under current partnership law each partner is liable jointly with the other partners, and also severally, for all debts and obligations of the firm while he is a partner. The Law Society of Scotland has expressed concern about the potential consequence of Clause 4(4)(c) to the situation of a new partner in such circumstances. Like other noble Lords, I would be very interested to hear the comments of the Advocate-General on this concern, even if he is not able to allay it completely.

Other references were made to the response of the Law Commission. I will simply say that I have read it and I, too, am concerned that we should have a response today from the Minister on the concerns that were expressed. I would also be interested to hear the Minister’s response to the points raised by noble Lords who spoke before me. In general, I give the Bill a fair wind and look forward to further discussion of it in Committee.