Partnerships (Prosecution) (Scotland) Bill [HL]

Lord Wallace of Tankerness Excerpts

Tuesday 4th December 2012 Grand Committee

Moved By

[Lord Wallace of Tankerness]

That the Committee do consider the Bill.

[The Advocate-General for Scotland (Lord Wallace of Tankerness)]

My Lords, the Partnerships (Prosecution) (Scotland) Bill takes forward the proposals of the Scottish Law Commission to address the loophole that makes it impossible at present to prosecute partnerships that have dissolved. In 2004, a fire at the Rosepark Nursing Home in Uddingston led to the death of 14 elderly residents. The Lord Advocate brought serious criminal charges under health and safety legislation, but because of a legal technicality—the dissolution of the partnership that ran the home—nobody could be prosecuted. Rosepark was run by three individuals who had come together to form a business partnership. Following the fire, the partnership was dissolved. The Crown Office attempted three times to prosecute offences under the Health and Safety at Work etc. Act—offences that could be committed only by an employer.

The first attempt at prosecution, against the former partners of the nursing home, failed because they were charged as having been the employer at the time of the fire. The partners successfully argued that it was the partnership, by then no longer in existence, that had been the employer. A second charge was then brought against the dissolved partnership. The partners successfully argued that the partnership no longer had any legal existence and so could not be prosecuted. A third charge was then brought against the three individuals as whole surviving partners of the dissolved partnership. In turn, this was not successful because it had already been established, at the first attempt, that it had been the partnership that was the employer, and therefore responsible for the answering the charges, not any of the individual partners. In summary, prosecutors were unable to find the legal basis to pursue what were in anyone’s mind very serious charges.

The Rosepark fire created the impetus for a Scottish Law Commission project to investigate why the prosecutions had failed and how the anomaly in the law could be addressed. In May 2011, the commission published its discussion paper on the issue and, following consultation with the legal profession, reported with a draft Bill last December. The Scotland Office subsequently consulted on that draft and I am pleased to be here before this Committee a year later with a Bill that provides a very sound, yet simple, solution to ensure that partnerships and culpable partners cannot evade prosecution by dissolving.

I put on record thanks to the Scottish Law Commission for working with my office and the Scotland Office over the course of this year to ready the Bill for introduction. I particularly am grateful to Patrick Layden, the commissioner who led the project, for his untiring commitment to this work.

The Bill has the support of the Lord Advocate. In a letter to me following publication of the Bill, he said:

“I am pleased that the Bill provides a framework to ensure that it will be possible in future to prosecute a partnership that has been dissolved in Scotland and that the loophole in the law exposed by the Rosepark case will be closed”.

The Bill also has the support of Scottish Ministers and has been welcomed by the Law Society of Scotland. My hope is that we can fulfil expectations that the Bill will receive a positive response in this House and a smooth and quick passage eventually to Royal Assent. It is also worth noting that this will be the first Scottish Law Commission Bill to use the special Law Commission procedure in your Lordships’ House.

Turning to the content of the Bill, it responds to a feature of the general law of partnerships. In Scotland, a partnership is a legal person in its own right, distinct from its partners. The essential reason why the Rosepark prosecutions could not proceed was that the offence being prosecuted was one that could be committed only by an employer. As the employer in that case was a Scottish partnership, when it ceased to exist in law, there ceased to be a legal person to prosecute.

The aim of the Bill is to ensure that the dissolution of a partnership or a change in its membership will not prevent the prosecution, in Scotland, of a partnership or, where the conditions for individual criminal liability exist, the responsible partners. The Bill is deliberately limited to achieving this objective. It will create a limited exception to the current position that, in Scots law, dissolved partnerships cannot be prosecuted. It does not attempt to reform the law of partnerships more generally. In particular, it does not criminalise acts which are not presently criminalised. In other words, there is no expansion of criminal liability either on partnerships or individual partners. The Bill merely closes down a technical bar to prosecution. Nor does it attempt to clarify points of partnership law which do not relate directly to the competency of prosecution. The principle underpinning the Bill is to reflect, so far as is feasible, what would happen if a live partnership were prosecuted. In short, the principal effect of the Bill is that, if it would have been possible to prosecute a partnership had it been live, it will be possible to prosecute it if it dissolves, or has changed its legal personality by the assumption or resignation of partners.

In Clause 1, the Bill allows the prosecution of a dissolved partnership. I mention two aspects of this provision. First, there is a time limit. A prosecution will have to have commenced within five years of the partnership having dissolved for the new law to have effect. This limit is considered necessary to balance the public interest in permitting the prosecution of crime with the interest of certainty in winding up the affairs of a dissolved partnership and the estates of former partners. The five-year period was that most commonly suggested by the Scottish Law Commission’s consultees and reflects the period of negative prescription applying to most of the civil obligations to which the estate of a former partner might be subject following the dissolution of the partnership. Noble Lords may be reassured that the time limit applies only in the case of dissolved partnerships, and runs not from the date of the alleged offence but from the date of the dissolution of the partnership. I am satisfied that the time limit, as recommended by the Scottish Law Commission, strikes an appropriate balance.

Secondly, the Bill applies only to offences which are capable of being committed by the partnership in its own right. As these are the only offences where the mischief arises, where the dissolution or change of membership would prevent prosecution, the Bill is drafted so as to catch only them.

In Clause 1(6) the Bill provides that a fine for an offence committed by a dissolved partnership can be enforced in the same way as a fine for an offence committed by a live partnership. Under existing law, where a criminal fine is imposed on a live partnership, it is enforceable in the same way as a civil debt of the partnership. The liability to pay it arises at the time that it is imposed. If partnership assets are insufficient to meet such debts, individual partners are liable to pay the fine from their personal assets. In Scotland, partners are jointly and severally liable for such fines, therefore the net effect of the Bill is that persons who were partners immediately prior to dissolution are jointly and severally liable to pay the fine.

Clauses 2 and 5 deal with the issue that it is relatively common for statutory offences to provide that an individual partner is also liable for an offence committed by the partnership, where the offence is committed with that partner’s consent or connivance. Where the conditions for such individual liability exist, the Bill makes it clear that the prosecution of the individual will not be prevented by the dissolution of the partnership or a change in its membership.

Where a statute creates an offence which may be committed by a partnership, it sometimes goes on to provide that any fine must be paid from the partnership assets. In such a case, no fine could be enforced against a partnership which had dissolved, since by definition there would no longer be any partnership left to own assets. So, in order to allow such offences to be effectively prosecuted, Clause 3 provides that any such restriction will not apply where a partnership has been dissolved.

Taking together Clauses 1(6), 3 and 4, when a fine imposed upon a partnership is enforced against the assets of a partner, that partner will have, under the terms of the Partnership Act 1890, a right of relief against his or her fellow partners and may, depending on the terms of the contracts agreed between incoming and outgoing partners, have further claims against those former partners who were members of the firm at the time when the offence was committed.

The Bill also ensures that the prosecution of a partnership can proceed in the event of a change in membership. As the Law Commission and the Scottish Law Commission noted in their report on partnership law, in Scots law there is,

“uncertainty as to whether a change in membership terminates the personality of the ‘old’ partnership and brings into being a ‘new’ partnership entity”.

One cannot say with certainty whether a partnership is the same legal entity before and after a change in membership. Given that the present law may be that a change in membership establishes a new legal entity, distinct from the one that existed before the change in membership, the Bill has been drafted to ensure that the continuing partnership can still be prosecuted. There is otherwise a risk that the assumption of a new partner or the resignation of an existing one might make it legally impossible for the partnership to be prosecuted for offences that it had already committed. I am sure that your Lordships will agree that this would be an unacceptable outcome.

On this point, I note that the Law Society of Scotland has suggested that by including the assumption of new partners in the clause, a potential consequence is that a new partner could find him or herself criminally liable for an offence committed before he or she joined the partnership. However, that is not the effect of the Bill and is certainly not our intention. Clause 4 is purely about liability of the partnership entity to prosecution. It clearly would be wrong to confer criminal liability on any person who had not been involved in the commission of the offence.

The Bill extends to Scotland only, and it is worth remarking that it is one of only a handful of Westminster Bills to have done so since the establishment of the Scottish Parliament in 1999. It is sometimes forgotten that Scotland has two Governments and two Parliaments, both with their own contribution to make in improving the lives of people in Scotland. I have worked closely with not only the Lord Advocate but his predecessor on preparatory work for the Bill and taking it forward, as I do on many other issues. He and his ministerial colleagues in the Scottish Government accept that this is a matter that only Westminster can remedy. The Bill demonstrates the continuing interest and responsibility of the UK Government in taking forward Scottish legislation in the UK Parliament, and our commitment to doing so.

The families of those who lost their lives at Rosepark were rightly angry and frustrated by the failure of the prosecutors to find the legal basis to pursue those responsible. It is worth putting on the record with appreciation that some family members have taken an active part in responding to the consultations. Vulnerable people lost their lives and serious charges were brought, but a legal technicality meant that they could not be tried. For the sake of the victims and their families, it is right that we get the law changed to ensure that this can never happen again.

I am sure noble Lords will actively and constructively contribute to the debates on the Bill, and I look forward to listening to their comments. I commend the Bill to the Committee.

--- Later in debate ---

[Lord Wallace of Tankerness]

My Lords, I thank all noble Lords who have contributed to this very helpful debate. I say immediately to those who said they were subscribing to the “daft questions” brigade that in my experience such questions are usually just as penetrating, and sometimes more difficult to answer, than those produced by the lawyers. It is important that the perspective of non-lawyers is brought to bear on this issue, because what lies behind the Bill is something that commands widespread public interest, and that transcends any narrow legal argument. I therefore welcome the contributions that have come from non-lawyers and lawyers alike, and I am particularly glad that the Committee has had the benefit of the experience of two former Lord Advocates, the noble and learned Lord, Lord Cameron of Lochbroom, and my noble and learned friend Lord Fraser of Carmyllie. My noble and learned friend Lord Fraser indicated that he could not recall such a situation arising and that, in his discussion with him, neither could the noble and learned Lord, Lord Mackay of Clashfern. Nevertheless, I think that he thought that it was a worthwhile weapon in the armoury. I think that that reflects the tenor of the debate, in which a welcome generally was given to these proceedings.

I will try as best I can to respond to the points that were made. Hopefully, I will pick up on most of the questions, but we will go through the transcript afterwards and if any questions have not been answered I will do so in writing and circulate the response. When we move into Committee there will also be an opportunity to take evidence, as well as having normal Committee debates on specific amendments.

A number of noble Lords—not least the noble Baroness, Lady Liddell, my noble friend Lord Stephen and the noble Lord, Lord McAvoy—mentioned in some detail the tragedy of the Rosepark care home fire. The noble Baroness talked about the fatal accident inquiry where, after considerable investigation, Sheriff Principal Brian Lockhart concluded that all or some of the deaths could have been prevented if the home had had a sufficiently suitable fire safety plan, and said that the management of fire safety at Rosepark was systematically and seriously defective. That gives us the context in which we are debating this legislation.

My noble friend the Duke of Montrose talked about partnerships and limited partnerships. I think it is fair to say that limited partnerships are quite rare these days, having been substantially superseded by limited liability companies. Limited partnerships are governed by separate legislation, the Limited Partnerships Act 1907. They are a type of partnership that includes limited partners—essentially, investors who play no part in the activities of the partnership. The limited partners have no liability beyond that directly connected to their investment. The Bill catches limited partnerships but, as I have indicated, they are very rare and no penalty would be enforced against limited partners.

Limited liability partnerships are not covered by the Bill as we believe that the same problems do not arise with limited liability partnerships as they do with partnerships. The essential difference is that partnerships may be dissolved instantly with no formality or any mechanism for restoring a dissolved partnership to existence. On the other hand, limited liability partnerships are registered at Companies House. Like companies, they are subject to a statutory process for being struck off the register and for dissolution, and may later be restored to the register by court order.

My noble friend the Duke of Montrose, the noble Lord, Lord McAvoy, and the noble and learned Lord, Lord Cameron, talked about the asymmetry that had been picked up by the Law Society of Scotland in its helpful briefing to colleagues. They pointed out that Clause 2(2) provides that an individual may not be prosecuted for an offence where a partnership has been prosecuted and acquitted, and asked whether the reverse should not also be the case—that a partnership should not be prosecuted where a partner has been acquitted. I do not accept that the situations are symmetrical. Typically, an offence will provide that an individual partner who in some way—I think that these are the words I used in my opening—consented or connived in the commission of an offence by the partnership will also have committed an offence. To establish the guilt of the individual, it is necessary, first, to establish that the partnership committed an offence. That condition cannot be fulfilled, obviously, if the partnership has been acquitted. However, there are numerous reasons why a prosecution against a particular partner might fail; for example, a lack of connivance or consent on the part of the individual. That does not mean that it should determine whether the partnership as an entity has committed an offence. That has to be determined by reference to the terms of the offence itself.

My noble friend the Duke of Montrose asked about the time limit of five years, which was also raised by the noble and learned Lord, Lord Cameron of Lochbroom. I think that I am right in saying that the Law Society of Scotland recommended 20 years. The faculty of Advocates recommended two years. There is no right answer to this. It is a judgment and, as I indicated in my opening remarks, the judgment was that five years relates to the period of prescription applying to most of the civil obligations to which the estate of a former partner might be subject following the dissolution of the partnership. The majority of consultees supported five years. Clearly, if this is a matter to which noble Lords wish to return in Committee, we can readily do so.

That picks up on another point made by my noble friend the Duke of Montrose about what happens when a partner dies after dissolution. The answer is that the estate of a partner will be liable on the same basis as other partners at the time of the dissolution. As I indicated, the situation is the same as for civil obligations under Section 9 of the Partnership Act. Indeed, the fact that someone may have died is one of the reasons why five years was chosen as a period that gives some finality but, at the same time, ensures that there is an opportunity for the Crown Office to mount a prosecution. Of course, there may be cases where a statutory time limit would—if I may use the non-legal expression—trump the five years if there is a statutory time limit from the time of the commission of the offence. My noble friend the Duke of Montrose also asked about the position with regard to individuals. He pointed out that Clause 2 does not have a similar five-year time limit. It is intended that no time limit should apply. It reflects the Scottish Law Commission’s view of existing law, which Clause 2 is intended to put beyond doubt—subject, as I said, to cases where there would be a statutory time limit.

The noble Baroness, Lady Liddell, asked whether the Balmers could be prosecuted if there was a 10-year limit. The answer is no. Under Clause 8(3), the Bill is drafted in such a way that it comes into effect only with regard to partnerships that dissolve after the date of the Bill coming into effect. The reason for this is that it should apply only to dissolutions post-commencement. To do otherwise and to make retrospective provision could readily fall foul of Article 7 of the European Convention on Human Rights.

[The Duke of Montrose]

Earlier, when talking about individuals, my noble and learned friend said that it was intended that no time limit should apply. Does that mean, if the individual is charged after the partnership, that there is no five-year limit at all?

[Lord Wallace of Tankerness]

That is indeed what I said. It is subject to the fact that there may well be an offence for which there is already in law a statutory time limit. Indeed, a number of these offences will have provisions in law which set a statutory time limit.

If this Bill proceeds to Royal Assent it will come into force the day after and there will not be the usual lapse of two months or until some future date set by order. It will take almost immediate effect.

My noble friend Lord Stephen asked what other enforcement options might be available to the court, as we had talked very much in terms of fines. That will obviously depend on the particular offence, but most typically it will be a fine. The offence may include imprisonment but one cannot imprison legal persons such as a company or partnership. I asked officials if it could mean that individual partners might be subject to a community service order but the answer is the same; a partnership as a legal entity could not be the subject of a community service sentence and therefore that provision could not, by joint or several responsibility liability, apply to individual partners. It could be that an individual partner may be prosecuted if the Lord Advocate considered it important. Enforcement of a fine could lead to confiscation of assets under proceeds of crime legislation. There may be relevant regulatory bodies that would then take cognisance of the fact that a crime had been committed and an offence established. That could have possible licensing consequences, but not necessarily ones imposed by the court.

My noble friend also asked why we provide in Clause 4 that the partnership must continue trading. This is to distinguish a change of membership from dissolution because change of membership may be a technical dissolution. There is no intention that an interruption to trading should cause Clause 4 to be inoperable. He suggested that if there had been a change through the assumption or resignation of a partner, it was very unlikely that there would be an immediate cessation of trading as well. The Bill envisages trading going on beyond the change in the partnership.

I am very grateful to the noble and learned Lord, Lord Cameron of Lochbroom, for his very detailed analysis. He asked whether it would not have been possible to say that a change in the membership of a partnership constituted a dissolved partnership. I thought, “Why didn’t we think of that?”. It is something that I will consider, although I suspect there are reasons and possible implications which have led to the proposal we have here. However, I will reflect on that point and would hope to write before Committee not only to the noble and learned Lord but to others who have taken part in this debate.

The noble and learned Lord also asked what assessment the court would make in terms of a dissolved partnership in determining a fine. I certainly defer to his judicial mind and experience when it comes to sentencing but, as we all recognise, when it comes to considering the appropriate level of a fine the judge balances the interests of society with the effect of the fine on those who will have to pay. When the Bill is enacted the court will know what fine would be enforced against individuals, and I have no doubt that counsel or a solicitor acting on behalf of the dissolved partnership and its partners would make appropriate representations to the court to take account of the assets of the individuals on whom the fine will fall.

A number of contributors to the debate raised the issue of a crime being committed prior to a change of membership in a partnership and the subsequent enforcement of the fine falling on somebody who has been assumed as a partner after the crime. The reason that after consideration the provision was included in the Bill is that it reflects the current position. For example, if there were an action for damages for delict that occurred before a change in membership and the court case took place after the change, the court order would then be enforced against the existing members of the partnership. Likewise, assuming no change in membership, if a criminal offence had been committed, a partnership convicted and a fine imposed, the fine would then be enforced using a procedure that is akin to that used for civil recovery following a court order.

The answer to some of the concerns about this may well lie in the fact that if you join a partnership and you are aware that a crime has been committed, any person doing proper diligence might well say, “I want to be indemnified against this and against the other partners”. If a partner is leaving, his fellow partners might say, “You know we have a criminal case hanging over us”. Contractual arrangements can be made in a partnership agreement for resignation or assumption. That is why it is very important that this does not apply to partnerships that are dissolved, or in which there is a change, prior to the Bill becoming law. It will also be important that proper notice is given so that people are aware of what the new law will be. At the briefing meeting we had the benefit of the chair of the Scottish Law Commission, the noble and learned Baroness, Lady Clark of Calton. The issue arose and I anticipate that we will come back to it and give it proper consideration.

The noble and learned Lord, Lord Cameron, asked what examination had been made of the legislative background to statutes that were limited to imposing fines on partnership assets. I am advised that the Scottish Law Commission carried out an extensive search of the statute books. Its finding appears to be that statutes in which there were such limitations tended to be GB or UK statutes, where it was certainly thought that what was being dealt with were cases of English partnerships established under the law of England and Wales.

The noble Lord, Lord Kerr, also referred to changes in partnerships, and to situations where there has been such a change that the people who are currently the partners are by and large, with perhaps a very few exceptions, not the partners who were there when the crime was committed. At that point one has to remember the entirety of the Scottish criminal justice system. Prosecution would be competent but it would be a matter for prosecutorial discretion. We have the benefit of two former Lord Advocates here. If there was a situation where a partnership that had been prosecuted bore no relationship other than a tenuous link to the one that existed at the time of the crime, the Lord Advocate of the day would take into account whether in these circumstances it would be in the public interest to prosecute. Certainly the Bill makes provision for the possibility of that happening, but there may well be other factors that the Lord Advocate of the day would feel that he or she had to take into account in the public interest.

Finally, the noble and learned Lord, Lord Cameron, asked what had happened to the 2003 joint report on partnership law from the Law Commission and the Scottish Law Commission. The Government of the day received the report in 2003. In 2006 they indicated that they would not undertake the wholesale reform of partnership law. I do not think that anyone could view the present law of partnership as a model of clarity, but on a day-to-day basis it generally works. While we have indicated that our ears are not closed to representations about a more general review of changes to partnership law in Scotland, I have to be frank with the Committee and indicate that we do not foresee any immediate chance of legislation or legislative time. Also, it would be only fair to say that with the passage of almost 10 years since the original joint law commissions’ report, there would inevitably be a need for further consultation and discussion to take account of any developments that had taken place during that time.

Nevertheless, it is the case that, as the Scottish Law Commission report indicated, while there was a preference on its part for the implementation of the broader reform of the law on partnerships, if that reform was not going to happen immediately or in the very near future, there was still a pressing need to address this issue of dissolved partnerships. That has been reflected in our debate. It may be that at some future date there will be a change in partnership law generally, and this would undoubtedly be picked up in that context. For now, though, as has been reflected, people feel that the loophole that has existed ought to be closed, and the Bill is a simple but comprehensive way of doing that. I look forward to further engagement with noble Lords as we proceed with the Bill, and I commend it to the Committee.

Motion agreed.