---

Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 24 - Appendix A - Transcript of Meeting in London, England

---

Fact-Finding Meeting on Joint and Several Liability

LONDON, ENGLAND, Thursday, November 21, 1996

The Standing Senate Committee on Banking, Trade and Commerce met this day at 2:00 p.m. to examine the state of the financial system in Canada (professional liability).

Senator Michael Kirby (Chairman) in the Chair.

[English]

The Chairman: Appearing before us at this session is Professor Andrew Burrows from the Law Commission.

Professor Burrows, our committee, although it is composed of essentially equal numbers of Conservative and Liberal members, operates in a completely non-partisan way We review legislation dealing with business and consider business type enquiries on behalf of the government Because we operate in a non-partisan way, the government, regardless of what party is in power, tends to adopt our recommendations after we have essentially reached a consensus, and business issues are largely not political We began to look at the issue of professional liability, thinking, wonderfully naively, that it would be a neat and simple little issue After about three or four days of hearings, our initial reaction was that no changes were necessary

Representatives of the Canadian Bar Association and of the Canadian Institute of Chartered Accountants have appeared before us. We have had some meetings here with underwriters, trying to understand whether, in fact, there is an insurance problem, whether there is an availability of insurance problem or whether it is just that accountants do not like having to pay a lot of money to be insured

The other conclusion we have come to is that whatever one does about professional liability has to apply to everybody Although this issue has been driven by the accountants, accountants cannot be treated differently from lawyers, engineers, architects or anybody else The same new set of rules has to apply to everybody who is now covered by joint and several principle.

When we read your report, instinctively our reaction was: Why do anything? Perhaps the best place to begin is to have you tell us a bit about what instigated the report In your report you outline a whole series of options and then end up choosing the status quo I should like to explore a bit with you your reasons for rejecting some of the others, just from a practical standpoint, and then perhaps you could tell us about the process and what happened from there on.

Professor Andrew Burrows , Common Law Team, Law Commission: Our Law Commission is, I believe, equivalent to the Law Reform Commission in Canada We are regarded as the government's adviser on law reform and we are an independent body The Commission is comprised of five Law Commissioners, two academics including myself, a practising barrister who is out for five years, a solicitor from a partnership in London out for five years, and it is headed by a High Court Judge.

The Chairman: Does the judge go back to the bench after a term?

Mr. Burrows: Yes.

The Law Commission has within this building 35 to 40 lawyers, and we are divided into teams. The team which I head is the Common Law Team, and we review all issues of contract and tort. Clearly, we get many requests to look into particular areas of law that people feel are in need of reform and, commonly, in dealing with that we carry out internally what we call a feasibility investigation as to whether something really merits a full Law Commission review. These requests can come from anybody. They might come from the government or from members of the public.

At the end of the day everything we do has to be approved by a minister, usually the Lord Chancellor.

The Chairman: Before you actually decide to undertake a full study?

Mr. Burrows: Before we actually go ahead with a full project.

In the case of joint and several liability, we have had correspondence coming through to the Law Commission in periodically over the years. It was one of those issues that was on the list for possible review when I arrived here. Shortly after I arrived, the Department of Trade and Industry exerted further pressure, primarily in response to the accountants' lobby, the Department of the Environment and the construction industry.

Senator Angus: The accountants do not have a lobby, do they?

Mr. Burrows: No. It was decided among the Law Commission, the DTI and the DOE that we should carry out a formal feasibility investigation. Initially it was just intended to advise the government and to advise, in effect, my colleagues here as to what should be done. In other words, this was a far more formal version of what we do on everything in terms of law reform projects.

The Chairman: You initially set out simply to decide whether a full-fledged study was required?

Mr. Burrows: That is correct. I think it reflected the fact that, when we looked at it very peripherally, we were not at all convinced that there was a case for any further action; on the other hand, clearly people out there were saying that there was. Consequently, we produced this rather peculiar document for the Law Commission, which is not a Law Commission piece of work, as you will see. It was actually produced by my team within the Law Commission for the DTI; it is not a Law Commission report or consultation paper.

Clearly, we did not feel that the Law Commission should embark on a full project. A full project requires a massive consultation exercise, followed by a report stage. We have draft bills attached to our work. Such a project, on average, takes three years, with major commitments of time and resources. Furthermore, we did not want to proceed with such a project when we felt that our ultimate conclusion would be that there should be no change. That is how we got into it

I do not think it is correct to say that we recommended maintaining the status quo. What we did say was that there was a case for reforming what in England is section 310 of the Companies Act which prevents auditors limiting their liability by contract. We were keen to emphasize that, in our view, the principal and fair way to deal with this was by contractual limitations, including within that what one might call "non-contractual disclaimers." In English law, limitation by contract required a reform of section 310 of the Companies Act.

We also suggested that the law with regard to excluding professional liability, particularly in relation to our Unfair Contract Terms Act, should be reformed. There is no use telling the professional world that they can exclude or limit their liability when we have an act which says that one can only do that if it is fair and reasonable and nobody knows what "fair and reasonable" means and no one is quite sure in a professional context whether limitation clauses are valid or invalid.

Senator Meighen: Professor Burrows, would that just apply to the contracting parties?

Mr. Burrows: That is why I emphasize the phrase "non-contractual disclaimers." There is a massive misconception in this country which may exist elsewhere. We actually have very limited situations where third parties can sue. The decision of Capara and Dickman found that there was no liability in tort of an auditor to a third party. There are clearly chinks in that armour, but that is the basic position. That has coincided with a clarification, as far as English law is concerned, of what the potential liability in tort of negligence for pure economic loss could be founded on, if at all, and that is what has been termed the notion of assumption of responsibility.

All this leads to the conclusion that, even if there were tort liabilities for a further party, if you disclaimed your liability, that would be equally operative in a tort claim by a third party as it would be vis-à-vis the contracting parties. That is why I say it is a non-contractual disclaimer, but it is actually governed by the same sort of approach.

Senator Angus: If I understood you correctly, an action by a third party was taken against an auditor in a situation where there had been a contractual disclaimer as between the auditor and his client, and the court upheld it. Was that the Dickman case?

Mr. Burrows: No, I am talking about the potential for third-party claims against auditors and the conceivable ways in which that might be controlled by a non-contractual disclaimer. The leading case in England says that there is no liability in tort by an auditor to a third party. Caparo and Dickman is our leading case.

Senator Angus: It says that there is no claim by third parties?

Mr. Burrows: There is no claim by third parties in tort on the argument that the purpose of an audit is not to enable third parties to make decisions vis-à-vis investing in the company. It is actually to enable control of the directors and that sort of thing.

Senator Hervieux-Payette: It is in John Campion's résumé of cases.

Senator Angus: In other words, this would be a strong reason for not sympathizing with the accountants' position. No claims can be brought against them, certainly not in contract by third parties?

Mr. Burrows: Most of the claims against accountants are going on in contract.

Senator Angus: But those are first party.

Mr. Burrows: Yes, but joint and several liability is equally applicable. They still have their claims in contract, and they would say that the ambit to which Caparo closes the door is not entirely clear, that the law still leaves open the possibility. If you have this assumption of responsibility, the very specific purpose for which you give the advice might give rise to a third-party claim.

Clearly, third parties have succeeded in some actions, but they tend to be in cases where the party has been participating in a meeting dealing with a take-over. The person about to take over asks, "Are you standing by those accounts?" and the party says, "I am standing by the accounts. I know that you are relying on them to invest, and I stand by those accounts." In that situation liability has been held.

Senator Angus: That was the case of Binder Hamlyn?

Mr. Burrows: Yes, that was the recent case, going to appeal. Several people think it will be overturned, but who can say?

Senator Angus: The accountants were held liable there?

Mr. Burrows: Yes.

Senator Angus: Jointly and severally?

Mr. Burrows: Yes

That is really my answer to your comment that our report recommended maintaining the status quo. I think what we are really saying is that reform, to a very limited degree, is needed, but that, in our view, an attack on the basic principle of joint and several liability is not required. There is another route which we think would achieve fairness, which at the moment is blocked off to auditors.

The Chairman: Which is the contract route?

Mr. Burrows: Which is the contract route.

The Chairman: Just tell us a bit about the process from here on, and then I should like to come back to this specific point.

Mr. Burrows: The consultation period finished, I believe, sometime in May.

Senator Hervieux-Payette: With whom?

Mr. Burrows: The consultation with the DTI. As I have said, it was an unusual exercise in that it was just a team within the Law Commission that produced a document. All the consultation responses have gone to the DTI. While I have been copied on them, the document has nothing to do with us in the formal sense. It is with the DTI. Since the publication of the document, I think most people are now aware that there are actually two distinct issues. One is the issue we have just been talking about, which we were concerned with, on which the DTI has not yet formed a view. The second issue relates to limited liability partnerships and a reform of partnership law. We did not deal with that issue at all. It has nothing to do with the general common law principle of joint and several liability it is concerned purely with partnerships. It is the principle whereby any negligence ,or anything equivalent, by one partner renders his other partners jointly and severally liable. The principle that we are concerned with, of course, has nothing necessarily to do with a partnership. It could be an individual defendant; it could be a company; it could be a partnership. You have to distinguish between the internal joint and several liability within the partnership, about which we said nothing, and the external joint and several liability, or, if you like, the whole partnership along with defendants outside the partnership. They are quite distinct issues

It is true that in a footnote we pointed out that we were not dealing with joint and several liability within a partnership. It is also true that the DTI took the opportunity in their questionnaire to throw in a question on limited liability partnerships, albeit emphasizing that we had not touched them. There have been movements on that aspect in that it has been announced -- and Andrew is the expert on this -- that a consultation paper will be issued in the spring with a view to possible legislation thereafter.

Mr. Andrew Scott, Law Commission: I think they will have produced detailed proposals for legislation by Easter.

The Chairman: Andrew, those proposals would be issued by whom?

Mr. Scott: By the DTI.

The Chairman: That would be the equivalent of our government white paper or discussion paper, and people will comment on that. Would the discussion paper include a draft bill?

Mr. Scott: My understanding is that the consultation paper will contain detailed proposals for legislation, falling short of a draft bill.

The Chairman: And then they will float that until after the election and then proceed to legislation?

Mr. Scott: I do not know what the timing will be.

The Chairman: Would the whole process take about 12 months?

Mr. Burrows: Really, we are not the people to comment on this. It is not in our hands; it is not our work.

The Chairman: I realize that. I just thought you might know from scuttlebutt.

Mr. Burrows: No, I do not

The Chairman: Just dealing with the forthcoming discussion paper, for which I understand you are not responsible, you say that there are separate issues. We agree. Is it equally clear that separate principles ought to apply? In a sense, it is joint and several in both cases. In one case it is joint and several among all the defendants and in the other it is sort of intra the defendants?

Mr. Burrows: Yes

The Chairman: In your view, should different principles apply?

Mr. Burrows: Yes, I think they are relatively different.

The Chairman: Why?

Mr. Burrows: Because, in the situation we are talking about, we have two legal entities.

The Chairman: A plaintiff and others, and defendants; is that what you mean?

Mr. Burrows: I am thinking of defendants, actually. More than one legal entity has committed a legal wrong. It does not matter what the legal entity is. It could be a partnership or a company or any other individual.

Mr. Burrows: Within the partnership, perhaps only one person has committed a legal wrong, but you are attributing it to other blameless individuals. It is like the concept of vicarious liability, where clearly an employer is held vicariously liable because somebody else is at fault.

Senator Angus: Someone for whom he is responsible.

Mr. Burrows: Yes. It is, in my view, a very different question, and I think everybody who has looked at this has separated it off. Jim Davis in his inquiry states that this does not affect vicarious liability, and I am fairly sure he will be also be saying that it doesn't affect partnership, which is what I would regard as limited liability.

Senator Kenny: The partners would all share in the profits if it were a positive event, so why would they not share in the liabilities?

Mr. Burrows: Yes, that is right.

Senator Kenny: Then I misunderstood. I thought you were arguing that it was a different situation.

Mr. Burrows: No. What I am saying is that, whatever you decide about the law of partnership, whether you believe that sort of argument should make everybody liable, it seems to me to be a fundamentally different question from the one we are discussing here.

The Chairman: For instance, you could argue for joint and several among partners for the reasons that Senator Kenny has raised, but argue for proportionate, or some version of proportionate, among the others.

Mr. Burrows: Absolutely, and vice versa.

The Chairman: I am just saying that that would be the logic.

Mr. Burrows: I think that answers the question as to where we go from here. I do not know where we go from here. You would have to ask the DTI that question. The public announcement is that they are going to review limited liability partnerships; there has been no public announcement about what they intend to do about the general principle of joint and several liability.

Mr. Scott: As I am sure you are aware, one reason that the U.K. government, through the DTI, has acted is related to the pressure from the "Big Six" accountancy firms in Jersey. In fact, Price Waterhouse and Ernst & Young are on record as saying that, because they are subject to partnership agreements, they will re-register as Jersey --

Mr. Burrows: That relates to the limited liability side.

Mr. Scott: -- which people think would be respected within England.

The Chairman: It is the classic "I can get a better deal in Delaware and, if you do not make me a deal, I will move to Delaware."

Mr. Burrows: It is the Delaware option, in terms of partnership liability.

Senator Meighen: Just to be clear, the DTI is likely to allow them to limit each partner's liability vis-à-vis --

Mr Burrows: To set up a vehicle called the limited liability partnership, with whatever detail that vehicle may need.

The Chairman: We will be hearing from representatives of DTI later today.

Senator Meighen: We have the joy in Canada of having to deal with 10 jurisdictions to do that.

The Chairman: The second issue we have been talking about is, in fact, an issue of provincial jurisdiction, not federal jurisdiction. Partnerships are incorporated provincially, not federally.

Mr. Burrows: Clearly, we would agree with you that the notion of dealing with this across the board is one that strikes us as prima facie sound, not just taking out one particular group and treating them differently. However, I think you went on to say that everyone who is now caught by joint and several liability ought to be affected by this reform, or no one at all.

The Chairman: I am sorry, I should have said "any professionals."

Mr. Burrows: I was going to say that I do not think many people are wanting to extend this to personal injury, for example.

The Chairman: No; I meant any professionals.

Let us go back to the matter of joint and several among defendants. Your paper outlines a whole series of alternatives. You talk about capping; you talk about proportionate liability; you look at different options. Is it fair to say that the basic legal principle on which you base your conclusion is the principle that the plaintiff must be held whole or must get 100 per cent of what he has been awarded, that any other scheme clearly requires the plaintiff to pick up part of the risk? Is that why you rejected the others? You had more detailed answers, I understand. Maybe it is the academic in me, but I am trying to get to the basic principle and then build from there.

Mr. Burrows: I would say that, of the arguments we have put forward, two are most central. First, we say that the risk of insolvency should lie with a defendant, not with the plaintiff, because it is the defendant who has infringed the law, who has committed the legal wrong; whereas the plaintiff, on the hypothesis we are putting forward, is legally blameless.

The Chairman: The defendant here being a collection of defendants in the joint and several?

Mr. Burrows: The defendant who would otherwise pick up the tab.

The Chairman: Do you mean 100 per cent of the responsibility?

Mr. Burrows: Yes.

The Chairman: If it were something less than 100 per cent, you would start moving off into other options?

Mr. Burrows: Yes, that is one limb of the argument. The second is that one must be clear as to what is meant when one says that a defendant is held 100 per cent responsible. A complete misconception, in our view, would be to imagine that joint and several liability meant that defendants who were only 1 per cent responsible were picking up more than their fair share of the ultimate liability.

We were keen to emphasize that, when we say that a defendant is responsible, we mean that the defendant has actually breached his legal duty and is wholly responsible as against the plaintiff for the entire loss suffered by the plaintiff.

I have here a hand-out which I used at a recent conference, if that would be of any assistance to you.

The Chairman: It would be helpful.

Mr. Burrows: At page 3 of the handout, the words in bold type are verbatim quotes from the report. At the bottom of page 3 is the point I am now discussing.

It is a myth to say that defendants under joint and several liability are called upon to provide 100 per cent of damages even though they are only 1 per cent at fault. I cite at page 4 an article by Professor Richard Wright wherein he states:

If joint and several liability actually resulted in a defendant's being held liable for more damage than she tortiously caused or for which she was responsible, or held her liable for the actions of others rather than her own actions, it indeed would be unjust. The premise, however, is false. Joint and several liability only applies to injuries for which the defendant herself is fully responsible. She is responsible for the entirety of some injury only if her tortious behaviour was an actual and proximate cause of the entire injury. She is not liable for injuries, including separable portions of injuries, to which she did not contribute.

I go on to explain that the problem is caused by comparing the responsibility as among the defendants rather than comparing the responsibility of the defendants with that of the plaintiff.

Senator Kenny: That is the nub of the ST argument which is weak.

Mr. Burrows: Let me give an example. A lot of people just do not see what one is driving at unless one gives some examples. The example I give at page 5 is, I think, a very obvious and straightforward hypothetical.

Let us assume that the plaintiff, relying on negligent advice from D1, invests in company A and loses <#00A3>10 thousand, <#00A3>10 million -- who cares what the figures are. The only defendant, D1, is 100 per cent liable for that loss, subject to normal principles such as remoteness and contributory negligence, et cetera.

Let us assume that the plaintiff consults a second source and gets the same negligent advice and, relying on both sources of advice, invests in company A and loses that <#00A3>10 thousand or <#00A3>10 million. Of course, you could say that D1 and D2 are equally responsible or each 50 per cent to blame, but that is as between themselves. As against the plaintiff, it is nonsense to say that they are not each 100 per cent responsible.

Under a proportionate liability system , if D2 were insolvent --

Senator Kenny: Your paragraph 3 is terrific.

Mr. Burrows: P would only get <#00A3>5,000 as a victim of two pieces of bad advice rather than one.

Senator Kenny: He is worse off by having consulted two people rather than only one?

Mr. Burrows: Exactly. The linguistic nuisance is that you can say, "We are only 50 per cent to blame." Yes, you are, as against the other defendant, but we are not interested in that. We are interested in your liability as against the plaintiff, and you are 100 per cent responsible subject to contributory negligence.

Senator Kenny: Vis-à-vis the plaintiff each defendant is 100 per cent liable, and then they have to sort it out between themselves?

Mr. Burrows: Under contribution, which is our law.

The Chairman: But if D2 at that point were bankrupt, then D1 would be 100 per cent liable?

Mr. Burrows: Yes, because that is their law.

The Chairman: Let me complicate your example by introducing an element to make it a little more realistic.

The auditors have issued a financial statement. The board of directors has been overseeing management. Management has been doing its job, and three or four other players are involved. The company goes under. The directors skip town. The managers vanish into the woodwork and, lo and behold, the only group you can find is the auditors. It seems to me that your simplistic example does not quite work in that situation. Would it be fair to say that the auditors were 100 per cent responsible, that we relied on the auditors and that we would have done something if only the auditors had advised us?

Let us suppose that we had sought advice only from the auditors. Of course, in a case like that, one would have sought advice from several sources. Indeed, the auditors might have said, "What you want to do is the wrong thing to do," but everybody else said it was the right thing to do, so we did it.

Mr. Burrows: It strikes me that they would not be negligent in the first place.

The Chairman: Do you understand what I am saying?

Mr. Burrows: I do not, actually. You can play with these facts all you like; you can complicate them or whatever. What is the answer to that? Unless one is prepared to accept that as a nonsense, then it strikes me that we are not off the starting point, because any variation of the facts would be mere speculation -- perhaps the company itself was contributorily negligent; perhaps the plaintiff itself was at fault; you can get contribution from other defendants who are equally liable and it is just too bad if they go insolvent. I cannot agree with you that the simpler the example, the less relevant it is to the real world In your example. It seems to me that the auditor is still fully responsible as against the plaintiff for the plaintiff's loss unless you are changing the facts to say that the auditor is not negligent at all.

Senator Oliver: Suppose a plaintiff had not exercised due diligence and had failed to determine whether a defendant was covered by insurance or possessed the necessary competence. In that situation would you envisage any kind of contributory negligence?

Mr. Burrows: Yes. In fact, the idea of contributory negligence claims is a message I preach to accountants. It seems to me that, in many cases, plaintiff companies should be regarded as contributorily negligent because they have failed to set up the structures to detect fraud on the part of employees and directors.

Contributory negligence on the part of plaintiffs finds support in the New South Wales case of AWA v Daniels, involving Deloitte Touche, and in a similar New Zealand case where I believe that 40 per cent contributory negligence was determined as against the company in that case.

The Chairman: The remaining 60 per cent was shared jointly and severally among the defendants; is that correct?

Mr. Burrows: Yes.

Senator Angus: I thought that, if the plaintiff were found to be 1 per cent at fault, he would recover nothing. Is that old law?

Mr. Burrows: That is pre-1945.

Senator Angus: What is the current law?

Mr. Burrows: Damages are reduced by an amount proportionate to the contribution of the plaintiff. I cannot recall the exact wording, but the statute provides for a proportionate scheme as between the defendant and the plaintiff.

The Chairman: It is still joint and several among the defendants?

Mr. Burrows: That is correct.

One of the things we looked at was the complex issue of whether, once you have contributory negligence operating, you should then modify joint and several liability in any way.

Senator Meighen: British Columbia has done that but, in your terms, it is a bastardization of both systems.

Mr. Burrows: We were attracted by the idea, but we abandoned it because it became plain to us that no one here wanted it. In other words, if the reform meant simply that, once contributory negligence was applied to the plaintiff, we would then muck about with joint and several, there was no great interest in doing that.

The Chairman: Why?

Mr. Burrows: Because it is piffling, actually. What you are arguing about is whether there is contributory negligence. Once an auditor gets a reduction of 50 per cent, they are then not too bothered about a small disproportion here and there. That is not really the argument.

The Chairman: As a theoretically sound proposition, there is a lot to be said for it.

Mr. Burrows: Absolutely. I think we dealt with it ultimately in our first modified approach and, of course, we referred to the Canadian jurisdictions that have it. Ultimately we backed down from it largely because, as a result of the Fitzgerald and Lane decision, English law in this area has operated in a rather pro-defendant way.

The Chairman: In contrast to the U.S., which appears to me, at least, to be pro-plaintiff.

Mr. Burrows: Where there is more than one defendant of contributory negligence, the unit approach may be used. For example, Fitzgerald and Lane involved two car drivers, D1 and D2, and a plaintiff who was injured. It was held that each was equally to blame, and the contributory negligence was held to be 50 per cent, not 33-1/3 per cent, the two defendants being considered a unit as against the plaintiff. That situation is actually pro-defendant

It is quite a complex argument, but my point really is that contributory negligence is an important way of reducing a plaintiff's liability and that it ought to be used more, in my view, under English law

No decision has yet been rendered dealing with auditors' liability where it has been held that the company was contributorily negligent. In my view, that is something that ought to be developed. It has happened in Australia and in New Zealand, and I cannot for the life of me see why auditors are not running with that argument instead of joint and several liability.

Senator Oliver: Is that something that DTI is looking at?

Mr. Burrows: I doubt it. No precedent has yet been established in English law for raising contributory negligence as a defence. However, complications which existed in respect of contributory negligence have now been sorted out in recent decisions, so there should be no problem now with using contributory negligence as a defence, even if you are suing for breach of contract.

Senator Oliver: Are you saying that lawyers are not even including it in their pleadings?

Mr. Burrows: What I am really saying is it has not come to court. Auditors seem surprised when I tell them that they can probably get contributory negligence, and lawyers say that, because there is no precedent, nobody knows what would happen.

Senator Oliver: Lawyers had better get more insurance.

Mr. Burrows: The plaintiff's liability could be reduced under standard contributory negligence principles which would not impact on this whole argument on joint and several liability.

Senator Meighen: Did you examine any other arguments in which you found some merit but which you ultimately rejected, for whatever reason? You said you looked at capping, for instance.

Mr. Burrows: We looked at capping. We looked at the United States scheme under the Securities Exchange Act.

Senator Meighen: Do we know yet what effect that scheme has had in practical terms?

Mr. Burrows: Not really. The people in the United States to whom we have spoken say that, while it seems to be working out quite well, it is too early to be sure. I have never managed to clear up in my own mind what the impact of that scheme is on standard claims in contracts and tort in the U.S., because that legislation is designed to deal only with claims under the Securities Exchange Act. With the caveat that we are not experts on U.S. law, it is not clear to me whether standard contract and tort claims in the U.S are affected in any way by the legislation. I do not know whether anybody here knows the answer; I certainly do not

We do look at capping. Of course, we present all these arguments as softenings of a full proportionate liability regime; they do not remove, in our view, the essential unfairness to plaintiffs. They all soften in some way, but we are then left with the arguments of principle or arguments of fairness.

The Chairman: But you do not regard contributory negligence as softening the principle, because you have dealt with the issue of whether the plaintiff had some responsibility for his predicament?

Mr. Burrows: That is correct. Our principle is that it only operates where you have a blameless plaintiff. Where you have a blameworthy plaintiff, it seems to me that the risk of insolvency is affected.

The Chairman: Where you have a blameworthy plaintiff, presumably some of your other options, such as capping, would not be required because right away the amount of risk to the defendant would be substantially reduced by perhaps 30 per cent, 40 per cent or 50 per cent.

Mr. Burrows: We put forward several other reasons as to why we did not like joint and several liability, including what it actually would do in terms of the litigation process, plaintiffs' claims.

The Chairman: If you eliminated it?

Mr. Burrows: Yes, if you moved to proportionate liability. I set this out in the handout at pages 6 and 7, including a quote from the New South Wales Law Reform Commission which summarizes some of the potential problems. You move all the complications of contribution proceedings as between defendants up front to the plaintiff's claim. A plaintiff is now faced with the argument as to the extent of responsibility attributed to each defendant.

As the New South Wales Law Reform Commission stated, to the extent that this uncertainty would work in the favour of either party, it is likely to favour defendants and, more particularly, their insurers who are generally in a far better position than a plaintiff to bear the risk of an adverse finding and to wait for court resolution. The same point was made in the Law Society's response to our paper, again a strong practical reason for retaining joint and several liability. If on every occasion you had to deal with this problem, the law would become extremely complex and settlements would be difficult to obtain.

The Chairman: A number of people who argue against maintaining joint and several have gone on to argue that, nevertheless, joint and several ought to apply in the case of personal injury. Is that simply a practical political solution or is there some legal principle that would allow you to distinguish as between economic loss on the one hand and personal injury loss on the other?

Mr. Burrows: Bear in mind also that there is the mid type of harm, which is property damage. I think it is true that personal injury has been hived off for political reasons.

The Chairman: It is not pursuant to a legal principle, then.

Mr. Burrows: One could say that personal injury is much more extreme and, therefore, should be subject to a different regime. Is that argument watertight? In my view, it is not, but one could run the argument that far.

The Chairman: Is it your sense that it is fundamentally based in practical politics?

Mr. Burrows: Yes. The difficulty, then, is that you have to include property damage within economic loss claims. In your car accident scenario, you would have different regimes operating for the person injured and for the damage to the car, which seems odd, but that is what one would be forced to do if that sort of line were drawn.

The Chairman: Would the inclination be, therefore, to put property damage with personal injury?

Mr. Burrows: No, because in the construction industry, for instance, it is too difficult to make the distinction as between property damage and economic loss; it just cannot be done. Therefore, personal injury is separated out and every other sort of harm is left within their proportionate liability.

The Chairman: In the car crash case, damage to the car and personal injury are dealt with under different scenarios?

Mr. Burrows: Nobody has ever said that, but that must be the logic. That must be what Jim Davis is proposing in Australia, because they separate out personal injury but no other form of harm.

Senator Angus: It seems to me that, if you get the basic principles right, everything else falls into place. I do not think the accountants really understand why joint and several became enshrined in the common law and, indeed, in the civil law, originally. We are really talking about fundamental legal concepts.

Could you tell us, for the record, what the basic reason was. You have talked about the fairness principle and the need for the plaintiff to have restitutio in integrum, to be able to have his damages fully paid, but is there a more academic reason in legal history?

Mr. Burrows: I am afraid I am not really in a strong position to say, except that one would imagine that, if one were starting from scratch, this is precisely what one would come up with as the fair principle. In that sense I am not at all surprised that it is deeply rooted both in the common law system and in the civil law jurisdictions that we have examined.

Mr. Burrows: Some people seem to think this is all a new phenomenon because tort never used to look at economic loss, that it has only really become a problem since then.

Senator Meighen: Because you have heard about Hedley Byrne.

The Chairman: That is what I thought

Mr. Burrows: In one sense, there is an element of truth there, but in the English context most of these claims are being brought in contract, and the argument being made is equally applicable to contract. Obviously, from day one economic loss recovery has been the be-all and end-all of contract, so you cannot argue that it is a problem simply because tort has suddenly moved into a new area. I am afraid I have no historical analysis except to say that it has always been there as the deeply rooted starting point of the fair approach in both common law and, as I understand it, civil jurisdictions.

Senator Angus: Indeed, it is a cornerstone of our law of damages, of our law of tort, and it would be a major departure to go the way that some of these professionals are asking us to go.

The Chairman: Or to move away from joint and several at all.

Senator Hervieux-Payette:: That is the joint proportion. There is not one person who, if they were offered 30 per cent, 40 per cent or 50 per cent, would go for the 100 per cent.

Mr. Burrows: It would be a fundamental move. It would be as fundamental, but no more fundamental, than a cap. Equally, we could cap it at $100 million or $100,000, or whatever. That is what we are talking about.

Senator Angus: Quite unrelated to that are the insurance aspects of the argument. I and, I believe, some of my colleagues are of the view that the argument surrounding the insurance aspects is a red herring <#0107> the inability of the Big Six to offer insurance; the difficulty of obtaining insurance; the high cost of insurance, disproportionate to the normal expense of doing business. Can you comment on that at all? Is this a valid argument to which we should be paying attention?

Mr. Burrows: I certainly think it is a valid argument in the sense that all arguments that the law is causing difficulty in everyday life have to be taken seriously. Plainly, we are not in the game of just setting up academic models for their own purity. If it is shown that amendments to the law would, in some sense, relieve problems of insurability, then I think one should look at them very carefully. However, it seems to me that it has not been proven that such a change would help. It is not clear to me that the insurance markets would be affected by this sort of change in the law. It is not clear to me that the accountants, for example, could not take other measures that would deal equally with their problems and would not produce unfairness to plaintiffs.

I do not think it is a red herring, but I think it is difficult to assess the importance of such an argument. In my view, the burden must lie on those who are advocating the change to show very clearly why this sort of change in the law would remove the problems they are talking about and why other measures would not remove those problems.

Senator Kenny: From a public policy point of view, that is key, and they have not done that, at least with us, so far; they have simply said "Here is a solution that we would like."

Senator Angus: We talked to some other people earlier today who more or less suggested that with this argument on advocacy for proportionate fault they had painted themselves into a corner. The insurers are saying that, whether it is 50 per cent, 20 per cent or 100 per cent, in the case of the Big Six, in these global situations where there is no way of assessing or predicting what the damages could be, they are literally uninsurable. Therefore, the "proportionate" argument is not going to change it one iota. It is a question of degree, possibly. Therefore they are off on the wrong tangent.

Again we come back to the point that, if there is a commercial problem, the solution is not doing away with joint and several liability, but some other solution. I think that is what you are saying and certainly that is what we are hearing from other quarters.

Mr. Burrows: Yes.

Senator Angus: Do I understand that you take the view that what is sauce for the goose is sauce for the gander, that it would not be a good principle to have one set of laws for the accountants and to leave all the other professionals hanging out to dry?

Mr. Burrows: Absolutely. Five minutes ago we were discussing how difficult it is to draw the line on the type of harm.

The Chairman: As between personal injury and damage to the car?

Mr. Burrows: That is correct. Then you have this other ring-fencing problem once you try to separate out certain professions. I would say it would be extremely difficult to do it in any way that would really stand up to scrutiny. You are really ring-fencing for political reasons, not for any other reason.

The Chairman: Unfortunately, as politicians, we do that once in a while.

Mr. Burrows: Absolutely, but, in my view, you are hiding nothing when you are effecting such basic principles of law as this. Immediately you will have a person, quite rightly, saying, "But that is wholly unfair to me; I am in the same position", and so on.

Senator Angus: Similarly, a corporate director may influence the direction a commercial enterprise takes which ultimately leads to its demise or to huge litigation. Why should not that corporate director have the same protection as the auditor or anyone else who was involved in that process?

Mr. Burrows: Yes. In a sense, we are able to turn it back on the auditors' behalf, because section 310 of our Companies Act almost prevents them, as professionals, from contracting out of their liability. In that sense, one can use the level playing field.

The Chairman: By fixing up your section 310.

Mr. Burrows: Yes, in the auditors' favour.

Senator Angus: Do we have that equivalent in our legislation?

Senator Meighen: It seems to me that, in terms of insurance, the amount of the awards is the problem. The Americans are always pointing to those as being the big offenders, and it seems to me that they are. Yet, your study in the U.K. was not driven by comparable awards, was it?

Mr. Burrows: The auditors would say that there is so much litigation against them --

Senator Meighen: Globally?

Mr. Burrows: There are two types of litigation against them in the U.K. There is the many claims problem and there is the quantity of a single claim problem. On both grounds, they would say that the position has become untenable; that they can no longer get insurance; that it is discouraging people from going into the profession; that they cannot compete; that they cannot detect fraud properly -- all those arguments. I do not think those arguments are fundamentally different from the arguments raised in the United States.

Senator Meighen: I was astonished to hear today that it really does not matter what you are doing in your own jurisdiction because rates move globally.

Mr. Burrows: Yes, that is something else they would argue. It is always difficult to find out what is happening in other jurisdictions. I have to say that we initially relied on what the auditors were telling us. They told us that Australia had already moved --

The Chairman: They told us that, too

Mr. Burrows: -- that the United States had already moved, that Canada was about to move, that France had moved. You would think there was a whole worldwide movement here. Then, when you start to unravel it, you find that actually the United States did get there after a lot of hassle right at the end of December, after a veto on a very limited area. Australia is nowhere near. They have arrived at something on the construction industry. Jim Davis' inquiry, it seems to me, does not look at these issues in anything like the depth which they deserve. The draft provisions that have now been produced do not strike me as something that any sensible jurisdiction would consider implementing.

Senator Meighen: Which ones are those?

Mr. Burrows: Those are the model provisions based on the Davis inquiry that were circulated in July of this year.

The Chairman: The ones that accountants everywhere are pushing.

Mr. Burrows: All professions are doing that, not just the accountants. It is a terribly complex system, an absolute nightmare. Just one of the problems you have to deal with is the absent wrongdoer as against the wrongdoer whom you are suing. Which scheme do you operate?

What they have come up with in Australia is a bit of both. I read in the press that the accountants are saying that Australia has come up with a very simple model scheme. I say that whoever has said that clearly has not read it.

The Chairman: Their strategy has been a very clever one. They came to us and told us that Australia had done it and that nobody agreed with your report so, obviously, that was not the direction to take.

Mr. Burrows: That might be true.

The Chairman: Then we had Professor Davis and the representative from the DTI equivalent who said, "We put out a discussion paper, but we are not at all sure what we are going to do." This was after the accountants had been in all of our respective offices telling us categorically that it was a done deal in Australia. It has been quite interesting. They attempted to start a steamroller by making us feel that we were the odd man out, but then we began to discover that everybody else was in the same quagmire that were in. It is good lobbying.

Mr. Burrows: It is music to my ears because I am here literally as an individual working with a small team. I have no facility to know what is happening elsewhere. We are not, in that sense, even an outside body. It is quite peculiar to be under that sort of pressure.

The Chairman: We are used to it in our business

Senator Angus: Since I missed the first part of your presentation, would you mind telling us again what the Law Commission is and your function within it?

Mr. Burrows: The Law Commission was set up in 1965 pursuant to the Law Commissions Act. We are the government's adviser on law reform, query what is meant by law reform, but it is normally taken to be non-partisan law reform.

Senator Angus:Are you paid by the government?

Mr. Burrows: We are paid and funded by the government. All our work has to be approved by a minister, normally by the Lord Chancellor. We are split up into teams.

Other work carried out by our team includes a major project on limitation periods, a major project looking at the whole issue of damages, and a major project on primitive contract. Other teams look at crime. Other teams look at company law, as such. Other teams look at property and trust. We are all housed in this building.

Senator Angus: In Conquest House.

Mr. Burrows: Yes.

Senator Hervieux-Payette: What is your relationship with the Bar? In Canada the accountants do not want to join with the Bar. As far as I am concerned, we heard a much more balanced presentation from the Bar than from the accountants. The accountants presented their side of the story as business people; whereas lawyers see the overall impact of their request. I feel that accountants do not really understand the implications of what they are asking us to do. They want to change the whole system of law worldwide just to solve their problem. Surely we should be considering other remedies that would not jeopardize the plaintiff, for example. It seems that nobody cares about the plaintiff except the Bar.

Mr. Burrows: I agree. Our experience has been much the same.

Linguistically, the accountants' case appears to be strong. Language such as "proportionality" and "reasonable share" are picked up by the press and the lobbyists in a way that implies that legislators are against proportionality and fairness.

One question I put to them quite often is: In a standard sort of case with several defendants involved, what, under a proportionate liability system, would you regard your percentage fault as being? I have never received a satisfactory answer to that question. On one view, it would be absolutely negligible

If you were to translate contribution proceedings into this first liability stage as has been suggested, what is the proportionate responsibility as between a dishonest fraudulent director and the accountant? Chances are that it would be absolutely negligible, and you would end up with an auditor, having contracted to carry out an audit, bearing virtually no liability. Of course, that is not what we want, but it seems to me that that is what you would end up with.

Senator Hervieux-Payette: If a bank owned an insurance company and a plaintiff were claiming loss due to false representations by the auditors, the insurance company or the bank would take the loss, but they would let the auditors fight the case in a public forum.

I have some sympathy for the individual professionals who seem to be saying, "You know, you have put a lot of burden on our shoulders." Perhaps the burden is too big and maybe we should address that situation. As you said, it is difficult to assess the proportionality issue. Even a judge would have difficulty with that.

Senator Angus: The judge would be inclined to award a much higher proportion against the accountant if he found that there were no other pockets That would be human nature.

Senator Angus: I have one more question, and it may not be a fair one. I have seen several press reports here in the U.K., as well as the DTI questionnaire- type survey of some 120 subjects, in which there have been criticisms of your report. Do you consider the criticisms to be valid, just in terms of summing up what we have been saying for the last hour and a half?

Senator Hervieux-Payette: You have three minutes for your defence!

Mr. Burrows: In my view, much of the criticism has been unfair. I believe we have presented a case for reforming section 310 which, combined with a review of the Unfair Contract Terms Act, would produce a fair regime for contractual and non-contractual disclaimers. I think the accountants should be making much more of the existing law on contributory negligence. Beyond that, I cannot see the case for a fundamental reform of joint and several liability.

Senator Meighen: What has been the experience with cohabitation of the two systems, which derived from the Marine Conventions Act?

Mr. Burrows: That is a peculiar scenario, because it is almost always one where the plaintiff is contributorily negligent. You are dealing there with a case of ships colliding. We have not done any research on that point, but I think you will find that the fundamental reason is that you almost certainly have contributory negligence of the plaintiff involved.

The Chairman: Professor Burrows, on behalf of the members of the committee, let me thank you for taking the time to appear here today. You have been most helpful.

Our next witnesses are from the Department of Trade and Industry.

Perhaps I can tell you something about our committee so you can better understand what we are doing. There are six members of the Standing Senate Committee on Banking Trade and Commerce which basically considers all business related issues for the government. The committee is often referred to as the "Banking Committee", but its official title is the Standing Senate Committee on Banking Trade and Commerce. There is a corresponding committee in the House of Commons.

Senator Meighen: That committee is not nearly as distinguished.

The Chairman: The reality is that it does not have the impact of our committee for two reasons: first, members of the House of Commons come and go but senators, like the members of your House of Lords, are appointed so, generally speaking, we are in office for a longer time; and, second, all the members of our committee have business careers so we begin with a knowledge of business issues.

Our six committee members in attendance are: Senators Colin Kenny, Donald Oliver, Michael Meighen, Celine Hervieux-Payette, David Angus and, of course, myself as chairman. We are accompanied by Ms Margaret Smith who works for the Research Branch, as well as Ms Trish Harrison who works for the Department of Industry, which is similar to your DTI.

By way of background I should tell you that the accountants embarked on such a earnest lobby on the minister, backbenchers, and on the Department of Industry vis-à-vis the issue of joint and several liability, that the minister and the department decided that the way to deal with the problem was to shift it away from them and on to us. Therefore, we were asked to consider the issue of joint and several, the issue being driven by the accountants. That is important.

The accountants, by the way, also persuaded our committee equivalent in the House of Commons to find, on the basis of essentially no evidence, in my view, that the accountants were absolutely right. Parenthetically, it was suggested to me that it would be wonderful to have all the accountants on our side with an election coming up in the next eight or nine months. There is a not insignificant political element. That is how the problem came to be studied by our committee.

To date, we have, of course, received briefs from the accountants. The Canadian Bar Association also made a presentation which was quite indecisive. Their view is that this issue required an in-depth study rather than simply jumping directly to proportionate liability. We also held a teleconference with Professor Davis and Mr. Govey, your counter part in Australia. We also heard from the representatives of consulting engineers as well as a couple of Canadian lawyers who practice in this area.

What we are basically trying to understand, at the outset, is the extent to which it is a political, a public issue or a mixture of both. Is it a real problem?

Perhaps you could tell us what would be the likely outcome, in the U.K. of making changes in this area.

The accountants told us that a decision has already been made in Australia to make changes. However, in our discussions with the Australians, we found out that is not quite the case. They also told us that proportionate liability is the absolute situation in the U.S., but we have discovered that some States are in, some States are out, and some States have a variation of the theme. They said that the when the Burrows report was published in England it was dumped on so much that the government decided not to adopt it, and the government is leaning to proportionate liability. What they, in fact, were doing is what any good lobbyist would do, which is, basically, make us feel like the odd man out.

We would like to understand your position.

You should, perhaps, be aware of one other proviso which is pertinent in Canada but not, as I understand it, in the U.K. Within the joint and several problem, there is the issue of joint and several among defendants. There is also the issue of joint and several among partners where one of the defendants is a partnership. In Canada, partnership law is an area of provincial jurisdiction, so we have no jurisdiction to change that. Nevertheless, we would ultimately want to take a position on it at some point, partly because there is now at least a slight possibility that we will be asked by the Attorneys General of the provinces to look at the part that falls within their jurisdiction. Deputy ministers will be discussing that issue next week. We may or may not be asked to consider that but, in any event, we may want to have an opinion on the matter.

That is where we are.

I should also mention that, when the issue was first put to us, it was framed in such a way to suggest that there were only two alternatives, namely, joint and several, or proportionate.

Senator Angus: They have come around.

The Chairman: We have now at least gotten the auditors to admit there is a whole range of options and we have talked to them about some of them.

We want to know is where the process is heading in the U.K. From a public policy standpoint, what do you see as the major questions that ought to be answered, and what do you think those answers are likely to be?

Senator Angus: Perhaps we could have a copy of your draft legislation.

The Chairman: How is that for a very simple short opening question?

Mr. David Love, Director, Financial Reporting Policy, Department of Trade and Industry, U.K. We appreciate your taking the time to come over to visit with us. Certainly, the more government officials network, the clearer our perspective will be.

My responsibility within the DTI is for financial reporting policy on certain aspects of law reform. The oversight of company law falls to the DTI. My own interest is financial reporting policy and some aspects of capital law reform which is one of the core functions of the DTI in the UK. Mr. Steve Whittington is particularly concerned with the accounting industry as a whole in a sponsorship function, which is to translate, if you like, the situation of a sector of industry like accountancy services to government, and to translate government concerns to the industry. Although we have separate responsibilities, we actually come together in some areas which are relevant to this topic. One is company law reform in general and particularly the financial reporting aspects of it. The other is to have a view on the health and competitiveness of where the sector is going in relation to accountancy services. Steve deals particularly with auditors.

We can talk a little about the background but we cannot tell you what our policy is. We are still in the process of considering the consultation which resulted in Andrew Burrows' report, and ministers have not taken a stand on that. We believe we can be most helpful by giving you the UK perspective.

Senator Angus: Perhaps you could indicate where you are headed and when you might arrive.

The Chairman: Perhaps you could also deal with the background issues that you take into account.

Mr. Love: We can be a bit more helpful than that on one topic, the question of joint and several liability within partnership and partnership law, which is one of our responsibilities.

My boss, Ian Laing, who is president of the Board of Trade, announced just over a week ago that the government did intend to introduce legislation to amend the law of partnership in the UK to introduce the concept of limited liability partnership for the active members of the partnership. The background to that is that, under existing law here, the members of a partnership have unlimited liability except if they are, essentially, sleeping partners. If they are investors, then there is statutory provision for limiting the liability, but only if they take no part in the active management of the business.

Senator Meighen: Would that only apply to a non-professional partnership?

Mr. Love: "Partnership" for us is a catch-all term for doing business together, if they do not have an agreement, so it covers absolutely everything.

Senator Angus: Does that include joint ventures?

Mr. Love: Yes. If you are not a company or a sole trader, you are a partner.

The Chairman: It is not merely among professionals, it is in fact partnership in as broad an interpretation as you could use?

Mr. Love: In terms of what the present law covers, yes. In terms of the amendment to the law, no. The amendment to the law we intend to propose is to introduce a new form of business association, in addition to those I have mentioned, which would be available to regulated professions. We put this in the context of the way in which business legislation was moving in other jurisdictions, particularly the United States, but also other places, there being a number of off-shore centres, including some close to home like Jersey, who are beginning to copy some of the state laws in the United States which make it possible for something to operate very much as a partnership rather than as a company, but which does provide limited liability for the partnership. Therefore, it ensures that a partner is only individually liable if he was concerned with the part of the business that is concerned. In the case of his liability for the general debts and obligations of the partnership, that is limited to whatever he puts in it.

Senator Hervieux-Payette: This, hopefully, will stop the rush to Jersey.

Senator Oliver: It will be limited to what an individual puts in it. If there are 10 auditors in the firm and only one of them worked on a particular transaction, under this new limited liability partnership, only the one partner would be liable.

Mr. Love: Under the new arrangement, if you were in the position of the plaintiff, then you would be suing the partnership as an entity, which is a new concept in English law. I mean, at the moment a partnership is simply an agglomeration, a group of partners.

The Chairman: Run the consequences through. You sue the partnership which consists of ten partners, only one of whom worked on your piece of business?

Mr. Love: The others are working on other people's business. They are active.

The Chairman: You are saying that a successful plaintiff cannot get at the partner's personal assets. The most that can be recovered is what that individual put into the business. A successful plaintiff cannot personally bankrupting the partner.

Mr. Love: You might also have a claim against the partner who is working on that particular piece of business.

The Chairman: Which would be a separate claim?

Mr. Love: Yes. What you would have available to you is, essentially, the assets of the business, just as if it were a company.

Mr. Steve Whittington, Head of Audit Regulations Section, Department of Trade and Industry: In return for that limited liability, then the partnership or this new entity would have to provide disclosure in a way that traditional U.K. partnerships have not had to.

The Chairman: Can you explain that?

Mr. Love: That is the other side of the equation.

Senator Kenny: What does "disclosure" mean?

Senator Meighen: That might have the effect, which Professor Burrows touched on earlier, of deciding whether there was contributory negligence. If I rush off to make a claim and I respond positively to the question: "Did you look at the terms of the partnership before you engaged them?" then I would or could be held contributorily liable if the disclosure is publicly available.

Senator Angus: Under company law generally, there are various reporting requirements. These gentlemen have one of the key areas of responsibility in that field. Today, under the current law, partnerships do not have to file financial statements or quarterly returns.

Senator Kenny: I am trying to find out how you devious lawyers work.

Senator Angus: Is that what governments require?

Senator Kenny: Am I hearing them say that if this is put into effect, it will be possible to determine how much a lawyer earns within a firm and that would be published on a regular basis?

Senator Hervieux-Payette: No.

Senator Kenny: Is it not that kind of disclosure?

Senator Hervieux-Payette: No. Would it be the same regime as you apply to any other corporations or businesses, or would you have a separate system? I mean, reports have to be filed according to the law, but if there were gross negligence, would the same law apply? How limited would the limited liability be?

Senator Meighen: As we touched on, you might be able to sue the partner.

Mr. Love: The announcement we have made is simply a general intention to introduce legislation. We are now working out detailed proposals which we will publish for formal public consultation to anybody who is interested. We will take account of the results of that consultation and prepare legislative proposals.

Senator Meighen: What is the time frame?

Mr. Love: We are committed to producing detailed legislative proposals for consultation before Easter. We expect to do it during March. After the consultation, it will obviously be up to the ministers of the day to decide what priority they want to give it. The present ministers would certainly give it considerable priority.

Senator Kenny: I am still confused. Are you talking about the sort of disclosure you would have in a case involving, say, $10,000?

The Chairman: That would not be as detailed.

Senator Meighen: What would you have to do under company law? Presently, you have to file a nine-year return and, under certain circumstances, you must publish financial statements.

Senator Hervieux-Payette: There are also private and public companies. The disclosure is not the same.

Mr. Whittington: The disclosure remains to be worked out.

The Chairman: You are saying that you must disclose enough to enable the purchaser of the services to be reasonably well informed about the firm, in the same way that a purchaser of shares in a company gets the prospectus and the annual report. Your consultations will concern the exact details of what this information should be.

Mr. Love: That is absolutely right. The intention of legislation is to focus on the introduction of limited liability for the new form of business association, and to add to that limited liability a financial disclosure requirement. The points of reference, of course, are, on the one hand, existing company law and, on the other hand, the existing partnership law. The question for consultation will be, given the nature of the new beast: Is it more appropriate to operate in one particular respect by analogy with company law or, in a particular respect, by analogy with partnership law?

One aspect of partnership law is that you reveal virtually nothing, except the names of the partners. We have already announced that that is inappropriate. Something more than that will be required, so anyone can make a financial judgment.

Senator Angus: Which are the "regulated" professions here in the U.K.? That is an interesting adjective.

Mr. Love: That also is a matter for consultation, because one of the issues that must be decided: What degree of regulation is to be regarded as sufficient in order to extend this privilege of limited liability?

Senator Angus: Would it include medicine, doctors?

Mr. Love: No, this is essentially aimed at commercial enterprizes.

The Chairman: It surely includes lawyers and accountants?

Mr. Love: That is the core that you would expect to be addressed.

Senator Hervieux-Payette: What about engineers and architects?

Mr. Whittington: It will address various professions within the construction industry, yes.

Senator Kenny: What do you expect this new legislation to bring to the party? How are you going to be further ahead in the game when this legislation is passed?

Mr. Love: It was put to our ministers that existing partnership law, which in this country dates from statutes of 1890 and 1907 was fine for the classic situation of a 19th century partnership where, if the partners did not work together at the same desk, they could very easily get together in the same room at a partners' meeting. It was not unreasonable for them to know something about each other's business or competence or so forth.

If you are dealing with, as we are now, accountancy firms with in excess of 400 partners and law firms with almost 500, the suggestion was made that a partner can now say, "Frankly I do not even know who these people are. There could be some people out there who are taking a decision whom I have never met. They could be negligent and all my possessions are on the line." That is one line of argument.

They supported this line of argument by saying that other jurisdictions are dealing with it in a different way. They quoted, particularly, the way in which law had developed very recently in the United States. They mentioned the law of Delaware introduced in 1993 which is where, as we understand it, most of the U.S. accountancy partnerships choose to register. They say that the position is so odd that there may be off-shore centres developing to providing this kind of industry. They raised the question: "Is it not extraordinary that blue chip companies, serious professional bodies, should have to think about registering off-shore?"

Stripping out some of the rhetoric from that, there seemed to be two or three essential points. One, the law was indeed based on a 1890, 19th century model; two, businesses in other jurisdictions could arguably be getting a competitive advantage from being able to organise themselves in a more modern way; and three, did this not mean that we were falling rather behind the international model in terms of competitiveness?

Ministers were persuaded that those arguments had validity, therefore something should be done. However, there was one major qualification: The arrangements in the United States to a certain extent, and the arrangements in the off-shore centres to a very large extent, made very limited provision to protect creditors. The provision that they do make, approaches it in a different way from the way in which we would address it. To take the intended Jersey legislation as an example, it will have no financial disclosure requirements at all. The Jersey authorities will say that it is not required in respect of companies either. I think, to be at all credible to our audience, there must be really convincing safeguards for the people who are at risk, and we have already said those will include financial disclosure. It would operate in the way you have explained.

There are other possibilities, of course, that must be considered, but that is, broadly, the background to the decision that was announced. However, that applies solely to liability within the partnership.

The Chairman: Let us set that one aside for a second. What about joint and several amongst defenders? Perhaps we should consider what has happened just a few years back, because over the past few year it has affected not only the auditors, but indeed others, particularly the construction industry profession. Would be included in that profession?

Mr. Love: It would include engineers, architects and all those who provide professional services and who have the effect of the law which, taken as a whole and as it operates at the moment, is unfair to them.

I do not think that the initial representation was very well focused and that they intended to pursue several lines of argument. Initially they were pursuing the broadly economic line of argument, that is, they are suffering increasing difficulty in dealing with litigation and they are exposed to extremely high settlements, and so on and so forth. The auditors were not able to come together, to produce some figures to show the way in which claims against them were increasing in this country for a variety of reasons. Because of commercial confidentiality and also traditional confidentiality, they were not able to give us any information as to how settlements were going, which is a small fraction of the claims. They were not getting very far with the arguments in that sense. They chose to focus, instead, on the question of fairness and to make this other point, in regard to joint and several liability. They made the point that it is unfair that somebody who is only one of a hundred people associated with the discharge runs the risk of picking up the whole bill, as is currently the case. The classic way in which they put it is that somebody who is only 1 per cent to blame can be liable to 100 per cent of the damages.

Senator Angus: That is highly theoretical; is it not? Who has ever been found 100 percent liable?

Mr. Love: It is a question of fairness; is it not? It is based on a fundamental question of a principle of law, and that principle of law is based on a sort of rough justice. The question is always: Is the balance of justice as good as it can be in contemporary circumstances? They agreed that is the important question. We pointed out to them that it is a question that they share with a number of other professions, such as the construction industry and that we cannot have a solution that only applies to one profession. They agreed with that. Therefore we came to the Law Commission, specifically Andrew Burrows, and he agreed to look at this essential question of fairness in the law. The result was his report.

Senator Angus: I am sure he is your new best friend.

Mr. Love: He prepared, as you can see, a very professional draft. It has at least raised the level of the debate in this country, in that it is focusing on the essential points of law in an informed way, rather than in a discursive sort of way. Without taking a view on the conclusions, because they are still before ministers, I think he has done an absolutely fantastic job. That view is shared by our ministers.

The ministers believed the right thing to do was to put it out to public consultation because the questions are not arcane questions of law, as they are sometimes represented, but basic questions on the whole, the answers to which may be more fair and produce a more just and reasonable outcome at end of the day. It went out for a wide range of consultation. Anybody who is interested can comment on the matters. We tried to focus, particularly, on the users of professional services, and particularly the users of partnerships.

Senator Angus: Did you put it out in the form of a questionnaire?

Mr. Love: We put it out as you see it printed here, as a sort of questionnaire. It was not a scientific questionnaire. It focused on eight questions, six or seven of which arose from points in the report. We took the chance of simply asking about the liability of partnership. Upon receiving the results of the consultation, we did some follow-up work with the main people concerned. That took us into the summer of this year.

At that point the auditors said, "Well hang on, can you wait just a minute? We put in initial representations to you, and we put in some further representations in response to the consultation questionnaire individually. Before ministers take a decision, we would like to think more about both what it is we really want." They did some further work on this, which led to a letter which landed on the president's desk this week. We will now consider that. There will be further discussions with them, one of two of their lobbyists, then we will go to general ministerial discussion.

Senator Oliver: Could you give us an idea of the number of replies you received to your questionnaire?

Mr. Love: About 140, which is pretty high for a company law matter. Some of them were pretty hefty too. We did go back and ask some of them to expand and develop their answers.

Senator Oliver: Did you make that request of the engineering societies, and lawyers and accountants?

Mr. Love: There were three or four categories.

Senator Angus: You say the president received a letter just recently. Was this a report from any particular group?

Mr. Love: It was from the big six.

Senator Angus: Acting together?

Mr. Love: Yes, acting together.

Senator Angus: Are you the president?

Mr. Love: No, it is my minister.

Senator Angus: Of the DTI?

Mr. Love: The title is: President of the Board of Trade.

Senator Meighen: Was the letter advancing new arguments or commenting on the Burrows report?

Mr. Love: It was essentially a development of the proposals they put to us before.

The Chairman: We have been told their lobbying effort is worldwide. It is the first time I have seen a globally organised lobbying effort. In any event, is it fair to assume that their recent submission to you is, in principle terms, essentially the same?

Mr. Love: Yes.

The Chairman: They may have rephrased the argument to deal with people like us who are questioning their position, but their basic position has not changed. Is that a sensible assessment of what they said?

Mr. Love: It is. If anything, they have further emphasised the importance they attach to dealing with joint and several liability rather than the secondary matters.

Senator Meighen: The limited liability?

Mr. Love: Through contract and so forth.

Senator Meighen: That is exactly what I was told a week ago in my office by a representative of the accounting profession. They are well coordinated.

The Chairman: This morning Minet gave us a copy of their response to your questionnaire. Is the accountants' response different, directionally?

Mr. Love: We have a slightly fragmented profession in this country, so we got responses from all the professional bodies, of whom there are six. The big six, plus some of the other accountancy firms.

Senator Oliver: You were going to give us a bit more detail on the 140 responses.

Mr. Love: I will outline them in broad categories.

As far as the lobbying professions were concerned, they said exactly what you would expect them to say and it is no doubt what they have said to you. They rejected the recommendations in here as they related to joint and several liability. They either acknowledged or accepted the supplementary suggestions of Andrew Burrows.

A number, particularly those from the construction industry, said, "These are not relevant to us because our fundamental problem is an imbalance of marketing policy, with the contractor." The position of the engineer, or indeed the architect, is that he is not in a position to be terribly tough with the main contractor.

Senator Angus: He is looking for work?

Mr. Love: In a big civil engineering project, because these projects are extremely complex, they are rarely set up as a single piece of paper at one moment in time. They are not in a position to know who the other advisors may be or if one of those has a dodgy reputation. That is a view of some of the professions.

Senator Angus: Their ease of contracting out is not easy.

Mr. Love: Absolutely. Those professions essentially repeated what they had said before.

The legal profession, in virtually all the replies, were strongly in support of this.

Senator Angus: Do you include in that the commercial bar as well as the corporate bar?

Mr. Love: There are qualifications and refinements and so on.

Senator Meighen: Did they say, "This is what we grew up with, this is what we want to die with"?

Senator Oliver: Were they not asking to include limited partnerships?

Mr. Love: Essentially they agreed that Burrows had described the current law correctly, but their attitude was: so what? Most said, "We think, from our perspective, he is right when he says that the overall balances of fairness lies in the approach that is set out".

Obviously individual views may vary, but, that is broadly what was said by the representative bodies. The response of the Law Society of England, came in rather late. They had the advantage of discussing it with some of the others. It was a particularly focused response elaborated on the ways in which the law might be amended, without amending joint and several liability.

The Chairman: Is that brief a public document? re you in a position to send us a copy?

Mr. Love: No, but I could ask the Law Society if they would.

The Chairman: That would be extremely helpful.

Senator Angus: Has Burrows has quoted it?

Mr. Love: These are published in due course.

You also asked about joint and several liability partnerships.

Senator Oliver: You summed up what the solicitors said, and I am afraid I did not hear your comments.

Mr. Love: They said, "You could build on this and develop the suggestion in the report, which is that the law in this country could be amended to help the professions, but concentrate on the law of contract."

The Chairman: Could it help the professions if you did not abandon the principle of joint and several liability?

Mr. Love: Burrows said that, leaving joint and several liability as it is, he thought a number of steps, that could be taken, deserved investigation, steps that would help the professions without disadvantaging other people. What he had in mind is that there are various idiosyncracies or oddities in our law of contract which gets in the way of free bargaining between the client and the customer which could be reformed. He mentioned two or three areas in particular.

Senator Angus: Such as?

Mr. Love: In the case of auditors, there is a specific problem which is that, at the moment, there is a statutory ban on an auditor limiting his liability.

The Chairman: By contract.

Senator Oliver: Section 310?

Mr. Love: Section 310, that does not apply to the work he does for the company outside his capacity as auditor, but it covers a great deal of business of course. The auditors would simply like that to be removed Andrew Burrows suggested numbers of ways of addressing that, short of removal, and so does the Law Society of England.

Senator Angus: It would be a level playing field approach.

Mr. Love: Absolutely, yes. There is a difficulty with that, however.

Senator Angus: Has it to do with public law?

Mr. Love: Public contract means that the work is on behalf of the shareholders and the management is simply acting as their agent.

The Chairman: How could the management contract you out of something you are doing for the shareholders?

Mr. Love: There is that, which puts them in a difficult position. It is even more so if you have a powerful board of directors who do need not pay too much regard to their shareholders.

Is there no other incentive, rather than putting up something which is in the interest of shareholders, but not in the interests of the company?

The reason for this law back in 1928, was because of a particularly notorious case in the 1920's, where a company had absolved its directors and auditors, more or less, from all responsibility to the company. This was written into the articles of association of the company, which was a very common practice at that time.

Senator Angus: It is still not for auditors but, rather, for directors.

Mr. Love: Our clause would apply to directors, officers, and auditors.

Senator Angus: I have never seen it apply to auditors but certainly to directors and officers. It is quite appropriate, but not for auditors. It is not appropriate, because you are paying them.

The Chairman: Perhaps you could elaborate further on the views of the law association?

Mr. Love: Andrew Burrows also looked at the problems associated with our Unfair Contract Terms Act. That has within it and is founded on a so called "reasonableness test", but the way the law has developed over the last 20 years has made it very difficult for anybody to anticipate what a court might regard as reasonable, so it is of little use.

He suggests some ways of approaching that. On several occasions you have touched on contributory negligence. That clearly is another area that might be particularly relevant. It is a tricky area because, if the director is the one who has been fraudulent and the company is the actual client, how can it be held that the company is liable? That is the traditional line of argument.

However, there are other areas to consider. I would point to cases in the Australian courts which have gone the other way. The general view appears to be that this is an area of the law where there is a great deal of uncertainty. More development could be helpful, but all that is touched on in the law society's paper.

I would go back to the results of consultation. As you would expect, the lawyers are very much on the other side, effectively against. We tried to encourage the business community to participate, and we particularly wanted the input of investors. The result was a split.. I should not name individual parties except so far as they have gone public, because we have not gone public with the result of the consultation. However, in respect of our institutional investors who are represented in particular by two very large organisations, one was emphatically against doing anything. The other was emphatically on the side of the auditors, but they included a footnote indication that they do not attach a great deal of importance to auditors' reports in any event.

The business community has found it much more difficult to take a stand. The main representative organisation is the Confederation of British Industry, the CBI. They were split, with some being strongly in favour of the lobbyists, and some emphatically against the lobbyists. Some agreed that something needs to be done but not what is on the table. They have not reached a consensus.

What we have in front of us now is a letter to our bosses, written by the main professional organisations representing the auditors and the construction industry as well as a number of other institutions. The latest signatory is indeed the CBI.

The Chairman: The CBI being the Council of British Industries?

Mr. Love: Yes, and other representative organisations, in which they say they have managed to come together on one point. They would request our ministers set in hand a further review going beyond this, and that they approach the issue from a more general economic perspective. In other words, the drafters of the document are treating this as a specialist question.

The signatories to that letter include people who were not persuaded on the particular suggestions made by the auditors and others. However, they were willing to go with the CBI, but only so far as to say: Let's have another look at it. That is the specific proposition ministers have adopted.

The Chairman: Which is in fact almost precisely where we are. We want to broaden the base and to see the big picture. We want the range of alternatives, not just the one the auditors support. We want to figure out if it is a real economic problem or just people not wanting to pay large insurance fees or whatever. It is very interesting to note that we have wound up, by a totally different process, in almost exactly the same place.

Senator Kenny: You could look at the different levels: where it is an economic problem, and whether there is unfairness which can be remedied by other solutions.

Senator Meighen: It seems that there is no doubt that there is a problem.

Senator Kenny: Yes, but there may be a variety of issues that can be solved.

Senator Meighen: There is a lot of doubt about the solution.

The Chairman: Does that cover your overview?

Senator Kenny: It is very difficult, when looking at the different jurisdictions, to try to cherry pick, because there are always pieces of legislation that you do not understand or jurisdictions with which you are not familiar. How is your thinking is evolving?

Mr. Love: All we can really talk about today is the menu of options with the department.. There is a variety of possibilities, on which we have not taken a view. In a sense we are almost at the same stage as you, though we may have had a larger volume of representations.

Senator Oliver: You received 140 responses to your questionnaire, which is something we do not have.

Senator Kenny: Can you tell us what is on your menu?

Mr. Love: At one extreme you can say that we must do something about joint and several liability as it stands. At the other extreme you can come to the view that, according to Andrew's study -- and most of the overseas lobbyists seem to have come to it so far -- the present situation is at the least unfair,

Senator Angus: What other solutions are there?

Mr. Love: The question was raised as to how much practical use they would be. The Burrows report talks about four kinds of ways in which you can amend proportionate liability, in one respect or another. The USA has gone for one of those, with the securities litigation at the end of last year. There is very little experience of that so far, and the legal advice we are getting on that is rather mixed as to whether it will achieve its end, let alone whether it will be unfair.

Senator Oliver: There is the situation in New South Wales which is quite different. There are also the approaches that were taken in Jersey and the Channel Islands.

Mr. Love: We must also consider New Zealand.

Senator Meighen: There is the British Columbian approach: proportionate liability when there is contributory negligence.

Mr. Love: Contributory negligence is unfair in terms of all of that, as you know, it raises some very knotty questions. Before taking action in any of those areas one would want assurance that the sort of solution that would result would be of some practical help and no practical disadvantage to the people concerned. That has not yet been established. Clearly, one of the options is to pursue that and to investigate other alternatives.

A second option is to look more closely at the modified proportionate liability approaches. However, when we put that to the lobbyists in this country, they were not at all keen on the modified proportionate liability approaches, for reasons that were not entirely clear.

The Chairman: Why?

Mr. Love: I do not know whether they are simply playing the cards one at a time, seeing if they get the "big one" and then come down. However, I think Andrew Burrows also suggests that it remains to be seen, whether those will be effective.

The Chairman: In exploring the modified options, did you explore a range of modifications? Burrows has some and there are a number, in the various stages of development, in the United States. Did you explore with them a range of options, or is their basic view -- unspoken of course <#0107> that: "Until we are convinced that we cannot get 100 per cent of what we want, we will hang tough"? Is that where they are coming from?

Mr. Love: That is where they are coming from. That was the gist of the letter we received most recently.

Senator Hervieux-Payette: You mentioned the contractor, the engineer and the architect. Normally, contractors are incorporated and they have limited liability, whereas engineers and architects have not. When everything falls apart, of course, probably everyone shares some of the blame. In my province contractors must be bonded so, if they go bankrupt, the fund provides for some payment. Of course, at the end of the day, normally there should be a proportion attributed to each and every one of participants who may be at fault.

Why would auditors be treated differently?

Mr. Love: Incorporation is one element of that question. In this country there are only two areas of business where you cannot limit liability by contract. One of them is auditors in respect of a statutory audit and similar work. The other is the solicitor when he is advising on legally contentious matters which may be before a court. In both cases there is a statutory limitation. Those are almost the only statutory limitations that apply. In the past, there were probably also strategic or professional rules against incorporating professional practices but, over the years those have been effectively repealed in this country. It has been possible for an auditor of a company to operate as a company itself. Since 1989, solicitors have also been able to incorporate if they choose to do so. Very few have.

Senator Kenny: Why?

Mr. Love: I think the basic reason has to do with the partnership ethos and the internal contortions of partnerships as compared with the internal constitution of companies. The partnership offers a more flexible mechanism for people to be introduced to the partnership and leave it without requiring a lot of capital up front; so on and so forth.

The Chairman: Do they talk about the tax advantages?

Mr. Love: They talk about the tax a great deal.

Senator Kenny: If I understood some of the discussions we had earlier today, contracting does not really protect an individual, because other parties may be involved who are not party to the contract but who would have an opportunity to establish recourse. The only real protection one would have would be in a limited liability company.In fairness, it means either you set up a lot of companies for each project you get into, or you risking your company being folded. Having said that, you would not lose your home when the company goes under. There are still some benefits in doing that. If you were pursuing alternatives, some form of incorporation seems to me to be a desirable way to go. Without considering the tax opportunities, if I were coming to it clean, I would be inclined to incorporate on each project.

Senator Hervieux-Payette: What do you mean by "each project"?

Senator Kenny: Every time I entered into an arrangement I would incorporate.

Senator Hervieux-Payette: With every new client?

Senator Angus: Yes, just as Frank magazine does.

The Chairman: They have incorporated a separate company for every issue, so that when they lose a liable suit it is relevant only to the assets of the company, which is a single issue, which is essentially a company with no assets. Quite clever actually. That is what they have done.

Mr. Love: Under our incorporation law, under our new measure, they will have some of the advantages of partnership and some of the advantages of incorporation so far as preserving the innocent partner's position is concerned. It does leave the question of whether the business as such is unreasonably exposed, whether the balance of risk is unreasonable.

That comes back to the basic questions of fairness, hence the terms of reference of the Burrows report.

The other aspect we also had in mind, of course, is international competitiveness. We want to know what is happening in other jurisdictions, partly because we want, generally, to be up-to-date ,and partly because we could envision a kind of arbitrary litigation. We have been paying attention to what has happened in your provinces, what has happened in Australia, and what has happened in the various states of the USA. We have commissioned some work of our own on the position in Europe. However, it seems that nobody is actually very far ahead of both our countries.

Senator Kenny: Is part of the problem the pressure on companies to get a clean audit? Could one of the solutions be a much more qualified audit, or a much more extensive statement at the beginning of the audit where the auditors qualify X, Y and Z at the beginning of the process? I felt some sympathy for the group who said they pay little of attention to the work of auditors.

The disclosure requirements for a new issue, would result in some pretty candid statements being made. You have to practically say to people, "You may lose your shirt on this if you go ahead and, furthermore, we do not think a prudent person should do this. Grannies and folks in sneakers should stay away from this issue."

Is part of the problem that too many auditors feel obliged to come forward with a clean audit? Should the answer be: "Qualify your audit and be damned."

Senator Meighen: They may not be the auditors for the company next year.

Senator Kenny: They may not be, but if they are all in the same boat, if they all had to play the same game, next year's auditors could be sued and be put out of business. Then, perhaps, we will have more accurate auditing statements. The root of the problem is, that we are discovering that the audit statement is fiction.

Senator Meighen: Is that because they have left out some qualification, or is it because usually because they did not ask the questions or did not do the work?

Senator Kenny: Perhaps there is room for a less clean audit.

The Chairman: The question is: Why should we bail the auditors out? They may be being nice to their client to keep the business.

Mr. Love: I think we share one common position with the auditors on that, which is that the audit opinion in this country has got too heavily qualified for reasons of liability, and we would like to put them in a position, by some means, in which they could be both more robust with the company, more robust in their opinions and where they could extend that opinion to cover a wider range of matters. Certain aspects of corporate governance arose out of a debate that has been going on here for a couple of years. It would be nice if the statutory auditor were in a position to do more such as give a firmer opinion on the quality of the internal controls."

Senator Kenny: Would this, in turn, mitigate the liability?

Mr. Love: They are afraid, of course, that any opinion they give will be used against them. They have been extremely cautious about this, but it would be good if they could do more. There is the statutory fall-out which, of course, interests everybody. I had thought that, possibly from a global perspective, there were only two things in our debate which would be remotely of interest. One is the customer's view, which we touched on earlier, which has come out of our consultation. The other is the question of the robustness of the audit opinion. This was something that the firms were specifically asked to think about. In fact, in a press report of a few weeks ago in the Financial Times the question was raised: If the law were amended as the auditors wish, would it result in stronger audit opinions?

Senator Meighen: Are they saying that it will?

The Chairman: You mean "stronger" as in more beneficial; not stronger as in pro-company?

Mr. Love: Yes. That would be an interesting proposition.

Senator Hervieux-Payette: Would they have to be appointed by somebody else?

Mr. Love: In theory they are appointed by the shareholders.

Senator Hervieux-Payette: In a public company, for instance, could they be appointed by the security commission or an outside party with which they do have the same kind of friendship? I may be farfetched, but at the same time it is very difficult to discern an arm's length relationship between the auditors and the management.

Mr. Love: They would still be afraid of being sued -- with indemnity, of course.

The Chairman: You have commissioned a report to assess what is happening in the U.K. When do you expect to have that?

Mr. Love: We are checking on the position in other European countries.

The Chairman: Where does that stand?

Mr. Love: It will be a relatively informal report. We will have that in a few weeks.

Senator Angus: Where do we go from here? Just so I understand it, are you now at the stage of responding to the letter requesting that you do a broader study?

Mr. Love: That is right.

Senator Angus: Would that go back to Burrows?

Senator Hervieux-Payette: The request is to produce legislation with a more economic angle to it.

Senator Angus: That is right.

The Chairman: Could we have a copy of that letter? I do not suggest by any surreptitious means. We have already you for the law society reply.

Senator Angus: I could lend you a brown envelope.

Senator Kenny: That is the customary way in Canada for us to get information.

The Chairman: Customarily it shows up addressed to the opposition members in a brown unmarked envelope.

Mr. Love: It is a very short letter.

The Chairman: Can you tell us what they envision the study to produce?

Mr. Love: A cynic would say, "To come to a conclusion different from that found in the Burrows report.

The Chairman: Is the purpose of the letter to authorize you to do another study designed to reach a different conclusion?

Mr. Love: Formally speaking, the purpose of the letter is to say that this particular report approached matters from a particular angle, a legal angle. The view of those who signed the letter is that there would be some merit in doing a study from a wider, as they put it, and economic perspective.

Senator Kenny: Just to follow on Senator Hervieux-Payette's comments, the law reform commission told us that if the SEC or some other regulatory commission were to be a part of this, the comparisons in the auditors' reports would be like night and day. I mean, they will be so different you will not know you are dealing with the same company, and that is because one must contain the truth and the other is written for show.

Senator Oliver: One of the groups that appeared before us in Canada was the Canadian Bar Association. They gave a very short brief which they will supplement later on. They urged us to take the time to do a complete study.

They briefly wrote about, first, limiting those to whom a duty of care is owed and, second, limiting services to which professional liability attaches. Could I have the benefit of your view on those two possible approaches to the professions?

Mr. Love: On the duty of care, the debate here has been whether the state of the law at the moment draws the auditor's duty of care too narrowly. The operative case is one involving a company called Caparo Industries which dates back about six years. You are probably familiar with it.

Senator Angus: It was mentioned today. It involves a third party.

Mr. Love: We could supply you with the references. That case has been supplemented by a number of High Court, Court of Appeal, and House of Lords' decisions in other commercial cases since. The upshot of it is that, as the case law stands at the moment, the auditor's responsibility, as the auditor of a company, is to the members of the company as a body, to the general meeting of the company to whom he presents his comments on the end report of the accounts. It is not to any one of those members as an individual investor, or to a prospective investor, like a purchaser of the company, unless he has established a direct duty of care to them by some other means.

There is a recent decision on the biggest damages claim outstanding against an U.K. accounting partnership at the moment, where the auditor of a company which was about to be bought by another company was invited to a meeting with the purchaser. The purchaser of the company had read this legal case and knew it very well, and he turned to the auditor and said, "As the auditor of the company, do you stand by the report, is it all right", and the auditor said, "Yes". However, it was not all right and, as a result, the partnership is facing a $100 million settlement which is in the process of going to appeal. That was a case where somebody had established a direct duty of care.

Senator Oliver: Very directly.

The Chairman: That was a very clever purchaser.

Mr. Love: Normally it is extremely limited. The argument in this country tends to be: Has Caparo defined the case too narrowly? The supplementary cases simply evaporate on that.

Senator Oliver: How do they distinguish Hedley Byrne?

Mr. Love: They argued, both in regard to the case I have just mentioned and Caparo, that this was broadly in accord with Hedley Byrne principles of negligence. The phrase used -- and I think is one which has been repeated throughout the cases -- is that it is unreasonable for somebody to have an indeterminate obligation to an indeterminate range of people.

The Chairman: Are you likely to wind up having done this broader, economic study? Let me call it a "commercial based" study.

Mr. Love: I cannot tell you that. That is one of the questions a minister will decide.

The Chairman: It seems you are, essentially, in the same position we find ourselves, except that we are under some pressure to recommend a policy to our government by probably May or June of next year. Have you any advice to offer us as to what our process ought to be?

More importantly can we be kept informed of developments here? It would certainly help us if we were au courant with what is happening here as we go through our process which is likely to lead to some sort of a recommendation in the May or June.

Mr. Love: We would appreciate that too. As to future timing I cannot see ministers coming to an agreement on the terms of an announcement before January at the very earliest.

Senator Angus: When does the election have to be called?

Mr. Love: It has to be by early May.

Senator Meighen: Is your campaign 30 days?

Mr. Love: Yes.

Senator Angus: You folks do not change with the government?

Mr. Love: No, no.

Senator Angus: So the initiatives would not die?

Mr. Love: No, and certainly the initiative from outside, as you well know, will continue.

The Chairman: The problem is not going to go away?

Senator Kenny: It sounds like you are talking a time frame of more than a year.

Mr. Love: At the moment this is not politically contentious.

Senator Angus: Is it not an issue on which Labour would be particularly sympathetic.

Mr. Love: It is contentious with a number of individuals and others within Parliament -- some who have no time at all for the professionals, but at the moment it is certainly not a matter of party political debate.

The Chairman: It is not with us either.

Senator Angus: I have just noticed that in the Burrows report it says it is an initial feasibility study.

Senator Meighen: He mentioned that to us here. This was just a study to determine whether the matter warrants a full-blown study.

The Chairman: His conclusion was overwhelmingly that it didn't deserve any more time.

Mr. Whittington: That is how the study started but then, when we saw how thorough a contribution to the debate it was, the decision was taken to publish it for consultation, so the debate has moved on.

Mr. Love: The question is whether we say yes or no to that letter, which of a number of other routes might we pursue, other than blank refusal?

The Chairman: Obviously you expect an answer to the letter before Easter. You said you did not expect it before January. Can someone just sit on it through the election?

Mr. Love: No, I think that is a bit too long, if it is a May election. The expectation is that there would be some sort of announcement as a result of that collective letter and the one from the big six. I do not know how vital it is within your system, but within ours this affects the interests of quite a lot of different parts of government, so there will have to be a fair amount of discussion at the ministerial level among different ministers.

The Chairman: Am I correct, Ms Harrison in saying that it only affects the Department of Industry and the Department of Finance?

Ms Trish Harrison, Canadian Department of Industry: The question has been raised within the context of the failures within the larger financial institutions, and within the context of the auditing profession. Our CBCA, the Canada Business Corporations Act, deals with the liability of the directors and the officers, which would also fall under the provincial tort review, which is joint and several liability, so it is not just auditors and financial institutions. It could include much more.

The Chairman: Historically, when the federal law changes the provincial law, in large measure -- not in Quebec because it has a civil law system <#0107>follows suit. To that extent there is a leader-follower role. It is not necessarily required but it, in fact, happens because business goes to the provinces and asks for one common regime across the country.

Ms Harrison: I am not sure what the situation is here, but in Canada the actual tort regime, the tort law, is regulated by the provinces not by the federal government, so we have a bit of a split. The provinces, I am sure you are aware, have tort law which is joint and several liability at the provincial level, which is not something that we effect at the federal level. We have a bit of a division.

Mr. Love: One of the reasons that letter asked for a further study was to keep the issue open because the auditors were genuinely afraid that it would be closed off against them and they were anxious to keep it alive to the other side of the election. Their concern was to keep the debate going.

Senator Oliver: The word "fairness" was used by Willard Estey, who is a former judge of the Supreme Court of Canada, when he made his presentation on behalf of the auditors. He said we should address this by looking at the new doctrine of fairness. The doctrine of fairness means that one person who has been found 1 per cent liable should not have to pay 100 per cent of the whole. It is interesting that he used the word in a completely opposite way from you, and from Professor Burrows.

Mr. Love: The great thing about Professor Burrows, I think, is that he did help us to develop our thinking about it.

The Chairman: We would very much like to keep in touch with developments here. We will write you when we get back to Canada. Unfortunately, when the ministers make an announcement, it might be two, three, four weeks before we pick it up.

Senator Meighen: Is that not what our High Commission is supposed to do?

The Chairman: I am not a fan of the foreign service. Maybe what we could do is simply have an arrangement where someone just sends us copy. As we go through this evolutionary process, I think it will be important to keep up to date.

Mr. Love: We will certainly do that. We are quite happy to keep in touch, informally, through our secretaries. The Ontario Law Reform Commission report in 1988 was very much instrumental in Andrew's thinking, and we are very concerned to see that your evaluation is in the ministers' minds as far as timetables go.

Senator Hervieux-Payette: We may produce a report before them.

The Chairman: After the accountants got the Members of Parliament on side, they thought it would be a "slam dunk" with us because we are all business people and they thought we would see their point of view. However, it was very clear, after our first portion of public hearings, that if we had had to vote they would have lost twelve nothing. Then we told them that we clearly need to consider a whole range of options and they suddenly decided that that was not a bad idea because they recognised that, unless they participate in that, they will be dead in the water.

It seems to me that they are using the same strategy on both sides of the ocean.

Mr. Love: I think our situations are quite similar.

Senator Oliver: I think Senator Kirby will receive a letter signed by the big six when he returns.

The Chairman: Frankly, our worryis being whipsawed by this argument which was pretty compelling when we first heard it. We were told that Australia had done it, that Burrows was not on side, but that you people were going to do it, and that the U.S. was doing it.

When the Chairman of the Canadian Institute of Chartered Accountants comes in and makes that pitch, your instinct automatically is to believe that, for commercial competitive reasons, we have got a problem and we have to deal with it. It is a very clever strategy to get everybody hyped up and achieve a domino effect. I do not blame them for doing it, but I am certainly glad we have had your input. We now have a much more balanced view of where things really stand.

Mr. Love: You are in the middle of your own investigation, of course, but I think the message we will take away is that there is a certain amount of skepticism on your side. Would that be totally wrong?

The Chairman: No, not in the slightest.

Mr. Love: Then it has been a very helpful meeting.

The Chairman: Thank you very much. We appreciate your taking the time to talk with us.

The committee adjourned.

---