Iain Gray is with us. I apologise for keeping you waiting, minister. We were not quorate at 9.15, but you can rest assured that I shall deal with that when the rest of the committee appears.
I am happy to say a few words about the Limited Liability Partnerships Act 2000 and the new form of business association that it will bring about: the limited liability partnership. Such a partnership will combine the organisational flexibility and tax status of a partnership with limited liability for its members. That limited liability is possible because the partnership is a legal person separate from its members. That means that a partnership will be able to enter into contracts and hold property and will be able to continue in existence even when there are changes in its membership. A limited liability partnership is therefore rather closer to a company than to a partnership; that has been the guide to framing the regulations.
Members will note that the Subordinate Legislation Committee considered the instrument on 27 February and had no comment to make.
As you would expect, the most significant consultation on the new form of partnership took place before the initial legislation was introduced. The DTI distributed a pre-legislative consultation paper to about 2,000 organisations and individuals, but the department reckons that 5,000 received it. The bulk of the 5,000 were businesses and professional associations that represented or had an interest in the professions that might take up this new kind of business association. Their response was very largely positive, because they felt that such an association would give some protection to professionals who were members of partnerships.
Okay. We have up to 90 minutes for discussion, if we need it.
We could read through the regulations slowly.
I do not intend to take up 90 minutes. The explanatory note to the regulations makes it clear why we are taking this route and highlights some of the pitfalls if we did not, such as the possibility that businesses would leave the UK for more advantageous regimes elsewhere. Although I understand the positive aspects of the proposal for companies, does it have any down sides?
It is difficult to see any. Although the change will certainly give significant protection to members of partnerships, the key point is that the existing forms of partnership for some of the professions now seem very outdated. They date back to a time when professional partnerships were small and local, whereas such partnerships are now increasingly UK-wide and international. As a result, the liability that falls on a member of a partnership can be terrifying. The legislation modernises a kind of association that is past its time.
I apologise for briefly detaining the minister outside the committee room.
Very much so.
What was their reaction?
The response has been almost entirely positive, for the reasons that I outlined in my response to Mr Barrie. The consultees certainly believed that the proposal would give appropriate and additional protection to professionals in partnerships, which would obviously include the members of chambers of commerce.
I have no further questions, and I certainly do not want to hold up the legislation.
Minister, I heard your comments about the DTI consultation. However, why were consumer groups not included in that process?
They were to some extent. The Consumer Association and the National Council for Voluntary Organisations were both consulted, on the assumption that they would both further consult their membership. It would be only honest to point out that, compared with the much larger number of businesses and professional organisations that were consulted, those organisations formed a relatively small part of the process. However, they were not excluded.
Did the consumer organisations flag up any issues in the consultation?
No. They felt that the change was both appropriate and overdue.
On balance, professionals and businesses have chosen to form partnerships instead of companies. Will the regulations overall mean that the benefits of the partnership structure will remain, but that the members of partnerships will be protected because they will no longer be jointly or severally liable?
That is correct.
What are the benefits of the legislation?
As you have pointed out, there are benefits as far as the liability of members of the partnership is concerned. Furthermore, the legislation will give partnerships access to some elements of the tax regime that they do not yet have.
Do the new regulations mean that there will be other burdens for a new partnership under the Companies Act 1985?
Yes. The new limited liability partnership carries some burdens that are very similar to current burdens on companies such as the requirement to produce an annual report and accounts. If we were asked about the difference between a very large partnership under the LLP regulations and a small company, the answer would be not a great deal.
So the net effect of winding up a partnership under these regulations would be almost similar to winding up a company under the Companies Act 1985.
Absolutely. Indeed, some of the regulations that are before the committee today will ensure that the Scots law that applies to such circumstances will include LLPs and companies.
If there are no further questions, I will put the question on the motion. The question is, that motion S1M-1701, in the name of Iain Gray, be agreed to. Are we agreed?
Motion agreed to.
That the Justice 2 Committee recommends that the draft Limited Liability Partnerships (Scotland) Regulations 2001 be approved.
We agreed under item 1 that the committee would go into private session for items 3, 4 and 5.
Meeting continued in private.
Meeting continued public.
At this point, I want to put on record the apologies that I should have read out under item 1. We have apologies from Christine Grahame, who is unwell today, and Euan Robson, who, as members may know, has been promoted and will no longer serve on the Justice 2 Committee. We will find out in due course who Euan Robson's replacement will be.
It is important to realise that the regulations that are being discussed today serve only to implement the European Council regulation on jurisdiction and the recognition and enforcement of judgments in matrimonial matters and in matters of parental responsibility for children of both spouses, which for reasons that I imagine are fairly obvious is colloquially known as Brussels II.
That said, it is the role of this committee to examine what the practical effect of regulations might be. The difficulty that we have found with this regulation is in determining its practical effect. Can you give us an indication of what it might mean?
I appreciate that the statutory instrument presents that difficulty. It has to be read in conjunction with the Council regulation because that regulation determines the changes in the law. Essentially, the regulation makes changes to the jurisdiction in matters of divorce, separation, annulment of marriage and parental responsibility orders that relate to children of both parties of the marriage, providing those parental responsibility orders are dealt with at the same time as the divorce proceedings.
Are there any contradictions between Scots law and European Community law under the regulations?
The legal order for external jurisdiction arrangements, which is governed by the Domicile and Matrimonial Proceedings Act 1973, has been changed because there are fundamentally different rules of jurisdiction in Brussels II. The pre-existing regime was founded on domicile and habitual residence for one year in Scotland. The new regime is founded primarily on habitual residence, although there is a residual domicile order, provided there has been habitual residence for six months. In a sense, that inverts the jurisdictional arrangements.
The regulation applies to the children of both spouses. What is the position for the children of further relationships?
Those children are not within the scope of the Brussels II regulation. Let us look at the example of a couple who are getting divorced. One of the party has been married before, has children from a previous marriage and they live together in one family unit. At the same time as the divorce action is taking place, an action for a parental responsibility order is being undertaken as part of that divorce action. If the Brussels II regulation is being followed, the action for parental responsibility can apply only to the children of the parties that are getting divorced or separated; it does not cover children of a previous marriage.
That distinction is made?
Yes, because of the narrow scope of the Brussels II regulation. As we were making space in our domestic legislation for the provisions in the regulation, we were unable to amend domestic legislation to take account of that situation.
Would that situation apply even if those stepchildren had been adopted by the step-parent?
No, they would then be considered to be children of both parents.
As the regulation is now law, I assume that we have to work out how to apply the law correctly in our legal system.
Yes.
Are you saying that because only a narrow field of the law has been affected by this new European law, there is scope to amend the regulation, having seen how the legislation is working in practice?
We have no scope to amend the regulation by domestic legislation—
Not this one.
What development there may be in the Community legal order is a separate question. We are addressing the regulation as it stands. With respect, I have to say that anything else is irrelevant for our present purposes.
Is a differentiation made between children who consider themselves part of one family when that family legally breaks up? We have introduced a law that determines how some children are to be treated as opposed to others. Surely the decision taken as regards custody and access should reflect what the children think?
Yes, but if an action for access and parental responsibility is taken completely separately from the divorce action, the provisions of Brussels II and the subsequent amendments to the domestic law do not apply.
I understand that, but wonder why we went to the bother of introducing this legislation.
We were obliged to make provision in our domestic law for it, as European regulations are directly applicable.
The regulation amends four pieces of domestic legislation. The Subordinate Legislation Committee was concerned that insufficient detail was given in the background notes to explain how the regulation affects Scots law. That concern has affected some of our lines of questioning today.
Mr Beaton's experience of the negotiations that led to the Brussels II convention make him better placed to answer that question, as the regulation is subsequent to the convention.
The Brussels II regulation was introduced under title 4 of the treaty that established the European Community and followed the Treaty of Amsterdam coming into force. The United Kingdom Government took a political decision to opt in to the negotiations that led to the adoption of this instrument. The United Kingdom and Ireland have a protocol to the Treaty of Amsterdam that disapplies title 4 in relation to any proposals that are made unless the United Kingdom and/or Ireland indicate within three months of any proposal being made that they wish to opt in to the negotiations.
Did people raise anxieties during the limited consultation that took place, or were they happy with what they saw?
I cannot say that there was very much response on the substance but, during the consultation on the Brussels II convention, a number of people expressed concerns. There was also parliamentary scrutiny at Westminster, where certain points were made. However, the political decision that was agreed to by the Council of Ministers took into account certain of those concerns, but not all of them.
Mr Beaton said that one of the practical effects of the regulation is that a person who had been living outwith Scotland could not raise an action in the first six months of their return to Scotland. Is that seen as a disadvantage?
It is difficult to evaluate. One of the purposes of this instrument is to try to stop parallel actions. For the record, the origin of Brussels II was a concern about cross-border divorces involving certain member states of the European Community, notably France and Germany, where there was thought to be a problem of parallel actions. There was no international legal order to deal with that. The intention was to ensure that where spouses split up and departed to their states of origin, or to two separate states within the Community, there would not be two actions leading perhaps to inconsistent results.
One of the advantages of being part of the European Community is that a citizen can go to their local court and enforce European Community law; that is what is supposed to happen. I see a disadvantage for someone who is Scottish and has been away and come back; they have to wait six months. I hear what you are saying about how issues of jurisdiction and conflicting legal decisions across two countries can be tidied up, but do you agree that it is a disadvantage to the ordinary person if they have to wait six months to raise an action? That is a long time to wait.
Anyone could take a qualitative view on that, but I would not like to comment directly on whether it is a disadvantage or an advantage. It funnels back into policy on divorce and family law generally. It has been argued by commentators that there is a disadvantage, particularly in the United Kingdom, where the revival of the domicile of origin allows an action to be raised on the connecting factor of domicile. It should be remembered that the habitual residence ground that was available under the Domicile and Matrimonial Proceedings Act 1973 required habitual residence for a year. That is retained in article 2 of the regulation as one of the connecting factors:
Are there any other questions?
I wish to unpick that a wee bit. You said that you do not want to comment on some of the objections. Why? Is it because of the source of the comments?
They are not necessarily directly relevant to the business that we are dealing with, it would take us quite a long time to get into them and it would probably be material for a tutorial on family law. I am not the best qualified person to do that.
No, my head is nipping already, but we will have to revisit this area, so we should bear in mind that objections were raised to this particular part of the regulation. When we come to consider this again, it may be interesting to hear then what the objections were.
I do not think that there is an answer to that. We will close the questioning. I thank Peter Beaton and Kirsty Finlay for the time that they have spent at the committee this morning. It has been useful.