HL Deb 20 April 1989 vol 506 cc945-76

8.15 p.m.

Consideration of amendments on Report resumed.

Clause 108 [Temporary restrictions on share dealings]:

Lord Brabazon of Tara moved Amendment No. 148F:

Page 114, line 327, at end insert— ("(4M) Nothing in subsection (4A) of this section makes anything done by a person outside the United Kingdom unlawful unless he is—

  1. (a) a British citizen, a British Dependent Territories citizen, a British Overseas citizen or a British National (Overseas),
  2. (b) a body corporate incorporated under the law of the United Kingdom or of a part of the United Kingdom, or
  3. (c) a person carrying on business in the United Kingdom, either alone or in partnership with one or more other persons.").

The noble Lord said: My Lords, the amendment provides for the extraterritorial application of the prohibition on share acquisitions following a merger reference. Outside the United Kingdom, it will apply only to the various classes of British citizens or United Kingdom companies and persons carrying on business in the United Kingdom. I beg to move.

On Question, amendment agreed to.

Lord Morris moved Amendment No. 148G:

After clause 109, insert the following new clause:

("Public Interest.

. In section 84(1) of the Fair Trading Act 1973 delete the words "among other things".").

The noble Lord said: My Lords, it is not often that one rises confident that one is moving an amendment that will be accepted by Her Majesty's Government. I am confident because all I am attempting to do is to amend the present law to fall in line with the apparent interpretation by the commission of its duties and functions within the law.

As your Lordships will be aware, Section 81(1) of the Fair Trading Act 1973 states that the commission, in determining for any purposes to which this section applies whether any particular matter operates, or may be expected to operate, against the public interest, the Commission shall take into account all matters which appear to them in the particular circumstances to be relevant and, among other things, shall have regard to the desirability", of paragraphs (a), (b), (c), (d) and (e), which refer in the main to competition.

The noble Lords, Lord Williams of Elvel and Lord Lloyd of Kilgerran, in earlier discussions today, suggested that competition was the main prong of the functions and duties of the Monopolies and Mergers Commission. With respect, I believe that position is wrong because the competition element of the functions comes within "among other things"; in other words, at best it ranks in importance pari passu with any other relevant matters which appear to the commission to be against the public interest.

As recent history has made clear on numerous occasions, it is apparently the view of the Monopolies and Mergers Commission and Her Majesty's Government that the only matter that should excite the public interest is competition. I shall give one brief illustration. My noble friend Lord Erroll of Hale asked my noble friend the Secretary of State for Trade and Industry whether it was in the public interest to ensure that those who endeavoured to take over a company should be seen—in his colourful phrase—as squeaky clean. My noble friend's bland answer to that was, no. What he meant was that the question of probity was absolutely central to the public interest in the determination of whether a merger or takeover should be referred to the Monopolies and Mergers Commission.

That is the kind of issue which I believe is causing much concern in the country. However, since that is the position of Her Majesty's Government and appears to be the position of the Monopolies and Mergers Commission, I think that the only decent thing to do is to get the law right, to rewrite the law so that it is in line with that somewhat strange policy which Her Majesty's Government appear to be following. That is the effect of the amendment, as I see it, to delete the words "among other things" because Her Majesty' Government's view with regard to competition is not that it is "among other things", it is that it is the absolute central plank of their thinking. I do not feel that there is any matter of public interest which Her Majesty's Government wish to be considered other than competition. I beg to move.

Lord Williams of Elvel

My Lords, the noble Lord, Lord Morris, has drawn our attention to what I always thought was a drafting point. He has explained that it is not a drafting point but a point of central interest. I am bound to say that I have read Section 84 of the Fair Trading Act 100 times or 200 times in the course of my career. It has never occurred to me that the expression "among other things" inserted in it demotes the various criteria in Section 84 to matters which can be considered along with other things which are unspecified. It seems to me that the noble Lord has produced an amendment which the Government would do well to accept.

Lord Brabazon of Tara

My Lords, there were a number of discussions during the Committee stage about the public interest test set out in Section 84 of the Fair Trading Act. Many of your Lordships will therefore know that the section requires the Monopolies and Mergers Commission, in deciding whether something is against the public interest, to take into account all matters that appear to it to be relevant. It goes on to give a list of particular matters to which it must have regard. The list is inclusive, not exclusive. This amendment seems designed to remove the inclusivity so that the MMC would be required only to have regard to the desirability of those matters specified.

The list is quite wide-ranging: it includes maintaining and promoting competition, promoting the interests of consumers, promoting the development of new techniques and new market entry, maintaining and promoting the balanced distribution of industry and employment in the UK and promoting competitive exports. But it is not comprehensive, and was never designed to be. There will from time to time be matters which clearly concern the public interest but which are not mentioned here.

If I could mention one or two, there is the question of leveraging, which I know concerned some of your Lordships. The MMC looked at that in a case a couple of years ago and took the view then that the leveraging involved would not make the merger operate against the public interest. But this was a view on balance, as all its findings must be, weighing one factor against another. The amendment would make it difficult for the MMC— —

Lord Williams of Elvel

My Lords, I am sorry to intervene, but does "leveraging" come under the heading of "other things"? Is that what the noble Lord is saying?

Lord Brabazon of Tara

Yes, my Lords, that is what I am trying to explain. It is something which must or could be taken into account, and it was on this occasion. But this amendment would make it more difficult for the MMC to base an adverse public interest finding on a factor not listed here, and so less weight would be attached to such factors.

Another instance, about which I know my noble friend has been concerned, is evidence emerging from an inquiry under the Companies Acts. Given the interest of my noble friend in one particular case, I was in fact rather surprised by his amendment. As my noble friend the Secretary of State explained during Committee, if such an inquiry were to reveal new material facts concerning a merger, he would have the power to refer the merger back to the MMC. He might or might not choose to exercise that power. But the effect of this amendment could be to hamper the MMC in assessing the public interest in the light of these new facts, if they did not fall under one of the existing factors. This would of course be relevant to my noble friend's consideration of whether to make a reference. There would be little point in his doing so if the MMC were then precluded from reaching an adverse public interest finding on the basis of these new facts.

Noble Lords will say that if there are other matters which could be relevant, let them be spelled out as well, so that the list is exhaustive. But no list of this kind can ever be exhaustive. Other matters will crop up from time to time to which it would be desirable to have regard. If I could tell your Lordships what they all were, we would not need the generality in the section at present. To return to leveraging, that is a relatively recent phenomenon; it would simply not have entered anybody's mind in 1973. I am sure that there will be others in the future, but by definition I do not know what they are. Naturally, since the references are usually made on competition grounds, that is what the MMC will look at, but it needs to be able to look at other factors, including benefits which offset any damage to competition.

The test as it stands has stood the test of time, and we need to be wary of making changes without very good reason. My noble friend's amendment, by making it harder for the MMC to take into account matters put to it outside those specified, would limit its flexibility to deal with new or unusual issues. It is difficult to see how that could help anyone, and I very much hope that, with the explanation I have given, my noble friend will feel able to withdraw the amendment.

Lord Morris

My Lords, of course I shall be able to withdraw the amendment. I am astonished that my noble friend thought that I would not be aware of the flaw in the drafting of the amendment. It was quite deliberate, in the sense that I had no intention whatsoever of limiting the ability of the Monopolies and Mergers Commission to look at these matters.

I merely wished to highlight the fact that it appeared that the commission did not look at these matters in the way that I read the legislation, as providing that it had a duty so to do. In light of what my noble friend and other noble Lords have said, I shall of course withdraw the amendment. However, I wish to state again that there is considerable concern that not only the City but Her Majesty's Government will bring themselves into serious difficulties if mergers are allowed to proceed at the same time as the Department of Trade and Industry is investigating matters under other parts of the statute. I believe that the matter needs to be looked into very carefully. With those short remarks, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.30 p.m.

Lord Lloyd of Kilgerran moved Amendment No. 148H:

After Clause 109, insert the following new clause:

("Takeover bids

  1. (1) The Secretary of State shall designate a Takeover Panel, (in this Act referred to as "the Panel") for the regulation of takeover bids and other general bids to the holders of securities or the securities of a particular class or classes of any United Kingdom public limited company.
  2. (2) The Secretary of State shall choose the members of the Panel in consultation with the Governor of the Bank of England either as full time members or as part time members.
  3. (3) The Secretary of State shall publish a Code of Practice setting out general principles relating to the functions of the Panel and the status and terms of office of such members and staff as is considered desirable in the prevailing circumstances.
  4. (4) No appeal shall lie from the final decision of the Panel save that such decision may be subject to judicial review.").

The noble Lord said: My Lords, I feel that I ought first to say why I put down this amendment relating to takeover bids. There were two reasons. The action arose because of my careful reading of what happened at the Committee stage, particularly on 21st February and 6th March. A number of distinguished members of the Takeover Panel, like the noble Lords, Lord Elton and Lord Boardman, and the noble and learned Lord, Lord Roskill, spoke about its activities. I examined what they said very carefully, and that was my first reason for putting down the amendment.

The second reason was that the noble Lord, Lord Williams, and I had drawn the attention of the Government at certain times during the Committee stage to Article 6 of the thirteenth directive which, as I understand it, is under discussion. Under the heading "Supervisory Authority", Clause 1 says: Member States shall designate the authority or authorities which must discharge the functions specified in this directive". I ought to have mentioned that I have read the speech of the noble Lord, Lord Cockfield, on 6th March to which I shall refer later. It may be helpful if I indicate the salient points of my amendment. The first subsection of my proposed new clause states: The Secretary of State shall designate a Takeover Panel". That complies with what Article 6 of the thirteenth directive indicates. The first subsection continues: for the regulation of takeover bids and other general bids to the holders of securities or the securities; of a particular class or classes of any United Kingdom public limited company". I say at once that I am in no way denigrating the work that has been carried out by the present Takeover Panel over the past 20 years, nor of course any of the members of that distinguished panel.

The second subsection of the proposed new clause states: The Secretary of State shall choose the members of the Panel in consultation with the Governor of the Bank of England either as full time members or as part time members". The present position, I understand, is that the Takeover Panel is appointed by the governor general alone. Under the thirteenth directive it is suggested that member states should designate the authority or authorities which are to deal with this matter. Therefore it seems to me to be proper that, somehow or other, the Secretary of State should be brought into these matters, and that he, in collaboration with the Bank of England, should choose the members. That does not go very far away from the present position, except that the Secretary of State is brought in as a kind of titular head, and he has to consult with the Governor of the Bank of England.

The third subsection of the proposed new clause of my amendment states: The Secretary of State shall publish a Code of Practice". He would of course do that in collaboration with the panel. My amendment continues: setting out general principles relating to the functions of the Panel and the status and terms of office of such members and staff as is considered desirable in the prevailing, circumstances". It concludes with the words: No appeal shall lie from the final decision of the Panel save that such decision may be subject to judicial review". I shall deal with subsection (4) in my proposed new clause first. I had thought that I had misunderstood what the noble and learned Lord, Lord Roskill, had said on the position of the Takeover Panel as regards judicial review. A number of attempts had been made, according to the noble and learned Lord, to undertake a judicial review of some of the decisions of the panel. I understood that it was not considered that judicial review would apply to the panel.

Having heard whit the noble and learned Lord the Lord Chancellor said in reply to a Question earlier this week, I think I am wrong about that, and from an informal talk I had with him during supper tonight, I believe he felt that, although judicial review is a creation of judges, it does apply to the panel.

I wish to draw attention to the words of the noble Lord, Lord Cockfield, when intervening in the course of a long discussion arising out of an amendment on takeover offers moved by the noble Lord, Lord Williams of Elvel. The noble Lord, Lord Cockfield, referred to the thirteenth directive and said: Without wishing to debate the directive in. detail, we must bear in mind that Community legislation applies to all 12 member states. It is one thing to have a voluntary system for ourselves, but there are very soon complaints about voluntary systems operated by other people. It is for that reason that we need at least a minimum framework of Community law. The thirteenth directive set out to provide no more than the absolute minimum framework that was required".—[Official Report, 6/3/89; col. 1295.] Suggesting that the Takeover Panel should be designated by the Secretary of State, in collaboration with the Bank of England, seems to me to be appropriate in the present circumstances.

The next point to which I think it is worth while drawing noble Lords' attention is the speech made by the noble Lord, Lord Alexander of Weedon, as referred to in a recent copy of The Times. I apologise that I do not have the date of that article, but it appeared fairly recently. The article stated that the noble Lord highlighted: areas of potential conflict between European Commission proposals for policing takeovers and Britain's non-statutory system in which the Panel plays a central role The article was written by Mr. John Bell, the City editor of The Times. It quotes the noble Lord, Lord Alexander of Weedon, who describes Britain's takeover regime as: 'arguably the world's most effective'". The article continues: Lord Alexander expresses confidence that a way forward will be found which leaves the essence of the Panel system intact". In my submission, my amendment leaves the essence of the panel system intact because all I am doing is seeking to bring the Secretary of State, as a designated authority, to collaborate with the Bank of England for the appointment of the members of the panel.

In conclusion, I crave in aid what the noble Lord, Lord Hesketh, said as recorded in Hansard on 22nd March 1989, when your Lordships were discussing the matter of non-elected body appointments—known as "the Patronage Bill". I apologise for the fact that I did not notify the noble Lord that I was going to bring him into the arena, as it were, by this, but it will not be too dangerous for him. In closing the debate on non-elected bodies he said: I can only reiterate that we believe we have made a contribution towards reducing the number of quangos in the country".—[Official Report, 22/3/89; col. 726.] Naturally, the noble Lord is speaking on behalf of the Government there. He continued at column 726: Further, we believe that there is a misconception that the setting up of bodies is in some sense undemocratic. The Government's actions give effect to the wishes of the people who elected them with a majority". I pass over that fairly quickly, as noble Lords will expect. Now I come to the really crucial point in the noble Lord's speech which I crave in aid. He said, again at column 726: Moreover, the Government continue to be answerable to Parliament, and to the electorate, for what they do. That includes justifying the decision to set up new bodies and the appointments made to them". If my amendment includes a new body, it is a new body which the noble Lord has approved. He has just entered the Chamber and is looking with astonishment at me. I assure him that I have been very kind to him and that I have supported wholly what he has said. I shall go down in posterity as having craved the support of a distinguished Minister of this Government. I am much obliged to him.

However, all I am suggesting in the amendment is that the Secretary of State should collaborate with the Bank of England. If we must call that a new body, let us do so. However, it is a reasonable new body and conforms with the basic framework of the thirteenth directive. I beg to move.

Lord Williams of Elvel

My Lords, we support the noble Lord, Lord Lloyd of Kilgerran, in his amendment. Before he started speaking, I had no idea he would pray in aid words of the noble Lord, Lord Hesketh. It was an intervention that I can only describe as almost divine that the noble Lord happened to enter the Chamber at the point at which the noble Lord, Lord Lloyd of Kilgerran, was praying him in aid. I am sorry that he is not going to take up his position on the Government Front Bench to respond to the points that the noble Lord made.

The arguments in favour of this amendment have been rehearsed a number of times. I cannot add to them other than to say that in our debate in Committee we discussed the membership of the panel. It was significant that a number of noble Lords opposite, and indeed noble Lords to my left were members of the Takeover Panel, but I could not discover any member of the Takeover Panel on my Benches, or indeed on the Benches to my right. I think that there is a problem here which needs to be addressed. The Takeover Panel is not simply a City body composed of people who happen to be friends of the Governor of the Bank of England. It is meant to be a body which exercises a judicial and quasi-judicial function.

I hope very much that the Government will pay attention to what the noble Lord, Lord Lloyd, has said. Even if they cannot accept his amendment, I hope that they will indicate that there will be a widening of the membership of the panel to meet the arguments that we put forward in Committee and to make sure that consumers, employees and others have a proper voice on the panel.

8.45 p.m.

Lord Boardman

My Lords, I have to declare an interest as a member of the Takeover Panel. I am sorry that the chairman of the panel, my noble friend Lord Alexander of Weedon, has had to leave the Chamber and is unable to be here because I know that he wanted to take part in the debate.

I am surprised that the noble Lord, Lord Lloyd of Kilgerran, has introduced the amendment. It is a point of principle which was debated very fully in Committee and the amendment put down by the noble Lord, Lord Williams of Elvel, was overwhelmingly defeated when put to the vote. The issues that have been raised today were raised and debated on that occasion.

The second reason why I am surprised that the noble Lord, Lord Lloyd, introduced the amendment is that on this occasion he has gone even further than the noble Lord, Lord Williams, and introduced the Secretary of State. I should have thought that he would find the greater bureaucracy which would inevitably result even more offensive than the introduction of the SIB which the noble Lord, Lord Williams proposed.

The noble Lord expressed concern in Committee, as he has today, about the effect of the thirteenth directive. I am not sure that when he quoted my noble friend Lord Cockfield he quoted the part of the intervention which was most relevant. The point that worried him seemed to be that the directive would mean that the Takeover Panel as it now operates would cease to have an effective role. I suppose that there is no greater authority in this House on EC directives than my noble friend Lord Cockfield. He said: I am sure that once a directive is examined in detail it will be seen that it does not undermine the operations of the Takeover Panel. We went to quite extraordinary lengths to ensure that the Takeover Panel was left untouched as far as possible by the thirteenth directive".—[0fficiat Report 6/3/89; col. 1295). I should have hoped that would have consoled the noble Lord in respect of that point.

Another point with which the noble Lord, Lord Lloyd of Kilgerran, was concerned at Committee stage was that, according to the wording of Article 6 of the draft directive: the authorities and, where appropriate, the associations or private bodies referred to … must have all the necessary powers to ensure that this Directive is put into effect". I should have hoped that the noble Lord would have recalled what my noble friend Lord Young of Graffham said at Committee stage. On that very important point he said: The SIB and the self-regulatory organisations have made it clear that their sanctions are available to be used against authorised persons who show themselves not to be 'fit and proper' by breaking the takeover code. They have adopted 'cold-shoulder' rules requiring investment businesses not to act for individuals or companies who the businesses have reason to believe will not comply with the code. They also have rules requiring authorised persons to co-operate with the panel's inquiries and investigations".—[Official Report, 6/3/89; col. 1300.] The powers of enforcement of the Takeover Panel are substantial and in practice have proved to be very effective.

There remains a great deal of discussion on the thirteenth directive. I assume that those discussions are taking place between the Government and Brussels, and the Takeover Panel, the authorities in Brussels and the Government. I am sure that they are very sensitive discussions and I do not know what line they are taking. But it is right and important that we should have a system here that is not distorted by the thirteenth directive.

The point was made very forcefully by the noble and learned Lord, Lord Roskill, in Committee that the directive was not as powerful as the powers of the Takeover Panel. We believe that London, as a great financial centre, should have strict and well enforced rules, but those rules should include the degree of flexibility and power to adjust which is necessary to match the highly changing scene in the financial world.

There have been very few complaints. The appeals tribunal, on which the noble and learned Lord, Lord Roskill sits, has had to consider very few, if any, appeals. The noble and learned Lord pointed out that there is the possibility for judicial review. He referred to there having been three cases which have gone to judicial review: two were not accepted and one failed. The power for judicial review exists but the extent to which the appeals procedure has had to be invoked shows the acceptance by all parties—despite disappointments—of the fairness with which people believe assessment has been made.

The noble Lord, Lord Lloyd of Kilgerran, referred to appointments to the panel. He suggested that it was insufficient that they should be made by the Governor of the Bank of England. I do not know how the system works, but I am confident that the Governor would make appointments only after very full consultation with all interested parties. Appointments are made on a representative basis; for example, I serve on the panel as a representative of the clearing banks—the CLSB. Similarly, members of the panel represent the insurance industry, the CBI and similar bodies. I should have thought that representation was highly satisfactory.

Lord Williams of Elvel

My Lords, can the noble Lord say which member of the panel represents the Trades Union Congress?

Lord Boardman

My Lords, I do not recall seeing a representative of the Trades Union Congress on the panel. However, I stand open to correction and I am sure that the noble Lord will check whether or not that is the case. The panel's members represent a broad selection of people with knowledge and experience in the interests of those for whom the panel was set up, namely for the defence and protection of the investors.

I shall not go over the ground which was covered in Committee except to say that I believe that the panel does a very good job. It has that flexibility which is necessary in a changing financial scene. The noble Lord himself said that he had no cause to denigrate what the panel has done. There is the old saying, "If it's not broke, don't fix it". I believe that that applies here, provided one is not complacent. That is not the case; it is an evolving situation. Rules are changed and introduced to take account of developments in the financial market.

With all the prejudice of one who is privileged to sit on the panel now and again, I believe that it does a very good job. Let us not interfere with that unless we have some really good cause to do so. Let us leave it to try to work out with government, and with Brussels, how to meld in with the directive to make sure that nothing destroys the effectiveness of what I believe is an extremely effective panel.

Lord Lloyd of Kilgerran

My Lords, did not the noble and learned Lord, Lord Roskill, say that the Takeover Panel is at the present time actively considering fundamental changes in its procedures?

Lord Boardman

My Lords, no. I believe that I prompted the point that was raised; namely, that a working party had been looking at a whole variety of changes that may be necessary. Earlier in today's proceedings, reference was made to leverage bids. If such measures are introduced, it is necessary to look at the rules and see what changes are required in order to cope with them. This is a continuing process. There are a number of areas that have caused concern in the last year or so. I know that those matters are being reviewed. The panel is not making any fundamental changes of structure, but it is making sure that its rules evolve and develop to meet the changing conditions of the financial world.

Lord Morris

My Lords, my noble friend Lord Boardman took the noble Lord, Lord Lloyd of Kilgerran, to task for raising this issue at Report stage. With great respect, my noble friend is quite wrong to take issue with that. He has confused the rules of procedure for the Report stage of the Bill with those for the Third Reading of the Bill. The noble Lord is absolutely at liberty to bring in a new series of amendments which raise points related to the original point.

I support the amendment. I have a great deal of sympathy for those who say that there should be self-regulation rather than regulation by government. However, if one looks at the composition of the Takeover Panel, I do not think that one could blame the man in the street for coming to the conclusion that it certainly looks as though the City of London has been judge and jury in its own courts. By that, I am in no way suggesting bad faith. Given that, as happened recently, the Takeover Panel came to a decision at 9 o'clock in the morning and the Government came to a totally different decision at 9.30 in the morning, it would not be a bad thing if the Takeover Panel had a good look at its procedures and practices—as it no doubt has a regulatory means of doing—and, above all, its membership. It must do so in an attempt to maintain the good name of the City of London, which is critically important, but which does not at the moment look too good if one examines the City press on a daily basis.

Lord Brabazon of Tara

My Lords, as noble Lords have said, we are back on familiar ground which was debated in Committee as to the status of the Takover Panel and the takeover code. The main purpose of the amendment moved then by the noble Lord, Lord Williams of Elvel, was that there was difficulty in running two systems—one under the Financial Services Act and one operated by the panel—in parallel. My noble friend the Secretary of State for Trade and Industry and other noble Lords with experience in these matters explained that in fact the arrangements for co-operation between the two systems worked excellently. The amendment before us now is not designed to tackle that issue. It provides for a Takeover Panel to be designated by the Secretary of State, not by the Securities and Investments Board. The panel would continue to operate outside the ambit of the Financial Services Act. However, the essential issue that noble Lords are asked to consider is the same as that discussed in Committee. It is whether there is a need to change the status of the panel from that of a voluntary body to one which operates under statute.

I recognise that the amendment of the noble Lord, Lord Lloyd of Kilgerran, has, in common with that discussed in Committee, the intention of maintaining the existing relationship of the panel with the courts, together with all the advantages which that entails. The Government believe that there are a number of reasons why it is unnecessary and undesirable to give the panel a formal basis under statute while attempting to limit the role of the courts.

The amendment is unnecessary for the reasons given by my noble friend the Secretary of State in Committee. The panel has operated effectively since it was established in 1968. It has gone from strength to strength under the chairmanship of my noble friend Lord Alexander of Weedon and I am sure that it will continue to do so under its new chairman when he takes office. I am sorry that my noble friend Lord Alexander of Weedon was not able to stay for this part of the debate. There is no need to give the Secretary of State responsibility for the membership of the panel or for the general principles that it operates under. The members of the Takeover Panel are appointed on a non-party basis and the general principles of the takeover code are expressly designed to carry out the purpose of protecting the interest of shareholders. Bringing the panel under statute will not make the system work any better than it does at present.

The absence of any need for a change in the system would, of itself, be a sufficient argument against the amendment. I believe, however, that the consequences of the amendment could in themselves be undesirable. The difficulties relate principally to subsections (3) and (4) of the proposed new clause. Subsection (3) proposes that the Secretary of State should publish a code of practice setting out general principles. The assumption is that the panel would then make rules which are consistent with the general principles. The general principles may address not only the type of conduct to be followed in takeovers, but also the status of the members and staff of the panel. Nothing is said, however, as to the legal effect which either the code or any rules will have; they might be legally binding or they might not. They might give rise to actions in the courts if they are breached or they might not. Their status is left wholly unclear and that is undesirable in itself.

Lord Lloyd of Kilgerran

My Lords, in subsection (4) of my amendment, I say: No appeal shall lie from the final decision of the Panel". That would therefore limit any court action. I withdrew the second part of that provision, to the effect that it was not necessary to include the fact that the panel should have been the subject of judicial review. I misread what the noble and learned Lord, Lord Roskill, said. However, legal matters can come to an end. There are no court proceedings, except judicial review, which can lie from the final decision.

Lord Brabazon of Tara

My Lords, I was just about to come to subsection (4) which is an attempt to constrain the ability of the courts to intervene on panel decisions. The important point is that the subsection would not necessarily achieve its apparent objective of preventing tactical litigation during takeovers. The Court of Appeal has set itself guidelines as to how it will consider applications for judicial review of panel decisions. It has constrained itself from attempting to reverse decisions made by the panel. It is not simply a matter of attempting, as the amendment does, to limit the role of the courts to that of judicial review. The crucial question is the extent to which, if the arrangements proposed by the noble Lord were adopted, the courts would, in undertaking judicial review, be disposed to reverse panel rulings. I hope that that explanation clarifies the point about which the noble Lord was concerned.

I do not think, therefore, that it is possible to be confident that the amendment or any similar provision would be successful in preventing tactical litigation during takeovers. Given the fact that the current system operates well, and that the new clause would add nothing of benefit to it, I do not see the justification for running the risk of upsetting the prevailing approach of the courts to takeover regulation.

Perhaps I may deal briefly with the 13th directive to which the noble Lord, Lord Lloyd of Kilgerran, and my noble friend Lord Boardman referred. The effect of the directive on the Takeover Panel was discussed in Committee where my noble friend the Secretary of State made clear our view that the directive should allow for non-legally binding rules. This is something that we shall continue to discuss with the Commission and with other member states. The comments of my noble friend Lord Cockfield in Committee have been quoted. He noted in Committee that it was premature to be discussing implementation of the directive. There is a long way to go in Brussels before a text of a directive can finally be agreed. It would be curious for Parliament to attempt to legislate for a Commission proposal which has not even been considered by the Council of Ministers, let alone adopted.

I believe that the amendment takes us no further than the one discussed in Committee. It does not avoid the pitfalls of the previous amendment, nor does it add anything beneficial to the existing system of regulation. The question for noble Lords is essentially the same as that which was answered by the Committee. Is there a case now for tinkering with a system which has and continues to operate well? The answer is that there is not.

Lord Lloyd of Kilgerran

My Lords, I am sure that the House will be grateful to the noble Lord, Lord Boardman, for having given us his valuable time, staying behind after dinner to explain once again what an admirable organisation is the Takeover Panel. I am sure that his one voice is equivalent to the voices of all the members of the panel who were present earlier but found other more important matters to deal with than speaking about this panel. However, when any cause has a champion such as the noble Lord, Lord Boardman, who else is wanted to support it?

The Minister of course is confused by what was said by his Secretary of State on another occasion for other reasons on a totally different amendment. My amendment is quite different from the one put forward by the noble Lord, Lord Williams. Other than saying that the Government did not want to take the risk of upsetting the panel, the Minister made little contribution to the scope of my amendment. It is interesting to note that the only difference in my amendment in relation to the panel is that the Secretary of State should be involved. The Minister obviously feels that there would be a great risk of upsetting the panel if the Secretary of State were brought in, as I have said, in a consultative capacity.

I am very grateful to the noble Lord, Lord Morris, for his support and am equally glad of that of the noble Lord, Lord Williams. The noble Lord, Lord Morris, indicated one aspect of the views of members of the public in regard to the City. I do not subscribe to all those views but feel that, if the Government could have taken more time to consider my amendment, irrespective of what was said at Committee stage, they would have found it to be a very good measure in the public interest or at least would have had some sympathy with it.

I was glad to hear the Minister and the noble Lord, Lord Boardman, say that they are looking forward—I think that that is the right word to use—to the directive being considered again and that they will be collaborating with the Secretary of State and EC officials in trying to improve (if that is possible) the Takeover Panel. I hope that in those circumstances they will have some regard to my words and those of the noble Lord, Lord Williams, in this field. I do not propose to delay the House any longer. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9 p.m.

Lord Brabazon of Tara moved Amendment No. 148J:

Page 117, line 39, at end insert— ("(11) References in this section to Part V of the Fair Trading Act 1973 and to merger references under section 64 or 75 of that Act or under that Part include sections 28 and 29 of the Water Act 1989 and any reference under section 29 of that Act.".

The noble Lord said: My Lords, this amendment brings water mergers referred to under the new provisions of the Water Bill within the scope of the fees provisions. I beg to move.

Lord Williams of Elvel

My Lords, I wonder whether the noble Lord can tell the House whether it is proper to refer to the Water Act 1989 when in fact there is a Water Bill before this House?

Lord Lloyd of Kilgerran

My Lords, it is not the same thing. It refers to the Water Act but there is no such measure as the Water Act. It might be possible to say what is in the Water Bill of 1989 but not what is in the Act. In any case amendments will be tabled to modify Section 29 of that Bill, not that Act.

Lord Brabazon of Tara

My Lords, I can assure the House that it is certainly not the first time that a measure of this kind has been put forward before a Bill becomes an Act. It is quite common. I cannot personally remember the last time that I experienced it but I have certainly known it to happen. Obviously it is just a matter of convenience to do this at this stage now rather than waiting for something else to happen.

Lord Williams of Elvel

My Lords, before the noble Lord sits down can he tell us how he knows that they will be Sections 29 and 30 of the Water Act? Many new clauses may be put into the Bill in this House, Can he explain how it happens that "1989 c. 00" appears in the rubric?

Lord Brabazon of Tara

My Lords, certainly I cannot explain the last point made by the noble Lord, no. However, I imagine that if the sections of the Water Act change it will be possible to make amendments to this Bill to take care of it.

Lord Lloyd of Kilgerran

My Lords, before the Minister sits down again does he agree that it would be a good idea to withdraw this amendment?

Lord Brabazon of Tara

My Lords, there will be a Water Act by the time this Bill is passed. If the section number is changed by the insertion of other clauses, the number in this Bill will also be changed.

On Question, amendment agreed to.

Schedule 15 [Amendments about mergers and related matters]:

Lord Brabazon of Tara moved Amendment No. 148K:

Page 206, line 42, at end insert— ("4A. In section 67(2)(a) of that Act. for the words from "any enterprise" to the end there is substituted—

  1. "(i) any enterprise which remains under the same ownership and control, or
  2. (ii) if none of the enterprises remains under the same ownership and control, the enterprise having the assets with the highest value, and").

The noble Lord said: My Lords, this amendment clarifies the meaning of part of Section 67(2)(a) of the Fair Trading Act relating to the value of assets taken over.

As many of your Lordships will know, a merger qualifies for investigation under the Fair Trading Act if it creates or enhances a 25 per cent. market share, or if the assets taken over exceed a certain amount—at present £30 million. Section 67(2)(a) indicates how the assets taken over are to be calculated. In most cases, it is a matter of deducting from the total assets involved those of any enterprise which remains under the same ownership and control. This reflects what happens in most mergers, where ownership and control of one or more enterprises is transferred to one or more others whose ownership and control is unchanged.

Sometimes, however, it is more complicated, and none of the enterprises remains under the same ownership and control. This occurs in particular when partnerships merge, as a new partnership is then created out of the old ones, so none of the merging partnerships retains its original identity. The section therefore provides a different method of calculating the assets taken over, where no enterprise remains under the same ownership and control. This is not often the case, so the alternative method of calculation is seldom used.

It has been pointed out to us that the wording of this section in this respect is ambiguous, owing to the way it is set out and punctuated. On one interpretation, the assets of the largest single enterprise alone are looked at. This view has been adopted in certain cases in the past but has the effect of catching takeovers of, for example, very small partnerships by very large ones. We very much doubt whether this was what was intended when the Fair Trading Act was passed. On the other interpretation, the assets taken over are calculated by deducting those of the largest enterprise from the total assets. This is the interpretation that we believe was originally intended. It is the one which we are now applying, and this amendment simply puts it beyond doubt. It provides a small but useful clarification of the Fair Trading Act. I beg to move.

Lord Williams of Elvel

My Lords, will the noble Lord tell us whether ownership and control is defined by Part I or Clause 103 of the Bill?

Lord Brabazon of Tara

My Lords, no. I shall have to write to the noble Lord.

On Question, amendment agreed to.

Lord Brabazon of Tara moved Amendment No. 148L:

Page 207, line 19, at end insert— ("8A. At the end of section 76 of that Act there is added— (2) In exercising his duty under this section the Director shall take into consideration any representations made to him by persons appearing to him to have a substantial interest in any such arrangements or transactions or by bodies appearing to him to represent substantial numbers of persons who have such an interest." ').

The noble Lord said: My Lords, I have spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Lord Brabazon of Tara moved Amendment No. 148M:

Page 210, line 7, at end insert— ("(2) The Monopolies and Mergers Commission (Performance of S.I. 1989/122. Functions) Order 1989 shall have effect as if sub-paragraph (1) above had come into force immediately before the making of the Order.").

The noble Lord said: My Lords, the Monopolies and Mergers Commission (Performance of Functions) Order 1989 reduced the minimum size of groups appointed to carry out MMC investigations from five to three. Your Lordships may recall that, when my noble friend Lord Strathclyde moved the approval of the order, he explained that it did not extend to references made under the Telecommunications Act 1984. This was because the power to amend Schedule 3 to the Fair Trading Act, which deals with MMC procedures, by order was not applied in the Telecommunications Act. This omission is rectified by paragraph 21 of Schedule 15 to the Bill. I beg to move.

Lord Williams of Elvel

My Lords, noble Lords will be aware that when the order was first moved by the noble Lord, Lord Strathclyde, in Committee I opposed the reduction from five to three. I opposed it in Committee; and I oppose it even under the new dispensation for British Telecom. I oppose it now. I feel that the Monopolies and Mergers Commission, which is now required to conduct industrial policy more or less across the whole range of industry in this country, should have a proper balance. A proper balance means more than three on a panel.

The noble Lord, Lord Strathclyde, will be aware that we went though these arguments in Committee. I shall therefore not detain the House any further. However, I do not believe that the Government have got this right.

Lord Brabazon of Tara

My Lords, I am well aware of the concern of the noble Lord, Lord Williams, about this matter. However, I am sure that the noble Lord would agree that it would be undesirable to have an anomaly of this kind in this instance which would mean that the change extended to all references made to the MMC with the sole exception of those under the Telecommunications Act. The amendment merely removes that anomaly. I hope therefore that, although the noble Lord may not agree with the principle, he will recognise that it would be silly to leave an anomaly in this instance.

Lord Williams of Elvel

My Lords, before the noble Lord sits down, will he not agree that it is better to remove the anomaly in the other direction by reinstating the five place of the three-member panels?

Lord Brabazon of Tara

My Lords, no. This issue has been debated at some length. That would be a matter of—I am searching for the expression—the tail wagging the dog. I shall leave it there. The noble Lord knows what I mean.

On Question, amendment agreed to.

Clause 113 [Introductory]:

Lord Strathclyde moved Amendment No. 148M(1):

Leave out Clause 113.

The noble Lord said: My Lords, each of the government amendments to Part VII begins with the prefix 148M. It may be for the convenience of the House if I omit this prefix and refer to each amendment by the number that follows. With leave, I should like to speak to Amendments Nos. 1, 2 and 94.

These are paving or consequential amendments relating to three new clauses. Those new clauses raise substantive issues and I do not propose to debate them at this point. We shall come to those amendments in due course.

The first two amendments replace the existing Clause 113 with a new introductory clause, setting out the purpose of the Part. The purpose remains to safeguard the operation of certain financial markets. But the new clauses make it appropriate to relate that purpose expressly to the rights and remedies dealt with in the new clauses. Those rights and remedies relate to certain property provided as cover for margin in relation to transactions in the market, or to property subject to a market charge.

Amendment No. 94 is consequential on the three new clauses. Those clauses are to be capable of extension, as appropriate, to contracts and charges brought within the scope of the Part by regulations. That applies the same approach as the regulation-making powers already applying to existing provisions in the Bill. I beg to move.

9.15 p.m.

Lord Williams of Elvel

My Lords, it is very welcome to see the noble Lord, Lord Strathclyde, at the Government Dispatch Box yet again, particularly on a subject with which he is familiar, the issue of insolvency. Perhaps I should make clear what is the Opposition's attitude to these amendments, because I do not wish to speak at length on the various amendments as they come forward since there are only two major points that I want to make. I shall make one of them now.

The Government produced a Bill without consultation and have now had to rewrite Part VII. I understood what they were saying when they said that they could not go out to consultation because problems might be associated in the market. Nevertheless, insolvency practitioners have felt aggrieved that the Government produced a Bill and then went out to consultation. Consultation was inevitable once the Bill was produced and so we have had a complete new redraft of this part.

The original draft—I call it a draft but one should really call it the original Bill—seemed to override the whole pari passu principle. That was the argument that the noble Lord, Lord Strathclyde, and I, had in Committee. It seemed to do so by creating a new preferential class of creditor, namely investment exchanges and clearing houses. When in Committee, the Bill appeared to allow for a clearing system to operate when a market organisation became insolvent. That would give market organisations priority over other general creditors. We objected to that. The Government explained that it was not really their intention to bring this into effect. Their intention was simply, as I understand it, to clarify and make certain what is already an accepted practice, namely that a set-off should occur on a bilateral basis at the time when a market organisation becomes insolvent. So far so good, as I understand it.

The only difference is that this one-to-one set-off procedure between insolvent market organisations and other market organisations with which it has market contracts would now occur when the default is declared rather than on the commencement of insolvency. The Bill did not seek to allow for multilateral or pool clearing systems to operate between market organisations.

We believe that with their new amendments the Government have made their intentions—which I have just expressed and which I hope I have expressed fairly to the Government—more understandable and have removed the wholesale abrogation of the pari passu principle. All this could have been avoided had the Government consulted in the first place. There are plenty of good ways of doing that.

My first major point is that I and my advisers believe that the Government have moved towards a principle which is much more coherent with the general principle of the Insolvency Act, which is the pari passu principle. For that reason we generally welcome the amendments, although I have other points to make.

Lord Lloyd of Kilgerran

My Lords, I generally welcome most of these amendments and, like the noble Lord, Lord Williams, I shall save time by indicating what my position is on them.

When I looked through these amendments I looked back at what I refer to as the old numberings of the Bill when it was at the Committee stage. With Amendment No. 148M(43) the Government seek to leave out Clause 119. That was Clause 111 at Committee stage. I could not correlaite how "After Clause 119"in the Marshalled List fitted in with the remarks of the noble Lord, Lord Strathclyde, when dealing with Clause 119, in the form of Clause 111, in the Bill at that stage.

There are a number of these. New clauses have been put in which are totally different in basic principles and many details from what the noble Lord, Lord Strathclyde, said at Committee stage. I shall not cite them. Unless I am tempted to speak I shall say nothing until the House comes to deal with Amendment No. 148M(109). I am glad that I have support for that statement. I hope that noble Lords will not think me discourteous if I disappear for a few moments.

Together with the noble Lord, Lord Williams, I find the new clauses to be a great improvement. I understand from the noble Lord that since producing the original draft the Government have, for the first time, taken advice from insolvency law specialists.

I complain rarely but I should like to put on record the fact that the way in which the Government have dealt with this part of the Bill has caused me to waste a great deal of time in trying to discover the difference between what the noble Lord, Lord Strathclyde, said in Committee and the scope of the various new clauses.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 148M(2):

After Clause 113, insert the following new clause:

("Introductory.

This Part has effect for the purposes of safeguarding the operation of certain financial markets by provisions with respect to—

  1. (a) the insolvency, winding up or default of a person party to transactions in the market (sections 114 to 128),
  2. (b) the effectiveness or enforcement of certain charges given to secure obligations in connection with such transactions (sections 129 to 133), and
  3. (c) rights and remedies in relation to certain property provided as cover for margin in relation to such transactions or subject to such a charge (sections (Application of margin not affected by subsequent interests), (Priority of market charge over unpaid vendor's lien), (Proceedings against market property by unsecured creditor) and (Power to apply provisions to other cases)).").

On Question, amendment agreed to.

Clause 114 [Market contracts]:

Lord Strathclyde moved Amendment No. 148M(3):

Page 118, leave out lines 35 and 36.

The noble Lord said: My Lords, I should like to thank the noble Lord, Lord Williams, for welcoming me back to the Dispatch Box— —

Lord Lloyd of Kilgerran

My Lords, I am sorry that I forgot to do so because I was engrossed with what I wished to say relating to the Bill.

Lord Strathclyde

My Lords, I am glad that both noble Lords generally welcome the amendments. I know that they understand the reason why it has been necessary to bring back so many at this stage.

With permission, I should like to speak to Amendments Nos. 148M(3), 148M(5). 148M(30), 148M(31), 148M(34),148M(35), 148M(38), 148M(39), 148M(42), 148M(48), 148M(50), 148M(51),148M(52),148M(55),148M(59), 148M(60), 148M(65), 148M(97) and 148M(98).

These amendments have in common that they make miscellaneous drafting and tidying-up amendments to the provisions of the part relating to recognised investment exchanges and recognised clearing houses. I would mention particularly some changes to the provisions of Clause 122 relating to the report which an exchange or clearing house must produce on the completion of default proceedings. This report specifies the sum due to or from each creditor or debtor of the defaulter, and these are the sums which are then provable in any insolvency proceedings or available for incorporation in a set-off.

At present Clause 122 provides for a single report to be made on the completion of default proceedings. We now propose that it should be open to the exchange or clearing house to make an interim report or reports from time to time as proceedings are completed in relation to transactions affecting particular debtors or creditors. We think that this facility will be particularly useful in a case in which most of the contracts can be sorted out fairly quickly, but a relatively small number of more difficult cases remain to be dealt with. The issue of an interim report will enable the office-holder to make substantial progress with the rest of the insolvency proceedings without having to wait for the resolution of the difficult cases.

The amendments also seek to protect investors' confidentiality by narrowing the scope of the provisions for inspection of the report. It is obviously important that a debtor or creditor of the defaulter should be entitled to inspect that part of a report which relates to the sum owed to or by him, including the means by which it was calculated. But there is no reason why he should be able to inspect the information relating to other persons' transactions, which may well be commercially sensitive. For the same reason, it is not appropriate that the report should be open to general public inspection. We have therefore brought forward an amendment to remove the provision for public inspection. A copy of the full report or reports will, of course, go the relevant office-holder.

The amendments also make clear that the function of making regulations under the part is not capable of transfer to the Securities and Investments Board.

I should add that in the memorandum I sent to the noble Lord, Lord Williams, we indicated our intention to table an amendment to Clause 127 concerning the precise forms of international link between exchanges and clearing houses which could fall within the scope of the clause. We have not yet tabled such an amendment, but the Government intend to bring an amendment forward at a later stage. I beg to move.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 148M(4):

Page 118, line 43, leave subsection (6).

The noble Lord said: My Lords, with permission, I will speak to Amendments Nos. 148M(4), (32), (62), (63), (66), (67), (75) and (99) together. The amendments tidy up the provisions in the part conferring regulation-making powers. Amendment No. 148M(99) introduces a new clause after Clause 135 which provides that regulations made under the part may make different provision for different cases and may contain such incidental, transitional, and others supplementary provisions as appear to the Secretary of State to be necessary or expedient. This flexibility is desirable to deal with the wide variety of cases which could arise. I beg to move.

Lord Williams of Elvel

My Lords, I understand why the Secretary of State wishes flexibility but Amendment No. 148M (99) gives him almost total flexibility to do whatever he wants whenever he wants without having to come back to your Lordships' House or, indeed, another place. Yet again, we find primary legislation writing powers in for the Secretary of State to change what he likes, when he likes and how he likes. Even at this stage of the Bill, I find that rather hard to swallow.

Lord Lloyd of Kilgerran

My Lords, this is one amendment to which I was proposing to speak. It seems to me that the Secretary of State can do what he likes. It is one of the most extended forms of regulation I have ever seen.

Lord Strathclyde

My Lords, perhaps I can briefly say that it is necessary for the order-making powers to be widely drawn precisely because of the complexity to which I have referred and the wide variety of markets and procedures for which it may be necessary to cater. However, I draw attention to the importance of Clause 113 in this connection. That makes clear the purpose of the part. We consider that the regulation-making powers are constrained by that purpose. If they were used for any other purpose, their exercise might be successfully challenged. That is an important safeguard which I believe should meet any concerns about the apparently broad scope of some of the powers and I hope that noble Lords will agree.

On Question, amendment agreed to.

Clause 115 [Additional requirements for recognition: default rules, &c.]:

Lord Strathclyde moved Amendment No. 148M(5):

Page 119, line 19, leave out from ("that") to end of line 29 and insert ("any of those requirements is not met in the case of such a body, he shall within one month of commencement give notice to the body stating his opinion.

(4) The Secretary of State shall not—

  1. (a) take action to revoke the recognition of such a body on the ground that any of the additional requirements is not met, unless he considers it essential to do so in the interests of investors, or
  2. (b) apply on any such ground for a compliance order under section 12 of the Financial Services Act 1986,
until after the end of the period of six months beginning with the date on which notice is given under subsection (3).

(5) The Secretary of State may extend, or further extend, that period if he considers there is good reason to do so.").

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 148M(6):

After Clause 115, insert the following new clause:

("Changes in default rules

.—

  1. (1) A recognised UK investment exchange or recognised UK clearing house shall give the Secretary of State at least 14 days' notice of any proposal to amend, revoke or add to its default rules; and the Secretary of State may within 14 days from receipt of the notice direct the exchange or clearing house not to proceed with the proposal, in whole or in part.
  2. (2) A direction under this section may be varied or revoked.
  3. (3) Any amendment or revocation of, or addition to, the default rules of an exchange or clearing house in breach of a direction under this section is ineffective.").

The noble Lord said: My Lords, with permission I shall speak to Amendments Nos. 148M(6), (33), (58) and (61) together. These amendments leave out Clause 117 and add three new clauses concerned with procedural requirements and powers of the Secretary of State, or the Securities and Investments Board, in relation to recognised investment exchanges and recognised clearing houses. Their purpose is to provide a range of safeguards in connection with the exercise by exchanges and clearing houses of the additional functions they acquire by virtue of the part

The main effect of these amendments is to give the Secretary of State power to give directions to a recognised investment exchange or recognised clearing house in various circumstances. Although primary responsibility will lie on those bodies to deal with defaults, it is desirable that in the last resort there should be a power of direction.

We would normally expect default action to be initiated before an insolvency office-holder is appointed, but it is possible that at the time of his appointment, no action has yet been taken. In such circumstances he will need to establish quickly whether default action is or is not to be taken. He may require the Secretary of State to issue a direction to the body. And the Secretary of State must then choose between directing that action be taken or that no action be taken. I beg to move.

On Question, amendment agreed to.

Schedule 16 [Additional requirements for recognition]:

Lord Strathclyde moved Amendments Nos. 148M(7) to 148M(29):

Page 210, line 13, leave out ("rules ("default rules")") and insert ("default rules").

Page 210, line 15, leave out ("the settlement forthwith") and insert ("for the taking of action in respect").

Page 210, line 16, leave out ("as principal").

Page 210, line 18, leave out from beginning to ("rules") in line 21 and insert— ("

  1. (2) The action provided for must be such as to secure the settlement of the unsettled market contracts—
    1. (a)in accordance with rules complying with paragraph 2 below, or
    2. (b)where or to the extent that the exchange provides its own clearing arrangements, in accordance with rules corresponding to those required by paragraph 9 below in the case of a UK clearing house.
  2. (3) The
").

Page 210, leave out lines 24 to 45.

Page 210, line 46, leave out paragraph 2 andinsert—

("Content of rules

2.—

  1. (1) The rules referred to in paragraph 1(2)(a) must provide for all rights and liabilities of parties to an unsettled market contract to be discharged and for there to be paid by one party to the other such sum of money (if any) as may be determined in accordance with the rules.
  2. (2) The rules further provide—
    1. (a)for the sums so payable in respect of different contracts between the same parties to be aggregated or set off so as to produce a net sum, and
    2. (b)for the certification by or on behalf of the exchange of the net sum payable or, as the case may be, of the fact that no sum is payable.
  3. (3) The rules may make special provision with respect to, or exclude from the provisions required by sub-paragraphs (1) and (2), contracts of any description prescribed for the purposes of this sub-paragraph by regulations made by the Secretary of State.
  4. (4) The above provisions do not apply to contracts to which the defaulter is party as agent.").

Page 211, line 11, leave out from ("(1)") to ("rules") and insert ("The").

Page 211, line 15, leave out ("under its default rules").

Page 211, line 17, leave out ("adversely") and insert ("be likely adversely to").

Page 211, line 18, at end insert— ("(3) a person shall not be so designated without his consent; and if a person so designated withdraws his consent, the designation shall cease to have effect.").

Page 211, line 22, leave out from beginning to ("are").

Page 211, line 29, at end insert— ("(2) This paragraph does not apply to a market contract whose performance is ensured by a recognised clearing house or in relation to which the exchange provides its own clearing arrangements. In the latter case the exchange must have arrangements complying with paragraph 13 below.").

Page 211, line 36, leave out from ("State") to ("and") in line 38 and insert ("any relevant office-holder").

Page 211, line 42, leave out paragraph 7 and insert— ("7. Where the exchange provides its own clearing arrangements and margined transactions are effected, paragraph 16 below applies as it applies in relation to a clearing house.").

Page 212, line 9, leave out ("rules ("default rules")") and insert ("default rule").

Page 212, line 11, leave out ("any market contract") and insert ("one or more market contracts").

Page 212, line 12, after ("all") insert ("unsettled").

Page 212, line 13, leave out from ("(2)") to ("rules") and insert ("The").

Page 212, line 16, leave out from beginning to end of line 20 on page 213 and insert—

("Content of rules

9.—

  1. (1) The rules must provide for all rights and liabilities of the defaulter under or in respect of unsettled market contracts to be discharged and for there to be paid by or to the defaulter such sum of money (if any) as may be determined in accordance with the rules.
  2. (2) The rules must further provide—
    1. (a) for the sums so payable by or to the defaulter in respect of different contracts to be aggregated or set off so as to produce a net sum;
    2. (b) for that sum—
      1. (i) if payable by the defaulter to the clearing house, to be set off against any property provided by the defaulter as cover for margin (or the proceeds of realisation of such property) so as to produce a further net sum, and
      2. (ii) if payable by the clearing house to the defaulter to be aggregated with any property provided by the defaulter as cover for margin (or the proceeds of realisation of such property); and
      3. 968
    3. (c) for the certification by or on behalf of the clearing house of the sum finally payable or, as the case may be, of the fact that no sum is payable.

10.—

  1. (1) The reference in paragraph 9 to the rights and liabilities of a defaulter under or in respect of an unsettled market contract includes (without prejudice to the generality of that provision) rights and liabilities arising in consequence of action taken under provisions of the rules authorising—
    1. (a) the effecting by the clearing house of corresponding contracts in relation to unsettled market contracts to which the defaulter is a party;
    2. (b) The transfer of the defaulter's position under an unsettled market contract to another member of the clearing house;
    3. (c) the exercise by the clearing house of any option granted by an unsettled market contract.
  2. (2) A "corresponding contract" means a contract on the same terms (except as to price or premium) as the market contract, but under which the person who is the buyer under the market contract agreeds to sell and the person who is the seller under the market contract agrees to buy.

This sub-paragraph applies with any necessary modifications in relation to a market contract which is not an agreement to sell.").

Page 213, line 23, after ("to") insert ("unsettled").

Page 213, line 32, leave out from ("State") to ("and") in line 34 and insert ("any relevant office-holder").

Page 213, line 39, leave out from ("that") to end of line 41 and insert ("the requirements of any relevant regulations under section 55 of the Financial Services Act 1986 (clients' money) are complied with as regards property provided as cover for margin.").

Page 213, line 46, at end insert— (3) Sub-paragraph (2) does not apply to a charge or lien in favour of the clearing house itself.").

The noble Lord said: My Lords, in moving Amendments Nos. 148M(7) to 148M(29), I wish to speak also to Amendment No. 148M(100). Except for Amendment No. 148(100), the amendments all relate to Schedule 16, which lays down additional requirements for recognised investment exchanges and recognised clearing houses. I beg to move.

On Question, amendments agreed to.

Clause 116 [Modification of the law of insolvency]:

Lord Strathclyde moved Amendment No. 148M(30):

Page 119, line 33, leave out ("following provisions of this Part") and insert ("provisions of sections 118 to 125").

On Question, amendment agreed to.

Lord Strathclyde moved Amendments Nos. 148M(31) and 148M(32):

Page 119, line 37, leave out ("following provisions of this Part") and insert ("provisions mentioned in subsection (1), and any other provision of this Part as it applies for the purposes of those provisions, or provide that those provisions have effect subject to such additions, exceptions or adaptations as are specified in the regulations.").

Page 119, line 39, leave out subsection 4.

On Question, amendments agreed to.

Clause 117 [Duty to initiate default proceedings upon notice of insolvency]:

Lord Strathclyde moved Amendment No. 148M(33):

Leave out Clause 117.

On Question, amendment agreed to.

Clause 118 [Proceedings of exchange or clearing house take precedence over insolvency procedures]:

Lord Strathclyde moved Amendments Nos. 148M(34) and 148M(35):

Page 120, leave out paragraph (b).

Page 120, line 28, at end insert— ("(c) the rules of a recognised investment exchange or recognised clearing house as to the settlement of market contracts not dealt with under its default rules.".

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 148(M)36:

Page 120, line 30, leave out ("or").

The noble Lord said: My Lords, in moving Amendment No. 148M(36) I wish to speak also to Amendments Nos. 148M(37), 148M(40), 148M(41), 148M(43), to148M(47), 148M(49), 148M(53), 148M(54), 148M(56), 148M(57), 148M(81), 148M(82), 148M(101), to 148M(103), 148M(105) and 148M(107). The amendments are concerned with clarifying the extent to which certain provisions relating to insolvency legislation apply in the context of the part as a whole. I beg to move.

Lord Williams of Elvel

My Lords, I wish to speak against Amendment No. 44. The costs of assisting the financial market in default proceedings in our view should be borne by the market itself. The Bill appears to allow for such costs to come out of the estate and hence to be borne at the expense of non-market creditors. That does not seem right. If there is to be an arrangement for a market clearance system that overrides the normal insolvency procedures, the Government surely have to justify the costs being borne by the non-market creditors rather than the market itself.

Lord Strathclyde

My Lords, Amendment No. 148M(44) introduces a new clause in effect similar to Clauses 119 and 120, which are deleted by Amendments Nos. 148M(43) and 148M(45). The new clause imposes a duty on any person who has control of any assets or documents relating to a defaulter to give such assistance as it may reasonably require to a recognised investment exchange or recognised clearing house.

In the light of comments received on the scope of those clauses, the new clause differs from its predecessor in two main ways. First, subsection (2) provides that information or documents subject to legal professional privilege cannot be subject to the requirement that they should be produced to an exchange or clearing house. Secondly, the new clause makes more explicit provision about the expense of an office holder who is required to give assistance under the clause. He is entitled to make a reasonable charge for any time and care. Where the defaulter's estate cannot meet such expense, the exchange or clearing house will have to agree to meet it before an office holder is required to undertake the work.

The noble Lord, Lord Williams, asked about justification. I do not want to repeat exactly what I said in Committee. The clause is essentially about co-operation. In practice, in the case of a default the exchange or clearing house concerned and the office holder are going to need to work very closely together. It is unlikely that the expenses incurred will be significant. I suggest that in most cases it will be no more than a question of exchanging information on the telephone. As the assistance will be reciprocal it seems right that the costs should be borne where they fall on either side.

On Question, amendment agreed to.

Lord Strathclydemoved Amendment Nos. 148M(37) to 148M(42):

Page 120, line 31, after ("1985") insert ("or section 123(3A) or 124(3) below").

Page 120 line 33, leave out ("of a market contract").

Page 120, line 35, at end insert ("of a market contract not dealt with under its default rules, or").

Page 120, line 37, at end insert ("; but this does not prevent the court from afterwards making an order under section 123(3A) or 124(3) or any such order or decree as is mentioned in section 125(1) or (2).").

Page 120, line 39, leave out ("subsection (2)") and insert ("the above provisions").

Page 120, line 46, at end insert— ("(5) For the purposes of subsection (4) the default proceedings shall be taken to be completed in relation to a person when a report is made under section 122 stating the sum (if any) certified to be due to or from him.").

On Question, amendments agreed to.

Clause 119 [Duty to give assistance for purposes of default proceedings]:

Lord Strathclyde moved Amendment No. 148M(43):

Leave out Clause 119.

On Question, amendment agreed to.

Lord Strathclyde moved Amendment No. 148M(44):

After Clause 119, insert the following new clause:

("Duty to give assistance for purposes of default proceedings

—

  1. (1) It is the duty of—
    1. (a) any person who has or had control of any assets of a defaulter, and
    2. (b) any person who has or had control of any documents of or relating to a defaulter,
    to give a recognised investment exchange or recognised clearing house such assistance as it may reasonably require for the purposes of its default proceedings.
  2. (2) A person shall not under this section be required to provide any information or produce any document which he would be entitled to refuse to provide or produce on grounds of legal professional privilege in proceedings in the High Court or on grounds of confidentiality as between client and professional legal adviser in proceedings in the Court of Session.
  3. (3) Where original documents are supplied in pursuance of this section, the exchange or clearing house shall return them forthwith after the completion of the relevant default proceedings, and shall in the meantime allow reasonable access to them to the person by whom they were supplied and to any person who would be entitled to have access to them if they were still in the control of the person by whom they were supplied.
  4. (4) The expenses of a relevant office-holder in giving assistance under this section are recoverable as part of the expenses incurred by him in the discharge of his duties; and he shall not be required under this section to take any action which involves expenses which cannot be so recovered, unless the exchange or clearing house undertakes to meet them.
    5. 971
  5. (5) The Secretary of State may by regulations make further provision as to the duties of persons to give assistance to a recognised investment exchange or recognised clearing house for the purposes of its default proceedings, and the duties of the exchange or clearing house with respect to information supplied to it.
  6. (6) In this section "document" includes information recorded in any form.").

On Question, amendment agreed to.

Clause 120 [Duty to supply and return documents]:

Lord Strathclyde moved Amendment No. 148M(45):

Leave out Clause 120.

On Question, amendment agreed to.

Clause 121 [Supplementary provisions as to default proceedings]:

Lord Strathclyde moved Amendments Nos. 148M(46) and 148M(47):

Page 122, line 17, after ("sections") insert ("10(1)(c),").

Page 122, line 17, after (",11(3)") insert (",126, 128,").

On Question, amendments agreed to.

Clause 122 [Duty to report on completion of default proceedings]:

Lord Strathclyde moved Amendments Nos. 148M(48) to 148M(52):

Page 122, line 22, leave out subsections (1) and (2) and insert— ("

  1. (1) A recognised investment exchange or recognised clearing house shall, on the completion of proceedings under its default rules, report to the Secretary of State on its proceedings stating in respect of each creditor or debtor the sum certified by them to be payable from or to the defaulter or, as the case may be, the fact that no sum is payable.
  2. (2) The exchange or clearing house may make a single report or may make reports from time as procedings are completed with respect to the transactions affecting particular persons.
").

Page 122, line 27, leave out subsection (3).

Page 122, line 34, leave out ("its report") and insert ("every report under this section").

Page 122, line 35, leave out from first ("any") to end of line 36 and insert ("relevant office-holder acting in relation to him or his estate").

Page 122, line 37, leave out subsections (5) and (6) and insert— ("

  1. (4) When a report under this section is received by the Secretary of State, he shall publish notice of that fact in such manner as he thinks appropriate for bringing it to the attention of creditors and debtors of the defaulter.
  2. (5)An exchange or clearing house shall make available for inspection by a creditor or debtor of the defaulter so much of any report by it under this section as relates to the sum (if any) certified to be due to or from him or to the method by which that sum was determined.
  3. (6)Any such person may required the exchange or clearing house, on payment of such reasonable fee as the exchange or clearing may determine, to provide him with a copy of a report which he is entitled to inspect.
").

On Question, amendments agreed to.

Clause 123 [Net sum payable on completion of default proceedings]:

Lord Strathclyde moved Amendments Nos. 148M(53) to 148M(55):

Page 123, line 11, leave out ("or winding-up") and insert ("the date on which the body corporate goes into liquidation (within the meaning of section 129 of the Insolvency Act 1986) or, in the case of a partnership, the date of the winding-up order").

Page 123, line 22, at end insert— ("

  1. (3A) However, where (or to the extent that) a sum is taken into account by virtue of subsection (2)(b) or (3)(b) which would otherwise have been excluded from set-off—
    1. (a) by virtue of its arising from a contract entered into at a time when the creditor had notice that a bankruptcy or winding up petition was pending, or
    2. (b) by virtue of its arising from a contract entered into at a time when the creditor had notice that a meeting of creditors had been summoned under section 98 of the Insolvency Act 1986,
    the value of any profit or benefit to him arising from the sum being so taken into account (or being so taken into account to that extent) is recoverable from him by the relevant officeholder unless the court directs otherwise.
  2. (3B) Any sum recoverable by virtue of subsection (3A) ranks for priority, in the event of the insolvency of the person from whom it is due, immediately before preferential debts.
".

Page 123, line 23, leave out subsection (4).

On Question, amendments agreed to.

Clause 124 [Disclaimer of property, rescission of contracts, amp;c.]:

Lord Strathclyde moved Amendments Nos. 148M(56) and 148M(57):

Page 124, line 6, leave out ("has the same") and insert ("ranks for").

Page 124, leave out line 8 and insert ("immediately before preferential debts").

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 148M(58):

After Clause 125, insert the following new clause:

("Directions by Secretary of State.

.—

  1. (1) Where there has been made or passed in relation to a member or designated non-member of a recognised investment exchange or a member of a recognised clearing house—
    1. (a) a bankruptcy order or an award of sequestration of his estate, or an order appointing an interim receiver of his property, or
    2. (b) an administration or winding up order, a resolution for voluntary winding up or an order appointing a provisional liquidator,
    and the exchange or clearing house has not taken action under its default rules in consequence of the order, award or resolution or the matters giving rise to it, a relevant office-holder appointed by, or in consequence of, the order, award or resolution may apply to the Secretary of State.
  2. (2) The Secretary of State shall, not later than three business days after the day on which the application is received, direct the exchange or clearing house to take or not to take action under its default rules.
  3. (3)If the Secretary of State directs that no action shall be taken, sections 118 to 125 above (and any regulations under section 116(2)) do not apply in relation to market contracts to which the member or designated non-member in question is a party or to anything done by the exchange or clearing house for the purposes of, or in connection with, the settlement of any such contract.
    4. 973
  4. (4) where a recognised investment exchange or recognised clearing house has decided, or been directed, to take action under its default rules, the Secretary of State may direct it to take or not to take such action (being action which it has power to take under its default rules) as is specified in the direction.
  5. (5) A direction under this section is enforceable, on the application of the Secretary of State, by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.").

On Question, amendment agreed to.

Clause 126 [Adjustment of prior transactions]:

Lord Strathclydemoved Amendments Nos. 148M(59) and 148M(60):

Page 124, line 41, at end insert (", with the exception of his functions with respect to the making of orders and regulations").

Page 125, line 4, leave out from ("transferring") to end of line 5 and insert ("to that agency all the functions which may be transferred by virue of this section").

On Question, amendments agreed to.

Lord Strathclyde moved Amendment No. 148M (61):

After Clause 126, insert the following new clause:

("Supplementary provisions.

("—

  1. (1) Section 61 of the Financial Services Act 1986 (injunctions and restitution orders) applies in relation to a contravention of any provision of the rules of a recognised investment exchange or recognised clearing house relating to the matters mentioned in Schedule 16 to this Act as it applies in relation to a contravention of any provision of such rules relating to the carrying on of investment business.
  2. (2) The following provisions of the Financial Services Act 1986—
    • section 12 (compliance orders), as it applies by virtue of section 37(8) or 39(8).
    • section 37(7)(b) (revocation of recognition of UK investment exchange), and
    • Section 39(7)(b) (revocation of recognition of UK clearing house),
    apply in relation to a failure by a recognised investment exchange or recognised clearing house to comply with an obligation under this Part as to a failure to comply with an obligation under that Act.
  3. (3) Where the recognition of an investment exchange or clearing house is revoked under the Financial Services Act 1986, the Secretary of State may, before or after the revocation order, give such directions as he thinks fit with respect to the continued application of the provisions of this Part, with such exceptions, additions and adaptations as may be specified in the direction, in relation to cases where a relevant event of any description specified in the directions occurred before the revocation order takes effect.
").

On Question, amendment agreed to.

Clause 127 [Certain overseas exchanges and clearing houses]:

Lord Strathclyde moved Amendments Nos. 148M(62) and 148M(63):

Page 125, line 33, leave out paragraph (b) and insert— ("(b) provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.").

Page 125, line 36, leave out subsection (6).

On Question, amendments agreed to.

Clause 128 [Listed money market institutions]:

Lord Strathclyde moved Amendment No. 148M(64):

Page 125, line 40, leave out from ("contracts') to ("as") in line 42 and insert ("of any specified description in relation to which settlement arrangements are provided—

  1. (a) by a person for the time being included in a list maintained by the Bank of England for the purposes of this section (a "listed institution"), or
  2. (b) by the Bank of England itself,").

The noble Lord said: My Lords, this amendment does two things. First, it makes it clearer that the clause is concerned with contracts where settlement arrangements are provided by a person on a list kept by the bank. This was not immediately apparent from the earlier wording, which made no reference to settlement arrangements. Secondly, it extends the scope of the clause to contracts in relation to which settlement arrangements are provided by the Bank of England itself. The arrangements of the Central Money Markets Office, currently under development, will be of this kind. The amendment is therefore necessary to ensure that it will be possible to make regulations under the clause in connection with the Central Money Markets Office and any other arrangement which the bank might operate in future if that is thought appropriate. I beg to move.

Lord Williams of Elvel

My Lords, I know that the list was in the Bill before this amendment was tabled, but can the noble Lord expand a little on what this list means? Who will be on it and what are the criteria for getting on the list?

Lord Strathclyde

My Lords, the noble Lord raises an interesting point. The clause is intended to deal with systems dealing wholly or predominantly with transactions in markets which it is appropriate for the Bank of England to supervise. It may be desirable to make this plainer in the clause itself. The Government will consider bringing forward an amendment to this effect. In principle it is right that any system operated by the bank should be subject to the same regime as an equivalent system operated by an institution on its list. I believe that I have said enough on this point.

Lord Williams of Elvel

My Lords, before the noble Lord sits down, did he imply that the Government are going to bring forward an amendment to clarify what this list is about?

Lord Strathclyde

My Lords, the point is that at present there is no actual system, but there may be one in the future. The criteria will be set by the bank and approved by the Treasury. As regards the specific question, the Government are considering bringing forward an amendment to make matters clearer.

Lord Williams of Elvel

My Lords, I am sorry to abuse the Report procedure because I do not wish to do so. Can the Minister expand on what he is saying? Are the Government going to bring forward an amendment to define the criteria by which the bank includes people on the list? What: is it all about and when are the Government going to bring forward this amendment?

Lord Strathclyde

No, my Lords. I thought that I had made myself quite plain. I apologise to the noble Lord because I thought we had been going so well so far. I maintain that the Government are considering further amendments and will look at this matter again in the light of what the noble Lord has said. We shall see what can be done. However, I must make it plain that there will be no amendment to define the criteria themselves. It may be made plainer in the clause itself where the clause is intended to deal with systems relating wholly to transactions in markets which it is appropriate for the Bank of England to supervise.

9.40 p.m.

On Question, Whether the said amendment (No. 148M(64)) shall be agreed to?

Their Lordships divided:

9.48 p.m.

The Deputy Speaker (Lord Cocks of Hartcliffe)

My Lords, as it appears that fewer than 30 Lords have voted, in accordance with Standing Order No. 55, I declare that the Question is not decided, and that further proceedings on the Bill stand adjourned.

Lord Denham

My Lords, I beg to move that the House do now adjourn.

House adjourned at eleven minutes before ten o'clock.