INDUSTRY BILL

HL Deb 06 August 1975 vol 363 cc1658-81

2.52 p.m.

The MINISTER of STATE, DEPARTMENT of INDUSTRY (Lord Beswick)

My Lords, I beg to move that this Bill be now further considered.

Moved, That the Bill be now further considered.—(Lord Beswick.)

On Question, Motion agreed to.

Clause 14 [Notices to extend vesting orders to other holdings]:

Lord CULLEN of ASHBOURNE had given Notice of his intention to move Amendment No. 44: Page 13, line 22, after ("capital") insert ("and on the holders of any outstanding securities convertible into, or of any options to subscribe such share capital").

The noble Lord said: My Lords, during the Committee stage of this Bill I moved an Amendment on this matter at the instigation of the London Clearing Banks Association, and the noble Lord, Lord Beswick, said that he would return to it on Report. The noble Lord has fully met the case which I presented by putting down his own Amendments, for which I am most grateful. I hope this augurs well for a similarly co-operative spirit over further Amendments, particularly those of a technical nature.

Lord BESWICK moved Amendment No. 45: Page 13, line 22, after ("vest") insert ("and on any other persons who to his knowledge have a present or prospective right to subscribe for share capital of the body corporate").

The noble Lord said: My Lords, I beg to move Amendment No. 45 standing in my name. I am grateful for what the noble Lord, Lord Cullen of Ashbourne, has said because Amendment No. 45, with which I hope we may consider Nos. 46 and 48, was intended to meet the point which the noble Lord made. I am glad to hear that these Amendments in fact achieve that purpose. May I also as a matter of interest say that one reason why we thought that the Amendments which I have tabled were superior to the noble Lord's was that his wording was in some respects defective in that I learnt—and one learns odd bits of information in odd ways—that convertible loan stock is not in fact convertible. It is exchanged for equity and not converted into equity. But the words I am employing are what I think we both require, and I beg to move.

On Question, Amendment agreed to.

Lord BESWICK

My Lords, I beg to move Amendment No. 46.

Amendment moved— Page 13, line 25, after ("capital") insert ("or rights").—(Lord Beswick.)

On Question, Amendment agreed to.

Lord BESWICK

My Lords, I discussed Amendment No. 48 with No. 45. I beg to move Amendment No. 48.

Amendment moved— Page 13, line 29, after ("capital") insert ("or rights").—(Lord Beswick.)

On Question, Amendment agreed to.

Clause 15 [Parliamentary control of orders]:

Lord DRUMALBYN moved Amendment No. 49: Page 14, line 10, leave out ("(b)") and insert ("(a)").

The noble Lord said: My Lords, the purpose of this Amendment is to link up with Clause 13. Under Clause 13, If it appears to the Secretary of State—

1. (a) that there is a serious and immediate probability of a change of control of an important manufacturing undertaking; and
2. (b) that that change of control would be contrary to the interests of the United Kingdom, or contrary to the interests of any substantial part of the United Kingdom,"

then the Secretary of State may make a prohibition order. Subsection (2) goes on to specify three sets of cases in which the Secretary of State may make a vesting order. The clause we are dealing with here, Clause 15, provides in subsection (4) that: A draft of a vesting order shall not be laid before Parliament— (a) in a case such as is mentioned in paragraph (b) of subsection (2) of Section 13…after the end of a period of three months from the making of the prohibition order, and— in the same way— (b) in a case such as is mentioned in paragraph (c) of that subsection after the same time. But it says nothing about paragraph (a) of subsection (2) of Clause 13, which means, it seems to me, that the Secretary of State can dispense entirely with the making of a prohibition order and proceed right away, if he likes, to make a vesting order.

There may be good reasons for this but they are not apparent, and it is for that reason that I have put down here an Amendment which would then read, if I may read subsection (4)(a): in a case such as is mentioned in paragraph (a) of subsection (2) of section 13 above, after the end of a period of three months and then "from the date"—this is Amendment No. 50— on which the Secretary of State gave notice to the person carrying on the undertaking of his intention to lay a draft order". Then it continues: in a case such as is mentioned in paragraph (b) of that subsection", and then it reads on. The purpose of this is to find out how the Secretary of State is to proceed in the set of cases referred to in Clause 13(2)(a). I beg to move.

Lord MELCHETT

My Lords, we accept entirely the case that the noble Lord has made for his Amendment. However, I am wondering whether he would be prepared to withdraw his Amendment at this stage so as to allow the Government to introduce one at the next stage. This is because we should like to draft the Amendment in slightly broader terms, The noble Lord will see that we have put down, as an Amendment for Clause 16(6), Amendment No. 57, which will provide for notice of the Government's intention to be served on the relevant person, whether a holding company or the person carrying on the business. We should like to adopt the same broad terms in this case. With that assurance, I hope that the noble Lord will withdraw his Amendment.

Lord DRUMALBYN

My Lords, we can look forward, then, to an explanation of the Amendment which the noble Lord intends to introduce when he introduces it. I am much obliged to him and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 16 [Contents of vesting orders]:

3.1 p.m.

Lord MELCHETT

My Lords, the purpose of this Amendment is to make a more accurate reference to the supplementary and incidental provisions attached to a vesting order. I beg to move.

Amendment moved— Page 14, line 30, leave out ("(1) and").—(Lord Melchett.)

On Question, Amendment agreed to.

3.3 p.m.

The Earl of BALFOUR moved Amendment No. 52: Page 14, line 42, at end insert ("in the United Kingdom")

The noble Earl said: My Lords, in connection with Clause 16 may I remind your Lordships that this clause comes into effect only if there is a change of control. By subsection (2) of Clause 16 a vesting order may include such provisions as the Secretary of State considers necessary or expedient to safeguard the capital or assets described in paragraphs (a) and (b) of subsection (2). I think it is important that the words "in the United Kingdom" should be inserted at the end of line 42. In my opinion, this Amendment is required to remove any possibility of ambiguity. Without the Amendment, the clause could be construed as meaning that the foreign assets of a United Kingdom company would be included within the provisions of this clause, a situation which could be damaging to the interests of United Kingdom companies which are operating overseas. Even if a United Kingdom company is totally vested, there is no reason why its subsidiaries overseas cannot continue. I believe that there is no reason for a vesting order to cover the overseas side of the business. Also, there is the foreign confidence implication. It would discourage joint ventures in overseas subsidiaries. This is clearly contrary to the purpose of setting up overseas subsidiaries.

In his reply for the Government at Committee stage, the noble Lord, Lord Melchett, failed to appreciate that the Amendment is aimed at safeguarding the foreign assets of United Kingdom companies and concentrated instead upon the business of a foreign company in the United Kingdom. I am sure that a satisfactory clarification of this point would be welcomed by anybody who might be involved in this procedure. I beg to move.

Lord MELCHETT

My Lords, as the noble Earl recognises, there are two possible situations. The first is where we have a United Kingdom business owned by a foreign company. I believe that I replied to both points, but the noble Earl says that I concentrated on that point at Committee stage. The fact is that his Amendment would not alter the position in that situation.

The other situation is where there is a business owned by a British company which has assets overseas. In that case, it would be possible to vest the shares of that company. Safeguarding provisions in the vesting order would cover all the assets of the company both in the United Kingdom and overseas. It might not be possible actually to recover dissipated assets which were overseas and thus outside United Kingdom jurisdiction, but any improper dissipation of such assets could be met by seeking compensation from the British company which was being vested and which had instigated the transaction, or from the company's directors. If the proposed Amendment were accepted, the overseas assets of a British company could be dissipated without any redress. In our view, this would represent an unacceptable loophole in the safeguarding provisions.

The Earl of BALFOUR

My Lords, I must press this matter a little further. To return to Clause 12 of the Bill, a vesting order can be made if a mere 30 per cent. of the votes are controlled by somebody overseas whom the Government consider is undesirable. I feel that this is just the kind of thing which could discourage any company which wished to enter into a joint venture with a British company. Perhaps the Government do not like joint ventures with overseas companies. So long as the Government make that perfectly clear, there is no point in pressing further the Amendment. However, I feel that it is discouraging foreign investment from joining an industrial undertaking here because of the risk that the Government may step in and slap on a vesting order if they happen to dislike the person who intends to carry on this business. If that point can be cleared up, I shall be pleased.

Lord DRUMALBYN

My Lords, may I ask the noble Lord what would be the situation if a British company had an overseas subsidiary in a country whose legislation would make it impossible for the change—such as a change to British ownership, or ownership by the Secretary of State, or whatever—to take place?

Lord MELCHETT

My Lords, may I ask the noble Lord a question? I am not sure that I understand his point. Is he talking about a country where it is impossible for a British company to own any assets, or about a country in which it is impossible for the National Enterprise Board or the Secretary of State to own any assets?

Lord DRUMALBYN

My Lords, there are two separate problems here. It is a question of a change of control but it might also involve the law of a country which itself places restrictions on a change of control. If the change of control were being made in a way that the other country considered was inappropriate, what then? This would apply whether the assets were to pass from the Secretary of State to the National Enterprise Board or to some other body. The point is that we seem to be legislating beyond our capacity to enforce—or if we try to enforce we shall be doing a manifest injustice.

Lord MELCHETT

My Lords, by leave of the House may I reply to the points which have been put to me? So far as the points mentioned by the noble Earl are concerned, I have now explained on two occasions why we believe that this Amendment would open up an unacceptable loophole in these provisions. Of course, the Government do not have any objections to British companies going in for joint ventures, and I think the noble Earl will accept that both I and my noble friends have said to him on several occasions that we see absolutely no reason for any of these provisions to discourage investment from overseas in this country, and I do not really think it would be worth our going over all that ground again.

As I understand it, the noble Lord. Lord Drumalbyn, raised the question of the position of a British-owned company which owns assets in a country overseas, should the country overseas have a law which says that those assets may not he transferred from the British company to the Secretary of State, the National Enterprise Board or some other body. As I said when I originally replied to the Amendment, it may not be possible to recover assets which are dissipated overseas in breach of these orders, but we would be able to seek compensation from the British company for any improper dissipation of assets.

I should have thought that the phrase "improper dissipation" quite clearly would not include the case where the directors of a British company in England were forced by the laws of a country overseas to relinquish their hold on assets in that country. So I do not think there would be any question of anybody being taken to task for dissipating assets when the laws of the country abroad said that they had to do so. We recognise the realities of the situation, and that it may not be possible to recover assets in certain situations where they are dissipated because of the laws of the country. I do not know whether the noble Lord has any particular countries in mind, when he says that there might be a law saying that the National Enterprise Board should no longer own the assets. I think it is slightly unlikely, although I bow to the noble Lord's experience in these matters. I think that what I have already said shows that there is no intention of chasing after people if they are merely obeying the laws of a foreign country.

Lord DRUMALBYN

My Lords, before the noble Lord sits down may I ask him a question, because I am not certain that he has grasped my meaning and I do not think I made it quite clear to him? It might well be that a British subsidiary was sharing with, say, Nigeria. a Nigerian holding there and the Nigerian company might wish the British company to retain its present arrangements. I think that the Government are getting into rather deep waters when they insist on interfering in matters of overseas holdings, which may be quite complicated and may be very much linked up with arrangements in the State in which the investment was made.

Lord MELCHETT

My Lords, I am sure that I should be trying the patience of your Lordships' House if I allowed myself to be dragged any deeper into the deep waters. I have said that this provision is a necessary safeguard to the assets of a British company, and I have also said that if it is not possible to safeguard those assets we accept the situation. I really do not think there is anything more I can add.

Lord CARRINGTON

My Lords, it is not the patience of the House that the noble Lord is trying. But I think this is an occasion on which your Lordships might be reminded, with the greatest possible respect, that we are on the Report stage of a Bill and not on the Committee stage, and if in the guise of asking questions noble Lords make several speeches and, as a result, the Minister also makes several speeches, it really means that we are having another Committee stage and not a Report stage, which will result in this Bill taking a very long time. Apart from that, it is quite contrary to the usual procedure in your Lordships' House.

Lord MELCHETT

My Lords, I entirely agree. The noble Lord, Lord Drumalbyn, rose and said, "Before the noble Lord sits down may I ask him a question", and spoke for several minutes. I tried on several occasions to say that I had nothing further to say to noble Lords opposite.

The Earl of BALFOUR

My Lords, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

3.14 p.m.

Lord LOVELL-DAVIS moved Amendment No. 53: Page 15, line 16, leave out ("if he fails to recover them").

The noble Lord said: My Lords, this Amendment is designed to increase the effectiveness of the safeguarding provisions attached to a vesting order. It would allow the person seeking compensation for an improper transfer of property, made in defiance of the safeguarding provisions, to seek compensation as an alternative to trying to recover the property, or even when there has been recovery, though it goes without saying that any compensation in such a case would be limited to compensation for the costs of recovery, and would not include the value of the asset recovered. We believe that this will improve the deterrent effect of these provisions and that it will therefore never be necessary to invoke the powers.

As the subsection is now drafted, the person seeking compensation must first fail to recover the property. However there may be circumstances in which recovery is simply not possible; for example, the sale of assets to overseas purchasers or the dissipation of liquid assets through excess payment of dividends to all shareholders. Here it would be reasonable to seek compensation with out there having been an attempt—which would be doomed from the start—to recover the assets. The Government believe that this Amendment will strengthen the safeguarding provisions, and make it less likely that assets will be improperly transferred. This will be to the advantage of the Government, in that the national interest will be better protected, and to the benefit of third parties since it will make all the more unlikely the setting in train of a series of events which might lead to the need to set aside transactions, with the result that limited problems might arise. My Lords, I beg to move.

Lord ELTON

My Lords, i am obliged to the noble Lord for his explanation of this, on the whole, helpful Amendment which meets some of the points which we raised at Committee stage. However, I wonder whether he would go a little further in his explanation, because the source of the compensation remains slightly obscure to the layman. I accept that the removal of the qualification of a struggle having taken place is entirely, beneficial. It is possible to obtain compensation without making a forlorn sally upon an entrenched position. But I should like to know what is the machinery of recovery if the setting aside procedure, which was mentioned during the Committee stage, is put in train; and whether, if that machinery is used, it is still necessary for the parties who have received the assets—whether they are stocks and shares or other assets—at two or three removes from the source, each to have recourse against the other, or whether there is a short cut which would avoid this. That is the first question, and the answer to it may be that the source of compensation is some Government fund which has not been unveiled to us.

The other matter on which I should like guidance is this. What will be the situation when a bank is directly involved, if the purchaser of the asset which we are considering has been advanced money against it by his banker, and entering into an all monies security for that purpose? Then, if subsequent advances are made by the bank to its customer, the bank will retain a right over the asset in question, notwithstanding the fact that the original advance in respect of that asset has been repaid under the seining aside procedure. By virtue of the all monies security, the bank will be entitled to refuse to release the asset in question until all the additional borrowing by its customer has been repaid. This may not be possible in the circumstances, in which case it therefore appears that the setting aside procedure will break down. I accept that the noble Lord has said that the occasions on which this will arise will be reduced considerably by the helpful Amendment which he has tabled, and which we support. But it seems to me that there is here a loophole which it might be beneficial for his Department to examine and perhaps stop up before the Third Reading.

Lord LOVELL-DAVIS

My Lords, by leave of the House, to answer the noble Lord's first question the source of compensation would be the parties to the original transaction. So far as the second question is concerned, which was rather lengthy and complicated, I should like to consider it further. I will certainly write to the noble Lord and, if it seems proper, draw it to the attention of my right honourable friend.

On Question, Amendment agreed to.

3.20 p.m.

Lord DRUMALBYN moved Amendment No. 55: Page 15, line 21, after ("after") insert ("the making of a prohibition order or the date on which").

The noble Lord said: My Lords, I beg to move Amendment No. 55. The purpose of the Amendment is to make clear that the transfers about which we have just been talking refer to transfers made before the draft of the order is laid before Parliament, but after the Secretary of State has given notice of his intention to lay a draft order, or the making of a prohibition order. I am not clear why the prohibition order should not be in here. I would think that in itself this was in place of, at any rate the Secretary of State giving notice to a person of his intention to lay a draft order. I beg to move.

Lord MELCHETT

My Lords, as the noble Lord, Lord Drumalbyn, says, this follows a brief debate we had on the subject in Committee. The noble Lord, Lord Beswick, may not have made the position clear about this subsection, and I will endeavour to do that now. The purpose of Clause 16(6) as drafted—and as the noble Lord knows this was as a result of the initiative of the Opposition in another place—is to give the public at large notice that safeguarding provisions apply. The Amendment that the noble Lord has moved would change this: either notice would be given, or a prohibition order would have been made. If this Amendment were accepted neither the public nor any company would know whether any transaction entered into by a company after it had been made subject to a prohibition order might subsequently be set aside by a later vesting order. This would cast doubt in the minds of those who dealt with any company made subject to a prohibition order, and is clearly undesirable.

Most prohibition orders will not lead to a vesting order; they will simply prohibit certain transactions, and that will be the end of the affair. If this Amendment were passed, however, any time a prohibition order was made the public would be left in doubt as to whether any subsequent transaction with the company concerned would be set aside without further warning. This would be damaging to the company and harmful to business confidence. A prohibition order might be in force for years, and this Amendment would then authorise retrospection for that whole period.

The reason for our concern about the Amendment is not that it confines the Government; personally, I think it leaves the Government greater freedom, since it confers a greater element of retrospection into safeguarding, in that under the Amendment safeguarding could apply to transactions before the company concerned has been warned of the proposed vesting. It is precisely because it widens the powers of the Government in this way that we do not think the Amendment is acceptable.

Lord DRUMALBYN

My Lords, I am grateful to the noble Lord, Lord Melchett, for that answer. I take it that the notice referred to will be given as a separate operation after the prohibition order, if it is intended to make a vesting order, and that it will be given within a period of three months which should normally elapse between a prohibition order and a vesting order. What seems a little alarming is the concept of a prohibition order continuing indefinitely, even though it is simply related to a particular proposed transfer to a particular company or individual. This is rather more than I expected of a prohibition order. Perhaps the noble Lord would confirm that that is the intention, otherwise it is difficult to follow how the thing will work. I do not think that any noble Lords on this side of the House were aware that a prohibition order could continue indefinitely. If that is so, it rather changes our view of the Bill. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord LOVELL-DAVIS moved Amendment No. 56: Page 15, line 22, leave out ("carrying on the undertaking") and insert ("concerned").

The noble Lord said: My Lords, Amendments Nos. 56 and 57 are designed to ensure that the person who will be affected directly by the safeguarding provisions in a vesting order is the person to whom notice will be given that a vesting order is to be made. As the Bill stands, the notice is to be served on "the person carrying on the undertaking". On reflection, however, we do not think this is either wide or precise enough. It meets the case when assets of a business, or when shares of a company which directly carries on business, are to be vested. But it does not cope with the case when shares of a holding company, which does not itself carry on the business, are to be vested. In general we believe the person affected by the vesting order should be the person to whom notice should be given. Therefore, we seek to bring forward Amendments to provide that when shares in a relevant body corporate are to be vested, the notice should be served on the body corporate; and when assets of a business are to be vested, the notice should be served on the person carrying it on. I beg to move.

On Question, Amendment agreed to.

Lord LOVELL-DAVIS

My Lords, I beg to move Amendment No. 57.

Amendment moved— Page 15, line 23, leave out ("and the") and insert— ("(7) In subsection (6) above "the person concerned" means—

1. (a) in the case of an order such as is mentioned in paragraph (i) of section 13(2) above, the relevant body corporate, and
2. (b) in the case of an order such as is mentioned in paragraph (ii) of that subsection, the person carrying on the undertaking.

(8) The").—(Lord Lovell-Davis.)

On Question, Amendment agreed to.

3.27 p.m.

The Earl of BALFOUR moved Amendment No. 58: Page 15, line 31, at end insert ("or a vesting order")

The noble Earl said

My Lords, in Clause 17(1) we read: No criminal proceedings shall lie against any person on the ground that he has committed, or aided, abetted, counselled, or procured the commission of, or conspired or attempted to commit…any contravention of a prohibition order. I feel that a person should have the same right in the case of a vesting order. At this stage may I say that while I think Amendment No. 58 is appropriate, I am not so sure about Amendment No. 59. I think that would be inappropriate. We see that a vesting order may prohibit or set aside the transfer of any such capital or assets, so no criminal proceedings can lie against any person who has committed or aided any contravention of a prohibition order or a vesting order. I think it is only right to give the person the safeguard if he does try to preserve his own interests. I beg to move.

Lord DRUMALBYN

My Lords, may I just add to that in a very short sentence. The real question is whether criminal proceedings are to lie against contravention of a vesting order. If they are not to lie, surely that should be in the Bill. I understood they were not to lie. There will be ambiguity otherwise.

Lord MELCHETT

My Lords, as the noble Earl, Lord Balfour, pointed out, these subsections are confined to the prohibition order, and they are related to the question of how it is to be enforced. The answer they embody in statutory form is that breach of a prohibition order is not to be a criminal offence, but that civil proceedings may be brought; in other words, the Secretary of State, if he believed a person to be acting in a manner contrary to a prohibition order, could seek an injunction from the court preventing him from so doing. Any actions taken in the face of such an injunction would be deemed to be contempt of court, thus making liable to committal to prison the person guilty of the contempt. This provides a proper and adequate means of ensuring that prohibition orders are respected and criminal proceedings are, therefore, unnecessary.

There are no comparable procedures associated with the central purpose of a vesting order. Certain property is vested, and except in relation to the safeguarding provisions of a vesting order there is no question of an instruction being disobeyed. The vesting order does not issue a prohibition or instruction, as does a prohibition order, but transfers ownership. Only in respect of the safeguarding provisions of the vesting order is there any question of prohibition comparable to that in a vesting order.

The Bill makes specific provision for dealing with contraventions of these safeguarding provisions, either through the setting aside of the transactions or through the recovery of compensation from the persons involved in the improper transfer of assets which constituted the breach. We recognise that there is a difference, in that the breach of prohibition orders by virtue of Clause 17 cannot result in a criminal offence, whereas the same restriction does not apply to vesting orders. A breach of the prohibition provisions in the safeguarding part of the vesting order might therefore be a Common Law offence. We accept this, and it is intentional since we believe that it is right that the safeguarding provisions in a vesting order should have the maximum deterrent effect. I hope, with that explanation, that the noble Earl will see fit to withdraw the Amendment.

The Earl of BALFOUR

I should like to thank the noble Lord for his explanation. I think this is a great help. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 18 [Territorial scope of orders]:

3.31 p.m.

Lord MELCHETT moved Amendment No. 60: Page 16, line 10, leave out subsection (2) and insert— ("(2) For the purposes of this Part of this Act a body corporate shall be deemed not to be resident in the United Kingdom if it is not incorporated under the law of the United Kingdom or of a part of the United Kingdom.")

The noble Lord said: My Lords, noble Lords will recognise that the Government have introduced several technical amendments to Part II of the Bill. Throughout, our aim has been to establish with as much certainty and clarity as possible what is meant by the various terms used in this Part of the Bill and with this Amendment we are dealing with the words "body corporate not resident in the United Kingdom". At the moment Clause 18(2) provides that a company's residence depends on where central control and management is exercised. I recognise that the phrase "central control and management" occurs elsewhere in legislation but nevertheless it appears to us to lack the objective clarity which we are seeking.

To establish that a company in America which had made a bid for an important manufacturing undertaking was not resident in the United Kingdom on the existing provision of subsection (2) we should have to examine the ownership of that company, the way in which its management is exercised, where its board meetings are held and so on. This we believe to be unnecessarily complex, and we therefore propose the simpler test of whether or not the company is incorporated in the United Kingdom. We believe this will make this part of the Bill clearer and more comprehensible. I beg to move.

Lord ELTON

My Lords, this is an interesting Amendment and one that comes somewhat late in the day. I cannot see it presaged—if that is the word—earlier in another place or in this House. As the noble Lord says, it is changing the definition of "a body corporate". While, perhaps, it makes for clarity, there is a further clarification which I should like at this stage. It seems that the effect of the Amendment to Clause 18(2) in its new form will be to direct it against companies covered by Part X of the Companies Act; that is to say, companies registered abroad but operating in the United Kingdom and having branches controlled within the United Kingdom. I should like to know whether this Amendment does not now exclude companies incorporated in the United Kingdom but with management decisions taken, for instance, in Leichtenstein. It is difficult to give examples, but would IOS, for instance, fall within this definition or not. One recognises the sort of thing Her Majesty's Government are trawling for, but I should like to establish whether they have the right net. It would be a help if the noble Lord could say whether or not this will be the effect of the Amendment.

Lord DRUMALBYN

My Lords, there are certain European Instruments which envisage the setting up of European companies and some of the joint ventures may be registered in any of the Community Member States. Is it not likely that this clause will provide a severe discouragement to that type of company being registered in the United Kingdom? In other words, will not people prefer to register them in another Member-State with a consequent loss of revenue to this country?

Lord MELCHETT

My Lords, I understand that the answer to the noble Lord, Lord Elton, is that if the company is registered overseas it would be outside the new definition. I think I have that right, but if not I will certainly write to him about it. I am not sure that I know the answer to the point raised by the noble Lord, Lord Drumalbyn, and if I may I will write to him about it. I was receiving a message about the earlier point when he was putting his question.

On Question, Amendment agreed to.

Clause 19 [Compensation orders]:

Lord MELCHETT moved Amendment No. 61: Page 17, line 7, leave out from ("if") to end of line 8 and insert ("for the words "may by notice given in the prescribed manner, withdraw the order or may" there were substituted the word "shall" ").

The noble Lord said: My Lords, in Committee the noble Lord, Lord Elton, pointed out that the Amendment proposed in Clause 19(5) of the Bill to Section 6 of the Statutory Orders (Special Provisions) Act 1945 was perhaps not sufficiently binding on the Government. Section 6(2) of that Act allows the Government, if it is thought inexpedient, to proceed with an order as it has been amended by the joint committee, either to withdraw the order or to submit it as a Bill. It would clearly be wrong for the Government to withdraw a compensation order since this would be for those whose property has been vested without compensation.

We therefore propose in Clause 19(5) to amend the relevant Section of the 1945 Act to make it impossible for this to happen. The noble Lord, Lord Elton, pointed out that although this has been done by the Government it was still, in theory, possible for the Government not to proceed with an order and that a further Amendment was required so that the Government must either proceed with the amended order or submit it as a Bill. The present Amendment achieves that result and I hope it will be acceptable.

Lord ELTON

My Lords, it is indeed gratifying to have accepted not merely the spirit but the verbatim text of an Amendment.

On Question, Amendment agreed to.

Clause 21 [Financial assistance under Industry Act 1972 for bodies corporate which make planning agreements]:

3.37 p.m.

The Earl of BALFOUR moved Amendment No. 62: Page 17, line 34, leave out ("may be not") and insert ("shall not be").

The noble Earl said: My Lords, I said at the Committee stage that I would return to this. Clause 21 of the Bill reads at the moment: When a body corporate has made a planning agreement—the amount of grant under…the Industry Act 1972…may be not less than—the percentage… which would have been given, so far as I am concerned, where a planning agreement has not been made. Unless for the words "may not be" there is substituted the words "shall not be" what on earth is the point of any company making a planning agreement? I should like to quote a few words from the Committee stage where the noble Lord. Lord Beaumont of Whitley, said: In that case will the noble Lord please inform us what is the purpose of this clause as it stands? It seems to me to make absolute nonsense if it does not say shall".—[Official Report, 24/7/75; col. 568]

My Lords, I must admit that my drafting was wrong. You cannot substitute the one word "may" for "shall", but I have returned to this. Furthermore, I should like to take this opportunity of asking again the question which I asked at Committee stage and which was never answered. The preamble to the Bill referring to what was then Clause 16, and which is now Clause 21, stated, No power to increase expenditure will be conferred by Clause 16"— that is now Clause 21— unless there is a reduction in the rates of regional development grant currently payable. The Government is not at present considering any such reduction. At Committee stage I asked the question: are Her Majesty's Government now considering a reduction in the regional development grant? I feel I have a right to an answer to that question. Also, I think we must have a very much more satisfactory answer to explain what is the advantage of a planning agreement unless the company entering into that planning agreement gets the same grant as they would have got under the Industry Act 1972 without making a planning agreement. I beg to move.

Lord DRUMALBYN

My Lords, before the noble Lord replies, may I just mention to him that the reason why I feel that we should have "shall" and not "may" is because of the terms of the White Paper, The Regeneration of British Industry. May I give the noble Lord two quotations. In paragraph 11 it is said: A planning agreement will not be an agreement in the sense of a civil contract enforceable at law. It will, however, be given on sufficient recognition by Statute to enable the company concerned to rely on assistance promised under it. You may say that "may" would leave it open as to whether the assistance will be promised or not. Let us take the next paragraph, paragraph 12: In order that companies shall have greater certainty in making and carrying out their plans the Government intend that once an agreement has been concluded regional assistance for the projects which it covers will during the currency of the agreement not fall below the rates in force at the time of the agreement. In view of that, I do not see how the noble Lord can possibly fail to make this Amendment.

Lord CAMPBELL of CROY

My Lords, could I just add to what my noble friends have said. One of the aims of a planning agreement is to look ahead with more certainty, and the duration of the agreement, reading the White Paper from which my noble friend Lord Drumalbyn has quoted, is to be three years, which can then be continued. Clause 21 of the Bill would enable the regional grant to be at a constant rate during that period, and it is not a very long period considering that changes in the status of assisted areas occur only infrequently. But it would be a sensible element in assisted areas for planning agreements to have this in them. We agree with the Government on that. But we think that it should be the same for all companies in assisted areas who decide to enter into a planning agreement.

The noble Lord, Lord Lovell-Davis, when he was replying to this point at Committee stage said that it would detract from the Minister's bargaining power, because he could not insist on particular conditions with each company when negotiating planning agreements. But, surely, if this Amendment were made it would increase the bargaining power of the Minister vis-à-vis all companies in assisted areas who were contemplating, however remotely, making a planning agreement. They would know that there would be certainty of the rate of regional grant, for a period of three years, or perhaps more, if they made an agreement, but they would be less interested in entering into negotiations with the Minister if they know that during the negotiations the Minister could rule that out. I quote one remark of the noble Lord, Lord Lovell-Davis, at Committee. He said: You are forced to pay this level of grant irrespective of whether the other party has fulfilled its obligations under the existing level of grant."—[Official Report, 24/7/75; col. 568.] This is a strange explanation, and it is one of the reasons why we asked the Government to look at this again and to clarify the position. Surely that kind of situation would not arise. Once an agreement has been signed, perhaps for a period of three years, the Government could not, in any case, alter that agreement during the period: the rate would be settled for that period even if the Government might not be completely satisfied with the company's performance. As for the more serious matter of fulfilling obligations, if the company were failing to carry out commitments under the agreement presumably there would be arrangements in that agreement which would determine whether the agreement had automatically terminated because one party to it failed to carry out commitments. In that event, if the agreement automatically terminated because one party failed to carry out commitments, then, of course, the Government would become free to take any action and would no longer be bound by the agreement. So we did find the noble Lord's words very strange, making it look as though the Government could react during the course of a planning agreement's duration and seeking to keep the power with the Minister to make changes irrespective of whether or not the planning agreement was being kept.

Lord LOVELL-DAVIS

My Lords, as noble Lords have already said, we discussed this Amendment at some length in Committee and my noble friend Lord Beswick undertook to look at this clause again, and in particular at the word "may". It has two effects. First, it reflects the wording of Section 1 of the Industry Act 1972. The noble Lord, Lord Drumalbyn, will recall, since he took that Bill through the House, that Section 1 says "The Secretary of State may make a grant…" I understand these words were included in that Act so as to permit the Secretary of State a certain flexibility for administrative action, and for that reason alone the permissive form ought to be copied in this Bill. In saying this, I would emphasise that that does not mean that the Secretary of State may be capricious about how he exercises his discretion. On the contrary, he has a duty to exercise it in a reasonable and not in an arbitrary way. This is how it is exercised under the 1972 Act and how it will be exercised when the same discretion applies under this Bill. But in the context of planning agreements there is a further reason for the Secretary of State to have discretion. A planning agreement will, as I explained in Committee and as the noble Lord, Lord Campbell of Croy, has just reminded us, have at least some element of a bargain. Each party will, quite properly, be looking for concessions from the other. This does not affect the agreement ultimately made. The noble Lord, Lord Drumalbyn, has quoted our White Paper and used its words to support this Amendment. But it says "at the time of the agreement". I will come to that matter again later.

Each party will, quite properly, be looking for concessions from the other while they are trying to reach this agreement. The Secretary of State will wish to achieve the maximum benefits for the economy, for regional development or export promotion or whatever goal he is pursuing, without undue cost to the taxpayer. For this reason he needs to have the flexibility to decide whether a project should receive the benefits conferred by this guarantee. There may be times when there are some projects which merit additional certainty, in that this will persuade the company to advance them, whereas other projects would anyway proceed without the additional benefit. The Government believe that the Secretary of State should be able to use his discretion and not be committed to giving the benefits of increased certainty for all projects whether or not they require them. Equally, the Secretary of State should be free to impose conditions upon which the guarantee would hang. As drafted, the Secretary of State would be found to pay the guaranteed level of assistance even if the company failed to carry out its side of the planning agreement, a very real point which I made during Committee. For all these reasons the Secretary of State must have the flexibility of the word "may".

But let me make it quite clear what the word "may" does and does not mean. It means that the Secretary of State has discretion as to whether or not he will offer the guarantee of assistance, but once the offer has been made it will be firm and binding. The word "may" does not mean that the Secretary of State, having entered into an agreement, may, or alternatively may not, honour his promise. It means—and I hope this will reassure the noble Lords, Lord Drumalbyn and Lord Campbell of Croy—that he may or may not make a promise in respect of a financial guarantee, but once a promise is given it will be a firm commitment within the terms agreed.

May I say finally to the noble Earl, Lord Balfour, who said I did not answer his question on Committee, that I attempted to answer it. I can only repeat it now. So far as I am aware, the Government are not considering any reduction. The Noble Earl should not draw consulsions from this matter. I hope that what I have just said, the explanation I have given, will satisfy the noble Earl, and that he will decide to withdraw the Amendment.

Lord ABERDARE

My Lords, I must say that I have not understood what the

noble Lord has said. He said that the discretion of the Secretary of State should subsist before he made the planning agreement. But once he had made an agreement and a planning agreement existed, then he would be firmly bound. This clause reads: When a body corporate has made a planning agreement— Therefore we are considering a case where the Secretary of State has entered into a planning agreement. How can there then still be any discretion from the noble Lord's own words? He has said that the Secretary of State will then be bound by the planning agreement. I cannot understand his reason for objecting to this Amendment.

Lord BESWICK

My Lords, may I clarify that. If, as part of the planning agreement, this advance is to be made, that will be made firm; that will be a firm agreement. It does not necessarily follow that because one has a planning agreement one enters into other commitments, but if they are entered into they will be firm.

The Earl of BALFOUR

My Lords, I have considered this carefully. Although it says in the beginning of the Industry Act 1972: The Secretary of State may make a grant to a person… it goes on to say in Section 1(2) of that Act: The amount of a grant under this section shall be the prescribed percentage of the expenditure in respect of which it is made". I feel that this could be such a case. The Secretary of State can hold a sword over the head of the Company, and say that unless they go ahead and make a planning agreement he will withhold perhaps some regional development grant that they might have got without it. In view of this, and in view of the answers I have had before, I am still not satisfied.

3.54 p.m.

On Question, Whether the said Amendment (No. 62) shall be agreed to?

Their Lordships divided: Contents, 88; Not-Contents, 58.

CONTENTS
Aberdare, L.	Balerno, L.	Berkeley, B.
Airedale, L.	Balfour, E. [Teller.]	Bourne, L.
Alport, L.	Barnby, L.	Bridgeman, V.
Ashbourne, L.	Belstead, L.	Byers, L.
Camoys, L.	Grimston of Westbury, L.	O'Neill of the Maine, L.
Campbell of Croy, L.	Hankey, L.	Onslow, E.
Carrington, L.	Hayter, L.	Porritt, L.
Clancarty, E.	Hornsby-Smith, B.	Rankeillour, L.
Clwyd, L.	Hylton-Foster, B.	Rathcreedan, L.
Coleraine, L.	Inglewood, L.	Redesdale, L.
Cowley, E.	Kilmany, L.	Rochester, L.
Crathorne, L.	Kimberley, E.	Sackville, L.
Cullen of Ashbourne, L.	Kings Norton, L.	St. Aldwyn, E.
Daventry, V.	Kinnaird, L.	St. Davids, V.
Denham, L.	Lauderdale, E.	Sandford, L.
Deramore, L.	Lloyd of Kilgerran, L.	Sandys, L.
Drumalbyn, L.	Long, V.	Somers, L.
Dundee, E.	Lyell, L.	Stamp, L.
Effingham, E.	Mackie of Benshie, L.	Strathclyde, L.
Elles, B.	Macleod of Borve, B.	Strathcona and Mount Royal, L.
Elton, L.	Massereene and Ferrard, V.
Emmet of Amberley, B.	Merrivale, L.	Sudeley, L.
Erskine of Rerrick, L.	Monck, V.	Tenby, V.
Falkland, V.	Monson, L.	Terrington, L.
Fraser of Kilmarnock, L.	Mowbray and Stourton, L.[Teller.]	Thomas, L.
Gladwyn, L.		Thurlow, L.
Glendevon, L.	Newall, L.	Tranmire. L.
Glenkinglas, L.	Northchurch, B.	Vickers, B.
Goschen, V.	Nugent of Guildford, L.	Vivian, L.
Greenway, L.	Ogmore, L.	Young, B.
Grenfell, L.
NOT-CONTENTS
Arwyn, L.	Gaitskell, B.	Popplewell, L.
Aylestone, L.	Gordon-Walker, L.	Raglan, L.
Balogh, L.	Hale, L.	Rathcavan, L.
Beswick, L.	Henderson, L.	Ritchie-Calder, L.
Birk, B.	Houghton of Sowerby, L.	Royle, L.
Blyton, L.	Hughes, L.	Rusholme, L.
Brockway, L.	Janner, L.	Shinwell, I..
Bruce of Donnington, L.	Kirkhill, L.	Slater, L.
Burton of Coventry, B.	Leatherland, L.	Snow, L.
Castle, L.	Llewellyn-Davies of Hastoe, B.	Stedman, B.
Champion, L.	Lloyd of Hampstead, L.	Stewart of Alvechurch, B.
Chorley, L.	Lovell-Davis, L.	Stow Hill, L.
Collison, L.	McLeavy, L.	Strabolgi. L. [Teller.]
Crook, L.	MacLeod of Fuinary, L.	Summerskill, B.
Crowther-Hunt, L.	Melchett, L.	Taylor of Mansfield, L.
Davies of Leek, L.	Milford, L.	Wallace of Coslany, L.
Douglass of Cleveland, L.	Paget of Northampton, L.	White, B.
Elwyn-Jones, L. (L. Chancellor.)	Pargiter, L.	Winterbottom, L. [Teller.]
Evans of Hungershall, L.	Phillips, B.	Wynne-Jones, L.
Fisher of Rednal, B.

Resolved in the affirmative, and Amendment agreed to accordingly.