PETROLEUM AND SUBMARINE PIPE-LINES BILL

HL Deb 25 September 1975 vol 364 cc546-90

6.54 p.m.

Lord JACQUES

My Lords, I beg to move that the House do again resolve itself into Committee on this Bill.

Moved, That the House do again resolve itself into Committee.—(Lord Jacques.)

On Question, Motion agreed to.

House in Committee accordingly.

[The Earl CATHCART in the Chair.]

Clause 19 [Provisions supplementary to s. 18]

Lord CAMPBELL of CROY moved Amendment No. 14.

Page 15, line 29, at end insert: ("( ) Where a licence is revoked on the grounds of any act or omission occurring after the licence was altered by virtue of the preceding section which act or omission would not have provided grounds for revocation of the licence had it occurred before the date of such alteration, and it is shown that the holder of the licence

1. (i) has incurred expenditure in carrying out work which is rendered abortive by revocation, or
2. (ii) has otherwise sustained loss or damage which is directly attributable to the revocation

the Secretary of State shall pay to him full and prompt compensation in respect of that expenditure, loss or damage. If any dispute, difference or question shall arise between the Secretary of State and the holder of a licence issued before the coming into force of section 18 of this Act, either as to the entitlement of such holder to compensation under the provisions of this sub-clause or as to the amount of such compensation, the Secretary of State shall, if the holder of such licence so requests, refer such dispute, different or question to arbitration by the International Centre for Settlement of Investment Disputes. In such arbitration a licensee who is controlled by a company incorporated outside the United Kingdom shall be treated as a national of the State in which that company was incorporated and subsections (2) and (4) to (6) of section 302 of the Income and Corporation Taxes Act 1970 shall apply, for the purpose of determining whether for the purposes of this section, a licensee is controlled by another company.").

The noble Lord said: I beg to move Amendment No. 14. We regard this as a very important Amendment because it makes provision for payment of compensation to licensees if their licences are revoked solely on grounds which are introduced by this Bill. I would draw attention to the fact that the Amendment applies only where an existing licence is revoked, and where the grounds on which it was revoked were introduced by this Bill and were not part of the terms agreed originally by the licensee. It provides also for compensation to be payable to the licensee for expenditure made by him before revocation, and for any other loss or damage suffered by him as a result of revocation. There is also provided a procedure for international arbitration to deal with any dispute either on entitlement to compensation, or on the amount.

The effect of Clauses 18 and 19 of the Bill is to vary the terms of existing licences by introducing new model clauses. These new clauses contain wide discretionary powers. At the same time, the Secretary of State is to be able to wield the sanction of revoking licences. The new clauses are considerably different from the terms of existing licences. The Bill is therefore taking away from licensees some of their existing contractual rights and is imposing new obligations on them.

The main effect of the introduction of changes to the terms of existing licences is to create opportunities for the Government to force licensees to give up rights, generally areas of the sea bed. New sanctions could be forced upon them to compel them to do things contrary to their commercial interests, simply in order to preserve their previous investment in a licensed area. There can be the sanction to make them carry out operations against their own commercial judgment because of the threat of losing the licence. It is one thing for the Government to have the right to revoke a licence for a licensee not complying with the agreed terms on which it was granted, but it is quite another thing for the right of revocation to be exercised by reference to new terms which have been imposed unilaterally on licensees after substantial investments have already been made. We believe this is coming close to indirect expropriation. Past British Governments have resolutely defended, both domestically and externally, the principle that the taking away of vested rights by exercise of sovereign power involves an obligation to pay full compensation. I would point out that the present Amendment, considering the domestic aspect of that, is based on Section 46 of the Water Resources Act 1963, which provided in almost the same terms as this Amendment for compensation to be paid where the rights granted by a licence under that Act were varied or revoked, and a similar provision is to be found in the Mines (Working Facilities and Support) Act 1966 to cover the situation where the right to mine is restricted. Parliament clearly recognised in those cases that the taking away of rights in those cases required payment of compensation. Those are examples in the domestic sphere.

No other Western European country has introduced changes to existing licence terms. Let us consider the case of Norway; it is often compared with us because we share the North Sea. When the Norwegians revised their regulations and these revised regulations were introduced in December 1972, they did not have the effect of abrogating existing rights. The terms of this Bill are in direct conflict with the principles upheld by previous United Kingdom Governments as part of international law. The first danger inherent in this is the destruction of confidence. People will feel that the terms of licences and other contracts may not be respected by British Governments in the future.

Secondly, it could encourage action of a similar kind against British investments abroad. Although we have been having difficulties with our visible trade and balance of payments, the noble Lord, Lord Balogh, will recognise more than anybody that we are dependent, and have continually been able to improve our position, on invisible exports. This is because in Britain we are still an international centre in banking, insurance and in the management of international trade. A lot of this is based upon that assurance for which this country, and the City in particular, stand, the assurance, "My word is my bond". We surrender that reputation at our peril.

So far as international law is concerned, I will briefly point out that it has long been accepted that agreements such as North Sea licences give rise to rights in favour of the concessionaires which are eligible for diplomatic protection. The British Government have strongly advocated this principle on a number of occasions in the past. For example, in their Memorial to the International Court of Justice in the Anglo-Iranian Oil Company case the Government stated: The Government of the United Kingdom does not consider it necessary to elaborate the proposition that rights acquired by foreign nationals by virtue of concessionary contracts are property rights and that as such they are entitled to the same protection as international law grants to the property rights of foreigners. This proposition is generally recognised and to the knowledge of the Government of the United Kingdom has never been seriously challenged. I remember very well the British Government's attitude at the time of the crisis in 1951, because I happened to be a member of the British Security Council delegation at that time and sat behind the noble Lord, Lord Gladwyn, in the Security Council meetings. Moreover, because the Press officer happened to be ill at that time, it also fell upon me as an additional duty to brief the world's Press at the United Nations about the British point of view. So it is something that is still very much in my recollection.

Briefly, the general principle is that international law affords protection against any use of sovereign power which has the effect of taking away, in whole or in part, vested rights, or of preventing their exercise in accordance with the terms on which they were granted. The philosophy underlying this principle is that the concessionaire, in making investments in the host country, ought to be able to rely not only on the law of that country but also on the covenants and undertakings of the contracting State.

The point of our Amendment is this. The Government have decided to go about changing the situation, in the way I have indicated, which is in the Bill, changing the terms unilaterally of these licences. The Government should accept that this course carries with it an obligation to provide compensation in certain circumstances, only when a licence is revoked and only when the reason is a new one, not in the original terms of the licence. They should accept this in order to preserve confidence and to avoid retaliation. If they simply sweep this obligation under the carpet, not only will confidence seep away in the offshore oil operations, but also in other activities in which the British Government are involved. In addition, there could be retaliation against our interests abroad by Governments who might consider that they were then entitled to act in a similar way. Of course, it is arguable whether changes of this magnitude are needed in the national interest. It has not been proved that this is necessary for a depletion policy in the 1980s.

The noble Lord, Lord Balogh, knows that we on these Benches have recognised that in the 1980s we need a depletion policy, but a great deal less control than is to be given under the terms of the Bill as it stands would be necessary in order to achieve that. If the Government had set about this task differently, such changes could well have been obtained by agreement, as I pointed out on Second Reading. Indeed, the time could have been spent more usefully on negotiating with the oil companies, the licensees, on that matter rather than on the 51 per cent. participation, the subject of discussions now going on. But having decided on unilateral abrogation of rights, the Government should provide for the possible consequences, in accordance with accepted practice at home and abroad. This Amendment would enable them to do that, and I therefore commend it to your Lordships.

7.5 p.m.

The MINISTER of STATE, DEPARTMENT of ENERGY (Lord Balogh)

Amendment No. 14 would provide for compensation to be paid where a licence is revoked on a ground which would not have occasioned revocation under the terms on which the licence was granted, and further provides for disputes to be settled by the International Centre for Settlement of Investment Disputes. There has been considerable debate on this question of compensation at previous stages of the Bill. I shall recapitulate these arguments and, I hope, demonstrate to noble Lords that what we are doing is not an irresponsible act of piracy but the reasonable minimum which is necessary to ensure that, having been endowed with a major oil province, the nation is in a position to see that it is exploited in a way which is not counter to the nation's interests.

Before I do that, however, I should like to call the attention of noble Lords to the fact that the Amendment is not in order; it seems to impose a further charge on public funds which is not covered by the Money Resolution. However, I leave this aside, and I shall seek to explain the Government's position without that particular point.

First, the unilateral alteration of licences is very regrettable, but the need for it arises because of the gross inadequacy of the existing terms, especially for the Fourth Round, in that no public sector participation was provided. Despite the growing knowledge of the magnitude of the endowment in oil, the same inadequate terms were prescribed which had been prescribed first by the Conservative and later by the Labour Government when they did not know the magnitude of the fields. The Government would be failing in their duty to the nation if they allowed licences representing a subs- stanital proportion of our oil reserves to continue for another 40 years without adequate provision for depletion control, additional exploration, control over dealings in licensee companies, et cetera.

Nor can the Opposition wriggle out of their responsibilities here. I drew to the attention of noble Lords on Second Reading, and I draw to their attention again, the Press notice issued on 1st December 1971 of a speech by Sir John Eden in Aberdeen. I shall not labour that point because I referred to it yesterday. Secondly, the Bill does not introduce retrospection in the accepted international sense of the word; it does not make illegal something which when done was legal. It is not retrospection. The new terms govern future actions only, not past actions. Licensees will clearly, no less than before, know on what grounds their licences might be revoked, and should take orderly measures to avoid this very unwelcome course. The changes are therefore comparable with the sort of changes which Governments regularly introduce, which affect the profit or remuneration of a particular section of the community, in the national interest, and for which no compensation is given. It is exactly the same as tax changes, exchange control measures, legislation governing safety or advertising standards, but perhaps it might be argued that noble Lords opposite wish to protect all these interests against the national one.

Lord CAMPBELL of CROY

I gave the noble Lord similar examples in our legislation; for mines, for instance.

Lord BALOGH

They were very minor examples, and they had absolutely no relevance to the magnitude of the problem and the magnitude of the change which has occurred between 1970 and 1975 in the situation of oil. A particular example of such legislation in the energy field was the Conservative Fuel and Electricity (Control) Act 1973, to which we assented, which gave the Government power to make bigger impact on licensees than this Bill does.

Let me now say a word about the Amendments of the noble Lord, Lord Lloyd of Kilgerran, Nos. 17A and 25A. They raise two points—compensation, and the question of whether where the licensee is in breach of depletion control requirements he should lose his whole benefit. I have dealt with the first point. The second point is a separate issue, and it is raised later on Amendment No. 17 which stands in the name of the noble Lord, Lord Strathcona and Mount Royal. If the noble Lord, Lord Lloyd of Kilgerran, agrees, I shall deal later with that part of his Amendment along with Amendment No. 17. For the present, in regard to Amendment No. 14 and the issue of compensation, I must ask the Committee to reject these proposals.

7.12 p.m.

The Earl of LAUDERDALE

I was wondering whether my noble and learned friend or the noble Lord, Lord Lloyd of Kilgerran, were going to speak, but since at present both seem a little bashful perhaps I may just say that I am afraid that the bonhomie after dinner last night has evaporated a little and my old friend the noble Lord, Lord Balogh, is back in his most familiar form. I am afraid that this may have the danger of eliciting familiar form from myself as well. He has said in reply to my noble friend Lord Campbell of Croy that the examples cited with regard to the Water Resources Act and the Mines (Working Facilities and Support) Act were irrelevant because of the scale of the oil problem as related to the scale of the water and the mines problem.

Lord BALOGH

I did not say that. I said it was because of the magnitude of the change in the oil situation which necessitated action to remedy the absolutely intolerable situation into which we drifted with the fourth round.

The Earl of LAUDERDALE

I apologise if I misquoted or misrepresented what the noble Lord said. I do not think what he said really alters the point I was going to make. However great the change—and we all agree that the oil situation has brought an enormous change in the economy of the whole of Western Europe, and so on—the principle surely is not altered. Or is the noble Lord going to say that a big robbery is all right, a little robbery does not matter? He may say that the oil companies are robbing us, and it does matter put the other way round. But whether it is great or small, the principle of fairness and of arbitration comes in either way. It seems to me to come ill from noble Lords on the other side of the Committee, whose integrity we respect, whose perspicacity we have learned to respect as well, who we personally like, the great preachers and prophets of justice, to say that justice is one thing in a little case, it is quite different in a big case.

In thinking about this Amendment, I was interested this afternoon to find a quotation from the Secretary of State. He said in the other place on the 28th July, 1975 at col. 1443 of Hansard on the Report stage of this Bill: There is nothing whatever in the taking of these powers that could conceivably be argued as a move towards expropriation or a breach of international law. Then there is a parenthesis, and then we have the conclusion of that sentence, and listen to this: until the powers were exercised. He said, and I will read it again: There is nothing whatever in the taking of these powers that could conceivably be argued as a move towards expropriation or a breach of international law … until the powers were exercised. That is the quotation. It is from Hansard of another place. It happens to us all—it has happened to me many times, and it has occasionally happened to my noble friends opposite—that there are slips of the tongue.

What alarms me is that at the start of this evening's proceedings we are told in effect that principle does not matter where it is a question of size. This bodes ill for our proceedings, and for the harmonious conduct of these proceedings in which we tried yesterday at any rate to put reasonable arguments in the hope that noble Lords opposite would listen. We were instructed yesterday more than once by the noble Lord, Lord Lovell-Davis, to give our minds to a book by Anthony Sampson called The Seven Sisters. I likened that book to a new Little Red Book, which did not altogether appeal to those on the other side. But may I say to noble Lords opposite, Chairman Mao he say, "Close mouth; open mind". I hope that noble Lords opposite will listen.

We have been trying to be co-operative. We have had little thanks for our pains. We find noble Lords opposite complacent; complacent apparently in the belief that we on this side will forever play like gentlemen. There is indeed a danger to the whole Bill if noble Lords opposite are not as co-operative as is traditional in this House. Something crossed my mind today when I was reflecting on this, and I made one or two inquiries in support of it. Supposing something were to happen to show this Bill to be a hybrid. I say suppose. Suppose that were to happen, there would be all sorts of consequences, and it is not—I repeat, it is not—too late for that to happen. Usually, of course, a Bill is declared a hybrid after the First Reading in whichever House it begins its career and before the Second Reading, but it can happen in another way. I want, in the nicest possible way, to draw the attention of noble Lords opposite to it. In case I raise their blood pressure too much I have taken the precaution of providing myself with a small box of aspirin so as to help them deal with any rise of blood pressure that may result from what I am going to say.

The fact is that it could, in theory, perfectly well happen that this Bill could be converted into a hybrid. It could perfectly well happen later in Committee stage; it could perfectly well happen on Report; it could perfectly well happen on Third Reading. It could happen by an Amendment of which formal notice would normally be given on the Order Paper, but it could also happen quite differently. It could happen quite suddenly by a manuscript Amendment. Although manuscript Amendments are not highly thought of in your Lordships' House—they are regarded as offensive to our usual procedures and to the decorum of our affairs—we are here faced on this Bill with a Government Front Bench which is stone-walling. I see the noble Lord, Lord Balogh, pouring himself a glass of water. I have the aspirins here if he cares to take some. We are faced with a Government Front Bench which is indifferent to arguments about equity and justice, which is deaf to argument, blind to reason and which is making nonsense, it would seem, of this Chamber's function as a revising Chamber. Thus, it could well happen that a frustrated Opposition, or perhaps Back-Benchers—I do not speak for my Front Bench on this; I am putting forward my own ideas, although they are the result of some research—might table an Amendment clarifying the latent hybrid potentiality of the Bill and that Amendment might be carried. That could happen from now on in the later stages of the Bill.

The effect would be instantaneous and explosive. The Bill would need to be referred to Examiners, and that could not happen in a day; nor would it go through "on the nod". Complex procedures would be necessary, and if the Examiners found that it were a hybrid, petitions could be expected. They would need to be heard and examined and a Select Committee would then need to report. From the Government's point of view, time is short. We all know this and we are trying to co-operate because we know the Government's time is short; but if the Government will not co-operate with us, there is no real reason why we at any rate on the Back-Benches, should go on being gentlemen for ever. Two more weeks of Recess remain and then there is the spill-over, and that might not be anything like long enough.

I am not making an appeal, though I notice that the Front Bench opposite have been quick to consult their advisers. I too, have been advised and I assure noble Lords opposite that this is not an appeal, still less is it a threat; it is a reminder. I am reminded of the clergyman who was short of money and kept writing to his bishop for money. The bishop replied, "I'll have no more letters of appeal from you," so the next time the clergyman wrote, he said: "This is not an appeal, it is just a report; my breeches are worn out."

7.22 p.m.

Lord AVEBURY

The noble Lord, Lord Balogh, said that one of the major reasons for refusing this Amendment was the deficiency particularly in the fourth round of the licensing. We discussed that matter on several occasions, on Second Reading and in the debate the week before that. Nobody has argued, looking back with the benefit of our present-day knowledge, that much stricter terms should not have been extracted in the licences. I thought that that had been universally agreed and that it would not have been necessary for the noble Lord to reiterate it.

Lord BALOGH

I really must beg the noble Lord, Lord Avebury, not to use over and over again arguments which have been controverted before. There is no hindsight; there was foresight in 1970 and one of the Ministers responsible made an estimate which has not since been changed.

Lord AVEBURY

I remember that on the previous occasion the noble Lord, Lord Balogh, reminded me of the statement made by Sir John Eden, and I accepted that at the time we should have been able to foresee that we had a major oil province on our hands in the North Sea. This is not my argument, if I may say that with respect to the noble Lord. I am saying that we have now accepted that there is a major oil province there and that there were deficiences in the terms of the licences then awarded.

If I can start by taking the noble Lord that far with me, then I can go on to make the essential point that a deficiency in contractual arrangements entered into by Her Majesty's Government at the time is not a reason for altering those terms now without compensation. This is not a principle which Her Majesty's Government have ever put forward in the past when we have been at the other end of the argument. When we have been in dispute with some of the Arab oil producing countries about the terms on which we have been able to obtain oil from them, it has not been acceptable to the British Government to say that unduly harsh terms had been imposed on Saudi Arabia or Iran, for example, by the British companies when they had greater bargaining power than they possess today and that, for this reason, no compensation whatever should have been paid by Iran or Saudi Arabia when they altered the terms which those companies, some of which were British owned, had previously enjoyed in the exploitation of oil in Saudi Arabia or Iran, as the case may be. I therefore do not understand how the noble Lord can seriously advance this as an argument which should be accepted by the Committee now, for no British Government have ever in history accepted the principle when we have been on the other side of the fence.

The noble Lord said, and quite rightly, that we had to take adequate powers for depletion control. I agree with him. I am one of those who believes that we will face a serious situation in the latter part of this century, when oil supplies from the North Sea will not be sufficient to meet demand and we will have to begin importing again. I am, therefore, with the noble Lord and the Government in saying that strong powers have to be taken to adjust the rate of depletion to fit in with the national interest where it does not already coincide with that of the companies involved. However, I say that in those circumstances there is an obligation on the Government to pay fair compensation to the companies which are deprived of their rights, particularly when, as envisaged in this Amendment, those rights are revoked entirely.

The noble Lord said that we are not here dealing with revocation in the accepted international sense. I should be interested to know his authority for that statement. Can he quote any precedents in the whole sphere of international law to justify this expropriation of rights previously granted? I will quote just one example on the opposite side to illustrate what I mean. I refer to a case which the United Kingdom brought against Iran, involving the Anglo-Iranian Oil Company, when the United Kingdom claimed, with a Labour Government in Office, in 1950: The Iranian Oil Nationalization Act of 1st May, 1950, in as much as it purports to effect a unilateral annulment or alteration of terms of the Convention concluded on 29th April, 1933, between the Imperial Government of Persia and the Anglo-Persian Oil Company, is an act contrary to international law. So, in 1950, with a Labour Government in Office, we were claiming against the Iranian Government that an alteration in the terms which the Anglo-Iranian Oil Company then enjoyed was contrary to international law, yet the noble Lord now says that when we do precisely the same thing it is not contrary to international law and is not retrospection in the international sense.

The noble Lord provided us with a definition of "retrospection" by saying that we are not in this Bill making illegal something that was legal when it was done. I do not accept this narrow definition of retrospection, and although I am not a lawyer I believe that most of your Lordships, looking at this from a common sense point of view, will agree with me that retroactivity goes much wider than that. Certainly retrospective laws which make illegal something that was legal when it was done are the most harsh, unconscionable and unacceptable to Parliament, as for example the Immigration Act, 1971. As noble Lords may know, I was among those who argued most strongly against that Act.

However, this is not the only kind of retrospection with which this House and the other place has had to deal. I will quote the dictum of Mr. Justice Storey which I think will provide a more acceptable definition to your Lordships. He said: Upon principle, every Statute which takes away or impairs vested rights acquired under existing law, or creates a new obligation, imposes a new duty or attaches a new disability in respect to transactions or considerations already past, must be deemed retrospective. That definition certainly covers what the Government are attempting to do in the Bill.

Finally, I must endorse what the noble Lord, Lord Campbell of Croy, said in moving the Amendment. I believe we are on very dangerous ground here in that the United Kingdom, as a nation which depends so much on exports and on investments overseas which bring us in substantial invisible earnings, cannot afford to encourage those countries in which we have such investments and to which we send such exports to undertake the unilateral retrospective legislation we see in the present Bill. I believe that if we give this encouragement it will cost the United Kingdom far more than any amount we shall have by declining to accept the proposition advanced by the noble Lord, Lord Campbell of Croy, that we should pay full and fair compensation where rights are taken away.

7.32 p.m.

Lord HAILSHAM of SAINT MARYLEBONE

My noble friend asked me to add a word on this Amendment, partly, I support, because, as is now apparent, there are important legal questions involved. However, I do not want to stress the technical nature of these questions, even to the rather modest extent to which they have just been explored by the noble Lord, Lord Avebury. The truth is that, having listened to the noble Lord, Lord Balogh, I am absolutely convinced that he has failed to see the point. He began by saying—and I believe I have it right—that the Government's act was not an irresponsible act of piracy. That was his language, not ours, and, so far as I know, no one has suggested that it was such an act.

Lord BALOGH

Only handy robbery.

Lord HAILSHAM of SAINT MARYLEBONE

I am afraid that my noble friend behind me was to some extent goaded into a moment of pique by the rather extravagant language used by the noble Lord. I do not propose to be goaded by the noble Lord because I want to try to make him understand something which he evidently does not understand. What we say is that there is an important principle involved. I shall try to explain to the noble Lord what it is. He was very keen on the national interest. I suppose we all are, but I should myself have thought that there is no national interest more important to this country in this lawless time—though there may me others as important—than the rule of law, viewed both internally as a matter of internal policy, and internationally as affecting the relations of nations and foreign nationals. It is because we think that the rule of law is in jeopardy here that we are putting it to the noble Lord that the national interest requires that he should think again. That is what we are trying to say to him. I am sure that it is only a want of understanding as to what the point is which prevents him from agreeing.

The point is this: when people are given concessions of this kind, they acquire something in the nature of a proprietary right on contractual terms. That is a form of property. Nobody nowadays denies—I am not sure that I say this with relish, but I say it none the less—that a sovereign nation can of course expropriate any species of property. For the purposes of this argument. I assume—and even if I did not assume it I am quite unqualified to deny—that the Government are perfectly right in seeking to expropriate the property of the consessionaires by imposing more onerous conditions on them than were originally imposed by the original concession. I am perfectly prepared to accept from the noble Lord, for the purposes of the argument, that he is quite right in making this demand on Parliament. But that does not end the question it only begins it. If one is to expropriate a proprietary right or unilaterally to derogate from a contractual right—which is what is pro posed—then one must pay compensation for damage that is done.

It was for that very reason that, even before my noble friend spoke, I had, though I am not sure that I was going to say so, ever since I became aware of this point, always had considerable doubt as to whether the Bill ought not to have been made a Hybrid Bill from the start, because there are only seven or so individuals who are affected and it is basically a fundamental principle of our Parliamentary procedure that, when one expropriates particular pieces of property, as distinct from a general piece of property—for instance, when one expropriates all the mines in the country—one can only do it by the hybrid procedure. But I was not prepared to take this point because it is a highly technical one; it is rather late in the Bill to start talking in terms of hybridity and I do not want to be diverted into a very boring technical argument when I have a very simple point to make.

However, supposing the Government are entitled to view the Bill as what it purports to be—an ordinary public general Bill—they must still recognise the rule of law in it, and that is what the Amendment asks them to do. If it is out of order in the form in which it is proposed, it is up to the Government to propose another form of words or another way to do it, and to recognise the principle of our internal rule of law which will give effect to it.

Far more important that that, however, is the point about international law because a number of these companies are foreign companies. It follows, therefore, that the sovoreign States of which they are, in effect, notional nationals may be able to haul this country in front of an international tribunal for breaking the law if they propose to expropriate without proper compensation. This is really not in the national interest. We should be put in the dock; and would that not be rather a nasty thing to happen to us? These are real dangers and what worries me is that they are dangers the nature of which is apparently unknown to the noble Lord opposite, since he has not dealt with the point because he manifestly did not understand it. If one expropriates proprietary or contractual rights without compensation one is committing a breach that there are international tribunals to which this country is amenable.

All we are asking is that the Government should recognise the rule of law for this purpose. We are not asking them in one way or another to alter their policy. We assume, for the purposes of this point, that the policy is justified and that the demands made on the companies are right. What we do want them to recognise unequivocally is that if one expropriates proprietary or contractual rights unilaterally one is bound to pay for that privilege. I am quite prepared to accept for the purposes of this argument that the original licences ought not to have been made when they were made if they gave rise to that kind of right.

There is only one other thing I want to say to the noble Lord. It is to reiterate the point already made by my noble friend Lord Campbell of Croy and the noble Lord, Lord Avebury. It is not necessarily to our interest, even if we are not amenable to an international tribunal, that we should be seen to break the law. I say this because now, after 40 years—or certainly since the war—I have watched the progress of this country, nationalising and expropriating as it went along. They have never gone, I think, as far as this in principle, because they have always paid compensation. But every time we have done it other people have done it to us.

Quite apart from the purely juristic point as to whether we are amenable to international tribunals, your Lordships can bet your bottom dollar that somebody will take a leaf out of our book the moment it is known what we have done. We are much more vulnerable than any other country in the world to that sort of behaviour. It is for that reason, and because we believe that the national interest, as well as the national honour demands it, that we implore the noble Lord, Lord Balogh, and his colleagues to apply their minds to the right point. The noble Lord has himself very formidable powers of intellect. If he would only try to understand this matter I believe that he could help his colleagues a little further along the way, and he would be doing a great service to his country in doing so.

Lord LLOYD of KILGERRAN

May I presume to make a few observations? I am not proposing to take any juristic point of view on this matter at all, but I hope to bring plain common sense into my argument. I say at once that I admire the noble Lord, Lord Balogh, for his courage and his persistence in saying that he would be failing in his duty if he did not take strong action in the national interest in relation to matters like depletion, exploration and such. But it seems to me that the noble Lord may have forgotten that, whatever may have been the terms of those contracts that were concluded with large oil companies in the past, the fact is that the oil industry has made very great investments in that territory; indeed, the industry has made enormous investments.

Therefore, as the noble and learned Lord, Lord Hailsham of Saint Marylebone, said, by those contracts the companies have certain rights of property. The Government have decided in the national interest that there shall be amendment, or repudiation—or whatever one likes to call it. They have decided that there must be some alteration in relation to those contracts. But no doubt the noble Lord knows very well—in view of the representations made to him—that the industry insist that changes which repudiate rights acquired by contract, under which enormous investments have already been made, raise separate legal issues which are not analogous to increasing taxation, or taxes arising out of environmental conditions. People in the industry raise the simple question that the Government have to alter those contracts in which they, the industry, have certain rights of property; I am not trying to define those rights. Therefore the industry says, quite simply, that it is entitled to compensation.

It has been said to the Committee that no similar situation has arisen in the past. But I should like to remind the noble Lord that during the war large numbers of companies in this country had made great inventions and the Government of the time, for the purposes of war, decided that all commercial contracts in relation to the inventions, and the patents, and the know-how should not be carried out, but that the Government should step in and take over all those rights. In certain instances the Government took over rights in relation to inventions where there were no legal juristic property rights, like patents, or trademarks or copyright; it was general know-how. This raised the feeling in industry, not only in this country but abroad, that the Government had to take such powers in view of it being wartime, but industry felt that some compensation should be paid.

What did the Government do? They endeavoured—mainly through their Patent Department, the Admiralty, the Air Ministry and the War Office to settle these disputes where companies were making large claims against the Crown arising from what had happened to certain contractual rights. What the Government did was not to accept that compensation was payable, but rather to accept the fairness and justice that these people, who felt that their proprietary rights have been interfered with, should have the right to go to a tribunal to have those rights considered. The Attlee Government set up a Royal Commission on awards to inventors, under the chairmanship of a late very distinguished Law Lord and Member of this House, Lord Cohen of Walmer, who sat for a period of seven or eight years. I, then as a junior barrister at the Patent Bar, had the privilege of working with him on that' Commission. It heard evidence from the Government. It also heard evidence from the businesses and from the men concerned about the interference in their proprietary rights, and that the Government had used their property for the war effort. I entirely agree that at that time the war effort was the purpose for which the Government had interfered with the rights.

But here again at the present time it is the national interest, the future economy of this country, that depends so much on this North Sea oil. It may be that that future economy depends a great deal on the powers which the noble Lord, Lord Balogh, insists should be introduced. Nevertheless, behind all that there surely loom the rights of individuals who have made investments; individuals whose rights have now been affected. They should have the opportunity of stating their case to an independent tribunal. The International Centre for Settlement of Investment Disputes may not be the right tribunal. But certainly the industrial concerns which have made great investment in the North Sea should be enabled to put their case to some type of independent tribunal to see whether compensation is payable, and, if so, what amount should be paid.

A number of firms and men came before the Royal Commission on awards to investors to claim compensation when they had no right whatsoever to compensation under the law of this country. But under the terms of reference of the Royal Commission it was possible for the Commission to make ex gratia payments to those individuals. Possibly by my reminding your Lordships of that Royal Commission on awards to investors there may be an opportunity for the Government to think again about this matter of arranging for at least a court or a tribunal where a claim for compensation can be put,

Lord BALOGH

I shall follow the noble and learned Lord in trying to master my temper, and I shall speak in the softest possible tone, although I must tell your Lordships in advance that I cannot give way on this point. We have been told that proprietary rights have been established which will be violated. If people invested in this country and surtax was increased, would that be compensable? What is the difference between that and this?

Lord HAILSHAM of SAINT MARYLEBONE

I beg the noble Lord—I want to say this to him very gently—not to talk what is really legal nonsense. The right not to be taxed is not a proprietary right. A concession given by the Government is a contractual right and is a proprietary right. A proprietary right is not expropriated by taxing people at a different rate, but it is expropriated if the terms of a concession which the Government have given are altered; that is to say, if they are altered unilaterally. I beg the noble Lord to understand the difference.

Lord BALOGH

Even that lucid explanation has not convinced me at all. The noble Lord, Lord Campbell of Croy, said that at least we ought to have tried to negotiate with these firms, but there are so many licences that this would have been impracticable. Not only would it have been impracticable, but of course the whole question is very hypothetical.

The Earl of LAUDERDALE

Would the noble Lord—

Lord BALOGH

I am not giving way at the moment; later on certainly. We are trying to introduce reasonable conditions for the exploitation of the field. These are reasonable rules based on the best mining standards which ought to have been put in anyway. They have not been put in. I do not believe that any sort of compensation will arise in this case, but even if it did it seems to me—and I have some reason to believe that this is so—that this would not in any way violate international law. I would draw the Intention of the Committee to the Restatement of the Foreign Relations Law of the United States prepared by the American Law Institute and published in 1965. Paragraph 195 of the Restatement states in traditional terms the limitations upon a State's right to terminate its contractual obligations to aliens. One of the comments on this paragraph is headed. "Change of State Law", and it develops the proposition that a State may not relieve itself of responsibility for breach of contract by the simple device of enacting a law designed to make performance illegal.

It then goes on to give illustrations. In one of these it contemplates a situation where a State grants a concession to a foreign corporation and subsequently enacts legislation, providing for regulation of production in all its territory for the express purpose of preventing waste of natural resources". It concludes: Enforcement of such regulations against Y (the concessionaire) is not wrongful under international law and does not impose a duty on the State to pay compensation, even though it reduces the profits of Y. I do not say that this is a statement of international law. There is no absolute international law, and we know it very well. Neither am I qualified to interpret American law. I am not qualified to interpret any kind of law; that is a different profession from mine.

On the other hand, I can give some illustrations that this sort of regulation which was necessary from a national point of view has been introduced without any murmur of protest in Alberta and other Canadian Provinces; by the New Zealand Government and the Federal Government of Canada—and not a peep was heard. Everybody accepted that this was a reasonable protection of absolutely essential national interests and I beg noble Lords opposite from time to time to think of Britain—I do not want to say of England, but Britain. During this debate I have heard very many arguments, but the one argument that it is absolutely essential for us to regulate our own great new national resource, I have not heard.

7.54 p.m.

Lord AVEBURY

I am afraid that the noble Lord has not been listening very carefully. I made the point that no one is arguing about the right of the Government to regulate production, to deal with off-take, and particularly I mentioned the depletion provisions which in my view were wholly necessary in the national interest and would clearly be seen to be so as we approach the end of the 1980s and the prospect looms upon us of Britain no longer being self-sufficient in oil. I thought I had developed that part of my case fairly clearly. I am afraid the noble Lord must have been distracted while I was speaking. I apologise to the Committee if I failed to declare an interest when I spoke just now. I am a small shareholder in the Shell Oil Company.

A Noble Lord

We all are.

Lord AVEBURY

I should like to refer to the examples from the United States which the noble Lord has given us. He has brought to bear only one on the argument. If he is to maintain, as he has done all the way through this debate and on previous occasions, and as Ministers in another place have done, that what they are doing is not contrary to international law, they must produce authorities. I quoted two myself, and if the noble Lord can show that this kind of expropriation is permissible under international law—even though it is not enshrined in a Statute there are judgments which can be quoted—then we ought to hear them from the Government before we come to a decision on this matter.

It appeared to me that the United States example which the noble Lord quoted to the Committee was not on all fours with the discussion we are having. First, he said that the State may not relieve itself of contractual obligations by legislative Acts—which is what the Government are doing in this Bill—but at the same time it was permissible for the State to pass general laws limiting or preventing waste of natural resources. This might well have the effect of reducing the profits of companies engaged in the exploitation of those resources—it might be oil companies or companies engaged in mining coal or any other mineral. If we were to translate this into British terms, the Government, as a result of the oil crisis in1973, passed laws which were intended to prevent waste of natural resources. For example, there was the 50 mph speed limit on the roads and the reduction of temperature in offices which might have had the effect of limiting or reducing the profits of companies which were engaged in selling oil or any other fuel for these purposes. No one argued that that is not a perfectly legitimate State power. It has nothing to do with contractual rights which have been agreed between the companies concerned and the Government.

I wish the noble Lord would address himself carefully to this point and try to see the distinction which has been made on numerous occasions, for example in the case of correspondence between the Director-General of the CBI and the Secretary of State, where I think the Secretary of State used almost precisely the same language as we heard from the noble Lord, Lord Balogh, this evening; that is, that new taxation, exchange control, safety or other requirements may also modify a company's profits, but it is everywhere accepted that these measures do not necessitate the payment of compensation. Cannot, or will not, the noble Lord see that that is not what we are arguing about. In none of these cases or in the advertising standards which he mentioned are we dealing with a contractual obligation between the Government and a company or a group of companies. We are dealing with the general law, which the noble Lord must realise we are quite prepared to accept may sometimes involve a loss of profits or even companies being affected by or put in serious financial difficulties as sometimes may happen, not because of the intention of the Government, but because of the effect of the tax changes or exchange control or other requirements which the Government have mentioned. I think this is a fairly obvious distinction, and that the noble Lord might address himself to it and see whether he cannot understand it before we finish the debate.

Finally, the noble Lord mentioned the similar legislation that has been passed in Alberta and New Zealand, which he said had been passed without a murmur of opposition in those countries. I may be wrong, but I am under the impression that legislation giving those Governments power similar to those which the Government are taking in this Bill was passed before the licences were awarded. To get the analagous situation in this country we should have to be discussing a Bill of this sort prior to the fourth round of licensing which the noble Lord said was so defective. If we had been discussing this Bill in 1969 before those extremely generous terms were awarded, we should not be having this argument at all. We should have allowed the Government Clauses 15 and 16 in the model clauses and there would have been no necessity for the noble Lord, Lord Campbell of Croy, to put down the Amendment.

The Earl of LAUDERDALE

Since the noble Lord was good enough to indicate that he might perhaps give way a little later, I want to take up one or two points that he made. He referred to the Albertan case. I will agree straight away that that is complicated and I do not myself pretend to understand it. But he did also quote the New Zealand case. He is sitting back ready with an answer I am sure; but, according to my understanding, the New Zealand case is not on all fours with this at all. There was no retroactive revision of an existing contractual right. What about Australia? There there was no revision of existing contractual rights. What about the Netherlands? There was no revision of an existing contractual right. What about Eire? There was no revision of an existing contractual right. What about Spain? There was no revision of an existing contractual right. What about Denmark? There was no revision of an existing contractual right. What about Norway?—no revision of an existing contractual right.

I would merely try to persuade the noble Lord—I am not asking him to say that he will look at this. I am not asking him to say that he will consider it, because I have thought of a new variant which perhaps he might care to try out as a via medius, a sort of compromise. It is because I know that his heart is in the right place although sometimes I think that his mind is in the wrong one. Would he perhaps not agree to discuss this with his colleagues. I will put it that way. There is just one other point that he made which I found difficult to comprehend. As I understood him, on the matter of compensation, he said that there were too many cases to discuss; but apparently there are not too many cases for the negotiation of participation.

Lord CAMPBELL of CROY

The noble Lord, Lord Balogh, in his two replies to this debate brought up two or three points which I will deal with very briefly. First, he raised a technical objection to this Amendment on the basis that it was outside the Money Resolution. I would point out that if the Government accept this Amendment or the principle behind it, then, of course, they would have no difficulty in broadening the Money Resolution.

Then the noble Lord read out, I think, a piece about retrospection. It was certainly not answering anything that I said; because I did not use the word "retrospective" or "retroactive" in any part of my moving of this Amendment. What I was referring to was the abrogation of rights forced by one party on the other after a contract has been freely made on the original terms. My noble and learned friend Lord Hailsham has put, as clearly as I believe anybody could put it, what the point is, and he put it succinctly and, if I may say so, agreeably lucidly for laymen; but the noble Lord, Lord Balogh, has not given us a reply in the least convincing. He spoke about international law, which naturally came up in this debate, and pointed out that there are different views. But, again, that is not the point we are making. The point we are making is that on this subject British Governments up to date have upheld a principle. It has been a British interest to uphold what is regarded as international law by the majority on this point; and it is therefore a British interest, we believe, to continue to uphold that point.

In particular, the noble Lord has failed to perceive the dangers to this country of flagging confidence in investment in the United Kingdom and of similar treatment being meted out to British interests by other countries. My noble friends and noble Lords on the Liberal Benches who have spoken on this have pointed this out.

There is no more that I need add to his debate but to say that when the noble Lord implied from that side of the Committee that we were not considering the interests of Britain, that showed that he really has totally misunderstood our case; for it is because we are thinking of Britain and of what Britain could lose if we are not to continue to uphold this point that we have been arguing this Amendment. I ask my noble friends and other noble Lords to support me in the Division Lobby.

CONTENTS
Aberdare, L.	Gainford, L.	Orr-Ewing, L.
Amherst of Hackney, L.	Gowrie, E.	Pender, L.
Amulree, L.	Hailsham of Saint Marylebone, L.	Penrhyn, L.
Armstrong, L.		Rankeillour, L.
Avebury, L.	Hanworth, V.	Ridley, V.
Balemo, L.	Hawke, L.	St. Aldwyn, E.
Belstead, L.	Tronside, L.	Sandford, L.
Berkeley, B.	Lauderdale, E.	Sandys, L. [Teller.]
Brookeborough, V.	Lindsey and Abingdon, E.	Savile, L.
Brougham and Vaux, L.	Lloyd of Kilgerran, L.	Skelmersdale, L.
Campbell of Croy, L.	Long, V.	Strange, L.
Cathcart, E.	Merrivale, L.	Strathclyde, L.
Daventry, V.	Monck, V.	Strathcona and Mount Royal, L.
Davidson, V.	Mowbray and Stourton, L. [Teller.]
de Clifford, L.		Vernon, L.
Denham, L.	Moyola, L.	Vickers, B.
Dundee, E.	Newall, L.	Vivian, L.
Ellenborough, L.	Northchurch, B.	Ward of North Tyneside, B.
Falkland, V.	O'Neill of the Maine, L.

NOT-CONTENTS
Balogh, L.	Hall, V.	Melchett, L. [Teller.]
Brockway, L.	Henderson, L.	Peddie, L.
Collison, L.	Houghton of Sowerby, L.	Phillips, B.
Crowther-Hunt, L.	Hughes, L.	Platt, L.
Donaldson of Kingsbridge, L.	Jacques, L.	Ritchie-Calder, L.
Douglass of Cleveland, L.	Janner, L.	Shepherd, L. (L. Privy Seal.)
Evans of Hungershall, L.	Kirkhill, L.	Stewart of Alvechurch, B.
Gardiner, L.	Llewelyn-Davies of Hastoe, B.	Strabolgi, L.
Goronwy-Roberts, L.	Lovell-Davis, L.	Winterbottom, L. [Teller.]
Hale, L.

Resolved in the affirmative, and Amendment agreed to accordingly.

Clause 19, as amended, agreed to.

Schedule 2 [Production licences for sea-ward areas]:

8.14 p.m.

Lord BALOGH

May I suggest, for the convenience of the Committee, that

Lord BALOGH

I would acknowledge that the questions raised in this Amendment are of great importance. It is right that your Lordships should be able to make known your views and I have listened with great interest to the discussion we have had so far. I have explained the Government's position as fully as I can; but I would ask noble Lords to consider the point I have made about the Money Resolution and the privilege of another place before deciding whether they wish to invite the Committee to insert these Amendments in the Bill.

8.7 p.m.

On Question, Whether the said Amendment (No. 14) shall be agreed to?

Their Lordships divided: Contents 53; Non-Contents, 28

we take Amendments Nos. 14A, 22A, 14B and 22B together.

Lord LLOYD of KILGERRAN had given Notice of his intention to move Amendment No. 14A: Page 50, line 11, at end insert ("being the notional cost thereof to the Licensee assuming that the said conveyance and treatment had been negotiated and effected on arms length terms by a person other than the Licensee").

The noble Lord said: The purpose of this Amendment is to clarify what is the meaning of "cost" in relation to the cost of conveyance and treatment of petroleum. My Amendment is in almost idendical terms to Amendment No. 14B. In these circumstances, with the leave of the Committee, I do not propose to move the Amendment in my name.

Lord CAMPBELL of CROY moved Amendment No. 14B: Page 50, line 11, at end insert ("representing the notional cost thereof to the Licensee on the assumption that the conveyance treatment had been effected on arms length terms by a person other than the Licensee.").

The noble Lord said: I am very content that the Amendments referred to by the noble Lord, Lord Balogh, which are the consequentials of No. 14B, should be considered with this Amendment. In the form in which this Bill is presented to us, an Amendment like this has to have a counterpart in another section of the Bill.

This is a somewhat technical point and I will try to put it concisely. Under Model Clause 9, royalties are chargeable at the rate of 12½ per cent. of the value of petroleum won and saved at the well-head. The detailed provisions contained in the Oil Taxation Act, which passed through your Lordships' House earlier this year, for determining the market value of petroleum have now been adopted as the basis for the calculation of royalties under the licence.

The market value of petroleum for the purposes of petroleum revenue tax is broadly the price receivable in arm's length transactions for petroleum which has been landed in the United Kingdom and undergone initial treatment rendering it in a saleable condition. To arrive at a wellhead price it is necessary to deduct from the value as computed for petroleum revenue tax, the cost of conveying the petroleum from the field to the shore, and also the costs of initial treatment. Paragraph 5(d) of the model clause makes provision for such deduction.

The purpose of this Amendment is to clarify the meaning of the reference to cost, and to ensure that the deduction is arrived at on a commercial basis. The possibility exists that the Secretary of State, who has the power of determining the deduction, may narrowly define the cost to mean only the out-of-pocket expenses incurred by the Licensee in the conveyance and treatment. If this resulted in excluding any element of overhead expenditure, such as interest on money borrowed for the construction of a pipeline, it would be unfair and it would give rise to inconsistencies between one Licensee and another.

We assume that it is the Government's intention that the same basis should apply in every case, and this Amendment is therefore designed to ensure that this basis should be as realistic as possible. The Government may point out that this is partly met by the arbitration provision as it now occurs in paragraph (c) near the top of page 73. Certainly this allows arbitration on figures, but not on the methods of arriving at a deduction. I hope therefore the Government will consider adding this to the Bill. I beg to move.

8.19 p.m.

Lord BALOGH

These Amendments seek to ensure that in all cases the costs of conveying be allowed as an offset against royalties will be at arm's length costs. There was a considerable debate on this in Committee in another place and the Under-Secretary explained why it was better to leave the flexibility which the Bill as drafted contains. The whole question of conveying costs and their calculation is very complex and noble Lords will not, I am sure, wish me to go into all or even many of the complexities. The experience of the Southern Basins Gas fields demonstrated amply the difficulties, and that is why we have taken power in this Bill for the Secretary of State to determine the method of calculation. But he may determine only in consultation with the representatives of the licensees, and such is the complexity of the latter that we feel it best to allow complete flexibility. Depreciation, interest, apportionment of assets, for example, platforms between conveying and production costs, are examples of the types of costs which will be covered in these discussions.

But no options are closed. We shall listen to the views of the industry and discuss with them any proposals they care to make. Let me say that the whole concept of arms-length sales in this context is extremely fluid and uncertain. There are, in this field, no arms-length transactions: there can be none, because of the uniqueness of the various fields and pipe-lines. Therefore I hope the noble Lord will not press this Amendment.

Lord CAMPBELL of CROY

I am grateful to the noble Lord for his explanation of the Government's attitude on this, If I understood him correctly, he said that the Government were prepared to consider proposals on how the costs should be computed which were put to them by those who are likely to be concerned with this part of the Bill. Having given that assurance, I hope that the Government will have an open mind on the proposals put to them, on the lines indicated by my Amendment.

I did not intend to press the Amendment: It was an indication of what we thought could well be in the Bill, to make this clear. The noble Lord has indicated I think, that there will be many difficulties but he has also given an assurance that he will listen to proposals about this complicated subject which are made by the people who are likely to be involved. In view of that, I beg leave to withdraw my Amendment.

Amendment, by leave, withdrawn.

8.22 p.m.

Lord LOVELL-DAVIS moved Amendment No. 15: Page 56, line 29, at end insert ("and where it is determined in consequence of any reference to arbitration in pursuance of sub-paragraph (a) of this paragraph that the programme in question does not satisfy the relevant requirements the Licensee shall submit to the Minister, as soon as possible after the date of the determination, a further programme which satisfies the relevant requirements.").

The noble Lord said: I suggest that it will be for the convenience of the Committee to take with Amendment No. 15 Amendment No. 23, which is the corresponding Amendment in Part II of Schedule 2, and Amendments Nos. 31 and 34, which are the corresponding Amendments in Parts I and II of Schedule 3. These are Government Amendments and represent a simple, commonsense tidying up, over which I shall not detain your Lordships for very long.

The Bill, as drafted, provides for a dispute as to whether additional exploration programmes submitted to the Secretary of State satisfy the relevant requirements, as set out in the model clause at lines 36 to 45 on page 78, to be settled by arbitration. If the arbitration body decides in favour of the Licensee, that is to say decides that the programme does satisfy the requirements of the model clause, there is no problem. This Licensee then carries out the programme. But if the arbitration body rules that the programme does not satisfy the relevant requirements, then clearly we should want the Licensee to revise his programme so as to meet the relevant requirements. That he should do so is probably the commonsense way to interpret the clause. The clause is not explicit and we felt it should be; hence the Amendment. I beg to move.

Lord STRATHCONA and MOUNT ROYAL

I think we have to accept that this is a fairly logical piece of tidying up, but in fact it raises issues which we shall discuss in greater detail in a moment, perhaps, regarding Amendment 16. It is an Amendment towards which the Opposition feel fairly lukewarm, in the sense that it is strengthening the underlying principle which goes through all these several model clauses—that is, the forced investment aspect of the modifications to the licences which are taking place. I daresay this is not the right moment for me to go into the whole question of the undesirability of these rather onerous provisions being pushed upon the companies, and therefore I will only say that we from this side will not oppose this Amendment and leave it at that for the time being.

8.25 p.m.

Lord STRATHCONA and MOUNT ROYALmoved Amendment No. 16:

Page 60, line 12, at end insert— ("(8A) Notwithstanding anything contained in this clause, the Licensee shall not be obliged to carry out any programme or part of a programme unless it is one which a person who, if he—

1. (a) were entitled to exploit the rights granted by this licence; and
2. (b) had the competence and resources needed to exploit those rights to the best commercial advantage; and
3. (c)were seeking to exploit those rights to the best commercial advantage,

could reasonably be expected to carry out having regard to all relevant considerations.")

The noble Lord said: Here again, I think it would be for the convenience of the Committee if we were to consider Amendment No. 24 with this Amendment. In a sense, this Amendment links back to the long discussion we had on Amendment No. 14 and it also links forward to Amendment No. 17.

In the case of Amendments Nos. 16 and 17, we are moving into an area where the Government have conceded the principle of these Amendments, as I understand it, when we are concerned with exploration. It is a little difficult to distinguish in our minds perhaps, but we are quite clearly distinguishing between an exploration-type situation and a production-type situation. It might be useful, in view of the somewhat acrimonious argument which inevitably we had on Amendment No. 14, if I say at the outset that I think it is common ground between us that what we are trying to do is to create the kind of environment on the Continental Shelf around this country within which the companies can have confidence to deploy their full and very considerable energies and resources towards the most rapid development of the hydrocarbons which lie beneath these oceans. It is probably true to say that the noble Lord, Lord Avebury, does not necessarily agree completely with this, but he is in a fairly small minority in not wanting to see these resources developed as rapidly as possible.

The disagreement lies in the kind of conditions that we want to create, and this Amendment addresses itself to the fact that here the Government are introducing a number of new clauses which alter the basis on which the licences were granted. The purpose of this Amendment is to seek to introduce the concept of avoiding putting the Government in the position where they are compelling a company to do something which is not, in that company's best commercial judgment, a sensible thing. We have all accepted, and have said many times, that here we are in an area of new technology, where there is a very rapidly changing technical environment. One has to be careful in the choice of words. I was going to say that in addition there is a very fluid situation as regards the financial environment surrounding the whole question. The price to be received for the product is, to put it mildly, an unknown quantity, certainly when one looks a few years ahead. It is natural, I think, that any company which is going to invest enormous sums of money is bound to look askance at the possibility of its being asked to do things which are manifestly uncommercial; and unless we accept an Amendment of this kind, they are liable to find themselves compelled to spend money on something which they do not think is going to yield a return

Amendment No. 17, to which we shall come in a moment, discusses the draconian sanctions which may be imposed on companies if they decline to do the things that the Government want. I think we would start by saying that a Licensee who commits capital and takes a risk should, in principle, be allowed to choose his own time for his development activity, according to a commercial judgment.

If we deviate from this principle, one of the problems into which we are going to run is that it exacerbates the difficulty of raising finance for the field.

I do not know that I need to develop this point very far, but certainly, again taking this with the following Amendment, the kind of situation which can arise is that a company can invest large sums of money—one is speaking about hundreds of millions, not just tens of millions—in developing a commercial field. Its licence may cover more than one field. One of those fields may not be in the company's view a commercial field. For reasons which can be totally understood, the Government are going to say: "We want to see that field developed. You are to develop that field, whether you like it or not. If you decline to develop that field, not only do you lose your licence to that field but you lose your licence to the productive field, the commercially attractive, paying field, which you have already developed." This I should have thought was a manifestly inequitable situation.

We have to look at the commercial implications. As I said earlier, one of the worries is that if potentially penal financial sanctions are imposed upon a company it is made that much more difficult for the company to raise money. The banker says: "Yes, I accepted that you have a commercial field at site A and I am quite prepared"—although, incidentally, the position here is not by any means very easy at the present time—"to help you raise the money for that. But the trouble is that, although we like the look of that prospect, how do we know that all the profit that is going to be made over there will not be abstracted from you over here where the Government are going to force you to undertake a development which you would not wish to do?"

We could even reach the situation where the Government say to a company: "You are to develop there," and the company is simply unable to raise the finance to do something which both the company and the banks know perfectly well is a nonsensical commercial proposition. I would suggest that this is basically rather a ridiculous situation for the Government to try to get themselves into. I beg to move.

8.33 p.m.

The Earl of LAUDERDALE

Perhaps I might add a word or two here in my usual non-controversial and pacificatory style. Our critical aims are surely quite clear in this connection. Sometimes it is necessary to restate matters in the simplest possible language to make quite sure that they are understood. There is the question of making sure that development programmes that are imposed on Licensees are in fact commercially viable; that is one purpose. The second is that we want to make quite sure that in cases of dispute the Minister cannot just bulldoze Licensees by the threat of revocation. There are many points in this Bill where the Minister's powers are unusual, and there are points which I think arise on future Amendments where it would seem that the Minister himself is to be, as it were, the arbitrator. Of course, to be judge in one's own cause is always agreeable to Ministers and Government Departments; it is less acceptable to those who are exposed to the judgment. At any rate, these are our two concerns. They are quite simple. I state them only because, as this evening has gone on, it has become apparent that sometimes one's language is not simple enough. We want to make quite sure that imposed development programmes are viable commercially, and secondly, that in the case of dispute the Minister does not just bulldoze his own way by the threat of revocation.

The situation we have to picture was indeed admirably described in one of our debates we had before we rose for the Recess—I think it was the debate in July when we took note of the Government's proposal to set up the British National Oil Corporation. The noble Lord opposite made it clear that from the word "go" BNOC would necessarily be a learner. Indeed, one of the reasons for establishing BNOC was to provide a vehicle where know-how could be acquired by the Government and put to the national advantage. So we know that in the earlier stages, at any rate—let us say in the first five or seven years—the BNOC will be in the position of a learner. In its participation agreements with the exploration companies it will have, of course, a 51 per cent. say; that, is if they concede participation. We are assured that negotiation will be voluntary and therefore they have a right to say, "No"; but on the assumption that the negotiations from the Government's point of view are successful BNOC will have its 51 per cent. stake and will be in the business to learn. But obviously it will not graduate straight away. The noble Lord, Lord Balogh, graduated in record time through successive universities, and if we had his brains perhaps we could have done the same, but BNOC generally is not going to graduate to the standing and status in terms of knowledge and experience of any one of the major oil companies in five years—probably not in ten years.

The real question is how far the Secretary of State, operating through BNOC, drawing on its growing knowledge—during its first-year programme, its early degree course acquisition of knowledge—will be competent to give directions and to impose programmes. I ask the question: how soon will the Secretary of State start giving directions, and how soon in his capacity of learner will he be in a position to give prudent directions? It is because for some time, at least, there must be doubt about his capacity to give prudent directions, because on the Government's admission he will be a learner, that we are naturally very concerned that the kind of directions that are given will be sound. That is why we want to be absolutely certain that they are commercially viable.

Of course, the difficulty about the Secretary of State's giving directions in this matter is that his own considerations must in the nature of his business be non-commercial. He is a political animal. He is looking at the nation's physical requirements in terms of oil reserves and the like, irrespective of price. The Secretary of State will have in mind all sorts of considerations which are very far from commercial. I will not say they are anti-commercial; I will not say they are hostile to profitability; but profitability will not be, in the nature of things, his first concern. For example, one can very well picture a situation in which the Secretary of State might want a company to develop a marginal field when that company, having put enormous investment into the discovery of several fields, wants to concentrate its resources, and has indeed decided to concentrate its resources, on the most productive, the most profitable field, the field which will give the most immediate return.

In days when cash-flow is such a serious consideration, and cash-flow problems are magnified many times by inflation, it is natural that the operating company or group will want to concentrate on what for them is going to give the best return and probably the quickest return on their mammoth investment. As I say, the Secretary of State may very well want such a company, or group or operator at the same time to divert resources to a marginal field. It may be that the marginal field is one which would otherwise escape development for some years. It may be that it is a marginal field which, left out of consideration, certainly would not merit a pipe-line and might, according to later sections of this Bill, be cajoled into the market through apipe-line extension.

The Secretary of State may very well have perfectly legitimate political or overall reasons of policy for wanting to press an operating company into developing a marginal field against that company's commercial judgment. It is that very situation which has arisen more than once that has generated the system known as farm-outs—large companies, having found several fields, plonking all their resources into the best bet and doing a deal with a smaller company to exploit a marginal field nearby on the basis of a farm-out. It is perfectly true that the smaller companies, a number of Which may be British, will relish that opportunity and welcome the support and pressure that the Secretary of State could give by means of the development programme direction. The point is that there are very delicate and difficult decisions and judgments to be made. There will be the judgments to be made on a broad political front but there will also be judgments to be made in terms of the investment of capital and the return on capital. This is the difficulty that we foresee.

A further difficulty is that this is not a simple discussion between a patron and his client. This is a discussion between the Government, on the one hand, and the Licencee on the other who, if he does not play ball, is exposed to the revocation of his licence. If he is exposed to such revocation he is out of business without compensation. If the intentions of the Government are allowed to go through as they are, he will already have had his licence terms very seriously compromised without compensation. But now he may be exposed to a direction about his development programme which is contrary to his best judgment and to the responsibility which he owes to those who have financed the undertaking and he will have to face these pressures on the basis of a relatively small organisation.

Even if he is one of the Seven Sisters, they do not own the world. He will be fighting the Government and will be unable to resist the pressure which revocation requires. In the course of yesterday's debate we were told more than once that the major companies can look after themselves and special reading has been recommended to us. Two or three times yesterday the noble Lord, Lord Lovell-Davis, advised us to read Anthony Sampson's book The Seven Sisters. Obviously the noble Lord has done Mr. Sampson a good turn because today I have seen copies of that book all over the building and a number of us have been obeying his injunction and dipping into it. I do not wish unduly to weary the noble Lord or the Committee with this matter, but since he was a journalist by profession until quite recently and since I have been a journalist by profession—I am sorry; I gather that the noble Lord was not a journalist and I take it all back. I thought that there was a basis of understanding between the noble Lord and myself of the same kind as I have been happy to develop with his noble colleague. At any rate, as to that book it is worth saying that it was paraded yesterday as the Bible that we should all study. With great respect to the Chairman of the Committee tonight, it reminds me of a statement that was once made by the late Lady Horsbrugh to a young aspirant to Parliament who was a woman. She said, "My dear, in politics a woman is either too young or too old".

Several Noble Lords

Shame!

The Earl of LAUDERDALE

The theme of The Seven Sisters is that oil is either too cheap, in which case it is knocking the competitor, or it is too dear, in which case it is exploiting the consumer. I will not further weary the House with this. The Government seem to think that oil companies of whatever size can defend themselves willy-nilly, but this is by no means clear to me. Without trying to rouse the hackles of noble Lords opposite and without questioning in any way their good intentions, may I plead with them to listen again to this aspect of the commercial interest which is necessary to a proper judgment of development programmes. As we are nearing the hour of nine o'clock and old men like myself should go to bed, I hope that I can prevail upon the Government to give a fair wind to my words.

8.45 p.m.

Lord LOVELL-DAVIS

As the noble Lord, Lord Strathcona and Mount Royal, has pointed out, the effect of these two Amendments—Amendments Nos. 16 and 24—would be to insert in the model clauses dealing with development and production programmes the same safeguarding criteria for the licensee as we inserted into the model clauses dealing with exploration programmes; namely, that development programmes should be only those which a conscientious Licensee with adequate resources would in any case carry out in his own best commercial interests.

In moving this Amendment the noble Lord is seeking to ensure that Licensees will not be required to submit and carry out development programmes for fields which they regard as at best only marginally commercial and might not undertake of their own volition. I understand the concern of Licensees about the possibility of forced development and I hope that in this debate I can give them some reassurance. However, this Amendment would, I fear, restrict too much the powers of the Secretary of State in this vital area.

We must distinguish the new provisions in the Bill on exploration oblieations from those on development and production control. On exploration it was never the Government's intention to ask for more than the conscientious Licensee would do of his own accord and the Amendment moved in another place merely gave statutory form to this intention. With development and production control the considerations are rather different. This is the area in which, above all, it is essential for the Secretary of State to have wide-ranging powers to ensure that the nation's oil resources are developed and depleted in the way which, taking account of all relevant factors—which include the need to ensure an adequate return to Licensees—best serves the national interest. It is not appropriate therefore that the sole or dominant criterion should be the Licensee's commercial interest. For example, a field may offer the prospect of a perfectly adequate return, but the Licensee may prefer to defer development because he anticipates a very rapid rise in the price of oil, or for some other reason. We on the other hand may wish him to go ahead and develop and in the last resort we should retain the power to require him to do so.

I said advisedly "the last resort" because in general the interests of the Licensee and of the Government are unlikely to diverge. Certainly they do not at present where we each want to get as much oil as possible flowing as soon as possible. But divergencies could occur and we must not leave ourselves with inadequate powers to safeguard the nation's interest if and when they do.

The noble Lord referred to the British National Oil Corporation. The BNOC will need to learn its craft. The control of development programmes will be administered by the Secretary of State. The Department's officials already see and examine the development programmes and have done so for some time. The Bill merely puts existing practice on to a statutory footing. The programmes themselves would begin to be approved when these provisions come into effect. Having said all this, I can assure noble Lords that there will be no question of the Secretary of State requiring the development of hopelessly uncommercial fields. This should go without saying but I recognise the strong desire of Licensees to have some further earnest of the Government's intentions.

For the reasons I have explained, I do not think we could go as far as the Amendment wishes us to go. Nevertheless, we are willing to consider whether or not we could insert into the Bill a provision to emphasise the right of Licensees to make representations on commercial matters and the duty of the Secretary of State to consider such representations.

It has been said that we on this side of the Committee have been stonewalling, but perhaps to make the interventions of the noble Earl, Lord Lauderdale, even more uncontroversial—and perhaps less lengthy—I should point out that this is the fourth concession or undertaking that we have given during the Committee stage so far in your Lordships' House. I hope therefore that with this undertaking the noble Lord will not wish to press his Amendment.

The Earl of KINNOULL

I am sure my noble friend is grateful for some assurance on this Amendment. I have listened most carefully to the noble Lord who has given the Government's reply, and I wonder if he would consider whether this form of licence and the removal of it could be done in the form that is used under planning laws. The noble Lord will recall that when someone applies for planning permission one of the fears the planners have is the very same fear that the noble Lord has just expressed, that in fact the development will not take place. In that case, the planning consent is subject to the development starting within a certain period of time. This would seem to cover the very point that my noble friend is so anxious about for the private sector and to maintain that confidence in the investment in this great work.

Can the noble Lord comment now on whether, for instance, when he is considering this matter, the period of time—say two to three years—could be considered, in order to decide whether or not that licence would be revoked, but not for other purposes. I think perhaps this is material.

Lord LOVELL-DAVIS

I have already given an undertaking. May I now simply say that I have noted the comments made by the noble Earl, Lord Kinnoull, and will certainly consider them while the other matter is being considered.

Lord STRATHCONA and MOUNT ROYAL

Of course we are very grateful for the noble Lord's generous undertaking to have another look at this point and to recognise the worries that lie behind this Amendment. I can quite see that here the Government are involved in reconciling two slightly contradictory elements. We feel gratified that they appreciate the reservations that any company is bound to have with this kind of sword of Damocles hovering over them.

I should like to add one or two things. If I may say so, I did not think that the example given by the noble Lord of a field which I think he said was giving an adequate return but was a less attractive proposition than some other field, was a very good example, because my understanding of the intention of our Amendment is that this would not be a case in point. If it was yielding a reasonable return one could justify it by saying that this was a reasonable commercial proposition, and I cannot see that the company would have a great deal to complain about if this was demonstrably the case.

It is worth mentioning—and I say this only to call the noble Lord's attention to it—that there are two areas of argument as between a potential company and the Minister. As I said at the beginning, we are dealing here with an area which is customarily referred to as the edge of technology, and it is worth bearing in mind the amount of argument that takes place between the various companies about the technically right way to do a job, and indeed about the commercial return they are liable to earn from it. It is probably just as well that this happens. It is a fact, of course, that there are small companies who have stuck their necks out rather too far where the big companies are unwilling to tread.

There is a further complication to which I did not refer at the beginning but which underlies this, and that is the part that BNOC might be taking in this, bearing in mind, as we have said, that BNOC will not be subject to petroleum revenue tax. One can contemplate the kind of situation where their desires might be somewhat different from the desires of their partners and the Government would have the power to impose upon the company partner something that suited the BNOC but did not suit the company.

There are a number of worries of this nature, but I shall not elaborate them at great length because obviously we shall have another chance to return to this issue at a later date, and I do not want to be thought to be carping at the Government's wish to meet the case that we have put forward. But I think it would be quite wrong if I did not try to emphasise to the Government the number of potential problems which one can see, bearing in mind that it is going to be some years before the oil companies are likely to have total confidence in the judgment of the Minister's advisers, whom we all agree are learning the job, both technically and commercially. In welcoming the noble Lord's undertaking, I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

8.57 p.m.

Lord CAMPBELL of CROY moved Amendment No. 17:

Page 60, line 12, at end insert— (8B) Where in consequence of any breach or non-observance by the Licensee of any requirement imposed upon him by the provisions of this clause the Minister has power by virtue of paragraph (1) of Clause 33 of this licence to revoke this licence he shall exercise that power only in relation to that part of the licensed area in respect of which the breach or non-observance has occurred and over which the programme extends; and where he does so the rights granted by this licence shall cease in respect of that area without prejudice to any obligation or liability imposed upon the Licensee or incurred by him under the terms of this licence.

The noble Lord said: With this Amendment I think it would be convenient if the Committee were to discuss Amendment No. 25, which is the counterpart in another part of the Bill and also standing in the name of my noble friend Lord Strathcona and Mount Royal and myself. As I understand the timing for this evening, in the short time I have before me I can only try to help the Government by giving an indication of what it is that is of concern to us. We believe that this Amendment is a very important one, because it draws attention to a sanction which the Minister will be able to wield, in that if some condition is not carried out by a Licensee the Minister will be able to revoke the licence, not only for the area where the condition has not been carried out but the licence covering other oil fields, in cases where licences cover several blocks, for example. This seems to be a weapon which is quite unnecessary and which could be a daunting one to those who are operating in the North Sea and who will be operating in other parts of our Continental Shelf.

This debate follows on the one that we have just had on Amendment No. 16. My noble friend Lord Strathcona and Mount Royal has described the way in which, by incorporation of new and amended clauses existing licences are being changed, and in particular that a Licensee cannot develop a field except with the consent in writing of the Minister or in accordance with a programme which the Minister has approved or served on the Licensee. Also, a Licensee must prepare and submit a development programme in such form and by such time and in respect of such periods or in the term of the licence as the Minister may direct. That is a new requirement. What we are now drawing attention to is the sanction which is to be available to the Minister, and that it goes much further than could possibly be necessary in covering the whole of a licence and all the areas in which a company or a consortium under that licence may be operating.

I can give an illustration of this. There could be a situation where massive investment was being carried out by a consortium or a company in two oil fields which had commercial prospects. They might also be deciding not to develop another field which they judged to be non-commercial because it was uneconomic and also because it would involve too great a risk financially for the company or consortium to undertake.

In those circumstances there might be a case for revocation of the licence in respect of the field which the company said they decided they would not develop; but that the Secretary of State should be in a position to revoke the licence covering the other blocks and fields as well, we believe goes much further than is appropriate or, indeed, fair in this part of the Bill. This threat will deter the effort needed to win the oil in the quantities which we in Britain require. This is one of the threats which we believe have been deterring companies from embarking on offshore operations in recent months.

Also it has been difficult to raise finance. We will be talking about that later in the Bill. The noble Lord, Lord Balogh, shakes his head, but I shall have quotations for him later from what observers, the Press and others, have been reporting, and also financial commentators, about the willingness of banks to provide finance. I can only make this short introduction if I am not to interrupt the arrangements for this evening. So at this stage, I will simply move this Amendment.

9.2 p.m.

Lord BALOGH

This Amendment would permit the Secretary of State to revoke a licence for a breach of the provisions of a development programme only in respect of that portion of the licensed area which was the subject of the programme in respect of which the breach occurred. This would be a further protection for the Licensee, but, like Amendment No. 16, I feel it goes too far in weakening the Secretary of State's power over a vital, perhaps the most vital, part of the licence conditions. It is true it would protect the Licensee who had a commercial field already developed from losing that field because he failed to carry out a development programme in respect of another field in the same licensed area which was hopelessly uncommercial, and which he therefore did not want to develop; that is to say, it would protect the Licensee against unreasonable demands by the Secretary of State. But by the same token it would ensure that a Licensee, similarly placed with a developed commercial field, did not lose that field even if his refusal to develop a further part of the licensed area was unreasonable and unjustifiable in the national interest. This is a risk which we cannot take, and for that reason I cannot recommend acceptance of the Amendment.

There is another reason why I cannot advise the Committee to accept the Amendment. It has been a fundamental feature of licence regulations issued by the Governments of both Parties that the licence should be regarded as a single unit, with all its rights and obligations to be considered as a whole. We should be embarking on a very slippery slope indeed if we abandoned that principle, as the Amendment would do, by ensuring that if a Licensee was in breach of one of his obligations, he would lose only that part of the licensed area in which the breach was committed. Noble Lords should hesitate, I suggest, before departing from this principle.

But I think I can go some way towards meeting the noble Lord. In new model clause 14, on additional exploration programmes, we have provided that the Secretary of State should have the option of revoking only in part. He can thus do so where circumstances are appropriate, but does not lose the power of total revocation which it is necessary to retain as a weapon of last resort. I think we can reasonably introduce the same provision into model clause 15,and if the noble Lord will agree not to press his Amendment, I can undertake to move this modified version of it on Report.

Lord CAMPBELL of CROY

Obviously there has been a misunderstanding, because in moving this Amendment I understood there was an arrangement that we should stop at nine o'clock for the next Business. Therefore, I moved the Amendment in rather shorter terms than otherwise I would have done, because I imagined that would be helpful. The noble Lord, Lord Balogh, has made a first reaction to my speech which was exceedingly interesting, and which I am sure noble Lords would wish to discuss. But at this stage I should like to know whether indeed it was the intention that we should stop at nine o'clock, which was why I made a brief opening speech, or whether I am mistaken in that belief.

Lord BALOGH

If it is convenient to noble Lords, we can postpone the matter.

Lord STRABOLGI

I beg to move that the House do now resume.

House resumed.