HL Deb 27 March 1980 vol 407 cc1121-30

215A In subsection (6), line 6, leave out ("would") and insert ("might").


My Lords, I beg to move, as an amendment to Commons Amendment No. 215, Amendment No. 215A. I imagine that there is complete agreement on all sides of the House as to the necessity for legislation to deal with insider dealings. I also imagine that there is no difference of opinion within the House on whether insider dealings should be made criminal offences. The Opposition previously took that view, and we agree with the Government now. If one is to legislate in regard to insider dealings, and to legislate properly, one must be quite sure that those who have cast upon them the duty of deciding whether or not a prosecution would lie under the clauses of a Bill, should have their task made clear and their duty made equally clear where certain facts emerge. Those responsible for initiating a prosecution cannot be expected to protect the public by bringing charges where they are given a completely impossible task.

I make those preparatory remarks before drawing your Lordships' attention to subsections (6) and (7) of the new clause proposed in Commons Amendment No. 215. Subsection (6) deals with the individual who is connected with a company, and who is in receipt of information, where dealing takes place in the shares of that company. Subsection (7) deals with the other case of the individual who is connected with the company, who is in receipt of information, and who is prohibited from dealing in shares of any other company. Thus there is the necessity for the two subsections.

I should like to direct your Lordships' attention to what a prosecution would have to prove, as the Bill now stands, in regard to subsections (6) and (7). Before I do that may I draw your Lordships' attention to, and ask for your sympathy in relation to, Amendment No. 215C. I think that it would be for the convenience of the House if I spoke to Amendments Nos. 215A, 21513, and 215C.

The amendments that I put down under Amendment No. 215C have unfortunately suffered torture, if not complete decimation, in the offices of your Lordships' House. Indeed, while 215C is moved as one amendment, I ask for your Lordships' leave to regard it as being two amendments and to their being in manuscript form. I therefore ask to withdraw Amendment No. 215C and to have the manuscript amendments substituted. What I asked for was that the word "will" should be left out in subsection (7), line 6, and for the substitution of the word "may". Then, at the end of the clause I asked for these words to appear, and the burden of proof that the individual did not know or had no reasonable cause to believe as aforesaid shall be on that individual". I think it was pretty clear from the wording of the amendment to subsection (6), and I apologise to the House for having to waste time clarifying the matter.

My Lords, I was discussing the question of a prosecution concerning subsections (6) and (7). The offence we are dealing with is the imparting of information to a third party, and of counselling or procuring that third party or any other person to deal in those securities. Your Lordships will find that, as the Bill now stands, what the prosecution would have to prove is that the individual concerned counselled or procured the other person, to deal in those securities, knowing or having reasonable cause to believe that that person would deal in them on a recognised stock exchange. It does not require a lawyer to see how difficult (if not impossible) it would be to bring any prosecution where a statement was made by the person concerned: "I know I was in receipt of information which I should not have passed on and that I did pass it on, but I had not got the slightest idea that the individual to whom I spoke would use that information in this way and would in fact deal on the Stock Exchange. I thought he was highly respectable; or, indeed, I thought that as a matter of conviction and principle he never dealt on the Stock Exchange at all".

In those circumstances, I ask your Lordships to consider that in this clause as it is now worded we will be presenting an impossible case for any prosecutor to prove. I am therefore asking, not for vicious language to be incorporated into this clause, but for common sense language, to deal with the offence that we have in mind. I have therefore asked for the words "would deal in them on a recognised stock exchange" to be altered to "might deal in them on a recognised stock exchange". I have further made it clear that the burden of proof, instead of being on the prosecution in a case of that kind, shall be planted firmly on the person who has parted with that information which he ought not to have imported to any third person. It would be perfectly reasonable for that person to discharge the burden of proof that he was not guilty of counselling or procuring by showing, the onus being cast upon him, that he had no reasonable cause for thinking that that person, after receipt of the information, would deal with the matter by dealing in shares on the Stock Exchange in relation to the information which had been given.

As the noble Viscount said, we are dealing here with a very important matter which has worried the City of London and has worried the public. There have been reports and there have been investigations. There have been worrying circumstances which, we all know, concern a minority of people in the City who behave in this way; but they have caused a great deal of damage, and if we are dealing with this matter of insider dealing we ought to be legislating in a proper, comprehensive manner. I was amazed, and so were my noble friends, that when this matter was dealt with at a pretty late stage by the Government they had before them a quite dreadful instance of what can occur in the City. I am referring to the case of Consolidated Goldfields and De Beers. If ever there was a case of an outsider trying to become an insider, I suppose it was the case of Consolidated Goldfields and De Beers.

I do not intend to use my own language in order to describe what happened a matter of some weeks ago. It was a set of circumstances, as your Lordships will remember, when some 25 per cent. of one of our most important companies was brought by a company which is a foreign company from our point of view. It became almost a controlling shareholder, if not completely a controlling shareholder, even by holding 25 per cent.; because my information is that there was no other holder of anything more than 5 per cent. in the whole company. Your Lordships will realise, therefore, that someone who has bought in 25 per cent. has a very important interest in the company, if not a controlling interest in the company. After that, some activities took place in the shares of this company which certainly relate to the question of insider dealing.

I quote, if I may, not my own words, but, as I said, words quoted in another place from the Financial Times: ' De Beers bought its shares on a first come first served basis, which inevitably meant that the institutions got the lion's share of the action. Rowe and Pitman told the four jobbers in the stock what was happening at 8.30 a.m., but it was not until nearly an hour later that many leading brokers heard what was going on. '"For an hour and a half, the City telephones were humming with specific, privileged, price sensitive information. It would be challenging to explain to anyone not wise in the ways of the Square Mile why this does not count as insider trading ".'"—[Official Report (Commons); col. 1390; 27/2/80.] The Government had their opportunity in this clause, at the Committee stage and at the Report stage. We all know that an investigation was ordered by The Stock Exchange; we all know that until an inquiry was ordered at the instance of the Department of Trade no disclosure was made by De Beers as to what had happened in regard to their acquisition, and so on.

It is with great regret that my noble friends and I note that no opportunity has been taken in the insider dealings clause, in this clause we are dealing with, and in the criminal offences and so on connected with this matter, to deal with a most serious situation which arose in the City and which can destroy--and I use the word advisedly—some of the great commercial and industrial institutions in this country, jeopardise their shareholders and jeopardise their employees. I beg to move.

9.24 p.m.


My Lords, I should like to support my noble friend's cogently-argued amendment. I am sure that the Government once again will not give way, but that is no reason for not placing on record certain facts which should be placed on record in this House. The amendment is only one example of the weakness of Part V of this Bill in the face of what I might call traditional insider trading which, however much it be a minority practice in the City—and I am sure it is—is nevertheless one that all now agree should be met by legislation creating a criminal offence.

Those of us who have been calling for legislation of this kind since the 1960s rejoiced when the City was converted in 1972; and one remembers the remarkable speech by Lord Shawcross. We rejoiced when the Government, too, were converted in another place after explaining here why it was impossible to legislate this year on this matter. But our rejoicing ceased when we saw Part V of the Bill because, as my noble friend has suggested, in so many ways— in this way and in many others—in relation to the prosecution's burden in prosecutions relating to tippees, in relation to lack of civil remedies or the definition of price-sensitive information, insiders and tippees; in all these matters this is a weak Bill which might have been all right in the 1960s but which after the debate of the last 15 years, is unsatisfactory on insider dealings generally. As my noble friend suggested, it is not only a Bill which is out of date by modern standards of the debate on insider trading; it has failed to take the opportunity to deal with a new form of insider trading which threatens the heart of British industry. My right honourable and honourable friends in another place raised this issue with the Government on the Committee and Report stages. The Minister at one point (on 22nd February, at col. 1419 of Hansard) took the matter very seriously. He said: we shall be legislating fairly regularly on company law. That will include next Session and, I am sure, the Session after that. There will be opportunities therefore, and these problems will be dealt with. But by the Session after next large parts of the heart of British industry may be owned abroad. If there is no risk of ownership from abroad why did the Government insist on putting an article into the now incorporated British Aerospace Limited'? They conveniently placed a copy of this article in the Library on 6th February. This article will form part of the standard articles of British Aerospace Limited, which will become a private company because of the Government's dogmatic denationalisation of industry, and will prevent British Aerospace from being owned by anyone other than United Kingdom interests in terms of its control. They have an admirably drafted article. I read it and my heart went out to the hours that the draftsman must have spent on it. It is an admirable article. But what is good for British Aerospace is also good for a large number of other British companies. What the Government should have done is not only put before the House an updated provision on insider dealing of the traditional kind; they should have done for a number of other British companies what they have done for British Aerospace; and, not having done it, the Government and the country may live to regret their failure.


My Lords, briefly, may I support the noble Lord's amendments and congratulate the Government that they have recognised the great public concern about insider dealing matters and that self-regulation is not enough. That is a view which has been widely held in the City, in industry and in commerce for a long time. My fear is that these prodecures which the Government have set up will be extremely difficult to enable a conviction to be obtained. They have set up so many hurdles to be overcome in the prosecution that it would be difficult to persuade the Director of Public Prosecutions that a conviction should be sought. Your Lordships know that the DPP (as he is affectionately called) will not usually bring a case unless there is something like a 50 per cent. chance of success. In my view, the hurdles that have been introduced into this clause are too severe and these amendments should be allowed.


My Lords, I should like to deal first with the Amendments Nos. 215A, 215B and 215C; and, secondly, to make a brief remark arising out of the remarks on the Consolidated Goldfields case, which I do not believe bears on these amendments, and I do not think that the noble Lord thinks it does, either. He was kind enough to explain the purpose of it.

The purpose of the amendments, as we understand it, is to reverse the onus of proof so far as one element of the offences in subsections (6) and (7) of Amendment 215 is concerned. Subsection (6) prohibits insiders who are prohibited from dealing on a recognised stock exchange from counselling or procuring someone else to deal when they know or have reasonable cause to believe that the person would deal on a recognised stock exchange. As drafted, as the noble Lord said, it is for the prosecution to establish that the insider knew that or had reasonable cause to believe it. The noble Lord's amendment would mean that it was no longer for the prosecution to establish that the individual had such knowledge or had such reasonable cause for belief.

Perhaps I may depart from my brief for a second to say that the situation, if I understand it correctly—and I am speaking as a non-lawyer to lawyers—is that one would not expect, if after dinner one told a bishop a piece of information in confidence that he would immediately be dealing in the shares on a recognised stock exchange—at least, I would not anyway, and I might have a very confidential relationship. I give that only as an example. On the other hand, to complete the analogy, if I were dealing with someone with whom I was not very well acquainted, someone whose background I did not know but who worked somewhere in the City, then I would have considerable difficulty in not being convicted under this clause.

Instead, therefore, as we have this clause, once it has been established that the individual had been prohibited from dealing and had counselled or procured another person, it would be for the defence to raise and establish that the individual did not know, and did not have reasonable cause to believe, that the person might—not would—deal on a recognised stock exchange.

Similar issues arise in respect of subsection (7), which is concerned with the passing of inside information. The issues are the same and, if I may, I shall concentrate on subsection (6). The amendments therefore make the prosecution's job easier and place greater burdens on the defence. One is concerned here with a difficult and delicate balance. In principle, in offences it is right that the prosecution should have to prove guilt and that the accused should not have to establish his innocence: a man is presumed innocent until he is found guilty. But, where the unqualified application of that principle would make successful prosecutions impossible or undesirably difficult, the law sometimes relieves the prosecution of establishing all the elements, and leaves it open to the accused to establish a defence. Of course, that should only be done where it is really necessary, since the cardinal principle, as I have said, is innocence until guilt is proved.

The question in subsection (6) is this: is one placing too great a burden on the prosecution if they have to prove that the individual knew that a person would deal on a recognised stock exchange or had reasonable cause to believe that? It does not seem to me that this is too great a burden to place on the prosecution. The facts of the case would be there: a listed security which, by its very nature, has a ready market freely available for dealings on the stock exchange and the vast majority of deals taking place in all probability on the stock exchange. Those facts will serve to demonstrate clearly what was in mind. One should not overlook the fact that the test which the prosecution has to meet is proof of knowledge or proof of a reasonable cause for belief. The latter is an objective test and deals not with the subjective appreciation of that particular individual or of the particular situation. Rather it is an objective test of what a reasonable man would believe in all the circumstances.

We are anxious, and indeed determined, to provide firm and effective criminal sanctions against insider dealing, but equally they must be fair and balanced. I believe that the clause as drafted meets those criteria and I am therefore opposed to the changes proposed by the noble Lord. Of course, we are breaking new ground with this legislation and we shall closely watch its operation to ensure that it is fair and effective. If weaknesses emerge in practice we shall seek to remedy them; but I urge the House at this time to maintain the delicate balance on the terms presently set out in Amendment No. 215. I hope that in the light of what I have said the noble Lord will not press his amendment.

Perhaps I may now, for reasons of courtesy and also to make a comment from the Government, mention the Consolidated Goldfields case, which really would not be affected by these amendments at all. We accept that the circumstances surrounding the acquisition by Anglo-American of a 25 per cent. shareholding in Consolidated Goldfields raises a number of issues of legitimate concern both to the statutory and the non-statutory authorities. I believe that the Government could not have acted more rapidly in appointing Section 172 inspectors within 24 hours of the company approaching the department. The Stock Exchange and the Council for the Securities Industry subsequently set up their own inquiries. We can all speculate as to what happened in this case and what lessons we should draw. It would be wrong to come to conclusions or to rush into legislation when inquiries into the particular case are still in train. Those inquiries will be completed as rapidly as possible. We shall then all wish to consider the reports.

The Government for their part will certainly lose no time in considering what lessons are to be learned, including lessons for legislation. To have rushed into any legislation in this Bill within a week or two of the episode and without knowing exactly who has done what would have been absurd.

Noble Lords on the Opposition Benches appear to want it both ways. They criticised us for suggesting that we should leave certain matters and take time to examine current instances to make sure that we improved the position. However, when we adopt the course which they recommend they then want us to include measures to cover a case that is still under inquiry. I am referring mainly to Lord Wedderburn's support for the noble Lord, Lord Mishcon. I hope that the House will not accept thse amendments to Commons Amendment No. 215.


My Lords, the Minister has spoken with his usual courtesy and clarity. He believes that this matter could be re-examined in the light of experience. We believe that the prosecution's task is being made impossible but the Minister takes a different view. Let us see what experience we have; in those circumstances I shall not proceed with the amendment.

The Minister was kind enough to deal with my observations on Consolidated Goldfields. I appreciate that I was testing the patience of the House in regard to matters of order when I raised the matter, but I regarded it as essential. The quick observation I wish to make is that the Minister was not quite fair to say that one was pushing at a recent event and that the Government could not be expected to deal with this in connection with insider dealings. We have all known, ever since exchange control regulations were lifted, that there was a possibility of transfers of shares being made without the old certificate being giventhat they were not transfers outside the sterling area. That risk has been apparent to the Government ever since they decided to lift those regulations. However, I must not take that point any further. We have all heard what the Minister has said, and can only hope that some steps will be tak,:n at a fairly early date to deal with what is obviously a most serious matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 215B, 215C and 215D not moved.]