§ 7.40 p.m.
§ Lord Cockfield rose to move that the draft regulations laid before the House on 30th June be approved.
§ The noble Lord said: My Lords, in 1977 the Council of the European Communities issued a directive on credit institutions requiring Community members to introduce a system of authorisation. The directive was subsequently implemented for banks and other deposit-taking businesses by the Banking Act 1979, but at that time application of the directive to building 733 societies was deferred. The present regulations, which are made under the European Communities Act 1972, now apply the directive to building societies. The regulations before your Lordships implement the directive through the introduction of a scheme of authorisation. The regulations have been drafted to correspond as closely as possible to existing legislation on building societies as set out in the Building Societies Act 1962.
§ The main features of the proposed scheme of authorisation are as follows; first, the regulations will prohibit building societies from taking in funds or borrowing money unless they are authorised to do so. Secondly, a new building society will be granted authorisation only if the chief registrar is satisfied on two points: first, that the society has adequate reserves or, if the society has had inadequate time to accumulate reserves, then at least an adequate level of deferred shares which are funds which cannot be withdrawn until a sufficient level of reserves has been accumulated; and secondly, that there are at least two individuals of sufficiently good repute and experience who effectively direct the business of the society.
§ The third main feature is that existing building societies will not need to demonstrate that they fulfil the conditions for new societies provided that they are empowered to carry on business on the day on which the regulations come into force. They will receive authorisation automatically. They will however be liable after a period of 18 months to have authorisation revoked for non-compliance with those conditions. Authorisation could be revoked for an existing building society any time from the date of implementation of the regulations on any of the other grounds set out in the regulations.
§ Decisions by the chief registrar to refuse an application for authorisation or to revoke authorisation will be subject to Treasury consent. Societies may appeal to the courts on any question of law arising from any decision of the chief registrar. The Joint Committee on Statutory Instruments have examined these regulations. The Committee's 28th report draws the special attention of your Lordships to the discretion which the Chief Registrar of Friendly Societies will enjoy under Regulation 7(b)(ii). This requires that the chief registrar must be satisfied that a building society is effectively directed by individuals who "are of sufficiently good repute and sufficient experience to perform their duties".
§ Such discretion is inevitable if the chief registrar is to give proper effect to the requirements of the directive. The words sufficiently good repute" and "sufficient experience" are indeed taken from the wording of the directive itself. The discretion thus conferred is no wider than the chief registrar enjoys already under various provisions of the Building Societies Act 1962. The Government are confident that the Chief Registrar will use this discretion with wisdom and care.
§ Perhaps I should say that there have been detailed consultations with the Building Societies Association who are broadly content with the form of the regulations and the proposed scheme of authorisation. The regulations come into force on 1st December 1981 and they discharge our obligation to implement for building societies the EEC directive on credit institutions. 734 I beg to move.
§ Moved, That the draft regulations laid before the House on 30th June be approved.—(Lord Cockfield.)
§ 7.45 p.m.
Lord Bruce of Donington
My Lords, the House will be grateful to the noble Lord for having moved the Motion standing in his name. With the broad general content of the proposed regulation we have but a few matters in which we would like to dissent. The regulation is brought on the basis of the EEC Directive No. 77/780 dated 12th December. Your Lordships will note that Article 14 of the directive states:Member states shall bring into force the measures necessary to comply with this directive within 24 months of its notification and forthwith inform the Commission thereof".I am therefore bound to inform your Lordships that of course the regulation itself is already out of time. It ought to have been put in to come into operation by 12th December 1979, which is two years after the directive itself.
I do not make any particular complaint about that. In general Her Majesty's Government under both Administrations have been very punctilious in the execution of the matters that are carried in the other place and in this House in order to conform with EEC directives. In fact, I would say that in this respect the United Kingdom has probably a better record than any other country in the Community for being prompt in carrying out the various directives.
The regulation itself effects a number of amendments to various Acts, including the Building Societies Act 1962, the Prevention of Fraud Investment Act 1939, the Prevention of Fraud Investment Act 1958, and the Building Societies Act 1960. I mention that because a directive of course lays an obligation on the member states not to carry out meticulously the actual provisions of the directive but to effect legislation which accomplishes the aims that are set forward in the directive. We had the same kind of thing, as your Lordships will recall, in the case of the recent Companies Bill, now a Companies Act, that was before your Lordships and which sought to conform with the provisions of the appropriate EEC directive. The difference then was that it became necessary to amend the Companies Act 1948, the Companies Act 1967, and the Companies Act 1976, and precisely because it was necessary to amend those various Acts it was decided to bring forward a Bill in your Lordships' House in order that this could be accomplished.
The advantage of bringing a Bill forward is that it enables Members of another place and Members of your Lordships' House to debate the various matters in detail and indeed to dissent in detail and to bring forward amendments. The disadvantage of bringing forward regulations to accomplish the same kind of thing is that of course your Lordships are not enabled to move amendments to the regulation as proposed; they are only either able to accept it or reject it. I am not at all sure that in this particular case the choice of issuing a regulation was the correct thing to do. There might be quite a number of the regulations as set forward to which amendment might conveniently have taken place according to the views of the several Members of your Lordships' House and perhaps to their political persuasions. But in bringing forward 735 a regulation, of course, this opportunity is denied them. They either have to accept the regulation as a whole or reject it as a whole.
I should not like this case to be taken as a precedent because the regulations comprise quite a small measure and I do not think any Government of whatever political complexion—particularly when the drive for the legislation originates from overseas, or from within the EEC as the case may be—should automatically do it in this way. In other words, very great care should be exercised by whatever Administration in deciding whether to bring forward a Bill to accomplish the purpose of the directive or to introduce regulations. On this occasion the Government have decided to bring forward regulations. I observe that according to the proceedings of the joint committee, they have sought the advice of the Building Societies Association and that in broad general terms they approve. It might have been wise to have consulted the Consumers' Association as well. After all, it is not only the building societies that are concerned; it is the public at large.
The regulation is brought under Section 2(2) and Schedule 2 of the European Communities Act 1972. On reference to Section 2(2) it is clear that the Government have full authority to bring forward a regulation, but always subject to the provisions in Schedule 2. It would seem—and I have taken advice on this—that the existing draft regulation is ultra vires in that it does not comply with the provisions of Schedule 2 to that Act, paragraph (1)(d) of which does not give power to any Minister to make a regulation which createsany new criminal offence punishable with imprisonment for more than two years or punishable, on summary conviction, with imprisonment for more than three months, or with a fine of more than £400, if not calculated on a daily basis, or with a fine of more than £5 per day".Therefore, if there is any power in the draft regulations that goes against that provision in Schedule 2, then clearly the Minister has no power to do it. I would draw attention to Regulation 13 of the draft regulations and in particular to subsection (4)(b) which says:A person guilty of an offence under paragraph (2) or (3) above"—I shall come to that in a moment—shall be liable:Those penalties exceed those set out in Schedule (2)(1)(d) of the European Communities Act, and therefore the Minister has no power to do it. Moreover, one sees from Regulation 12(3), to which paragraph (4) particularly refers, that the offences created in respect of a breach of the requirement by the registrar to obtain information, among other things—and I refer to subsection (3)(d)—
- (a) on summary conviction, to a fine not exceeding the statutory maximum; or
- (b) on conviction or indictment, to imprisonment for a term not exceeding two years, or to a fine, or both".for the purpose of enabling the Chief Registrar to fulfil a Community obligationis quite clearly a new criminal offence, one which certainly did not exist under the Building Societies Act 1962 and, being a new offence, it comes immediately within the provisions of subsection (1)(d) of Schedule 2. It is, therefore, my respectful submission that the Minister has no power to do what he is seeking to do in Regulation 13, in particular in paragraph 4(b), which is 736 clearly in excess of what is prescribed in Schedule 2, to which I referred.
This is of course an error which can speedily be corrected because the regulation is not due to come into operation until 1st December 1981, as is stated on the face of the regulations, so there is time for the Government to examine the matter and re-submit it, I suggest when Parliament resumes in October. Clearly, it would be wrong to allow this to go through now because it is ultra vires. As I say, as to the general purport of the Bill—subject to the observations I have made about the desirability of introducing a Bill as distinct from regulations—we have no particular dissent. But the price of liberty is eternal vigilance and your Lordships' House has a right and duty to pay detailed attention to these matters and, in the circumstances, I suggest the Minister withdraws this regulation and, after taking legal advice, re-submits it in the new Session, when I assure him we shall give it a fair wind.
§ 7.57 p.m.
§ Lord Cockfield
My Lords, the noble Lord, Lord Bruce, raised a large number of points and I will take them in sequence. He said the directive was made in 1977 and, as he rightly said, it provided a period of 24 months for compliance. However, in Article 2(5) and 2(6) there is provision for an extension of that period to five years. Mr. Denzil Davies announced in another place in May 1978 that the implementation of the directive in relation to building societies would be deferred. He said:Such deferment is for a period of not more than five years in the first instance, which would take us until 1982 … The Government have therefore decided to defer the application of the directive to both building societies and trustee savings banks and the Commission is being notified accordingly".It is in pursuance of what Mr. Denzil Davies said that we are now proceeding at this time.
The noble Lord, Lord Bruce, raised a very important point, namely whether this should be done by way of regulation or by primary legislation. Obviously, this is a point to which one should always pay great attention. We gave it much consideration before deciding to pursue the present route. The Building Societies Act 1962 is, we believe, an extremely good Act and its provisions are effective and, broadly speaking, up-to-date, and we did not feel that at this time it would be right to ask Parliament to embark on legislation which went much beyond the scope of the European directive. If I may say so, your Lordships will be very conscious of the fact, to which Mr. Denzil Davies drew attention, of pressure upon parliamentary time, and rather than have a Bill which covered a very large range of subjects, we decided to proceed solely on the basis of the requirement in the directive.
The noble Lord also raised the question of consultation with the Consumers' Association and with the public at large. In general all Governments—it was true of the previous Government, and it is true of the present Government—consult as widely as they can on legislation of general importance. But looking at these regulations, as opposed to looking at an entirely new building societies Bill, we felt that they were of too technical a nature to warrant widespread consultations.
737 I should now like to come to the very important and erudite point of whether or not the penalties provided in the regulations are ultra or intra vires. We have in fact taken legal advice on this question, and the legal advice is absolutely clear; that the regulations are intra vires. As a result of the noble Lord's courtesy in informing me in advance of this somewhat difficult legal point, I have spent virtually an hour in your Lordships' Library reading the relevant statutes. It so happens that Schedule 2 to the European Communities Act 1972, to which the noble Lord referred, is drafted almost in the form of a double negative. It states that the powers conferred by Section 2(2) shall not include certain powers. They may include any powers, but not the powers specified under heads (a), (b), (c) and (d). One of the things specified as not being permissible is a new criminal offence punishable with imprisonment for more than two years; that is, in effect, punishable on indictment. The paragraph then goes on to deal with summary convictions, which I do not think we need worry about in this connection because there is no dispute over them.
Therefore the position in law is that Schedule 2 prohibits the regulations from creating a criminal offence which is punishable with imprisonment for more than two years, but it does not impose any other limitation on the punishment which may be awarded on indictment. That is not uncommon. Not uncommonly, on indictment there is an alternative of a fine without limit, or both a fine and imprisonment; and because Schedule 2 does not prohibit it, it is therefore intra vires for the regulations to proceed on the basis on which they have proceeded.
We have taken this point very seriously indeed. We have had legal advice on it. I am myself satisfied that the legal advice is correct. The regulations were of course examined by the joint committee, which did not raise this point, though it raised another point on the width of the discretionary powers. I hope that the noble Lord will be prepared to accept the assurance I give him that our legal advice on this point is absolutely clear.
Lord Bruce of Donington
My Lords, it would be a very bold chartered accountant who would dream of arguing with a barrister of 39 years' standing, and I approach your Lordships' House with all the humility that is appropriate to my professional position. When I made inquiries—as the noble Lord would expect I should—I was informed that the Select Committee had not addressed itself to the consideration of whether or not the regulation was intra vires, and in fact was tendered no legal advice on this particular aspect of the matter. I have taken legal advice on the construction of both the regulations, in particular Regulation 13(4), and paragraph 1(1)(d) of Schedule 2 to the European Communities Act, and my legal advice is contrary to that which has been put by the noble Lord, which of course places me in some difficulty.
I should be reluctant to enter into legal confrontation with the noble Lord opposite on a matter of this kind, which quite clearly falls within his own profession, but I am bound to say that I have myself had legal advice on it, and the legal advisers might be in conflict. On the face of it, and despite the noble Lord's researches 738 in the Library and his consequent conclusions, I remain persuaded that I am quite right in saying that Regulation 13(4) in fact creates a new offence, and that the offence puts the matter beyond the reach of paragraph 1(1)(d) of Schedule 2, and that therefore it is ultra vires.
I do not know how your Lordships would be prepared to deal with a question of this kind, which is raised in no spirit of party rancour, or even with the idea of making a funny point for the pure cleverness of it. I am a little uneasy about the whole thing. On mature reflection, and taking even possibly higher legal authority than might have been at the disposal of both the noble Lord and myself, perhaps a different conclusion would be arrived at. I would say at the very least—I put this to the noble Lord—that it is a matter of some ambiguity, which ought to be resolved, because nobody wants to have a regulation that is in fact ultra vires. Therefore I remain of the suggestion that perhaps it would be advisable—the noble Lord ought to consider this—that the matter be referred back to the Government's legal advisers, or, if necessary, referred to even higher legal advice than has been given, if indeed that is possible. We on this side ought to be given the opportunity of taking legal advice, too. After such amendments as might be necessary to make the regulation conform, we on this side of the House would give it a very fair wind. The dictates of caution might suggest that it might be wise to withdraw it tonight and bring it back in October. That would give adequate time for the regulations to be put into operation by 1st December, and it would not take more than 10 minutes of your Lordships' time. I make that suggestion as a constructive one, and I sincerely hope that the noble Lord will find himself able to agree with me.
§ 8.9 p.m.
§ Lord Cockfield
My Lords, I do not know whether I require permission to speak again, but if I do, may I ask for it? We are ourselves quite clear that the regulation is intra vires. Indeed, it would be remarkable if it were not intra vires in the sense that on indictment it is customary for there to be a limited term of imprisonment—two years is a very common term for a breach of this kind of obligation—and for that to be backed by an unlimited fine, or to have both. These powers, however, are given not to courts of summary jurisdiction, but to the higher courts, where it is thought that powers of that kind are quite appropriate. I say that it would be remarkable if it were not possible to do that. If the noble Lord were right—and I do not accept that he is—it would mean that every regulation made under the terms of the 1972 Act would fall foul of the particular argument that he puts forward.
I accept that the way Schedule 2 is drafted is a convoluted one, but that is not at all unusual in legal matters. I do not say it is done to prevent those who are not lawyers from understanding it, but that is very often the unfortunate effect. However, the broad legal principle is that what is not prohibited in a power is permitted, and what is prohibited here is any new criminal offence punishable with imprisonment for more than two years. That, the regulation does not in fact infringe.
Obviously I should like to dispose of this matter now 739 if we possibly could. Clearly to have a Division on what in fact is a legal argument is not the correct way to resolve matters of this sort. A Division is the appropriate procedure if there is a difference of opinion on matters of principle or indeed on matters falling short of principle. But when one comes on to pure question of law, as this one is, I do not think a Division is the right way to resolve it. If the noble Lord wishes to press his objection I think it leaves me with no alternative but to take the regulation away. I hope he does not do that, but if he does, then I do not want to press matters to an extreme. I would ask him whether he is prepared to give one moment's further thought to what I have said on this matter.
§ Lord Airedale
My Lords, if the regulations do not come into operation until next December, it does not seem to me to be absolutely essential and urgent that this Motion should be agreed to this evening.
§ 8.12 p. m.
Lord Bruce of Donington
My Lords, with your Lordships' leave, I accept immediately what the noble Lord has said and I must say he has approached the whole question with the utmost generosity of spirit, which I greatly appreciate. However, he said that paragraph 1(1)(d) of Schedule 2 had perhaps been unfortunately drawn. I do not want to make too much of the point, but of course when important measures of this kind are passed through both Houses almost under the guillotine, errors of this kind are likely to arise. I do not reproach the noble Lord for that, because he was not a Member of your Lordships' House at that time. Had he been here perhaps we should have had even greater vigilance on his part—the same kind of vigilance as we have had today.
I am most reluctant to press the noble Lord on this point, but I am still not satisfied and I do not see that any harm would be done by allowing it to remain over, on the basis that, as I say, we will give it a fair wind and it is not going to come into operation until 1st December 1981. I therefore have to press the noble Lord. I do it with some reluctance because he has been extremely pleasant in his reception of the objections I have made, but I am quite sure that if he were in my position, knowing his temperament and the way he goes about things, he would have done exactly the same. So I hope that he will not take it amiss and I hope also that the House will bear with me if I do have to press him on this matter.
§ Lord Cockfield
My Lords, so far as the comment made by the noble Lord, Lord Airedale, is concerned, of course the shorter the period that is allowed for the administrative arrangements to be made, the greater the practical difficulties that arise. I do not put it any higher than that. The reason we set the 1st December as the date was that we felt it was not unreasonable to give people, say, the best part of six months in order to get their affairs in line with the requirements under the directive; but in view of what the noble Lord, Lord Bruce of Donington, says, I beg leave to withdraw the Motion.
§ Motion, by leave, withdrawn.